<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                   FORM 10-K
   FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

(Mark One)
[X]  Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934 for the fiscal year ended December 31, 1999; or

[_]  Transition Report pursuant to Section 13 or 15 (d) of the Securities
     Exchange Act of 1934 for the transition period from ________________ to
     ________________.

                        Commission file number 0-22667


                        TSI International Software Ltd.
                        -------------------------------
            (Exact Name of Registrant as Specified in its Charter)

            Delaware                                     06-1132156
            --------                                     ----------
  (State or Other Jurisdiction              (I.R.S. Employer Identification No.)
of Incorporation or Organization)

            45 Danbury Road                                 06897
            ---------------                                 -----
          Wilton, Connecticut                             (Zip Code)
          -------------------
(Adress of Principal Executive Offices)

                                (203) 761-8600
                                --------------
              Registrant's Telephone Number, Including Area Code
                           _________________________

       Securities Registered Pursuant to Section 12(b) of the Act:  NONE

 Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, par
                              value $.01 per share

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

            Yes  X      No [__]
               -----

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.

     The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant as of February 23, 2000 was approximately
$2,323,201,286 based upon $82 per share, the last reported sale price of the
Common Stock on the Nasdaq National Market on that date. As of February 23,
2000, there were 28,331,723 shares of the Registrant's Common Stock outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

  None
<PAGE>

                       TSI INTERNATIONAL SOFTWARE LTD.

                          Annual Report on Form 10-K
                  For the Fiscal Year Ended December 31, 1999

                               TABLE OF CONTENTS

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                                                              PART 1
Item 1.       Business........................................................................................................    3
Item 2.       Properties......................................................................................................   15
Item 3.       Legal Proceedings...............................................................................................   15
Item 4.       Submission of Matters to a Vote of Security Holders.............................................................   15

                                                              PART II

Item 5.       Market of Registrant's Common Equity and Related Stockholder Matters............................................   16
Item 6.       Selected Financial Data.........................................................................................   18
Item 7.       Management's Discussion and Analysis of Financial Condition and Results of Operations...........................   19
Item 7A.      Quantitative and Qualitative Disclosures About Market Risk .....................................................   34
Item 8.       Financial Statements and Supplementary Data.....................................................................   34
Item 9.       Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................   34

                                                             PART III

Item 10.      Directors and Executive Officers of the Registrant..............................................................   34
Item 11.      Executive Compensation..........................................................................................   38
Item 12.      Security Ownership of Certain Beneficial Owners and Management..................................................   42
Item 13.      Certain Relationships and Related Transactions..................................................................   45

                                                              PART IV

Item 14       Exhibits, Financial Statement Schedules and Reports on Form 8-K.................................................   45

Signatures....................................................................................................................   47
</TABLE>

TSI Software, the TSI Software logo, Mercator, Trading Partner, OnCall and
KEY/MASTER are registered trademarks, and Mercator for R/3, Trading Partner PC,
Trading Partner PC/32 and OnCall*EDI are trademarks of TSI International
Software Ltd. This Report also contains trademarks and trade names of other
companies.

                                       2
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                                    PART I

Forward-Looking Information

     This report contains certain forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934 as amended, and Section
27A of the Securities Act of 1933, as amended, that involve risks and
uncertainties. When used in this filing words such as "anticipate," "believe,"
"estimate," "expect," future," intend," "plan," and similar expressions as they
relate to TSI Software are included to identify forward-looking statements. Our
actual results may differ significantly from the results discussed in the
forward-looking statements as a result of certain factors including those set
forth under "Factors That May Affect Future Results" and elsewhere in this
document.

ITEM 1.  Business

     TSI International Software Ltd. (TSI Software), is a leading provider of
software that enables companies to transform their business into an electronic
business or e-business, using the Internet and corporate networks. An essential
requirement for e-business is seamless integration of electronic transactions
and computer applications across diverse enterprise landscapes that include
back-office systems, Web applications, traditional electronic commerce
applications, electronic marketplaces and electronics exchanges. Our Mercator E-
Business Integration Broker software provides the glue needed for seamless e-
business integration. Mercator products eliminate the major hurdles associated
with integrating complex applications and transactions by resolving fundamental
incompatibilities in data formats and semantics. Mercator integration software
provides a single, standards-based architecture that can be applied to all e-
business integration requirements, including business-to-business, consumer-to-
business, and internal application-to-application integration.

     Using Mercator integration software, customers in every industry can
significantly reduce the cost and risk of deploying their e-business
applications, accelerate e-business benefits, and respond rapidly to changing
business requirements. Third party customers, including Internet market makers,
channel masters, group purchasing organizations and application service
providers, can shorten the time-to-market for new e-business initiatives and
provide clear competitive advantages in being able to rapidly integrate their
offerings with their customer's applications.

     In November 1998, TSI Software acquired certain assets of Software
Consulting Partners, a consulting firm with expertise in the implementation of
enterprise resource planning systems, for approximately $5.5 million. The
transaction was accounted for under the purchase method of accounting and the
excess purchase price is being amortized over a three-year period.

     In March 1999, TSI Software acquired Braid Group Ltd, a leading provider of
integration software products for straight-through processing of financial
transactions in the international banking and securities markets. TSI Software
purchased all of the outstanding capital stock of Braid for approximately $110.2
million, excluding approximately $20 million of contingent consideration to be
paid upon the achievement of certain criteria. The purchase price included $30
million in cash, 2,207,258 shares of TSI Software's common stock and the
issuance of 434,622 stock options. The transaction was accounted for under the
purchase method of accounting and the excess purchase price is being amortized
over a five-year period.

     In September 1999, TSI Software acquired Novera Software Inc., a developer
of Web application integration solutions. TSI Software purchased all of the
outstanding shares of capital stock of Novera for approximately $58.2 million,
which included the issuance of 1,789,916 shares of TSI Software's common stock
and the issuance of 369,142 stock options. The transaction was accounted for
under the purchase method of accounting and the excess purchase price is being
amortized over a three-year period.

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     TSI International Software Ltd. was originally incorporated in Connecticut
in 1985 and reincorporated in Delaware in 1993. TSI Software maintains its
principal executive offices at 45 Danbury Road, Wilton, Connecticut 06897, and
its telephone number is (203) 761-8600.

Industry Background

     The Internet has enabled a fundamental change in how business is conducted.
With the Internet, new models for conducting business, known as e-business, are
now being implemented in all industries based on sharing critical business
information in real-time among customers, suppliers and other partners.
Transforming a company's business operations to an e-business is a strategic
imperative of every major company in every industry.

     The potential benefits of implementing collaborative e-business systems
based on Internet technology are significant. They include:

          .    Rapid expansion of market share through the global reach and
               pervasiveness of the Internet;
          .    Becoming the low-cost provider through implementation of business
               processes that are fully integrated across demand and supply
               chains;
          .    Being first-to-market with new Internet-based product and
               services offerings.

     In order for companies to realize these benefits, the information content
of e-business solutions must be fully integrated with, and fully comprehended
by, the rest of the business. Efficiencies and competitive advantages from e-
business are only possible though the seamless flow of information among
customers, suppliers and other partners and the core business systems that form
the backbone of a company's operation.

     Orders received from customers over the Internet, for example, need to be
converted to transactions that can be fully understood by the back-office
systems that manage inventory in order to confirm product availability. Back-
office systems, including packaged enterprise resource planning applications,
legacy systems, databases and data warehouses must also be integrated to assure
rapid turnaround of e-business transactions and assure consistency of
information across application boundaries. Finally, integration of e-business
transactions with suppliers, with all transaction content and meaning understood
by both parties, is required to speed delivery, minimize shipping errors and
reduce inventory costs.

     Implementation of e-business initiatives is placing a significant and
unplanned-for burden on the information technology resources responsible for
integrating e-business into a company's overall information technology
architecture.  Electronic business applications introduce new, more demanding
requirements in terms of scalability, performance and real-time interaction that
need to be reconciled with existing architectures.  Electronic business
applications also introduce new transaction formats, such as XML, that need to
be accommodated by existing applications.  In addition, companies must also
integrate transactions that use older e-business standards, such as EDS, with
their existing systems.  Compounding the integration problem is the enormous
diversity in operating platforms, applications, databases and networks within
information technology organizations, all of which needs to be included in end-
to-end e-business solutions.

     The requirement to integrate e-business initiatives across extended
enterprises that include, customers, suppliers and other partners, has created
strong demand for software that can help automate the deployment of integration
solutions.  By automating the integration process, customers will be able to
accelerate their transformation to e-business, by minimizing the time, effort
and risk of bringing new e-business systems on line.  Electronic business
integration software to support these needs is now viewed as essential for e-
business success, representing a major opportunity for TSI Software.

     Customer demand for integration software is strong across a broad range of
e-business integration requirements. These include:

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          .    Integration of core business systems with business-to-business
               transactions, including Web-based transactions, connection to
               electronic markplaces and exchanges, electronic data interchange
               over private networks, and proprietary e-commerce connections to
               major partners.

          .    Integration of customer-facing e-business applications with core
               business systems, including Web-based consumer-to-business
               applications, Web servers, and thick client applications based on
               Web standards.

          .    Integration of core business systems throughout the enterprise,
               including packaged applications, legacy systems, databases and
               data warehouses.

     These requirements go beyond simply "Web-enabling" existing systems and as
a result, have significantly raised the bar in terms of the capabilities
required by an integration solution. Simply put; new e-business initiatives must
work well with their existing systems, providing seamless, near real-time
transaction flows among all applications. Today, customers require integration
software that can enable rapid, cost-effective implementation of scalable, high-
performance e-business solutions in complex technology environments, solutions
that also leverage the significant investments made in existing information
technology architectures. Essential capabilities of e-business integration
software to meet this expanded need include:

          .    Support for all tasks associated with creating end-to-end
               integration solutions, from integration workflow design to
               solution deployment and management.
          .    High levels of automation that generate significant reductions in
               information technology resources needed to implement end-to-end
               integration solutions.
          .    Complete elimination of custom programming for integrating
               business content across application boundaries.
          .    Graphical specifications of integration rules and business logic
               to speed implementation and enable rapid response to changes in
               business objectives and technology.
          .    Native support for all Web-based and traditional e-business
               application and transaction standards.
          .    Seamless integration with and message routing across, all systems
               for message and data transport including message software,
               transaction monitors, and all public and private networks.
          .    Superior performance and scalability for both Web-based and
               traditional e-business transactions across the enterprise.
          .    Comprehensive management of the run-time integration environment,
               including real-time and event-driven transaction management.

     Perhaps most important, generating significant reductions in the time and
effort to achieve seamless integration is only possible with technology that is
able to automate the most difficult aspect of integration, namely resolving the
fundamental differences in the meaning, structure and content of each
application. Without technology that is able to identify, comprehend, and codify
the unique semantics that are an integral part of every application interface or
transaction format, beyond the information provided in a standard file format,
customers can only resolve these fundamental differences by writing custom
programs.

     Current e-business integration offerings address only a portion of these
integration requirements.  None provide technology to resolve differences in
application content and semantics.  Most provide only a harness around which a
significant amount of programming must be written.  They include:

          .    Message-based integration tools that focus on data transformation
               and routing, and have their origin in the middleware or
               "plumbing" used to connect applications. Their integration
               capabilities were developed as extensions to the middleware
               itself and were not built for general-purpose use. As a result,
               these tools provide limited support for integration beyond the
               range of the middleware on which the tool is based, often forcing
               a centralized hub-based architecture on the overall integration
               design. Web integration is clearly an afterthought, with minimum
               support for native Web standards.

          .    Integration tools that require adherence to a fixed, top-down
               methodology, the end result of which is a technology framework or
               harness on which user-written code is hung. Basic

                                       5
<PAGE>

               technical-level connectivity is provided for applications outside
               the framework, but the integration of application content -- the
               most difficult integration task -- is left to the developer.
               These "framework" products typically have their origins in
               proprietary approaches to application development and have been
               optimized to work best when used with a proprietary architecture
               for data transport.

          .    XML-centric technology for parsing and transforming XML documents
               that provide little automated support for integration beyond XML.
               Programming is required whenever the integration requirement goes
               outside the XML box, including integration with existing e-
               commerce formats and application-to-application integration
               within the enterprise. These restrictions confine the use of XML-
               centric tools to a narrow set of e-business requirements.

          .    Loosely coupled, non-integrated technologies from vendors
               offering the promise of a one-stop shopping approach to e-
               business integration. These offerings are typically based
               components that are not best-of-breed, requiring users to
               compromise at critical steps along the integration path. These
               products provide no coherent support for end-to-end integration
               requirements, requiring use of separate interfaces for design,
               development, implementation and management.

     As a result, most e-business integration technology requires the addition
of substantial programming and technical resources in order to develop and
implement complete solutions. In addition, once built, the solutions that are
created require the use of separate systems for managing and controlling the e-
business operating environment. By providing best-of-breed capabilities that
reduce Information Technology resource requirements to develop and implement
complete solutions, and provide end-to-end e-business integration management,
Mercator E-Business Integration Broker software directly addresses the two most
time-consuming and costly areas in transforming a business to an e-business.

TSI Software's Solution

     TSI Software's is a leading provider of E-Business Integration Broker
software that addresses customer integration requirements at every stage of
their migration to e-business. We provide a complete software suite for
automating the design, development, implementation and management of end-to-end
e-business integration across business-to-business, consumer-to-business, and
internal application-to-application integration requirements.

     TSI Software's E-Business Integration Broker products provide a scalable,
standards-based integration solution that combines leading-edge technology for
Web application integration, powerful graphical technology for resolving
application semantics and integrating application content, and real-time
management controls to enable seamless integration of applications across the
extended enterprise, encompassing all commerce touch points.

     Mercator E-Business Broker software is a family of three products, all
built on a common architecture, that address three different market
requirements:

          .    Mercator Commerce Broker enables organizations to create seamless
               business-to-business interfaces between enterprise systems and
               all commerce touch points, including customers, suppliers and
               electronic marketplaces, across public and private networks.
          .    Mercator Enterprise Broker is an industrial-strength environment
               for building and executing scalable, event-driven solutions for
               application-to-application integration within the enterprise.
          .    Mercator Web Broker allows organizations to design, implement and
               manage consumer-to-business interfaces in high-performance
               environments by extending existing systems with customer-oriented
               Web interfaces.

     Because all E-Business Integration Broker products share a common
architecture, customers are able to apply the same integration power across all
e-business integration requirements. All products incorporate the same set of
rich graphical facilities for capturing and codifying the full semantic
description of application and transaction formats and transforming application
content without

                                       6
<PAGE>

custom programming. The same application and transaction definitions can be re-
used for internal and external integration. An extensive array of off-the-shelf
application, database and network adapters allows customers to fully leverage
their technology investments through support for all popular middleware for
messaging and data transport, major public and private networks, packaged
enterprise applications, and databases.

     Unlike other integration offerings, Mercator E-Business Integration
Broker products provide:

          .    Automated support for the entire spectrum of e-business
               integration requirements using a common architecture.
          .    Unique graphical capabilities that substantially reduce
               deployment time and cost and simplify maintenance.
          .    Elimination of custom programming for integrating application and
               transaction content, regardless of complexity.
          .    An open architecture that embraces all e-business standards.
          .    End-to-end management of e-business transactions across the
               enterprise.
          .    Scaleable real-time and event-driven operation in both
               centralized and decentralized e-business environments.

With Mercator E-Business Integration Broker products, customers are able to:

          .    Make significant reductions in the overall cost and risk
               associated with developing and maintaining e-business solutions.
          .    Reduce time-to-market for implementing e-business initiatives.
          .    Respond quickly to changing business requirements and technology
               innovations.
          .    Leverage the significant investments that have been made in
               existing technologies.

Strategy

     Our objective is to establish Mercator E-Business Integration Broker
software as the de facto standard for e-business integration broker technology.
Our major strategies for doing this are:

Leverage and expand our direct and indirect distribution channels

     TSI Software has a direct sales organization of over 80 quota-carrying
sales representatives focused on Global 2000 accounts in major worldwide
markets. In addition, we have over 100 MercatorWorld alliance partners,
including application software vendors, systems integrators, and other
technology providers who embed or resell our software with their own products
and services. Revenue from partners accounted for more than 30% of revenues for
the year ending December 31, 1999.

     Our partners extend our reach in multiple ways, and include companies in
the following categories:

          .    Application software vendors who embed our e-business
               transformation software in their own products.
          .    E-business solution providers, including Internet market makers,
               Global 2000 channel masters, group purchasing organizations and
               application service providers.
          .    Technology vendors who re-sell or recommend our software as part
               of their solutions.
          .    Systems integrators who re-sell or recommend our software in
               support of their solutions.

