EXHIBIT 13.1

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

Overview

Business.  Indus  International,  Inc.  (the  "Company"  or  "Indus")  develops,
markets, and supports a proprietary line of enterprise asset management software
and  implementation  services.  The Company serves as an agent of change for its
customers,  who seek to improve their return on investment and  efficiencies  in
core business functions in the utilities and energy industry,  process, discreet
and consumer  packaged goods  companies,  as well as educational,  municipal and
transportation authorities worldwide.

Merger.  The Indus Group,  Inc. entered into an agreement and plan of merger and
reorganization  on  June  5,  1997  with  TSW  International,  Inc.,  a  Georgia
corporation  (the  "Merger"),  pursuant to which The Indus  Group,  Inc. and TSW
International, Inc. each became subsidiaries of a new Delaware corporation named
Indus  International,  Inc. (the "Company" or the "Combined  Company") which was
formed for the purpose of the  transactions  contemplated  under the Merger.  On
December 31, 1997,  the Company's  subsidiaries,  The Indus Group,  Inc. and TSW
International,  Inc.,  each  merged  with  and into the  Company  (the  "Roll-up
Merger"). The Company, as the surviving corporation,  assumed all obligations of
the two  subsidiaries,  in connection  with the Roll-up  Merger.  The Merger was
consummated  on August 25, 1997,  as a tax-free  reorganization  pursuant to the
provisions  of Section 368 of the Internal  Revenue  Code of 1986,  and has been
accounted for as a pooling-of-interests. In connection with the Merger, (a) each
share of  outstanding  common stock of The Indus Group,  Inc. was converted into
one  share  of  Common  Stock  of the  Company  ("Common  Stock")  and (b)  each
outstanding   share  of  common   stock  of  TSW   International,   Inc.   ("TSW
International,  Inc. Common  Stock"),  and each  outstanding  share of preferred
stock of TSW International,  Inc. ("TSW  International,  Inc. Preferred Stock"),
was converted into  approximately 2.73 shares of the Company's Common Stock; (c)
the  outstanding  subordinated  floating rate notes of TSW  International,  Inc.
(including  accrued  interest  thereon)  were  exchanged  for  an  aggregate  of
1,235,879  shares of the Company's  Common Stock;  (d) all rights to receive any
unpaid dividends on TSW International,  Inc. Preferred Stock were converted into
an  aggregate  of  53,937  shares  of the  Company's  Common  Stock and (e) each
outstanding option or warrant to purchase TSW  International,  Inc. Common Stock
was converted into an option or warrant,  respectively,  to purchase that number
of shares of the Company's  Common Stock determined by multiplying the number of
shares of TSW International, Inc. Common Stock subject to such option or warrant
by  approximately  2.73, at an exercise price per share of the Company's  Common
Stock equal to the exercise price per share of TSW  International,  Inc.  Common
Stock pursuant to such option or warrant divided by approximately 2.73. Based on
the  capitalization  of  TSW   International,   Inc.  as  of  August  25,  1997,
approximately  10.2 million shares of the Company's  Common Stock were issued in
the transaction and the Company has reserved approximately 7.9 million shares of
its Common Stock for issuance pursuant to the assumption of outstanding  options
and warrants to purchase TSW International, Inc. Common Stock.

Risks  relating to the merger of The Indus Group,  Inc.  and TSW  International,
Inc.  include:  (i) risks  relating to the  integration of the operations of The
Indus Group, Inc. and TSW  International,  Inc.; and (ii) certain  affiliates of
The Indus Group,  Inc. and TSW  International,  Inc. have certain interests that
are different from or in addition to shareholders  of The Indus Group,  Inc. and
shareholders  of TSW  International,  Inc. Risks relating to the business of the
Combined Company include:  (i) the Combined  Company's ability to manage growth;
(ii) the utilization by the Combined Company of new distribution  channels;  and
(iii)  risks  relating  to the  successful  development  of  current  and future
products and technologies.

