##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 10-K

FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTIONS 13 OR 15(d) OF THE


SECURITIES EXCHANGE ACT OF 1934


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|           |  | For the fiscal year ended March 31,
    2004                                                
|          
|or        
|          
|o          |  | 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: 0-22993



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Indus International, Inc.

(Exact name of Registrant as specified in its
charter)


|                                                                                          |  |                                         
|----------------------------------------------------------------------------------------- |  | ----------------------------------------
|Delaware                                                                                  |  | 94-3273443                              
|(State or other jurisdiction of
    incorporation or organization)                        |  | (I.R.S. Employer
    Identification No.)
|                                                                                         
|3301 Windy Ridge Parkway
    Atlanta, Georgia(Address of principal executive
    offices) |  | 30339(Zip code)                         

Registrants telephone number, including
area code

(770) 952-8444


Securities registered pursuant to
Section 12(b) of the Act:

None


Securities registered pursuant to
Section 12(g) of the Act:

Common Stock, $.001 par value


(Title of Class)




---

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 þ          No o

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.     o

Indicate by check
mark whether the registrant is an accelerated filer (as defined
in Exchange Act rule
12b-2).     Yes þ          No o

The aggregate
market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price $2.34 per
share of the Common Stock on September 30, 2003, as
reported on the Nasdaq National Market, was approximately
$65,779,400. Shares of Common Stock held by each officer and
director and by each person who owns 5% or more of the
outstanding Common Stock have been excluded in that such persons
may by deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other
purposes.

The number of
shares outstanding of the registrants Common Stock,
$.001 par value, was 57,062,729 at June 7, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the
Registrants Proxy Statement for the Annual Meeting to be
held on September 2, 2004 are incorporated by reference
into Part III thereof.



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INDUS INTERNATIONAL, INC.

FORM 10-K

FOR THE FISCAL YEAR ENDED MARCH 31,
2004


TABLE OF CONTENTS

|                                                              |  |                                                                                                                      |       |      |    | 
|------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- | ----- | ---- | -- | 
|                                                              |  |                                                                                                                      |       | Page
|                                                              |  |                                                                                                                      |       |     
|Documents Incorporated by Reference                           |  |                                                                                                                      | Cover |     
|Cautionary Statement
    Regarding Forward-Looking Statements |  |                                                                                                                      | 2     |     
|                                                             
|PART I                                                       
|Item 1.                                                       |  | Description of Business                                                                                              |       |      | 2  | 
|Item 2.                                                       |  | Properties                                                                                                           |       |      | 23 | 
|Item 3.                                                       |  | Legal Proceedings                                                                                                    |       |      | 23 | 
|Item 4.                                                       |  | Submission of Matters to a
    Vote of Security Holders                                                              |       |      | 24 | 
|                                                             
|PART II                                                      
|Item 5.                                                       |  | Market for Registrants
    Common Equity, Related Stockholder Matters and Issuer Purchases
    of Equity Securities |       |      | 25 | 
|Item 6.                                                       |  | Selected Financial Data                                                                                              |       |      | 26 | 
|Item 7.                                                       |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations                            |       |      | 28 | 
|Item 7A.                                                      |  | Quantitative and Qualitative
    Disclosures About Market Risk                                                       |       |      | 41 | 
|Item 8.                                                       |  | Financial Statements and
    Supplementary Data                                                                      |       |      | 43 | 
|Item 9.                                                       |  | Changes in and Disagreements
    With Accountants on Accounting and Financial Disclosure                             |       |      | 76 | 
|Item 9A.                                                      |  | Controls and Procedures                                                                                              |       |      | 76 | 
|                                                             
|PART III                                                     
|Item 10.                                                      |  | Directors and Executive
    Officers of the Registrant                                                               |       |      | 76 | 
|Item 11.                                                      |  | Executive Compensation                                                                                               |       |      | 76 | 
|Item 12.                                                      |  | Security Ownership of
    Certain Beneficial Owners and Management and Related Stockholder
    Matters               |       |      | 76 | 
|Item 13.                                                      |  | Certain Relationships and
    Related Transactions                                                                   |       |      | 77 | 
|Item 14.                                                      |  | Principal Accountant Fees
    and Services                                                                           |       |      | 77 | 
|                                                             
|PART IV                                                      
|Item 15.                                                      |  | Exhibits, Financial
    Statement Schedules, and Reports on Form 8-K                                                 |       |      | 77 | 
|Signatures                                                    |  |                                                                                                                      | 81    |     
|EX-10.14 EMPLOYMENT AGREEMENT / THOMAS R. MADISON            
|EX-10.15 EMPLOYMENT AGREEMENT / THOMAS W. WILLIAMS           
|EX-10.16 EMPLOYMENT AGREEMENT / JOHN D. GREGG                
|EX-21.1 SUBSIDIARIES OF THE COMPANY                          
|EX-23.1 CONSENT OF ERNST AND YOUNG LLP                       
|EX-31.1 SECTION 302 CERTIFICATION OF THE CEO                 
|EX-31.2 SECTION 302 CERTIFICATION OF THE CFO                 
|EX-32.1 SECTION 906 CERTIFICATION OF THE CEO                 
|EX-32.2 SECTION 906 CERTIFICATION OF THE CFO                 



1



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##### Table of Contents






CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS

This Annual Report on Form 10-K, as well
as documents incorporated herein by reference, may contain
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended. These forward-looking statements are not based on
historical facts, but rather reflect managements current
expectations concerning future results and events. These
forward-looking statements generally can be identified by the
use of phrases and expressions such as believe,
expect, anticipate, intend,
plan, foresee, likely,
will or other similar words or phrases. These
statements, which speak only as of the date given, are subject
to certain risks and uncertainties that could cause actual
results to differ materially from our historical experience and
our expectations or projections. These risks include, but are
not limited to, projected growth in the emerging service
delivery management market, market acceptance of our service
delivery management strategy, current market conditions for our
products and services, our ability to achieve growth in our
asset management and customer management offerings, market
acceptance and the success of our new products and enhancements
and upgrades to our existing products, the success of our
product development strategy, our competitive position, the
ability to establish and retain partnership arrangements, our
ability to develop our indirect sales channels, the successful
integration of the acquisition of Wishbone Systems, Inc.
(Wishbone Systems) including the challenges inherent
in diverting our managements attention, our ability to
realize anticipated or any synergies or cost-savings from the
Wishbone Systems acquisition, changes in our executive
management team, uncertainty relating to and the management of
personnel changes, the ability to realize the anticipated
benefits of our recent restructurings, timely development and
introduction of new products, releases and product enhancements,
current economic conditions, heightened security and war or
terrorist acts in countries of the world that affect our
business, and other risks identified in the section of this
Report entitled Description of
Business  Factors Affecting Future
Performance, beginning on page 15. Readers are cautioned
not to place undue reliance on these forward-looking statements,
which reflect managements opinions only as of the date
hereof. The Company undertakes no obligation to revise or
publicly release the results of any revision to these
forward-looking statements.




PART I




Item 1.     Description
of Business

General

Indus International, Inc. develops, licenses,
implements, supports, and hosts service delivery management
(SDM) solutions, which help clients in a broad array
of industries optimize the management of their customers,
assets, workforce, spare parts inventory, tools and
documentation in order to maximize performance and customer
satisfaction while reducing operating expenses. Our software
solutions consist of three primary solution suites: customer
management, asset management and field service management. These
software products, along with our service offerings enable our
clients to reduce costs, increase production capacity and
competitiveness, improve service to their customers, facilitate
billing for services and ensure regulatory compliance.
Historically, our solutions have been focused on asset
management, and more recently on customer management. Through
our acquisitions of best-in-class customer relationship
management software in March 2003 and field service management
technology in January 2004, we believe that we are the first
company to offer comprehensive suites of world-class customer,
asset, and field service management solutions, which we market
and sell as our SDM solutions.

As of March 31, 2004, our software solutions
have been licensed for use by more than 400 companies,
representing diverse industries, including utilities,
manufacturing, chemical, oil and gas, pulp and paper,
telecommunications, government, education, transportation, and
consumer packaged goods. Clients include industry leaders such
as Bayer Rubber, Inc., British Energy Plc., Duke Energy
Corporation, Dell USA L.P. (an affiliate of Dell Inc.), Deutsche
Telekom AG, GE Plastics and GE Power Systems, operating units of
the General Electric Company, Electric Power Development Company
Limited (also known as JPower),

2



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##### Table of Contents



Progress Energy Service Company LLC, Shaw
Industries, Inc., Smurfit-Stone Container Corporation, The
Kroger Co., Tokyo Electric Power Company, and Xcel Energy
Services, Inc.


We are a Delaware corporation formed in 1997 by
the merger of The Indus Group, Inc., a California corporation,
and TSW International, Inc., a Georgia corporation. In March
2003, we acquired Indus Utility Systems, Inc. (IUS)
(formerly known as SCT Utility Systems, Inc.) from Systems and
Computer Technology Corporation (SCT). In January
2004, we acquired Wishbone Systems, Inc. (Wishbone
Systems). References in this filing to the
Company, Indus, we,
our, and us refer to Indus
International, Inc., our predecessors and our wholly-owned and
consolidated subsidiaries. Our principal executive offices are
located at 3301 Windy Ridge Parkway, Atlanta, Georgia
30339, and our telephone number at that location is 770-952-8444.

Service Delivery Management
Background

The current economic climate, including
increasing global competition, demands that organizations in
diverse industries control costs while simultaneously increasing
production capacity. For this reason, most organizations share
very similar goals: increase revenues, reduce operations and
maintenance expenses, increase the reliability and performance
of production facilities and infrastructure, improve customer
service and loyalty, reduce inventory, and make better use of
limited capital. Many software vendors have offered solutions
aimed at assisting companies with various aspects of this
challenge  such as enterprise resource planning
(ERP), customer relationship management
(CRM), customer information systems
(CIS), enterprise asset management
(EAM), and workforce management (WFM).
These conventional approaches, which focus only on discrete
areas and systems, have yielded some marginal operational
improvements, but not at levels that actually transform the
business and facilitate operational excellence. We believe there
is a significant opportunity for a comprehensive solution to
rationalize these fragmented enterprise solutions, eliminate the
inefficiencies of discrete systems, and enable companies to
achieve their operational goals that are described above on a
more efficient basis.

The Indus Solution

To capitalize on this opportunity, we have
developed a unique approach to operational excellence called
service delivery management, or SDM, which allows our customers
to eliminate the inefficiencies of employing multiple discrete
enterprise systems and practices and to achieve the results
described above. The SDM approach allows organizations to manage
all of the business processes related to its customers, assets,
and workforce across the entire enterprise 
incorporating customer service, field service, design service,
construction service, and maintenance service into a single
comprehensive solution. Unlike any one of the discrete ERP, EAM,
CRM, CIS or WFM solutions, which tend to be customer-centric,
asset-centric, or workforce-centric, our SDM solutions are
process-centric. SDM addresses the business flows within and
across each of these disciplines, and optimizes business
processes. The focus of our SDM solutions is on operational
business flows across the entire organization, breaking down
informational and operational silos.

Our SDM software products encompass three
disciplines in a comprehensive solution set: customer
management, asset management and field service management.
Focusing on the business flows within and across these critical
disciplines, Indus SDM optimizes business processes to achieve
operational efficiencies that can enable superior performance.
Sharing this process-centric approach to operational
improvement, our three solution suites within SDM drive
real-time responsiveness to service needs.

Our SDM solutions allow customers to push key
analytics at the right time so that critical decisions can be
made in a timely and intelligent manner via real-time
performance management. With our solutions, users view and
analyze key performance indicators to proactively improve
efficiency and minimize costs throughout the organization. Our
SDM solutions, together with our various service offerings,
enable our customers to:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Improve Asset Performance.Our solutions help organizations
    control and reduce all asset lifecycle costs, as well as budget
    and plan more accurately, by ensuring that assets operate at
    peak performance to avoid unnecessary downtime and shorten
    planned outages. This requires that the organization have
    real-time visibility into the health and condition of
    facilities, equipment and/or critical parts.

3



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Maximize Financial Performance.Organizations must transition from
    reactive to proactive decision-making in order to optimize
    performance and maximize financial gain. Our solutions
    facilitate this transition by providing the right tools to
    analyze and balance the financial impact of strategic and
    operational initiatives across the organization, and to
    determine best-case alternatives.
|
| |  | Optimize Workforce Efficiency.Organizations must operate their
    workforces at optimum efficiency, addressing planned and
    unplanned work requests in a timely and efficient manner.
    Instant field communications and feedback is vital. Our
    solutions give organizations real-time visibility into resource
    availability, skill sets, parts, tools, customer requirements,
    and documentation.       
|
| |  | Ensure Customer Loyalty.Customer loyalty is the most accurate
    barometer of superior performance. Our solutions enable
    organizations to instantly access and analyze enterprise-wide
    information, rapidly respond to customer requests and issues,
    make timely and appropriate decisions, and provide accurate
    billing and collection.                                                                 
|
| |  | Streamline the Supply Chain.Our solutions help organizations
    operate their supply chain more efficiently, with better
    planning and streamlined logistics. Our solutions provide
    increased visibility into the availability of spare parts,
    optimize inventory levels, and reduce the number of suppliers,
    while helping to deliver the right parts to the right place at
    the right time.          

Business Strategy

Our objective is to establish and maintain Indus
as the leading provider of SDM solutions. We aim to achieve this
objective by delivering the industrys most comprehensive
set of best-in-class customer, asset, and field service
management solutions. These solutions help global utilities,
manufacturers, telecommunications companies, original equipment
manufacturers, and third-party service providers optimize and
effectively manage customers, assets, and the workforce.

Our strategies to accomplish our objective
include the following:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Develop and Enhance Software
    Solutions.We intend to continue to focus our
    product development resources on the development and enhancement
    of our software solutions. We offer what we believe to be the
    broadest solution set in the SDM marketplace and the only suite
    offering best-in-class solutions for customer, asset, and field
    service management. In order to provide additional functionality
    and value to our solutions, we plan to continue to provide
    enhancements to existing products and to introduce new products
    to address evolving industry standards and market needs. We
    identify further enhancements to our solutions and opportunities
    for new products through our Global Client Services organization
    as well as ongoing customer consulting engagements and
    implementations, interactions with our user groups and special
    interest groups and participation in industry standards and
    research committees, such as the Association for Services
    Management International, MIMOSA, and the Nuclear Energy
    Institute. A key near-term initiative is the development of our
    Indus foundation architecture (IFA), through which
    we are developing a common architectural platform for all of our
    applications. The objective of the IFA initiative is to ensure
    smooth and seamless integration between our applications and
    those of our partners utilizing XML, service-oriented
    architecture, and other advanced integration tools and
    techniques.
|
| | Expand Our Strategic Alliances and Indirect
    Sales Channels.We currently sell our products
    primarily through our direct sales force. We work on joint
    projects and joint sales initiatives on a case-by-case basis
    with industry-leading consultants and software systems
    implementers, including most of the large consulting firms, such
    as Accenture, IBM Global Services, Capgemini, BearingPoint and
    Deloitte Consulting. This allows us to supplement our direct
    sales force and professional services organization. We have been
    expanding our indirect sales channels through reseller
    agreements, marketing agreements and agreements with third-party
    software providers, particularly internationally. Our agreements
    with A3 Systems Limited, a subsidiary of Yao De Computer
    Software Limited, in China, and Electric Power Development
    Company Limited (also known as JPower) in Japan, extend our
    market coverage and provide us with new business leads and
    access to trained implementation personnel. We also have
    strategic alliances with complementary software providers. These
    product partnerships, including our                                                                                                                                                                                                                                                                                                                                                                  

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | arrangements with BEA Systems, Inc.
    (BEA), Business Objects, Inc. (Business
    Objects), ESRI, Inc., International Business Machines
    Corporation, webMethods, Inc., Oracle Corporation
    (Oracle) and PeopleSoft, Inc.
    (PeopleSoft), extend our solution footprints to best
    meet our customers requirements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | Expand International
    Sales.We
    believe that our solutions offer significant benefits for
    customers in international markets. We have more than 100
    employees outside the United States, primarily in Europe and
    Asia Pacific, focused on international sales, servicing our
    international clients, and developing reseller channels. In
    addition to offices in the United Kingdom, France, Japan,
    Canada, and Australia, we have established reseller and referral
    arrangements in countries across the globe, including China,
    Saudi Arabia, South Africa, Hungary, Russia, Egypt, and Israel.
    Our international strategy includes leveraging the strength of
    our relationships with current customers that also have
    significant overseas operations and the pursuit of strategic
    marketing partnerships with international systems integrators
    and third-party software application providers that are
    complementary to our products.
|
| | Acquire or Invest in Complementary
    Businesses.We will continue to investigate
    strategic acquisitions of technologies, products, and businesses
    that may enable us to enhance and expand our SDM software
    products and service offerings. Where appropriate, we intend to
    investigate and pursue acquisitions that will provide us with
    complementary products and technologies, extend our presence
    into other vertical markets with similar operational challenges,
    and/or further solidify our leadership position within the
    emerging SDM market.                                                                                                                                                                                                                                                                                                                                                                                                               

Products

Our SDM software solutions help clients in a
broad array of industries optimize the management of their
customers, assets, workforce, spare parts inventory, tools and
documentation. Our clients rely on our solutions to achieve
best-in-class performance and significant savings 
all while minimizing operating costs, improving asset
reliability, optimizing customer satisfaction, improving billing
processes, and ensuring regulatory compliance. Our solutions are
comprised of three distinct suites: customer management, asset
management, and field service management.



| |                          
| | -------------------------
| | Customer Management Suite

Our customer management suite for energy and
utility customers provides the functionality required to
optimize customer-facing activities. This seamless solution
suite encompasses call center, customer information tracking,
billing, and accounts receivable functions. The customer
management suite is comprised of the following software
applications:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Advantage CMS.At
    the core of the customer management suite is the advanced
    architecture of the Advantage CMS product. Built on Oracle9i
    application server technology, Advantage features an adaptive
    infrastructure and takes advantage of Oracles world-class
    functionality for Internet or intranet deployment and
    streamlined business processes. Advantage combines proven and
    scalable functionality to facilitate enterprise-wide access to
    information, cost controls, regulatory responsiveness, and
    reduced cycle times from meter reading to collection of accounts
    receivable.
|
| |  | CRM Essentials.Enhancing the Advantage CMS product is CRM Essentials, a layer
    of customer relationship management functionality built
    exclusively for energy and utility companies, positioning them
    to lower costs and improve customer service.                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | EnerLink.Further
    fortifying the Advantage CMS product is EnerLink, a complex
    billing solution that helps energy and utility companies use
    integrated applications to design, market, administer, and bill
    new pricing options, regardless of the market requirements.
    EnerLink includes flexible pricing options, robust rate modeling
    and bill calculation, support for a complex array of contract
    models, integrated data management, and meter data access.                                                                                                                                        

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| |                       
| | ----------------------
| | Asset Management Suite

Our asset management suite supports an
organizations operations and maintenance workforce,
inventory management and procurement professionals, safety and
compliance engineers, and other decision-making personnel
affected by asset care decisions throughout the enterprise. This
suite includes the following components: asset and work
management systems; materials and procurement systems; supply
chain; eProcurement systems; and safety and compliance systems.
Other complementary components include: mobile computing,
enterprise asset integration tools, sophisticated search
capabilities, data warehousing products, and integration to
leading ERP products for financial and human resources
functions. Our asset management suite provides improved
efficiencies to the management of assets, work orders,
inventory, and purchasing. It helps organizations establish
effective maintenance strategies for the assets they service and
enables supply chain optimization. This proactive,
condition-based strategy lowers maintenance costs and reduces
production stoppages.

The asset management suite includes the following
software products:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | PassPort.Facilitates maintenance, inventory, and procurement management
    through integrated physical asset management, optimization, and
    labor/work management. PassPort features a Web-based user
    interface and can also be deployed on corporate portals.
    PassPort safety and compliance systems interoperate with other
    enterprise systems to improve regulatory compliance and
    reporting. PassPort materials and procurement systems improve
    overall plant performance. E-procurement capabilities add
    further value to PassPort by streamlining the procurement
    process. PassPort work management systems coordinate and
    communicate discrete work task requirements and priorities to
    all departments and disciplines throughout the enterprise.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | InSite EE.InSite EE
    is the next generation of the Indus InSite solution and it
    represents the culmination of our efforts during 2002 and 2003
    to re-architect the previously separate EMPAC and Indus InSite
    products into a single solution. InSite EE provides a compelling
    solution for organizations with complex asset management
    requirements who also desire the accessibility, ease-of-use and
    collaborative capabilities that only a Web-architected solution
    can offer. InSite EE combines the powerful features of the EMPAC
    solution with the innovative Web-based Indus InSite platform
    architecture. The comprehensive feature set provides a highly
    scalable and flexible EAM system for complex asset-intensive
    enterprises. The Web-based platform and services-oriented
    architecture enables cost-effective implementation and flexible
    access across multiple departments, geographies and computing
    environments. Support for open communications standards
    facilitates real-time performance management and push
    maintenance strategies  enabling condition monitoring
    and analysis tools to push real-time asset information to InSite
    EE so that proactive action can be taken before assets fail.
    Asset and work management functionality enables customers to
    manage maintenance, service, and other work management
    requirements for all physical assets. Materials and procurement
    functionality focuses on the supply chain and allows customers
    to manage inventories and source required goods and services.



| |                                   
| | ----------------------------------
| | Field Service Management
    Suite

Our field service management suite provides
resource optimization to generate superior performance at low
cost. This suite allows customers to dispatch resources with all
the required tools, information, and parts at the promised time.
Schedules are optimized based on customer or asset demands,
travel times, service level agreements, technician skills
requirements, and internal costs, enabling more hours on
the job, able to work. The suite includes the following
applications:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | WorkCenter.Indus
    WorkCenter is the Web-based order entry and management module.
    As the starting point of work and order processing, WorkCenter
    provides a variety of options and tools to accommodate the needs
    of both customers and service providers. With WorkCenter, call
    center representatives can initiate service requests, schedule
    service appointments, and check service status from any Web
    browser. Appointment scheduling is immediate, and the service
    organization is notified

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | automatically. Business rules and customer
    preferences ensure timely fulfillment by the ideal service
    provider.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | WorkManager.Indus
    WorkManager helps manage the constantly changing dynamics of
    field service by furnishing dispatchers with a real-time
    graphical representation of people, places and things in an
    information and response portal. All updates and changes to the
    schedule can be viewed as they happen. Rule violations, cost and
    time overruns, and other performance indicators are highlighted
    for action. Visual cues and filters assist management personnel
    with understanding the status of all work at any time.
    Relationships between work orders, dependencies, and the
    parent/child relationship within a work order are evident.
    Integration with leading GIS systems further enhances
    understanding of where personnel are deployed and how they can
    be routed.
|
| |  | WorkMobile.Indus
    WorkMobile equips mobile service resources with real-time
    interactive wireless applications and access to organizational
    data. WorkMobile provides online Web-based or wireless access,
    as well as offline/sync access. Handheld and wireless
    communication devices enable bi-directional updates that
    expedite service delivery. Service personnel have real-time
    access to schedules, customer details, and operational response
    rules. They can update, close or reschedule service orders from
    the field with current customer information.                                                                                                                                                                                                                               
|
| |  | WorkExecutive.Indus
    WorkExecutive is a planning, forecasting, and implementation
    tool that enables senior management to predict the business
    impact of all available execution alternatives and implement the
    one that is right for their business needs and objectives.
    Through management dashboards and reports, WorkExecutive
    provides the intelligence executives need to assess their
    execution strategy, performance, and organizational
    effectiveness. Factors such as the supply and demand of service
    personnel, response criteria and profitability are measured
    against key performance indicators and benchmark metrics.                                                                                                                                                      
|
| |  | WorkOptimizer.Indus
    WorkOptimizer enhances operational achievements with
    optimization technology. The solution employs proprietary
    algorithms to calculate and accommodate complex but known
    variables in the field service chain to help overcome
    operational inefficiencies and ensure the optimal balance
    between profitability, effectiveness, and customer satisfaction.
    Real-time logistical support will allow the organization to
    deploy field personnel with the right skills to the right place
    at the right time.                                                                                                                                                                                                                                                                   

Services

Our SDM solutions include consulting and other
services offered as part of the Indus Service Select program.
Our Service Select program is comprised of services, tools and
programs that address the full lifecycle of our solutions,
including implementation, production, and continuous business
improvement. Our service offerings include comprehensive
implementation programs, strategic consulting, e-Learning and
training solutions, three-tiered maintenance and support plans,
and hosting and outsourcing services. Indus offers a variety of
tailored or packaged services designed to help clients
continuously improve their operations, achieve a faster return
on investment, and meet their unique business challenges. Our
Service Select program includes the following service offerings:
professional services, Indus Knowledge Delivery, Global Clients
Services, and hosting services.



| |                      
| | ---------------------
| | Professional Services

Our professional services include sophisticated
implementation services, as well as strategic consulting in
pre-implementation assessment/selection analysis, project
justification, business case support, performance benchmarking,
root cause analysis, and post-implementation optimization.
Extended services include migration and upgrade assistance. Our
professional services are provided by subject matter experts
that typically have a long tenure with Indus. These regionally
located experts support our sales organization by helping
customers implement advanced principles, theories, and other
advanced best practice strategies designed to
provide a competitive advantage to the customer. The knowledge
gained from prior customer implementations, the extensive
experience of our employees, and the global experience of our
user community

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provide a high-quality information exchange as
customers learn from the professional services organization how
the Indus software solutions address industry-specific
requirements.


Indus products are typically implemented through
our proprietary ABACUS tools and methodology. ABACUS consists of
software-driven analytical tools, implementation plans, and
educational resources that consolidate our extensive experience
in implementing software products. ABACUS provides a
step-by-step implementation lifecycle framework for all
installation, integration, education, and business review
activities. In addition, ABACUS enhances the ongoing
effectiveness of Indus software products and assists customers
in improving their business processes.

We have also developed relationships with large
systems integrators, as well as smaller third-party implementers
and providers. This ensures that customers with specific
requirements can leverage the value-added services of these
firms when implementing Indus software products. These
relationships are further described under
Business  Strategic Relationships.



| |                         
| | ------------------------
| | Indus Knowledge Delivery

We also provide education and training solutions,
including off-the-shelf and customized e-Learning programs.
These solutions include standalone Web-based training courses
and easy-to-use online classroom and job-aids called Desktop
Navigators. These Desktop Navigators provide detailed
step-by-step tutorials and a means to deliver business process
workflow integration to communicate, implement, and deliver
leading work practices across an entire enterprise. We also
provide in-depth classroom training at Indus sites worldwide or
in clients facilities.



| |                       
| | ----------------------
| | Global Client Services

We offer three levels of comprehensive
maintenance and support plans that provide our customers with
timely access to support professionals, client advocate
engagement, product updates, and new software releases that
offer improved functionality. Our Global Client Service Centers
are strategically located in North America, the United Kingdom,
and the Asia-Pacific region. Two of our three service programs
provide extended telephone service after business hours for
production-down and critical issues, 24 hours a day, either 5 or
7 days a week. Regardless of the calls time or
point-of-origin, our toll-free number automatically routes the
customers call to a fully staffed Global Client Service
Center.



| |                
| | ---------------
| | Hosted Services

PassPort, InSite EE, and Advantage CMS products
are available as hosted services fully supported through remote
data centers. We are responsible for the customers hosted
system, and we are the single point of contact for any
functionality issues. The hosted service offers comprehensive
functionality, reduces implementation time, and guarantees
service levels. Additionally, our hosted service integrates with
customer legacy systems, delivering a true best-in-class product
that includes many touch points with other industry software
application leaders such as Oracle, PeopleSoft and SAP.

The hosted service contains robust, layered
security to protect customer data. Our hosted infrastructure
partners provide a suite of services that expertly manage
mission-critical software. With a large, multi-specialized,
technical staff of certified engineers, the infrastructure
partners provide the level of services and expertise necessary
to ensure secure, scalable, high-performance operation 24x7.
Their services include installation and maintenance of hardware
and software, core software expertise, high-volume backup and
recovery systems, and constant, proactive monitoring by their
server operations center.

Sales and Marketing



| |                    
| | -------------------
| | Global Organization

We market and sell our products and services to
customers around the world in a variety of industries. To
address our markets effectively, we divide our target markets by
geography and by industry segment and tailor our sales strategy
to suit the specific needs of each market segment. In a given
market segment, we may sell

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directly through our internal sales force or
indirectly through business partner relationships and channel
partner programs. Our marketing staff is based at our office in
Atlanta, Georgia, while our sales organization is decentralized
throughout the three global regions described below:




| |   |                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Americas, with
    direct sales representatives in the United States and Canada,
    and strategic partnerships to expand the scope of sales
    opportunities.                                                                     
|
| |  | Europe, Middle East and
    Africa, with direct sales
    representatives in the United Kingdom and France, as well as
    partnerships which extend our selling capability into
    continental Europe, the Middle East and Africa.
|
| |  | Asia-Pacific, with
    direct sales representatives in Australia and Japan and
    strategic partnerships to expand the scope of sales
    opportunities.                                                                           

In each of these regions, we view the market
opportunities as consisting of multiple vertical business
segments. We focus our sales and marketing efforts on the
following industries:



| |   |                                                  
| | - | -------------------------------------------------
| |  | Utilities                                        
|
| |  | Water and waste treatment                        
|
| |  | Nuclear power generation                         
|
| |  | Fossil power generation                          
|
| |  | Hydroelectric power generation                   
|
| |  | Energy transmission and substations              
|
| |  | Energy distribution and delivery                 
|
| |  | Energy resource extraction and process industries
|
| |  | Chemical, petrochemical, oil and gas             
|
| |  | Metals and mining                                
|
| |  | Pulp, paper and forest products                  
|
| |  | Process manufacturing                            
|
| |  | Discrete manufacturing                           
|
| |  | Consumer packaged goods                          
|
| |  | Facilities management                            
|
| |  | Managed services                                 
|
| |  | Telecommunications                               
|
| |  | High-tech and electronics                        

By addressing the needs of various vertical
industries separately, we can package and deliver our product
offerings to meet the specific needs of the industries we serve.
We conduct comprehensive industry-specific vertical marketing
programs, which include public relations, trade advertising,
industry seminars, trade shows, and ongoing customer
communication programs such as IndusWorld, our international
user group conference.



| |                                        
| | ---------------------------------------
| | Sales Cycle and Customer Life
    Cycle

While the sales cycle varies depending on the
customer and the product being sold, our sales cycles generally
require from three to 18 months. The direct sales cycle
begins with the generation of a sales lead or the receipt of a
request for proposal from a prospect, followed by qualification
of the lead, analysis of the customers needs, response to
a request for proposal, one or more presentations to the
customer utilizing the

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special knowledge of the industry vertical
pre-sales staff, customer internal sign-off activities, and
contract negotiation and finalization.


After implementation of an Indus solution, our
account executive program provides regional support and
specialized attention for each of our customers. Account
executives assist in implementing licensed applications over
multi-year engagements, promote licensing of additional
applications and encourage existing customers to identify and
help fund new applications and expanded core offerings.

Product Development

Our development efforts are focused on adding new
functionality to existing products, integrating our various
product offerings, enhancing the operability of our products
across distributed and alternative hardware platforms, operating
systems and database systems, and developing new products. We
believe that our future success depends in part upon our ability
to continue to enhance existing products, to respond to rapidly
changing customer requirements, and to develop new or enhanced
products that incorporate new technological developments and
emerging maintenance and industry standards. To that end, our
development efforts frequently focus on base system enhancements
and the incorporation into our products of new user requirements
and features identified and created through customer and
industry interactions and systems implementations. As a result,
we are able to continue to offer our customers a packaged,
highly configurable product with increasing functionality rather
than a custom-developed software program.

A key near term initiative in our development
program is the development of our IFA, through which we are
developing a common architectural platform for all of our
applications. The objective of the IFA initiative is to ensure
smooth and seamless integration between our applications and
those of our partners utilizing XML, service-oriented
architecture, and other advanced integration tools and
techniques.

We believe that research and development is most
effectively accomplished if customers are involved in the
process. Through direct customer involvement and consensus input
from user group oversight committees, product content is
improved and the customer acceptance of new software deployment
is significantly increased. In addition, the interactive
development process promotes increased customer awareness of our
products technological features and fosters greater
product loyalty. For this reason, we regularly incorporate
customers into the product development process and compile
direct feedback through special interest groups, user
conferences, and early adopter programs.

We plan to principally conduct our development
efforts internally in order to retain development knowledge and
promote the continuity of programming standards; however, some
projects that can be performed separately have been and will
continue to be outsourced in the foreseeable future. We have
established an off-shore development center in Bangalore, India,
where significant development activities are performed.

Our research and development expenses for the
years ended December 31, 2001 and 2002, the three-month
period ended March 31, 2003 and the year ended
March 31, 2004 were $49.5 million, $45.7 million,
$8.7 million, and $35.0 million, respectively. We intend to
continue to make significant investments in product development.

Strategic Relationships

Through a network of strategic relationships
established with more than 50 technology and service partners,
we leverage our internal sales and marketing efforts, expand our
implementation capabilities, and enhance the breadth of our
solutions.



| |                    
| | -------------------
| | Systems Integrators

We typically work with large systems integrators,
such as Accenture, IBM Global Services, BearingPoint, Capgemini
and Deloitte Consulting, as well as smaller implementers, on an
opportunity-by-opportunity basis. In some instances, we have
agreements with systems integrators that provide the framework
for the relationship, such as our agreements with Capgemini U.S.
LLC and Deloitte Tohmatsu Consulting Co.,

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Limited in Japan. In each case the agreement is
non-exclusive and does not obligate either party to any minimum
commitments. Instead, the parties agree to work together to
identify joint opportunities with the goal of furthering the
implementation of our products and the professional services of
the systems integrator or implementer. We work with the systems
integrators on proposals to prospective customers to license and
implement our software. We typically enter into teaming
arrangements that set forth the parties respective
obligations in the proposal process. We will typically enter
into a license agreement and a support agreement directly with
the customer, and the systems integrator will typically have the
direct contractual relationship with the customer for
professional services.




| |                 
| | ----------------
| | Channel Partners

In addition to working with large systems
integrators to expand our sales channels and marketing efforts,
we also enter into reseller agreements, referral agreements, and
marketing agreements with third parties that can extend our
market coverage, particularly internationally. For example, our
agreements with A3 Systems Limited, a subsidiary of Yao De
Computer Software Limited, in China, and Electric Power
Development Company Limited (also known as JPower) in Japan,
extend our market coverage and provide us with new business
leads and access to trained implementation and support personnel.



| |                          
| | -------------------------
| | Software Product Partners

We enter into strategic relationships with
software product partners to expand the functionality of our
existing solutions, enabling us to continue our focus on
developing and delivering SDM solutions. We plan to continue our
strategy of leveraging strategic partnerships as the needs of
our customers continually evolve and the global marketplace
expands. By combining our own SDM software solutions with our
partners market-focused products and services, we provide
our customers with the ability to maximize their return on
investment, while providing us with additional software license
fees and services.

Our strategic relationships with third party
software providers take a variety of forms, such as reseller
agreements, embedded software arrangements, and development
arrangements. Reseller agreements, such as our agreement with
Oracle, typically allow us to develop software solutions using
third party software, and resell that third party software in
connection with our software solutions. Embedded software
arrangements, such as our agreements with BEA and Business
Objects, typically allow us to develop software solutions using
third party software, and resell that third party software
embedded in our software solutions. Development agreements allow
us to develop software to integrate our solutions with that of
the third party, which extends the functionality of our software
solutions by making them interoperable with various third party
applications. Examples of these types of arrangements include
our agreements with PeopleSoft and Oracle, which allow us to
develop solutions that integrate with PeopleSofts
corporate financial, payroll and human resources applications
and Oracle corporate financial applications.

The following highlights several of our software
product partners:



| |   |                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | BEA supports
    Indus customers need to design and automate business
    processes that integrate back-end applications and e-commerce
    technologies.                                                  
|
| |  | Oracle
    provides database platform as well as Oracle Financials
    integration. We are a member of the Oracle Partner Network, as a
    Certified Advantage Partner.                                    
|
| |  | Business Objects provides business intelligence
    that lets organizations access, analyze, and share information
    internally with employees and externally with customers,
    suppliers, and partners.

Customers

The Company provides software products and
services to customers in the following industries:



| |   |                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------
| |  | Utilities, including water and waste water
    treatment, power generation, and energy transmission and
    distribution;
|
| |  | Manufacturing;                                                                                                           

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| |   |                            
| | - | ---------------------------
| |  | Chemical and petrochemical;
|
| |  | Oil and gas;               
|
| |  | Pulp and paper;            
|
| |  | Metals and mining;         
|
| |  | Telecommunications;        
|
| |  | Government and education;  
|
| |  | Transportation; and        
|
| |  | Consumer packaged goods.   

Customers include industry leaders such as Bayer
Rubber, Inc., British Energy Plc., Duke Energy Corporation, Dell
USA L.P. (an affiliate of Dell Inc.), Deutsche Telekom AG, GE
Plastics and GE Power Systems, operating units of the General
Electric Company, Electric Power Development Company Limited
(also known as JPower), Progress Energy Service Company LLC,
Shaw Industries, Inc., Smurfit-Stone Container Corporation, The
Kroger Co., Tokyo Electric Power Company, and Xcel Energy
Services, Inc..

For the fiscal year ended March 31, 2004,
8.4% of the Companys revenues related to our contract with
Magnox Electric plc, a wholly owned subsidiary of British
Nuclear Fuels Ltd (BNFL), which operates BNFLs
nuclear power stations.