     We intend to leverage the size and geographic reach of our channels in
delivering enterprise-class integration software to the market as prime delivery
vehicles for our expanded e-business integration offerings.  In addition, we
plan to expand both our direct and indirect channels in response to increasing
market demand for e-business integration solutions.

Leverage our large base of enterprise customers

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     Today, our Mercator-based software products are at the heart of industrial-
strength application integration initiatives at over 1,500 enterprise-class
customers worldwide in all major industries.  Customers use our products to
integrate internal applications in support of e-business initiatives, integrate
packaged applications such as enterprise resource planning systems with legacy
systems, best-of-breed applications and databases to extend their reach within
the enterprise, integrate financial transaction processing with back-office
systems in banking and brokerage, and integrate existing systems with e-commerce
transactions from customers and suppliers.

     Our extensive cross-industry experience with major customers has provided
both the catalyst and proving-ground for development of industrial strength
capabilities that meet demanding requirements with respect to transaction
volumes, application and transaction complexities, industry standards, industry
regulations and other challenges. This experience has stretched and strengthened
our integration offerings, increasing product reliability and providing a
stronger base for further product expansion.

     As our existing customers migrate their business to an Internet-based
e-business model, we intend to leverage the success we have had in delivering
powerful, proven application-to-application integration technology to this
market through the extended e-business integration capabilities of our E-
Business Integration Broker products.

Leverage our expertise in fast-growing vertical markets

     Although our integration software has been used successfully across many
vertical markets, we have established a base of experience, domain knowledge and
a growing base of customers in vertical markets where e-business momentum is
strong, including the financial services and telecommunications industries.

     In the financial services market, our ability to address a broad range of
application integration requirements, including software for transaction
validation, reporting and management to facilitate straight through processing
and integration with all major financial networks, gives us competitive
advantage in international banking and brokerage markets.  Today, many companies
in financial services use our software for application-to-application
integration and straight through processing.

Extend our technology leadership

     TSI Software has been a market innovator in application integration. When
originally introduced to the market, our Mercator software established itself as
the leading software technology for transforming complex application and
transaction formats to enable seamless integration among applications without
the need to write programs to complete the integration task. Mercator was the
first integration product to provide graphical templates for defining and
managing transaction workflows in event-driven environments, was the first
product certified by SAP for integration of its enterprise resource planning
software with non-SAP applications, and was the first enterprise application
integration software to support double-byte character sets for the Asian market.

     Within three months of the acquisition of Braid Group, we introduced
Mercator FS (Financial Services), the first software product to combine
straight-through processing with enterprise application integration, allowing
banks and securities firms to benefit from seamless, end-to-end integration of
financial transactions across departments. With Novera, TSI Software acquired
the company that developed the first software product for integrating Web
applications with existing systems and the first company to provide real-time
management of Web application interfaces.

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  We will continue to invest in research and development to integrate our
Mercator software with new technologies to meet new and emerging customer
requirements for e-business integration.


Products

Mercator Commerce Broker

  Mercator Commerce Broker is a comprehensive, scaleable solution for
implementing real-time and event-driven business-to-business applications with
business partners using both Web-based and traditional e-commerce standards.
Mercator Commerce Broker allows customers to implement high-volume, mission-
critical business to business applications that are fully integrated with
existing systems across enterprises of any size in both distributed and
centralized business to business environments.  Web-based business to business
applications can be seamlessly integrated with existing systems through the use
of reusable business components.

  Mercator Commerce Broker provides powerful graphical integration technology
that allows customers to completely transform and route transactions between
applications without writing programs.  Off-the-shelf adapters are provided for
a broad range of electronic commerce formats including XML, EDI, S.W.I.F.T.,
HL7, and ACORD and for all major public and private networks including the
Internet, value-added networks, and financial gateways such as S.W.I.F.T.,
CREST, DTC and others.

  Mercator Commerce Broker also incorporates all of the capabilities of Mercator
Enterprise Broker and Mercator Web Broker.

Mercator Enterprise Broker

  Mercator Enterprise Broker is an industrial-strength platform for integrating
applications across the enterprise, including packaged applications for
enterprise resource planning and customer relationship management, legacy
systems, databases and data warehouses. Mercator Enterprise Broker provides a
rich set of capabilities for defining, building and executing scaleable, event-
driven integration solutions of any complexity in both centralized and
decentralized application environments. Integration solutions are completely
defined using a graphical model, eliminating the need for custom programming
regardless of application or transaction complexity.

  Mercator Enterprise Broker combines powerful software for transforming and
routing transactions with an extensive array of adapters for integrating
packaged applications from companies such as SAP, PeopleSoft, Oracle and others.
Mercator Enterprise Broker supports execution on all major platforms, native
integration with all major databases, and hand-in-glove operation with all
popular middleware for data transport including BEA MessageQ and Tuxedo, Candle
Roma, IBM MQSeries, Microsoft MQ, Oracle AQ and TIBCO Rendezvous.

Mercator Web Broker

  Mercator Web Broker is a comprehensive, scaleable solution for real-time
integration of e-business applications with existing systems, including packaged
applications, legacy systems and databases.  Through the use of reusable
business components, Mercator Web Broker allows customers to integrate any
customer-facing application developed using Web-based standards to existing
systems, including applications developed using XML, Enterprise Java Bean, Java
Beans, Java Server Pages, Java Servlets, Component Object Model or any
combination of these technologies.

  By creating reusable components, interfaces to existing systems can be shared
across multiple Web applications, Web application servers or thick clients,
reducing time-to-market for new e-business initiatives.  Mercator Web Broker
includes comprehensive application management facilities for end-to-

                                       9
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end control, tuning and visibility in high transaction environments, including
real-time event management, automatic load balancing, connection pooling,
centralized operational control using LDAP directory servers, and integration
with SNMP-enabled management systems.


Other Products

  TSI Software also licenses and supports:

     .    Trading Partner products for electronic data interchange using
          national and international standards, and BusinessLink products that
          support Business Community Integration for suppliers and customers
          using EDI standards.
     .    Gemini transaction matching software and Nimbus automated payments
          software for financial service customers.
     .    KEY/MASTER, a legacy data entry product for automating the key entry
          of high-volume repetitive data from business documents.

Services

  Professional Services. TSI Software offers consulting and professional
services to customers, who wish to have TSI Software's professionals plan,
design or implement their application integration projects, or provide
consulting or implementation assistance for system and e-business integration.
TSI Software has expanded the number of service professionals and the scope of
the services offered to address the resource needs of our customers.

  Training. In order to ensure that its customers are successful in using its
products, TSI Software provides training in its six training centers and at
customer locations.  TSI Software offers a number of courses ranging from two to
five days in length with educational content including basic product
functionality and hands-on use of products.  TSI Software recommends that its
Mercator customers attend a basic three-day training course and believes that a
majority of its Mercator customers elect to participate in such training.

Customers

  As of December 31, 1999, TSI Software had directly licensed its software to
approximately 12,000 customers worldwide.

  Numerous others have licensed TSI Software's products through value added
resellers, independent software vendors, systems integrators or other third
parties who distribute its products to business partners to facilitate the
integration of their respective business applications.  No one customer
accounted for more than 10% of TSI Software's sales in 1999, 1998 or 1997.

Sales and Marketing

  Sales. TSI Software markets its products and services through both direct and
third party channels.  TSI Software's goal is to achieve broad market
penetration by pursuing multiple channels of distribution.

  As of December 31, 1999, TSI Software's sales organization consisted of 123
domestic employees and 50 international employees.  TSI Software's direct field
sales force focuses on sales of Mercator products to Global 2000 companies.  TSI
Software also maintains as part of its direct sales force a telesales
organization, which generally targets smaller businesses and the desktop market.
The field sales force also includes alternate channel managers who are
responsible for sales through third parties.  The sales organization includes
systems engineers who assist with both pre- and post-sales activities.

                                       10
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  An important part of TSI Software's sales strategy is to continue to develop
its indirect distribution channels such as value added resellers, independent
software vendors and software integrators and distributors.  As of December 31,
1999, over 200 third parties had agreements with TSI Software to resell, embed
or otherwise bundle TSI Software's products with their offerings in the United
States. As of December 31, 1999, 23 salespeople were dedicated to the indirect
channel aspect of TSI Software's business.

  TSI Software markets its products and services outside of North America
through sales offices located in the United Kingdom, Germany, France, Australia
and Hong Kong as well as through indirect channels.  Revenues from international
sales offices were approximately 29.4% of TSI Software's total revenues during
1999 as compared to 11.8% in 1998.  The international market is important to TSI
Software, and it intends to continue to expand its sales and marketing efforts
outside North America by adding additional sales staff and distributors.

  Marketing. TSI Software utilizes a wide variety of marketing programs, which
are intended to attract potential customers and to promote TSI Software and its
brand names. TSI Software uses a mix of market research, analyst updates,
seminars, direct mail, print advertising, trade shows, speaking engagements,
public relations, customer newsletters and Web-site marketing in order to
achieve these goals. TSI Software hosts annual conferences for its customers and
partners, and provides a range of marketing programs, incentives and support
plans as part of its Mercator World alliance program. As of December 31, 1999,
there were 33 employees in TSI Software's marketing department, 23 located in
the United States and 10 located outside the United States. A majority of the
international employees are located in the United Kingdom.


Technology

  TSI Software's core Mercator E-Business Integration Broker technology provides
the platform for creating solutions which satisfy requirements for end-to-end
integration of all applications that drive business from the Web to the back
office to external business partners.

  The architecture of the Mercator platform is based on object concepts,
providing reusability, interoperability, and scalability during the design
process and in the resulting solutions.  The Mercator platform permits TSI
Software to efficiently construct and deliver integration solutions for specific
markets and also allows independent software vendors and system integrators to
embed Mercator functionality within their own offerings.

  The central components of the Mercator platform are a Windows-based design
studio for defining integration solutions and one or more integration servers
for executing the solutions created through the design process.

  Integration servers operate on more than 20 platforms including PC/Intel
(Windows 9x, Windows NT, SCO Open Server); IBM AS/400 (OS/400), IBM RS/6000
(AIX) and IBM Mainframe (MVS, CICS, UNIX); HP9000 (HP-UX); Siemens-
Nixdorf/Puramid (SINIX-Reliant); Sun SPARC (Solaris, OS); Digital Alpha (UNIX,
Windows NT, Open VMS) and VAX(VMS); and Stratus R5 (FTX , VOS).

  TSI Software provides adapters and importers, which interface to and from
specific databases, messaging systems, and applications, enabling connectivity
to a specific source or destination. Database adapters are currently available
for ODBC-compliant databases as well as Oracle7, Microsoft SQL Server, IBM DB2,
and Sybase. Messaging adapters are available for SAP's ALE, IBM's MQSeries,
Microsoft MSMQ, TIBCO Rendezvous, BEA MessageQ and Tuxedo, and Oracle AQ.
Importers are currently available for COBOL copybooks; database tables for ODBC-
compliant and Oracle7, Microsoft SQL Server, IBM DB2, and Sybase databases; SAP
R/3 interfaces including IDocs, BAPIs, DXOB, BDC, and XML. In addition, TSI
Software provides pre-packaged data objects for national and international
standards, including X12 EDI, EDIFACT, HL7 (for health care), and S.W.I.F.T.
(for banking and financial services).

                                      11

<PAGE>

Product Development

  Since inception, TSI Software has made substantial investments in research and
development through both internal development and technology acquisition as in
the purchase of Novera in September of 1999 and Braid in March of 1999.  TSI
Software expects that most of its new products and enhancements to existing
products and new products will be developed internally.  However, TSI Software
will evaluate on an ongoing basis externally developed technologies for
integration into its product lines.

  TSI Software expects that a substantial majority of its research and
development activities will be related to developing enhancements and extensions
to its Mercator E-Business Integration Broker products.  Following the
introduction of Mercator software, product development was initially driven by
demand for additional mapping functionality and support for additional execution
platforms.  Later, development focus shifted to automating Mercator support for
specific sources and destinations through an expanded set of adapters and
importers, and development of additional pre-packaged integration solutions for
specific markets. TSI Software also added a graphical management tool for cross
application process workflow to the core set of Mercator capabilities.  In 1999,
TSI Software enhanced the Mercator product family through the acquisition of
Novera's technology and the addition of increased Web based technology.

  TSI Software's products may be rendered obsolete if TSI Software fails to
anticipate or react to change.  Development of new products and enhancements to
existing products depends, in part, on the timing of releases of new versions of
applications systems by vendors, the introduction of new applications, systems
or computing platforms, the timing of changes in platforms, the release of new
standards or changes to existing standards, and changing customer requirements,
among other factors.  TSI Software may not be successful in developing and
marketing product enhancements or new products that respond to technological
change, evolving industry standards and changing customer requirements.
Furthermore, developed product enhancements or new products may not adequately
meet the requirements of the marketplace and achieve any significant degree of
market acceptance. TSI Software has in the past experienced delays in the
introduction of product enhancements and new products and may experience such
delays in the future. Furthermore, as the number of applications, systems and
platforms supported by TSI Software's products increases, TSI Software could
experience difficulties in developing on a timely basis product enhancements
which address the increased number of new versions of applications, systems or
platforms served by existing products. Failure of TSI Software, for any reason,
to develop and introduce product enhancements or new products in a timely and
cost-effective manner or to anticipate and respond adequately to changing market
conditions could cause customers to delay or decide against purchases of TSI
Software's products.

  As of December 31, 1999 there were 170 employees in TSI Software's research
and development organization; 105 located in the U.S. and 65 located in various
international locations, more than 60% of which were dedicated to the Mercator
family of products.  TSI Software's product development expenditures for 1999,
1998 and 1997 were $15.3 million, $5.7 million and $4.5 million, respectively.
TSI Software expects that it will continue to commit significant resources to
product development in the future.  To date, all product development
expenditures are expensed as incurred.

  The market for TSI Software's products and services is characterized by
extremely rapid technological change, frequent new product introductions and
enhancements, evolving industry standards, and rapidly changing customer
requirements.  The introduction of products incorporating new technologies and
the emergence of new industry standards could render existing products obsolete
and unmarketable.  TSI Software's future success will depend in part upon its
ability to anticipate changes, enhance its current products and develop and
introduce new products that keep pace with technological advancements and
address the increasingly sophisticated needs of its customers.


                                       12
<PAGE>

Customer Support

  TSI Software believes that a high level of customer service and support is
important to its success, and TSI Software provides a range of support services
to its customers.  TSI Software maintains product and technology experts on call
at all times and has support call centers located at its offices in Wilton,
Connecticut; Bannockburn, Illinois; and Boca Raton, Florida, in the United
States, and in its United Kingdom offices.  TSI Software has also implemented an
automated Company-wide help desk system to augment its customer support efforts.
This system allows for the optimization of TSI Software's resources and
knowledge base at all locations and offers the customer improved service through
a single point of contact.

Competition

  The market for TSI Software's products and services is extremely competitive
and subject to rapid change.  Because there are relatively low barriers to entry
in the software market, TSI Software has seen and will continue to encounter
additional competition from other established and emerging companies.  TSI
Software believes that the competitive factors affecting the market for TSI
Software's products and services include product functionality and features;
quality of professional services offerings; product quality, performance and
price; ease of product implementation; quality of customer support services;
customer training and documentation; and vendor and product reputation.  The
relative importance of each of these factors depends upon the specific customer
environment.  Although TSI Software believes that its products and services
currently compete favorably with respect to these factors, TSI Software may not
be able to maintain its competitive position against current and potential
competitors.

  In the e-business integration market, TSI Software's Mercator E-business
Integration products and related services also compete against solutions
developed internally by individual businesses to meet their specific business
integration requirements.  As a result, TSI Software must educate prospective
customers as to the advantages of TSI Software's products and services as
opposed to internally developed solutions, and be able to adequately educate
potential customers to the benefits provided by TSI Software's products and
services.

  In the electronic data interchange market, TSI Software's Trading Partner
products compete with products offered by companies offering proprietary value
added network services as part of their electronic data interchange solution,
and TSI Software's PC-based Trading Partner products also compete with PC-based
products offered by a number of other electronic data interchange software
vendors.

  Some of TSI Software's current and potential competitors have longer operating
histories, significantly greater financial, technical, product development and
marketing resources, greater name recognition and larger customer bases than TSI
Software.  TSI Software's present or future competitors may be able to develop
products comparable or superior to those offered by TSI Software, adapt more
quickly than TSI Software to new technologies, evolving industry trends or
customer requirements, or devote greater resources to the development, promotion
and sale of their products.  Accordingly, TSI Software may not be able to
compete effectively in its markets and competition could intensify or future
competition could have a material adverse effect on TSI Software's business.