The  Company  has  experienced,  and may in the future  experience,  significant
fluctuations  in revenues and  operating  results.  The  Company's  revenues and
operating results in general,  and in particular its revenues from new licenses,
are relatively difficult to forecast for a number of reasons,  including (i) the
relatively long sales cycles for the Company's products,  (ii) the variable size
and timing of individual license  transactions,  (iii) changes in demand for the
Company's  products and services,  (iv) competitive  conditions in the industry,
(v)  changes in customer  budgets,  (vi) the timing of the  introduction  of new
products or product  enhancements by the Company or its  competitors,  (vii) the
Company's  success in and costs  associated  with developing and introducing new
products, (viii) product life cycles, (ix) changes in the proportion of revenues
attributable  to  license  fees  versus  services,  (x)  changes in the level of
operating  expenses,  (xi) delay or deferral of customer  implementations of the
Company's  software,  (xii) software defects and other product quality problems,
and (xiii) other economic conditions generally or in specific industry segments.
Further, the purchase of the Company's products generally involves a significant
commitment of capital,  with the attendant  delays  frequently  associated  with
large  capital   expenditures   and   authorization   procedures   within  large
organizations.  For these and other reasons,  the sales cycles for the Company's
products are typically lengthy and subject to a number of significant risks over
which  the  Company  has  little  or no  control,  including  customers'  budget
constraints  and internal  authorization  reviews.  In  addition,  delays in the
completion of a product  implementation may require that the revenues associated
with such  implementation  be recognized  over a longer  period than  originally
anticipated.  Such  delays in the  implementation  or  execution  of orders have
caused,  and may in the future  cause,  material  fluctuations  in the Company's
operating results.  Similarly,  customers may cancel implementation  projects at
any time without penalty,  and such  cancellation  could have a material adverse
effect on the Company's business or results of operations. Because the Company's
expenses are relatively fixed, a small variation in the timing of recognition of
specific revenues can cause significant  variations in operating results and may
in some future period result in losses or have a material  adverse effect on the
Company's business or results of operations.

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<PAGE>


The  Company   derives  its   revenues   primarily   from   software   licenses,
implementation and training services and maintenance fees. While the Company has
derived a significant  portion of its revenues from electric  utilities to date,
it also  derives  revenues  from  customers  such as the oil and gas  companies,
petrochemical   companies,   manufacturers,   hospitals,   educational  systems,
governments, transportation authorities and steel and forest product companies.

The Company  provides its software to customers under  contracts,  which provide
for software license fees and system implementation  services.  Effective in the
three months ended  September 30, 1997,  The Indus Group,  Inc.,  Inc.  began to
report   applicable  new  license  fees,   which   typically  have  ranged  from
approximately  $100,000  to  $5  million,  on  standard  software  products  not
requiring  substantial  modification  or  customization  as earned  revenue upon
shipment  to  customers.   Previously,   because  substantial  modification  and
customization of software  products was expected by customers,  The Indus Group,
Inc. had deferred the applicable  license fees  initially and  recognized  those
fees as  earned  over  the  period  of  modification,  customization  and  other
installation  services.  TSW  International,  Inc. has always recognized license
fees upon  shipment of product.  Revenues from system  implementation  services,
which typically are time- and material-based,  are recognized as direct contract
costs are incurred and typically range from one to three times the license fees.

Revenues  for each  quarter  depend in part on revenues  from the closing of new
contracts during the quarter.  For contracts with a one-year  warranty clause, a
portion of license fees is deferred  initially and subsequently  recognized over
the one-year  warranty  period.  After an initial  contract  period,  additional
maintenance and support services, for which the Company typically charges 15-18%
of the original license fee per year, are subject to separate  contracts whereby
revenue is recognized ratably over the contract period.

In March  1997,  The Indus  Group,  Inc.  acquired  a 10%  interest  in  TenFold
Corporation,  a private software  company for  approximately $8 million in cash.
The Indus  Group,  Inc.  received a perpetual,  unrestricted  license for future
applications and tools developed with TenFold's  technology.  In April 1997, The
Indus   Group,    Inc.    acquired    Prism    Consulting,    Inc.   a   private
management-consulting  firm, for $4.75 million of The Indus Group,  Inc.'s stock
at the then current market value and $250,000 in cash.  Substantially all of the
purchased cost was allocated to intangible assets and is included in investments
and intangible assets.