Competition

Our products are targeted at the SDM market,
which is highly fragmented. The customer, asset, and field
service management software products businesses with which we
compete are highly competitive and characterized by rapid
technological change. They are significantly affected by new
product and technology innovations brought about by industry
participants. We believe that the principal competitive factors
in our businesses will be:



| |   |                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------
| |  | Product quality, return on investment,
    performance, and functionality;                                  
|
| |  | Adaptability to new trends driven by technology
    and customer requirements;                              
|
| |  | Cost of internal product development as compared
    with cost of purchase of products from outside vendors;
|
| |  | Ease and speed of implementation;                                                                           
|
| |  | Cost of ongoing maintenance; and                                                                            
|
| |  | Time-to-market with, and market acceptance of,
    new products, enhancements, functionality and services.  

In the asset management market, our main
competitors are MRO Software, Inc., Datastream Systems, Inc.,
SAP, Oracle, Mincom Corp., Industrial and Financial Systems,
Invensys, Severn Trent Systems and Synercom. In the customer
management market, our primary competitors include SPL
WorldGroup, PeopleSoft, Inc., SAP, Peace Software, Cayenta (a
subsidiary of Titan), and Orcaom. In the field service
management market, our primary competitors include Siebel
Systems, Inc., Mobile Data Solutions Inc., ClickSoftware
Technologies Ltd., Astea International, SAP, Metrix, Amdocs, and
FieldCentrix.

We believe that we have key competitive strengths
that will help us establish and maintain leadership in the
emerging SDM market. Our strategic assets and competitive
advantages include:



| |   |                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Depth and breadth of
    products.We believe that no other
    software vendor offers the breadth of customer, asset, and field
    service management applications, coupled with the depth of
    functionality offered in our solutions.
|
| |  | Scalability of our
    products.Our solutions are able to
    scale up to multiple thousands of users.                                                                                                                                    

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Substantial installed
    base.Over the past 25 years, we
    have attained the leading market share position in the
    Tier 1 market (customers having annual revenues
    greater than $1 billion dollars) for asset management
    software solutions  especially among utilities
    and process manufacturers. This installed base provides us with
    a fertile source for selling our comprehensive SDM solutions,
    including our recently acquired workforce management software,
    as well as providing us with numerous client references that can
    help us close deals with new prospects.
|
| |  | Industry expertise.Our professional services are provided by experts with extensive
    industry experience. This experience and domain knowledge gained
    from prior implementations allows us to enhance new
    implementations with industry-specific best practices.                                                                                                                                                                                                                                                                                                                                       

International Operations

Our international revenue was approximately
$72.2 million, $39.8 million, $9.5 million and
$30.6 million for the years ended December 31, 2001
and 2002, the three-month period ended March 31, 2003 and
the year ended March 31, 2004, respectively, which
represents approximately 41%, 34%, 35% and 21% of our total
revenue for each of those periods, respectively. International
revenue includes all revenue derived from sales to customers
outside the United States. We now have more than 100 employees
outside the United States, most of who are located in the United
Kingdom and Australia. We also have offices in Canada, France,
and Japan.

We conduct our direct European operations
principally out of our office in the United Kingdom, where we
have approximately 70 employees. Total revenue for European
operations was approximately $19.5 million for the fiscal
year ended March 31, 2004, which represents approximately
13.3% of our total revenue for the year. Our direct Asia-Pacific
operations are conducted out of our office in Brisbane,
Australia. Total revenue for Asia-Pacific operations was
approximately $6.0 million for the fiscal year ended
March 31, 2004, which represents approximately 4.1% of our
total revenue for the year. We have a growing presence in Japan
where deregulation of the nuclear industry is helping to fuel
demand for our asset management solutions in particular.

Proprietary Rights and Licensing

We rely on a combination of the protections
provided under applicable copyright, trademark, and trade secret
laws, as well as on confidentiality procedures, licensing
arrangements, and other contractual arrangements to establish
and protect our rights in our software. Despite our efforts, it
may be possible for unauthorized third parties to copy certain
portions of our products or to reverse engineer or obtain and
use information that we regard as proprietary. In addition, the
laws of certain countries do not protect our proprietary rights
to the same extent as do the laws of the United States.
Furthermore, we have no patents, and existing copyright laws
afford only limited protection. Accordingly, there can be no
assurance that we will be able to protect our proprietary
software against unauthorized third-party copying or use, which
could adversely affect our competitive position.

We license our applications to customers under
license agreements, which are generally in standard form,
although each license is individually negotiated and may contain
variations. The standard form agreement allows the customer to
use our products solely on the customers computer
equipment for the customers internal purposes, and the
customer is generally prohibited from sub-licensing or
transferring the applications. The agreements generally provide
that the warranty for our products is limited to correction or
replacement of the affected product, and in most cases the
warranty liability may not exceed the licensing fees from the
customer. Our standard form agreement also includes a
confidentiality clause protecting proprietary information
relating to the licensed applications.

Our products are generally provided to customers
in object code (machine-readable) format only. From time to
time, in limited circumstances, we licensed source code
(human-readable form) for asset management software, subject to
customary protections such as use restrictions and
confidentiality agreements. We have historically licensed source
code for certain customer management applications, subject to
customary protections such as use restrictions and
confidentiality agreements. In addition, customers can be
beneficiaries of a master source code escrow for the
applications, pursuant to which the source code will be released
to end

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users upon the occurrence of certain events, such
as the commencement of bankruptcy or insolvency proceedings by
or against the Company, or certain material breaches of the
agreement. We have the right to object to the release of the
source code in such circumstances, and to submit the matter to
dispute resolution procedures. In the event of any release of
the source code from escrow, the customers license is
limited to use of the source code to maintain, support, and
configure our applications.


We may from time to time receive notices from
third parties claiming infringement by our products of
proprietary rights of others. As the number of software products
in the industry increases and the functionality of these
products further overlap, we believe 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 or could require us to enter into royalty
and licensing agreements. Such agreements, if required, may not
be available on terms acceptable to us.

Indus, Indus Solution Series, IndusWorld,
Advantage, PassPort, PassPort Software Solutions, EMPAC,
Enterprise MPAC, Indus InSite, InSite EE, Service Delivery
Management, SDM, ABACUS, IndusKnowledgeWarehouse, IndusConnect,
IndusBuyDemand, IndusAnyWare, IndusASP, and Curator are
trademarks and service marks of the Company. All other brand
names or trademarks referenced in this Annual Report are the
property of their respective holders.

Employees

At April 30, 2004, Indus had approximately
850 full-time employees. None of our employees are covered by a
collective bargaining agreement, and we have never experienced a
work stoppage, strike or labor dispute. We believe that our
relations with our employees are good.

Executive Officers

The executive officers of the Company are as
follows:

|                          |  |     |    |                      |  |                                                         
|------------------------- |  | --- | -- | -------------------- |  | --------------------------------------------------------
|Name of Executive Officer |  | Age |    | Principal Occupation
|                          |  |     |    |                     
|Thomas R. Madison, Jr.    |  |     | 58 |                      |  | Chairman of the Board of Directors                      
|Gregory J. Dukat          |  |     | 43 |                      |  | President and Chief Executive Officer                   
|Thomas W. Williams        |  |     | 47 |                      |  | Executive Vice President and Chief Financial
    Officer
|John D. Gregg             |  |     | 55 |                      |  | Executive Vice President of Field Operations            

Mr. Madison has served as Chairman of the
Board of Indus since December 2001 and as a director of Indus
since April 2001. From July 2002 through January 2004,
Mr. Madison served as Chief Executive Officer of Indus.
From January 2001 until December 2001, Mr. Madison served
as an independent management consultant. From May 1999 until
January 2001, Mr. Madison served as President and Chief
Executive Officer of Talus Solutions, a developer of products
and services that optimize pricing strategies and practices
based upon customer buying behaviors. From March 1994 until May
1999, Mr. Madison served as Group President and Corporate
Vice President of Computer Sciences Corp. Mr. Madison also
serves as a director of Alogent, Inc., EVANT, Inc. and Kiodex,
Inc.

Mr. Dukat has served as President of Indus
since August 2003 and as Chief Executive Officer of Indus since
February 2004. From August 2003 until his promotion in February
2004, Mr. Dukat served as President and Chief Operating
Officer. Mr. Dukat joined Indus in September 2002 as
Executive Vice President of Worldwide Operations to lead the
Companys global sales and marketing efforts, and was
promoted to President and Chief Operating Officer in August 2003
with responsibility for all sales, marketing, customer service,
product strategy, and product development functions. From
September 2001 to April 2002, Mr. Dukat served as the Chief
Executive Officer for 180 Commerce, Inc., a start-up reverse
supply chain enterprise software company. From October 1989 to
September 2001, Mr. Dukat served in various positions at
J.D. Edwards, an enterprise software provider, most recently as
Vice President and General Manager. Mr. Dukat is a board
member of CSS Consulting Corporation and holds a Bachelors
of Science degree in business administration from the University
of New York at Buffalo.

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Mr. Williams joined Indus as its Executive
Vice President and Chief Financial Officer in June 2004. Prior
to joining Indus, Mr. Williams served as Chief Financial
Officer of Cendian Corporation, a provider of logistics services
to the chemical industry, from October 2002 to May 2004. From
February 2000 to September 2002, Mr. Williams served as
Senior Vice President, Chief Financial Officer and Treasurer of
Manhattan Associates, Inc., a leading supplier of supply chain
software. From February 1996 to February 2000, Mr. Williams
served as Group Vice President, Finance and Administration for
Sterling Commerce, a worldwide leader in providing e-business
solutions for the Global 5000 companies. From December 1994 to
January 1996, Mr. Williams served as Division Vice
President, Finance and Administration for Sterling Software, one
of the 20 largest independent software companies in the world.
Although Mr. Williams assumed the title of Chief Financial
Officer in June 2004, he will not be performing the functions of
principal accounting and financial officer until after the
filing of this Annual Report on Form 10-K, and therefore
will not be signing this report.

Mr. Gregg was promoted to Executive Vice
President of Field Operations in February 2004. Prior to his
promotion, Mr. Gregg served as President of the IUS
division since March 2003, when Indus acquired SCT Utility
Systems, Inc. from SCT. From November 1993 to March 2003,
Mr. Gregg served in various positions with SCT Utility
Systems, Inc., a wholly-owned subsidiary of SCT, most recently
as President from November 2000 until the acquisition by Indus.
Mr. Gregg served as the Executive Coordinator of Northside
Baptist Church during a 10-month sabbatical in 1999.

Employment Agreements

All the current executive officers of the Company
have employment contracts with the Company.

Exchange Act Reports

We maintain an Internet web site at the following
address: www.indus.com. The information on our web site
is not incorporated by reference in this annual report on
Form 10-K.

We make available on or through our website
certain reports and amendments to those reports that we file or
furnish to the Securities and Exchange Commission (the
SEC) in accordance with the Securities Exchange Act
of 1934, as amended. These include our annual reports on
Form 10-K, our quarterly reports on Form 10-Q, and our
current reports on Form 8-K. We make this information
available on our web site free of charge as soon as reasonably
practicable after we electronically file the information with,
or furnish it to, the SEC.

FACTORS AFFECTING FUTURE PERFORMANCE



| |                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our operating results have fluctuated in
    the past and may continue to fluctuate significantly from
    quarter-to-quarter which could negatively affect our results of
    operations and our stock price.

Our operating results have fluctuated in the
past, and our results may fluctuate significantly in the future.
Our operating results may fluctuate from quarter-to-quarter and
may be negatively affected as a result of a number of factors,
including:



| |   |                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the relatively long sales cycles for our products;                                                                                                             
|
| |  | the variable size and timing of individual
    license transactions;                                                                                           
|
| |  | delays associated with product development,
    including the development and introduction of new products and
    new releases of existing products;          
|
| |  | the development and introduction of new operating
    systems and/or technological changes in computer systems that
    require additional development efforts;
|
| |  | our success in, and costs associated with,
    developing, introducing and marketing new products;                                                             
|
| |  | changes in the proportion of revenues
    attributable to license fees, hosting fees and services;                                                             

15



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| |   |                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------
| |  | personnel changes, including changes in our
    management;                                                          
|
| |  | changes in the level of operating expenses;                                                                          
|
| |  | software defects and other product quality
    problems and the costs associated with solving those problems;
    and
|
| |  | successful completion of customer funded
    development.                                                            

Changes in operating expenses or variations in
the timing of recognition of specific revenues resulting from
any of these factors can cause significant variations in
operating results from quarter-to-quarter and may in some future
quarter result in losses or have a material adverse effect on
our business or results of operations.



| |                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to maintain profitability
    and become cash flow positive in the near future, our business
    and long-term prospects may be harmed.

We generated a net loss of $12.0 million in
the fiscal year ended March 31, 2004, and used cash of
$3.8 million in operating activities during the same
period. For the three-month period ended March 31, 2004, we
generated net income of $651,000 and used cash of $850,000 in
operating activities. If we are unable to maintain profitability
or produce positive cash flow from operations in the near future
it will negatively affect our capacity to implement our business
strategy and may require us to take actions in the short-term
that will impair the long-term prospects of our business. If we
are unable to maintain profitability or produce positive cash
flow from operations in the near future it may also result in
liquidity problems and impair our ability to finance our
continuing business operations on terms that are acceptable to
us. Further, we may need to enter into financing transactions
that are dilutive to our stockholders equity ownership in
our company.



| |                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If the market for service delivery
    management solutions does not grow as anticipated or if our
    service delivery management solutions are not accepted in the
    market, we may not be able to grow our business.

From time to time, we expand into new markets.
For example, in January 2004, we announced our service delivery
management solutions for utilities. The market for service
delivery management solutions is an emerging market. If
customers demand in this emerging market does not grow as
anticipated or if our service delivery management solution is
not accepted in the market place, then we may not be able to
grow our business.



| |                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If the market does not accept our new
    products and enhancements or upgrades to the existing products
    that we launch from time to time, our operating results and
    financial condition would be materially adversely
    affected.

From time to time, we acquire new products,
launch new products, and release enhancements or upgrades to
existing products. For example, in March 2004, we released
PassPort 10.0, one of our asset management solutions. In January
2004, we acquired the Wishbone Service Suite, a suite of field
service management modules that forms a part of our service
delivery management offering. In addition, in December 2003, we
introduced InSite EE, the consolidation of our EMPAC and Indus
InSite enterprise asset management products into a single
software solution. There can be no assurance that any of our new
or enhanced products, including PassPort 10.0, the field service
management suite acquired from Wishbone Systems, and InSite EE,
will be sold successfully or that they can achieve market
acceptance. Our future success with these products and other
next generation product offerings will depend on our ability to
accurately determine the functionality and features required by
our customers, as well as the ability to enhance our products
and deliver them in a timely manner. We cannot predict the
present and future size of the potential market for our next
generation of products, and we may incur substantial costs to
enhance and modify our products and services in order to meet
the demands of this potential market.

16



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| |                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Demand for enterprise asset management
    solutions and customer relationship management software may grow
    slowly or decrease in upcoming quarters, which may impair our
    business and could materially adversely affect our results of
    operations and financial condition.

Overall demand for enterprise asset management
software and customer relationship management software in
general may grow slowly or decrease in upcoming quarters and
years because of unfavorable general economic conditions,
decreased spending by companies in need of our solutions or
otherwise. This may reflect a saturation of the market for
enterprise asset management software and customer relationship
management software generally, as well as deregulation and
retrenchments affecting the way companies purchase our software.
To the extent that there is a slowdown in the overall market for
our solutions, our business, results of operations and financial
condition are likely to be materially adversely affected.



| |                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we experience delays in product
    development or the introduction of new products or new versions
    of existing products, our business and sales will be negatively
    affected.

We have, in the past, experienced delays in
product development that have negatively affected our
relationships with existing customers and have resulted in lost
sales of our products and services to existing and prospective
customers and our failure to recover our product development
costs. There can be no assurance that we will not experience
further delays in connection with our current product
development or future development activities. If we are unable
to develop and introduce new products, or enhancements to
existing products, in a timely manner in response to changing
market conditions or customer requirements, our business,
operating results and financial condition will be materially and
adversely affected. Because we have limited resources, we must
effectively manage and properly allocate and prioritize our
product development efforts and our porting efforts relating to
newer products and operating systems. There can be no assurance
that these efforts will be successful or, even if successful,
that any resulting products or operating systems will achieve
customer acceptance.



| |                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------
| | Delays in implementation of our software or
    the performance of our professional services may negatively
    affect our business.

Following license sales to new customers, the
implementation of our products and their extended solutions
generally involves a lengthy process, including customer
training and consultation. In addition, we are often engaged by
our existing customers for other lengthy professional services
projects. A successful implementation or other professional
services project requires a close working relationship between
us, the customer and, if applicable, third-party consultants and
systems integrators who assist in the process. These factors may
increase the costs associated with completion of any given sale,
increase the risks of collection of amounts due during
implementation or other professional services projects, and
increase risks of cancellation or delay of such projects. Delays
in the completion of a product implementation or with any other
professional services project may require that the revenues
associated with such implementation or project be recognized
over a longer period than originally anticipated, or may result
in disputes with customers regarding performance by us and
payment by the customers. Such delays in the implementation have
caused, and may in the future cause, material fluctuations in
our operating results. Similarly, customers may typically cancel
implementation projects at any time without penalty, and such
cancellation could have a material adverse effect on our
business or results of operations. Because our expenses are
relatively fixed, a small variation in the timing of recognition
of specific revenues can cause significant variations in
operating results from quarter-to-quarter and may in some
further quarter result in losses or have a material adverse
effect on our business or results of operations.



| |                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We have experienced significant change in
    our executive management team during the last several months and
    the current executive management team has only begun to work
    together.

We have experienced significant change in our
executive management team in recent months. In October 2003,
Gregory Dukat was promoted from Executive Vice President of
Worldwide Operations to President and Chief Operating Officer,
and in February 2004, he was promoted to President and Chief
Executive Officer. In February 2004, John Gregg was promoted to
Executive Vice President of Field Operations. In June 2004, we

17



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appointed Thomas Williams as our new Chief
Financial Officer. The current executive management team has
only recently begun to work together, and they may be unable to
integrate and work effectively as a team. There are no
assurances that we will be able to motivate and retain the
current executive management team or that they will be able to
work together effectively. If we lose any member of our
executive management team or they are unable to work together
effectively, our business, operations and financial results
could be adversely affected.




| |                                                                              
| | -----------------------------------------------------------------------------
| | Our success depends upon our ability to
    attract and retain key personnel.

Our future success depends, in significant part,
upon the continued service of our key technical, sales and
senior management personnel, as well as our ability to attract
and retain new personnel. Competition for qualified sales,
technical and other personnel is intense, and there can be no
assurance that we will be able to attract, assimilate or retain
additional highly qualified employees in the future. Our ability
to attract, assimilate and retain key personnel may be adversely
impacted by the fact that we have reduced our work force by 12%
in the fiscal year ended March 31, 2004 and that, in order
to reduce our operating expenses, we have generally not
increased wages or salaries over the last two years. If we are
unable to offer competitive salaries and bonuses, our key
technical, sales and senior management personnel may be
unwilling to continue service for us, and it may be difficult
for us to attract new personnel. If we were unable to hire and
retain personnel, particularly in senior management positions,
our business, operating results and financial condition would be
materially adversely affected. Further additions of new
personnel and departures of existing personnel, particularly in
key positions, can be disruptive and have a material adverse
effect on our business, operating results and financial
condition.



| |                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our failure to realize the expected
    benefits of our recent restructurings, including anticipated
    cost savings, could result in unfavorable financial
    results.

Over the last several years we have undertaken
several internal restructuring initiatives. For example, in
March 2002, our Board of Directors approved a restructuring plan
that, among other things, resulted in a reduction in force and
the closing of our Dallas office. During the second half of
2002, due to unfavorable financial performance and management
reviews of worldwide operations, we reconfigured our business
model and implemented several reductions in workforce and other
cost reductions to restructure and resize the business. In May
2004, we announced a restructuring plan to consolidate office
space, outsource some development functions and consolidate some
business functions, which also resulted in a reduction in force.
These types of internal restructurings have operational risks,
including reduced productivity and lack of focus as we terminate
some employees and assign new tasks and provide training to
other employees. In addition, there can be no assurance that we
will achieve the anticipated cost savings from these
restructurings and any failure to achieve the anticipated cost
savings could cause our financial results to fall short of
expectations and adversely affect our financial position.

We have taken charges for restructuring of
$10.2 million in 2001, $8.2 million in 2002,
$2.2 million in the transition period ended March 31,
2003, and $44,000 in the fiscal year ended March 31, 2004.
In addition, as a result of the restructuring plan announced in
May 2004, we anticipate taking a restructuring charge of
approximately $11 million in the quarter ended
June 30, 2004, as well as some incremental charges
resulting from this restructuring plan in future periods. There
can be no assurance that additional charges for restructuring
expenses will not be required in future periods. Significant
future restructuring charges could cause financial results to be
unfavorable.



| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | Our business may suffer from risks
    associated with growth and acquisitions, including the
    acquisition of Wishbone Systems.

All acquisitions, including the Wishbone Systems
acquisition, involve specific risks. Some of these risks include:



| |   |                                                                   
| | - | ------------------------------------------------------------------
| |  | the assumption of unanticipated liabilities and
    contingencies;
|
| |  | diversion of our managements attention;                          

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| |   |                                                                             
| | - | ----------------------------------------------------------------------------
| |  | inability to achieve market acceptance of
    acquired products; and        
|
| |  | possible reduction of our reported asset values
    and earnings because of:



| |   |                                                                
| | - | ---------------------------------------------------------------
| |  | goodwill impairment;                                           
|
| |  | increased interest costs;                                      
|
| |  | issuances of additional securities or debt; and                
|
| |  | difficulties in integrating acquired businesses
    and assets.

As we grow and attempt to integrate any business
and assets that we may acquire, including those in the Wishbone
Systems acquisition, we can give no assurance that we will be
able to:



| |   |                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------
| |  | properly maintain and take advantage of the
    business or value of any acquired business and assets;
|
| |  | identify suitable acquisition candidates;                                                             
|
| |  | complete any additional acquisitions; or                                                              
|
| |  | integrate any acquired businesses or assets into
    our operations.                                  



| |                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------
| | The strain on our management may negatively
    affect our business and our ability to execute our business
    strategy.

Changes to our business and customer base have
placed a strain on management and operations. Previous expansion
had resulted in substantial growth in the number of our
employees, the scope of our operating and financial systems and
the geographic area of our operations, resulting in increased
responsibility for management personnel. Our restructuring
activities in recent years and our acquisitions of IUS and
Wishbone Systems have recently placed additional demands on
management. In connection with our restructuring activities and
our acquisitions of IUS and Wishbone Systems, we will be
required to effectively manage our operations, improve our
financial and management controls, reporting systems and
procedures on a timely basis and to train and manage our
employee work force. There can be no assurance that we will be
able to effectively manage our operations and failure to do so
would have a material adverse effect on our business, operating
results and financial condition.



| |                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------
| | The market for our products is highly
    competitive, and we may be unable to maintain or increase our
    market share.

Our success depends, in part, on our ability to
develop more advanced products more quickly and less expensively
than our existing and potential competitors and to educate
potential customers on the benefits of licensing our products.
Some of our competitors have substantially greater financial,
technical, sales, marketing and other resources, as well as
greater name recognition and a larger customer base than us,
which may allow them to introduce products with more features,
greater functionality and lower prices than our products. These
competitors could also bundle existing or new products with
other, more established products in order to effectively compete
with us.

Increased competition is likely to result in
price reductions, reduced gross margins and loss of sales
volume, any of which could materially and adversely affect our
business, operating results, and financial condition. Any
material reduction in the price of our products would negatively
affect our gross revenues and could have a material adverse
effect on our business, operating results, and financial
condition. There can be no assurance that we will be able to
compete successfully against current and future competitors, and
if we fail to do so we may be unable to maintain or increase or
market share.



| |                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------
| | If we dont respond to rapid
    technological change and evolving industry standards, we will be
    unable to compete effectively.

The industries in which we participate are
characterized by rapid technological change, evolving industry
standards in computer hardware and software technology, changes
in customer requirements and frequent new

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product introductions and enhancements. The
introduction of products embodying new technologies, the
emergence of new standards or changes in customer requirements
could render our existing products obsolete and unmarketable. As
a result, our success will depend in part upon our ability to
enhance our existing asset management solutions, customer
relationship management software products and field service
management solutions, expand our products offerings through
development or acquisition, and introduce new products that keep
pace with technological developments, satisfy increasingly
sophisticated customer requirements and achieve customer
acceptance. Customer requirements include, but are not limited
to, product operability and support across distributed and
changing hardware platforms, operating systems, relational
databases and networks. There can be no assurance that any
future enhancements to existing products or new products
developed or acquired by us will achieve customer acceptance or
will adequately address the changing needs of the marketplace.
There can also be no assurance that we will be successful in
developing, acquiring and marketing new products or enhancements
to our existing products that incorporate new technology on a
timely basis.




| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | Our growth is dependent upon the successful
    development of our direct and indirect sales
    channels.

We believe that our future growth also will
depend on developing and maintaining successful strategic
relationships or partnerships with systems integrators and other
technology companies. One of our strategies is to continue to
increase the proportion of customers served through these
indirect channels. Our inability to partner with other
technology companies and qualified systems integrators could
adversely affect our results of operations. Because lower unit
prices are typically charged on sales made through indirect
channels, increased indirect sales could reduce our average
selling prices and result in lower gross margins. As indirect
sales increase, our direct contact with our customer base will
decrease, and we may have more difficulty accurately forecasting
sales, evaluating customer satisfaction and recognizing emerging
customer requirements. In addition, sales of our products
through indirect channels may reduce our professional service
revenues, as the third-party systems integrators reselling our
products provide these services. Further, when third-party
integrators install our products and train customers to us our
products, it could result in more instances of incorrect product
installation, failure to properly train the customer, or general
failure of an integrator to satisfy the customer, which could
have a negative effect on our relationship with the integrator
and the customer. Such problems could damage our reputation and
the reputation of our products and services. In addition, we may
face additional competition from these systems integrators and
third-party software providers who develop, acquire or market
products competitive with our products.

Our strategy of marketing our products directly
to customers and indirectly through systems integrators and
other technology companies may result in distribution channel
conflicts. Our direct sales efforts may compete with those of
our indirect channels and, to the extent different systems
integrators target the same customers, systems integrators may
also come into conflict with each other. Any channel conflicts
that develop may have a material adverse effect on our
relationships with systems integrators or hurt our ability to
attract new systems integrators to market our products.



| |                                                                                                            
| | -----------------------------------------------------------------------------------------------------------
| | If we fail to comply with laws or
    government regulations, we may be subject to penalties and
    fines.

We are not directly subject to regulation by any
governmental agency, other than regulations applicable to
businesses generally, and there are currently few laws or
regulations addressing the products and services we provide. We
do, however, license our products and provide services, from
time to time, to the government, government agencies, and
government contractors and to other customers that are in
industries regulated by the government. As a result, our
operations, as they relate to our relationships with
governmental entities and customers in regulated industries, are
governed by certain laws and regulations. These laws and
regulations are subject to change without notice to us. In some
instances, compliance with these laws and regulations may be
difficult or costly, which may negatively affect our business
and results of operation. In addition, if we fail to comply with
these laws and regulations, we may be subject to significant
penalties and fines that could materially negatively affect our
business, results of operations and financial position.

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| |                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are unable to expand our
    international operations, our operating results and financial
    condition could be materially and adversely
    affected.

International revenues (from sales outside the
United States) accounted for approximately 41% and 34% of total
revenues for the years ended December 31, 2001 and 2002,
respectively, 35% of total revenues for the transition period
ended March 31, 2003, and 21% of total revenues for the
fiscal year ended March 31, 2004. We maintain an
operational presence and have established support offices in the
United Kingdom, Canada, Australia, France and Japan. We expect
international sales to continue to be a material component of
our business. However, there can be no assurance that we will be
able to maintain or increase international market demand for our
products. In addition, international expansion may require us to
establish additional foreign operations and hire additional
personnel. This may require significant management attention and
financial resources and could adversely affect our operating
margins. To the extent we are unable to expand foreign
operations in a timely manner, our growth, if any, in
international sales will be limited, and our business, operating
results and financial condition could be materially and
adversely affected.



| |                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------
| | Exchange rate fluctuations between the U.S.
    Dollar and other currencies in which we do business may result
    in currency translation losses.

At March 31, 2004, a significant portion of
our cash was held in Pound Sterling or other foreign currencies
(Australian Dollars, Canadian Dollars, Euros, and Japanese Yen).
In the future, we may need to exchange some of the cash held in
Pound Sterling, or other foreign currencies, to U.S. Dollars. We
do not engage in hedging transactions, and an unfavorable
foreign exchange rate at the time of conversion to U.S. Dollars
would adversely affect the net fair value of the foreign
denominated cash upon conversion.



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | The success of our international operations
    is subject to many uncertainties.

Our international business also involves a number
of additional risks, including:



| |   |                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------
| |  | lack of acceptance of localized products;                                                                                          
|
| |  | cultural differences in the conduct of business;                                                                                   
|
| |  | longer accounts receivable payment cycles;                                                                                         
|
| |  | greater difficulty in accounts receivable
    collection;                                                                          
|
| |  | seasonality due to the annual slow-down in
    European business activity during the third calendar quarter;                       
|
| |  | unexpected changes in regulatory requirements and
    royalty and withholding taxes that restrict the repatriation of
    earnings;
|
| |  | tariffs and other trade barriers;                                                                                                  
|
| |  | the burden of complying with a wide variety of
    foreign laws; and                                                               
|
| |  | negative effects relating to hostilities, war or
    terrorist acts.                                                               

To the extent profit is generated or losses are
incurred in foreign countries, our effective income tax rate may
be materially and adversely affected. In some markets,
localization of our products will be essential to achieve market
penetration. We may incur substantial costs and experience
delays in localizing our products, and there can be no assurance
that any localized product will ever generate significant
revenues. There can be no assurance that any of the factors
described herein will not have a material adverse effect on our
future international sales and operations and, consequently, our
business, operating results and financial condition.



| |                                                                              
| | -----------------------------------------------------------------------------
| | We have only limited protection of our
    proprietary rights and technology.

Our success is heavily dependent upon our
proprietary technology. We rely on a combination of the
protections provided under applicable copyright, trademark and
trade secret laws, confidentiality procedures and license
arrangements to establish and protect our proprietary rights. As
part of our confidentiality

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procedures, we generally enter into
non-disclosure agreements with our employees, distributors and
corporate partners, and license agreements with respect to our
software, documentation and other proprietary information.
Despite these precautions, it may be possible for unauthorized
third parties to copy certain portions of our products or to
reverse engineer or obtain and use information that we regard as
proprietary, to use our products or technology without
authorization, or to develop similar technology independently.
Moreover, the laws of some countries do not protect our
proprietary rights to the same extent as do the laws of the
United States. Furthermore, we have no patents and existing
copyright laws afford only limited protection. We license source
code for certain of our products and providing such source code
may increase the likelihood of misappropriation or other misuses
of our intellectual property. Accordingly, there can be no
assurance that we will be able to protect our proprietary
software against unauthorized third-party copying or use, which
could adversely affect our competitive position.




| |                                                                                             
| | --------------------------------------------------------------------------------------------
| | We may not be successful in avoiding claims
    that we infringe others proprietary rights.

We are not aware that any of our products,
including the products we acquired in the IUS and Wishbone
Systems acquisitions, infringe the proprietary rights of third
parties. There can be no assurance, however, that a third-party
will not assert that our technology violates its patents or
other proprietary rights in the future. As the number of
software products in the industry increases and the
functionality of these products further overlap, we believe 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 or could require us to
enter into royalty and license agreements. Such royalty or
license agreements, if required, may not be available on terms
acceptable to us or at all, which could have a material adverse
effect upon our business, operating results and financial
condition.



| |                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | As a result of our lengthy sales cycle and
    the large size of our typical orders from new customers, any
    delays we experience will affect our operating
    results.

The purchase of our software products by a
customer generally involves a significant commitment of capital
over a long period of time, with the risk of delays frequently
associated with large capital expenditures procedures within an
organization, such as budgetary constraints and internal
approval review. During the sales process, we may devote
significant time and resources to a prospective customer,
including costs associated with multiple site visits, product
demonstrations and feasibility studies, and experience
significant delays over which we will have no control. Any such
delays in the execution of orders have caused, and may in the
future cause, material fluctuations in our operating results.



| |                                                                                                
| | -----------------------------------------------------------------------------------------------
| | Customer claims, whether successful or not,
    could be expensive and could harm our business.

The sale and support of our products may entail
the risk of product liability claims. Our license agreements
typically contain provisions designed to limit exposure to
potential product liability claims. It is possible, however,
that the limitation of liability provisions contained in such
license agreements may not be effective as a result of federal,
state or local laws or ordinances or unfavorable judicial
decisions. A successful product liability claim brought against
us relating to our product or third-party software embedded in
our products could have a material adverse effect upon our
business, operating results and financial condition.



| |                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Additional shares have recently become
    eligible for sale, and significant sales of such shares could
    result in a decrease in the price of our common
    stock.

The market price of our common stock could drop
as a result of sales of large numbers of shares in the market,
or the perception that such sales could occur. On
February 9, 2004 we completed a private placement for
5.0 million shares of the Companys common stock and
agreed to register these shares for resale without restriction
with the Securities and Exchange Commission. We filed a
registration statement to register these shares for resale,
which has been declared effective by the Commission, and these
shares are freely transferable without restriction.

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Since there is minimal trading volume in our
common stock, stockholders wishing to sell even small numbers of
shares could have a negative impact on the price of our common
stock. If the holders of significant amounts of our common
stock, including those stockholders who acquired shares of our
common stock in connection with our recent private placement,
desire to sell their shares, our stock price would be
materially, negatively affected.




Item 2. Properties

Certain information concerning the Companys
leased and owned office space at March 31, 2004 is set
forth below:

|                       |                                |               |                                                                                       |         |  |           |  |  |  |       | 
|---------------------- | ------------------------------ | ------------- | ------------------------------------------------------------------------------------- | ------- |  | --------- |  |  |  | ----- | 
|                       |                                |               |                                                                                       | Square  |  | Ownership
|Location               |                                | Principal Use |                                                                                       | Footage |  | Interest 
|                       |                                |               |                                                                                       |         |  |          
|Domestic Offices:      |                                |               |                                                                                       |         |  |           |  |  |  |      
|                       | Atlanta, GA                    |               | Corporate Headquarters, Research and Development,
    Sales and Marketing, Operations |         |  | 107,200   |  |  |  | Lease | 
|                       | Columbia, SC                   |               | Regional Operations, Research and Development,
    Sales and Marketing, Operations    |         |  | 140,000   |  |  |  | Own   | 
|                       | San Francisco, CA              |               | Regional Operations, Research and Development,
    Sales and Marketing, Operations    |         |  | 38,505    |  |  |  | Lease | 
|                       | Englewood Cliffs, NJ           |               | Regional Operations, Research and Development,
    Sales and Marketing, Operations    |         |  | 3,380     |  |  |  | Lease | 
|                       | Lake Oswego, OR(1)             |               | Regional Operations                                                                   |         |  | 5,057     |  |  |  | Lease | 
|                       | Pittsburgh, PA                 |               | Regional Operations                                                                   |         |  | 5,245     |  |  |  | Lease | 
|International Offices: |                                |               |                                                                                       |         |  |           |  |  |  |      
|                       | Mississauga, Ontario           |               | Regional Operations                                                                   |         |  | 4,335     |  |  |  | Lease | 
|                       | Woking, Surrey, United Kingdom |               | Regional Operations                                                                   |         |  | 9,087     |  |  |  | Lease | 
|                       | Brisbane, Australia            |               | Regional Operations                                                                   |         |  | 5,382     |  |  |  | Lease | 
|                       | Paris, France                  |               | Regional Operations                                                                   |         |  | 6,660     |  |  |  | Lease | 



---



|    |                                                                              
|--- | -----------------------------------------------------------------------------
|(1) | Lease expired in April 2004 and the Company has
    since vacated this space.

The leased and owned office space listed above
comprises space in active use. Space leased to third parties
under sub-lease arrangements and excess space offered for
sublease has been excluded. See Note 6 to the Consolidated
Financial Statements for further discussion.

Management continually evaluates operational
requirements and adjusts facilities capacity where necessary.




Item 3. Legal Proceedings

On March 5, 2003, the Company acquired IUS
from Systems and Computer Technology Corporation
(SCT). IUS was a defendant in a claim brought by
KPMG Consulting, Inc. (now known as BearingPoint, Inc.) on
June 2, 2002 in the Circuit Court of the 11th Judicial
Circuit. The claim alleges damages of approximately
$15.8 million based on allegations of breach of contract
and detrimental reliance on alleged promises that were not
fulfilled. IUS asserted multiple defenses and counterclaims.
Pursuant to the terms of the Purchase Agreement among the
Company and SCT and its affiliates, SCT and those affiliates of
SCT that were a party to the Purchase Agreement agreed to defend
IUS against the claims in this suit and to indemnify the Company
and IUS from all losses relating thereto. The parties have
reached a settlement in which the Company has been released from
all liabilities and is not required to make any payments.

23



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##### Table of Contents



Inc.) on June 2, 2002 in the Circuit Court
of the 11th Judicial Circuit. The claim alleges damages of
approximately $15.8 million based on allegations of breach
of contract and detrimental reliance on alleged promises that
were not fulfilled. IUS asserted multiple defenses and
counterclaims. Pursuant to the terms of the Purchase Agreement
among the Company and SCT and its affiliates, SCT and those
affiliates of SCT that were a party to the Purchase Agreement
agreed to defend IUS against the claims in this suit and to
indemnify the Company and IUS from all losses relating thereto.
The parties have reached a settlement in which the Company has
been released from all liabilities and is not required to make
any payments.