  TSI Software expects that it will face increasing pricing pressures from its
current competitors and new market entrants.  TSI Software's competitors may
engage in pricing practices that reduce the average selling prices of TSI
Software's products and related services.  To offset declining average selling
prices, TSI Software believes that it must successfully introduce and sell new
products and enhancements to existing products on a timely basis which
incorporate features that can be sold at higher average selling prices.  To the
extent that new products and  enhancements to existing products are not
developed in a timely manner, do not achieve customer acceptance or do not
generate higher average selling prices, TSI Software's gross margins may
decline.

                                      13
<PAGE>

Proprietary Technology

  TSI Software's success depends upon its proprietary software technology.  TSI
Software does not currently have patents on the majority of its products and
relies principally on trade secret, copyright and trademark laws, nondisclosure
and other contractual agreements and technical measures to protect its
technology.  TSI Software also believes that factors such as the technological
and creative skills of its personnel, product enhancements and new product
developments are essential to establishing and maintaining a technology
leadership position.  TSI Software enters into confidentiality and/or license
agreements with its employees, distributors and customers, and limits access to
and distribution of its software documentation and other proprietary
information.  The steps taken by TSI Software may not be sufficient to prevent
misappropriation of its technology, and such protections do not preclude
competitors from developing products with functionality or features similar to
TSI Software's products.  Furthermore, it is possible that third parties will
independently develop competing technologies that are substantially equivalent
or superior to TSI Software's technologies.  In addition, effective copyright
and trade secret protection may be unavailable or limited in certain foreign
countries, which could pose additional risks of infringement as TSI Software
continues to expand internationally.  Any failure by or inability of TSI
Software to protect its proprietary technology could have a material adverse
effect on TSI Software's business.

  Although TSI Software does not believe its products infringe the proprietary
rights of any third parties, infringement claims could be asserted against TSI
Software or its customers in the future.  Furthermore, TSI Software may initiate
claims or litigation against third parties for infringement of TSI Software's
proprietary rights, or for purposes of establishing the validity of TSI
Software's proprietary rights.  Litigation, either as plaintiff or defendant,
would cause TSI Software to incur substantial costs and divert management
resources from productive tasks whether or not such litigation is resolved in
TSI Software's favor, which could have a material adverse effect on TSI
Software's business.  Parties making claims against TSI Software could secure
substantial damages, as well as injunctive or other equitable relief, which
could effectively block TSI Software's ability to license its products in the
United States or abroad.  Such a judgment could have a material adverse effect
on TSI Software's business. If it appears necessary or desirable, TSI Software
may seek licenses to intellectual property that it is allegedly infringing.
Licenses may not be obtainable on commercially reasonable terms, if at all. The
failure to obtain  necessary licenses or other rights could have a material
adverse effect on TSI Software's business.  As the number of software products
in the industry increases and the functionality of these products further
overlaps, TSI Software believes that software developers may become increasingly
subject to infringement claims.  Any such claims, with or without merit, can be
time-consuming and expensive to defend and could adversely affect TSI Software's
business.  TSI Software is not aware of any currently pending claims that TSI
Software's products, trademarks or other proprietary rights infringe upon the
proprietary rights of third parties.

Employees

  As of December 31, 1999, TSI Software had 626 employees, including 170 in
research and development, 123 in professional services, 61 in customer support,
173 in sales, 33 in marketing, and 66 in finance and administration; 440 of
these employees are in the United States with the remaining 186 in TSI
Software's international locations.  TSI Software's employees are not
represented by any union.  TSI believes that its relations with employees are
good.

  TSI Software's future success depends in large part on the continued service
of its key technical, professional services and sale personnel, as well as
senior management.  The loss of the services of any of one or more of TSI
Software's key employees could harm TSI Software's business. All employees are
employed at-will and TSI Software has no fixed-term employment agreements with
its employees. TSI Software's future success also depends on its ability to
attract, train and retain highly qualified sales, technical, professional
services and managerial personnel. An increase in TSI Software's sales staff is
required to expand both TSI Software's direct and indirect sales activities and
to achieve revenue growth. Competition for these personnel is intense; as such,
TSI Software has at times experienced and continues to experience difficulty in
recruiting qualified technical and sales personnel, and anticipates such
difficulties in the future. TSI Software, has in the past, experienced, and in
the future, expects to continue to experience a time lag between the date
technical, professional

                                       14
<PAGE>

services and sales personnel are hired and the date such personnel become fully
productive. If TSI Software is unable to hire and train on a timely basis and
subsequently retain such personnel in the future, this could have an adverse
affect on TSI Software's business.


ITEM 2.   PROPERTIES

  TSI Software's principal executive offices are located in Wilton, Connecticut,
and consist of approximately 25,000 square feet under a lease expiring January
30, 2004.  TSI Software also leases approximately 28,000 square feet in Boca
Raton, Florida, which is used primarily for research and development activities;
approximately 12,000 square feet in Bannockburn, Illinois, which is used
primarily for telesales, technical support and production activities; and
approximately 14,000 square feet in the United Kingdom, which is used primarily
for customer support and sales activities.  In addition, TSI Software also
leases small offices in the following locations: Canton, Michigan; Landover,
Maryland; Media, Pennsylvania; New York, New York; Wauwatosa, Wisconsin;
Frankfurt, Germany; Paris, France; Melbourne and Sydney, Australia; and
Singapore.  As a result of the acquisition of  Novera in September 1999, TSI
Software assumed additional leased space in Burlington, Massachusetts of
approximately 9,000 square feet and a small office in Iselin, New Jersey.


ITEM 3.   LEGAL PROCEEDINGS

  On or about February 1, 2000, the Company was named as a defendant and served
with a complaint in an action entitled Carpet Co-Op of America Association, Inc.
and FloorLINK, L.L.C. v. TSI International Software, Ltd., Civil Action
No. 00CC-000231, pending in the Circuit Court of St. Louis County, Missouri. The
complaint includes counts of breach of contract, fraud and negligent
misrepresentation in connection with certain software development work provided
under contract by the Company. The plaintiffs allege that the Company failed to
develop and provide certain software products within an alleged time requirement
and misrepresented the Company's ability to provide the products within that
timeframe. The complaint seeks an unspecified damage amount in excess of $2
million. The Company believes the allegations in the complaint to be without
merit and intends to contest them vigorously.


ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

   No matters were submitted to a vote of our shareholders during the quarter
ended December 31, 1999.

                                       15
<PAGE>

                                    PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     TSI Software's common stock is listed for trading on the Nasdaq National
Market (Symbol: TSFW, changed to MCTR on February 7, 2000). TSI Software's
common stock began trading on the Nasdaq National Market on July 2, 1997. Prior
to that time, there was no public market for TSI Software's common stock. The
following table sets forth for the fiscal periods indicated the high and low
reported sale prices for TSI Software's common stock as reported by the Nasdaq
National Market. The stock prices have been adjusted to reflect a two-for-one
stock split that occurred on April 5, 1999.

<TABLE>
<CAPTION>
                                                      Reported Sale Price
                                                      -------------------
                                                 High                     Low
                                                 ----                     ---
<S>                                             <C>                     <C>
1998
First Quarter.................................   9.313                    4.75
Second Quarter................................  12.375                    8.75
Third Quarter.................................  18.125                  10.563
Fourth Quarter................................   25.50                    8.50
1999
First Quarter.................................   32.00                   20.50
Second Quarter................................  28.875                   14.00
Third Quarter.................................   28.00                  16.875
Fourth Quarter................................   66.75                   22.00
2000
First Quarter*................................ 149.875                   47.00
</TABLE>

------------------------
* Through March 28, 2000

     The closing price for the common stock on the Nasdaq National Market on
February 23, 2000 was $82.00.

     There were approximately 158 holders of record of the common stock as of
February 23, 2000, although TSI Software believes that the number of beneficial
owners of its common stock exceeds this number.

     TSI Software has never paid cash dividends on its common stock and does not
anticipate the payment of cash dividends in the foreseeable future. TSI Software
currently anticipates that any future earnings will be retained to finance TSI
Software's operations.


Recent Sales of Unregistered Securities

     In September 1999 TSI Software agreed to acquire Novera Software, Inc.
pursuant to an Agreement and Plan of Reorganization between TSI Software and
Novera. Pursuant to the Agreement and Plan of Reorganization, TSI Software
issued 1,789,916 shares to the Novera shareholders in exchange for all of the
outstanding shares of Novera capital stock. The shares issued to the Novera
shareholders were issued in reliance on the exemptions for non-public offerings
provided by Rule 506 and section 4(2) of the Securities Act of 1933. These
shares constitute "restricted securities" under Rule 144 of the Securities Act
of 1933. The provisions of Rule 144 permit limited resale of "restricted
securities," subject to mandatory holding periods, volume limitations and other
restrictions.

     In March 1999 TSI Software agreed to acquire Braid Group LTD, pursuant to a
Stock Purchase Agreement by and among TSI Software and each of the stockholders
of Braid. Pursuant to the Stock Purchase Agreement,

                                       16
<PAGE>

TSI Software issued 2,207,258 shares to the Braid shareholders in exchange for
all of the outstanding shares of Braid capital stock. The shares issued to the
Braid shareholders were issued in reliance on the exemptions for non-public
offerings provided by Rule 506 and section 4(2) of the Securities Act of 1933.
These shares have subsequently been registered on Form S-3 dated July 16, 1999
and are freely tradable subject to general restrictions on transferability of
shares held by affiliates of TSI Software.

     In November 1998, TSI Software agreed to acquire substantially all of
the assets of and assumed certain liabilities of Software Consulting Partners, a
Delaware Corporation. The 67,844 shares of TSI Software's common stock issued to
Software Consulting Partners under the Asset Transfer Agreement dated November
13, 1998 by and among TSI Software, Software Consulting Partners and the sole
stockholder of Software Consulting Partners (50% of such shares are being held
in escrow pursuant to the terms of the Asset Agreement) were issued in reliance
on the exemptions for non-public offerings provided by Rule 506 and section 4(2)
of the Securities Act of 1933, as amended and thus have not been registered.
These shares constitute "restricted securities" under rule 144 (d) regulated by
the Securities and Exchange Commission under the Securities Act of 1933. The
provisions of rule 144 permit only limited resale of "restricted securities,"
including that such securities must generally be held for at least one year from
the date of their acquisition and may then be sold only if certain other
requirements are met.

                                       17
<PAGE>

ITEM 6    SELECTED FINANCIAL DATA

                Selected Financial Data for the Last Five Years

<TABLE>
<CAPTION>

Statements of Operations Data:                                                Year Ended December 31,
(In thousands, except per share data)
                                                       ------------------------------------------------------------------------
                                                           1999             1998           1997            1996           1995
                                                           ----             ----           ----            ----           ----
<S>                                                   <C>               <C>            <C>             <C>            <C>
Revenues:
Software Licensing.................................   $  56,820         $ 29,105       $ 14,603        $  9,310       $  7,553
Service, Maintenance and other.....................      41,805           16,211         12,067           9,694          8,508
                                                      ---------         --------       --------        --------       --------
   Total revenues..................................      98,625           45,316         26,670          19,004         16,061
                                                      ---------         --------       --------        --------       --------

Cost of revenues:
Software Licensing.................................       1,286            1,482            778             495            725
Service, Maintenance, and other....................      21,371            5,407          2,490           2,006          2,200
                                                      ---------         --------       --------        --------       --------
   Total cost of revenues..........................      22,657            6,889          3,268           2,501          2,925
                                                      ---------         --------       --------        --------       --------
Gross Profit.......................................      75,968           38,427         23,402          16,503         13,136
                                                      ---------         --------       --------        --------       --------

Operating Expenses:
Product development................................      15,276            5,699          4,462           3,452          3,068
Selling and marketing..............................      41,187           22,033         13,095           8,715          7,160
General and administrative.........................       9,300            5,929          3,792           2,922          2,001
Amortization of intangibles........................      27,689              303             --              --             --
                                                      ---------         --------       --------        --------       --------
   Total operating expenses........................      93,452           33,964         21,349          15,089         12,229
                                                      ---------         --------       --------        --------       --------

Operating income...................................     (17,484)           4,463          2,053           1,414            907
Other income (expense), net........................         988            2,015            503            (150)           (49)
                                                      ---------         --------       --------        --------       --------
Income before taxes................................     (16,496)           6,478          2,556           1,264            858
                                                      ---------         --------       --------        --------       --------
Income tax (expense) benefit.......................         228              679            (76)            (36)           (35)
                                                      ---------         --------       --------        --------       --------

Net income (loss)..................................   $ (16,268)        $  7,157       $  2,480        $  1,228       $    823
                                                      =========         ========       ========        ========       ========
Net income (loss) per share
- Basic............................................    ($  0.64)        $   0.35       $   0.21        $   0.21       $   0.14
- Diluted..........................................    ($  0.64)        $   0.30       $   0.14        $   0.10       $   0.07
Weighted average number of common
 shares and common equivalent shares
 outstanding
- Basic............................................      25,376           20,300         11,834           5,774          5,692
- Diluted (1)......................................      25,376           23,816         17,134          11,622         10,910
</TABLE>

<TABLE>
<CAPTION>
                                                                                 December 31,
                                                      ------------------------------------------------------------------------
                                                           1999             1998           1997           1996           1995
                                                           ----             ----           ----           ----           ----
<S>                                                   <C>               <C>            <C>             <C>           <C>
Balance Sheet Data:
(In thousands)
Cash and marketable securities.....................   $  14,886         $ 47,945       $ 21,403        $    41       $    143
Working capital....................................      39,669           53,742         23,371         (1,220)        (2,128)
Total assets.......................................     226,815           78,187         32,942          7,521          6,237
Total stockholders' equity (deficit)...............     187,653           61,899         25,416         (2,294)        (3,570)
</TABLE>

______________________
(1) For an explanation of the determination of the number of shares used in
    computing per share amounts, see note (7) of Notes to Consolidated
    Financial Statements

                                       18
<PAGE>

ITEM 7

                     MANAGEMENT'S DISCUSSION AND ANALYSIS
               OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that involve risks
and uncertainties. When used in this filing, the words "intend," "anticipate,"
"believe", "estimate," "plan" and "expect" and similar expressions as they
relate to TSI Software are included to identify forward-looking statements. Our
actual results could differ materially from those anticipated in these forward-
looking statements as a result of certain factors including those set forth
under "Factors That may Affect Future Results" and elsewhere in this document.

OVERVIEW

     TSI International Software Ltd. was incorporated in Connecticut in 1985 and
reincorporated in Delaware in September 1993. Historically, TSI Software has
derived a majority of revenues from products other than Mercator, primarily our
Trading Partner family of products and the KEY/MASTER product. However, revenue
related to the Mercator family of products has grown significantly in each of
the last three years and has increased as a percentage of total revenues. TSI
Software believes that future growth in revenues, if any, will be mainly
attributed to the Mercator suite of products. TSI Software believes it cannot
accurately predict the amount of revenues that will be attributable to this
product line or the life of such products. To the extent our Mercator products
do not maintain continued market acceptance, the business will be adversely
affected.

     TSI Software revenues are derived principally from two sources: (i) license
fees for the use TSI Software's products and (ii) service fees for maintenance,
consulting services and training related to software products. TSI Software
generally recognizes revenue from software license fees upon delivery, unless
there are significant post-delivery obligations, in which case, revenues are
recognized when these obligations are satisfied. This is the case with certain
customers who have purchased a financial services solution whereby TSI Software
recognizes revenue using the percentage of completion method as services are
performed. The KEY/MASTER product is licensed under term-use contracts rather
than for a one-time license fee, and TSI Software recognizes revenue from these
arrangements on a present-value basis at the inception of the contract. TSI
Software does not actively market new term-use contracts for KEY/MASTER but
continues to receive maintenance revenues. As a result, maintenance revenue
accounts for a larger proportion of KEY/MASTER revenue and increases the
percentage of TSI Softwares total revenues represented by services, maintenance
and other revenues. TSI Software intends to continue to increase the scope of
service offerings insofar as it supports the sale of license revenues from sales
of TSI Software products. We believe that software licensing revenue will
continue to account for a larger portion of total revenues than service,
maintenance and other revenues.

     Mercator can be used by information technology professionals as well as
value added resellers, independent software vendors, software integrators or
other third parties who resell, embed or otherwise bundle Mercator with their
products. License fee revenues are derived from direct sales of software
products through our direct sales force and indirect third parties. Sales
through distributors and resellers represented approximately 40% of domestic
license revenue in 1999.

     International revenue accounted for 29.4% of total revenues for the year
ended December 31, 1999, 11.8% for 1998 and 9.4% of total revenues in 1997. The
increase is primarily attributed to the purchase of Braid in March of 1999, and
the addition of a sales office in Frankfurt, Germany.