The Company has in the past and may in the future acquire complementary products
or businesses.  Risks associated with such  transactions  include  difficulty in
retaining and assimilating the personnel of the combined  companies,  difficulty
in integrating  the operations of the combined  companies,  disruption of Indus'
ongoing  business,  expenses  associated  with  completing the  transaction  and
amortizing  acquired intangible assets, and dilution of existing equity holders.
There can be no assurance that such transactions  will not materially  adversely
affect Indus' business, financial condition or operating results.

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<PAGE>


Operating Results

<TABLE>
The following table sets forth for the periods indicated the percentage of total
revenues  represented  by certain  line  items in the  Company's  statements  of
operations:

<CAPTION>
                                                                                              Percentages of Total Revenues
                                                                                                Years Ended December 31,
                                                                                         -----------------------------------------
Statement of Operations Data:                                                            1995              1996               1997
                                                                                         -----             -----             -----
<S>                                                                                       <C>               <C>               <C>
Revenues:
   Software licensing fees ...................................................            32.2 %            30.1 %            31.6 %
   Services, maintenance and other ...........................................            67.8              69.9              68.4
                                                                                         -----             -----             -----
     Total revenues ..........................................................           100.0             100.0             100.0
                                                                                         -----             -----             -----
Cost of revenues .............................................................            47.0              44.6              44.4
                                                                                         -----             -----             -----
Gross margin .................................................................            53.0              55.4              55.6
                                                                                         -----             -----             -----
Operating expenses:
   Research and development ..................................................            17.8              16.3              15.6
   Sales and marketing .......................................................            19.6              18.5              19.0
   General and administrative ................................................            12.8              10.5               8.5
   Compensation charge - stock options .......................................            18.6               --                --
   Merger expenses ...........................................................             --                --                6.8
                                                                                         -----             -----             -----
     Total operating expenses ................................................            68.7              45.3              49.9
                                                                                         -----             -----             -----
Income (loss) from operations ................................................           (15.7)             10.2               5.7
Other income (expense) net ...................................................            (2.1)             (1.3)             (1.1)
                                                                                         -----             -----             -----
Income (loss) before income taxes ............................................           (17.8)              8.9               4.6
Provision (benefit) for income taxes .........................................             0.4               4.8               3.6
Cumulative effect of deferred income taxes provided upon
conversion by The Indus Group, Inc. to a C Corporation .......................             --                4.7               --
                                                                                         -----             -----             -----
Income (loss) before extraordinary item ......................................           (18.2)             (0.6)              1.0
Extraordinary item ...........................................................             --                --               (0.4)
                                                                                         =====             =====             =====
Net income (loss) ............................................................           (18.2)             (0.6)              0.6
                                                                                         =====             =====             =====

Pro forma statement of operations as adjusted:
   Income (loss) before income taxes.......................                              (17.8)              8.9
   Add back portion of compensation charge-stock
   options.................................................                               17.6               --
                                                                                         -----             -----
   Income (loss) before income taxes, as adjusted..........                               (0.2)              8.9
   Provision for income taxes (federal, state and foreign).                                5.1               4.8
                                                                                         -----             -----
   Pro forma net income (loss).............................                               (5.3)              4.1
                                                                                         =====             =====
</TABLE>


Revenues.  The Company's  revenues are derived from software  licensing fees and
from services,  which include  implementation and training services coupled with
maintenance fees. Total revenues  increased 40.5% from $101.8 million in 1995 to
$143.0  million in 1996, and 23.8% to $177.0 million in 1997. The year over year
increase in license fees is due to  additional  contracts  with new and existing
customers  and to the change in revenue  recognition  policy by The Indus Group,
Inc in 1997.  The overall  annual  growth in services  and  maintenance  revenue
results from the high level of services  required to fulfill the  implementation
needs of the customers. Revenue from international customers (from sales outside
the United States, Canada and Mexico) accounted for 18%, 20% and 14% of revenues
for the years ending December 31, 1995, 1996, and 1997, respectively. As most of
the Company's  contracts  are  denominated  in U.S.  dollars,  foreign  currency
fluctuations have not impacted the results of operations.