On February 21, 2003, Integral Energy
Australia brought a claim against IUS in the Supreme Court of
New South Wales, Australia, relating to the implementation of
IUS software. The amount of damages asserted against IUS is not
determinable. Pursuant to the terms of the Purchase Agreement
among the Company and SCT and its affiliates, SCT and those
affiliates of SCT that were a party to the Purchase Agreement
agreed to defend IUS against the claims in this suit and to
indemnify the Company and IUS from all losses relating thereto.

The Company has received an inquiry from the
federal government requesting documents and employee interviews
related to certain Department of Energy facilities with which
the Company does business. The Company is cooperating fully with
this inquiry. The Company has been made aware that this inquiry
is the result of a qui tam complaint, which is currently under
seal, against the Company relating to its billing practices at
these facilities. Although the Company believes that it has
meritorious defenses to the claims contained in this action and
has defended them vigorously, the Company has reached a
preliminary settlement with the federal government and the
relator, subject to negotiation and execution of a final
settlement agreement, under which the Company will pay $545,000.
The full amount of this proposed settlement had been recorded as
an accrued liability as of March 31, 2004. There has been
and will be no factual finding or adjudication of wrongdoing by
the Company as part of the proposed settlement. The Company has
agreed to settle this matter without admission of fault or
wrongdoing in order to avoid the uncertainty, inconvenience,
distraction and expense of potentially protracted litigation. If
for any reason the settlement is not finalized and this action
is litigated, based upon information currently available to the
Company and due to the inherent uncertainties of the litigation
process, the Company is unable to predict the outcome of such
claims or to determine whether an adverse outcome would have a
material adverse effect on the Companys financial
condition or results of operations.

From time to time, the Company is involved in
other legal proceedings incidental to the conduct of its
business. The outcome of these claims cannot be predicted with
certainty. The Company intends to defend itself vigorously in
these actions. However, any settlement or judgment may have a
material adverse effect on the Companys results of
operations in the period in which such settlement or judgment is
paid or payment becomes probable.




Item 4.Submission
of Matters to a Vote of Security Holders

No matters were submitted to a vote of security
holders of the Company during the fourth quarter of the fiscal
year ended March 31, 2004.

24



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##### Table of Contents






PART II






|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities

The Companys common stock, $.001 par value
per share, is traded on the Nasdaq National Market under the
symbol IINT. The following table sets forth the high
and low sales prices of the Companys common stock for the
periods indicated:

|                                       |                |      |      |      |  |   |      |      | 
|-------------------------------------- | -------------- | ---- | ---- | ---- |  | - | ---- | ---- | 
|                                       |                | High |      | Low 
|                                       |                |      |      |     
|Year ended December 31, 2002           |                |      |      |      |  |   |      |     
|                                       | First Quarter  |      | $    | 7.85 |  |   | $    | 4.76 | 
|                                       | Second Quarter |      |      | 5.05 |  |   |      | 2.02 | 
|                                       | Third Quarter  |      |      | 2.58 |  |   |      | 1.00 | 
|                                       | Fourth Quarter |      |      | 1.93 |  |   |      | 1.24 | 
|Transition period ended March 31, 2003 |                | $    | 2.20 |      |  | $ | 1.44 |     
|Year ended March 31, 2004              |                |      |      |      |  |   |      |     
|                                       | First Quarter  |      | $    | 2.60 |  |   | $    | 1.50 | 
|                                       | Second Quarter |      |      | 3.19 |  |   |      | 1.90 | 
|                                       | Third Quarter  |      |      | 3.30 |  |   |      | 2.19 | 
|                                       | Fourth Quarter |      |      | 3.99 |  |   |      | 2.78 | 

On June 7, 2004, there were 278 holders of
record of our common stock. Because many of the Companys
shares are held by brokers and other institutions on behalf of
stockholders, we are unable to estimate the total number of
stockholders represented by these record holders.

The Company has not declared or paid any cash
dividends on its common stock and does not anticipate paying
cash dividends in the foreseeable future. The Company
anticipates that any future earnings will be retained to finance
the continuing development of its business.

On July 15, 1999, the Companys Board
of Directors approved a stock repurchase program for up to
2,000,000 shares of the Companys outstanding common stock.
The Company is authorized to use available cash to buy back its
shares in open market transactions from time to time, subject to
price and market conditions. No purchases were made in the
period of 2001 through March 31, 2004. As of March 31,
2004, the Company held, as treasury stock, 435,500 shares that
had been repurchased at a cost of $2.2 million under the
program.

In April 2002, the Company entered into an
agreement with Robert Felton, a founder of the Company and
former Chief Executive Officer and Chairman of the Board of
Directors. Under this agreement, the Company repurchased 500,000
shares of the Companys common stock from Mr. Felton
at a price of $5.00 per share, which approximated market value
at the time of the agreement, for an aggregate purchase price of
$2.5 million. As part of this agreement, Mr. Felton agreed
not to transfer or enter into any agreement to transfer the
remainder of his shares of the Companys stock for a period
of one year. These repurchased shares are also held as treasury
stock.

25



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##### Table of Contents



Equity Compensation Plan Information

The following table provides information about
the common stock that may be issued under all of the
Companys existing equity compensation plans as of
March 31, 2004.

|                                                   |  |                         |            |                      |  |                           |      |  |  |  |           | 
|-------------------------------------------------- |  | ----------------------- | ---------- | -------------------- |  | ------------------------- | ---- |  |  |  | --------- | 
|                                                   |  |                         |            |                      |  | (c)                      
|                                                   |  | (a)                     |            |                      |  | Number of Securities     
|                                                   |  | Number of Securities    |            | (b)                  |  | Remaining Available for  
|                                                   |  | to be Issued Upon       |            | Weighted Average     |  | Future Issuance Under    
|                                                   |  | Exercise of Outstanding |            | Exercise Price of    |  | Equity Compensation Plans
|                                                   |  | Options, Warrants and   |            | Outstanding Options, |  | (Excluding Securities    
|Plan Category*                                     |  | Rights                  |            | Warrants and Rights  |  | Reflected in Column (a)) 
|                                                   |  |                         |            |                      |  |                          
|Equity Compensation Plans Approved by Stockholders |  |                         | 11,066,803 |                      |  | $                         | 3.40 |  |  |  | 1,101,587 | 



---



|  |                                                                                           
|- | ------------------------------------------------------------------------------------------
|* | All of the Companys Equity Compensation
    Plans have been approved by its stockholders.

Recent Sales of Unregistered
Securities

On February 9, 2004, the Company completed a
private placement to accredited investors under Section 506
of Regulation D, selling 5.0 million shares of its
common stock, par value $0.001 per share at a price per share of
$3.10. The net proceeds to the Company from the offering, after
expenses, were approximately $14.4 million. The Company
used the proceeds from this offering to replenish cash used in
the acquisition of Wishbone Systems and will use the remaining
proceeds for general working capital.






|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

The following selected consolidated financial
data of the Company is qualified by reference to and should be
read in conjunction with the consolidated financial statements
and notes thereto and other financial information included
elsewhere herein. The summary consolidated balance sheet data as
of March 31, 2003 and 2004 and summary consolidated
statements of operations data for the years ended
December 31, 2001 and 2002, the three-month period ended
March 31, 2003 and the year ended March 31, 2004 are
derived from and qualified by reference to the audited
consolidated financial statements of the Company, which are
included elsewhere herein. The summary consolidated balance
sheet data as of December 31, 1999, 2000, 2001 and 2002 and
the summary consolidated statements of operations for the years
ended December 31, 1999 and 2000 are derived from the
audited consolidated financial statements of the Company which
are not included herein, but have been previously filed with the
SEC.

In March 2003, the Company changed its fiscal
year end from December 31 to March 31. Results from
the twelve-month period ended March 31, 2003 were derived
from Companys published quarterly results and are
unaudited. Accordingly, this twelve-month period is not
disclosed in the accompanying consolidated financial statements.
It is included in this selected financial data for comparative
purposes only.

26



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##### Table of Contents



|                                                  |                            |                                       |         |           |         |                       |         |         |         |              |         |             |         |      |         |         |        |   |        |        |        |   |         |        |        |   |         |         |        | 
|------------------------------------------------- | -------------------------- | ------------------------------------- | ------- | --------- | ------- | --------------------- | ------- | ------- | ------- | ------------ | ------- | ----------- | ------- | ---- | ------- | ------- | ------ | - | ------ | ------ | ------ | - | ------- | ------ | ------ | - | ------- | ------- | ------ | 
|                                                  |                            |                                       |         |           |         |                       |         |         |         | Three Months |         |             |         |     
|                                                  |                            |                                       |         | Ended     |         |                      
|                                                  |                            | Years Ended December 31,              |         | March 31, |         | Years Ended March 31,
|                                                  |                            |                                       |         |           |         |                      
|                                                  |                            | 1999                                  |         | 2000      |         | 2001                  |         | 2002    |         | 2003         |         | 2003        |         | 2004
|                                                  |                            |                                       |         |           |         |                       |         |         |         |              |         |             |         |     
|                                                  |                            |                                       |         |           |         |                       |         |         |         |              |         | (Unaudited) |         |     
|                                                  |                            |                                      
|                                                  |                            | (In thousands, except per share data)
|Statement of Operations data:                     |                            |                                       |         |           |         |                       |         |         |         |              |         |             |         |      |         |         |        |   |        |        |        |   |         |        |        |   |         |        
|Revenue:                                          |                            |                                       |         |           |         |                       |         |         |         |              |         |             |         |      |         |         |        |   |        |        |        |   |         |        |        |   |         |        
|                                                  | Software license fees      |                                       | $       | 19,071    |         |                       | $       | 12,622  |         |              | $       | 21,005      |         |      | $       | 15,527  |        |   | $      | 2,637  |        |   | $       | 13,936 |        |   | $       | 23,917  |       
|                                                  | Services:                  |                                       |         |           |         |                       |         |         |         |              |         |             |         |      |         |         |        |   |        |        |        |   |         |        |        |   |         |         |       
|                                                  |                            | Support, outsourcing and hosting      |         |           | 30,773  |                       |         |         | 34,154  |              |         |             | 35,637  |      |         |         | 36,780 |   |        |        | 10,614 |   |         |        | 38,751 |   |         |         | 59,536 | 
|                                                  |                            | Consulting, training and other        |         |           | 128,661 |                       |         |         | 98,913  |              |         |             | 119,372 |      |         |         | 64,858 |   |        |        | 13,983 |   |         |        | 59,269 |   |         |         | 62,933 | 
|                                                  |                            |                                       |         |           |         |                       |         |         |         |              |         |             |         |      |         |         |        |   |        |        |        |   |         |        |        |   |         |        
|                                                  | Total services             |                                       |         | 159,434   |         |                       |         | 133,067 |         |              |         | 155,009     |         |      |         | 101,638 |        |   |        | 24,597 |        |   |         | 98,020 |        |   |         | 122,469 |       
|                                                  |                            |                                       |         |           |         |                       |         |         |         |              |         |             |         |      |         |         |        |   |        |        |        |   |         |        |        |   |         |        
|Total revenue                                     |                            |                                       | 178,505 |           |         |                       | 145,689 |         |         |              | 176,014 |             |         |      | 117,165 |         |        |   | 27,234 |        |        |   | 111,956 |        |        |   | 146,386 |        
|                                                  |                            |                                       |         |           |         |                       |         |         |         |              |         |             |         |      |         |         |        |   |        |        |        |   |         |        |        |   |         |        
|Cost of revenue:                                  |                            |                                       |         |           |         |                       |         |         |         |              |         |             |         |      |         |         |        |   |        |        |        |   |         |        |        |   |         |        
|                                                  | Software license fees(1)   |                                       |         | 5,111     |         |                       |         | 9,592   |         |              |         | 1,378       |         |      |         | 2,997   |        |   |        | 226    |        |   |         | 3,109  |        |   |         | 999     |       
|                                                  | Services:                  |                                       |         |           |         |                       |         |         |         |              |         |             |         |      |         |         |        |   |        |        |        |   |         |        |        |   |         |         |       
|                                                  |                            | Support, outsourcing and hosting      |         |           | 6,329   |                       |         |         | 8,617   |              |         |             | 8,209   |      |         |         | 11,149 |   |        |        | 4,177  |   |         |        | 13,193 |   |         |         | 20,275 | 
|                                                  |                            | Consulting, training and other        |         |           | 86,610  |                       |         |         | 72,671  |              |         |             | 71,529  |      |         |         | 44,838 |   |        |        | 11,006 |   |         |        | 42,291 |   |         |         | 46,365 | 
|                                                  |                            |                                       |         |           |         |                       |         |         |         |              |         |             |         |      |         |         |        |   |        |        |        |   |         |        |        |   |         |        
|                                                  | Total services             |                                       |         | 92,939    |         |                       |         | 81,288  |         |              |         | 79,738      |         |      |         | 55,987  |        |   |        | 15,183 |        |   |         | 55,484 |        |   |         | 66,640  |       
|                                                  |                            |                                       |         |           |         |                       |         |         |         |              |         |             |         |      |         |         |        |   |        |        |        |   |         |        |        |   |         |        
|Total cost of revenue                             |                            |                                       | 98,050  |           |         |                       | 90,880  |         |         |              | 81,116  |             |         |      | 58,984  |         |        |   | 15,409 |        |        |   | 58,593  |        |        |   | 67,639  |        
|                                                  |                            |                                       |         |           |         |                       |         |         |         |              |         |             |         |      |         |         |        |   |        |        |        |   |         |        |        |   |         |        
|Gross margin                                      |                            |                                       | 80,455  |           |         |                       | 54,809  |         |         |              | 94,898  |             |         |      | 58,181  |         |        |   | 11,825 |        |        |   | 53,363  |        |        |   | 78,747  |        
|                                                  |                            |                                       |         |           |         |                       |         |         |         |              |         |             |         |      |         |         |        |   |        |        |        |   |         |        |        |   |         |        
|Operating expenses:                               |                            |                                       |         |           |         |                       |         |         |         |              |         |             |         |      |         |         |        |   |        |        |        |   |         |        |        |   |         |        
|                                                  | Research and development   |                                       |         | 33,801    |         |                       |         | 51,607  |         |              |         | 49,522      |         |      |         | 45,745  |        |   |        | 8,717  |        |   |         | 41,754 |        |   |         | 34,977  |       
|                                                  | Sales and marketing        |                                       |         | 31,667    |         |                       |         | 49,348  |         |              |         | 30,242      |         |      |         | 29,942  |        |   |        | 6,549  |        |   |         | 28,926 |        |   |         | 33,350  |       
|                                                  | General and administrative |                                       |         | 18,145    |         |                       |         | 20,944  |         |              |         | 17,398      |         |      |         | 13,305  |        |   |        | 3,959  |        |   |         | 14,589 |        |   |         | 21,237  |       
|                                                  | Restructuring expenses     |                                       |         |          |         |                       |         | 2,063   |         |              |         | 10,188      |         |      |         | 8,199   |        |   |        | 2,166  |        |   |         | 6,969  |        |   |         | 44      |       
|                                                  |                            |                                       |         |           |         |                       |         |         |         |              |         |             |         |      |         |         |        |   |        |        |        |   |         |        |        |   |         |        
|                                                  |                            | Total operating expenses              |         |           | 83,613  |                       |         |         | 123,962 |              |         |             | 107,350 |      |         |         | 97,191 |   |        |        | 21,391 |   |         |        | 92,238 |   |         |         | 89,608 | 
|                                                  |                            |                                       |         |           |         |                       |         |         |         |              |         |             |         |      |         |         |        |   |        |        |        |   |         |        |        |   |         |        
|Loss from operations                              |                            |                                       | (3,158  | )         |         |                       | (69,153 | )       |         |              | (12,452 | )           |         |      | (39,010 | )       |        |   | (9,566 | )      |        |   | (38,875 | )      |        |   | (10,861 | )      
|Gain on sale of investment in TenFold Corporation |                            |                                       | 38,170  |           |         |                       |        |         |         |              |        |             |         |      |        |         |        |   |       |        |        |   |        |        |        |   |        |        
|Other income (expense) net                        |                            |                                       | 3,120   |           |         |                       | 3,712   |         |         |              | 2,412   |             |         |      | 1,303   |         |        |   | (50    | )      |        |   | 1,058   |        |        |   | (554    | )      
|                                                  |                            |                                       |         |           |         |                       |         |         |         |              |         |             |         |      |         |         |        |   |        |        |        |   |         |        |        |   |         |        
|Income (loss) before taxes                        |                            |                                       | 38,132  |           |         |                       | (65,441 | )       |         |              | (10,040 | )           |         |      | (37,707 | )       |        |   | (9,616 | )      |        |   | (37,817 | )      |        |   | (11,415 | )      
|Provision (benefit) for income taxes              |                            |                                       | 14,295  |           |         |                       | (6,666  | )       |         |              | 36      |             |         |      | (3,944  | )       |        |   | 277    |        |        |   | (3,669  | )      |        |   | 623     |        
|                                                  |                            |                                       |         |           |         |                       |         |         |         |              |         |             |         |      |         |         |        |   |        |        |        |   |         |        |        |   |         |        
|Net income (loss)                                 |                            | $                                     | 23,837  |           |         | $                     | (58,775 | )       |         | $            | (10,076 | )           |         | $    | (33,763 | )       |        | $ | (9,893 | )      |        | $ | (34,148 | )      |        | $ | (12,038 | )      
|                                                  |                            |                                       |         |           |         |                       |         |         |         |              |         |             |         |      |         |         |        |   |        |        |        |   |         |        |        |   |         |        
|Income (loss) per share:                          |                            |                                       |         |           |         |                       |         |         |         |              |         |             |         |      |         |         |        |   |        |        |        |   |         |        |        |   |         |        
|                                                  | Basic                      |                                       | $       | 0.74      |         |                       | $       | (1.72   | )       |              | $       | (0.29       | )       |      | $       | (0.96   | )      |   | $      | (0.27  | )      |   | $       | (0.95  | )      |   | $       | (0.24   | )     
|                                                  |                            |                                       |         |           |         |                       |         |         |         |              |         |             |         |      |         |         |        |   |        |        |        |   |         |        |        |   |         |        
|                                                  | Diluted                    |                                       | $       | 0.68      |         |                       | $       | (1.72   | )       |              | $       | (0.29       | )       |      | $       | (0.96   | )      |   | $      | (0.27  | )      |   | $       | (0.95  | )      |   | $       | (0.24   | )     
|                                                  |                            |                                       |         |           |         |                       |         |         |         |              |         |             |         |      |         |         |        |   |        |        |        |   |         |        |        |   |         |        
|Shares used in computing per share
    data:      |                            |                                       |         |           |         |                       |         |         |         |              |         |             |         |      |         |         |        |   |        |        |        |   |         |        |        |   |         |        
|                                                  | Basic                      |                                       |         | 32,109    |         |                       |         | 34,248  |         |              |         | 34,857      |         |      |         | 35,237  |        |   |        | 37,210 |        |   |         | 35,838 |        |   |         | 49,455  |       
|                                                  |                            |                                       |         |           |         |                       |         |         |         |              |         |             |         |      |         |         |        |   |        |        |        |   |         |        |        |   |         |        
|                                                  | Diluted                    |                                       |         | 35,274    |         |                       |         | 34,248  |         |              |         | 34,857      |         |      |         | 35,237  |        |   |        | 37,210 |        |   |         | 35,838 |        |   |         | 49,455  |       
|                                                  |                            |                                       |         |           |         |                       |         |         |         |              |         |             |         |      |         |         |        |   |        |        |        |   |         |        |        |   |         |        

27



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|                           |  |                |         |                |  |      |         |      |  |      |         |      |  |   |         |  |  |   |         |   |  |   |         | 
|-------------------------- |  | -------------- | ------- | -------------- |  | ---- | ------- | ---- |  | ---- | ------- | ---- |  | - | ------- |  |  | - | ------- | - |  | - | ------- | 
|                           |  |                |         |               
|                           |  | December 31,   |         | March 31,     
|                           |  |                |         |               
|                           |  | 1999           |         | 2000           |  | 2001 |         | 2002 |  | 2003 |         | 2004
|                           |  |                |         |                |  |      |         |      |  |      |         |     
|                           |  |                |         |               
|                           |  | (In thousands) |         | (In thousands)
|Balance sheet data:        |  |                |         |                |  |      |         |      |  |      |         |      |  |   |         |  |  |   |         |   |  |   |         | 
|Working capital            |  | $              | 98,234  |                |  | $    | 43,466  |      |  | $    | 45,140  |      |  | $ | 18,928  |  |  | $ | (11,804 | ) |  | $ | 1,958   | 
|Total assets               |  |                | 168,901 |                |  |      | 140,732 |      |  |      | 139,167 |      |  |   | 100,390 |  |  |   | 144,510 |   |  |   | 131,673 | 
|Short-term debt            |  |                | 301     |                |  |      | 71      |      |  |      | 4       |      |  |   | 266     |  |  |   | 24,790  |   |  |   | 814     | 
|Long-term debt             |  |                | 163     |                |  |      | 71      |      |  |      |        |      |  |   | 124     |  |  |   | 52      |   |  |   | 10,299  | 
|Total stockholders equity |  |                | 118,352 |                |  |      | 68,957  |      |  |      | 60,946  |      |  |   | 28,276  |  |  |   | 28,434  |   |  |   | 46,876  | 



---



|    |                                                                                           
|--- | ------------------------------------------------------------------------------------------
|(1) | Includes a $6.8 million write down of
    third-party software available for sale in 2000.




Item 7.Managements
Discussion and Analysis of Financial Condition and Results of
Operations

In addition to historical information, this
Managements Discussion and Analysis of Financial
Condition and Results of Operations (MD&A)
may contain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended. These forward-looking statements are not based on
historical facts, but rather reflect managements current
expectations concerning future results and events. These
forward-looking statements generally can be identified by the
use of phrases and expressions such as believe,
expect, anticipate, intend,
plan, foresee, likely,
will or other similar words or phrases. These
statements, which speak only as of the date given, are subject
to certain risks and uncertainties that could cause actual
results to differ materially from our historical experience and
our expectations or projections. These risks include, but are
not limited to, projected growth in the emerging service
delivery management market, market acceptance of our service
delivery management strategy, current market conditions for our
products and services, our ability to achieve growth in our
asset management and customer management offerings, market
acceptance and the success of our new products and enhancements
and upgrades to our existing products, the success of our
product development strategy, our competitive position, the
ability to establish and retain partnership arrangements, our
ability to develop our indirect sales channels, the successful
integration of the acquisition of Wishbone Systems, Inc.
(Wishbone Systems) including the challenges inherent
in diverting our managements attention, our ability to
realize anticipated or any synergies or cost-savings from the
Wishbone Systems acquisition, changes in our executive
management team, uncertainty relating to and the management of
personnel changes, the ability to realize the anticipated
benefits of our recent restructurings, timely development and
introduction of new products, releases and product enhancements,
current economic conditions, heightened security and war or
terrorist acts in countries of the world that affect our
business, and other risks identified in the section of this
Report entitled Description of Business  Factors
Affecting Future Performance, beginning on page 15.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect managements
opinions only as of the date hereof. The Company undertakes no
obligation to revise or publicly release the results of any
revision to these forward-looking statements.

In the MD&A and other sections that follow
there will be references to the MoD contract. In the
fourth quarter of 2000, the Company entered into a contract to
provide the United Kingdom Ministry of Defense (MoD)
with software, support and services. This contract generated
23.3% of revenue in 2001. In January 2002, the MoD announced it
was suspending all work on the contract due to budgetary
constraints. As a result of this suspension, the Company engaged
in a significant restructuring effort in an attempt to
right-size its work force and facilities.

Critical Accounting Policies

Managements discussion and analysis of the
Companys financial condition and results of operations is
based upon the Companys consolidated financial statements,
which have been prepared in accordance with accounting
principles generally accepted in the United States. The
preparation of these financial statements requires the Company
to make estimates and judgments that affect the reported amounts
of assets, liabilities,

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revenues and expenses, and related disclosures of
contingent assets and liabilities. On an on-going basis, the
Company evaluates its estimates, including those related to
revenue recognition, accounts receivable and allowance for
doubtful accounts, valuation of goodwill and intangibles and
restructuring. The Company bases its estimates on historical
experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under
different assumptions or conditions.


The Company has identified the following policies
as critical to the Companys business operations and the
understanding of the Companys results of operations.
Senior management has discussed the development and selection of
these policies and the disclosures below with the Audit
Committee of the Board of Directors. For a detailed discussion
of the application of these and other accounting policies, see
Note 1 in the Notes to Consolidated Financial Statements.



| |                    
| | -------------------
| | Revenue Recognition

Revenue recognition rules for software companies
continue to evolve. They are very complex and often subject to
interpretation. Very specific and detailed guidelines in
measuring revenue are followed; however, certain judgments
affect the application of the Companys revenue policy.
Revenue results are difficult to predict, and any shortfall in
revenue or delay in recognizing revenue could cause operating
results to vary significantly from quarter-to-quarter.

Revenue arises from two sources:
(a) software license fees and (b) services. Software
license fees are generated from licensing the rights to use
Indus software products. Services revenue is generated from
sales of customer support services (maintenance contracts),
consulting and implementation services, outsourcing, hosting
services and training services for customers that license the
Companys products.

For license arrangements that do not require
modification of the software, revenue is recognized in
accordance with accounting standards for software companies,
including Statement of Position, or SOP, 97-2, Software
Revenue Recognition, as amended or interpreted by SOP 98-4
and SOP 98-9, Technical Practice Aids, and SEC Staff Accounting
Bulletins.

License fee revenue is recognized when a
non-cancelable license agreement becomes effective as evidenced
by a signed contract, product delivery, a fixed or determinable
license fee and probability of collection. If the license fee is
not fixed or determinable, revenue is recognized as payments
become due from the customer. If a nonstandard acceptance period
is provided, revenue is recognized upon the earlier of customer
acceptance or the expiration of the acceptance period.

In arrangements that include rights to multiple
software products and/or services, the total arrangement fee is
allocated among each of the deliverables using the residual
method, under which revenue is allocated to undelivered elements
based on vendor-specific objective evidence (VSOE)
of fair value of such undelivered elements and the residual
amounts of revenue are allocated to delivered elements. Elements
included in multiple element arrangements may consist of
software products, maintenance (which includes customer support
services and unspecified upgrades), hosting and consulting
services. VSOE is based on the price generally charged when an
element is sold separately or, in the case of an element not yet
sold separately, the price established by authorized management,
if it is probable that the price, once established, will not
change when the element is sold separately. If VSOE does not
exist for an undelivered element, the total arrangement fee will
be taken to revenue over the life of the contract.

Revenue from consulting and implementation
services is generally time and material based and is recognized
as the work is performed. Delays in project implementation will
result in delays in revenue recognition. Some professional
consulting services involve fixed-price and/or fixed-time
arrangements and are recognized using contract accounting, which
requires the accurate estimation of the cost, scope and duration
of each engagement. Revenue and the related costs for these
projects are recognized on the percentage-of-completion method,
with progress-to-completion measured by using specific
milestones, usually labor cost inputs, with revisions to
estimates reflected in the period in which changes become known.
Project losses are

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provided for in their entirety in the period they
become known, without regard to the percentage-of-completion. If
the Company does not accurately estimate the resources required
or the scope of work to be performed, or does not manage its
projects properly within the planned periods of time or satisfy
its obligations under the contracts, then future consulting
margins on these projects may be negatively affected or losses
on existing contracts may need to be recognized.


Revenue from maintenance and support services is
recognized ratably over the term of the support contract,
typically one year.

Revenue from outsourcing and web hosting (also
referred to as ASP or application service provider)
services is recognized based upon contractually agreed upon
rates per user or service, over a contractually defined time
period.



| |                                                            
| | -----------------------------------------------------------
| | Accounts Receivable and Allowance for
    Doubtful Accounts

Billed and unbilled accounts receivable are
credit-based. The Company maintains an allowance for doubtful
accounts for estimated losses resulting from the inability or
failure of its customers to make required payments. This
allowance is formula-based, supplemented by an evaluation of
specific accounts where there may be collectibility risk. If the
methodology the Company uses to calculate this allowance does
not properly reflect future collections, revenue could be
overstated or understated. On an ongoing basis, the Company
evaluates the collectibility of accounts receivable based upon
historical collections and an assessment of the collectibility
of specific accounts. The Company evaluates the collectibility
of specific accounts using a combination of factors, including
the age of the outstanding balance(s), evaluation of the
accounts financial condition, recent payment history, and
discussions with the Companys account executive for the
specific customer. Based upon this evaluation of collectibility,
any increase or decrease required in the allowance for doubtful
accounts is reflected in the period in which the evaluation
indicates that a change is necessary. If the financial condition
of the Companys customers were to deteriorate, resulting
in an impairment of their ability to make payments, additional
allowances may be required. The allowance for doubtful accounts
was $4.4 million and $0.9 million as of March 31, 2003
and 2004, respectively. The reduction in the allowance from
March 31, 2003 to March 31, 2004 is due to the
write-off to the allowance of invoices related to a specific
customer dispute and improved collections efforts in 2004. The
amount written-off was fully included in the March 31, 2003
allowance for doubtful accounts.

The Company generates a significant portion of
revenues and corresponding accounts receivable from sales to
companies in the utility industry. As of March 31, 2004,
approximately $17.1 million, or 77.4%, of the
Companys gross billed accounts receivable were
attributable to software license fees and services sales to
utility customers. In determining the Companys allowance
for doubtful accounts, the Company has considered the financial
condition of the utility industry as a whole, as well as the
financial condition of individual utility customers. While the
utility industry customers served by the Company are generally
in the regulated or retail sector, their unregulated affiliated
activities might affect the ability to collect amounts due. The
credit status of customers is monitored and, where deemed
necessary, a provision is made for potential uncollectibility.

The Company generated 8.4% of its revenues in the
year ended March 31, 2004 from a single customer, Magnox
Electric plc, located in the United Kingdom. As of
March 31, 2004, approximately $2.1 million, or 9.5%,
of the Companys accounts receivable were attributable to
this customer. The Company does not anticipate accounts
receivable collectibility issues related to this customers
account.

Revenue from sales denominated in currencies
other than the U.S. Dollar resulted in approximately
$5.5 million of the Companys March 31, 2004
gross billed accounts receivable being denominated in foreign
currencies, of which approximately $2.7 million were
denominated in British Pounds. Historically, the foreign
currency gains and losses on these receivables have not been
significant, and the Company has determined that foreign
currency derivative products are not required to hedge the
Companys exposure. If the value of the U.S. Dollar
significantly declined versus one or more foreign currencies,
the U.S. Dollar equivalents received from the Companys
customers could be significantly less than the March 31,
2004 reported amount. See additional discussion in
Quantitative and Qualitative Disclosures About Market
Risks.

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| |                                                
| | -----------------------------------------------
| | Valuation of Intangible Assets and
    Goodwill

The acquisition of Indus Utility Systems, Inc.
(IUS) (formerly SCT Utility Systems, Inc.) in March
2003 and Wishbone Systems in January 2004 resulted in the
recording of goodwill, which represents the excess of the
purchase price over the fair value of assets acquired, as well
as other definite-lived intangible assets.

Under present accounting rules (SFAS
No. 142), goodwill is no longer subject to amortization;
instead it is subject to impairment testing criteria. Other
acquired definite-lived intangible assets are being amortized
over their estimated useful lives, although those with
indefinite lives are not to be amortized but are tested at least
annually for impairment, using a lower of cost or fair value
approach. For purposes of its goodwill impairment testing, the
Company considers itself to be a single reporting unit and
assesses goodwill impairment on an enterprise-wide level. The
impairment test is therefore performed on a consolidated basis
and compares the Companys market capitalization (reporting
unit fair value) to its outstanding equity (reporting unit
carrying value). In accordance with the recommended provisions
of SFAS No. 142, the Company utilizes its closing stock
price as reported on the Nasdaq National Market on the date of
the impairment test in order to compute market capitalization.
The Company has designated December 31 as the annual date
for impairment testing.

The Company performed its annual impairment test
as of December 31, 2003 and concluded that no impairment of
goodwill existed since the fair value of the Companys
reporting unit exceeded its carrying value. No events have
occurred, nor circumstances changed subsequent to
December 31, 2003, that would reduce the fair value of the
Companys reporting unit below its carrying value. The
Company will continue to test for impairment on an annual basis
or on an interim basis if circumstances change that would
indicate the possibility of impairment. The impairment review
may require an analysis of future projections and assumptions
about the Companys operating performance. If such a review
indicates that the assets are impaired, an expense would be
recorded for the amount of the impairment, and the corresponding
impaired assets would be reduced in carrying value.

Differences in the identification of reporting
units and the use of valuation techniques can result in
materially different evaluations of impairment.



| |              
| | -------------
| | Restructuring

The Company has accrued the cost of redundant
leased office space in San Francisco, Dallas and Pittsburgh
through restructuring charges in the period January 1, 2000
through March 31, 2004. The accrual is included in the
consolidated financial statements in Other Accrued
Liabilities for amounts due within one year and
Other Liabilities for amounts due after one year.
The redundant office space was a result of the Companys
relocation of its headquarters and certain administrative
functions from San Francisco to Atlanta in 2000 and 2001, and
the suspension of the United Kingdom Ministry of Defense
contract in 2002. Additions to the accrual were made in the year
of 2002, the three-month period ended March 31, 2003 and
the year ended March 31, 2004 due to additional vacated
office space and the deterioration of the rental markets in all
three locations. This deterioration has resulted in the Company
receiving less than anticipated amounts in sublease arrangements
due to lower lease rates and longer times taken to sublease the
office space. The Company reviews this accrual and evaluates its
adequacy on an ongoing basis. Should rental conditions
deteriorate to the point where the redundant office space is not
ever leased, the Company will incur additional charges totaling
approximately $1.4 million over the period from fiscal year
2005 through 2008. Should rental conditions improve, it is
possible that higher than anticipated sublease income will be
generated. Any required increase or decrease in this accrual
will be reflected in the period in which the evaluation
indicates that a change is necessary.

In May 2004, the Company announced its plan to
restructure certain business activities and record restructuring
charges of up to $11 million in the first quarter of fiscal
2005, as well as some incremental charges resulting from this
restructuring plan in future periods. Of this amount,
approximately $10 million relates to the consolidation of
office space in Atlanta and San Francisco, including the
transfer of functions to the company-owned office buildings in
Columbia, South Carolina. The remaining restructuring charge is

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related to severance costs associated with the
elimination of approximately 50 positions, resulting from the
outsourcing of some development functions to India and
consolidating other business functions. The resultant income
statement savings is expected to lower the Companys
breakeven point and strengthen the Companys ability to
remain profitable in the future.


Results of Operations



| |                  
| | -----------------
| | Operating Results

In fiscal 2004, the Company achieved operational
growth from the March 2003 acquisition of IUS. The operations of
Indus and IUS were combined in the succeeding months, with a
merger of the IUS corporate subsidiary into Indus occurring in
November 2003. During the period since acquisition, many of the
operations of Indus and IUS have been combined in such a manner
that it is not always practicable to attribute and/or quantify
variances specific to either entity in Managements
Discussion and Analysis of Financial Condition and Results of
Operations. Additionally, in January 2004, the Company
acquired the operations of Wishbone Systems to expand the
Companys product offerings into a comprehensive suite of
service delivery management applications. Wishbone Systems
operations had an insignificant impact on the Companys
operations in fiscal 2004.

In March 2003, the Company changed its fiscal
year end from December 31 to March 31. The following
discussion of historical operating results compares the fiscal
year ended March 31, 2004 to the same twelve-month period
in the prior year. Results from the twelve-month period ended
March 31, 2003 were derived from the Companys
published quarterly results and are unaudited. Accordingly, this
twelve-month period is not disclosed in the accompanying
consolidated financial statements. It is included in this
discussion for comparative purposes only. For the previous
fiscal year, ended December 31, 2002, the comparison is to
the fiscal year ended December 31, 2001.



| |                                                                                       
| | --------------------------------------------------------------------------------------
| | Twelve-Month Period Ended March 31, 2003
    Compared to the Year Ended March 31, 2004

Revenue

|                                 |                             |                     |         |           |   |        |         |      |   |  |      |   | 
|-------------------------------- | --------------------------- | ------------------- | ------- | --------- | - | ------ | ------- | ---- | - |  | ---- | - | 
|                                 |                             |                     |         |          
|                                 |                             | Twelve Months Ended |         |          
|                                 |                             |                     |         | %        
|                                 |                             | 3/31/2003           |         | 3/31/2004 |   | Change
|                                 |                             |                     |         |           |   |       
|                                 |                             | (Unaudited)         |         |           |   |       
|                                 |                             |                     |         |          
|                                 |                             | (In thousands)      |         |          
|Software license fees            |                             | $                   | 13,936  |           |   | $      | 23,917  |      |   |  | 71.6 | %
|                                 | Percentage of total revenue |                     |         | 12.5      | % |        |         | 16.3 | % |  |      |   | 
|Support, outsourcing and hosting |                             |                     | 38,751  |           |   |        | 59,536  |      |   |  | 53.6 | %
|                                 | Percentage of total revenue |                     |         | 34.6      | % |        |         | 40.7 | % |  |      |   | 
|Consulting, training and other   |                             |                     | 59,269  |           |   |        | 62,933  |      |   |  | 6.2  | %
|                                 | Percentage of total revenue |                     |         | 52.9      | % |        |         | 43.0 | % |  |      |   | 
|                                 |                             |                     |         |           |   |        |         |      |   |  |      |  
|Total revenue                    |                             | $                   | 111,956 |           |   | $      | 146,386 |      |   |  |      |  
|                                 |                             |                     |         |           |   |        |         |      |   |  |      |  

The Companys revenue is derived from
software license fees and from services, which include customer
support, consulting, outsourcing and hosting. The increase in
total revenue is principally attributable to revenue generated
by the IUS business acquired in March 2003, although the merger
of the operation makes quantifying the actual amounts fully
attributable to the IUS operations impracticable. Not
withstanding the increase in revenue in fiscal year 2004, the
Company continues to experience some effects from a weakened
spending environment for information technology in the form of
deferred buying decisions by customers for major software and
services purchases and pressures from customers and competitors
to discount offerings.