     The size of orders can range from a few thousand dollars to over $300,000
per order. The loss or delay of large individual orders, therefore, can have a
significant impact on revenue and other quarterly results. In addition, TSI
Software generally recognizes a substantial portion of its quarterly software
licensing revenues in the last month of each quarter, and as a result, revenue
for any particular quarter may be difficult to predict in advance. Because
operating expenses are relatively fixed, a delay in the recognition of revenue
from a limited number of license transactions could cause significant variations
in

                                       19
<PAGE>

operating results from quarter to quarter and could result in significant
losses. To the extent such expenses precede, or are not subsequently followed by
increased revenue, operating results would be materially and adversely affected.
As a result of these and other factors operating results for any quarter are
subject to variation, and period-to period comparisons of results of operations
are not necessarily meaningful and should not be relied upon as indications of
future performance.

RESULTS OF OPERATIONS

     The following table sets forth, for the periods indicated, the percentage
of total revenues represented by certain items from our statements of
operations:

<TABLE>
<CAPTION>
                                                Years Ended December 31,
                                           ------------------------------
                                            1999        1998        1997
                                            ----        ----        ----
<S>                                        <C>         <C>         <C>
Revenues:
   Software licensing ..................    57.6%       64.2%       54.7%
   Service, maintenance and other ......    42.4        35.8        45.3
                                           -----       -----       -----
     Total revenue .....................   100.0       100.0       100.0
                                           -----       -----       -----

Cost of revenues:
   Software licensing ..................     1.3         3.3         2.9
   Service, Maintenance and other ......    21.7        11.9         9.3
                                           -----       -----       -----
     Total cost of revenues ............    23.0        15.2        12.2
                                           -----       -----       -----

Gross Profit ...........................    77.0        84.8        87.8
                                           -----       -----       -----

Operating expenses:
   Product development .................    15.5        12.6        16.7
   Selling and marketing ...............    41.8        48.6        49.1
   General and administrative ..........     9.4        13.1        14.2
   Amortization of intangibles .........    28.1         0.7          --
                                           -----       -----       -----
     Total operating expenses ..........    94.8        75.0        80.0
                                           -----       -----       -----
   Operating Income (loss) .............   (17.7)        9.8         7.8
   Other income (expense), net .........     1.0         4.5         1.8
                                           -----       -----       -----
   Income (loss) before taxes ..........   (16.7)       14.3         9.6
   Income taxes (expense) benefit.......     0.2         1.5        (0.3)
                                           -----       -----       -----
   Net income (loss)....................   (16.5)       15.8         9.3
                                           =====       =====       =====

Gross profit:
   Software licensing ..................    97.7%       94.9%       94.8%
   Service, maintenance and other.......    48.9        66.6        81.3
</TABLE>

                                       20
<PAGE>


Year Ended December 31, 1999 compared with Year Ended December 31, 1998

REVENUES

     Total Revenues. Total revenues increased 118% from $45.3 million in 1998
to $98.6 million in 1999.

     Software Licensing. Total software licensing revenues increased 95% from
$29.1 million in 1998 to $56.8 million in 1999. Domestic software licensing
revenues increased 61% from $25.9 million in 1998 to $41.5 million in 1999,
primarily due to an increase in Mercator license revenues as a result of a
larger customer base. International software licensing revenues increased 372%
from $3.2 million in 1998 to $15.3 million in 1999. This increase was the result
of the Braid acquisition and the larger salesperson base available to sell our
Mercator products. International licensing revenues from Braid products and
Mercator products were $8.0 million and $7.3 million, respectively.

     Service, Maintenance and Other. Service, maintenance and other revenues
increased 158% from $16.2 million in 1998 to $41.8 million in 1999. Domestic
service, maintenance and other revenues increased 99% from $14.1 million in 1998
to $28.1 million in 1999. This increase was a result of increased service
demands from our Mercator customers and the related acquisition of services
personnel to address those needs, as well as additional maintenance revenues on
the Mercator license sales. International service, maintenance and other
revenues increased 547% from $2.1 million in 1998 to $13.7 million in 1999. This
increase is primarily attributed to the larger service component of the
traditional Braid financial services product as well as increased services on
our Mercator product sales. Service, maintenance and other revenues from Braid
products and Mercator products sold internationally were $12.6 million and $1.1
million, respectively.


COST OF REVENUES

     Cost of software licensing revenues consists primarily of CD-ROMs, manuals,
distribution costs and the cost of third-party software that TSI Software
resells. Cost of service, maintenance and other revenues consists primarily of
personnel-related costs in providing maintenance, technical support, consulting,
and training to customers.

     Gross margin on software licensing revenues is higher than gross margin on
service, maintenance and other revenues, reflecting the low materials, packaging
and other costs of software products compared with the relatively high personnel
costs associated with providing maintenance, technical support, consulting and
training services. Cost of service, maintenance and other revenues also varies
based upon the mix of maintenance, technical support, training and professional
consulting services.

     Cost of Software Licensing. Total cost of software licensing revenues
decreased from $1.5 million in 1998 to $1.3 million in 1999. This decrease was
due to a decrease in costs of distribution. In 1999, the majority of products
were sold on a single CD-ROM, which includes all documentation and other
materials, thereby reducing the costs of packaging and materials as well as
shipping charges. Software licensing gross margin increased to 98% for 1999 over
95% in 1998, due to the volume of sales and low cost of software distribution.
Cost of software licensing revenues for domestic operations decreased to
$884,600 in 1999 from $1.3 million in 1998 and gross margin on software
licensing domestic increased to 98% in 1999 from 95% in 1998 as a result of the
low cost of distribution and the resulting economies of scale on the larger
number of transactions. The cost of software licensing from international
operations was $389,900 in 1999. This cost was due to the purchase of Braid in
March of 1999 and the increase in international sales of Braid's traditional
financial services products as well as the increased sales of TSI Software's
Mercator products. Costs for international sales for 1998 were minimal. Gross
margin on software licensing international was 97% for 1999.

     Total Cost of Service, Maintenance and Other. Cost of service, maintenance
and other revenues increased 295% from $5.4 million in 1998 to $21.4 million in
1999. Gross Margin on total costs of service, maintenance and other were 48% and
66%, respectively. This decrease is due to the increase in the lower margin
professional services offerings for 1999. Cost of service, maintenance and other
for

                                       21
<PAGE>

domestic operations increased to $14.5 million in 1999 compared to $5.4 million
in 1998. This increase is primarily due to the increase in services performed
for Mercator customers along with costs of training services purchased by our
increased customer base. Gross margin on service, maintenance and other,
domestic was 48% in 1999 and 66% in 1998. Gross margin for the professional
service component was 31%. The difference is related to lower margins on
professional services than on maintenance services. Cost of service, maintenance
and other for international operations increased to $6.8 million in 1999 from a
minimal cost in 1998. This increase was the result of the acquisition of Braid
and related services personnel. In addition, Braid's traditional financial
services products have a larger professional services component than TSI
Software's Mercator product suite. Accordingly, international gross margin in
1999 was 26% for professional services, as compared to domestic gross margin of
31%. Gross margins on service, maintenance and other for international
operations was 50% for 1999.


OPERATING EXPENSES

     Product development. Product development expenses include expenses
associated with the development of new products and enhancements to existing
products. These expenses consist primarily of salaries, recruiting, and other
personnel-related costs, depreciation of development equipment, supplies, travel
and allocated facilities and communication costs.

     Product development expenses increased 168% from $5.7 million in 1998 to
$15.3 million in 1999, primarily due to increased headcount associated with the
development of new Mercator based products and the acquisition of Braid in March
1999 and Novera in September 1999. Product development expenses represented 13%
and 15% of total revenues for 1998 and 1999, respectively. International product
development expenses were $5.6 million in 1999. There was no development
performed internationally in 1998.

     TSI Software believes that a significant level of research and development
expenditures is required to remain competitive. Accordingly, TSI Software
anticipates that it will continue to devote substantial resources to research
and development. TSI Software expects that the dollar amount of research and
development expenses will continue to increase, particularly in the U.S. To
date, all research and development expenditures are expensed as incurred.

     Selling and Marketing. Selling and marketing expenses consist of sales and
marketing personnel costs, including sales commissions, recruiting, travel,
advertising, public relations, seminars, trade shows, product descriptive
literature, and allocated facilities and communications costs.

     Selling and marketing expenses increased 87% from $22.0 million in 1998 to
$41.2 million in 1999. This increase was primarily due to the acquisitions and
the increased number of sales and marketing personnel hired to pursue Mercator
marketing opportunities and programs. Selling and marketing expenses represented
49% and 42% of total revenues for 1998 and 1999, respectively.

     During 1999, the acquisition of Braid resulted in an increase in headcount
of 27 salespeople. These individuals sold both the traditional Braid financial
services products as well as the Mercator product line. Selling and marketing
costs for international operations were $11.4 million in 1999.

     General and administrative. General and administrative expenses consist
primarily of salaries, recruiting, and other personnel related expenses for TSI
Software's administrative, executive, and finance personnel as well as outside
legal, tax services, and audit fees.

     General and administrative expenses increased 57% from $5.9 million in 1998
to $9.3 million in 1999. The increase was primarily due to increased number of
employees, the cost of management

                                       22
<PAGE>

information system staff, as well as increased depreciation expenses for related
equipment and software. The acquisition of Braid in March of 1999 and the
establishment of a German sales office increased both headcount and expense in
the administrative area. International administrative costs were $2.9 million
for 1999. General and administrative expenses were 13% and 9% of total revenues
for 1998 and 1999, respectively.

     TSI Software believes that the dollar amount of its general and
administrative expenses will increase in the future as TSI Software continues to
expand its administrative staff and incurs additional costs to enhance its
systems and administrative processes.

     Amortization of Intangibles. Intangible assets are comprised of the excess
of the purchase price and related costs of an acquired business over the value
assigned to tangible assets. The acquisitions made by TSI Software were
accounted for under the purchase method of accounting. The purchase prices were
allocated to the tangible and identifiable intangible assets based on their
estimated fair values with any excess designated as goodwill. Intangible assets,
including goodwill, are amortized over their estimated useful lives, which range
from three to five years.

     Amortization expense increased from $303,000 in 1998 to $27,689,200 in 1999
as a result of the acquisitions of Braid in March 1999 and Novera in September
1999. The amortization expense in 1998 consisted of two months of amortization
relating to the acquisition of SCP. As a result of these acquisitions, as of
December 31, 1998 and 1999, TSI Software had net intangible assets of $5.2
million and $153.2 million, respectively.


OTHER INCOME (EXPENSE), NET

     Interest income decreased from $2,025,000 in 1998 to $987,900 in 1999,
primarily due to the use of cash in the acquisitions of Braid and Novera during
1999. Borrowing expenses decreased from $10,900 in 1998 to $0 in 1999 due to the
expiration of TSI Software's line of credit. TSI Software had no other
outstanding debt obligations during 1999.


TAXES

     At December 31, 1999, TSI Software had $21.0 million of non-deductible
expenses; primarily amortization of goodwill and other intangible assets. TSI
Software also had deferred tax assets of $10.6 million. TSI Software has
concluded that it is more likely than not that TSI Software will realize the
benefits of these deferred tax assets; accordingly, TSI Software reversed its
valuation allowance for deferred income taxes. This resulted in the recording of
a net tax benefit for the year ending December 31, 1999. At December 31, 1998,
TSI Software had concluded that it was more likely than not that all net
operating loss carryforwards would be utilized; accordingly, TSI Software
reversed its valuation allowance for deferred income taxes, which resulted in
the recording of a net tax benefit for the year ending December 31, 1998.

Year Ended December 31, 1998 Compared with Year Ended December 31, 1997

REVENUES

     Total Revenues. Total revenues increased 70% from $26.7 million in 1997 to
$45.3 million in 1998.

                                       23
<PAGE>

     Software Licensing. Total software licensing revenues increased 99% from
$14.6 million in 1997 to $29.1 million in 1998. Domestic software licensing
revenues increased 96% from $13.2 million in 1997 to $25.9 million in 1998.
International software licensing revenues increased 129% from $1.4 million in
1997 to $3.2 million in 1998. These increases were primarily due to a 154%
increase in Mercator license revenue to $23.8 million in 1998 from $9.4 million
in 1997, partially offset by decreases in licenses of TSI Software's KEY/MASTER
product.

     Service, Maintenance and other. Total service, maintenance and other
revenues increased 34% from $12.1 million in 1997 to $16.2 million in 1998.
Domestic service, maintenance and other revenues increased 28% from $11.0
million in 1997 to $14.1 million in 1998. International service, maintenance and
other revenues increased 91% from $1.1 million in 1997 to $2.1 million in 1998.
These increases were primarily due to a 70% increase in professional service
revenues to $6.4 million in 1998 from $3.8 million in 1997, most of this was a
result of professional services associated with Mercator. To a lesser extent,
these increases were also due to an increase in Mercator maintenance revenues,
offset by a slight decrease in maintenance revenues related to TSI Software's
KEY/MASTER products. Maintenance revenues attributable to KEY/MASTER were $4.2
million and $3.8 million for 1997 and 1998, respectively.


COST OF REVENUES

     Cost of Software Licensing. Cost of software licensing revenues increased
90% from $778,000 in 1997 to $1,481,000 in 1998. This increase was due to an
increase in product sales of Mercator. Software licensing gross margin remained
constant at 95% in 1997 and 1998.

     Cost of Service, Maintenance and Other. Cost of service, maintenance and
other revenues increased 116% from $2.5 million in 1997 to $5.4 million in 1998.
The increase was primarily due to an increase in the number of support personnel
related to TSI Software's Mercator product and the November 1998 acquisition of
SCP service personnel.

OPERATING EXPENSES

     Product development. Product development expenses increased 27% from $4.5
million in 1997 to $5.7 million in 1998, primarily due to increased number of
employees associated with the development of new Mercator-based products.
Product development expenses represented 17% and 13% of total revenues for 1997
and 1998, respectively

     Selling and Marketing. Selling and marketing expenses increased 68% from
$13.1 million in 1997 to $22.0 million in 1998. This increase was primarily due
to the increased number of sales and marketing personnel required to address
Mercator marketing opportunities and increased spending on Mercator-related
marketing programs. Selling and marketing expenses represented 49% of total
revenues for both 1997 and 1998.

     General and administrative. General and administrative expenses increased
56% from $3.8 million in 1997 to $5.9 million in 1998. The increase was
primarily due to increased headcount and the cost of management information
system staff and increased depreciation expenses for related equipment and
software. General administrative expenses remained constant at 14% of total
revenues for 1997 and 1998, respectively.

                                       24
<PAGE>

     Amortization of Intangibles. Amortization expense increased from $0 in 1997
to $303,000 in 1998 as a result of the acquisition of SCP in November 1998.
Amortization expense in 1998 consisted of two months of amortization of SCP
intangible assets. As of December 31, 1998, TSI Software had net intangible
assets of $5.2 million.

OTHER INCOME (EXPENSE), NET

     Interest income increased from $688,000 in 1997 to $2,025,000 in 1998 due
to the investment income earned on proceeds from TSI Software's initial and
secondary public offerings. Borrowing expenses decreased from $185,000 in 1997
to $10,900 in 1998 due to the repayment of TSI Software's bank debt with the
proceeds from its initial public offering.


TAXES

     At December 31, 1998, TSI Software had concluded that it was more likely
than not that all net operating loss carryforwards would be utilized;
accordingly, TSI Software reversed its valuation allowance for deferred income
taxes which resulted in the recording of a net tax benefit for the year ending
December 31, 1998. Due to the utilization of net operating loss carryforwards,
the provision for income taxes for 1997 was not significant.


LIQUIDITY AND CAPITAL RESOURCES

     On December 31, 1999, TSI Software had net working capital of $39.7
million, which included cash and marketable securities of $14.9 million. Working
capital at December 31, 1998 was $53.7 million, which included cash and
marketable securities of 47.9 million. In 1999, cash used by operations was $8.4
million compared to cash provided of $5.7 million in 1998.

     Net accounts receivable were $38.3 million at December 31, 1999 compared to
$18.0 million at December 31, 1998. The number of days of average revenues in
accounts receivable was 109 at December 31, 1998 compared to 111 at December 31,
1999. The increase in accounts receivable is due to the large percentage of
sales billed during the last month of the quarter as compared to 1998, the
increase in deferred revenue and the granting of extended terms for certain
customers. In response to the increase in days sales outstanding, TSI Software
has dedicated additional resources to the collection of outstanding receivables.
Capital expenditures have been, and future capital expenditures are anticipated
to be, primarily for facilities, equipment and computer software to support
expansion of the companies operations. Additions to property plant and equipment
accounted for $4.6 million and $1.8 million of expenditures for 1999 and 1998,
respectively. As of December 31, 1999, TSI Software had no material commitments
for capital expenditures.