Effective in the three months ended  September 30, 1997,  The Indus Group,  Inc.
began to report  applicable new license fees on standard  software  products not
requiring  substantial  modification  or  customization  as earned  revenue upon
shipment  to  customers.   Previously,   because  substantial  modification  and
customization of software  products was expected by customers,  The Indus Group,
Inc. had deferred the applicable  license fees  initially and  recognized  those
fees as  earned  over  the  period  of  modification,  customization  and  other
installation services.  TSW International,  Inc., which had not been required to
perform  substantial   customization   services,   continued  to  recognize  the
applicable  portion of license fees as earned upon shipment of standard software
products to customers.

The Company  does not believe  that the revenue  growth  experienced  in 1997 is
necessarily indicative of any revenue growth that may occur in future periods.

Cost of Revenues.  Cost of revenues  consists  primarily  of: (i)  personnel and
related costs for implementation  (including account executive personnel),  (ii)
training  and  customer  support  services  and (iii)  sublicense  fees to third
parties  upon the sale of the

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<PAGE>


Company's product containing such third-party software.  Gross margin on license
fees is substantially  higher than gross margin on service  revenue,  reflecting
the low  packaging  and  production  costs of software  products and third party
software costs compared with the relatively high personnel costs associated with
providing implementation, maintenance, consulting and training services.

Cost of revenues  increased 33.1% from $47.9 million in 1995 to $63.7 million in
1996 and 23.3% to $78.6 million in 1997.  The 1995 and 1996  increases  resulted
from the cost of increased services associated with major new license agreements
as well as the cost of  additional  services  associated  with the  expansion of
existing projects. The 1997 increase in absolute dollars in cost of revenues was
due  principally to the need for  additional  personnel to service the Company's
customers.  As a percent of total revenue, cost of revenues was 47.0%, 44.6% and
44.4% for the years ended 1995, 1996, and 1997,  respectively.  Cost of revenues
remained relatively flat as a percentage of revenue between 1996 and 1997.

Gross Margin.  Gross margin improved from 53% in 1995 to 55.4% and 55.6% in 1996
and 1997, respectively.

Research and  Development  (R&D).  Research  and  development  expenses  consist
primarily of: (i) personnel and related costs,  (ii) third party consultant fees
directly  attributable to the development of new software application  products,
enhancements  to  existing  products  and the  porting  of  Indus'  products  to
different platforms and (iii) computer timeshare costs.

Research and development  expenses increased 28.2% from $18.2 million in 1995 to
$23.3 million in 1996 and 18.9% to $27.7 million in 1997, and represented 17.8%,
16.3%,  and 15.6%,  respectively,  of total  revenues in those years.  While R&D
expenses continue to increase year over year in absolute dollars,  they declined
as a percentage of total revenue due to the overall increase in revenues. During
1997, the Company  invested  resources in developing  PASSPORT Release 6.0 which
was  completed by July 1997 and EMPAC  Release 7.5 which was completed by August
1997.  The Company  believes  that a  significant  level of investment in R&D is
essential to remain  competitive.  Research and development in absolute  dollars
for a particular period may vary depending on the projects in progress.

Software   development  costs  are  expensed  as  incurred  until  technological
feasibility of the software is established, after which any additional costs are
capitalized.  To date, the Company has expensed all software  development  costs
because   development   costs  incurred   subsequent  to  the  establishment  of
technological feasibility have not been material.

Sales and Marketing. Sales and marketing expenses include personnel costs, which
include sales  commissions  involved in the sales and marketing of the Company's
products  and  services  and the  costs of  advertising,  public  relations  and
participation  in industry  conferences  and trade  shows.  Sales and  marketing
expenses increased 33.2% from $19.9 million in 1995 to $26.5 million in 1996 and
26.6% to $33.6  million  in 1997.  As a  percent  of total  revenue,  sales  and
marketing  expenses  were  19.6%,  18.5%,  and 19.0% for 1995,  1996,  and 1997,
respectively.  The growth in sales and marketing expenses in absolute dollars is
primarily  due to: (i) the addition of  personnel,  (ii)  expansion of strategic
alliance  program  and (iii)  changes  in the mix of the  revenue  base on which
commission  expense is generated.  The Company believes that sales and marketing
expenses as a percentage of total revenues may continue to increase for the same
reasons.