Software license fees:The increase in revenue from software
license fees in the year ended March 31, 2004 is
attributable to the increase in new license arrangements during
the current year and the recognition of $9.2 million in
revenue, deferred from periods prior to the beginning of the
year, where the criteria for revenue recognition was met during
the current year.

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The aggregate dollar totals of new license
arrangements increased 56.6% to $20.2 million in the
twelve-month period ended March 31, 2004 from $12.9 million
for the same period of 2003. License fee revenue from the CRM
software suites was $3.7 million for the year ended
March 31, 2004. All of the license fee revenue for the
prior year period was derived from EAM software, because the CRM
software was acquired in the IUS acquisition and no CRM-related
license revenue was recorded in the twelve-month period ended
March 31, 2003.

Support, outsourcing and hosting:Revenues from support, outsourcing and
hosting increased in the 2004 period due to a $3.1 million
growth in hosting revenue, $7.6 million from the inclusion
of the outsourcing business and increased customer support from
the IUS business acquired in March 2003.

Consulting, training and other:The increase in revenue from
consulting, training and other is attributable to the inclusion
of $32.4 million from the IUS business in 2004. This
revenue was offset by the decline in the Companys EAM
consulting business resulting from lower levels of new license
bookings in fiscal 2003 and into 2004, which directly impacted
consulting services, and the winding down of several significant
projects.

Cost of Revenue

|                                         |                                                |                     |        |           |   |        |        |      |   |  |       |    | 
|---------------------------------------- | ---------------------------------------------- | ------------------- | ------ | --------- | - | ------ | ------ | ---- | - |  | ----- | -- | 
|                                         |                                                |                     |        |          
|                                         |                                                | Twelve Months Ended |        |          
|                                         |                                                |                     |        | %        
|                                         |                                                | 3/31/2003           |        | 3/31/2004 |   | Change
|                                         |                                                |                     |        |           |   |       
|                                         |                                                | (Unaudited)         |        |           |   |       
|                                         |                                                |                     |        |          
|                                         |                                                | (In thousands)      |        |          
|Cost of software license fees            |                                                | $                   | 3,109  |           |   | $      | 999    |      |   |  | (67.9 | )%
|                                         | Percentage of software license revenue         |                     |        | 22.3      | % |        |        | 4.2  | % |  |       |    | 
|Cost of support, outsourcing and hosting |                                                |                     | 13,193 |           |   |        | 20,275 |      |   |  | 53.7  | % 
|                                         | Percentage of support, outsourcing and hosting |                     |        | 34.0      | % |        |        | 34.1 | % |  |       |    | 
|Cost of consulting, training and other   |                                                |                     | 42,291 |           |   |        | 46,365 |      |   |  | 9.6   | % 
|                                         | Percentage of consulting, training and other   |                     |        | 71.4      | % |        |        | 73.7 | % |  |       |    | 
|                                         |                                                |                     |        |           |   |        |        |      |   |  |       |   
|Total cost of revenue                    |                                                | $                   | 58,593 |           |   | $      | 67,639 |      |   |  |       |   
|                                         |                                                |                     |        |           |   |        |        |      |   |  |       |   

Cost of revenue consists of: (i) personnel
and related costs for consulting, training and customer support
services, (ii) amortization of license fees paid to third
parties for inclusion of their products in the Companys
software, and (iii) personnel, data maintenance and related
costs for outsourcing and hosting services. Gross profits on
license fees are substantially higher than gross profits on
services revenue, due to the relatively high personnel costs
associated with the various services. The Company has not yet
begun to amortize the capitalized costs of internally developed
software.

Cost of revenue  Software
license fees:The decrease in cost of
software license fees in the year ended March 31, 2004 as
compared to the same twelve-month period of 2003 was due to
third-party software write downs in the 2003 period and a
product mix in the 2004 period in which license fee revenue
recognized was less dependent on third-party products than in
the 2003 period. In the 2003 period, third-party software of
$620,000 was written off to adjust the balances of third-party
software licenses to reflect the anticipated use over the
remaining lives of the licenses.

Cost of services  Customer
support, outsourcing and hosting:The
increase in cost of customer support, outsourcing and hosting is
attributable to the inclusion of the IUS business for the entire
2004 period. Prior to the acquisition of IUS, the Company did
not offer outsourcing services, which represent
$4.8 million of the cost increase in year ended
March 31, 2004. The increase in the cost of hosting
services of $2.3 million corresponds with the
Companys growth in hosting revenues.

Cost of services  Consulting,
training and other:Consulting,
training and other services costs increased as a result of the
inclusion of the IUS business. Gross margin on consulting,
training and other services decreased from 28.6% for the
twelve-month period ended March 31, 2003 to 26.3% for the
year ended

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March 31, 2004 due to lower staff
utilization and the inclusion of the IUS business, which has
lower margins in its consulting services.




| |                   
| | ------------------
| | Operating Expenses

|                           |                             |                     |        |           |   |        |        |      |   |  |       |    | 
|-------------------------- | --------------------------- | ------------------- | ------ | --------- | - | ------ | ------ | ---- | - |  | ----- | -- | 
|                           |                             |                     |        |          
|                           |                             | Twelve Months Ended |        |          
|                           |                             |                     |        | %        
|                           |                             | 3/31/2003           |        | 3/31/2004 |   | Change
|                           |                             |                     |        |           |   |       
|                           |                             | (Unaudited)         |        |           |   |       
|                           |                             |                     |        |          
|                           |                             | (In thousands)      |        |          
|Research and development   |                             | $                   | 41,754 |           |   | $      | 34,977 |      |   |  | (16.2 | )%
|                           | Percentage of total revenue |                     |        | 37.3      | % |        |        | 23.9 | % |  |       |    | 
|Sales and marketing        |                             |                     | 28,926 |           |   |        | 33,350 |      |   |  | 15.3  | % 
|                           | Percentage of total revenue |                     |        | 25.8      | % |        |        | 22.8 | % |  |       |    | 
|General and administrative |                             |                     | 14,589 |           |   |        | 21,237 |      |   |  | 45.6  | % 
|                           | Percentage of total revenue |                     |        | 13.0      | % |        |        | 14.5 | % |  |       |    | 
|Restructuring expense      |                             |                     | 6,969  |           |   |        | 44     |      |   |  | (99.4 | )%
|                           | Percentage of total revenue |                     |        | 6.2       | % |        |        | 0.0  | % |  |       |    | 
|                           |                             |                     |        |           |   |        |        |      |   |  |       |   
|Total operating expense    |                             | $                   | 92,238 |           |   | $      | 89,608 |      |   |  |       |   
|                           |                             |                     |        |           |   |        |        |      |   |  |       |   

Research and development:Research and development expenses
comprise personnel and related costs, computer processing costs
and third-party consultant fees attributable to the development
of new software application products and enhancements to
existing products. Computer software development costs are
charged to research and development expense until technological
feasibility is established, after which remaining software
production costs are capitalized until the product is available
for general release. The Company defines technological
feasibility as the point in time at which it has a detailed
program design or a working model of the product, depending on
the type of development effort. Until 2003, no research and
development costs were capitalized because the costs between
attainment of technological feasibility for the related software
product through the date of general release were insignificant.

The reduction in research and development expense
in the year ended March 31, 2004 was a result of staffing
reductions and capitalization of internal development costs of
$5.9 million. Capitalized development costs are related to
creating a version of the PassPort product to meet market
requirements in Japan and other Asian countries. These costs
have not yet been subject to amortization as the product just
became generally available at the end of March 2004. The Company
will amortize these capitalized costs to cost of license fee
revenue beginning in the first quarter of fiscal 2005.

Sales and marketing:Sales and marketing expenses include
personnel costs, sales commissions, and the costs of
advertising, public relations and participation in industry
conferences and trade shows.

The increase in sales and marketing expense was
due to an increased sales force, including those sales and
marketing employees of the IUS and Wishbone Systems businesses,
which are included in the 2004 period, and greater incentive
compensation based on a higher level of sales.

General and administrative:General and administrative expenses
include the costs of finance, human resources and administrative
operations.

The increase in general and administrative
expenses resulted from the inclusion of general and
administrative expenses of the IUS business. Additionally, the
year ended March 31, 2004 includes $1.8 million in
amortization of intangible assets as compared to
$0.2 million for the same twelve-month period in 2003.

Restructuring expenses:The Company recorded $7.0 million
in restructuring charges in the twelve-month period ended
March 31, 2003. The restructuring charges resulted from
changes in the Companys estimates of excess lease costs
associated with the subleasing of redundant office space in San
Francisco, Dallas and Pittsburgh. At the time of the IUS
acquisition in March 2003, the Company recorded a $675,000
liability for IUS severance costs as part of a plan to
restructure the acquired operations. These costs were

34



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##### Table of Contents



recognized as a liability assumed in the purchase
business combination and did not affect operating expenses for
fiscal 2003.


Interest Income (Expense), Other Income and
Provision for Income Taxes

|                                     |                             |                     |        |           |    |        |      |      |    |  |        |    | 
|------------------------------------ | --------------------------- | ------------------- | ------ | --------- | -- | ------ | ---- | ---- | -- |  | ------ | -- | 
|                                     |                             |                     |        |          
|                                     |                             | Twelve Months Ended |        |          
|                                     |                             |                     |        | %        
|                                     |                             | 3/31/2003           |        | 3/31/2004 |    | Change
|                                     |                             |                     |        |           |    |       
|                                     |                             | (Unaudited)         |        |           |    |       
|                                     |                             |                     |        |          
|                                     |                             | (In thousands)      |        |          
|Interest income (expense)            |                             | $                   | 705    |           |    | $      | (655 | )    |    |  | (192.9 | )%
|                                     | Percentage of total revenue |                     |        | 0.6       | %  |        |      | (0.4 | )% |  |        |    | 
|Other income (expense)               |                             |                     | 353    |           |    |        | 101  |      |    |  | (71.4  | )%
|                                     | Percentage of total revenue |                     |        | 0.3       | %  |        |      | 0.1  | %  |  |        |    | 
|Provision (benefit) for income taxes |                             |                     | (3,669 | )         |    |        | 623  |      |    |  | (117.0 | )%
|                                     | Percentage of total revenue |                     |        | (3.3      | )% |        |      | 0.4  | %  |  |        |    | 

Interest:Interest
income is generated from the Companys investments in
marketable securities and interest-bearing cash and cash
equivalents. The decrease in interest income is a result of a
decrease in the average cash balances available for investment
for the period and lower market interest rates.

Interest expense is related to debt financing
used to fund the March 5, 2003 IUS acquisition and capital
lease arrangements. In connection with the acquisition of IUS,
the Company executed a promissory note in the principal amount
of $10 million in favor of SCT Financial Corporation, a
subsidiary of Systems & Computer Technology Corporation,
secured by a mortgage on IUS real property. This note was paid
in full on September 5, 2003 with proceeds from an
$11.5 million mortgage on the same property. At the time of
the acquisition, the Company also issued 8% Convertible Notes
which were converted to common stock on July 29, 2003. As a
result of this activity, interest expense increased from
$188,000 for the twelve-month period ended March 31, 2003
to $1.3 million for the year ended March 31, 2004.

Other income (expense):Other income (expense) is
generated from foreign exchange gains or losses. Foreign
exchange gains in the twelve-month period ended March 31,
2003 were $325,000 compared with $18,000 in gains for the same
period of 2004. This variance reflects the recent decline in the
value of the U.S. Dollar and its impact on the Companys
non-U.S. subsidiaries holding U.S. Dollar cash and receivable
balances and revaluation of certain intercompany balances
between the parent company and one of its non-U.S. subsidiaries.

Provision for income taxes:Income taxes include federal, state
and foreign income taxes.

In the twelve-month period ended March 31,
2003, the Company recorded a net tax benefit of
$3.7 million to reflect the impact of a change to U.S.
federal income tax law allowing the carryback of net operating
losses for five years rather that two years permitted under
previous law.

As of March 31, 2004, the Company has a net
operating loss of approximately $57.3 million, to carry
forward which, subject to certain limitations, may be used to
offset future income through 2024. As of that date, the Company
also had a net operating loss carryforward of approximately
$6.5 million related to stock option deductions. The tax
benefit for this carryforward will be directly allocated to
contributed capital as realized.

Financial Accounting Standards Board Statement
No. 109 provides for the recognition of deferred tax assets
if realization of the assets is more likely than not. Based upon
the weight of available evidence, which includes historical
supporting performance and the reported cumulative net losses
for the most recent three years, the Company has provided a full
valuation allowance against its net deferred tax asset at
March 31, 2004.

35



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| |                                                                              
| | -----------------------------------------------------------------------------
| | Year Ended December 31, 2001 Compared to
    the Year Ended December 31, 2002

Revenue

|                                 |                             |                |         |            |   |        |         |      |   |  |       |    | 
|-------------------------------- | --------------------------- | -------------- | ------- | ---------- | - | ------ | ------- | ---- | - |  | ----- | -- | 
|                                 |                             |                |         |           
|                                 |                             | Years Ended    |         |           
|                                 |                             |                |         |           
|                                 |                             | 12/31/2001     |         | 12/31/2002 |   | Change
|                                 |                             |                |         |            |   |       
|                                 |                             |                |         |           
|                                 |                             | (In thousands) |         |           
|Software license fees            |                             | $              | 21,005  |            |   | $      | 15,527  |      |   |  | (26.1 | )%
|                                 | Percentage of total revenue |                |         | 11.9       | % |        |         | 13.2 | % |  |       |    | 
|Support, outsourcing and hosting |                             |                | 35,637  |            |   |        | 36,780  |      |   |  | 3.2   | % 
|                                 | Percentage of total revenue |                |         | 20.3       | % |        |         | 31.4 | % |  |       |    | 
|Consulting, training and other   |                             |                | 119,372 |            |   |        | 64,858  |      |   |  | (45.7 | )%
|                                 | Percentage of total revenue |                |         | 67.8       | % |        |         | 55.4 | % |  |       |    | 
|                                 |                             |                |         |            |   |        |         |      |   |  |       |   
|Total revenue                    |                             | $              | 176,014 |            |   | $      | 117,165 |      |   |  |       |   
|                                 |                             |                |         |            |   |        |         |      |   |  |       |   

The Companys revenue is derived from
software license fees and from services, which include customer
support, consulting, outsourcing and hosting. The
$58.8 million decrease in 2002 was attributable to the
suspension of the MoD project in the amount of
$37.4 million, and the continuing wind down of the British
Energy project of $4.7 million, along with a slow-down in
the demand for services and lower software licensing fee revenue
of $5.5 million due to weak capital spending in the markets
that the Company serves.

Software license fees:The decrease in 2002 is a result of a
lower level of new license revenue arrangements during 2002.
During 2001 and 2002, the Company signed new license
arrangements with aggregate dollar totals of $27.0 million and
$7.2 million, respectively.

Support, outsourcing and hosting:Revenue from support, outsourcing and
hosting increased due to $1.3 million growth in hosting
revenue as the Company added its first hosting customers in 2002.

Consulting, training and other:Revenue from consulting, training and
other services decreased $36.9 million due to the
suspension of the MoD contract and $4.7 million from the
British Energy contract as it wound down toward completion in
2003. The remaining decrease resulted from a lower level of
consulting services, which was due in part to the Companys
lower level of new license contracts during 2002.

Cost of Revenue

|                                         |                                                |                |        |            |   |        |        |      |   |  |       |    | 
|---------------------------------------- | ---------------------------------------------- | -------------- | ------ | ---------- | - | ------ | ------ | ---- | - |  | ----- | -- | 
|                                         |                                                |                |        |           
|                                         |                                                | Years Ended    |        |           
|                                         |                                                |                |        | %         
|                                         |                                                | 12/31/2001     |        | 12/31/2002 |   | Change
|                                         |                                                |                |        |            |   |       
|                                         |                                                |                |        |           
|                                         |                                                | (In thousands) |        |           
|Cost of software license fees            |                                                | $              | 1,378  |            |   | $      | 2,997  |      |   |  | 117.5 | % 
|                                         | Percentage of software license revenue         |                |        | 6.6        | % |        |        | 19.3 | % |  |       |    | 
|Cost of support, outsourcing and hosting |                                                |                | 8,209  |            |   |        | 11,149 |      |   |  | 35.8  | % 
|                                         | Percentage of support, outsourcing and hosting |                |        | 23.0       | % |        |        | 30.3 | % |  |       |    | 
|Cost of consulting, training and other   |                                                |                | 71,529 |            |   |        | 44,838 |      |   |  | (37.3 | )%
|                                         | Percentage of consulting, training and other   |                |        | 59.9       | % |        |        | 69.1 | % |  |       |    | 
|                                         |                                                |                |        |            |   |        |        |      |   |  |       |   
|Total cost of revenue                    |                                                | $              | 81,116 |            |   | $      | 58,984 |      |   |  |       |   
|                                         |                                                |                |        |            |   |        |        |      |   |  |       |   

Cost of revenue consists of: (i) personnel
and related costs for consulting, training and customer support
services, (ii) amortization of license fees paid to third
parties for inclusion of their products in the Companys
software, and (iii) personnel, data maintenance and related
costs for outsourcing and hosting services. Gross profits on
license fees are substantially higher than gross profits on
services revenue, due to the relatively high personnel costs
associated with the various services.

The 2002 overall decrease in cost of revenues was
primarily due to staffing reductions in the consulting business
throughout 2002.

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##### Table of Contents



Cost of Revenue  Software license
fees:The 2002 increase in cost of
license fee revenue was due to a $620,000 write down of
third-party products as well as a product mix in which license
fees recognized in 2002 were more dependent on third-party
products than in 2001.

Cost of Services  Customer support,
outsourcing and hosting:Contributing
to the increase in customer support, outsourcing and hosting
cost in 2002 was a $1.7 million increase in hosting
expenses as the Company added its first hosting customers in
2002.

Cost of Services  Consulting,
training and other:The decrease in
consulting, training and other services cost in 2002 was a
result of the suspension of the MoD project and corresponding
staffing reductions.

Operating Expenses

|                           |                             |                |         |            |   |        |        |      |   |  |       |    | 
|-------------------------- | --------------------------- | -------------- | ------- | ---------- | - | ------ | ------ | ---- | - |  | ----- | -- | 
|                           |                             |                |         |           
|                           |                             | Years Ended    |         |           
|                           |                             |                |         | %         
|                           |                             | 12/31/2001     |         | 12/31/2002 |   | Change
|                           |                             |                |         |            |   |       
|                           |                             |                |         |           
|                           |                             | (In thousands) |         |           
|Research and development   |                             | $              | 49,522  |            |   | $      | 45,745 |      |   |  | (7.6  | )%
|                           | Percentage of total revenue |                |         | 28.1       | % |        |        | 39.0 | % |  |       |    | 
|Sales and marketing        |                             |                | 30,242  |            |   |        | 29,942 |      |   |  | (1.0  | )%
|                           | Percentage of total revenue |                |         | 17.2       | % |        |        | 25.6 | % |  |       |    | 
|General and administrative |                             |                | 17,398  |            |   |        | 13,305 |      |   |  | (23.5 | )%
|                           | Percentage of total revenue |                |         | 9.9        | % |        |        | 11.4 | % |  |       |    | 
|Restructuring expense      |                             |                | 10,188  |            |   |        | 8,199  |      |   |  | (19.5 | )%
|                           | Percentage of total revenue |                |         | 5.8        | % |        |        | 7.0  | % |  |       |    | 
|                           |                             |                |         |            |   |        |        |      |   |  |       |   
|Total operating expense    |                             | $              | 107,350 |            |   | $      | 97,191 |      |   |  |       |   
|                           |                             |                |         |            |   |        |        |      |   |  |       |   

Research and development:Research and development expenses
consist of personnel and related costs, computer processing
costs and third-party consultant fees directly attributable to
the development of new software application products and
enhancements to existing products.

The Companys higher research and
development expense levels in 2001 reflect the Companys
investment in the Indus InSite Internet-based product. InSite
development continued in 2002, but at a lower level, resulting
in lower costs for the year. Through December 31, 2002, the
Company expensed all software development costs as incurred
since the time between development of a working model and
release to the market was insignificant.

Sales and marketing:Sales and marketing expenses include
personnel costs, sales commissions, and the costs of
advertising, public relations and participation in industry
conferences and trade shows.

General and administrative:General and administrative expenses
include the costs of finance, human resources and administrative
operations.

The decrease in general and administrative
expenses from 2001 to 2002 resulted from a general reduction in
expenses as the Company completed its relocation of its
headquarters to Atlanta in 2001.

Restructuring expenses:The Company recorded
$10.2 million and $8.2 million in restructuring charges in
2001 and 2002, respectively.

Restructuring charges in 2001 resulted from the
relocation of the Companys headquarters and certain
administrative functions from San Francisco to Atlanta. This
relocation was approved by the Board of Directors in July 2000
and includes costs of approximately $2.8 million for
severance payments related to the elimination of 56 global
positions, and approximately $9.5 million for lease termination
costs associated with reducing leased office space in the
Companys San Francisco office. The San Francisco office
lease expires May 31, 2008.

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The Company recorded restructuring costs of
approximately $3.4 million in the first quarter of 2002,
related to the suspension of the MoD project and subsequent
demobilization and reduction in workforce. A formal
restructuring plan was approved by the Board of Directors in
March 2002 and included approximately $947,000 for computer
lease termination costs, approximately $728,000 of severance
payments related to the elimination of 81 global positions, and
approximately $1.7 million in lease termination costs
associated with the closing of the Companys Dallas office
and reducing leased space in the Companys Pittsburgh
office.

In the second and fourth quarters of 2002, the
Company recorded restructuring expenses of $4.0 million and
$0.8 million, respectively. These expenses related to a
change in the Companys estimates of excess lease costs
associated with subleasing redundant office space in San
Francisco, Dallas and Pittsburgh.

Interest and Other Income (Expense) and
Provision for Income Taxes

|                                     |                             |                |       |            |   |        |        |      |    |  |       |    | 
|------------------------------------ | --------------------------- | -------------- | ----- | ---------- | - | ------ | ------ | ---- | -- |  | ----- | -- | 
|                                     |                             |                |       |           
|                                     |                             | Years Ended    |       |           
|                                     |                             |                |       | %         
|                                     |                             | 12/31/2001     |       | 12/31/2002 |   | Change
|                                     |                             |                |       |            |   |       
|                                     |                             |                |       |           
|                                     |                             | (In thousands) |       |           
|Interest income (expense)            |                             | $              | 2,248 |            |   | $      | 1,262  |      |    |  | (43.9 | )%
|                                     | Percentage of total revenue |                |       | 1.3        | % |        |        | 1.1  | %  |  |       |    | 
|Other income (expense)               |                             |                | 164   |            |   |        | 41     |      |    |  | (75.0 | )%
|                                     | Percentage of total revenue |                |       | 0.1        | % |        |        | 0.0  | %  |  |       |    | 
|Provision (benefit) for income taxes |                             |                | 36    |            |   |        | (3,944 | )    |    |  | >100  | % 
|                                     | Percentage of total revenue |                |       | 0.0        | % |        |        | (3.4 | )% |  |       |    | 

Interest:Interest
income is generated from the Companys investments in
marketable securities and interest-bearing cash and cash
equivalents. The year-over-year decrease in interest income in
2001 and 2002 is a result of lower interest rate environments in
2001 and 2002 and a decrease in the average cash balances
available for investment for those years.

Provision for income taxes:In 2002, U.S. federal income tax law
changed to allow the carryback of losses for five years rather
than two years under the prior law. As a result of this change,
the Company recorded a 2002 income tax benefit of
$4.7 million. The provision for income taxes of $36,000 in
2001 includes federal, state and foreign income taxes.

Financial Accounting Standards Board Statement
No. 109 provides for the recognition of deferred tax assets
if realization of the assets is more likely than not. Based upon
the weight of available evidence, which includes historical
supporting performance and the reported cumulative net losses
for the most recent three years, the Company has provided a full
valuation allowance against its net deferred tax asset at
December 31, 2002.

Liquidity and Capital Resources

At March 31, 2004, the Companys
principal sources of liquidity consisted of approximately
$31.1 million in cash and cash equivalents and
$5.6 million in short and long-term restricted cash.

The Company maintained three standby letters of
credit at March 31, 2004 totaling approximately
$4.9 million. These letters of credit require the Company
to maintain corresponding compensating balances equal to the
amounts of the letters of credit; the compensating balances are
included in restricted cash. In January 2006, $2.3 million
of restricted cash supporting a performance bond should be
released, and in May 2008, $2.3 million of other restricted
cash supporting the Companys leased office space in San
Francisco should be released. Subsequent to March 31, 2004,
the Company entered into three additional letters of credit in
the total amount of $1.3 million, which require the Company
to maintain corresponding compensating balances equal to the
amounts of the letters of credit. Of this amount,
$0.8 million should be released ratably through June 2005
and $0.4 million should be released in the second quarter
of fiscal 2005.

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During the year ended March 31, 2004:



| |   |                                                                                                                                                                                                                                                                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Cash of $3.8 million was used in operating
    activities, primarily for financing the Companys net loss
    of $12 million. $3.5 million of restructuring costs
    were paid during the year ended March 31, 2004. The cash
    used to finance operations was offset by a $9.8 million
    source of cash from accounts receivable collections.
|
| |  | Cash of $25.1 million was used in investing
    activities, including $14.9 million for the acquisitions of
    IUS and Wishbone Systems and $7.3 million in capitalized
    software costs.                                                                                                                                                       
|
| |  | Cash of $26.2 million was generated from
    financing activities; $11.1 million from the proceeds of a
    mortgage on the Companys real property and
    $15.5 million from the proceeds of a private placement of
    5.0 million shares of the Companys common stock.                                                                        



| |                       
| | ----------------------
| | Acquisition Financing:

The cost of the IUS acquisition on March 5,
2003 approximated $35.8 million, which the Company financed with
approximately $24.8 million from the private placement and
a $10.0 million promissory note. This note was paid in full
on September 5, 2003 with proceeds from an
$11.5 million promissory note secured by certain real
property located in Columbia, South Carolina. The promissory
note bears interest at an annual rate of 6.5% and is payable in
monthly installments of principal and interest (determined on a
15-year amortization) through October 1, 2008, at which
time the remaining principal balance of $7.7 million is due
and payable. The Company may extend the maturity date at that
time for one additional five year term at a variable rate of
interest.

On January 21, 2004, the Company acquired
Wishbone Systems for $6.7 million plus assumption of
$1.0 million in Wishbone Systems debt, which was repaid
concurrent with the acquisition. The acquisition was financed
from the Companys available cash balance.

On February 9, 2004, the Company completed a
private placement offering of 5.0 million shares of the
Companys common stock, at a price per share of $3.10. Net
proceeds from this offering were used to replenish cash used in
the acquisition of Wishbone Systems and for general working
capital.

Neither acquisition resulted in a new business
segment for the Company.



| |               
| | --------------
| | Cash Analysis:

The Company believes that its existing cash and
cash equivalents, together with anticipated cash flows from
operations, will be sufficient to meet its cash requirements for
at least the next 12 months. The Company has announced a
restructuring charge for the first quarter of 2005 (see
Restructuring above), which the Company believes
should improve its cash flows from operations over time.
However, the Company is prepared to adjust its usage of cash and
cash equivalents, as called for by its internal business plans,
to align with actual business conditions that occur different
than anticipated.

The foregoing statement regarding the
Companys expectations for continued liquidity is a
forward-looking statement, and actual results may differ
materially depending on a variety of factors, including variable
operating results, continued operating losses, presently
unexpected uses of cash and the factors discussed under the
section Description of Business  Factors Affecting
Future Performance.

New Accounting Pronouncements

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based Compensation
 Transition and Disclosure. SFAS No. 148 amends
SFAS No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition
to Statement 123s fair value method of accounting for
stock-based employee compensation. SFAS No. 148 also amends
the disclosure provisions of SFAS No. 123 and Accounting
Principles Board Opinion No. 28, Interim Financial
Reporting, to require disclosure in the summary of
significant accounting policies of the effects of an
entitys accounting policy with respect to stock-based
compensation, regardless of whether the Company accounts for
that compensation

39



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using the fair value method of SFAS No. 123
or the intrinsic value method of APB No. 25,
Accounting for Stock Issued to Employees. SFAS
No. 148s amendment of the transition and annual
disclosure requirements of SFAS No. 123 are effective for
fiscal years ending after December 15, 2002 and were
adopted on January 1, 2003. The Company accounts for
stock-based compensation using the intrinsic value method
prescribed in APB No. 25 and related interpretations and
has elected the pro forma disclosure alternative of SFAS
No. 123.


In January 2003, the FASB issued and subsequently
revised in December 2003, FIN No. 46, Consolidation
of Variable Interest Entities, which clarifies the
consolidation accounting guidance of Accounting Research
Bulletin No. 51, Consolidated Financial
Statements, to certain entities in which equity investors
do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the
entities to finance their activities without additional
subordinated financial support from other parties. Such entities
are known as variable interest entities (VIE).
Controlling financial interests of a VIE are identified by the
exposure of a party to the VIE to a majority of either the
expected losses or residual rewards of the VIE, or both. Such
parties are primary beneficiaries of the VIE, and FIN
No. 46 requires that the primary beneficiary of a VIE
consolidate the VIE. FIN No. 46 also requires new
disclosures for significant relationships with VIEs, whether or
not consolidation accounting is either used or anticipated.
Application of FIN No. 46 is required in the financial
statements of public entities that have interests in VIEs or
potential VIEs commonly referred to as special-purpose entities
for periods after December 15, 2003. Application by public
entities for all other types of entities is required in
financial statements for periods ending after March 15,
2004. The Company adopted FIN No. 46 on March 31,
2004, and there was no impact on the Companys financial
position and results of operations as a result of the adoption.

Off-Balance Sheet Arrangements and Aggregate
Contractual Obligations



| |                                    
| | -----------------------------------
| | Off-Balance Sheet
    Arrangements:

As of March 31, 2004, the Company did not
engage in any off-balance sheet arrangements as defined in
Item 303(a)(4) of Regulation S-K promulgated by the
Commission under the Securities Exchange Act of 1934, as amended.



| |                         
| | ------------------------
| | Contractual Obligations:

As of March 31, 2004, the Companys
primary commitments are its leased office space in Atlanta,
Georgia; San Francisco, California; and Woking, England and
payments on the mortgage note discussed in Acquisition
Financing below. The Company leases its office space under
non-cancelable lease agreements that expire at various times
through 2012. Net rent payable under these leases in fiscal year
2005 is anticipated to be $6.6 million.

The following table summarizes the Companys
significant contractual obligations at March 31, 2004 and
the effect such obligations are expected to have on liquidity
and cash flows in future periods. This table excludes amounts
already included as current liabilities on the March 31,
2004 balance sheet (in thousands):

|                        |                                |                                             |        |           |  |           |       |           |  |         |        |        |  |   |        |       |  |   |       |       | 
|----------------------- | ------------------------------ | ------------------------------------------- | ------ | --------- |  | --------- | ----- | --------- |  | ------- | ------ | ------ |  | - | ------ | ----- |  | - | ----- | ----- | 
|                        |                                |                                            
|                        |                                | Payments Due by Period as of March 31, 2004
|                        |                                |                                            
|                        |                                |                                             |        | Less Than |  |           |       | After    
|                        |                                | Total                                       |        | 1 Year    |  | 1-3 Years |       | 3-5 Years |  | 5 Years
|                        |                                |                                             |        |           |  |           |       |           |  |        
|Contractual Obligations |                                |                                             |        |           |  |           |       |           |  |         |        |        |  |   |        |       |  |   |       |      
|                        | Long-term debt                 |                                             | $      | 12,381    |  |           | $     |          |  |         | $      | 2,776  |  |   | $      | 9,605 |  |   | $     |      | 
|                        | Operating lease obligations    |                                             |        | 33,352    |  |           |       | 7,018     |  |         |        | 12,116 |  |   |        | 8,434 |  |   |       | 5,784 | 
|                        | Purchase obligation(1)         |                                             |        | 2,400     |  |           |       | 640       |  |         |        | 1,280  |  |   |        | 480   |  |   |       |      | 
|                        | Other long-term liabilities(2) |                                             |        | 6,125     |  |           |       |          |  |         |        | 3,991  |  |   |        | 2,134 |  |   |       |      | 
|                        |                                |                                             |        |           |  |           |       |           |  |         |        |        |  |   |        |       |  |   |       |      
|Total                   |                                | $                                           | 54,258 |           |  | $         | 7,658 |           |  | $       | 20,163 |        |  | $ | 20,653 |       |  | $ | 5,784 |      
|                        |                                |                                             |        |           |  |           |       |           |  |         |        |        |  |   |        |       |  |   |       |      



---



|    |                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The Company has a commitment to purchase
    development services expertise in the form of labor hours, which
    the business is utilizing in its development efforts. The
    purchase commitment extends through

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##### Table of Contents



|    |                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | December 22, 2007. During the remainder of
    the term of the commitment, the business will purchase
    approximately $2.4 million of labor hours at agreed upon
    labor rates, which approximate the Companys fully absorbed
    labor rates. The timing of payment of the actual amounts is
    estimated over the remaining period and may differ based on when
    these services are actually used.
|   
|(2) | Other long-term liabilities represents
    restructuring accruals and are presented net of expected
    sublease income.                                                                                                                                                                                                                                                                                     

Except for those items discussed above, the
Company has no guarantees of debt or similar capital commitments
to third parties, written options on non-financial assets,
standby repurchase agreements, or other commercial commitments.



| |                  
| | -----------------
| | Indemnifications:

License and hosting agreements with customers
generally contain infringement indemnity provisions. Under these
agreements, the Company agrees to indemnify, defend and hold
harmless the customer in connection with patent, copyright,
trademark or trade secret infringement claims made by third
parties with respect to the customers authorized use of
our products and services. The indemnity provisions generally
provide for the Company to control defense and settlement and
cover costs and damages finally awarded against the customer.
The indemnity provisions also generally provide that if the
Company products infringe, or in the Companys opinion it
is likely that they will be found to infringe, on the rights of
a third-party Indus will, at its option and expense, procure the
right to use the infringing product, modify the product so it is
no longer infringing, or return the product for a partial refund
that reflects the reasonable value of prior use. The Company has
not previously incurred costs to settle claims or pay awards
under these indemnification obligations. The Company accounts
for these indemnity obligations in accordance with SFAS
No. 5, Accounting for Contingencies, and
records a liability for these obligations when a loss is
probable and reasonably estimable. The Company has not recorded
any liabilities for these arrangements as of March 31, 2004.

Services agreements with customers may also
contain indemnity provisions for death, personal injury or
property damage caused by the Companys personnel or
contractors in the course of performing services to customers.
These agreements, generally agree to indemnify, defend and hold
harmless the customer in connection with death, personal injury
and property damage claims made by third parties with respect to
actions of the Companys personnel or contractors. The
indemnity provisions generally provide for the Company control
of defense and settlement and cover costs and damages finally
awarded against the customer. The indemnity obligations
contained in services agreements generally have no specified
expiration date and no specified monetary limitation on the
amount of award covered. The Company has not previously incurred
costs to settle claims or pay awards under these indemnification
obligations and estimates the fair value of these potential
obligations to be nominal. Accordingly, no liabilities have been
recorded for these agreements as of March 31, 2004.

The Company generally warrants that its software
products will perform in all material respects in accordance
with its standard published specifications in effect at the time
of delivery of the licensed products to the customer for six
months to a year, depending upon the software license.
Additionally, contracts generally warrant that services will be
performed consistent with generally accepted industry standards
or, in some instances, specific service levels through
completion of the agreed upon services. If necessary, provision
will be made for the estimated cost of product and service
warranties based on specific warranty claims and claim history.
There has been no significant recurring expense under these
product or service warranties.




Item 7A.Quantitative
and Qualitative Disclosures About Market Risks

Interest Rate
Sensitivity:

The Companys cash flow can be exposed to
market risks related to fluctuation in the value of its
investments in certain available-for-sale securities. The
Companys cash management and investment policies restrict
investments to highly liquid, low-risk debt instruments. The
Company currently does not use interest

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rate derivative instruments to manage exposure to
interest rate changes. A hypothetical 100 basis point adverse
move (decrease in) interest rates along the entire interest rate
yield curve would adversely affect the net fair value of all
interest sensitive financial instruments by approximately
$0.3 million at March 31, 2004.




| |                                       
| | --------------------------------------
| | Foreign Exchange Rate
    Sensitivity:

The Company provides services to customers
primarily in the United States, Europe, Asia Pacific and
elsewhere throughout the world. As a result, the Companys
financial results could be affected by factors such as changes
in foreign currency exchange rates or weak economic conditions
in foreign markets. Sales are primarily made in U.S. Dollars;
however, as the Company continues to expand its operations, more
contracts may be denominated in Australian and Canadian Dollars,
Pound Sterling, Euros and Japanese Yen. A strengthening of the
U.S. Dollar could make the Companys products less
competitive in foreign markets. A hypothetical 5% unfavorable
foreign currency exchange move versus the U.S. Dollar, across
all foreign currencies, would adversely affect the net fair
value of foreign denominated cash, cash equivalent and
investment financial instruments by approximately
$0.3 million at March 31, 2004.

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|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

INDUS INTERNATIONAL, INC.

INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                                            |  |  |    | 
|----------------------------------------------------------- |  |  | -- | 
|REPORT OF INDEPENDENT REGISTERED PUBLIC
    ACCOUNTING FIRM |  |  | 44 | 
|CONSOLIDATED BALANCE SHEETS                                 |  |  | 45 | 
|CONSOLIDATED STATEMENTS OF OPERATIONS                       |  |  | 46 | 
|CONSOLIDATED STATEMENT OF STOCKHOLDERS
    EQUITY          |  |  | 47 | 
|CONSOLIDATED STATEMENTS OF CASH FLOWS                       |  |  | 48 | 
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                  |  |  | 50 | 

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REPORT OF ERNST & YOUNG LLP, INDEPENDENT
REGISTERED

PUBLIC ACCOUNTING FIRM


The Board of Directors and Stockholders

Indus International, Inc.