     TSI Software believes that its current cash and cash equivalent balances,
and future cash generated by operations, will be sufficient to meet its
anticipated cash needs for working capital, capital expenditures and business
expansion for a least a six month period. Thereafter, if cash generated by
operations is insufficient to satisfy TSI Software's operating requirements, TSI
Software may seek additional debt or equity financing. As of March 1, 2000 TSI
Software established a three year $20 million dollar line of credit with Fleet
Bank. The sale of additional equity could result in dilution to TSI Software's
stockholders.

     In addition, in an effort to best utilize its working capital, TSI Software
intends to pursue the development and acquisition of additional products or
businesses, which support the current business needs. TSI Software has no
agreements or understandings with respect to any material acquisitions.

                                       25
<PAGE>

YEAR 2000 DISCLOSURE

     TSI Software was aware of the issues associated with the programming code
in existing computer systems. TSI Software's business is dependent on both the
operation of its software it sells to customers, its internal systems and the
buying patterns and state of IT systems of its customer base. In preparation for
the Year 2000, TSI Software tested all of its products, evaluated and updated
all of its internal systems and communicated the status of product and upgrade
requirements to its customers. TSI Software did not encounter any problems in
regard to its products or internal systems at January 1, 2000, or February 29,
2000.

     In addition, TSI Software's business did not appear to be impacted by its
customers purchasing patterns as of December 31, 1999, either in regards to
purchase or return activity.

     The total cost of Year 2000 compliance activities was not material to TSI
Software's results of operations and financial condition, and was handled by
individuals responsible for the specific areas in the ordinary course of
business. There were no accruals made in 1999 for loss contingencies relating to
Year 2000.


CONVERSION TO A SINGLE EUROPEAN CURRENCY

     TSI Software has sales in a number of foreign countries. However, as the
majority of foreign sales are in the UK, conversion to a single European
currency would not have a material impact on TSI Software's financial results.


FACTORS THAT MAY AFFECT FUTURE RESULTS

Our quarterly and annual operating results are volatile and difficult to predict
and may cause our stock price to fluctuate

     Our quarterly and annual operating results have varied significantly in the
past and are expected to do so in the future. We believe that you should not
rely on period to period comparisons of our results of operations as they are
not necessarily indications of our future performance. In some future periods,
our results of operations may be below the expectation of public market analysts
and investors. In this case, the price of our common stock would likely decline.
Our revenues and results of operations are difficult to forecast and depend on a
variety of factors. These factors include the following:

          .    the size, timing and terms of individual license transactions;

          .    the sales cycle for our products;

          .    demand for and market acceptance of our products and related
               services, particularly our Mercator products;

          .    our ability to expand, and market acceptance of, our professional
               services business;

          .    the timing of our expenditures in anticipation of product
               releases or increased revenue;

                                       26
<PAGE>

          .    the timing of product enhancements and product introductions by
               us and our competitors;

          .    market acceptance of enhanced versions of our existing products
               and of new products;

          .    changes in pricing policies by us and our competitors;

          .    variations in the mix of products and services sold by us;

          .    the mix of channels through which our products and services are
               sold;

          .    our success in penetrating international markets;

          .    the buying patterns and budgeting cycles of customers;

          .    personnel changes, our ability to attract and retain qualified
               sales, professional services and research and development
               personnel and the rate at which this personnel becomes
               productive; and

          .    general economic conditions.

     We have historically derived a substantial portion of our revenues from
the licensing of our software products, and we anticipate that this trend will
continue for the foreseeable future. Software license revenues are difficult to
forecast for a number of reasons, including the following:

          .    we typically do not have a material backlog of unfilled orders,
               and revenues in any quarter substantially depend on orders booked
               and shipped in that quarter;

          .    the length of the sales cycles for our products can vary
               significantly from customer to customer and from product to
               product and can be as long as nine months or more;

          .    the terms and conditions of individual license transactions,
               including prices and discounts, are often negotiated based on
               volumes and commitments, and may vary considerably from customer
               to customer;

          .    We have generally recognized a substantial portion of our
               quarterly software licensing revenues in the last month of each
               quarter.

     Accordingly, the cancellation or deferral of even a small number of
purchases of our products could harm our business.

It would be difficult for us to adjust our spending if we experience any revenue
shortfalls

     Our future revenues will also be difficult to predict and we could fail to
achieve our revenue expectations. Our expense levels are based, in part, on our
expectation of future revenues, and expense levels are, to a large extent, fixed
in the short term. We may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. If revenue levels are below
expectations for any reason, our operating results are likely to be harmed. Net
income may be disproportionately affected by a reduction in revenue because a
large portion of our expenses are related to headcount that cannot be easily
reduced without harming our business.

                                       27
<PAGE>

     In addition, we currently intend to increase our operating expenses by
expanding our research and product development staff, particularly research and
development personnel to be devoted to our Mercator product line, increasing our
sales and marketing and professional services operations, expanding distribution
channels, and hiring personnel in other operating areas. We expect to experience
a significant time lag between the date professional services, sales, and
technical personnel are hired and the date these employees become fully
productive. The timing of expansion and the rate at which new technical,
professional services, and sales personnel become productive as well as the
timing of the introduction and success of new distribution channels could cause
material fluctuations in our results of operations. Furthermore, to the extent
increased operating expenses precede or are not subsequently followed by
increased revenues, our business could be harmed.

We may experience seasonal fluctuations in our revenues or results of operations

     While we have not historically experienced any significant seasonal
fluctuations in our revenues or results of operations, it is not uncommon for
software companies to experience strong fourth quarters followed by weaker first
quarters, in some cases with sequential declines in revenues or operating
profit. We believe that many software companies exhibit this pattern in their
sales cycles primarily due to customers' buying patterns and budget cycles. We
may display this pattern in future years.

We depend on the sales of our Mercator products and related services

     We introduced our Mercator products in 1993. In recent years, a significant
portion of our revenue has been attributable to licenses of our Mercator
products and related services, and we expect that revenue attributable to our
Mercator products and related services will continue to represent a significant
portion of our total revenue for the foreseeable future. Accordingly, our future
operating results significantly depend on the market acceptance and growth of
our Mercator product line and enhancements of these products and services.
Market acceptance of our Mercator product line may not increase or remain at
current levels, and we may not be able to successfully market our Mercator
product line or develop extensions and enhancements to this product line on a
long-term basis. In the event that our current or future competitors release new
products that provide, or are perceived as providing, more advanced features,
greater functionality, better performance, better compatibility with other
systems or lower prices than our Mercator product line, demand for our products
and services would likely decline. A decline in demand for, or market acceptance
of, our Mercator product line would harm our business.

We may experience difficulties in developing and introducing new or enhanced
products necessitated by technological changes

     Our future success will depend, in part, upon our ability to anticipate
changes, to enhance our current products and to develop and introduce new
products that keep pace with technological advancements and address the
increasingly sophisticated needs of our customers. Our products may be rendered
obsolete if we fail to anticipate or react to change.

     Development of enhancements to existing products and new products depends,
in part, on a number of factors, including the following:

          .    the timing of releases of new versions of applications systems by
               vendors;

          .    the introduction of new applications, systems or computing
               platforms;

          .    the timing of changes in platforms;

          .    the release of new standards or changes to existing standards;
               and

                                       28
<PAGE>

          .    changing customer requirements.

     Our product enhancements or new products may not adequately meet the
requirements of the marketplace or achieve any significant degree of market
acceptance. In addition, our introduction or announcement, or by one or more of
our current or future competitors, of products embodying new technologies or
features could render our existing products obsolete or unmarketable. Our
introduction or announcement of enhanced or new product offerings or by our
current or future competitors may cause customers to defer or cancel purchases
of our existing products. Any deferment or cancellation of purchases could harm
our business.

We could experience delays in developing and releasing new products or product
enhancements

     We may experience difficulties that could delay or prevent the successful
development, introduction and marketing of new products or product enhancements.
We have in the past experienced delays in the introduction of product
enhancements and new products and we may experience delays in the future.
Furthermore, as the number of applications, systems and platforms supported by
our products increases, we could experience difficulties in developing, on a
timely basis, product enhancements which address the increased number of new
versions of applications, systems or platforms served by our existing products.
If we fail, for technological or other reasons, to develop and introduce product
enhancements or new products in a timely and cost-effective manner or if we
experience any significant delay in product development or introduction, our
customers may delay or decide against purchases of our products, which could
harm our business.

The success of our products will also depend upon the success of the platforms
we target

     We may, in the future, seek to develop and market enhancements to existing
products or new products which are targeted for applications, systems or
platforms which we believe will achieve commercial acceptance. This could
require us to devote significant development, sales and marketing personnel, as
well as other resources, to these efforts, which would otherwise be available
for other purposes. We may not be able to successfully identify these
applications, systems or platforms, and even if we do so, they may not achieve
commercial acceptance or we may not realize a sufficient return on our
investment. Failure of these targeted applications, systems or platforms to
achieve commercial acceptance or our failure to achieve a sufficient return on
our investment could harm our business.

We may not successfully expand our sales and distribution channels

     An integral part of our strategy is to expand our indirect sales channels,
including value-added resellers, independent software vendors, systems
integrators and distributors. This channel is accounting for a growing
percentage of our total revenues and we are increasing resources dedicated to
developing and expanding these indirect distribution channels. We may not be
successful in expanding the number of indirect distribution channels for our
products. If we are successful in increasing our sales through indirect sales
channels, we expect that those sales will be at lower per unit prices than sales
through direct channels, and revenue we receive for each sale will be less than
if we had licensed the same product to the customer directly.

     Selling through indirect channels may also limit our contact with our
customers. As a result, our ability to accurately forecast sales, evaluate
customer satisfaction and recognize emerging customer requirements may be
hindered.

     Even if we successfully expand our indirect distribution channels, any new
value added resellers, independent software vendors, system integrators or
distributors may offer competing products, or have

                                       29
<PAGE>

no minimum purchase requirements of our products. These third parties may also
not have the technical expertise required to market and support our products
successfully. If the third parties do not provide adequate levels of services
and technical support, our customers could become dissatisfied, or we would have
to devote additional resources for customer support. Our brand name and
reputation could be harmed. Selling products through indirect sales channels
could cause conflicts with the selling efforts of our direct sales force.

     Our strategy of marketing products directly to end-users and indirectly
through value added resellers; independent software vendors, systems integrators
and distributors may result in distribution channel conflicts. Our direct sales
efforts may compete with those of our indirect channels and, to the extent
different resellers target the same customers, resellers may also come into
conflict with each other. Although we have attempted to manage our distribution
channels to avoid potential conflicts, channel conflicts may harm our
relationships with existing value added resellers, independent software vendors,
systems integrators or distributors or impair our ability to attract new value
added resellers, independent software vendors, systems integrators and
distributors.

Our future success depends on retaining our key personnel and attracting and
retaining additional highly qualified employees

     Our future success depends in large part on the continued service of our
key sales, professional services and research and development personnel, as well
as senior management. All employees are employed at-will and we have no
fixed-term employment agreements with our employees, which prevents them from
terminating their employment at any time. The loss of the services of any of one
or more of our key employees could harm our business.

     Our future success also depends on our ability to attract, train and
retain highly qualified sales, research and development, professional services
and managerial personnel, particularly sales, professional services and research
and development personnel with expertise in enterprise resource planning
systems. Competition for these personnel is intense. We may not be able to
attract, assimilate or retain qualified personnel. We have at times experienced,
and we continue to experience, difficulty in recruiting qualified sales and
research and development personnel, and we anticipate these difficulties will
continue in the future. Furthermore, we have in the past experienced, and in the
future we expect to continue to experience, a significant time lag between the
date sales, research and development and professional services personnel are
hired and the date these employees become fully productive.

We may encounter difficulties in managing our growth

     Our business has grown in recent periods, with total revenues increasing
from approximately $16.1 million in 1995 to $98.6 million in 1999. We have also
acquired the assets of Software Consulting Partners in November 1998, Braid in
March 1999, and Novera Software, Inc. in September 1999. The growth of our
business has placed, and is expected to continue to place, a strain on our
administrative, financial, sales and operational resources and increased demands
on our systems and controls. For example, we noted an increase in quarterly days
sales outstanding from December 31, 1998 to December 31, 1999 from approximately
109 days to approximately 111 days, and an increase in net accounts receivable
from $18.0 million to $38.3 million.

     To deal with these concerns, we have recently implemented, or are in the
process of implementing and will be required to implement in the future, a
variety of new and upgraded operational and financial systems, procedures and
controls. In addition, we intend to hire additional administrative personnel. We
may not be able to successfully complete the implementation and integration of
these systems, procedures and controls, or hire additional personnel, in a
timely manner. The failure of our management to respond

                                       30
<PAGE>

to, and manage, our growth and changing business conditions, or to adapt our
operational, management and financial control systems to accommodate our growth
could harm our business.

We may face significant risks in expanding our international operations

      International revenues accounted for 11.8% of our total revenues for 1998
however, as a result of the acquisitions of Braid, and the establishment of a
sales office in Germany during 1999, International revenues accounted for 29.4%
of our total revenues for 1999. Continued expansion of our international sales
and marketing efforts will require significant management attention and
financial resources. We also expect to commit additional time and development
resources to customizing our products for selected international markets and to
developing international sales and support channels.

      International operations involve a number of additional risks, including
the following:

          .    impact of possible recessionary environments in economies outside
               the United States;

          .    longer receivables collection periods and greater difficulty in
               accounts receivable collection;

          .    unexpected changes in regulatory requirements;

          .    dependence on independent resellers;

          .    reduced protection for intellectual property rights in some
               countries, tariffs and other trade barriers;

          .    foreign currency exchange rate fluctuations;

          .    difficulties in staffing and managing foreign operations;

          .    the burdens of complying with a variety of foreign laws;

          .    potentially adverse tax consequences; and

          .    political and economic instability.

      To the extent that our international operations expand, we expect that an
increasing portion of our international license and service and other revenues
will be denominated in foreign currencies, subjecting us to fluctuations in
foreign currency exchange rates. We do not currently engage in foreign currency
hedging transactions. However, as we continue to expand our international
operations, exposures to gains and losses on foreign currency transactions may
increase. We may choose to limit our exposure by the purchase of forward foreign
exchange contracts or similar hedging strategies. The currency exchange strategy
that we adopt may not be successful in avoiding exchange-related losses. In
addition, the above-listed factors may cause a decline in our future
international revenue and, consequently, may harm our business. We may not be
able to sustain or increase revenue that we derive from international sources.

Our success depends upon the widespread use and adoption of the internet and
intranets

      We believe that demand for enterprise application integration solutions,
such as those that we offer, will depend, in part, upon the adoption by
businesses and end-users of the internet and intranets as platforms for
electronic commerce and communications. The internet and intranets are new and
evolving, and they may not be widely adopted, particularly for electronic
commerce and communications among

                                       31
<PAGE>

businesses. Critical issues concerning the internet and intranets, including
security, reliability, cost, ease of use and access and quality of service,
remain unresolved at this time, inhibiting adoption by many enterprises and end-
users. If the internet and intranets are not widely used by businesses and end-
users, particularly for electronic commerce, this could harm our business.

Government regulation and legal uncertainties relating to the internet could
adversely affect our business.

      Congress has recently passed legislation and several more bills have
recently been sponsored in both the House and Senate that are designed to
regulate certain aspects of the internet, including on-line content, copyright
infringement, user privacy, taxation, access charges, liability for third-party
activities and jurisdiction. In addition, federal, state, local and foreign
governmental organizations are also considering other legislative and regulatory
proposals that would regulate the internet. Areas of potential regulation
include libel, pricing, quality of products and services, and intellectual
property ownership.

      The laws governing the use of the internet, in general, remain largely
unsettled, even in areas where there has been some legislative action. It may
take years to determine whether and how existing laws such as those governing
intellectual property; privacy, libel and taxation apply to the internet. In
addition, the growth and development of the market for online commerce may
prompt calls for more stringent consumer protection laws, both in the United
States and abroad. This occurrence may impose additional burdens on companies
conducting business online by limiting how information can flow over the
internet and the type of information that can flow over the internet. The
adoption or modification of laws or regulations relating to the internet could
adversely affect our business.

      It is not known how courts will interpret both existing and new laws.
Therefore, we are uncertain as to how new laws or the application of existing
laws will affect our business. In addition, our business may be indirectly
affected by our clients who may be subject to such legislation. Increased
regulation of the internet may decrease the growth in the use of the internet,
which could decrease the demand for our services, increase our cost of doing
business or otherwise have a material adverse effect on our business, results of
operations and financial condition.