General and  Administrative.  General and  administrative  expenses  include the
costs of finance,  human resources and  administrative  operations.  General and
administrative  expenses  increased  15.0% from  $13.0  million in 1995 to $15.0
million in 1996 and 1997. These expenses  represented 12.8%,  10.5%, and 8.5% of
total revenues in those years.  General and administrative  expenses in absolute
dollars  declined as a percentage of total revenues due to the growth in revenue
and the relatively  fixed nature of some portions of general and  administrative
expenses.  General  and  administrative  expenses  are  expected  to increase in
absolute dollars in future years.

Compensation  Charge - Stock  Options.  The Indus Group,  Inc.  amended its 1992
Stock Option Plan effective  September 1995 to accelerate the  exercisability of
all  outstanding  stock options.  Exercisability  had previously been contingent
upon  certain  "liquidity  events"  such as an  initial  public  offering  or an
acquisition of The Indus Group,  Inc. As a result of this  amendment,  The Indus
Group, Inc.  recognized a non-recurring  compensation charge of $18.9 million in
the third quarter of 1995.

Merger and  Restructuring.  The Company recorded $9.98 million in merger related
costs in 1997. This included approximately $6.7 million for transaction fees and
professional  services,  $1.7  million  for  consulting  services  incurred by a
significant shareholder and $1.6 million for other costs incident to the merger.
In addition to the  merger-related  costs,  the Company  provided  for costs and
losses as a result of the  restructuring  of the Company  totaling $ 2.1 million
during 1997. Of the total cost, $0.9 million results from excess  facilities and
$1.2 million from termination costs of excess or redundant employees.

Provision for Income Taxes.  Income tax expense of $6.4 million represented $6.1
million of federal and state  corporate  income taxes for The Indus Group,  Inc.
for the year ended December 31, 1997 and $0.3 of foreign  withholding  taxes for
TSW  International,  Inc. As of March 31,  1997,  TSW  International,  Inc.  has
domestic net operating loss  carryforwards in excess of $10.0 million which will
expire in years 2010  through  2012;  domestic  research  and  experimental  tax
credits  of  approximately  $0.78  million  which  expire in years 2010 to 2012;
domestic and foreign tax credits of  approximately  $0.506  million which can be
carried

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<PAGE>
forward   indefinitely;   and  foreign  net  operating  loss   carryforwards  of
approximately $2.9 million which can be carried forward indefinitely. Those loss
carryforwards  were subject to a separate taxpayer  limitation  through December
31, 1997 because TSW International,  Inc. remained a separate  corporation until
that date. No benefit has been  accorded  those  carryovers in the  accompanying
financial statements.

Effective upon its  incorporation in 1990, The Indus Group, Inc. elected to have
its United  States  income taxed under  Subchapter  S of the Code.  Accordingly,
income tax provisions prior to 1996 were principally attributable to state taxes
and taxes  imposed by foreign  governments  on The Indus Group,  Inc.'s  foreign
operations.  The Indus Group,  Inc.'s S Corporation status terminated  effective
January  1, 1996,  and The Indus  Group,  Inc.  was  subject  to federal  income
taxation at the corporate level thereafter.  In relation to the termination of S
Corporation  status as of January 1, 1996,  a  one-time  charge  representing  a
cumulative net federal and state  deferred  income tax liability of $6.7 million
was recorded.

Net Income  (Loss) The  Company's  net income was $0.99 million in 1997 compared
with a net loss of $0.875  million  recorded in 1996, due primarily to increased
revenues in the current  year.  The effect of the increase in revenues is offset
by the  factors  described  above  and by the net of  merger  and  restructuring
charges  recorded in 1997 and by the one-time income tax charge  associated with
the company's  conversion to C Corporation  status recorded in 1996. The loss in
1995 was in a large part a result of the non-recurring  compensation charge upon
elimination of the contingency related to stock options.