We have audited the accompanying consolidated
balance sheets of Indus International, Inc. as of March 31,
2003 and 2004 and the related consolidated statements of
operations, stockholders equity and cash flows for each of
the two years in the period ended December 31, 2002, for
the three months ended March 31, 2003, and for the year
ended March 31, 2004. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the consolidated financial position of Indus
International, Inc. as of March 31, 2003 and 2004, and the
consolidated results of its operations and its cash flows for
each of the two years in the period ended December 31,
2002, for the three months ended March 31, 2003, and for the
year ended March 31, 2004, in conformity with U.S.
generally accepted accounting principles.



| |                      
| | ---------------------
| | /S/ ERNST & YOUNG LLP

Atlanta, Georgia

April 30, 2004


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INDUS INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

|                                         |                                                                                                                                                  |                                                                                                                              |        |           |         |   |        |          |         |  
|---------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------- | ------ | --------- | ------- | - | ------ | -------- | ------- | -
|                                         |                                                                                                                                                  | March 31,                                                                                                                    |        | March 31,
|                                         |                                                                                                                                                  | 2003                                                                                                                         |        | 2004     
|                                         |                                                                                                                                                  |                                                                                                                              |        |          
|                                         |                                                                                                                                                  |                                                                                                                             
|                                         |                                                                                                                                                  | (In thousands)                                                                                                              
|ASSETS                                  
|Current assets:                          |                                                                                                                                                  |                                                                                                                              |        |           |         |   |        |         
|                                         | Cash and cash equivalents                                                                                                                        |                                                                                                                              | $      | 32,667    |         |   | $      | 31,081   |        
|                                         | Marketable securities                                                                                                                            |                                                                                                                              |        | 757       |         |   |        |         |        
|                                         | Restricted cash, current                                                                                                                         |                                                                                                                              |        | 2,834     |         |   |        | 70       |        
|                                         | Billed accounts receivable, net of allowance for
    doubtful accounts of $4,375 and $912 at March 31, 2003 and
    March 31, 2004, respectively |                                                                                                                              |        | 26,301    |         |   |        | 21,201   |        
|                                         | Unbilled accounts receivable                                                                                                                     |                                                                                                                              |        | 12,841    |         |   |        | 9,074    |        
|                                         | Income tax receivable                                                                                                                            |                                                                                                                              |        | 5,226     |         |   |        | 964      |        
|                                         | Other current assets                                                                                                                             |                                                                                                                              |        | 8,634     |         |   |        | 3,069    |        
|                                         |                                                                                                                                                  |                                                                                                                              |        |           |         |   |        |         
|                                         |                                                                                                                                                  | Total current assets                                                                                                         |        |           | 89,260  |   |        |          | 65,459  |  
|Property and equipment, net              |                                                                                                                                                  |                                                                                                                              | 38,088 |           |         |   | 32,919 |         
|Capitalized software                     |                                                                                                                                                  |                                                                                                                              | 371    |           |         |   | 7,689  |         
|Goodwill                                 |                                                                                                                                                  |                                                                                                                              | 430    |           |         |   | 6,956  |         
|Acquired intangible assets               |                                                                                                                                                  |                                                                                                                              | 12,828 |           |         |   | 12,562 |         
|Restricted cash, non-current             |                                                                                                                                                  |                                                                                                                              | 2,601  |           |         |   | 5,492  |         
|Other assets                             |                                                                                                                                                  |                                                                                                                              | 932    |           |         |   | 596    |         
|                                         |                                                                                                                                                  |                                                                                                                              |        |           |         |   |        |         
|                                         |                                                                                                                                                  | Total assets                                                                                                                 |        | $         | 144,510 |   |        | $        | 131,673 |  
|                                         |                                                                                                                                                  |                                                                                                                              |        |           |         |   |        |         
|                                        
|LIABILITIES AND STOCKHOLDERS
    EQUITY
|Current liabilities:                     |                                                                                                                                                  |                                                                                                                              |        |           |         |   |        |         
|                                         | Current portion of notes payable                                                                                                                 |                                                                                                                              | $      | 24,516    |         |   | $      | 767      |        
|                                         | Accounts payable                                                                                                                                 |                                                                                                                              |        | 5,102     |         |   |        | 6,806    |        
|                                         | Other accrued liabilities                                                                                                                        |                                                                                                                              |        | 20,568    |         |   |        | 17,624   |        
|                                         | Current portion of obligations under capital
    leases                                                                                          |                                                                                                                              |        | 274       |         |   |        | 47       |        
|                                         | Deferred revenue                                                                                                                                 |                                                                                                                              |        | 50,604    |         |   |        | 38,257   |        
|                                         |                                                                                                                                                  |                                                                                                                              |        |           |         |   |        |         
|                                         |                                                                                                                                                  | Total current liabilities                                                                                                    |        |           | 101,064 |   |        |          | 63,501  |  
|Income tax payable                       |                                                                                                                                                  |                                                                                                                              | 4,555  |           |         |   | 4,389  |         
|Note payable, net of current portion     |                                                                                                                                                  |                                                                                                                              |       |           |         |   | 10,299 |         
|Other liabilities                        |                                                                                                                                                  |                                                                                                                              | 10,457 |           |         |   | 6,608  |         
|Stockholders equity:                    |                                                                                                                                                  |                                                                                                                              |        |           |         |   |        |         
|                                         | Preferred stock, $.001 par value                                                                                                                 |                                                                                                                              |        |           |         |   |        |          |        
|                                         |                                                                                                                                                  | Shares authorized: 10 million; shares
    issued: none                                                                       |        |           |        |   |        |          |        |  
|                                         | Common stock, $.001 par value                                                                                                                    |                                                                                                                              |        |           |         |   |        |          |        
|                                         |                                                                                                                                                  | Shares authorized: 100 million Shares
    issued: March 31, 2003  42,065,530 Shares
    issued: March 31, 2004  57,059,416 |        |           | 42      |   |        |          | 57      |  
|                                         | Additional paid-in capital                                                                                                                       |                                                                                                                              |        | 135,279   |         |   |        | 164,431  |        
|                                         | Treasury stock                                                                                                                                   |                                                                                                                              |        |           |         |   |        |          |        
|                                         |                                                                                                                                                  | Shares: March 31, 2003  935,500
    Shares: March 31, 2004  935,500                                                        |        |           | (4,681  | ) |        |          | (4,681  | )
|                                         | Note receivable from stockholder                                                                                                                 |                                                                                                                              |        |          |         |   |        |         |        
|                                         | Deferred compensation                                                                                                                            |                                                                                                                              |        | (79       | )       |   |        | (50      | )      
|                                         | Accumulated deficit                                                                                                                              |                                                                                                                              |        | (101,943  | )       |   |        | (113,981 | )      
|                                         | Accumulated other comprehensive income (loss)                                                                                                    |                                                                                                                              |        | (184      | )       |   |        | 1,100    |        
|                                         |                                                                                                                                                  |                                                                                                                              |        |           |         |   |        |         
|                                         |                                                                                                                                                  | Total stockholders equity                                                                                                   |        |           | 28,434  |   |        |          | 46,876  |  
|                                         |                                                                                                                                                  |                                                                                                                              |        |           |         |   |        |         
|                                         |                                                                                                                                                  | Total liabilities and stockholders equity                                                                                   |        | $         | 144,510 |   |        | $        | 131,673 |  
|                                         |                                                                                                                                                  |                                                                                                                              |        |           |         |   |        |         

See accompanying notes.

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INDUS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                             |                            |                                       |         |              |         |            |         |         |        |   |        |        |        |   |         |         |        | 
|-------------------------------------------- | -------------------------- | ------------------------------------- | ------- | ------------ | ------- | ---------- | ------- | ------- | ------ | - | ------ | ------ | ------ | - | ------- | ------- | ------ | 
|                                             |                            |                                       |         |              |         |           
|                                             |                            | Years Ended                           |         | Three Months |         |           
|                                             |                            | December 31,                          |         | Ended        |         | Year Ended
|                                             |                            |                                       |         | March 31,    |         | March 31, 
|                                             |                            | 2001                                  |         | 2002         |         | 2003       |         | 2004   
|                                             |                            |                                       |         |              |         |            |         |        
|                                             |                            |                                      
|                                             |                            | (In thousands, except per share data)
|Revenue:                                     |                            |                                       |         |              |         |            |         |         |        |   |        |        |        |   |         |        
|                                             | Software license fees      |                                       | $       | 21,005       |         |            | $       | 15,527  |        |   | $      | 2,637  |        |   | $       | 23,917  |       
|                                             | Services:                  |                                       |         |              |         |            |         |         |        |   |        |        |        |   |         |         |       
|                                             |                            | Support, outsourcing and hosting      |         |              | 35,637  |            |         |         | 36,780 |   |        |        | 10,614 |   |         |         | 59,536 | 
|                                             |                            | Consulting, training and other        |         |              | 119,372 |            |         |         | 64,858 |   |        |        | 13,983 |   |         |         | 62,933 | 
|                                             |                            |                                       |         |              |         |            |         |         |        |   |        |        |        |   |         |        
|                                             | Total services             |                                       |         | 155,009      |         |            |         | 101,638 |        |   |        | 24,597 |        |   |         | 122,469 |       
|                                             |                            |                                       |         |              |         |            |         |         |        |   |        |        |        |   |         |        
|Total revenue                                |                            |                                       | 176,014 |              |         |            | 117,165 |         |        |   | 27,234 |        |        |   | 146,386 |        
|                                             |                            |                                       |         |              |         |            |         |         |        |   |        |        |        |   |         |        
|Cost of revenue:                             |                            |                                       |         |              |         |            |         |         |        |   |        |        |        |   |         |        
|                                             | Software license fees      |                                       |         | 1,378        |         |            |         | 2,997   |        |   |        | 226    |        |   |         | 999     |       
|                                             | Services:                  |                                       |         |              |         |            |         |         |        |   |        |        |        |   |         |         |       
|                                             |                            | Support, outsourcing and hosting      |         |              | 8,209   |            |         |         | 11,149 |   |        |        | 4,177  |   |         |         | 20,275 | 
|                                             |                            | Consulting, training and other        |         |              | 71,529  |            |         |         | 44,838 |   |        |        | 11,006 |   |         |         | 46,365 | 
|                                             |                            |                                       |         |              |         |            |         |         |        |   |        |        |        |   |         |        
|                                             | Total services             |                                       |         | 79,738       |         |            |         | 55,987  |        |   |        | 15,183 |        |   |         | 66,640  |       
|                                             |                            |                                       |         |              |         |            |         |         |        |   |        |        |        |   |         |        
|Total cost of revenue                        |                            |                                       | 81,116  |              |         |            | 58,984  |         |        |   | 15,409 |        |        |   | 67,639  |        
|                                             |                            |                                       |         |              |         |            |         |         |        |   |        |        |        |   |         |        
|Gross margin                                 |                            |                                       | 94,898  |              |         |            | 58,181  |         |        |   | 11,825 |        |        |   | 78,747  |        
|                                             |                            |                                       |         |              |         |            |         |         |        |   |        |        |        |   |         |        
|Operating expenses:                          |                            |                                       |         |              |         |            |         |         |        |   |        |        |        |   |         |        
|                                             | Research and development   |                                       |         | 49,522       |         |            |         | 45,745  |        |   |        | 8,717  |        |   |         | 34,977  |       
|                                             | Sales and marketing        |                                       |         | 30,242       |         |            |         | 29,942  |        |   |        | 6,549  |        |   |         | 33,350  |       
|                                             | General and administrative |                                       |         | 17,398       |         |            |         | 13,305  |        |   |        | 3,959  |        |   |         | 21,237  |       
|                                             | Restructuring expenses     |                                       |         | 10,188       |         |            |         | 8,199   |        |   |        | 2,166  |        |   |         | 44      |       
|                                             |                            |                                       |         |              |         |            |         |         |        |   |        |        |        |   |         |        
|                                             |                            | Total operating expenses              |         |              | 107,350 |            |         |         | 97,191 |   |        |        | 21,391 |   |         |         | 89,608 | 
|                                             |                            |                                       |         |              |         |            |         |         |        |   |        |        |        |   |         |        
|Loss from operations                         |                            |                                       | (12,452 | )            |         |            | (39,010 | )       |        |   | (9,566 | )      |        |   | (10,861 | )      
|Interest and other income                    |                            |                                       | 2,454   |              |         |            | 1,362   |         |        |   | 86     |        |        |   | 700     |        
|Interest expense                             |                            |                                       | (42     | )            |         |            | (59     | )       |        |   | (136   | )      |        |   | (1,254  | )      
|                                             |                            |                                       |         |              |         |            |         |         |        |   |        |        |        |   |         |        
|Loss before income taxes                     |                            |                                       | (10,040 | )            |         |            | (37,707 | )       |        |   | (9,616 | )      |        |   | (11,415 | )      
|Provision (benefit) for income taxes         |                            |                                       | 36      |              |         |            | (3,944  | )       |        |   | 277    |        |        |   | 623     |        
|                                             |                            |                                       |         |              |         |            |         |         |        |   |        |        |        |   |         |        
|Net loss                                     |                            | $                                     | (10,076 | )            |         | $          | (33,763 | )       |        | $ | (9,893 | )      |        | $ | (12,038 | )      
|                                             |                            |                                       |         |              |         |            |         |         |        |   |        |        |        |   |         |        
|Net loss per share:                          |                            |                                       |         |              |         |            |         |         |        |   |        |        |        |   |         |        
|                                             | Basic                      |                                       | $       | (0.29        | )       |            | $       | (0.96   | )      |   | $      | (0.27  | )      |   | $       | (0.24   | )     
|                                             |                            |                                       |         |              |         |            |         |         |        |   |        |        |        |   |         |        
|                                             | Diluted                    |                                       | $       | (0.29        | )       |            | $       | (0.96   | )      |   | $      | (0.27  | )      |   | $       | (0.24   | )     
|                                             |                            |                                       |         |              |         |            |         |         |        |   |        |        |        |   |         |        
|Shares used in computing per share
    data: |                            |                                       |         |              |         |            |         |         |        |   |        |        |        |   |         |        
|                                             | Basic                      |                                       |         | 34,857       |         |            |         | 35,237  |        |   |        | 37,210 |        |   |         | 49,455  |       
|                                             |                            |                                       |         |              |         |            |         |         |        |   |        |        |        |   |         |        
|                                             | Diluted                    |                                       |         | 34,857       |         |            |         | 35,237  |        |   |        | 37,210 |        |   |         | 49,455  |       
|                                             |                            |                                       |         |              |         |            |         |         |        |   |        |        |        |   |         |        

See accompanying notes.

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INDUS INTERNATIONAL, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS
EQUITY

|                             |                                                               |                                          |        |         |   |          |    |          |   |              |         |          |   |             |        |        |   |   |      |      |   |   |          |   |         |   |        |   |       |   |        |         |         |  
|---------------------------- | ------------------------------------------------------------- | ---------------------------------------- | ------ | ------- | - | -------- | -- | -------- | - | ------------ | ------- | -------- | - | ----------- | ------ | ------ | - | - | ---- | ---- | - | - | -------- | - | ------- | - | ------ | - | ----- | - | ------ | ------- | ------- | -
|                             |                                                               |                                          |        |         |   |          |    |          |   |              |         |          |   | Accumulated |        |       
|                             |                                                               |                                          |        |         |   |          |    |          |   |              |         |          |   | Other       |        |       
|                             |                                                               |                                          |        |         |   |          |    | Deferred |   | Retained     |         | Compre-  |   | Total      
|                             |                                                               | Common Stock                             |        | Addl   |   |          |    | Compen-  |   | Earnings     |         | hensive  |   | Stock-     
|                             |                                                               |                                          |        | Paid-In |   | Treasury |    | sation   |   | (Accumulated |         | Income/  |   | holders   
|                             |                                                               | Shares                                   |        | $ Amt   |   | Capital  |    | Stock    |   | & Other      |         | Deficit) |   | (Loss)      |        | Equity
|                             |                                                               |                                          |        |         |   |          |    |          |   |              |         |          |   |             |        |       
|                             |                                                               |                                         
|                             |                                                               | (In thousands)                          
|Balance at December 31, 2000 |                                                               |                                          | 34,695 |         |   | $        | 35 |          |   | $            | 121,313 |          |   | $           | (2,181 | )      |   | $ | (128 | )    |   | $ | (48,211  | ) |         | $ | (1,871 | ) |       | $ | 68,957 |        
|                             | Exercise of stock options                                     |                                          |        | 276     |   |          |    |         |   |              |         | 1,330    |   |             |        |       |   |   |      |     |   |   |          |  |         |   |        |  |       |   |        | 1,330   |        
|                             | Sale of common stock under Employee Stock
    Purchase Plan   |                                          |        | 240     |   |          |    |         |   |              |         | 894      |   |             |        |       |   |   |      |     |   |   |          |  |         |   |        |  |       |   |        | 894     |        
|                             | Notes receivable from stockholder                             |                                          |        |        |   |          |    |         |   |              |         |         |   |             |        |       |   |   |      | (31  | ) |   |          |  |         |   |        |  |       |   |        | (31     | )      
|                             | Deferred stock compensation                                   |                                          |        |        |   |          |    |         |   |              |         | 134      |   |             |        |       |   |   |      | (134 | ) |   |          |  |         |   |        |  |       |   |        |        |        
|                             | Amortization of deferred compensation                         |                                          |        |        |   |          |    |         |   |              |         |         |   |             |        |       |   |   |      | 81   |   |   |          |  |         |   |        |  |       |   |        | 81      |        
|                             | Comprehensive loss:                                           |                                          |        |         |   |          |    |          |   |              |         |          |   |             |        |        |   |   |      |      |   |   |          |   |         |   |        |   |       |   |        |         |        
|                             |                                                               | Net loss                                 |        |         |  |          |    |          |  |              |         |          |  |             |        |        |  |   |      |      |  |   |          |   | (10,076 | ) |        |   |      |   |        |         | (10,076 | )
|                             |                                                               | Unrealized gain on marketable securities |        |         |  |          |    |          |  |              |         |          |  |             |        |        |  |   |      |      |  |   |          |   |        |   |        |   | 42    |   |        |         | 42      |  
|                             |                                                               | Foreign currency translation             |        |         |  |          |    |          |  |              |         |          |  |             |        |        |  |   |      |      |  |   |          |   |        |   |        |   | (251  | ) |        |         | (251    | )
|                             |                                                               |                                          |        |         |   |          |    |          |   |              |         |          |   |             |        |        |   |   |      |      |   |   |          |   |         |   |        |   |       |   |        |        
|                             | Total comprehensive loss                                      |                                          |        |         |   |          |    |          |   |              |         |          |   |             |        |        |   |   |      |      |   |   |          |   |         |   |        |   |       |   |        | (10,285 | )      
|                             |                                                               |                                          |        |         |   |          |    |          |   |              |         |          |   |             |        |        |   |   |      |      |   |   |          |   |         |   |        |   |       |   |        |        
|Balance at December 31, 2001 |                                                               |                                          | 35,211 |         |   | $        | 35 |          |   | $            | 123,671 |          |   | $           | (2,181 | )      |   | $ | (212 | )    |   | $ | (58,287  | ) |         | $ | (2,080 | ) |       | $ | 60,946 |        
|                             | Exercise of stock options                                     |                                          |        | 291     |   |          |    | 1        |   |              |         | 1,041    |   |             |        |       |   |   |      |     |   |   |          |  |         |   |        |  |       |   |        | 1,042   |        
|                             | Sale of common stock under Employee Stock
    Purchase Plan   |                                          |        | 168     |   |          |    |         |   |              |         | 459      |   |             |        |       |   |   |      |     |   |   |          |  |         |   |        |  |       |   |        | 459     |        
|                             | Notes receivable from stockholder                             |                                          |        |        |   |          |    |         |   |              |         |         |   |             |        |       |   |   |      | 55   |   |   |          |  |         |   |        |  |       |   |        | 55      |        
|                             | Deferred stock compensation                                   |                                          |        |        |   |          |    |         |   |              |         |         |   |             |        |       |   |   |      |     |   |   |          |  |         |   |        |  |       |   |        |        |        
|                             | Warrant exercise                                              |                                          |        | 68      |   |          |    |         |   |              |         | 198      |   |             |        |       |   |   |      |     |   |   |          |  |         |   |        |  |       |   |        | 198     |        
|                             | Benefit from Carryback of Net Operating Loss                  |                                          |        |        |   |          |    |         |   |              |         | 182      |   |             |        |       |   |   |      |     |   |   |          |  |         |   |        |  |       |   |        | 182     |        
|                             | Purchase of treasury stock                                    |                                          |        | (500    | ) |          |    |         |   |              |         |         |   |             |        | (2,500 | ) |   |      |     |   |   |          |  |         |   |        |  |       |   |        | (2,500  | )      
|                             | Amortization of deferred compensation                         |                                          |        |        |   |          |    |         |   |              |         | 57       |   |             |        |       |   |   |      | 53   |   |   |          |  |         |   |        |  |       |   |        | 110     |        
|                             | Comprehensive loss:                                           |                                          |        |         |   |          |    |          |   |              |         |          |   |             |        |        |   |   |      |      |   |   |          |   |         |   |        |   |       |   |        |         |        
|                             |                                                               | Net loss                                 |        |         |  |          |    |          |  |              |         |          |  |             |        |        |  |   |      |      |  |   |          |   | (33,763 | ) |        |   |      |   |        |         | (33,763 | )
|                             |                                                               | Unrealized gain on marketable securities |        |         |  |          |    |          |  |              |         |          |  |             |        |        |  |   |      |      |  |   |          |   |        |   |        |   | 27    |   |        |         | 27      |  
|                             |                                                               | Foreign currency translation             |        |         |  |          |    |          |  |              |         |          |  |             |        |        |  |   |      |      |  |   |          |   |        |   |        |   | 1,520 |   |        |         | 1,520   |  
|                             |                                                               |                                          |        |         |   |          |    |          |   |              |         |          |   |             |        |        |   |   |      |      |   |   |          |   |         |   |        |   |       |   |        |        
|                             | Total comprehensive loss                                      |                                          |        |         |   |          |    |          |   |              |         |          |   |             |        |        |   |   |      |      |   |   |          |   |         |   |        |   |       |   |        | (32,216 | )      
|                             |                                                               |                                          |        |         |   |          |    |          |   |              |         |          |   |             |        |        |   |   |      |      |   |   |          |   |         |   |        |   |       |   |        |        
|Balance at December 31, 2002 |                                                               |                                          | 35,238 |         |   | $        | 36 |          |   | $            | 125,608 |          |   | $           | (4,681 | )      |   | $ | (104 | )    |   | $ | (92,050  | ) |         | $ | (533   | ) |       | $ | 28,276 |        
|                             | Exercise of stock options                                     |                                          |        | 1       |   |          |    |         |   |              |         | 2        |   |             |        |       |   |   |      |     |   |   |          |  |         |   |        |  |       |   |        | 2       |        
|                             | Issuance of common stock in private placement
    transaction |                                          |        | 6,827   |   |          |    | 6        |   |              |         | 9,669    |   |             |        |       |   |   |      |     |   |   |          |  |         |   |        |  |       |   |        | 9,675   |        
|                             | Purchase of treasury stock                                    |                                          |        |        |   |          |    |         |   |              |         |         |   |             |        |       |   |   |      |     |   |   |          |  |         |   |        |  |       |   |        |        |        
|                             | Amortization of deferred compensation                         |                                          |        |        |   |          |    |         |   |              |         |         |   |             |        |       |   |   |      | 25   |   |   |          |  |         |   |        |  |       |   |        | 25      |        
|                             | Comprehensive loss:                                           |                                          |        |         |   |          |    |          |   |              |         |          |   |             |        |        |   |   |      |      |   |   |          |   |         |   |        |   |       |   |        |         |        
|                             |                                                               | Net loss                                 |        |         |  |          |    |          |  |              |         |          |  |             |        |        |  |   |      |      |  |   |          |   | (9,893  | ) |        |   |      |   |        |         | (9,893  | )
|                             |                                                               | Unrealized gain on marketable securities |        |         |  |          |    |          |  |              |         |          |  |             |        |        |  |   |      |      |  |   |          |   |        |   |        |   |      |   |        |         |        |  
|                             |                                                               | Foreign currency translation             |        |         |  |          |    |          |  |              |         |          |  |             |        |        |  |   |      |      |  |   |          |   |        |   |        |   | 349   |   |        |         | 349     |  
|                             |                                                               |                                          |        |         |   |          |    |          |   |              |         |          |   |             |        |        |   |   |      |      |   |   |          |   |         |   |        |   |       |   |        |        
|                             | Total comprehensive loss                                      |                                          |        |         |   |          |    |          |   |              |         |          |   |             |        |        |   |   |      |      |   |   |          |   |         |   |        |   |       |   |        | (9,544  | )      
|                             |                                                               |                                          |        |         |   |          |    |          |   |              |         |          |   |             |        |        |   |   |      |      |   |   |          |   |         |   |        |   |       |   |        |        
|Balance at March 31, 2003    |                                                               |                                          | 42,066 |         |   | $        | 42 |          |   | $            | 135,279 |          |   | $           | (4,681 | )      |   | $ | (79  | )    |   | $ | (101,943 | ) |         | $ | (184   | ) |       | $ | 28,434 |        
|                             | Exercise of stock options                                     |                                          |        | 130     |   |          |    |         |   |              |         | 153      |   |             |        |       |   |   |      |     |   |   |          |  |         |   |        |  |       |   |        | 153     |        
|                             | Sale of common stock under Employee Stock
    Purchase Plan   |                                          |        | 72      |   |          |    |         |   |              |         | 148      |   |             |        |       |   |   |      |     |   |   |          |  |         |   |        |  |       |   |        | 148     |        
|                             | Issuance of common stock in private placement
    transaction |                                          |        | 5,000   |   |          |    | 5        |   |              |         | 14,492   |   |             |        |       |   |   |      |     |   |   |          |  |         |   |        |  |       |   |        | 14,497  |        
|                             | Issuance of stock from convertible notes                      |                                          |        | 9,792   |   |          |    | 10       |   |              |         | 13,930   |   |             |        |       |   |   |      |     |   |   |          |  |         |   |        |  |       |   |        | 13,940  |        
|                             | Issuance of options in connection with
    acquisitions       |                                          |        |        |   |          |    |         |   |              |         | 429      |   |             |        |       |   |   |      | (29  | ) |   |          |  |         |   |        |  |       |   |        | 400     |        
|                             | Amortization of deferred compensation                         |                                          |        |        |   |          |    |         |   |              |         |         |   |             |        |       |   |   |      | 58   |   |   |          |  |         |   |        |  |       |   |        | 58      |        
|                             | Comprehensive loss:                                           |                                          |        |         |   |          |    |          |   |              |         |          |   |             |        |        |   |   |      |      |   |   |          |   |         |   |        |   |       |   |        |         |        
|                             |                                                               | Net loss                                 |        |         |  |          |    |          |  |              |         |          |  |             |        |        |  |   |      |      |  |   |          |   | (12,038 | ) |        |   |      |   |        |         | (12,038 | )
|                             |                                                               | Unrealized gain on marketable securities |        |         |  |          |    |          |  |              |         |          |  |             |        |        |  |   |      |      |  |   |          |   |        |   |        |   | (70   | ) |        |         | (70     | )
|                             |                                                               | Foreign currency translation             |        |         |  |          |    |          |  |              |         |          |  |             |        |        |  |   |      |      |  |   |          |   |        |   |        |   | 1,354 |   |        |         | 1,354   |  
|                             |                                                               |                                          |        |         |   |          |    |          |   |              |         |          |   |             |        |        |   |   |      |      |   |   |          |   |         |   |        |   |       |   |        |        
|                             | Total comprehensive loss                                      |                                          |        |         |   |          |    |          |   |              |         |          |   |             |        |        |   |   |      |      |   |   |          |   |         |   |        |   |       |   |        | (10,754 | )      
|                             |                                                               |                                          |        |         |   |          |    |          |   |              |         |          |   |             |        |        |   |   |      |      |   |   |          |   |         |   |        |   |       |   |        |        
|Balance at March 31, 2004    |                                                               |                                          | 57,060 |         |   | $        | 57 |          |   | $            | 164,431 |          |   | $           | (4,681 | )      |   | $ | (50  | )    |   | $ | (113,981 | ) |         | $ | 1,100  |   |       | $ | 46,876 |        
|                             |                                                               |                                          |        |         |   |          |    |          |   |              |         |          |   |             |        |        |   |   |      |      |   |   |          |   |         |   |        |   |       |   |        |        

See accompanying notes.

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INDUS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                                |                                              |                                       |         |              |        |            |         |      |        |   |         |   |        |   |         |   |         |  
|----------------------------------------------------------------------------------------------- | -------------------------------------------- | ------------------------------------- | ------- | ------------ | ------ | ---------- | ------- | ---- | ------ | - | ------- | - | ------ | - | ------- | - | ------- | -
|                                                                                                |                                              |                                       |         |              |        |           
|                                                                                                |                                              | Years Ended                           |         | Three Months |        |           
|                                                                                                |                                              | December 31,                          |         | Ended        |        | Year Ended
|                                                                                                |                                              |                                       |         | March 31,    |        | March 31, 
|                                                                                                |                                              | 2001                                  |         | 2002         |        | 2003       |         | 2004
|                                                                                                |                                              |                                       |         |              |        |            |         |     
|                                                                                                |                                              |                                      
|                                                                                                |                                              | (In thousands)                       
|Cash flows from operating
    activities:                                                       |                                              |                                       |         |              |        |            |         |      |        |   |         |   |        |   |         |  
|Net loss                                                                                        |                                              | $                                     | (10,076 | )            |        | $          | (33,763 | )    |        | $ | (9,893  | ) |        | $ | (12,038 | )
|Adjustments to reconcile net income to net cash
    provided by (used in) operating activities: |                                              |                                       |         |              |        |            |         |      |        |   |         |   |        |   |         |  
|                                                                                                |                                              | Depreciation and amortization         |         |              | 8,067  |            |         |      | 8,541  |   |         |   | 2,332  |   |         |   | 10,918  |  
|                                                                                                |                                              | Provision for doubtful accounts       |         |              | 333    |            |         |      | (2,267 | ) |         |   | (336   | ) |         |   | (3,548  | )
|                                                                                                |                                              | Amortization of deferred compensation |         |              | 81     |            |         |      | 53     |   |         |   | 25     |   |         |   | 29      |  
|                                                                                                |                                              | (Gain) loss on sale of fixed assets   |         |              | 95     |            |         |      | 205    |   |         |   | 84     |   |         |   | (29     | )
|                                                                                                | Changes in operating assets and liabilities: |                                       |         |              |        |            |         |      |        |   |         |   |        |   |         |   |        
|                                                                                                |                                              | Billed accounts receivable            |         |              | 2,165  |            |         |      | 11,217 |   |         |   | 7,055  |   |         |   | 9,849   |  
|                                                                                                |                                              | Unbilled accounts receivable          |         |              | (1,627 | )          |         |      | 11,255 |   |         |   | (4,279 | ) |         |   | 3,888   |  
|                                                                                                |                                              | Income tax receivable                 |         |              | 4,553  |            |         |      | (3,693 | ) |         |   | 60     |   |         |   | 4,504   |  
|                                                                                                |                                              | Other current assets                  |         |              | 1,491  |            |         |      | 1,587  |   |         |   | (670   | ) |         |   | 1,714   |  
|                                                                                                |                                              | Other assets                          |         |              | 2,427  |            |         |      | (405   | ) |         |   | 81     |   |         |   | 475     |  
|                                                                                                |                                              | Accounts payable                      |         |              | 323    |            |         |      | (984   | ) |         |   | (298   | ) |         |   | 1,414   |  
|                                                                                                |                                              | Income taxes payable                  |         |              | 1,747  |            |         |      | 2,788  |   |         |   | 286    |   |         |   | (409    | )
|                                                                                                |                                              | Accrued restructuring                 |         |              | 5,909  |            |         |      | 3,205  |   |         |   | 2,219  |   |         |   | (3,653  | )
|                                                                                                |                                              | Other accrued liabilities             |         |              | (2,776 | )          |         |      | (8,449 | ) |         |   | (1,076 | ) |         |   | (3,643  | )
|                                                                                                |                                              | Deferred revenue                      |         |              | 1,381  |            |         |      | (3,055 | ) |         |   | 2,362  |   |         |   | (13,290 | )
|                                                                                                |                                              | Other                                 |         |              | (214   | )          |         |      | 255    |   |         |   |       |   |         |   |        |  
|                                                                                                |                                              |                                       |         |              |        |            |         |      |        |   |         |   |        |   |         |  
|Net cash provided by (used in) operating
    activities                                         |                                              |                                       | 13,879  |              |        |            | (13,510 | )    |        |   | (2,048  | ) |        |   | (3,819  | )
|                                                                                                |                                              |                                       |         |              |        |            |         |      |        |   |         |   |        |   |         |  
|Cash flows from investing
    activities:                                                       |                                              |                                       |         |              |        |            |         |      |        |   |         |   |        |   |         |  
|Purchase of marketable securities                                                               |                                              |                                       | (52,041 | )            |        |            | (52,953 | )    |        |   | (8,993  | ) |        |   | (1,949  | )
|Sale of marketable securities                                                                   |                                              |                                       | 66,192  |              |        |            | 52,399  |      |        |   | 12,411  |   |        |   | 2,706   |  
|Increase in restricted cash                                                                     |                                              |                                       |        |              |        |            | (5,159  | )    |        |   | (6      | ) |        |   | 78      |  
|Acquisition of business, net of cash acquired                                                   |                                              |                                       |        |              |        |            |        |      |        |   | (29,020 | ) |        |   | (14,910 | )
|Capitalized software                                                                            |                                              |                                       |        |              |        |            |        |      |        |   | (371    | ) |        |   | (7,318  | )
|Acquisition of property and equipment                                                           |                                              |                                       | (7,467  | )            |        |            | (3,994  | )    |        |   | (667    | ) |        |   | (3,693  | )
|                                                                                                |                                              |                                       |         |              |        |            |         |      |        |   |         |   |        |   |         |  
|Net cash provided by (used in) investing
    activities                                         |                                              |                                       | 6,684   |              |        |            | (9,707  | )    |        |   | (26,646 | ) |        |   | (25,086 | )
|                                                                                                |                                              |                                       |         |              |        |            |         |      |        |   |         |   |        |   |         |  
|Cash flows from financing
    activities:                                                       |                                              |                                       |         |              |        |            |         |      |        |   |         |   |        |   |         |  
|Net proceeds of note payable                                                                    |                                              |                                       |        |              |        |            |        |      |        |   |        |   |        |   | 11,066  |  
|Payment of capital leases                                                                       |                                              |                                       | (139    | )            |        |            | (170    | )    |        |   | (64     | ) |        |   | (280    | )
|Proceeds from issuance of convertible notes, net
    of issuance costs                          |                                              |                                       |        |              |        |            |        |      |        |   | 13,716  |   |        |   |        |  
|Proceeds from issuance of common stock, net of
    issuance costs                               |                                              |                                       | 2,224   |              |        |            | 1,938   |      |        |   | 9,677   |   |        |   | 15,450  |  
|Changes in stockholder receivables                                                              |                                              |                                       | (31     | )            |        |            | 55      |      |        |   |        |   |        |   |        |  
|Purchase of treasury stock                                                                      |                                              |                                       |        |              |        |            | (2,500  | )    |        |   |        |   |        |   |        |  
|                                                                                                |                                              |                                       |         |              |        |            |         |      |        |   |         |   |        |   |         |  
|Net cash provided by (used in) financing
    activities                                         |                                              |                                       | 2,054   |              |        |            | (677    | )    |        |   | 23,329  |   |        |   | 26,236  |  
|                                                                                                |                                              |                                       |         |              |        |            |         |      |        |   |         |   |        |   |         |  
|Effect of exchange rate differences on cash                                                     |                                              |                                       | (251    | )            |        |            | 1,520   |      |        |   | 505     |   |        |   | 1,083   |  
|Net increase/(decrease) in cash and cash
    equivalents                                        |                                              |                                       | 22,366  |              |        |            | (22,374 | )    |        |   | (4,860  | ) |        |   | (1,586  | )
|Cash and cash equivalents at beginning of period                                                |                                              |                                       | 37,535  |              |        |            | 59,901  |      |        |   | 37,527  |   |        |   | 32,667  |  
|                                                                                                |                                              |                                       |         |              |        |            |         |      |        |   |         |   |        |   |         |  
|Cash and cash equivalents at end of period                                                      |                                              | $                                     | 59,901  |              |        | $          | 37,527  |      |        | $ | 32,667  |   |        | $ | 31,081  |  
|                                                                                                |                                              |                                       |         |              |        |            |         |      |        |   |         |   |        |   |         |  

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|                                                       |  |                |         |              |  |            |        |      |  |   |    |  |  |   |       | 
|------------------------------------------------------ |  | -------------- | ------- | ------------ |  | ---------- | ------ | ---- |  | - | -- |  |  | - | ----- | 
|                                                       |  |                |         |              |  |           
|                                                       |  | Years Ended    |         | Three Months |  |           
|                                                       |  | December 31,   |         | Ended        |  | Year Ended
|                                                       |  |                |         | March 31,    |  | March 31, 
|                                                       |  | 2001           |         | 2002         |  | 2003       |        | 2004
|                                                       |  |                |         |              |  |            |        |     
|                                                       |  |               
|                                                       |  | (In thousands)
|Supplemental disclosures of cash flow
    information: |  |                |         |              |  |            |        |      |  |   |    |  |  |   |       | 
|Interest paid                                          |  | $              | 42      |              |  | $          | 59     |      |  | $ | 10 |  |  | $ | 1,424 | 
|                                                       |  |                |         |              |  |            |        |      |  |   |    |  |  |   |       | 
|Income taxes paid                                      |  | $              | 1,631   |              |  | $          | 315    |      |  | $ | 81 |  |  | $ | 111   | 
|                                                       |  |                |         |              |  |            |        |      |  |   |    |  |  |   |       | 
|Income tax refunds                                     |  | $              | 8,021   |              |  | $          | 3,703  |      |  | $ |   |  |  | $ | 4,792 | 
|                                                       |  |                |         |              |  |            |        |      |  |   |    |  |  |   |       | 
|Supplemental noncash financing
    activities:         |  |                |         |              |  |            |        |      |  |   |    |  |  |   |       | 
|Acquisition of IUS business:                           |  |                |         |              |  |            |        |      |  |   |    |  |  |   |       | 
|Fair value of assets acquired                          |  | $              | 51,462  |              |  | $          | (55    | )   
|Fair value of liabilities assumed                      |  |                | (25,697 | )            |  |            | 10,000 |     
|                                                       |  |                |         |              |  |            |        |     
|Net assets acquired                                    |  |                | 25,765  |              |  |            | 9,945  |     
|                                                       |  |                |         |              |  |            |        |     
|Due from seller                                        |  |                | 3,255   |              |  |            | (3,255 | )   
|                                                       |  |                |         |              |  |            |        |     
|Net acquisition-related cash paid                      |  | $              | 29,020  |              |  | $          | 6,690  |     
|                                                       |  |                |         |              |  |            |        |     
|Acquisition of Wishbone Systems business:              |  |                |         |              |  |            |        |      |  |   |    |  |  |   |       | 
|Fair value of assets acquired                          |  |                |         |              |  | $          | 8,632  |     
|Fair value of liabilities assumed                      |  |                |         |              |  |            | (412   | )   
|                                                       |  |                |         |              |  |            |        |     
|Net assets acquired, less cash                         |  |                |         |              |  | $          | 8,220  |     
|                                                       |  |                |         |              |  |            |        |     

See accompanying notes.