      Capacity constraints caused by growth in the use of the internet may,
unless resolved, impede further development of the internet to the extent that
users experience delays, transmission errors and other difficulties. Further,
the adoption of the internet for commerce and communications, particularly by
those individuals and companies that have historically relied upon alternative
means of commerce and communication generally requires the understanding and
acceptance of a new way of conducting business and exchanging information. In
particular, companies that have already invested substantial resources in other
means of conducting commerce and exchanging information may be particularly
reluctant or slow to adopt a new internet-based strategy that may make their
existing personnel and infrastructure obsolete. If the necessary infrastructure,
products, services or facilities are not developed, or if the internet does not
become a viable commercial medium, our business, results of operations and
financial condition could be materially and adversely affected.

      The U.S. Omnibus Appropriations Act of 1998 places a moratorium on taxes
levied on internet access from October 1, 1998 to October 21, 2001. However,
states may place taxes on internet access if taxes had already been generally
imposed and actually enforced prior to October 1, 1998. States which can show
they enforced internet access taxes prior to October 1, 1998 and states after
October 21, 2001 may be able to levy taxes on internet access resulting in
increased cost to access to the internet, resulting in a material adverse effect
on our business.

                                       32
<PAGE>

We face significant competition in the market for e-business integration
software

      The market for our products and services is extremely competitive and
subject to rapid change. Because there are relatively low barriers to entry in
the software market, we expect additional competition from other established and
emerging companies.

      In the e-business integration market, our Mercator products and related
services compete primarily against solutions developed internally by individual
businesses to meet their specific e-business integration needs. In addition, we
face increasing competition in the e-business integration market from other
third-party software vendors.

      Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, product development and
marketing resources, greater name recognition and larger customer bases than we
do. Our present or future competitors may be able to develop products that are
comparable or superior to those we offer, adapt more quickly than we do to new
technologies, evolving industry trends or customer requirements, or devote
greater resources than we do to the development, promotion and sale of their
products. Accordingly, we may not be able to compete effectively in our target
markets against these competitors.

      We expect that we will face increasing pricing pressures from our current
competitors and new market entrants. Our competitors may engage in pricing
practices that reduce the average selling prices of our products and related
services. To offset declining average selling prices, we believe that we must
successfully introduce and sell enhancements to existing products and new
products on a timely basis. We must also develop enhancements to existing
products and new products that incorporate features that can be sold at higher
average selling prices. To the extent that enhancements to existing products and
new products are not developed in a timely manner, do not achieve customer
acceptance or do not generate higher average selling prices, our operating
margins may decline.

We have only limited protection for our proprietary technology

      Our success is dependent upon our proprietary software technology. We do
not currently have any patents and we rely principally on trade secret,
copyright and trademark laws, nondisclosure and other contractual agreements and
technical measures to protect our technology. We also believe that factors such
as the technological and creative skills of our personnel, product enhancements
and new product developments are essential to establishing and maintaining a
technology leadership position. We enter into confidentiality and/or license
agreements with our employees, distributors and customers, and we limit access
to and distribution of our software, documentation and other proprietary
information. The steps that we have taken may not be sufficient to prevent
misappropriation of our technology, and these protections do not preclude
competitors from developing products with functionality or features similar to
our products. Third parties could also independently develop competing
technologies that are substantially equivalent or superior to our technologies.
Furthermore, effective copyright and trade secret protection may be unavailable
or limited outside of the United States. Any failure by or inability of us to
protect our proprietary technology could harm our business.

We may become subject to infringement claims

      Although we do not believe that our products infringe the proprietary
rights of any third parties, third parties might assert infringement claims
against us or our customers in the future. Furthermore, we may initiate claims
or litigation against third parties for infringement of our proprietary rights
or to establish the validity of our proprietary rights. Litigation, either as
plaintiff or defendant, would cause us to incur substantial costs and divert
management resources from productive tasks. Any litigation, regardless of the
outcome, could harm our business. Furthermore, parties making claims against us
could secure

                                       33
<PAGE>

substantial damages, as well as injunctive or other equitable relief, which
could effectively block our ability to license our products in the United States
or abroad. A large monetary judgment could harm our business.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     TSI Software is exposed to market risk primarily through its investments in
marketable securities. TSI Software's investment policy calls for investment in
short term, low risk instruments. As of December 31, 1999, investments in
marketable securities were $5.6 million. Due to the nature of these investments,
any decrease in rates would not have a material impact on TSI Software's
financial statements.

Item 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Financial statements of TSI Software meeting the requirements of Regulation
S-X are filed on page f-1 to f-27 of this Annual Report on Form 10-K. See Part
IV, Item 14.

Item 9    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE

     None

                                   Part III


ITEM 10   DIRECTORS AND EXECUTIVE OFFICERS

The following sets forth certain information with respect to TSI Software's
directors and executive officers, each director serves a one year term:

<TABLE>
<CAPTION>
NAME OF DIRECTOR           AGE       PRINCIPAL OCCUPATION                            DIRECTOR SINCE
----------------           ---       --------------------                            --------------
<S>                        <C>       <C>                                             <C>
Constance F. Galley         58       President, Chief Executive Officer, Director,         1985
                                     TSI International Software Ltd.
Ernest E. Keet (1)(2)       59       President, Vanguard Atlantic Ltd.                     1985
Richard Little              44       Chairman, Dove Tail                                   1999
James P. Schadt (1)(2)      61       Chairman, Dailey Capital Management, LLC              1998
Dennis G. Sisco (1)(2)      53       Partner, Behrman Capital                              1990
</TABLE>

________________________________________
(1)  Member of the Audit Committee
(2)  Member of the Compensation Committee

     Constance F. Galley has been President, Chief Executive Officer and a
director of TSI Software since its founding in 1985. Ms. Galley has led TSI
Software through a period of dramatic growth beginning with its Initial Public
Offering in July 1997. TSI Software has achieved triple-digit revenue growth in
recent quarters and now has over 600 employees worldwide. Under Ms. Galley's
leadership, TSI Software launched its flagship Mercator integration broker
product line. Ms. Galley brings over 25 years of experience in the computer
software industry, including positions at IBM and Dun & Bradstreet. Ms. Galley
is Vice President of the Board of Directors of the Connecticut Technology
Council, Chairman of the Software/IT Cluster Advisory Board, and Vice-Chair of
the Governor's Council on Economic Competitiveness and Technology. She is also
Chairman of the software division of ITAA and a member of the ITAA Board of
Directors. She is past Chairman and a member of SACIA, The Business Council of

                                       34
<PAGE>

Southwestern Connecticut. Ms. Galley holds a Bachelor of Arts degree in
Chemistry from Duke University.

     Ernest E. Keet has served as a director of TSI Software since April 1985.
Mr. Keet has been the President and a member of the Board of Directors of
Vanguard Atlantic Ltd. since April 1984. Mr. Keet is the non-executive Chairman
of Axolotl Corp., and from May 1995 until December 1996, was the President of
Axolotl Corp. Mr. Keet also served as the Chairman and Chief Executive Officer
of ECsoft N.V and B.V. from 1990 through 1994.

     Richard Little has served as a director of TSI Software since March 1999,
when TSI Software acquired Braid Group Limited, a specialist EAI software house
serving the financial services industry, of which he was the founder and
controlling shareholder. Mr. Little had served as Managing Director of Braid
Systems Limited (1982 to 1993), as President of Braid Inc. in the United States
(1993 to 1996), as Managing Director of Braid Limited in Hong Kong (1996 to
1998), and finally as Chief Executive Officer of the Braid Group prior to the
TSI Software acquisition of Braid. Mr. Little previously worked in the computer
industry as a sales representative for the U.S. firm Burroughs, and as sales
manager for the British firm RAIR. Mr. Little attended St. Benedict's School in
London, and obtained his Master of Arts degree in English Literature and
Oriental Studies from Cambridge University.

     James P. Schadt was elected as a director of TSI Software on August 27,
1998. Mr. Schadt is the Chairman of Dailey Capital Management, LLC. From July
1994 until August 1997, Mr. Schadt was the Chief Executive Officer of Readers
Digest Association, Inc. Mr. Schadt joined Readers Digest in 1991 as its
President and Chief Operating Officer. Previously, Mr. Schadt was a director of
Cadbury Schweppes, PLC and the Chief Executive Officer of Cadbury Beverages,
Inc., its global beverages operation. Mr. Schadt also serves on the board of
trustees of The American Enterprise Institute and Northwestern University, where
he earned his Bachelor of Arts degree.

     Dennis G. Sisco has served as a director of TSI Software since January
1990. Mr. Sisco is a partner with Behrman Capital. From December 1988 until
February 1997, Mr. Sisco was the President of D&B Enterprises, Inc. (now
Cognizant Enterprises, Inc.). From December 1988 until February 1997, Mr. Sisco
had also been employed by Cognizant Corporation and its predecessor, The Dun &
Bradstreet Corporation, most recently as an Executive Vice President. Mr. Sisco
is also a director of the Gartner Group, Inc., Oacis Healthcare Holdings
Corporation, and Aspect Development, Inc.

Executive Officers

<TABLE>
<CAPTION>
            Name            Age         Position  with TSI Software
-------------------------------------------------------------------
<S>                         <C>      <C>
Constance F. Galley          58      President and Chief Executive Officer and Director

Eric A. Amster               45      Vice President, Sales

Patricia T. Boggs            48      Vice President, Professional Services

Robert Bouton                59      Vice President, Marketing

Albert Denz                  49      Vice President, Managing Director EUMA and AP

Ira A. Gerard                52      Vice President, Finance and Administration, Chief
                                     Financial Officer

R. Anthony Percy             53      Vice President, Strategic Planning
</TABLE>

                                       35
<PAGE>

<TABLE>
<S>                          <C>      <C>
David Power                  47       Vice President, Marketing

David Raye                   38       Vice President, Operations

Edward J. Watson             62       Executive Vice President, Business Development

Saydean Zeldin               59       Vice President, Research and Development
</TABLE>

     Constance F. Galley has been president, chief executive officer and a
director of TSI Software since 1985, when TSI Software commenced operating as an
independent entity. Prior to 1985, Ms. Galley directed TSI Software's Marketing
and Development Operations when TSI Software was part of ITAA and IVANS, and is
the former chairperson of SACIA, the Business Council of Southwestern
Connecticut. Ms. Galley holds a Bachelor of Arts degree in Chemistry from Duke
University.

     Eric A. Amster has been vice president, sales since joining TSI Software in
December 1995. From February 1992 until December 1995, Mr. Amster was employed
by General DataComm Industries, Inc., a data communications company, where he
served most recently as vice president of U.S. Federal and Commercial Sales. Mr.
Amster holds a Bachelor of Science degree in Computer Science from the
University of Maryland.

     Patricia T. Boggs has been vice president, professional services since
joining TSI Software in June 1997. From February 1991 to 1997, Ms. Boggs was
employed by Datalogix International Inc., where she served most recently as vice
president of client services. Prior to 1991 Ms. Boggs was an assistant professor
at both John Carroll University, University Heights, Ohio and Wright State
University in Dayton, Ohio. Ms. Boggs holds a Masters Degree in Economics and a
Doctorate in Operations Research/Statistics from Kent State University.

     Albert Denz, managing director and vice president international operations
joined TSI Software in January 1999 from SAP AG where he served as vice
president, corporate marketing beginning in 1996. Prior to SAP, Denz had a
19-year career at IBM where he served in various executive sales positions and
as IBM's international director of SAP operations. Mr. Denz graduated from the
University of Teubingen in Saarbruecken, Germany, with a degree in Economics.

     Ira A. Gerard has been vice president, finance and administration, chief
financial officer, treasurer and secretary since joining TSI Software in October
1995. From March 1994 to October 1995, Mr. Gerard served as vice president and
chief financial officer of Adage Systems International, Inc., an ERP software
company. From July 1993 to March 1994, Mr. Gerard was an independent consultant.
From December 1989 until July 1993, Mr. Gerard was employed by Gestetner PLC, a
photocopier and photographic equipment company, where he served most recently as
vice president, finance and operations. Mr. Gerard holds a Bachelor of Arts
degree in Economics from Union College and a Master of Business Administration
from Harvard University.

     R. Anthony Percy, vice president of strategic planning, joined TSI Software
in January 1999 after more than ten years at GartnerGroup where he was vice
president, director of research, and research fellow covering primarily database
and middleware topics. Mr Percy started his professional career as a Systems
Engineer with IBM in the United Kingdom in 1969, followed by experience as both
a customer and provider of technology, including positions at 3M UK and Applied
Data Research. Mr. Percy earned a master's degree in Modern Languages (German
and Russian) at Christ Church, Oxford.

     David Power became vice president of marketing for TSI Software in
September 1999 through the acquisition of Novera Software, Inc. bringing 18
years of marketing and management experience in high

                                       36
<PAGE>

technology companies. Prior to joining TSI Software, Mr. Power was chief
executive officer and president of Novera, a company he joined in July 1998.
Prior to Novera, he was senior vice president of marketing and corporate
development at Security Dynamics, Inc. Mr. Power joined Security Dynamics from
AT&T. Additionally, he served as Vice President and General Manager for two Sun
Microsystems software businesses, and was vice president and co-founder of the
Information Technology Industry Group at Mercer Management Consulting. Mr. Power
received a Masters of Business Administration from Stanford University and holds
Bachelor of Science and Masters of Science degrees from Tufts University.

     David Raye has been the vice president, operations of TSI Software since
June 1994. From August 1992 until May 1994, Mr. Raye served as vice president,
KEY/MASTER Operations. From 1991 until July 1992, Mr. Raye served as TSI
Software's director of operations. Prior to August 1991, Mr. Raye served in
various management capacities in the software industry including director of
marketing for Information Sciences and senior product marketing manager for
On-Line Software, International. Mr. Raye holds a Bachelor of Science degree in
Marketing from Rutgers University and a Master of Business Administration from
St. John's University, New York.

     Edward J. Watson has been executive vice president, business development of
TSI Software since June 1994. From January 1994 until June 1994, Mr. Watson
managed TSI Software's PC Division. From November 1990 until January 1994, Mr.
Watson was a consultant to TSI Software and a general partner of DownEast
Partners, a consulting company. Prior to 1990, Mr. Watson served in various
management capacities in the software industry, including president of TSI
International (the predecessor of TSI Software) and Higher Order Software. Mr.
Watson is married to Ms. Saydean Zeldin, the vice president, research and
development of TSI Software. Mr. Watson attended Oxford University. Mr. Watson
retired in January 2000, and is servicing TSI Software on a consulting basis.

     Saydean Zeldin has been vice president, research and development of TSI
Software since October 1994. From November 1990 to October 1994, Ms. Zeldin was
a consultant to TSI Software and a general partner at DownEast Partners, a
consulting company. Prior to 1990, Ms. Zeldin served in several senior
engineering positions in the software industry, including serving as founder and
president of Touchstone Engineering, a software company that developed a
management planning system using artificial intelligence technology, and
guidance development of the Apollo flight software at the Instrumentation
Laboratory, a laboratory of MIT. Ms. Zeldin is married to Mr. Watson, the
executive vice president, business development of TSI Software. Ms. Zeldin holds
a Bachelor of Arts degree in Physics from Temple University.


         COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT

     Section 16 of the Exchange Act requires TSI Software's directors and
officers, and persons who own more than 10% of a registered class of TSI
Software's equity securities, to file initial reports of ownership and reports
of changes in ownership with the SEC. Such persons are required by SEC
regulation to furnish TSI Software with copies of all Section 16(a) forms they
file. Based solely on its review of the copies of such forms furnished to TSI
Software and written representations from the executive officers and directors
of TSI Software, the following persons have submitted late forms to the SEC:
Constance F. Galley (April 29 transaction reported with May transactions on June
10); Robert H. Bouton (April 29 transaction reported with May transactions on
June 10); and Ernest E. Keet (November transactions reported after the December
10 deadline). TSI Software believes that all other Section 16(a) filing
requirements were met during 1999.

                                       37
<PAGE>

ITEM 11.   EXECUTIVE COMPENSATION


     The following table sets forth all compensation awarded, earned or paid for
services rendered in all capacities to TSI Software and its subsidiaries during
1999, 1998 and 1997 to (i) TSI Software's chief executive officer, and (ii) TSI
Software's four other most highly compensated executive officers who were
serving as executive officers at the end of 1999. This information includes the
dollar values of base salaries and bonus awards, the number of shares subject to
stock options granted and certain other compensation, if any, whether paid or
deferred. TSI Software does not grant stock appreciation rights and has no
long-term compensation benefits other than stock options.