Pro Forma Net Income (Loss). For purposes of presenting comparative earnings and
calculating per share data, pro forma net income for the year ended December 31,
1996  reflects  the  elimination  of the $6.7  million  nonrecurring  cumulative
deferred  income  tax  charge  upon  converting  from  an S  Corporation  to a C
Corporation.  For 1995 pro forma  net  income  reflects  the  add-back  of $17.9
million  non-recurring  compensation charge incurred upon the elimination of the
contingency related to stock options.

Liquidity and Capital Resources

Historically,  The Indus  Group,  Inc. has  financed  its  activities  primarily
through cash provided by operations and borrowings under its line of credit.  In
March 1996,  The Indus Group,  Inc.  received $33.9  million,  representing  the
proceeds (net of  underwriting  commissions  and offering costs) from an initial
public  offering of 2,500,000  shares of its common stock.  These  proceeds were
used  to  purchase  marketable  securities  (comprised  of  municipal  and  U.S.
government   obligations)   and  certain  cash   equivalent   instruments.   TSW
International,  Inc. financed its activities prior to the Merger largely through
approximately  $38.0 million  provided by its principal  shareholder in exchange
for subordinated notes and preferred stock.

Cash provided (used) by operations was ($7.7) million,  $8.3 million and ($10.6)
million  in 1995,  1996 and 1997,  respectively.  Unbilled  accounts  receivable
increased  substantially due to the change in revenue  recognition policy by The
Indus Group, Inc. in 1997.  Investing  activities,  consisting  primarily of the
purchase and sale of marketable securities,  the acquisitions of investments and
intangible assets,  and the acquisition of property and equipment,  used cash of
$3.4  million,  $35.7  million,  and  $5.2  million,  in 1995,  1996  and  1997,
respectively.  Financing  activities  provided  cash of $10.7  million and $13.1
million,  in 1995 and 1997 primarily from the drawdown from the Company's  lines
of  credit.  Financing  activities  in  1996  generated  cash of  $40.9  million
primarily from the issuance of redeemable preferred and common stock.

As of December 31, 1997, the Company's  principal sources of liquidity consisted
of approximately  $11.1 million in cash and cash  equivalents,  $16.7 million in
marketable  securities  and a  revolving  bank line of credit of $35.0  million,
which is secured by all of the  Company's  accounts  receivables.  The revolving
credit  facility  expires July 31, 1999. The revolving  credit facility bears an
interest  rate of the one month LIBOR rate plus 1.50%  (7.19% as of December 31,
1997). This facility replaced and eliminated the prior revolving lines of credit
of The Indus Group, Inc. and TSW International, Inc., which bore higher interest
rates. Approximately $26.7 million had been drawn down under this line of credit
at December 31, 1997.

Cash  requirements  are  expected to continue to increase in order to fund:  (i)
personnel  and  salary  costs,  (ii)  research  and  development   costs,  (iii)
investment  in  additional  technical   equipment,   and  (iv)  working  capital
requirements.  The Company presently anticipates additional capital expenditures
of approximately $16 million in 1998, primarily for equipment and furniture.

In  addition  to its line of credit,  the  Company's  principal  commitments  at
December 31, 1997  consisted of obligations  under  operating and capital leases
for facilities and computer equipment.

The Company believes that its existing cash and marketable securities,  together
with anticipated  cash flow from operations and available bank borrowings,  will
be  sufficient  to meet its cash  requirements  during the next 12  months.  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 or
presently unexpected uses of cash, such as for acquisitions.

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<PAGE>

Effects of Recent Accounting Pronouncements

A new  pronouncement  containing  rules for timing of  recognition  of  software
company  revenues,  particularly  license fee revenues  where there are multiple
elements to be delivered under a contract or arrangement  with a customer,  will
be effective for  transactions  beginning in 1998.  Under the Company's  current
policy,  license fees on standard  software  products not requiring  substantial
modification  and  customization  are  recognized  as revenue  upon  shipment to
customers.  The Company has not yet assessed what the impact of these rules will
be on its recognition of revenues in its 1998 financial statements.