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INDUS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

1.     Nature of
Business and Significant Accounting Policies



| |                          
| | -------------------------
| | Organization and Business



| |         
| | --------
| | Business

Indus International, Inc. (the
Company) is a provider of service delivery
management (SDM) solutions, which help clients in a broad
array of industries optimize the management of their customers,
assets, workforce, spare parts inventory, tools and
documentation in order to maximize performance and customer
satisfaction while reducing operating expenses. The
Companys software solutions consist of three primary
solution suites: customer management, asset management and field
service management. These software products, along with related
service and support offerings, enable clients to reduce costs,
increase production capacity and competitiveness, improve
service to their customers, facilitate billing for services and
ensure regulatory compliance. In March 2003, the Company
acquired SCT Utility Systems, Inc. and renamed it Indus Utility
Systems, Inc. (IUS). IUS develops, markets,
implements and supports customer information systems
(CIS), complex billing and customer relationship
management (CRM) software to a broad spectrum of
utilities, primarily in the United States. In January 2004, the
Company acquired Wishbone Systems, Inc. (Wishbone
Systems), a provider of workforce management and
optimization software (WFM). Through these
acquisitions, the Company is able to offer a comprehensive suite
of world-class customer, asset, and field service management
solutions.



| |                      
| | ---------------------
| | Significant Customers

In 2001, Magnox Electric plc
(Magnox), a wholly-owned subsidiary of British
Nuclear Fuels Ltd (BNFL), operating BNFLs
nuclear power stations, selected the Company to provide work
management and compliance system software for eight nuclear
stations. The Company is providing a total business solution,
including the PassPort software suite, implementation services,
and five years of application hosting via Indus web
hosting services. The Magnox contract represented 3.8%, 12.6%,
11.2% and 8.4% of the Companys revenue for the years ended
December 31, 2001 and 2002, the three-month period ended
March 31, 2003 and the year ended March 31, 2004,
respectively.

In 2001, the United Kingdoms Ministry of
Defense (MoD) selected the Company as the
application provider for logistics and asset management. The MoD
project represented 23.3% of total revenues for 2001. The MoD
suspended this project indefinitely in the first quarter of 2002
and, as a result, revenues from the project during 2002 and
forward, were insignificant.



| |                                    
| | -----------------------------------
| | Significant Accounting
    Policies



| |                      
| | ---------------------
| | Basis of Presentation

The consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant
intercompany balances and transactions have been eliminated.
Certain prior period amounts have been reclassified to conform
to the current presentation.



| |                    
| | -------------------
| | Revenue Recognition

The Company provides its software to customers
under contracts that provide for both software license fees and
services. The revenues from software license fees are recognized
in accordance with AICPA Statements of Position, or SOP, 97-2,
Software Revenue Recognition, as amended or
interpreted by SOP 98-4 and SOP 98-9, Technical Practice Aids,
and SEC Staff Accounting Bulletins. Revenue for software is
recognized when persuasive evidence of a non-cancelable license
agreement exists, delivery has occurred, the license fee is
fixed or determinable, and collection is probable. Revenue from
services, which generally are time and material based, are
recognized as the work is performed. When software is licensed
through indirect

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INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

sales channels, license fees are recognized as
revenue when the reseller licenses the software to an end user
customer. In software arrangements that include rights to
multiple software products and/or services, the total
arrangement fee is allocated among each of the deliverables
using the residual method, under which revenue is allocated to
the undelivered elements based on vendor specific objective
evidence (VSOE) of fair value of such undelivered
elements and the residual amounts of revenue are allocated to
the delivered elements. Elements included in multiple element
arrangements may consist of software products, maintenance
(which include customer support services and unspecified
upgrades), hosting and consulting services. VSOE is based on the
price generally charged when an element is sold separately or,
in the case of an element not yet sold separately, the price
established by authorized management, if it is probable that the
price, once established, will not change once the element is
sold separately. If VSOE does not exist for an undelivered
element, the total arrangement fee will be taken to revenue over
the life of the contract or upon delivery of the undelivered
element.

Revenue is recognized using contract accounting
for arrangements involving significant customization or
modification of the software or where software services are
considered essential to the functionality of the software.
Revenue from these software arrangements is recognized using the
percentage-of-completion method with progress to completion
measured using specific milestones, usually labor cost inputs,
with revisions to estimates reflected in the period in which
changes become known. Project losses are provided for in their
entirety in the period in which they become known.

Revenue from maintenance and support services is
recognized ratably over the term of the support contract,
typically one year.

Revenue from outsourcing and web hosting (also
referred to as ASP or application service provider)
services is recognized based upon contractually agreed upon
rates per user or service, over a contractually defined time
period. Under some web hosting arrangements, customers have a
license to the software and are entitled to take possession of
the software at any time during the hosting period, while other
customers are only entitled to use the software through the
hosting arrangement. For arrangements in which the customer has
the contractual right to take possession of the software at any
time during the hosting period without significant penalty, the
Company recognizes revenue under the accounting policies
disclosed above in the revenue recognition accounting policy for
software arrangements.

Unbilled accounts receivable represent amounts
related to revenue under existing contracts that has been
recorded either as deferred revenue or earned revenue but which
has not yet been billed. Generally, unbilled amounts are billed
within one year of the sale of product or performance of
services.

Deferred revenue represents fees for services and
software licenses that have not yet met the criteria to be
recognized as revenue.

Deferred support represents amounts invoiced
prior to performance of support services. Contracts for support
services are typically one year in length and are amortized to
the revenue ratably over the contract period. Deferred services
are amounts invoiced prior to performance of consulting services.

Deferred license revenue represents license fee
contracts revenue which was deferred because the criteria for
revenue recognition had not been met. Revenue on these contracts
is recognized when these criteria are met and occurred.



| |                             
| | ----------------------------
| | Foreign Currency Translation

The functional currencies of the Companys
foreign subsidiaries are their respective local currencies. The
financial statements of foreign subsidiaries have been
translated into U.S. Dollars. Assets and liabilities accounts
have been translated using the exchange rates in effect at the
balance sheet date. The foreign statements of operations have
been translated using average exchange rates. Gains and losses
resulting from

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INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

translation of the accounts of the Companys
foreign subsidiaries have been reported in other comprehensive
income (loss) within stockholders equity. Gains and
losses resulting from foreign currency transactions are included
in the determination of net income (loss).



| |                             
| | ----------------------------
| | Concentration of Credit Risk

Financial instruments where the Company may be
subject to concentrations of credit risk consist principally of
cash and cash equivalents and trade accounts receivable. The
Company has investment policies and procedures that are reviewed
periodically to minimize credit risk. The Companys
customers are generally large companies in the utilities, oil
and gas, defense, pulp and paper and metals and mining
industries. The Company routinely assesses the financial
strength of its customers and, as a consequence, believes that
its accounts receivable credit risk exposure is limited.

The Company maintains an allowance for doubtful
accounts for estimated losses resulting from the inability or
failure of its customers to make required payments. This
allowance is formula-based, supplemented by an evaluation of
specific accounts where there may be collectibility risk. On an
ongoing basis, the Company evaluates the collectibility of
accounts receivable based upon historical collections and an
assessment of the collectibility of specific accounts. The
Company evaluates the collectibility of specific accounts using
a combination of factors, including the age of the outstanding
balance(s), evaluation of the accounts financial
condition, recent payment history, and discussions with the
Companys account executive for the specific customer.
Based upon this evaluation of collectibility, any increase or
decrease required in the allowance for doubtful accounts is
reflected in the period in which the evaluation indicates that a
change is necessary.

The following is an analysis of the activity in
the allowance for doubtful accounts (in thousands):

|                                        |  |            |       |            |  |          |       |             |  |  |        |   |  |   |       | 
|--------------------------------------- |  | ---------- | ----- | ---------- |  | -------- | ----- | ----------- |  |  | ------ | - |  | - | ----- | 
|                                        |  | Balance at |       | Charged to |  | Changes- |       |            
|                                        |  | Beginning  |       | Costs and  |  | Add      |       | Balance at 
|Allowance for Doubtful Accounts         |  | of Year    |       | Expenses   |  | (Deduct) |       | End of Year
|                                        |  |            |       |            |  |          |       |            
|Year Ended March 31, 2004               |  | $          | 4,375 |            |  |          | (289  | )           |  |  | (3,174 | ) |  | $ | 912   | 
|Three-month period Ended March 31, 2003 |  | $          | 3,445 |            |  |          | 1,049 |             |  |  | (119   | ) |  | $ | 4,375 | 
|Year Ended December 31, 2002            |  | $          | 5,713 |            |  |          | (807  | )           |  |  | (1,461 | ) |  | $ | 3,445 | 
|Year Ended December 31, 2001            |  | $          | 5,379 |            |  |          | 3,353 |             |  |  | (3,019 | ) |  | $ | 5,713 | 

The changes were based on an evaluation of
specific accounts and aging categories. The write-offs in 2001
were not attributable to any major accounts, but were a result
of the write-off of many older items that had been previously
reserved. The write-offs in 2004 include $1.5 million
related to a specific customer dispute and approximately
$1.1 million in a receivable balance acquired in the IUS
acquisition, both of which had been reserved previously.

One customer (Magnox) represented
$1.9 million and $2.1 million of the Companys
accounts receivable as of March 31, 2003 and 2004,
respectively.



| |                
| | ---------------
| | Restricted Cash

Restricted cash of approximately
$5.6 million as of March 31, 2004 includes $70,000 in
current assets and $5.5 million in non-current assets. The
$5.5 million in non-current assets is comprised of
$2.6 million in compensating balances to support letters of
credit, a compensating balance for a $2.3 million
performance bond and a $0.6 million certificate of deposit.

In May 2008, $2.3 million of the
$2.6 million in restricted cash used for letters of credit
will be released. The $2.3 million supporting the
performance bond will be released in January 2006. The
$0.6 million certificate deposit, used as collateral for
the Companys $11.5 million mortgage, will be released
in April 2008.

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INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                       
| | ----------------------
| | Property and Equipment

Property and equipment is stated at cost.
Equipment under capital leases is stated at the lower of fair
market value or the present value of the minimum lease payments
at the inception of the lease.

Depreciation on office and computer equipment and
furniture is computed using the straight-line method over
estimated useful lives of four to seven years. Leasehold
improvements are amortized using the straight-line method over
the shorter of the related lease term or their estimated useful
lives. Software purchased for internal use is amortized using
the straight-line method over estimated useful lives of four to
five years.



| |                           
| | --------------------------
| | Software Development Costs

The Company accounts for software development
costs in accordance with Statement of Financial Accounting
Standards (SFAS) No. 86, Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed, whereby costs for the development of new
software products and substantial enhancements to existing
software products are expensed as incurred until technological
feasibility has been established, at which time any additional
costs are capitalized. Technological feasibility is established
upon completion of a working model. Through December 31,
2002, software development costs incurred subsequent to the
establishment of technological feasibility were not significant,
and all software development costs were charged to research and
development expense in the accompanying consolidated statements
of operations during that time.

The Company capitalized certain development costs
related to the internationalization of its products to Asian
markets of $0.4 million and $7.3 million for the
three-month period ended March 31, 2003 and for the year
ended March 31, 2004, respectively. These costs have not
yet been subject to amortization as the product has not been
available for general release. The Company will amortize these
costs over a three year period beginning in fiscal 2005. All
other software development costs incurred during that period
were charged to research and development expense.



| |                      
| | ---------------------
| | Internal-Use Software

SOP 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use,
requires that entities capitalize certain costs related to
internal use software once certain criteria have been met.
Capitalized internal-use software development costs associated
with the Companys information systems are included in
property and equipment and are depreciated on a straight-line
basis over a three-year period. The depreciation expense
recorded for the years ended December 31, 2001 and 2002,
the three-month period ended March 31, 2003 and the year
ended March 31, 2004 was approximately $1.8 million,
$2.4 million, $643,000 and $2.8 million, respectively.



| |                                          
| | -----------------------------------------
| | Acquisition-Related Intangible
    Assets

Acquisition-related intangible assets are stated
at cost less accumulated amortization. The intangible assets
include values for developed technology, customer base,
contracts and trade names. The acquired software is being
amortized over the greater of the amount computed using
(a) the ratio that current gross revenues for a product
bear to the total of current and anticipated future gross
revenues for that product or (b) the straight-line method
over the remaining estimated economic life of the product
including the period being reported on. Other intangible assets
are being amortized on a straight-line basis over a period of
two to fifteen years. Total amortization expense for intangible
assets was $152,000 and $1.8 million for the three-month
period ended March 31, 2003 and the year ended
March 31, 2004, respectively, and is included in general
and administrative expense in the accompanying Consolidated
Statements of Operations.

53



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##### Table of Contents



INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Acquisition-related intangible assets consist of
the following (in thousands):

|                                     |  |           |        |  
|------------------------------------ |  | --------- | ------ | -
|                                     |  | March 31,
|                                     |  | 2004     
|                                     |  |          
|Acquired trademarks                  |  | $         | 730    |  
|Acquired technology                  |  |           | 2,870  |  
|Acquired contracts and customer base |  |           | 10,937 |  
|                                     |  |           |        |  
|Total acquired intangible assets     |  |           | 14,537 |  
|Less accumulated amortization        |  |           | (1,975 | )
|                                     |  |           |        |  
|Net intangible assets                |  | $         | 12,562 |  
|                                     |  |           |        |  

The weighted-average amortization period for
these intangible assets is approximately eleven years.
Trademarks and technology have weighted-average amortization
periods of five years and contracts and customer base has a
weighted-average amortization period of thirteen years. The
Company expects amortization expense for the next five years to
be as follows, based on intangible assets as of March 31,
2004 (in thousands):

|           |  |   |        | 
|---------- |  | - | ------ | 
|2005       |  | $ | 1,978  | 
|2006       |  |   | 1,466  | 
|2007       |  |   | 1,432  | 
|2008       |  |   | 1,334  | 
|2009       |  |   | 799    | 
|Thereafter |  |   | 5,553  | 
|           |  |   |        | 
|           |  | $ | 12,562 | 
|           |  |   |        | 



| |                        
| | -----------------------
| | Goodwill and Impairment

In the first quarter of 2002 the Company adopted
SFAS No. 142, Goodwill and Other Intangible
Assets. Under SFAS No. 142, goodwill, which
represents the excess of purchase price over fair value of net
assets acquired,is no longer subject to amortization;
instead it is subject to impairment testing criteria. For
purposes of its goodwill impairment testing, the Company
considers itself to be a single reporting unit and assesses
goodwill impairment on an enterprise-wide level. The Company has
recorded goodwill of $0.4 million associated with the
acquisition of IUS and $6.6 million associated with the
acquisition of Wishbone Systems and has recorded no impairment
losses during the year ended March 31, 2004. The Company
evaluates the carrying value of goodwill annually as of
December 31 and between annual evaluations if events occur
or circumstances change that would more likely than not reduce
the fair value of the asset below its carrying amount.



| |              
| | -------------
| | Notes Payable

Notes payable represents short-term borrowings.
The Company includes in notes payable only those principal
balances which are to be paid within the subsequent twelve-month
period. The notes payable balance at March 31, 2004
includes the current portion of an $11.5 million promissory
note secured by the Companys real property located in
Columbia, South Carolina. The promissory note bears interest at
an annual rate of 6.5% and is payable in monthly installments of
principal and interest (determined on a 15-year amortization)
through October 1, 2008, at which time the remaining
principal balance of $7.7 million is due and payable. The
Company may extend the maturity date at that time for one
additional five year term at a variable rate of interest.

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INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                
| | -------------------------------
| | Guarantees and Indemnifications

The Company accounts for guarantees and
indemnifications in accordance with Financial Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, including Indirect Guarantees of
Indebtedness of Others.

License and hosting agreements with customers
generally contain infringement indemnity provisions. Under these
agreements, the Company agrees to indemnify, defend and hold
harmless the customer in connection with patent, copyright,
trademark or trade secret infringement claims made by third
parties with respect to the customers authorized use of
our products and services. The indemnity provisions generally
provide for the Company to control defense and settlement and
cover costs and damages finally awarded against the customer.
The indemnity provisions also generally provide that if the
Company products infringe, or in the Companys opinion it
is likely that they will be found to infringe, on the rights of
a third-party Indus will, at its option and expense, procure the
right to use the infringing product, modify the product so it is
no longer infringing, or return the product for a partial refund
that reflects the reasonable value of prior use. The Company has
not previously incurred costs to settle claims or pay awards
under these indemnification obligations. The Company accounts
for these indemnity obligations in accordance with SFAS
No. 5, Accounting for Contingencies, and
records a liability for these obligations when a loss is
probable and reasonably estimable. The Company has not recorded
any liabilities for these arrangements as of March 31, 2004.

Services agreements with customers may also
contain indemnity provisions for death, personal injury or
property damage caused by the Companys personnel or
contractors in the course of performing services to customers.
These agreements, generally agree to indemnify, defend and hold
harmless the customer in connection with death, personal injury
and property damage claims made by third parties with respect to
actions of the Companys personnel or contractors. The
indemnity provisions generally provide for the Companys
control of defense and settlement and cover costs and damages
finally awarded against the customer. The indemnity obligations
contained in services agreements generally have no specified
expiration date and no specified monetary limitation on the
amount of award covered. The Company has not previously incurred
costs to settle claims or pay awards under these indemnification
obligations and estimates the fair value of these potential
obligations to be nominal. Accordingly, no liabilities have been
recorded for these agreements as of March 31, 2004.

The Company generally warrants that its software
products will perform in all material respects in accordance
with its standard published specifications in effect at the time
of delivery of the licensed products to the customer for six
months to a year, depending upon the software license.
Additionally, contracts generally warrant that services will be
performed consistent with generally accepted industry standards
or, in some instances, specific service levels through
completion of the agreed upon services. If necessary, provision
will be made for the estimated cost of product and service
warranties based on specific warranty claims and claim history.
There has been no significant recurring expense under these
product or service warranties.



| |                  
| | -----------------
| | Advertising Costs

Advertising costs are charged to expense in the
period the costs are incurred. Advertising expense was
approximately $214,000, $846,000, $47,000 and $187,000 for years
ended December 31, 2001 and 2002, the three-month period
ended March 31, 2003 and the year ended March 31,
2004, respectively, and are included in Sales and Marketing in
the accompanying Consolidated Statements of Operations.



| |                    
| | -------------------
| | Segment Information

The Company operates in a single segment as
defined by SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. See Note 11 for
discussion of foreign operations.

55



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INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |             
| | ------------
| | Income Taxes

Income taxes are computed in accordance with SFAS
No. 109, Accounting for Income Taxes, which
requires the use of the liability method in accounting for
income taxes. Under SFAS No. 109, deferred tax assets and
liabilities are measured based on differences between the
financial reporting and tax bases of assets and liabilities
using enacted tax rates and laws that are expected to be in
effect when the differences are expected to reverse.



| |               
| | --------------
| | Per Share Data

Basic earnings per share is calculated using the
weighted average common shares outstanding during the periods.
Common equivalent shares from stock options, warrants and
convertible notes using the treasury stock method or the
if-converted method, have been excluded from the diluted per
share calculations because the effect of inclusion would be
antidilutive.

The components of basic and diluted earnings per
share were as follows (in thousands, except per share amounts):

|                                                                                |                        |              |         |              |  |            |         |      |  |   |        |   |  |   |         |   | 
|------------------------------------------------------------------------------- | ---------------------- | ------------ | ------- | ------------ |  | ---------- | ------- | ---- |  | - | ------ | - |  | - | ------- | - | 
|                                                                                |                        |              |         |              |  |           
|                                                                                |                        | Years Ended  |         | Three Months |  |           
|                                                                                |                        | December 31, |         | Ended        |  | Year Ended
|                                                                                |                        |              |         | March 31,    |  | March 31, 
|                                                                                |                        | 2001         |         | 2002         |  | 2003       |         | 2004
|                                                                                |                        |              |         |              |  |            |         |     
|Net loss                                                                        |                        | $            | (10,076 | )            |  | $          | (33,763 | )    |  | $ | (9,893 | ) |  | $ | (12,038 | )
|                                                                                |                        |              |         |              |  |            |         |      |  |   |        |   |  |   |         |  
|Weighted average shares of common stock
    outstanding                         |                        |              | 34,857  |              |  |            | 35,237  |      |  |   | 37,210 |   |  |   | 49,455  |  
|                                                                                |                        |              |         |              |  |            |         |      |  |   |        |   |  |   |         |  
|Basic net loss per share                                                        |                        | $            | (0.29   | )            |  | $          | (0.96   | )    |  | $ | (0.27  | ) |  | $ | (0.24   | )
|                                                                                |                        |              |         |              |  |            |         |      |  |   |        |   |  |   |         |  
|Calculation of shares outstanding for computing
    diluted net loss per share: |                        |              |         |              |  |            |         |      |  |   |        |   |  |   |         |  
|Shares used in computing basic net loss per share                               |                        |              | 34,857  |              |  |            | 35,237  |      |  |   | 37,210 |   |  |   | 49,455  |  
|Shares to reflect the effect of the assumed
    exercise of:                    |                        |              |         |              |  |            |         |      |  |   |        |   |  |   |         |  
|                                                                                | Employee stock options |              |         |             |  |            |         |     |  |   |        |  |  |   |         |  | 
|                                                                                | Warrants               |              |         |             |  |            |         |     |  |   |        |  |  |   |         |  | 
|                                                                                | Convertible Notes      |              |         |             |  |            |         |     |  |   |        |  |  |   |         |  | 
|                                                                                |                        |              |         |              |  |            |         |      |  |   |        |   |  |   |         |  
|Shares used in computing diluted net loss per
    share                         |                        |              | 34,857  |              |  |            | 35,237  |      |  |   | 37,210 |   |  |   | 49,455  |  
|                                                                                |                        |              |         |              |  |            |         |      |  |   |        |   |  |   |         |  
|Diluted net loss per share                                                      |                        | $            | (0.29   | )            |  | $          | (0.96   | )    |  | $ | (0.27  | ) |  | $ | (0.24   | )
|                                                                                |                        |              |         |              |  |            |         |      |  |   |        |   |  |   |         |  

The Company has excluded all outstanding stock
options, warrants and convertible notes to purchase common stock
from the calculation of diluted net loss per share because all
such securities are antidilutive for all periods presented. As
of December 31, 2001 and 2002, and March 31, 2003 and
2004, stock options, warrants and convertible notes to purchase
common stock in the amount of 8,946,531, 9,772,963, 19,908,179
and 11,396,022 were outstanding, respectively. The 8%
Convertible Notes issued to fund the IUS acquisition were
converted into 9,751,859 shares of common stock in July 2003,
upon receipt of the approval of the Companys stockholders.
See Note 7 and 8 for further information on those securities.

56



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INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                 
| | ----------------
| | Use of Estimates

The preparation of the financial statements in
conformity with accounting principles generally accepted in the
United States requires management to make estimates and
assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates. Those accounts that are affected by the
use of estimates are revenues from services (the determination
of the scope and duration of the engagement and the status of
completion to date), the allowance for doubtful accounts (the
valuation of the credit worthiness of our customers), and
accrued restructuring costs (the estimate of future sublease
income for excess office space).



| |                         
| | ------------------------
| | Stock Based Compensation

As permitted under SFAS No. 123,
Accounting for Stock-Based Compensation, as amended
by SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure, the Company
accounts for stock based compensation in accordance with
Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and
accordingly recognizes no compensation expense for the stock
option grants as long as the exercise price is equal to or more
than the fair value of the shares at the date of grant.

For purposes of pro forma disclosures, as
required by SFAS No. 123, which also requires that the pro
forma information be determined as if the Company had accounted
for its employee stock option grants under the fair value method
required by SFAS No. 123, the estimated fair value of the
options is amortized to expense over the options vesting
period. The Companys pro forma net loss including pro
forma compensation expense, net of tax for the years ended
December 31, 2001 and 2002, the three-month period ended
March 31, 2003 and the year ended March 31, 2004,
respectively, is as follows (in thousands except per share
amounts):

|                                                                                                           |             |              |         |              |   |            |         |       |   |   |         |       |   |   |         |       |  
|---------------------------------------------------------------------------------------------------------- | ----------- | ------------ | ------- | ------------ | - | ---------- | ------- | ----- | - | - | ------- | ----- | - | - | ------- | ----- | -
|                                                                                                           |             |              |         |              |   |           
|                                                                                                           |             | Years Ended  |         | Three Months |   |           
|                                                                                                           |             | December 31, |         | Ended        |   | Year Ended
|                                                                                                           |             |              |         | March 31,    |   | March 31, 
|                                                                                                           |             | 2001         |         | 2002         |   | 2003       |         | 2004 
|                                                                                                           |             |              |         |              |   |            |         |      
|Net loss as reported                                                                                       |             | $            | (10,076 | )            |   | $          | (33,763 | )     |   | $ | (9,893  | )     |   | $ | (12,038 | )    
|Add: Total stock-based compensation expense
    determined under the intrinsic value method                |             |              | 53      |              |   |            | 34      |       |   |   | 16      |       |   |   | 38      |      
|Deduct: Total stock-based compensation expense
    determined under fair-value based method for all awards |             |              | (8,743  | )            |   |            | (4,809  | )     |   |   | (1,509  | )     |   |   | (4,616  | )    
|                                                                                                           |             |              |         |              |   |            |         |       |   |   |         |       |   |   |         |      
|Pro forma net loss                                                                                         |             | $            | (18,766 | )            |   | $          | (38,538 | )     |   | $ | (11,386 | )     |   | $ | (16,616 | )    
|                                                                                                           |             |              |         |              |   |            |         |       |   |   |         |       |   |   |         |      
|Loss per share:                                                                                            |             |              |         |              |   |            |         |       |   |   |         |       |   |   |         |      
|Basic:                                                                                                     |             |              |         |              |   |            |         |       |   |   |         |       |   |   |         |      
|                                                                                                           | As reported |              | $       | (0.29        | ) |            | $       | (0.96 | ) |   | $       | (0.27 | ) |   | $       | (0.24 | )
|                                                                                                           |             |              |         |              |   |            |         |       |   |   |         |       |   |   |         |      
|                                                                                                           | Pro forma   |              | $       | (0.54        | ) |            | $       | (1.09 | ) |   | $       | (0.31 | ) |   | $       | (0.34 | )
|                                                                                                           |             |              |         |              |   |            |         |       |   |   |         |       |   |   |         |      
|Diluted:                                                                                                   |             |              |         |              |   |            |         |       |   |   |         |       |   |   |         |      
|                                                                                                           | As reported |              | $       | (0.29        | ) |            | $       | (0.96 | ) |   | $       | (0.27 | ) |   | $       | (0.24 | )
|                                                                                                           |             |              |         |              |   |            |         |       |   |   |         |       |   |   |         |      
|                                                                                                           | Pro forma   |              | $       | (0.54        | ) |            | $       | (1.09 | ) |   | $       | (0.31 | ) |   | $       | (0.34 | )
|                                                                                                           |             |              |         |              |   |            |         |       |   |   |         |       |   |   |         |      
|Shares used in computing per share data                                                                    |             |              |         |              |   |            |         |       |   |   |         |       |   |   |         |      
|Basic                                                                                                      |             |              | 34,857  |              |   |            | 35,237  |       |   |   | 37,210  |       |   |   | 49,455  |      
|                                                                                                           |             |              |         |              |   |            |         |       |   |   |         |       |   |   |         |      
|Diluted                                                                                                    |             |              | 34,857  |              |   |            | 35,237  |       |   |   | 37,210  |       |   |   | 49,455  |      
|                                                                                                           |             |              |         |              |   |            |         |       |   |   |         |       |   |   |         |      

57



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##### Table of Contents



INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The weighted average fair value of options
granted under all plans was $3.91, $2.22, $1.43 and $2.05 for
years ended December 31, 2001 and 2002, the three-month
period ended March 31, 2003 and the year ended
March 31, 2004, respectively.



| |                                 
| | --------------------------------
| | Recent Accounting Pronouncements

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based Compensation
 Transition and Disclosure. SFAS No. 148 amends
SFAS No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition
to Statement 123s fair value method of accounting for
stock-based employee compensation. SFAS No. 148 also amends
the disclosure provisions of SFAS No. 123 and Accounting
Principles Board Opinion No. 28, Interim Financial
Reporting, to require disclosure in the summary of
significant accounting policies of the effects of an
entitys accounting policy with respect to stock-based
compensation, regardless of whether the Company accounts for
that compensation using the fair value method of SFAS
No. 123 or the intrinsic value method of APB No. 25,
Accounting for Stock Issued to Employees. SFAS
No. 148s amendment of the transition and annual
disclosure requirements of SFAS No. 123 are effective for
fiscal years ending after December 15, 2002 and were
adopted on January 1, 2003. The Company accounts for
stock-based compensation using the intrinsic value method
prescribed in APB No. 25 and related interpretations and
has elected the pro forma disclosure alternative of SFAS
No. 123.

In January 2003, the FASB issued and subsequently
revised in December 2003, FIN No. 46, Consolidation
of Variable Interest Entities, which clarifies the
consolidation accounting guidance of Accounting Research
Bulletin No. 51, Consolidated Financial
Statements, to certain entities in which equity investors
do not have the characteristics of a controlling financial
interest or do not have sufficient equity at risk for the
entities to finance their activities without additional
subordinated financial support from other parties. Such entities
are known as variable interest entities (VIE).
Controlling financial interests of a VIE are identified by the
exposure of a party to the VIE to a majority of either the
expected losses or residual rewards of the VIE, or both. Such
parties are primary beneficiaries of the VIE, and FIN
No. 46 requires that the primary beneficiary of a VIE
consolidate the VIE. FIN No. 46 also requires new
disclosures for significant relationships with VIEs, whether or
not consolidation accounting is either used or anticipated.
Application of FIN No. 46 is required in the financial
statements of public entities that have interests in VIEs or
potential VIEs commonly referred to as special-purpose entities
for periods after December 15, 2003. Application by public
entities for all other types of entities is required in
financial statements for periods ending after March 15,
2004. The Company adopted FIN No. 46 on March 31,
2004, and there was no impact on the Companys financial
position and results of operations as a result of the adoption.

2.     Marketable
Securities

The Company attempts to maximize total investment
returns while maintaining a conservative investment policy that
emphasizes preservation of principal through high credit quality
requirements (A1/ P1, MIG 1A or better, AA or better) and
maintenance of liquidity with maximum effective maturity of any
single issue not to exceed two years. The Company classifies all
marketable securities as available-for-sale investments and
carries them at fair market value.

58



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##### Table of Contents



INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following is a summary of marketable
securities, all of which are available-for-sale (in thousands):

|                                     |  |           |       | 
|------------------------------------ |  | --------- | ----- | 
|                                     |  | March 31,
|                                     |  | 2003     
|                                     |  |          
|Money market funds                   |  | $         | 403   | 
|Government agency notes              |  |           | 202   | 
|Commercial paper and corporate notes |  |           | 451   | 
|                                     |  |           |       | 
|                                     |  | $         | 1,056 | 
|                                     |  |           |       | 
|Included in:                         |  |           |       | 
|Cash and cash equivalents            |  | $         | 299   | 
|Marketable securities                |  |           | 757   | 
|                                     |  |           |       | 
|                                     |  | $         | 1,056 | 
|                                     |  |           |       | 

At March 31, 2003, the gross amortized cost
of marketable securities approximated the estimated fair value.
There have been no significant realized gains or losses on sales
of marketable securities. There were no marketable securities at
March 31, 2004.

3.     Property and
Equipment

Property and equipment is recorded at cost and
consists of the following (in thousands):

|                                               |  |           |        |      |  |   |        | 
|---------------------------------------------- |  | --------- | ------ | ---- |  | - | ------ | 
|                                               |  |          
|                                               |  | March 31,
|                                               |  |          
|                                               |  | 2003      |        | 2004
|                                               |  |           |        |     
|Land and buildings                             |  | $         | 19,125 |      |  | $ | 19,073 | 
|Furniture and fixtures                         |  |           | 7,164  |      |  |   | 6,917  | 
|Office equipment                               |  |           | 41,909 |      |  |   | 43,671 | 
|Leasehold improvements                         |  |           | 4,141  |      |  |   | 4,143  | 
|Internal-use software                          |  |           | 14,057 |      |  |   | 15,947 | 
|                                               |  |           |        |      |  |   |        | 
|                                               |  |           | 86,396 |      |  |   | 89,751 | 
|Less accumulated depreciation and amortization |  |           | 48,308 |      |  |   | 56,832 | 
|                                               |  |           |        |      |  |   |        | 
|                                               |  | $         | 38,088 |      |  | $ | 32,919 | 
|                                               |  |           |        |      |  |   |        | 

Depreciation and amortization expense totaled
$8.1 million, $8.5 million, $2.2 million and
$9.1 million for the years ended December 31, 2001 and
2002, the three-month period ended March 31, 2003 and the
year ended March 31, 2004, respectively.

59



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##### Table of Contents



INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                          
|-- | -------------------------
|4. | Other Accrued Liabilities

Other accrued liabilities consist of the
following (in thousands):

|                                      |  |           |        |           |  |   |        | 
|------------------------------------- |  | --------- | ------ | --------- |  | - | ------ | 
|                                      |  | March 31, |        | March 31,
|                                      |  | 2003      |        | 2004     
|                                      |  |           |        |          
|Accrued compensation-related expenses |  | $         | 6,433  |           |  | $ | 6,158  | 
|Accrued taxes                         |  |           | 2,765  |           |  |   | 2,341  | 
|Accrued restructuring expenses        |  |           | 3,534  |           |  |   | 3,153  | 
|Accrued legal and accounting expenses |  |           | 1,953  |           |  |   | 1,768  | 
|Other accruals                        |  |           | 5,883  |           |  |   | 4,204  | 
|                                      |  |           |        |           |  |   |        | 
|                                      |  | $         | 20,568 |           |  | $ | 17,624 | 
|                                      |  |           |        |           |  |   |        | 



|   |               
|-- | --------------
|5. | Long-Term Debt

In September 2003, the Company executed a
promissory note in the principal amount of $11.5 million
secured by a mortgage on the Companys real property
located in Columbia, South Carolina, which has a carrying value
of $17.2 million as of March 31, 2004. The promissory
note bears interest at an annual rate of 6.5% and is payable in
monthly installments of principal and interest (determined on a
15-year amortization schedule) through October 1, 2008, at
which time the remaining principal balance of $7.7 million
is due and payable. The Company may extend the maturity date at
that time for one additional five year term at a variable rate
of interest. The proceeds from this note were used to repay the
$10.0 million promissory note issued to SCT Financial
Corporation in connection with the acquisition of IUS
(Note 15). At March 31, 2004, approximately $767,000
of the promissory note is included in current liabilities and
$10.3 million is classified as long-term debt. Maturities
of long-term debt are as follows (in thousands):

|     |  |           |        | 
|---- |  | --------- | ------ | 
|     |  | March 31,
|     |  | 2004     
|     |  |          
|2005 |  | $         | 767    | 
|2006 |  |           | 767    | 
|2007 |  |           | 767    | 
|2008 |  |           | 767    | 
|2009 |  |           | 7,998  | 
|     |  |           |        | 
|     |  | $         | 11,066 | 
|     |  |           |        | 



|   |            
|-- | -----------
|6. | Commitments

The Company leases its office facilities under
various operating lease agreements. The leases require monthly
rental payments in varying amounts through 2012. These leases
also require the Company to pay property taxes, normal
maintenance and insurance on the leased facilities.

Total rental expense under these leases was
approximately $7.0 million, $6.6 million,
$1.5 million and $5.4 million for the years ended
December 31, 2001 and 2002, the three-month period ended
March 31, 2003 and the year ended March 31, 2004,
respectively.