                          Summary Compensation Table

<TABLE>
<CAPTION>
                                                                                                        Long-Term
                                                                                                      Compensation
                                                                        Annual Compensation              Awards
                                                          ---------------------------------------        ------
                                                                                                       Securities
                                                                                     Other Annual      Underlying
Name and Principal Position                   Year        Salary     Bonus (1)   Compensation (2)      Options (3)
---------------------------                   ----        ------     ---------   ----------------      -----------
<S>                                           <C>       <C>          <C>         <C>                   <C>
Constance F. Galley                           1999      $338,231      $186,564           $  9,725           80,000
   President, CEO and Director                1998       225,000        96,454              6,702           40,000
                                              1997       203,538        50,000              4,952          225,000

Eric A. Amster                                1999      $195,563      $121,497           $200,252(4)        40,000
   Vice President, Sales                      1998       125,000           ---            245,705(4)        30,000
                                              1997       125,000           ---            184,918(4)           ---

Patricia T. Boggs                             1999      $180,000      $ 40,000           $ 10,395           40,000
   Vice President, Worldwide                  1998       153,012        45,000              9,523           30,000
   Professional Services                      1997        90,623        10,000              4,258           60,000

Saydean Zeldin                                1999      $150,000      $ 65,000           $  5,126           50,000
   Vice President, R&D                        1998       155,000        45,000              4,449           50,000
                                              1997       154,808        26,667              2,859              ---

Ira A. Gerard                                 1999      $160,000      $ 50,000           $ 10,386           25,000
   Vice President, Finance and                1998       160,000        45,000             11,362           30,000
   Administration, Chief Financial            1997       159,892        26,667              6,417              ---
   Officer, Secretary & Treasurer
</TABLE>

---------------------------

(1)  Bonus amounts are reported in the year determined and paid.
(2)  Unless otherwise indicated below, represents the portion of health, life
     and disability insurance premiums paid by TSI Software, and for 1999 and
     1998 only, the amount of the matching 401(k) contributions paid by TSI
     Software.
(3)  Adjusted for stock split on April 5, 1999.
(4)  Includes sales commissions paid to Mr. Amster by TSI Software in the amount
     of $187,943, $233,047 and $178,501 in 1999, 1998 and 1997, respectively,
     and $12,309, $12,658 and $6,417 for the portion of health, life and
     disability insurance premiums, and 401(k) matching contributions paid by
     TSI Software in 1999, 1998 and 1997, respectively.

     The following table sets forth further information regarding option grants
pursuant to TSI Software's 1997 Equity Incentive Plan during 1999 to each of the
Named Executive Officers. In accordance with the

                                       38
<PAGE>

rules of the Securities and Exchange Commission (the "SEC"), the table sets
forth the hypothetical gains or "option spreads" that would exist for the
options at the end of their respective ten-year terms. These gains are based on
assumed rates of annual compound stock price appreciation of 5% and 10% from the
date the option was granted to the end of the option term.

                             OPTION GRANTS IN 1999

<TABLE>
<CAPTION>
                                                                                                 POTENTIAL REALIZABLE
                                              PERCENTAGE                                           VALUE AT ASSUMED
                           NUMBER OF           OF TOTAL                                            ANNUAL RATES OF
                           SECURITIES          OPTIONS                                               STOCK PRICE
                           UNDERLYING        GRANTED TO        EXERCISE                             APPRECIATION
                             OPTIONS          EMPLOYEES        PRICE PER       EXPIRATION        FOR OPTION TERM (2)
NAME                       GRANTED (1)         IN 1999           SHARE            DATE             5%           10%
-----------------------------------------------------------------------------------------------------------------------
<S>                        <C>               <C>               <C>             <C>              <C>          <C>
Constance F. Galley......    80,000              3.5%            $20.75          7/12/09        $1,043,965   $2,645,612

Eric A. Amster...........    40,000              1.7%            $19.25          5/18/09        $  484,249   $1,136,401

Patricia T. Boggs........    40,000              1.7%            $19.25          5/18/09        $  484,249   $1,136,401

Saydean Zeldin...........    50,000              2.2%            $19.25          5/18/09        $  605,311   $1,420,501

Ira A. Gerard............    25,000              1.1%            $19.25          5/18/09        $  302,656   $  710,250
</TABLE>

(1)  The options shown in the table were granted at fair market value, are
     incentive stock options (to the extent permitted under the Code) and will
     expire ten years from the date of grant, subject to earlier termination
     upon termination of the optionee's employment.

(2)  Potential realizable values are calculated based on the fair market value
     of the Common Stock at the date of grant minus the exercise price. The 5%
     and 10% assumed annual compound rates of stock price appreciation are
     mandated by the rules of the Securities and Exchange Commission and do not
     represent TSI Software's estimate or projection of future Common Stock
     prices or values.

                                       39
<PAGE>

     The following table sets forth certain information concerning the exercise
of options by each of the Named Executive Officers during 1999, including the
aggregate amount of gains on the date of exercise. In addition, the table
includes the number of shares covered by both exercisable and nonexercisable
stock options as of December 31, 1999. Also reported are values of
"in-the-money" options that represent the positive spread between the respective
exercise prices of outstanding stock options and $56.625 per share, which was
the closing price of TSI Software's Common Stock as reported on the Nasdaq
National Market on December 31, 1999, the last day of trading for 1999.

            AGGREGATE OPTION EXERCISES IN 1999 AND YEAR-END VALUES
            ------------------------------------------------------

<TABLE>
<CAPTION>
                                                     NUMBER OF SECURITIES
                        SHARES                      UNDERLYING UNEXERCISED         VALUE OF UNEXERCISED IN-
                       ACQUIRED                          OPTIONS                      THE-MONEY OPTIONS
                          ON         VALUE            AT YEAR-END(1)                    AT YEAR-END(1)
      NAME             EXERCISE     REALIZED     EXERCISABLE   UNEXERCISABLE      EXERCISABLE    UNEXERCISABLE
      ----             --------     --------     -----------   -------------      -----------    -------------
<S>                   <C>          <C>           <C>           <C>                <C>            <C>
Constance F. Galley     100,000    $1,559,400       362,422        222,500         $20,039,418    $10,358,890


Eric A. Amster           31,000    $  991,875       127,500        176,500         $ 7,132,541    $ 9,039,372

Patricia T. Boggs           ---           ---        10,600        160,000         $   543,330    $ 7,665,601

Saydean Zeldin            6,000    $  135,000       165,500        105,500         $ 9,224,638    $ 4,739,563

Ira Gerard                  ---           ---       295,500         47,500         $16,633,781    $ 2,054,277
</TABLE>

(1)  These values have not been, and may never be, realized and are based on the
     positive spread between the respective exercise prices of outstanding
     options and the closing price of TSI Software's Common Stock on December
     31, 1999, the last day of trading for 1999.

                            COMPENSATION AGREEMENTS

     TSI Software has entered into agreements with the following executive
officers of TSI Software: Constance F. Galley, TSI Software's President and
Chief Executive Officer; Ira A. Gerard, TSI Software's Vice President, Finance
and Administration and Chief Financial Officer; Eric A. Amster, TSI Software's
Vice President, Sales; Saydean Zeldin, TSI Software's Vice President, Research
and Development; Edward J. Watson, TSI Software's Executive Vice President, New
Business Development; David Power, TSI Software's Vice

                                       40
<PAGE>

President, Marketing; Herbert Rush, TSI Software's Vice President, Web
Technology Strategy; and Albert Denz, Vice President, International Operations.

     Ms. Galley's agreement provided for an initial annual base salary of
$225,000. Ms. Galley currently receives a base salary of $340,000. Ms. Galley is
also eligible to receive an annual bonus based upon TSI Software achieving
certain financial objectives. This agreement may be terminated by TSI Software
at any time for any reason. If Ms. Galley is terminated without cause, she will
continue to receive her base salary for a one-year period following such
termination. In the event that TSI Software is acquired by a company that does
not continue to employ Ms. Galley, she will continue to receive her salary for a
one-year period following such termination.

     Mr. Gerard's agreement provided for an initial annual base salary of
$146,000 and an option grant to purchase an aggregate of 144,000 shares of
common stock. Mr. Gerard currently receives a base salary of $195,000. Mr.
Gerard is eligible to receive a bonus for meeting corporate objectives. This
agreement may be terminated by TSI Software at any time for any reason. If Mr.
Gerard is terminated without cause, he will continue to receive his base salary
for a six-month period following such termination. In the event that TSI
Software is acquired by a company that does not continue to employ Mr. Gerard,
he will continue to receive his salary for a six-month period following such
termination.

     Mr. Amster's agreement provided for an initial annual base salary of
$125,000 and an option grant to purchase an aggregate of 72,000 shares of Common
Stock. Mr. Amster currently receives a base salary of $160,000. Mr. Amster is
eligible to receive a bonus and commissions upon meeting revenue related goals.
This agreement may be terminated by TSI Software at any time for any reason. If
Mr. Amster is terminated without cause, he will continue to receive his base
salary for a six-month period following such termination.

     Ms. Zeldin's agreement provided for an initial annual base salary of
$130,000. Ms. Zeldin currently receives a base salary of $225,000. This
agreement may be terminated by TSI Software at any time for any reason. If Ms.
Zeldin is terminated without cause, she will continue to receive her base salary
for a six-month period following such termination. In the event that TSI
Software is acquired by a company that does not continue to employ Ms. Zeldin,
she will continue to receive her base salary for a one-year period following
such termination.

     Mr. Watson received a base salary of $160,000. On January 31, 2000, Mr.
Watson retired from TSI Software. TSI Software has agreed to hire Mr. Watson as
a part-time consultant.

     Mr. Power's agreement provides for an initial annual base salary of
$185,000 and an option grant to purchase an aggregate of 100,000 shares of
common stock. Mr. Power is eligible to receive a bonus of up to 40% of base
salary based on targets set at the beginning of the fiscal year. In addition,
Mr. Power is eligible to earn from 50% to 100% of a $20,000 bonus based upon
revenue produced from Novera products in the fourth quarter of 1999. This
agreement may be terminated by TSI Software at any time for any reason. If Mr.
Power is terminated, he will continue to receive his base salary and benefits
for a six month period following such termination. In the event that TSI
Software is acquired by a company that does not continue to employ Mr. Power, he
will receive his base salary and eligible benefits for six months following such
termination.

                                       41
<PAGE>

     Mr. Rush's agreement provides for an annual base salary of $140,000 and an
option grant to purchase an aggregate of 25,000 shares of Common Stock. Mr. Rush
is eligible to receive a bonus of $19,050 based upon the delivery of an
integrated B2B product by the end of 1999. This agreement may be terminated by
TSI Software at any time for any reason. If Mr. Rush is terminated without
cause, he will continue to receive his base salary and benefits for a six-month
period following such termination. Mr. Rush has the right to terminate this
Agreement at any time prior to April 1, 2000 for good reason and shall receive
his base salary and benefits for a six-month period following such termination.
In the event that TSI Software is acquired by a company that does not continue
to employ Mr. Rush, he will receive his base salary and eligible benefits for
six months following such termination. On February 29, 2000, Mr. Rush resigned
from TSI Software. TSI Software has agreed to hire Mr. Rush as a part-time
consultant and is currently negotiating his consulting contract.

     Mr. Denz' agreement provides for an annual base salary of $150,000 and an
option grant to purchase an aggregate of 50,000 shares of Common Stock. Mr. Denz
is also eligible to receive an additional grant of options to purchase an
aggregate of 50,000 shares of Common Stock upon growing the international
business 20% in the first two years of employment. This agreement may be
terminated by TSI Software at any time for any reason. If Mr. Denz is terminated
without cause, he will continue to receive his base salary and benefits for a
six-month period following such termination.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The Company's Board of Directors has established a Compensation Committee
consisting of Mr. Keet, Schadt and Sisco. No person who served as a member of
the Compensation Committee was, during the fiscal year ended December 31, 1999,
an officer or employee of the Company or any of its subsidiaries, was formerly
an officer of the Company or any of its subsidiaries, or had any relationship
requiring disclosure herein. No executive officer of the Company serves as a
member of the board of directors or compensation committee of any entity which
has one or more executive officers serving as a member of the Company's Board of
Directors or Compensation Committee.

                       REPORT ON EXECUTIVE COMPENSATION

     The Company's executive compensation program is administered by the
Compensation Committee of the Board. The Compensation Committee has three
members: Ernest E. Keet , James P. Schadt, and Dennis G. Sisco. Each of these
persons is a non-employee director within the meaning of Section 16 of the
Securities Exchange Act of 1934, as amended, and an "outside director" within
the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended.
None of the members of the Compensation Committee has any interlocking
relationships as defined by the Securities and Exchange Commission.

General Compensation Philosophy

     The Committee acts on behalf of the Board to establish the general
compensation policy of the Company for all employees of the Company. The
Committee typically reviews base salary levels and target bonuses for the Chief
Executive Officer and other executive officers and employees of the Company at
or about the beginning of each year. The Committee administers TSI Software's
incentive and equity plans, including the 1997 Equity Incentive Plan and the
1997 Employee Stock Purchase Plan. In addition to their base salaries, TSI
Software's executive officers, including the CEO, are each eligible to receive a
cash bonus and are entitled to participate in the Incentive Plan.

     The Committee's philosophy in compensating executive officers, including
the Chief Executive Officer, is to relate compensation directly to corporate
performance. Thus, the TSI Software compensation policy, which applies to
management and other key employees of the Company, relates a portion of each
individual's total compensation to the Company-wide and individual objectives
and profit objectives, set forth at the beginning of the year. Consistent with
this policy, a designated portion of the compensation of the executive officers
of TSI Software is contingent on both corporate performance and on the
individual's performance as measured against personal objectives, as determined
by the Committee in its direction. Long-term equity incentives for executive
officers are effected through the granting of stock options under the Incentive
Plan. Stock options generally have value for the executive only if the price of
the TSI Software's stock increases above the fair market value on the grant date
and the executive remains in TSI Software's employ for the period required for
the options to vest.

     The base salaries, incentive compensation and stock option grants of the
executive officers are determined in part by the Committee reviewing data on
prevailing compensation practices in companies with whom TSI Software competes
for executive talent, and by their evaluating such information in connection
with TSI Software's corporate goals. To this end, the Committee attempted to
compare the compensation of the TSI Software's executive officers with the
compensation practices of comparable companies to determine base salary, target
bonuses and target total cash compensation.

     In preparing the performance graph for this Proxy Statement the Company
used the Hambrecht & Quist Technology Index as its published line of business
index.

1999 Executive Compensation

Base Salary

     Salaries for executive officers for 1999 were generally determined on an
individual basis by evaluating each executive's scope of responsibility,
performance, prior experience and salary history, as well as the salaries for
similar positions at comparable companies. In addition, the TSI Software's
human resources department provided information to the Compensation Committee
regarding salary range guidelines for specific positions.

Annual Incentive Awards

     All full-time employees of TSI Software, including executive officers, are
eligible to receive an annual bonus based upon (i) the total financial goals of
the Company, as determined by the Compensation Committee, and (ii) the
employee's achievement of personal and team objectives, as determined by the
Compensation Committee. The Compensation Committee has the sole discretion to
determine the individuals who are to receive bonuses, the amount of the bonus
and the weighting between total Company financial goals versus personal and
team objectives when determining an individual's bonus.

Long-Term Incentive Awards

     The Compensation Committee believes that equity-based compensation in the
form of stock options links the interests of management and TSI Software's
stockholders by focusing employees and management on increasing stockholder
value. Stock options generally have value only if the price of TSI Software's
stock increases above the fair market value on the grant date and the executive
remains in TSI Software's employ for the period required for the shares to vest.

     In 1999, stock options were granted in accordance with TSI Software's 1997
Equity Incentive Plan to certain executive officers as incentives for them to
become employees or to aid in the retention of executive officers and to align
their interests with those of the stockholders. Stock options typically have
been granted to executive officers when the executive first joins the Company,
in connection with a significant change in responsibilities and, occasionally,
to achieve equity within a peer group. The Compensation Committee may, however,
grant additional stock options to executive officers for other reasons. The
number of shares subject to each stock option granted is within the discretion
of the Compensation Committee and is based on anticipated future contribution
and ability to impact TSI Software's results, past performance or consistency
within the officer's peer group. In 1999, the Compensation Committee
considered these factors, as well as the number of unvested option shares held
by the officer as of the date of the grant. At the discretion of the
Compensation Committee, executive officers may also be granted stock options
to provide greater incentive to continue their employment with TSI Software
and to strive to increase the value of TSI Software's common stock. The stock
options generally become exercisable over a four-year period and are granted at
a price that is equal to the fair market value of TSI Software's common stock on
the date of grant.

Chief Executive Officer Compensation

     MS. Galley's base salary, target bonus, bonus paid and long-term incentive
awards for 1999 were determined in a manner consistent with the factors
described above for all executive officers. Ms. Galley does not participate in
any compensation deliberations with respect to any of her compensation.