Other recent  pronouncements  relate primarily to disclosure  matters and not to
timing of recognition of income.  One pronouncement  will require  disclosure of
"comprehensive  income",  including items such as unrealized gains and losses on
foreign currency  translation and marketable  securities,  in addition to income
determined under customary accounting rules. Another  pronouncement will require
additional  or  different  "segment"  footnote  data.  The  Company  has not yet
assessed  what the  impact  of these  rules  will be in terms of  additional  or
changed disclosures to be included in its 1998 financial statements.

Year 2000 Risk Disclosure

Like most other  companies,  the year 2000  computer  issue creates risk for the
Company.  If internal  systems do not correctly  recognize date information when
the year  changes to 2000,  there  could be an adverse  impact on the  Company's
operations.  The Company has  initiated a  comprehensive  project to prepare its
computer systems for the year 2000 and plans to have changes to critical systems
completed by the first quarter of 1999 to allow time for testing. The Company is
also assessing the capability of its products sold to customers over a period of
years to handle the year 2000, but does not currently  believe there are product
issues. Management believes that the likelihood of a material adverse impact due
to problems  with  internal  systems or products sold to customers is remote and
expects that the cost of these  projects over the next two years will not have a
material effect on the Company's financial position or overall trends in results
of  operations.  The  Company  is also  developing  a plan to  contact  critical
suppliers of products and services to determine that the  suppliers'  operations
and the products  and services  they provide are year 2000 capable or to monitor
their  progress  toward year 2000  capability.  There can be no  assurance  that
another  company's  failure  to  ensure  year 2000  capability  will not have an
adverse effect on the Company.

The Company's operating results are subject to general economic conditions and a
variety of risks  characteristic  of the  software  industry  or specific to the
Company,  any of which could  cause the  Company's  operating  results to differ
materially from past results.

                                       6

<PAGE>


                            INDUS INTERNATIONAL, INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS...........................  2

CONSOLIDATED BALANCE SHEETS.................................................  3

CONSOLIDATED STATEMENTS OF OPERATIONS.......................................  4

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY..............................  5

CONSOLIDATED STATEMENTS OF CASH FLOWS.......................................  7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..................................  8


<PAGE>


                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS


The Boards of Directors and Stockholders
Indus International, Inc.

     We have  audited  the  accompanying  consolidated  balance  sheets of Indus
International,   Inc.  as  of  December  31,  1997  and  1996  and  the  related
consolidated statements of operations,  stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997.  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  generally  accepted  auditing
standards.  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 financial statements referred to above present fairly,
in  all  material  respects,   the  consolidated  financial  position  of  Indus
International,  Inc. at December 31, 1997 and 1996, and the consolidated results
of its  operations  and its cash flows for each of the three years in the period
ended  December  31,  1997 in  conformity  with  generally  accepted  accounting
principles.


                                               /s/ ERNST & YOUNG LLP

Palo Alto, California
January 27, 1998

                                       2

<PAGE>


<TABLE>
                                                      INDUS INTERNATIONAL, INC.

                                                     CONSOLIDATED BALANCE SHEETS

                                                           (In thousands)

<CAPTION>
                                                                                                             December 31,
                                                                                                     ------------------------------
                                                                                                       1996                 1997
                                                                                                     ---------            ---------
<S>                                                                                                  <C>                  <C>
ASSETS

Current assets:
   Cash and cash equivalents .............................................................           $  13,815            $  11,052
   Marketable securities .................................................................              26,524               11,880
   Billed accounts receivable, less allowance for doubtful accounts of
   $1,247 and $1,974 on December 31, 1996 and 1997, respectively .........................              35,861               43,574
   Unbilled accounts receivable ..........................................................              19,397               30,349
   Other current assets ..................................................................               6,365                5,773
                                                                                                     ---------            ---------
     Total current assets ................................................................             101,962              102,628