60



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INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Future minimum lease payments under all
non-cancelable leases are as follows (in thousands):

|                                        |  |           |        |         |  |   |    |  
|--------------------------------------- |  | --------- | ------ | ------- |  | - | -- | -
|                                        |  | Operating |        | Capital
|Years Ending March 31,                  |  | Leases    |        | Leases 
|                                        |  |           |        |        
|2005                                    |  | $         | 8,195  |         |  | $ | 55 |  
|2006                                    |  |           | 7,449  |         |  |   |   |  
|2007                                    |  |           | 6,809  |         |  |   |   |  
|2008                                    |  |           | 6,692  |         |  |   |   |  
|2009                                    |  |           | 2,925  |         |  |   |   |  
|Thereafter                              |  |           | 5,784  |         |  |   |   |  
|                                        |  |           |        |         |  |   |    |  
|Total minimum payments required         |  | $         | 37,854 |         |  | $ | 55 |  
|                                        |  |           |        |         |  |   |    |  
|Less amounts representing interest      |  |           |        |         |  |   | (8 | )
|                                        |  |           |        |         |  |   |    |  
|Present value of minimum lease payments |  |           |        |         |  | $ | 47 |  
|                                        |  |           |        |         |  |   |    |  

At March 31, 2003 and 2004, the Company had
capital lease obligations of approximately $326,000 and $47,000,
respectively. Equipment leased under capital leases is included
in property and equipment. The recorded value of equipment under
capital leases was approximately $4.6 million at both
March 31, 2003 and 2004, with accumulated depreciation of
$4.2 million and $4.3 million, respectively.

As of March 31, 2004, the Company has
subleased 43,981 square feet related to excess office space in
its San Francisco location, 6,147 square feet in its Pittsburgh
location and 9,041 square fee in its Dallas location, and has
available for sublease 25,670 square feet in San Francisco.
Future reduction in rent anticipated from existing subleases is
shown in the below chart (in thousands):

|                                              |  |           |       | 
|--------------------------------------------- |  | --------- | ----- | 
|                                              |  | Sub Lease
|Years Ending March 31,                        |  | Income   
|                                              |  |          
|2005                                          |  | $         | 1,177 | 
|2006                                          |  |           | 1,128 | 
|2007                                          |  |           | 1,014 | 
|2008                                          |  |           | 1,014 | 
|2009                                          |  |           | 169   | 
|Thereafter                                    |  |           |      | 
|                                              |  |           |       | 
|Total sublease income under current contracts |  | $         | 4,502 | 
|                                              |  |           |       | 

The Company has a commitment to purchase
development services expertise in the form of labor hours, which
are being utilized in its development efforts. The purchase
commitment extends through December 22, 2007. During the
remainder of the term of the commitment, the Company is required
to purchase approximately $2.4 million of labor hours at
agreed upon labor rates.



|   |                     
|-- | --------------------
|7. | Stockholders Equity

The Board of Directors is authorized, subject to
any limitations prescribed by Delaware law, to provide for the
issuance of shares of preferred stock in one or more series, to
establish from time to time the number of shares to be included
in each such series, to fix the powers, preferences and rights
of the shares of each wholly un-issued series and any
qualifications, limitations or restrictions thereon, and to
increase or decrease the number of shares of any such series
(but not below the number of shares of such series then
outstanding), without any further vote or action by the
stockholders. The Board of Directors may authorize the issuance
of preferred stock with voting or conversion rights that could
adversely affect the voting power of other rights of the holders
of common stock. Thus, the issuance of preferred stock may have
the effect of delaying, deferring

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INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

or preventing a change in control of the Company.
The Company has no current plan to issue any shares of preferred
stock.

In July 1999, the Companys Board of
Directors approved a stock repurchase program for up to
2,000,000 shares of the Companys outstanding common
stock. The Company is authorized to use available cash to buy
back its shares in open market transactions from time to time,
subject to price and market conditions. As of March 31,
2004, the Company held, as treasury stock, 435,500 shares
that had been repurchased at a cost of approximately
$2.2 million under the program.

In April 2002, the Company entered into an
agreement with Robert Felton, a founder of the Company and
former Chief Executive Officer and Chairman of the Board of
Directors. Under this agreement, the Company repurchased
500,000 shares of the Companys common stock from
Mr. Felton at a price of $5.00 per share, which
approximated market value at the time of the agreement, for an
aggregate purchase price of $2.5 million. As part of this
agreement, Mr. Felton agreed not to transfer or enter into
any agreement to transfer the remainder of his shares of the
Companys stock for a period of one year. These repurchased
shares are also held as treasury stock.

On March 5, 2003, the Company completed a
private placement offering to purchasers of approximately
6.8 million shares of the Companys common stock, par
value $0.001 per share, at a purchase price of
$1.50 per share, or a total of approximately
$10.2 million, and approximately $14.5 million of the
Companys 8% Convertible Notes in order to fund the IUS
acquisition. The convertible notes were converted into
9,751,859 shares of common stock on July 29, 2003.
Related parties, consisting of the Companys Chairman and
CEO and certain principal stockholders, purchased 11% and 38% of
the common stock and convertible notes, respectively. The
Company believes that these transactions were carried out at an
arms-length basis, given the fact that a majority of the
purchasers of these securities were unrelated third parties.

At March 31, 2004, the Company had 357,469
outstanding warrants to purchase an equal number of shares of
the Companys common stock at an exercise price of $2.38
per share. These stock purchase warrants can be exercised at any
time from June 20, 1994 to and including June 20,
2004. The warrant agreement provides that the exercise price and
the number of shares purchasable shall be adjusted according to
the formula set forth in the warrant agreement if the Company
issues shares of its common stock at a purchase price that is
less than the warrant exercise price. The outstanding warrants
and warrant exercise price have been adjusted based on the
provisions in the warrant agreement due to the private placement
offering of 6.8 million shares at $1.50 per share on
March 5, 2003 and the conversion of the 8% Convertible
Notes into common stock on July 29, 2003.

On February 9, 2004, the Company completed a
private placement offering of 5.0 million shares of the
Companys common stock, at a price per share of $3.10, or a
total of approximately $15.5 million. Net proceeds from
this offering were used to replenish cash used in the
acquisition of Wishbone Systems as well as for general working
capital purposes.



|   |            
|-- | -----------
|8. | Stock Plans



| |                                   
| | ----------------------------------
| | Stock Option and Benefit
    Plans

The Company has three stock option plans under
which employees, directors and consultants may be granted rights
to purchase common stock.



| |                
| | ---------------
| | 1997 Stock Plan

The 1997 Stock Plan provides for the grant of
incentive or non-statutory stock options to employees, including
officers and directors, and non-statutory options only to
consultants of the Company. A total of 12,500,000 shares have
been reserved for issuance under the Stock Plan. The incentive
stock options will be

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INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

granted at not less than fair market value of the
stock on the date of grant. The options generally vest over one
to four years and have a maximum term of ten years.



| |                                
| | -------------------------------
| | 1997 Directors Option
    Plan

Each director who is not an employee of the
Company is automatically granted a non-statutory stock option to
purchase 50,000 shares of common stock of the Company (the
First Option) on the date such person becomes a
director or, if later, on the effective date of the 1997
Directors Option Plan (the Director Option
Plan). Thereafter, each such person will automatically be
granted an option to acquire 17,500 shares of the Companys
common stock (the Subsequent Option) upon such
outside directors re-election at each Annual Meeting of
Stockholders, provided that on such date such person has served
on the Board of Directors for at least six months. A total of
700,000 shares have been reserved for issuance under the
Director Option Plan. Each option granted under the
Directors Option Plan will become exercisable as to 25% of
the shares subject on each anniversary date of the option grant.



| |                                                             
| | ------------------------------------------------------------
| | 1998 Indus International, Inc. Company
    Share Option Plan

The 1998 Indus International, Inc. Company Share
Option Plan (the UK Stock Plan) provides for the
grant of stock options to employees of Indus International, Ltd.
(a UK foreign subsidiary of the Company). A total of 500,000
shares of the Companys common stock have been reserved for
issuance under the Stock Plan. Options were granted in the
amounts of 69,250 in 2001; there were no options granted in 2002
and three-month period ended March 31, 2003; options in the
amount of 91,000 were granted in the year ended March 31,
2004. Options of 50,050 in 2001, 43,930 in 2002, 4,500 in the
three-month period ended March 31, 2003 and 27,455 in the
year ended March 31, 2004, respectively, were cancelled or
expired. A total of 47,100 options have been exercised to
date. The stock options will be granted at not less than fair
market value of the stock on the date of grant. The options
generally vest over one to three years and have a maximum term
of three years.

Combined activity under all of the Companys
stock option plans was as follows:

|                              |                     |           |           |                     |   |           |           |            |   |   |      |      | 
|----------------------------- | ------------------- | --------- | --------- | ------------------- | - | --------- | --------- | ---------- | - | - | ---- | ---- | 
|                              |                     |           |           |                    
|                              |                     |           |           | Options Outstanding
|                              |                     |           |           |                    
|                              |                     | Shares    |           |                     |   | Weighted-
|                              |                     | Available |           |                     |   | Average  
|                              |                     | for       |           |                     |   | Exercise 
|                              |                     | Grant     |           | Shares              |   | Price    
|                              |                     |           |           |                     |   |          
|Balances at December 31, 2000 |                     |           | 1,704,460 |                     |   |           | 8,903,755 |            |   | $ | 5.64 |     
|                              | Shares authorized   |           |           | 2,500,000           |   |           |           |           |   |   |      |     | 
|                              | Options granted     |           |           | (1,680,339          | ) |           |           | 1,680,339  |   |   | $    | 5.11 | 
|                              | Options forfeited   |           |           | 1,716,229           |   |           |           | (1,716,229 | ) |   | $    | 6.44 | 
|                              | Options exercised   |           |           |                    |   |           |           | (275,691   | ) |   | $    | 4.61 | 
|                              | Plan shares expired |           |           | (92,332             | ) |           |           |           |   |   |      |     | 
|                              |                     |           |           |                     |   |           |           |            |   |   |      |     
|Balances at December 31, 2001 |                     |           | 4,148,018 |                     |   |           | 8,592,174 |            |   | $ | 5.41 |     
|                              | Shares authorized   |           |           |                    |   |           |           |           |   |   |      |     | 
|                              | Options granted     |           |           | (3,630,440          | ) |           |           | 3,630,440  |   |   | $    | 2.52 | 
|                              | Options forfeited   |           |           | 1,992,952           |   |           |           | (1,992,952 | ) |   | $    | 4.77 | 
|                              | Options exercised   |           |           |                    |   |           |           | (290,742   | ) |   | $    | 3.57 | 
|                              | Plan shares expired |           |           | (58,445             | ) |           |           |           |   |   |      |     | 
|                              |                     |           |           |                     |   |           |           |            |   |   |      |     

63



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INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                              |                     |           |           |                     |   |           |            |            |   |   |      |      | 
|----------------------------- | ------------------- | --------- | --------- | ------------------- | - | --------- | ---------- | ---------- | - | - | ---- | ---- | 
|                              |                     |           |           |                    
|                              |                     |           |           | Options Outstanding
|                              |                     |           |           |                    
|                              |                     | Shares    |           |                     |   | Weighted-
|                              |                     | Available |           |                     |   | Average  
|                              |                     | for       |           |                     |   | Exercise 
|                              |                     | Grant     |           | Shares              |   | Price    
|                              |                     |           |           |                     |   |          
|Balances at December 31, 2002 |                     |           | 2,452,085 |                     |   |           | 9,938,920  |            |   | $ | 4.53 |     
|                              | Shares authorized   |           |           |                    |   |           |            |           |   |   |      |     | 
|                              | Options granted     |           |           | (726,081            | ) |           |            | 726,081    |   |   | $    | 1.84 | 
|                              | Options forfeited   |           |           | 261,989             |   |           |            | (261,989   | ) |   | $    | 4.81 | 
|                              | Options exercised   |           |           |                    |   |           |            | (1,463     | ) |   | $    | 1.24 | 
|                              | Plan shares expired |           |           | (50,844             | ) |           |            |           |   |   |      |     | 
|                              |                     |           |           |                     |   |           |            |            |   |   |      |     
|Balances at March 31, 2003    |                     |           | 1,937,149 |                     |   |           | 10,401,549 |            |   | $ | 4.34 |     
|                              | Shares authorized   |           |           |                    |   |           |            |           |   |   |      |     | 
|                              | Options granted     |           |           | (4,185,357          | ) |           |            | 4,185,357  |   |   | $    | 2.63 | 
|                              | Options forfeited   |           |           | 3,390,185           |   |           |            | (3,390,185 | ) |   | $    | 5.40 | 
|                              | Options exercised   |           |           |                    |   |           |            | (129,918   | ) |   | $    | 1.17 | 
|                              | Plan shares expired |           |           | (40,390             | ) |           |            |           |   |   |      |     | 
|                              |                     |           |           |                     |   |           |            |            |   |   |      |     
|Balances at March 31, 2004    |                     |           | 1,101,587 |                     |   |           | 11,066,803 |            |   | $ | 3.40 |     
|                              |                     |           |           |                     |   |           |            |            |   |   |      |     

The following table summarizes information about
stock options outstanding as of March 31, 2004:

|                         |        |                     |           |                    |  |           |      |              |  |           |       |      |  |  |           |           |  |   |       |      | 
|------------------------ | ------ | ------------------- | --------- | ------------------ |  | --------- | ---- | ------------ |  | --------- | ----- | ---- |  |  | --------- | --------- |  | - | ----- | ---- | 
|                         |        |                     |           |                   
|                         |        | Options Outstanding |           | Options Vested and
|                         |        |                     |           | Exercisable       
|                         |        |                     |           | Weighted-          |  |           |      |             
|                         |        | Number              |           | Average            |  | Weighted- |      | Number       |  | Weighted-
|                         |        | Outstanding         |           | Remaining          |  | Average   |      | Exercisable  |  | Average  
|                         |        | at March 31,        |           | Contractual        |  | Exercise  |      | at March 31, |  | Exercise 
|Range of Exercise Prices |        | 2004                |           | Life               |  | Price     |      | 2004         |  | Price    
|                         |        |                     |           |                    |  |           |      |              |  |          
|$ 0.4100 - $ 1.3800      |        |                     | 1,185,518 |                    |  |           | 8.01 |              |  | $         | 1.33  |      |  |  | 314,570   |           |  | $ | 1.23  |     
|$ 1.4700 - $ 1.7400      |        |                     | 1,413,000 |                    |  |           | 8.75 |              |  | $         | 1.63  |      |  |  | 306,000   |           |  | $ | 1.62  |     
|$ 1.7500 - $ 1.9500      |        |                     | 1,296,876 |                    |  |           | 9.13 |              |  | $         | 1.93  |      |  |  | 46,248    |           |  | $ | 1.80  |     
|$ 1.9700 - $ 2.9900      |        |                     | 1,867,621 |                    |  |           | 9.07 |              |  | $         | 2.45  |      |  |  | 252,764   |           |  | $ | 2.58  |     
|$ 3.0500 - $ 3.9400      |        |                     | 2,069,879 |                    |  |           | 7.79 |              |  | $         | 3.85  |      |  |  | 850,885   |           |  | $ | 3.78  |     
|$ 4.0400 - $ 4.7900      |        |                     | 1,538,744 |                    |  |           | 5.29 |              |  | $         | 4.50  |      |  |  | 1,228,079 |           |  | $ | 4.53  |     
|$ 5.0000 - $ 6.8750      |        |                     | 1,163,999 |                    |  |           | 7.56 |              |  | $         | 5.81  |      |  |  | 592,641   |           |  | $ | 5.84  |     
|$ 7.6000 - $ 8.0625      |        |                     | 391,166   |                    |  |           | 6.26 |              |  | $         | 7.97  |      |  |  | 349,195   |           |  | $ | 7.99  |     
|$13.7500 - $15.3750      |        |                     | 140,000   |                    |  |           | 0.95 |              |  | $         | 13.87 |      |  |  | 140,000   |           |  | $ | 13.87 |     
|                         |        |                     |           |                    |  |           |      |              |  |           |       |      |  |  |           |           |  |   |       |     
|                         | Totals |                     |           | 11,066,803         |  |           |      | 7.80         |  |           | $     | 3.40 |  |  |           | 4,080,382 |  |   | $     | 4.56 | 
|                         |        |                     |           |                    |  |           |      |              |  |           |       |      |  |  |           |           |  |   |       |     

The amount of options vested and exercisable for
the years ended December 31, 2001 and 2002, and the
three-month period ended March 31, 2003, were 4,250,274,
4,580,167 and 4,920,064, respectively. The weighted-average
exercise price for options granted during the years ended
December 31, 2001 and 2002, and the three-month period
ended March 31, 2003, were $5.41, $5.54 and $5.70,
respectively.



| |                              
| | -----------------------------
| | Employee Stock Purchase Plans

The 1997 Employee Stock Purchase Plan reserved
1,000,000 shares of common stock for issuance. The plan allowed
for eligible employees to purchase stock at 85% of the lower of
the fair market value of the Companys common stock as of
the first day of each six-month offering period or the fair
market value of the

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INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

stock at the end of the offering period.
Purchases were limited to 10% of each employees
compensation and a maximum of 4,000 shares. Under the plan, the
Company issued 239,601 and 167,606 shares in the years of 2001
and 2002, respectively, at prices ranging from $1.50 to $3.85
per share. Effective November 1, 2002, the 1997 Employee
Stock Purchase Plan was concluded as all the authorized shares
under the plan had been distributed. The Company obtained
stockholder approval for a new employee stock purchase plan at
its 2003 Annual Meeting of stockholders.

The 2003 Employee Stock Purchase Plan reserved
2,500,000 shares of common stock for issuance. The plan allows
for eligible employees to purchase stock at 85% of the lower of
the fair market value of the Companys common stock as of
the first day of each six-month offering period or the fair
market value of the stock at the end of the offering period.
Purchases are limited to 10% of each employees
compensation and a maximum of 4,000 shares. Under the plan,
the Company issued 72,109 shares in December 2003 at $2.06
per share.

9.     Alternative
Method of Valuing Stock Options

For employee stock options granted with exercise
prices at or above the existing market, the Company records no
compensation expense. Compensation costs for stock options
granted to employees is measured by the excess, if any, of the
quoted market price of the Companys stock at the date of
grant over the amount an employee must pay to acquire the stock.

Pro forma information regarding net income and
earnings per share is required by SFAS No. 123, as amended
by SFAS No. 148, and described and disclosed in
Note 1, and has been determined as if the Company had
accounted for its employee stock options under the fair value
method of that Statement. The fair value for these options was
estimated at the date of grant using the Black-Scholes option
pricing model with the following weighted-average assumptions
for the years ended December 31, 2001 and 2002, the three-
month period ended March 31, 2003 and the year ended
March 31, 2004, respectively: risk free interest rate of
5.06%, 4.25%, 2.99% and 3.09%; dividend yields of 0%; volatility
of 89%, 128%, 107% and 99%; and a weighted-average expected life
of the option of 5 years.



|    |                                              
|--- | ---------------------------------------------
|10. | Employee Benefit and Profit-Sharing
    Plans

The Company has a defined contribution 401(K)
plan. All employees over the age of 21 who have completed at
least ninety days of service are eligible to participate. Each
participant may elect to have amounts deducted from his or her
compensation and contribute to the plan up to the maximum amount
as specified by the Federal law. All employee contributions are
fully vested at the time the employee becomes an active
participant. The Companys matching contributions are equal
to 50% of pre-tax contributions, up to 3% of eligible pay. This
match is distributed to all eligible employees participating in
the plan. The matching contribution is paid quarterly. The
Companys matching contributions were approximately
$1,389,000, $559,000, $157,000 and $667,000 for the years ended
December 31, 2001 and 2002, the three-month period ended
March 31, 2003 and the year ended March 31, 2004,
respectively.

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INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                       
|--- | ----------------------
|11. | Geographic Information

The following is a table of geographic
information (in thousands):

|                                            |                |                          |          |              |  |            |         |        |  |   |         |        |  |   |         |         | 
|------------------------------------------- | -------------- | ------------------------ | -------- | ------------ |  | ---------- | ------- | ------ |  | - | ------- | ------ |  | - | ------- | ------- | 
|                                            |                |                          |          | Three Months |  |           
|                                            |                | Years Ended December 31, |          | Ended        |  | Year Ended
|                                            |                |                          |          | March 31,    |  | March 31, 
|                                            |                | 2001                     |          | 2002         |  | 2003       |         | 2004  
|                                            |                |                          |          |              |  |            |         |       
|Revenue (based on selling location):        |                |                          |          |              |  |            |         |        |  |   |         |        |  |   |         |        
|                                            | North America  |                          | $        | 109,159      |  |            | $       | 82,609 |  |   | $       | 19,153 |  |   | $       | 120,888 | 
|                                            | United Kingdom |                          |          | 60,234       |  |            |         | 28,299 |  |   |         | 6,696  |  |   |         | 17,446  | 
|                                            | Others         |                          |          | 6,621        |  |            |         | 6,257  |  |   |         | 1,385  |  |   |         | 8,052   | 
|                                            |                |                          |          |              |  |            |         |        |  |   |         |        |  |   |         |        
|Total consolidated revenue                  |                | $                        | 176,014  |              |  | $          | 117,165 |        |  | $ | 27,234  |        |  | $ | 146,386 |        
|                                            |                |                          |          |              |  |            |         |        |  |   |         |        |  |   |         |        
|Income (loss) from operations:              |                |                          |          |              |  |            |         |        |  |   |         |        |  |   |         |        
|                                            | North America  |                          | $        | 57,818       |  |            | $       | 40,491 |  |   | $       | 7,618  |  |   | $       | 67,037  | 
|                                            | United Kingdom |                          |          | 33,929       |  |            |         | 14,183 |  |   |         | 3,624  |  |   |         | 8,160   | 
|                                            | Others         |                          |          | 3,151        |  |            |         | 3,507  |  |   |         | 583    |  |   |         | 3,550   | 
|Corporate administrative and other expenses |                |                          | (107,350 | )            |  |            | (97,191 | )      |  |   | (21,391 | )      |  |   | (89,608 | )      
|                                            |                |                          |          |              |  |            |         |        |  |   |         |        |  |   |         |        
|Total consolidated loss from operations     |                | $                        | (12,452  | )            |  | $          | (39,010 | )      |  | $ | (9,566  | )      |  | $ | (10,861 | )      
|                                            |                |                          |          |              |  |            |         |        |  |   |         |        |  |   |         |        
|Long-lived assets:                          |                |                          |          |              |  |            |         |        |  |   |         |        |  |   |         |        
|                                            | North America  |                          | $        | 19,839       |  |            | $       | 16,140 |  |   | $       | 37,012 |  |   | $       | 32,217  | 
|                                            | United Kingdom |                          |          | 1,742        |  |            |         | 1,098  |  |   |         | 855    |  |   |         | 437     | 
|                                            | Others         |                          |          | 296          |  |            |         | 233    |  |   |         | 221    |  |   |         | 265     | 
|                                            |                |                          |          |              |  |            |         |        |  |   |         |        |  |   |         |        
|Total consolidated long-lived assets        |                | $                        | 21,877   |              |  | $          | 17,471  |        |  | $ | 38,088  |        |  | $ | 32,919  |        
|                                            |                |                          |          |              |  |            |         |        |  |   |         |        |  |   |         |        

License fee revenue from the Enterprise Asset
Management (EAM), Customer Relationship Management
(CRM) and Workforce Management (WFM)
software suites was $20.1 million, $3.7 million and
$70,000, respectively, for the year ended March 31, 2004.
All of the license fee revenue for the prior periods was derived
from EAM software, since the CRM and WFM software was acquired
in the IUS and Wishbone Systems acquisitions.



|    |                       
|--- | ----------------------
|12. | Restructuring Expenses

The Company recorded restructuring costs of
$10.2 million, $8.2 million, $2.2 million and
$44,000 for the years ended December 31, 2001 and 2002, the
three-month period ended March 31, 2003 and the year ended
March 31, 2004, respectively.

Restructuring costs of $2.1 million and
$10.2 million were recorded for 2000 and 2001 in connection
with the relocation of the Companys headquarters and
certain administrative functions to Atlanta, Georgia, severance
payments related to the elimination of 56 global positions,
and charges representing the estimated excess lease costs
associated with subleasing redundant San Francisco office space.
This relocation was approved by the Board of Directors in July
2000 and included costs of approximately $2.8 million for
severance pay for employees affected, and approximately
$9.5 million for lease termination costs associated with
reducing leased space in San Francisco. The San Francisco office
leases expire May 31, 2008.

The Company recorded restructuring costs of
approximately $3.4 million in the quarter ended
March 31, 2002 as a result of the suspension of the United
Kingdom Ministry of Defense project and the Companys
subsequent demobilization and reduction in workforce and
required support office facilities. A formal

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INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

restructuring plan was approved by the Board of
Directors in March 2002 and included costs of approximately
$947,000 for computer lease termination costs, approximately
$728,000 of severance payments related to the elimination of 81
global positions, and approximately $1.7 million for lease
termination costs associated with closing the Companys
Dallas office and reducing leased space in the Companys
Pittsburgh office. The Dallas lease expires December 31,
2005 and the Pittsburgh lease expires September 30, 2005.

In the three-month periods ended June 30 and
December 31, 2002, the Company incurred additional
restructuring expenses of $4.8 million relating to changes
in the Companys estimates of excess lease costs associated
with subleasing redundant office space in San Francisco, Dallas
and Pittsburgh. Due to the excess capacity of available lease
space in the San Francisco market, lease rates declined from
approximately $60 per square foot at the beginning of 2001
to approximately $18-$20 per square foot, which was below
the Companys actual lease cost of $45 per square
foot. In Dallas and Pittsburgh, lease rates were in the
$10-$14 range, which was below the Companys actual
lease costs of $25-$26 per square foot.

In the three-month period ended March 31,
2003, the Company recorded restructuring expenses of
$2.2 million related to a further space consolidation in
the Companys San Francisco offices. An additional floor
was made available for sublease due to the cumulative effect of
staff reductions. As noted in the preceding paragraph, there is
excess space capacity in the San Francisco market.

In September 2003, the Company adjusted the
restructuring reserve to reflect new sublease arrangements for
the Dallas and Pittsburgh facilities. This $271,000 adjustment
is fully offset by additional restructuring adjustment charges
related to the San Francisco facility which has not yet come
under sublease arrangements. Due to lack of interested
subtenants, the estimated commencement date for sublease income
in San Francisco was delayed.

The Company could incur future increases or
decreases to its existing accruals in the event that the
underlying assumptions used to develop the Companys
estimates of excess lease costs, such as the timing and the
amount of any sublease income, change.

In March 2003, the Company acquired IUS, and
certain related operations from Systems & Computer
Technology Corporation. At the time of this acquisition, the
Company recorded a $675,000 liability for IUS employee severance
costs as part of a plan to restructure the acquired operations.
The costs were recognized as a liability assumed in the purchase
business combination. As of March 31, 2004, all severance
costs had been paid in full and no liability remained related to
this accrual. A 167,000 reduction in the balance was made during
the year. This reduction resulted in a corresponding reduction
in goodwill.

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INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Below is an analysis of the restructure
provisions and the activity in the resultant accruals (in
thousands):

Company
headquarters relocation:

|                             |                     |               |     |            |   |       |        |        |   |   |        |        |  
|---------------------------- | ------------------- | ------------- | --- | ---------- | - | ----- | ------ | ------ | - | - | ------ | ------ | -
|                             |                     | Severance and |     |            |   |      
|                             |                     | Related Costs |     | Facilities |   | Total
|                             |                     |               |     |            |   |      
|Balance at December 31, 2000 |                     | $             | 337 |            |   | $     | 1,260  |        |   | $ | 1,597  |       
|                             |                     |               |     |            |   |       |        |        |   |   |        |       
|                             | Payments in 2001    |               |     | (1,716     | ) |       |        | (2,189 | ) |   |        | (3,905 | )
|                             | Accruals in 2001    |               |     | 1,553      |   |       |        |       |   |   |        | 1,553  |  
|                             | Adjustments in 2001 |               |     |           |   |       |        | 8,261  |   |   |        | 8,261  |  
|                             |                     |               |     |            |   |       |        |        |   |   |        |       
|Balance at December 31, 2001 |                     |               | 174 |            |   |       | 7,332  |        |   |   | 7,506  |       
|                             |                     |               |     |            |   |       |        |        |   |   |        |       
|                             | Payments in 2002    |               |     | (110       | ) |       |        | (2,461 | ) |   |        | (2,571 | )
|                             | Accruals in 2002    |               |     |           |   |       |        |       |   |   |        |       |  
|                             | Adjustments in 2002 |               |     | (64        | ) |       |        | 3,615  |   |   |        | 3,551  |  
|                             |                     |               |     |            |   |       |        |        |   |   |        |       
|Balance at December 31, 2002 |                     |               |    |            |   |       | 8,486  |        |   |   | 8,486  |       
|                             |                     |               |     |            |   |       |        |        |   |   |        |       
|                             | Payments in 2003    |               |     |           |   |       |        | (416   | ) |   |        | (416   | )
|                             | Accruals in 2003    |               |     |           |   |       |        | 2,166  |   |   |        | 2,166  |  
|                             | Adjustments in 2003 |               |     |           |   |       |        |       |   |   |        |       |  
|                             |                     |               |     |            |   |       |        |        |   |   |        |       
|Balance at March 31, 2003    |                     |               |    |            |   |       | 10,236 |        |   |   | 10,236 |       
|                             |                     |               |     |            |   |       |        |        |   |   |        |       
|                             | Payments in 2004    |               |     |           |   |       |        | (2,375 | ) |   |        | (2,375 | )
|                             | Accruals in 2004    |               |     |           |   |       |        | 44     |   |   |        | 44     |  
|                             | Adjustments in 2004 |               |     |           |   |       |        |       |   |   |        |       |  
|                             |                     |               |     |            |   |       |        |        |   |   |        |       
|Balance at March 31, 2004    |                     | $             |    |            |   | $     | 7,905  |        |   | $ | 7,905  |       
|                             |                     |               |     |            |   |       |        |        |   |   |        |       



| |                                            
| | -------------------------------------------
| | Ministry of Defense project
    suspension:

|                             |                     |               |   |           |   |            |   |       |   |   |       |       |   |   |       |        |  
|---------------------------- | ------------------- | ------------- | - | --------- | - | ---------- | - | ----- | - | - | ----- | ----- | - | - | ----- | ------ | -
|                             |                     | Severance and |   |           |   |            |   |      
|                             |                     | Related Costs |   | Equipment |   | Facilities |   | Total
|                             |                     |               |   |           |   |            |   |      
|Balance at December 31, 2001 |                     | $             |  |           |   | $          |  |       |   | $ |      |       |   | $ |      |       
|                             |                     |               |   |           |   |            |   |       |   |   |       |       |   |   |       |       
|                             | Payments in 2002    |               |   | (652      | ) |            |   | (953  | ) |   |       | (639  | ) |   |       | (2,244 | )
|                             | Accruals in 2002    |               |   |          |   |            |   |      |   |   |       | 1,720 |   |   |       | 1,720  |  
|                             | Adjustments in 2002 |               |   | 657       |   |            |   | 953   |   |   |       | 1,140 |   |   |       | 2,750  |  
|                             |                     |               |   |           |   |            |   |       |   |   |       |       |   |   |       |       
|Balance at December 31, 2002 |                     |               | 5 |           |   |            |  |       |   |   | 2,221 |       |   |   | 2,226 |       
|                             |                     |               |   |           |   |            |   |       |   |   |       |       |   |   |       |       
|                             | Payments in 2003    |               |   |          |   |            |   |      |   |   |       | (206  | ) |   |       | (206   | )
|                             | Accruals in 2003    |               |   |          |   |            |   |      |   |   |       |      |   |   |       |       |  
|                             | Adjustments in 2003 |               |   |          |   |            |   |      |   |   |       |      |   |   |       |       |  
|                             |                     |               |   |           |   |            |   |       |   |   |       |       |   |   |       |       
|Balance at March 31, 2003    |                     |               | 5 |           |   |            |  |       |   |   | 2,015 |       |   |   | 2,020 |       
|                             |                     |               |   |           |   |            |   |       |   |   |       |       |   |   |       |       
|                             | Payments in 2004    |               |   |          |   |            |   |      |   |   |       | (648  | ) |   |       | (648   | )
|                             | Accruals in 2004    |               |   |          |   |            |   |      |   |   |       |      |   |   |       |       |  
|                             | Adjustments in 2004 |               |   |          |   |            |   |      |   |   |       |      |   |   |       |       |  
|                             |                     |               |   |           |   |            |   |       |   |   |       |       |   |   |       |       
|Balance at March 31, 2004    |                     | $             | 5 |           |   | $          |  |       |   | $ | 1,367 |       |   | $ | 1,372 |       
|                             |                     |               |   |           |   |            |   |       |   |   |       |       |   |   |       |       

68



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##### Table of Contents



INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

IUS
Acquisition:

|                             |                     |               |     |      |  
|---------------------------- | ------------------- | ------------- | --- | ---- | -
|                             |                     | Severance and
|                             |                     | Related Costs
|                             |                     |              
|Balance at December 31, 2002 |                     | $             |    |     
|                             |                     |               |     |     
|                             | Payments in 2003    |               |     |     |  
|                             | Accruals in 2003    |               |     | 675  |  
|                             | Adjustments in 2003 |               |     |     |  
|                             |                     |               |     |     
|Balance at March 31, 2003    |                     |               | 675 |     
|                             |                     |               |     |     
|                             | Payments in 2004    |               |     | (508 | )
|                             | Accruals in 2004    |               |     |     |  
|                             | Adjustments in 2004 |               |     | (167 | )
|                             |                     |               |     |     
|Balance at March 31, 2004    |                     | $             |    |     
|                             |                     |               |     |     

The $9.3 million remaining accrual at
March 31, 2004 is allocated between current and long-term
classification on the Companys consolidated balance sheet,
with $3.2 million included as current (less than one year)
within other accrued liabilities and $6.1 million included
as long-term (greater than one year) within other liabilities.