Internal Revenue Code Section 162(m) Limitation

     Section 162(m) of the Code limits the tax deduction for compensation paid
to certain executives of public companies to $1.0 million. Having considered the
requirements of Section 162(m), the Compensation Committee believes that grants
made pursuant to the 1997 Plan meet the requirements that such grants be
"performance based" and are, therefore, exempt from the limitations on
deductibility. Historically, the combined salary and bonus of each executive
officer has been below the $1.0 million limit. The Compensation Committee's
present intention is to comply with Section 162(m) unless the Compensation
Committee feels that required changes would not be in the best interest of TSI
Software or its stockholders.


                                        COMPENSATION COMMITTEE

                                             Ernest E. Keet
                                             James P. Schadt
                                             Dennis G. Sisco

                        COMPANY STOCK PRICE PERFORMANCE

     The stock price performance graph below is required by the SEC and shall
not be deemed to be incorporated by reference by any general statement
incorporating by reference into any filing under the Securities Act, as amended,
or under the Exchange Act, except to the extent that TSI Software specifically
incorporates this information by reference, and shall not otherwise be deemed
soliciting material or filed under such Acts.

     The graph below compares the cumulative total stockholder return on the
Common Stock of TSI Software from July 3, 1997 to December 31, 1999 with the
cumulative total return on the Nasdaq Stock Market--U.S. Index and the H&Q Index
over the same period (assuming the investment of $100 in the Common Stock of
Company and in each of the other indices on July 3, 1997, and reinvestment of
all dividends).



                 TSI INTERNATIONAL        NASDAQ            HAMBRECHT & QUIST
                   SOFTWARE LTD.     STOCK MARKET (U.S)     COMPUTER SOFTWARE
                 -----------------   ------------------     -----------------
07/03/1997            100.00              100.00                 100.00
07/1997                79.17              110.54                 110.98
08/1997                68.06              110.38                 115.63
09/1997                73.61              116.92                 119.91
10/1997                60.42              110.83                 117.44
11/1997                56.25              111.42                 118.15
12/1997                52.78               109.5                 111.56
01/1998                72.92              112.96                 115.56
02/1998                84.72              123.59                 133.82
03/1998                97.92              128.15                 144.82
04/1998               122.12              130.31                 145.38
05/1998               122.22              123.07                  139.8
06/1998               127.08              131.67                 150.11
07/1998               127.78              130.13                 141.71
08/1998               149.31              104.41                 109.22
09/1998               192.36               118.9                 125.21
10/1998               174.31              124.04                 120.63
11/1998               202.78              136.58                 134.07
12/1998               265.97               154.3                 145.74
01/1999               307.64              176.74                 154.14
02/1999               278.82              160.89                 142.58
03/1999               271.18               172.6                 145.67
04/1999               175.00              177.45                 127.99
05/1999               245.83              173.36                 146.84
06/1999               315.28              188.84                 166.27
07/1999               211.81              186.09                 161.34
08/1999               211.11              193.46                 166.55
09/1999               301.39              193.15                 184.68
10/1999               266.67              483.33                 629.17
11/1999               207.19              229.29                 278.76
12/1999               206.15              247.51                 331.59


    ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain information with respect to the
beneficial ownership of TSI Software common stock as of February 23, 2000 by:
(i) each stockholder known by TSI Software to be the beneficial owner of more
than 5% of TSI Software's common stock; (ii) each director; (iii) TSI Software's
current Chief Executive Officer and each of TSI

                                       42
<PAGE>

 Software's four other most highly compensated executive officers; and (iv) all
 directors and executive officers as a group.

<TABLE>
<CAPTION>
Outstanding                                       Amount and Nature of                  Percent of
Name of Beneficial Owner                          Beneficial Ownership (1)           Common Stock (1)
------------------------                          ------------------------           ----------------
<S>                                               <C>                                <C>
Chilton Investment Partners (2) ...............                  2,223,000                       7.9%

Scudder Kemper Investments, Inc. (3) ..........                  2,154,600                       7.7%

Ernest E. Keet, Vanguard Atlantic Ltd. (4) ....                  1,298,354                       4.6%

Constance F. Galley (5) .......................                  1,004,468                       3.6%

Richard Little (6) ............................                    873,028                       3.1%

Saydean Zeldin (7) ............................                    447,000                       1.1%

Ira A. Gerard (8) .............................                    306,408                       1.6%

Eric A. Amster (9) ............................                    168,844                        *

James P. Schadt ...............................                     36,500                        *

Dennis G. Sisco ...............................                     27,500                        *

Patricia T. Boggs (10) ........................                     20,908                        *

All executive officers and directors as a group
    (14 persons) (11) .........................                  4,396,486                       5.6%
</TABLE>

_________________________
Less than 1%

a* Address of record is c/o TSI International Software LTD., 45 Danbury Road,
Wilton, CT 06897.

     (1)  Based upon a total of (i) 28,331,723 shares of Common Stock
          outstanding as of February 23, 2000, and (ii) shares of common stock
          issuable pursuant to options held by the respective person or group
          which may be exercised within 60 days of the record date. Unless
          otherwise indicated below, the persons and entities named in the table
          have sole voting and sole investment power with respect to all shares
          beneficially owned, subject to community property laws where
          applicable. Shares of Common Stock subject to options that are
          currently exercisable or exercisable within 60 days of February
          23,2000 are deemed to be outstanding and to be beneficially owned by
          the person holding such options for the purpose of computing the
          percentage ownership of such person but are not treated as outstanding
          for the purpose of computing the percentage ownership of any other
          person.

     (2)  Based upon a Schedule 13G dated February 14, 2000. The shares include
          2,223,000 shares in which the Chilton Investment Company, Inc.
          ("Chilton") has sole power to vote or direct the vote. The shares
          include 2,305,000 shares in which Chilton has sole power to dispose or
          direct the disposition of. The address of Chilton is 65 Locust Avenue,
          2nd Floor, New Canaan, Connecticut 06480.

     (3)  Based upon a Schedule 13G dated January 28, 2000. The shares include
          1,232,600 shares in which Scudder Kemper Investments, Inc. ("Scudder")
          has sole power to vote or to

                                       43
<PAGE>

          direct the vote and 274,600 shares in which Scudder has shared power
          to vote or to direct the vote. The address of Scudder is 345 Park
          Avenue, New York, NY 10154.

     (4)  Includes 804,768 shares of Common Stock held of record by Vanguard
          Atlantic Ltd. ("Vanguard"), 50,000 shares of Common Stock held of
          record by the Ernest E. & Nancy R. Keet Foundation and 121,086 shares
          of Common Stock held of record by Mr. Keet. Mr. Keet, a director of
          TSI Software, is the President of Vanguard and may be deemed to
          beneficially own the shares owned by such entity. Mr. Keet disclaims
          beneficial ownership of the shares held by Vanguard and by the Ernest
          E. & Nancy R. Keet Foundation except to the extent of his indirect
          pecuniary interest therein. The address of Vanguard is 304 Main
          Avenue, Suite 290, Norwalk, Connecticut 06851 and the address of Mr.
          Keet is 619 Marina Boulevard, San Francisco, CA 94123.

     (5)  Includes 56,250 shares of Common Stock subject to options exercisable
          within 60 days of February 23, 2000, and 50,010 shares of Common Stock
          issuable upon exercise of currently exercisable warrants. Also
          includes 10,150 shares of Common Stock owned by Ms. Galley's husband,
          Richard Galley. Ms. Galley disclaims beneficial ownership of shares
          owned by Mr. Galley. *

     (6)  Includes 7,500 shares of Common Stock subject to options exercisable
          within 60 days of February 23, 2000. Also includes 433,648 shares of
          Common Stock held of record by the Fiscal Services International as
          Nominee for Richard Little ("FSI Nominee"), and 395,086 shares held of
          record by Fiscal Services International as Trustees of the Little No.
          1 Trust ("FSI Trustee"). Mr. Little disclaims beneficial ownership of
          the shares held by FSI Nominee and FSI Trustee except to the extent of
          his indirect pecuniary interest therein. *

     (7)  Includes 12,500 shares of Common Stock subject to options exercisable
          within 60 days of February 23, 2000. Also includes 18,000 shares of
          Common Stock, 7,500 vested options, 7,500 shares of Common Stock
          subject to options exercisable within 60 days of February 23, 2000 and
          12,000 warrants all of which are held by Ms. Zeldin's husband, Edward
          Watson. Ms. Zeldin disclaims beneficial ownership of the shares and
          options held by Mr. Watson. *

     (8)  Includes 6,250 shares of Common Stock subject to options exercisable
          within 60 days of February 23, 2000.*

     (9)  Includes 10,000 shares of Common Stock subject to options exercisable
          within 60 days of February 23, 2000.*

     (10) Includes 25,000 shares of Common Stock subject to options exercisable
          within 60 days of February 23, 2000.*

     (11) Includes an aggregate of 3,854,521 shares of Common Stock subject to
          options currently exercisable or exercisable within 60 days of
          February 23, 2000, and 62,010 shares of Common Stock issuable upon
          exercise of currently exercisable warrants, including the options and
          warrants described in footnotes (4) through (10).

                                       44
<PAGE>

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Included in the stock purchase agreement TSI Software entered into with
Braid, there is an earn-out provision whereby each former shareholder of Braid
may be entitled to payments from TSI Software depending on certain financial
results of the combined company. Richard Little, a Director, and Peter Little
are former shareholders of Braid and as such would be entitled to a portion of
the earn-out. TSI Software also entered into an agreement with Software
Consulting Partners. This agreement also includes an earn-out provision whereby
the former shareholder of SCP may be entitled to payments depending on financial
results of the combined company. Ulrich Neubert is the sole shareholder of
Software Consulting Partners and as such would be entitled to any earn-out.


                                   PART IV.


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K:

     The following documents are filed as part of this Annual Report on Form
10-K:

1.   Consolidated Financial Statements. The following consolidated financial
     statements of TSI Software and Report from the Independent Accountants are
     incorporated in Item 8 of this Annual Report on Form 10-K.

     Independent Auditors' Report

     Consolidated Balance Sheets at December 31, 1999 and 1998

     Consolidated Statements of Operations for the Years Ended December 31,
     1999, 1998 and 1997

     Consolidated Statements of Stockholders' Equity (Deficit) for the Years
     Ended December 31, 1999, 1998 and 1997

     Consolidated Statements of Cash Flows for the Years Ended December 31,
     1999, 1998 and 1997

     Notes to Consolidated Financial Statements

  2. Consolidated Financial Statement Schedules. Consolidated financial
     statement schedules have been omitted because the required information is
     not present or not present in amounts sufficient to require submission of
     the schedule, or because the information required is included in the
     consolidated financial statements or the notes thereto.

3(a) The Exhibits listed in the Exhibit Index immediately proceeding the
     Exhibits are filed as a part of this Annual Report on 10K.

3(b) TSI Software filed a report on Form 8-K on April 1, 1999 and October 15,
     1999 with respect to TSI Software's acquisition of Braid Ltd. and Novera
     Software, Inc., respectively.


                                       45
<PAGE>

                                  SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                        By  /s/ Constance F. Galley
                                           ----------------------------------
                                            President, Chairman of the
                                            Board of Directors and
                                            Chief Executive Officer

Pursuant to the requirements of the Securities Act, this Annual Report on Form
10-K has been signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.

Name                        Capacity                               Date
----                        --------                               ----

/s/Constance F. Galley      President, Chief Executive             March , 2000
----------------------
Constance F. Galley         Officer and Chairman of the
                            Board of Directors

/s/Ira Gerard               Senior Vice President, Chief           March , 2000
----------------------
Ira A. Gerard               Financial Officer and Treasurer


/s/Ernest Keet              Director                               March , 2000
---------------------
Ernest E. Keet


/s/Richard Little           Director                               March , 2000
----------------------
Richard Little


/s/James P. Schadt          Director                               March , 2000
---------------------
James P. Schadt


/s/Dennis G. Sisco          Director                               March , 2000
---------------------
Dennis G. Sisco

                                      46
<PAGE>

                                 EXHIBIT INDEX

     Exhibit Number                     Exhibit Title
     --------------                     -------------

     2.1            Agreement and Plan of Reorganization dated as of September
                    30, 1999 by and among TSI International Software Ltd.,
                    Natchez Acquisition Corp. and Novera Software, Inc. (filed
                    as Exhibit 2.1 to TSI Software's current Report on Form 8-K
                    dated September 30, 1999 and incorporated herein by
                    reference).

     2.2            Stock Purchase Agreement dated as of March 18, 1999 by and
                    among TSI Software and each of the stockholders of Braid
                    (filed as exhibit 2.2 to TSI Software's Report on Form 8-K
                    dated March 18, 1999 and incorporated herein by reference.


     2.3            Asset Transfer Agreement dated as of November 13, 1998 by
                    and among the TSI Software, Software Consulting Partners and
                    the sole stockholder of Software Consulting Partners, (filed
                    as exhibit 2.3 to TSI Software's Report on Form 8-K dated
                    November 13, 1998 and incorporated herein by reference.

     3.1            Amended and Restated Certificate of Incorporation/(2)/

     3.2            Registrant's Amended and Restated Bylaws/(3)/

     3.3            Certificate of Designations specifying the terms of the
                    Series A Junior Participating Preferred Stock of TSI
                    Software/(4)/

     4.1            Form of Specimen Certificate for Registrant's Common
                    Stock/((2)/

     4.2            Stockholders Agreement dated as of June 1, 1989, as
                    amended/(2)/

     4.3            1989 Stock Purchase Agreement dated as of June 1, 1989, as
                    amended/(2)/

     10.1           Employment Agreement dated September 30, 1999 between TSI
                    International Software Ltd. and David Power./(1)/

     10.2           Employment Agreement dated September 30, 1999 between TSI
                    International Software Ltd. and Herbert Rush./(1)/

     10.3           *Registrant's 1993 Stock Option Plan and related
                    documents/(2)/

     10.4           *Registrant's 1997 Equity Incentive Plan/(2)/

     10.5           *Registrant's 1997 Directors Stock Option Plan/(2)/

     10.6           *Registrant's 1997 Employee Stock Purchase Plan/(2)/

     10.7           *Registrant's Profit Participation Plan/(2)/

     10.8           Form of Indemnification Agreement entered into by Registrant
                    with each of its directors and executive officers/(2)/
<PAGE>

     10.9      Lease Agreement dated as of January 2, 1990 between Registrant
               and Robert D. Scinto, as amended/(2)/

     10.10     Office Building Lease dated as of February 4, 1994 between
               Registrant and American National Bank and Trust Company of
               Chicago, not individually but solely as Trustee under Trust No.
               42978, as amended/(2)/

     10.11     Lease Agreement dated as of July 1, 1996 between Registrant and
               Boca Corners, LP, as amended/(2)/

     10.12     Credit Agreement dated as of July 31, 1994 between Registrant and
               The Bank of New York as amended/(2)/

     10.13     Security Agreement dated as of July 31, 1994 between Registrant
               and The Bank of New York/(2)/

     10.14     Guarantee Agreement dated as of August 22, 1994 by and between
               the Connecticut Development Authority and The Bank of New York as
               amended/(2)/

     10.15     *Letter Agreement, between Registrant and Constance Galley/(2)/

     10.16     *Letter Agreement dated as of December 5, 1995 between Registrant
               and Eric Amster/(2)/

     10.17     *Letter Agreement dated as of October 5, 1995 between Registrant
               and Ira Gerard/(2)/

     10.18     *Letter Agreement dated as of January 1, 1994 between Registrant
               and Edward Watson/(2)/

     10.19     *Letter Agreement dated as of October 1, 1994 between Registrant
               and Saydean Zeldin/(2)/

     10.20     Series E Preferred Stock Purchase Agreement dated as of May 15,
               1997 between TSI Software and the Purchasers named therein/(2)/

     13.0      Consolidated Financial Statements as of and for the years ended
               1999 and 1998

     21.1      Subsidiaries of the Company

     23.1      Consent of Independent Auditors

     24.01     Power of Attorney (see signature page)

     27.01     Financial Data Schedule

_____________________
*    Indicates a management contract or compensatory plan or arrangement.
(1)  Previously filed as an exhibit to TSI Software's current Report on Form 8-K
     filed on October 15, 1999 and incorporated herein by reference.
<PAGE>

(2)  Previously filed as an exhibit to TSI Software's Registration Statement on
     Form S-1 (File No. 333-27293) and incorporated herein by reference.
(3)  Previously filed as an exhibit to TSI Software's Registration Statement on
     Form 8-A (File No. 000-22667) filed on September 4, 1998 and incorporated
     herein by reference.
(4)  Previously filed as an exhibit to TSI Software's Report on Form 8-K filed
     on September 4, 1998 and incorporated herein by reference.