13.     Income
Taxes

The provision for income taxes
(credits) consists of the following (in thousands):

|          |                   |              |    |              |  |            |        |        |   |   |     |     |  |   |     |     | 
|--------- | ----------------- | ------------ | -- | ------------ |  | ---------- | ------ | ------ | - | - | --- | --- |  | - | --- | --- | 
|          |                   |              |    |              |  |           
|          |                   | Years Ended  |    | Three Months |  |           
|          |                   | December 31, |    | Ended        |  | Year Ended
|          |                   |              |    | March 31,    |  | March 31, 
|          |                   | 2001         |    | 2002         |  | 2003       |        | 2004  
|          |                   |              |    |              |  |            |        |       
|Current:  |                   |              |    |              |  |            |        |        |   |   |     |     |  |   |     |    
|          | Federal           |              | $  |             |  |            | $      | (4,799 | ) |   | $   |    |  |   | $   |    | 
|          | State and foreign |              |    | 36           |  |            |        | 855    |   |   |     | 277 |  |   |     | 623 | 
|          |                   |              |    |              |  |            |        |        |   |   |     |     |  |   |     |    
|          |                   |              | 36 |              |  |            | (3,944 | )      |   |   | 277 |     |  |   | 623 |    
|          |                   |              |    |              |  |            |        |        |   |   |     |     |  |   |     |    
|Deferred: |                   |              |    |              |  |            |        |        |   |   |     |     |  |   |     |    
|          | Federal           |              |    |             |  |            |        |       |   |   |     |    |  |   |     |    | 
|          | State and foreign |              |    |             |  |            |        |       |   |   |     |    |  |   |     |    | 
|          |                   |              |    |              |  |            |        |        |   |   |     |     |  |   |     |    
|          |                   |              |   |              |  |            |       |        |   |   |    |     |  |   |    |    
|          |                   |              |    |              |  |            |        |        |   |   |     |     |  |   |     |    
|          |                   | $            | 36 |              |  | $          | (3,944 | )      |   | $ | 277 |     |  | $ | 623 |    
|          |                   |              |    |              |  |            |        |        |   |   |     |     |  |   |     |    

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INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Pre-tax loss attributable to foreign and domestic
operations is summarized below (in thousands):

|                                            |                |                              |         |              |        |            |         |         |       |   |        |         |       |   |         |        |        |  
|------------------------------------------- | -------------- | ---------------------------- | ------- | ------------ | ------ | ---------- | ------- | ------- | ----- | - | ------ | ------- | ----- | - | ------- | ------ | ------ | -
|                                            |                |                              |         |              |        |           
|                                            |                | Years Ended                  |         | Three Months |        |           
|                                            |                | December 31,                 |         | Ended        |        | Year Ended
|                                            |                |                              |         | March 31,    |        | March 31, 
|                                            |                | 2001                         |         | 2002         |        | 2003       |         | 2004   
|                                            |                |                              |         |              |        |            |         |        
|Loss before income taxes                    |                |                              |         |              |        |            |         |         |       |   |        |         |       |   |         |       
|                                            | United States  |                              | $       | (13,168      | )      |            | $       | (38,978 | )     |   | $      | (11,179 | )     |   | $       | (8,768 | )     
|                                            | International: |                              |         |              |        |            |         |         |       |   |        |         |       |   |         |        |       
|                                            |                | Europe, Middle East & Africa |         |              | 4,723  |            |         |         | 1,311 |   |        |         | 1,491 |   |         |        | (2,021 | )
|                                            |                | Asia                         |         |              | (41    | )          |         |         | (97   | ) |        |         | 27    |   |         |        | (1,157 | )
|                                            |                | Canada                       |         |              | (1,080 | )          |         |         | 621   |   |        |         | 132   |   |         |        | (656   | )
|                                            |                | Australia                    |         |              | (474   | )          |         |         | (564  | ) |        |         | (87   | ) |         |        | 1,187  |  
|                                            |                |                              |         |              |        |            |         |         |       |   |        |         |       |   |         |       
|Total consolidated loss before income taxes |                | $                            | (10,040 | )            |        | $          | (37,707 | )       |       | $ | (9,616 | )       |       | $ | (11,415 | )     
|                                            |                |                              |         |              |        |            |         |         |       |   |        |         |       |   |         |       

The effective rate of the provision for income
taxes reconciles to the amount computed by applying the federal
statutory rate to income before provision for income taxes as
follows:

|                                              |  |              |       |              |  |            |       |      |  |  |       |    |  |  |       |   
|--------------------------------------------- |  | ------------ | ----- | ------------ |  | ---------- | ----- | ---- |  |  | ----- | -- |  |  | ----- | --
|                                              |  |              |       |              |  |           
|                                              |  | Years Ended  |       | Three Months |  |           
|                                              |  | December 31, |       | Ended        |  | Year Ended
|                                              |  |              |       | March 31,    |  | March 31, 
|                                              |  | 2001         |       | 2002         |  | 2003       |       | 2004
|                                              |  |              |       |              |  |            |       |     
|Federal statutory rate                        |  |              | 35.0  | %            |  |            | 35.0  | %    |  |  | 35.0  | %  |  |  | 34.0  | % 
|State taxes, net of federal benefit           |  |              |      |              |  |            |      |      |  |  |      |    |  |  |      |   
|Foreign taxes                                 |  |              | (0.3  | )            |  |            | 1.1   |      |  |  | 2.7   |    |  |  | (5.5  | ) 
|Reported losses and tax credits not benefited |  |              | (33.9 | )            |  |            | (31.0 | )    |  |  | (44.2 | )  |  |  | (26.2 | ) 
|Other                                         |  |              | (1.2  | )            |  |            | 5.4   |      |  |  | 3.6   |    |  |  | (7.8  | ) 
|                                              |  |              |       |              |  |            |       |      |  |  |       |    |  |  |       |   
|                                              |  |              | (0.4  | )%           |  |            | 10.5  | %    |  |  | (2.9  | )% |  |  | (5.5  | )%
|                                              |  |              |       |              |  |            |       |      |  |  |       |    |  |  |       |   

Deferred income taxes reflect the tax effects of
temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. Significant components of the net
deferred tax assets are as follows (in thousands):

|                                        |  |           |         |      |  |   |         |  
|--------------------------------------- |  | --------- | ------- | ---- |  | - | ------- | -
|                                        |  |          
|                                        |  | March 31,
|                                        |  |          
|                                        |  | 2003      |         | 2004
|                                        |  |           |         |     
|Accounts receivable allowances          |  | $         | 3,991   |      |  | $ | 3,742   |  
|Depreciation                            |  |           | 194     |      |  |   | 1,956   |  
|Other (prepaid license writedown)       |  |           | 3,086   |      |  |   | 1,391   |  
|Nondeductible accruals                  |  |           | 1,458   |      |  |   | 2,100   |  
|Deferred revenue                        |  |           | 536     |      |  |   | 2,463   |  
|Net operating loss carryforwards        |  |           | 22,276  |      |  |   | 22,108  |  
|Research and other credit carryforwards |  |           | 6,984   |      |  |   | 7,366   |  
|Foreign tax credits and losses          |  |           | 2,877   |      |  |   | 3,126   |  
|                                        |  |           |         |      |  |   |         |  
|                                        |  |           | 41,402  |      |  |   | 44,252  |  
|Valuation allowance                     |  |           | (41,402 | )    |  |   | (44,252 | )
|                                        |  |           |         |      |  |   |         |  
|                                        |  | $         |        |      |  | $ |        |  
|                                        |  |           |         |      |  |   |         |  

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INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The net valuation allowance increased by
approximately $4.8 million and $2.9 million for the
three-month period ended March 31, 2003 and the year ended
March 31, 2004, respectively. Approximately
$2.2 million of the valuation allowance for the deferred
tax asset at March 31, 2004 relates to benefits of stock
option deductions which, when recognized, will be directly
allocated to contributed capital.

As of March 31, 2004, the Company had
federal net operating loss carryforwards of approximately
$57.3 million. The Company also had federal research tax
credit carryforwards of approximately $6.6 million and
state research tax credit carryforwards of approximately
$0.8 million. The federal net operating loss and credit
carryforwards will expire beginning in the year 2020, if not
utilized. The Company has foreign net operating loss
carryforwards of approximately $8.9 million.

The utilization of the net operating losses and
credits may be subject to a substantial annual limitation due to
the change in ownership provisions of the Internal
Revenue Code of 1986 and similar state provisions. The annual
limitations may result in the expiration of net operating losses
and credits before utilization.

14.     Litigation

On March 5, 2003, the Company acquired IUS
from SCT. IUS was a defendant in a claim brought by KPMG
Consulting, Inc. (now known as BearingPoint, Inc.) on
June 2, 2002 in the Circuit Court of the 11th Judicial
Circuit. The claim alleged damages of approximately
$15.8 million based on allegations of breach of contract
and detrimental reliance on alleged promises that were not
fulfilled. IUS asserted multiple defenses and counterclaims.
Pursuant to the terms of the Purchase Agreement among the
Company and SCT and its affiliates, SCT and those affiliates of
SCT that were a party to the Purchase Agreement agreed to defend
IUS against the claims in this suit and to indemnify the Company
and IUS from all losses relating thereto. The parties have
reached a settlement in which the Company has been released from
all liabilities and is not required to make any payments.

On February 21, 2003, Integral Energy
Australia brought a claim against IUS in the Supreme Court of
New South Wales, Australia, relating to the implementation of
IUS software. The amount of damages asserted against IUS is not
determinable. Pursuant to the terms of the Purchase Agreement
among the Company and SCT and its affiliates, SCT and those
affiliates of SCT that were a party to the Purchase Agreement
agreed to defend IUS against the claims in this suit and to
indemnify the Company and IUS from all losses relating thereto.

The Company has received an inquiry from the
federal government requesting documents and employee interviews
related to certain Department of Energy facilities with which
the Company does business. The Company is cooperating fully with
this inquiry. The Company has been made aware that this inquiry
is the result of a qui tam complaint, which is currently under
seal, against the Company relating to its billing practices at
these facilities. Although the Company believes that it has
meritorious defenses to the claims contained in this action and
has defended them vigorously, the Company has reached a
preliminary settlement with the federal government and the
relator, subject to negotiation and execution of a final
settlement agreement, under which the Company will pay $545,000.
The full amount of this proposed settlement had been recorded as
an accrued liability as of March 31, 2004. There has been
and will be no factual finding or adjudication of wrongdoing by
the Company as part of the proposed settlement. The Company has
agreed to settle this matter without admission of fault or
wrongdoing in order to avoid the uncertainty, inconvenience,
distraction and expense of potentially protracted litigation. If
for any reason the settlement is not finalized and this action
is litigated, based upon information currently available to the
Company and due to the inherent uncertainties of the litigation
process, the Company is unable to predict the outcome of such
claims or to determine whether an adverse outcome would have a
material adverse effect on the Companys financial
condition or results of operations.

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INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

From time to time, the Company is involved in
other legal proceedings incidental to the conduct of its
business. The outcome of these claims cannot be predicted with
certainty. The Company intends to defend itself vigorously in
these actions. However, any settlement or judgment may have a
material adverse effect on the Companys results of
operations in the period in which such settlement or judgment is
paid or payment becomes probable.

The Company does not believe that, individually
or in aggregate, the legal matters to which it is currently a
party are likely to have a material adverse effect on its
results of operations or financial condition.

15.     Acquisitions



| |     
| | ----
| | IUS:

On March 5, 2003, the Company completed its
acquisition of IUS. IUS is a provider of customer relationship
management software solutions for energy and utility companies
principally in North America. The Company believes the
acquisition will provide utility customers with a single
provider for their important software requirements. The
aggregate purchase price of $35.8 million was financed with
a cash payment of $24.5 million, a $10.0 million 6%
promissory note to SCT Financial Corporation secured by IUS real
property, and payment of other direct acquisition expenses
totaling $1.4 million, comprised of $0.8 million in
debt issuance costs and $0.6 million in equity issuance
costs. The acquisition has been accounted for under the purchase
method of accounting and the results of operations are included
in the Companys operations beginning March 6, 2003.

On the same date, the Company completed a private
placement offering to purchasers of approximately
6.8 million shares of the Companys common stock, par
value $0.001 per share, at a purchase price of $1.50 per share,
or a total of approximately $10.2 million, and issued
approximately $14.5 million of the Companys 8%
Convertible Notes due nine months after issuance in order to
fund the IUS acquisition. The Convertible Notes were converted
into 9,751,859 shares of the Companys common stock on
July 29, 2003.

The following table summarizes the estimated fair
values of the assets acquired, and liabilities assumed at the
date of acquisition, March 5, 2003 (in thousands):

|                                          |                                              |  |  |       |  |   |        |        | 
|----------------------------------------- | -------------------------------------------- |  |  | ----- |  | - | ------ | ------ | 
|Current assets                            |                                              |  |  |       |  | $ | 15,820 |       
|Property and equipment                    |                                              |  |  |       |  |   | 22,197 |       
|Other assets                              |                                              |  |  |       |  |   | 75     |       
|Intangible assets subject to amortization |                                              |  |  |       |  |   |        |       
|                                          | Trademarks (5 year life)                     |  |  | 730   |  |   |        |        | 
|                                          | Technology (5 year life)                     |  |  | 2,400 |  |   |        |        | 
|                                          | Contracts and Customer Base (2-15 year life) |  |  | 9,810 |  |   |        |        | 
|                                          |                                              |  |  |       |  |   |        |       
|                                          | Total intangible assets                      |  |  |       |  |   |        | 12,940 | 
|Goodwill                                  |                                              |  |  |       |  |   | 430    |       
|                                          |                                              |  |  |       |  |   |        |       
|Total assets acquired                     |                                              |  |  |       |  |   | 51,462 |       
|Total liabilities assumed                 |                                              |  |  |       |  |   | 15,697 |       
|                                          |                                              |  |  |       |  |   |        |       
|Net assets acquired                       |                                              |  |  |       |  | $ | 35,765 |       
|                                          |                                              |  |  |       |  |   |        |       

The goodwill will not be amortized, but will be
reviewed for impairment on an annual basis. For purposes of
impairment testing, the Company has identified a single
reporting unit. The Company expects that the goodwill recorded
in this acquisition will be deductible for tax purposes.

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INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Unaudited pro forma consolidated operating
results for the twelve-month period ended December 31, 2002
and three-month periods ended March 31, 2002 and 2003,
assuming that the acquisition had occurred at January 1,
2002, are as follows, respectively (in thousands, except per
share date):

|                             |  |               |         |              |  |              |        |   |  |   |         |  
|---------------------------- |  | ------------- | ------- | ------------ |  | ------------ | ------ | - |  | - | ------- | -
|                             |  | Twelve Months |         | Three Months |  | Three Months
|                             |  | Ended         |         | Ended        |  | Ended       
|                             |  | December 31,  |         | March 31,    |  | March 31,   
|                             |  | 2002          |         | 2002         |  | 2003        
|                             |  |               |         |              |  |             
|Revenues                     |  | $             | 186,796 |              |  | $            | 51,668 |   |  | $ | 35,656  |  
|Pro forma net loss           |  |               | (31,964 | )            |  |              | (9,260 | ) |  |   | (11,094 | )
|Pro forma net loss per share |  |               | (0.76   | )            |  |              | (0.22  | ) |  |   | (0.26   | )

Prior to the acquisition date, the Company began
formulating a plan to restructure pre-acquisition IUS through
staffing reductions. In connection with this plan, the Company
recorded a liability of $675,000 representing anticipated
severance costs for approximately 50 employees of IUS in various
job functions. These costs are accounted for in accordance with
EITF Issue No. 95-3, Recognition of Liabilities in
Connection with Purchase Business Combinations. The costs
were recognized as a liability assumed in the purchase business
combination and included in the allocation of the cost to
acquire IUS. It is expected that annual savings aggregating in
excess of $4.0 million will be realized as a result of these
staffing reductions. As of March 31, 2004, no liability remains
as $508,000 in cash payments have been made in connection with
these terminations and the remaining accrual balance of $167,000
was reversed and applied as an adjustment to goodwill.



| |                  
| | -----------------
| | Wishbone Systems:

On January 21, 2004, the Company acquired
Wishbone Systems for an aggregate purchase price of
$8.6 million, including a cash payment of $6.7 million, the
assumption of $1.0 million of Wishbone Systems debt,
payment of direct acquisition expenses of $0.5 million and
conversion of Wishbone Systems employee stock options of
$0.4 million. The Company financed the acquisition purchase
price and acquisition expenses and concurrently repaid the debt
with cash from currently available funds. $1.0 million of
the purchase price was directed to an escrow account which,
subject to any claims asserted by the Company, will be released
to the seller on November 30, 2004. Wishbone Systems is a
provider of field service management and optimization software.

The acquisition has been accounted for under the
purchase method of accounting, and the results of operations
have been included in operations after January 21, 2004.
The purchase price has been allocated to net assets acquired of
$0.2 million and other intangible assets of
$8.4 million. The following table summarizes

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INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the estimated fair values of the assets acquired,
and liabilities assumed at the date of acquisition,
January 21, 2004 (in thousands):

|                                          |                                   |  |  |       |  |   |       |       | 
|----------------------------------------- | --------------------------------- |  |  | ----- |  | - | ----- | ----- | 
|Current assets                            |                                   |  |  |       |  | $ | 628   |      
|Property and equipment                    |                                   |  |  |       |  |   | 5     |      
|Other assets                              |                                   |  |  |       |  |   | 13    |      
|Intangible assets subject to amortization |                                   |  |  |       |  |   |       |      
|                                          | Customer Relationships (10 years) |  |  | 1,040 |  |   |       |       | 
|                                          | Software (5 years)                |  |  | 640   |  |   |       |       | 
|                                          | Contracts (2 years)               |  |  | 90    |  |   |       |       | 
|                                          |                                   |  |  |       |  |   |       |      
|                                          | Total intangible assets           |  |  |       |  |   |       | 1,770 | 
|Goodwill                                  |                                   |  |  |       |  |   | 6,584 |      
|                                          |                                   |  |  |       |  |   |       |      
|Total assets acquired                     |                                   |  |  |       |  |   | 9,000 |      
|Total liabilities assumed                 |                                   |  |  |       |  |   | 412   |      
|                                          |                                   |  |  |       |  |   |       |      
|Net assets acquired                       |                                   |  |  |       |  | $ | 8,588 |      
|                                          |                                   |  |  |       |  |   |       |      

The goodwill will not be amortized, but will be
reviewed for impairment on an annual basis. The Company has not
yet determined if the goodwill recorded in this transaction will
be deductible for tax purposes. The final purchase price is
subject to a working capital calculation, which may result in
additional charges to goodwill when these amounts are finalized.
The Company does not expect that this adjustment will materially
change the goodwill amount.

The Company has not disclosed pro forma
consolidated operating results related to this acquisition as
they are considered immaterial in consolidation.

16.     Subsequent
Events (Unaudited)

In May 2004, the Company announced its plan to
restructure certain business activities and record restructuring
charges of up to $11 million in the first quarter of fiscal
2005. Of this amount, approximately $10 million relates to
the consolidation of office space in Atlanta and San Francisco,
including the transfer of functions to the company-owned office
buildings in Columbia, South Carolina. The remaining
restructuring charge is related to severance costs associated
with the elimination of approximately 50 positions, resulting
from the outsourcing of some development functions to India and
consolidating other business functions.

17.     Quarterly
Results of Operations

The following table represents certain unaudited
statement of operations data (except for the three months ended
March 31, 2003) for our eight most recent quarters ended
March 31, 2004. In managements opinion, this
unaudited information has been prepared on the same basis as the
audited annual financial statements and includes all
adjustments, consisting only of normal recurring adjustments,
necessary for a fair representation of the unaudited information
for the quarters presented. This information should be read in
conjunction with our consolidated financial statements,
including the notes thereto, included elsewhere in this

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INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

annual report. The results of operations for any
quarter are not necessary indicative of results that may be
expected for any future period.

|                            |            |                                       |         |               |   |              |        |           |   |          |        |               |   |              |        |           |   |   |        |       |   |   |        |       |   |   |        |       |   |   |        |      | 
|--------------------------- | ---------- | ------------------------------------- | ------- | ------------- | - | ------------ | ------ | --------- | - | -------- | ------ | ------------- | - | ------------ | ------ | --------- | - | - | ------ | ----- | - | - | ------ | ----- | - | - | ------ | ----- | - | - | ------ | ---- | 
|                            |            |                                      
|                            |            | Three Months Ended                   
|                            |            |                                      
|                            |            | June 30,                              |         | September 30, |   | December 31, |        | March 31, |   | June 30, |        | September 30, |   | December 31, |        | March 31,
|                            |            | 2002                                  |         | 2002          |   | 2002         |        | 2003      |   | 2003     |        | 2003          |   | 2003         |        | 2004     
|                            |            |                                       |         |               |   |              |        |           |   |          |        |               |   |              |        |          
|                            |            |                                      
|                            |            | (In thousands, except per share data)
|Total revenues              |            | $                                     | 31,032  |               |   | $            | 26,457 |           |   | $        | 27,233 |               |   | $            | 27,234 |           |   | $ | 38,225 |       |   | $ | 34,005 |       |   | $ | 34,357 |       |   | $ | 39,799 |     
|Cost of revenues            |            |                                       | 16,475  |               |   |              | 13,868 |           |   |          | 12,841 |               |   |              | 15,409 |           |   |   | 18,091 |       |   |   | 15,486 |       |   |   | 16,012 |       |   |   | 18,050 |     
|                            |            |                                       |         |               |   |              |        |           |   |          |        |               |   |              |        |           |   |   |        |       |   |   |        |       |   |   |        |       |   |   |        |     
|Gross margin                |            |                                       | 14,557  |               |   |              | 12,589 |           |   |          | 14,392 |               |   |              | 11,825 |           |   |   | 20,134 |       |   |   | 18,519 |       |   |   | 18,345 |       |   |   | 21,749 |     
|Net income (loss)           |            | $                                     | (15,069 | )             |   | $            | (3,283 | )         |   | $        | (5,903 | )             |   | $            | (9,893 | )         |   | $ | (4,924 | )     |   | $ | (4,563 | )     |   | $ | (3,202 | )     |   | $ | 651    |     
|                            |            |                                       |         |               |   |              |        |           |   |          |        |               |   |              |        |           |   |   |        |       |   |   |        |       |   |   |        |       |   |   |        |     
|Net income (loss) per share |            |                                       |         |               |   |              |        |           |   |          |        |               |   |              |        |           |   |   |        |       |   |   |        |       |   |   |        |       |   |   |        |     
|                            | Basic(1)   |                                       | $       | (0.43         | ) |              | $      | (0.09     | ) |          | $      | (0.17         | ) |              | $      | (0.27     | ) |   | $      | (0.12 | ) |   | $      | (0.09 | ) |   | $      | (0.06 | ) |   | $      | 0.01 | 
|                            | Diluted(1) |                                       | $       | (0.43         | ) |              | $      | (0.09     | ) |          | $      | (0.17         | ) |              | $      | (0.27     | ) |   | $      | (0.12 | ) |   | $      | (0.09 | ) |   | $      | (0.06 | ) |   | $      | 0.01 | 



---



|    |                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Because of the method used in calculating per
    share data, the quarterly net income (loss) per share
    amounts will not necessarily add to the net loss per share
    computed for the year.

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|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements With
    Accountants on Accounting and Financial Disclosure

None.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

(a) Evaluation of Disclosure Controls and
Procedures.

Our Chief Executive Officer and the persons
performing the function of chief financial officer evaluated the
effectiveness of our disclosure controls and procedures (as such
term is defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended) as of the end of
the period covered by this annual report (the Evaluation
Date). Based on such evaluation, these persons concluded
that, as of the Evaluation Date, our disclosure controls and
procedures are effective in alerting them on a timely basis to
material information relating to Indus (including its
consolidated subsidiaries) required to be included in our
reports filed or submitted under the Securities Exchange Act of
1934, as amended.

(b) Changes in Internal
Controls.

During the last fiscal quarter, there have not
been any changes in our internal controls or other factors that
could significantly affect such controls, including any
corrective actions with regard to significant deficiencies and
material weaknesses.




PART III

Certain information required by Part III is
omitted from this Report in that the Registrant will file a
definitive proxy statement pursuant to Regulation 14(a)
(the Proxy Statement) not later that 120 days
after the end of the fiscal year covered by this Report and
certain information included therein is incorporated herein by
reference. Only those sections of the Proxy Statement that
specifically address the items set forth herein are incorporated
by reference. Such incorporation does not include the
Compensation Committee Report, the Audit Committee Report, or
the Performance Graph included in the Proxy Statement.






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

The information concerning the Companys
Directors required by this Item is incorporated by reference to
the information contained under the captions Election of
Directors  Nominees and
Section 16(a) Beneficial Reporting Compliance
in the Proxy Statement. The information concerning the
Companys executive officers required by this Item is
included in the Section in Part I hereof entitled
Executive Officers.

We have adopted a Code of Conduct and Ethics that
applies to all of our directors, officers and employees. A copy
of our Code of Conduct and Ethics is available publicly on our
website at www.indus.com. If we make any substantive
amendment to the Code, or grant any waiver, including any
implicit waiver, from a provision of the Code, that applies to
our chief executive officer, chief financial officer or chief
accounting officer, we will disclose the nature of the amendment
or waiver on that website. We may elect to also disclose the
amendment or waiver in a report on Form 8-K filed with the
SEC.






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

The information concerning the Companys
Executive Officers required by this Item is incorporated by
reference to the information contained under the captions
Proposal One  Election of Directors 
Director Compensation and Executive
Compensation in the Proxy Statement.






|         |                                                                                                       
|-------- | ------------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder
    Matters

The information concerning security ownership
required by this Item is incorporated by reference to the
information contained under the caption Security Ownership
of Management; Principal Stockholders and

76



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##### Table of Contents



Proposal Three  Adoption of
Employee Stock Plan  Equity Compensation Plan
Information in the Proxy Statement.







|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

The information required by this item is
incorporated by reference to the information contained under the
caption Certain Transactions in the Proxy Statement.






|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accountant Fees and
    Services

The information required by this item is
incorporated by reference to the information contained under the
caption Independent Registered Public Accounting
Firm in the Proxy Statement.




PART IV






|         |                                                                     
|-------- | --------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules,
    and Reports on Form 8-K

(a)(1) Financial Statements

The Financial Statements required by this item,
together with the report of independent auditors, are filed as
part of this Form 10-K. See Index to Consolidated Financial
Statements under Item 8.

(2) Financial Statement Schedule

Schedules have been omitted because they are not
applicable or are not required or the information required to be
set forth therein is included in the Consolidated Financial
Statements or Notes thereto.

(3) Exhibits

The following exhibits are filed herewith or
incorporated by reference.

|        |   |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------- | - | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |   |            
|Number  |   | Description
|        |   |            
|        | 2 | .1          |  | Purchase Agreement, dated as of February 12,
    2003, by and among the Registrant, SCT Utility Systems, Inc.,
    SCT, SCT Financial Corporation, SCT Property, Inc., SCT
    International Limited, SCT Technologies (Canada) Inc., SCT
    Software & Resource Management Corporation and
    Systems & Computer Technology International B.V.
    (incorporated by reference to Exhibit 10.1 to the
    Form 8-K filed on February 14, 2003)           
|        | 2 | .2          |  | Amendment No. 1 to Purchase Agreement, dated
    as of March 5, 2003, by and among the Registrant, SCT
    Utility Systems, Inc., SCT, SCT Financial Corporation, SCT
    Property, Inc., SCT International Limited, SCT Technologies
    (Canada) Inc., SCT Software & Resource Management
    Corporation and Systems & Computer Technology International
    B.V. (incorporated by reference to Exhibit 10.3 to the
    Form 8-K filed on March 6, 2003)
|        | 3 | .1          |  | Registrants Certificate of Incorporation
    (incorporated by reference to Exhibit 3.1 to the
    Registration Statement on Form S-4 (No. 333-33113)
    filed on August 7, 1997 (the 1997 Proxy
    Statement))                                                                                                                                                                                                                                        
|        | 3 | .2          |  | Registrants Amended and Restated Bylaws
    (incorporated by reference to Exhibit 3.2 to the Annual
    Report on Form 10-K/A filed on June 30, 2003)                                                                                                                                                                                                                                                                                                     
|        | 4 | .1          |  | Registration Rights Agreement entered into among
    the Registrant, Warburg, Pincus Investors, L.P.
    (Warburg), Robert W. Felton, Richard W.
    MacAlmon, John W. Blend, III and John R. Oltman
    (incorporated by reference to Exhibit 4.1 to the 1997 Proxy
    Statement)                                                                                                                                                                      
|        | 4 | .2          |  | Nomination Agreement entered into among the
    Registrant, Warburg and Robert W. Felton (incorporated by
    reference to Exhibit 4.6 to the 1997 Proxy Statement)                                                                                                                                                                                                                                                                                        
|        | 4 | .3          |  | Registration Rights Agreement for Shares, dated
    as of February 12, 2003, by and among the Company and each
    of the Purchasers of the Shares, as listed on the Schedule of
    Purchasers accompanying the Purchase Agreement (incorporated by
    reference to Exhibit 10.3 to the Form 8-K filed on
    February 14, 2003)                                                                                                                         

77



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|        |    |             |  |                                                                                                                                                                                                                                                                                                                                                                
|------- | -- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 4  | .4          |  | Registration Rights Agreement for Conversion
    Shares, dated as of February 12, 2003, by and among the
    Registrant and each of the Purchasers of the Notes, as listed on
    the Schedule of Purchasers accompanying the Purchase Agreement
    (incorporated by reference to Exhibit 10.4 to the
    Form 8-K filed on February 14, 2003)                
|        | 4  | .5          |  | Registration Rights Agreement dated as of
    February 6, 2004 by and among the Registrant and each of
    the Purchasers of the Shares, as listed on the Schedule of
    Purchasers accompanying the Purchase Agreement (incorporated by
    reference to Exhibit 10.2 to the Form 8-K filed on
    February 10, 2004)                                        
|        | 10 | .1*         |  | Indus International, Inc. 1997 Stock Plan
    (incorporated by reference to Exhibit 10.1 to the 1997
    Proxy Statement)                                                                                                                                                                                                                                      
|        | 10 | .2*         |  | Amendment No. 1 to the Indus International,
    Inc. 1997 Stock Plan (incorporated by reference to
    Exhibit 99.1 to the Registration Statement on Form S-8
    filed with the Commission on July 5, 2001)                                                                                                                                                   
|        | 10 | .3*         |  | Amendment No. 2 to the Indus International,
    Inc. 1997 Stock Plan (incorporated by reference to
    Exhibit 99.2 to the Registration Statement on Form S-8
    filed with the Commission on July 5, 2001)                                                                                                                                                   
|        | 10 | .4*         |  | Amendment No. 3 to the Indus International,
    Inc. 1997 Stock Plan (incorporated by reference to
    Exhibit 99.3 to the Registration Statement on Form S-8
    filed with the Commission on July 5, 2001)                                                                                                                                                   
|        | 10 | .5*         |  | Indus International, Inc. 1997 Director Option
    Plan (incorporated by reference to Exhibit 10.3 to the 1997
    Proxy Statement)                                                                                                                                                                                                                            
|        | 10 | .6*         |  | Amendment to the Indus International, Inc. 1997
    Director Option Plan (incorporated by reference to
    Exhibit 10.3 to the Registrants Quarterly Report on
    Form 10-Q for the fiscal quarter ended March 31, 2002)                                                                                                                                     
|        | 10 | .7*         |  | Amendment to the Indus International, Inc. 1997
    Director Option Plan (incorporated by reference to
    Exhibit 10.21 to the Annual Report on Form 10-K/A
    filed on June 30, 2003)                                                                                                                                                                       
|        | 10 | .8*         |  | Rules of the Indus International, Inc. Company
    Share Option Plan (the UK Option Plan) (incorporated
    by reference to Exhibit 10.7 of the Registrants
    Annual Report on Form 10-K for the fiscal year ended
    December 31, 2001)                                                                                                                 
|        | 10 | .9*         |  | 2003 Employee Stock Purchase Plan (incorporated
    by reference to Appendix A of the Registrants Proxy
    Statement filed on July 1, 2003)                                                                                                                                                                                                                  
|        | 10 | .10         |  | Stock Purchase Warrant dated August 25, 1997
    by and between the Registrant and Warburg Pincus Investors,
    L.P., as amended by that certain Amendment to Stock Purchase
    Warrant dated October 23, 2001 (incorporated by reference
    to Exhibit 10.8 of the Registrants Annual Report on
    Form 10-K for the fiscal year ended December 31, 2001)
|        | 10 | .11         |  | Stock Purchase Agreement dated January 13,
    1999 by and between Robert W. Felton, Warburg Pincus
    Investors, L.P. and the Registrant (incorporated by reference to
    Exhibit 10.37 to the Registrants Annual Report on
    Form 10-K for the fiscal year ended December 31, 1998)                                                                     
|        | 10 | .12         |  | Amended and Restated Lease Agreement for the
    Registrants Atlanta, Georgia corporate headquarters by and
    between Cousins Properties Incorporated and the Registrant dated
    August 1, 2000 (incorporated by reference to
    Exhibit 10.12 to the Registrants Annual Report on
    Form 10-K for the fiscal year ended December 31, 2000)           
|        | 10 | .13         |  | Office Lease Agreement for the Registrants
    San Francisco, California regional office by and between
    EOP  60 Spear, L.L.C. and the Registrant dated
    March 3, 2000, as amended (incorporated by reference to
    Exhibit 10.8 to the Registrants Annual Report on
    Form 10-K for the fiscal year ended December 31, 2000)                      
|        | 10 | .14*        |  | Employment Agreement dated as of April 29,
    2003 by and between the Registrant and Thomas R. Madison                                                                                                                                                                                                                                                        
|        | 10 | .15*        |  | Employment Agreement dated as of May 6, 2004
    by and between the Registrant and Thomas W. Williams                                                                                                                                                                                                                                                          
|        | 10 | .16*        |  | Employment Agreement dated as of
    February 19, 2003 by and between the Registrant and
    John D. Gregg                                                                                                                                                                                                                                                     

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|        |    |             |  |                                                                                                                                                                                                                                                                                       
|------- | -- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .17*        |  | Letter Agreement dated April 10, 2002 by and
    between the Registrant and Robert Felton (incorporated by
    reference to Exhibit 10.2 to the Registrants
    Quarterly Report on Form 10-Q for the fiscal quarter ended
    March 31, 2002)                                       
|        | 10 | .18*        |  | Employment Agreement dated September 16,
    2002 by and between the Registrant and Gregory J. Dukat
    (incorporated by reference to Exhibit 10.2 to the
    Registrants Quarterly Report on Form 10-Q for the
    fiscal quarter ended June 30, 2002)                             
|        | 10 | .19*        |  | Change of Control Severance Agreement dated
    September 16, 2002 by and between the Registrant and
    Gregory J. Dukat (incorporated by reference to
    Exhibit 10.3 to the Registrants Quarterly Report on
    Form 10-Q for the fiscal quarter ended June 30, 2002)            
|        | 10 | .20         |  | Purchase Agreement, dated as of February 12,
    2003, by and among the Company and each of the Purchasers listed
    on the Schedule of Purchasers accompanying the Purchase
    Agreement (incorporated by reference to Exhibit 10.2 to the
    Form 8-K filed on February 14, 2003)
|        | 10 | .21         |  | Purchase Agreement, dated as of February 6,
    2004, by and among the Company and each of the Purchasers listed
    on the Schedule of Purchasers accompanying the Purchase
    Agreement (incorporated by reference to Exhibit 10.1 to the
    Form 8-K filed on February 10, 2004) 
|        | 10 | .22         |  | Promissory Note dated September 4, 2003 by
    Indus Utility Systems, Inc. to New Small Research, LLC
    (incorporated by reference to Exhibit 10.1 to the
    Registrants Quarterly Report on Form 10-Q filed on
    November 10, 2003)                                            
|        | 10 | .23         |  | Loan Agreement dated September 4, 2003 by
    and between Indus Utility Systems, Inc. and New Small Research,
    LLC (incorporated by reference to Exhibit 10.2 to the
    Registrants Quarterly Report on Form 10-Q filed on
    November 10, 2003)                                
|        | 10 | .24         |  | Recourse Carve-Out Guaranty dated
    September 4, 2003 by and between the Registrant and New
    Small Research, LLC (incorporated by reference to
    Exhibit 10.3 to the Registrants Quarterly Report on
    Form 10-Q filed on November 10, 2003)                                
|        | 21 | .1          |  | Subsidiaries of Registrant                                                                                                                                                                                                                                                            
|        | 23 | .1          |  | Consent of Ernst & Young LLP,
    Independent Registered Public Accounting Firm                                                                                                                                                                                                       
|        | 24 | .1          |  | Power of Attorney, included on the signature page
    of this report                                                                                                                                                                                                                  
|        | 31 | .1          |  | Certification of Chief Executive Officer of the
    Registrant, pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002                                                                                                      
|        | 31 | .2          |  | Certification of Chief Financial Officer of the
    Registrant, pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002                                                                                                      
|        | 32 | .1          |  | Statement of the Chief Executive Officer of the
    Registrant, pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002                                                                                                      
|        | 32 | .2          |  | Statement of the Chief Financial Officer of the
    Registrant, pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002                                                                                                      



---



|  |                                                                       
|- | ----------------------------------------------------------------------
|* | Designates management contract or compensatory
    plan or arrangement

(b) Reports on Forms 8-K.

On January 23, 2004, the Company filed a
Current Report on Form 8-K pursuant to Item 5 (Other
Events), announcing the signing of a definitive agreement with
regard to the acquisition of Wishbone Systems for
$6.65 million in cash.

On January 28, 2004, the Company filed a
Current Report of Form 8-K pursuant to Item 5 (Other
Events) and Item 12 (Results of Operations and Financial
Condition), announcing that Gregory J. Dukat had been
promoted to Chief Executive Officer of the Company and appointed
to the Companys Board of Directors and announcing the
Companys financial results for the quarter ended
December 31, 2003.

On February 10, 2004, the Company filed a
Current Report on Form 8-K pursuant to Item 5 (Other
Events), announcing the closing of a financing transaction with
third party institutional investors through the private
placement of 5 million shares of the Companys common
stock at a price of $3.10 per share.

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##### Table of Contents



On March 5, 2004, the Company filed a
Current Report on Form 8-K pursuant to Item 5 (Other
Events), announcing that Jeffrey A. Babka, the Companys
Executive Vice President Finance and Administration, Chief
Financial Officer and Secretary, would leave the Company in
April 2004 following the completion of the Companys
audited full-year financial results for the fiscal year ended
March 31, 2004.

80



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SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, Indus
International, Inc. has duly caused this report to be signed on
our behalf by the undersigned, thereunto duly authorized.



| |                          
| | -------------------------
| | INDUS INTERNATIONAL, INC.



| |     |                     
| | --- | --------------------
| | BY: | /s/ GREGORY J. DUKAT

| |                                          
| | -----------------------------------------
| |                                          
| | GREGORY J. DUKAT                         
| | President and Chief Executive
    Officer

Date: June 14, 2004

KNOW ALL PERSONS BY THESE PRESENT, that each
person whose signature appears below constitutes and appoints
Thomas R. Madison, Jr. and Gregory J. Dukat, jointly and
severally, his/her attorneys-in-fact, each with the power of
substitution, for him/her in any and all capacities, to sign any
amendments to this report on Form 10-K, and to file the
same, with exhibits thereto and other documents in connection
therewith with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said
attorneys-in-fact, or his/her substitute or substitutes may do
or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the
capacities and on the dates indicated:

|                                                 |  |                                                                                           |  |               |  | 
|------------------------------------------------ |  | ----------------------------------------------------------------------------------------- |  | ------------- |  | 
|                                                 |  |                                                                                           |  |              
|Signature                                        |  | Title                                                                                     |  | Date         
|                                                 |  |                                                                                           |  |              
|                                                
|/s/ GREGORY J. DUKATGregory J. Dukat             |  | President and Chief Executive Officer (Principal
    Executive Officer), Director         |  | June 14, 2004
|                                                
|/s/ ROBERT W. GILBERTRobert W. Gilbert           |  | Vice President of Finance (Acting and Performing
    as Principal Financial Officer)      |  | June 14, 2004
|                                                
|/s/ RICHARD WEBERRichard Weber                   |  | Vice President and Controller (Acting and
    Performing as Principal Accounting Officer) |  | June 14, 2004
|                                                
|/s/ THOMAS R. MADISON, JR.Thomas R. Madison, Jr. |  | Chairman of the Board, Director                                                           |  | June 14, 2004
|                                                
|/s/ GAYLE A. CROWELLGayle A. Crowell             |  | Director                                                                                  |  | June 14, 2004
|                                                
|/s/ EDWARD GRZEDZINSKIEdward Grzedzinski         |  | Director                                                                                  |  | June 14, 2004
|                                                
|/s/ WILLIAM H. JANEWAYWilliam H. Janeway         |  | Director                                                                                  |  | June 14, 2004

81



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|                                               |  |          |  |               |  | 
|---------------------------------------------- |  | -------- |  | ------------- |  | 
|                                               |  |          |  |              
|Signature                                      |  | Title    |  | Date         
|                                               |  |          |  |              
|                                              
|/s/ C. FREDERICK LANEC. Frederick Lane         |  | Director |  | June 14, 2004
|                                              
|/s/ DOUGLAS S. MASSINGILLDouglas S. Massingill |  | Director |  | June 14, 2004
|                                              
|/s/ THOMAS E. TIMBIEThomas E. Timbie           |  | Director |  | June 14, 2004

82