Marketable securities - noncurrent .......................................................               2,129                4,818
Property and equipment, net ..............................................................              12,270               16,570
Investments and intangible assets, net ...................................................                --                 12,119
Employee notes receivable ................................................................                 537                  416
Other assets .............................................................................                 957                  174
                                                                                                     ---------            ---------
                                                                                                     $ 117,855            $ 136,725
                                                                                                     =========            =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Borrowing under lines of credit .......................................................           $  15,991            $  26,650
   Current portion of obligations under capital leases ...................................                 960                2,404
   Accounts payable ......................................................................               7,006                8,430
   Deferred income taxes .................................................................               3,837                  419
   Other accrued liabilities .............................................................               9,732               14,068
   Deferred revenue ......................................................................              21,372               13,419
                                                                                                     ---------            ---------
     Total current liabilities ...........................................................              58,898               65,390
                                                                                                     ---------            ---------

Obligations under capital leases and term loans ..........................................               2,126                1,105

Subordinated long-term notes .............................................................              18,065                 --

Redeemable preferred stock of TSW International, Inc. ....................................              18,100                 --
Stockholders' equity:
   Preferred stock .......................................................................                --                   --
   Common stock ..........................................................................                  22                   29
   Additional paid-in capital ............................................................              48,649               98,608
   Other .................................................................................                (603)              (1,719)
   Accumulated deficit ...................................................................             (27,402)             (26,688)
                                                                                                     ---------            ---------
     Total stockholders' equity ..........................................................              20,666               70,230
                                                                                                     ---------            ---------
                                                                                                     $ 117,855            $ 136,725
                                                                                                     =========            =========


<FN>
                                                       See accompanying notes.
</FN>
</TABLE>

                                                                 3

<PAGE>


<TABLE>
                                                      INDUS INTERNATIONAL, INC.

                                                CONSOLIDATED STATEMENTS OF OPERATIONS
                                              (In thousands, except per share amounts)

<CAPTION>
                                                                                             Years Ended December 31
                                                                                ---------------------------------------------------
                                                                                  1995                 1996                  1997
                                                                                ---------            ---------            ---------
<S>                                                                             <C>                  <C>                  <C>
Revenues:
   Software licensing fees ..........................................           $  32,816            $  43,060            $  55,958
   Services and maintenance .........................................              67,824               97,515              119,382
   Other revenue ....................................................               1,184                2,463                1,694
                                                                                ---------            ---------            ---------
     Total revenues .................................................             101,824              143,038              177,034
Cost of revenues ....................................................              47,872               63,738               78,575
                                                                                ---------            ---------            ---------
Gross margin ........................................................              53,952               79,300               98,459
                                                                                ---------            ---------            ---------
Operating expenses:
   Research and development .........................................              18,151               23,265               27,664
   Sales and marketing ..............................................              19,915               26,523               33,568
   General and administrative .......................................              12,996               14,951               14,991
   Compensation charge-stock options ................................              18,900                 --                   --
   Merger and restructuring expenses ................................                --                   --                 12,083
                                                                                ---------            ---------            ---------
     Total operating expenses .......................................              69,962               64,739               88,306
                                                                                ---------            ---------            ---------
Income (loss) from operations .......................................             (16,010)              14,561               10,153
Interest and other income ...........................................                 213                1,391                1,590
Interest expense ....................................................              (2,325)              (3,278)              (3,558)
                                                                                ---------            ---------            ---------
Income (loss) before income taxes ...................................             (18,122)              12,674                8,185
Provision for income taxes ..........................................                 423                6,849                6,408
Cumulative effect of deferred income taxes
provided upon conversion by The Indus Group,
Inc. to a C Corporation .............................................                --                  6,700                 --
                                                                                ---------            ---------            ---------
Income (loss) before extraordinary item .............................             (18,545)                (875)               1,777
Extraordinary item ..................................................                --                   --                   (787)
                                                                                ---------            ---------            ---------
Net income (loss) ...................................................           $ (18,545)           $    (875)           $     990
                                                                                =========            =========            =========

Pro forma statement of operations as adjusted:
   Income (loss) before income taxes ................................           $ (18,122)           $  12,674
   Add back portion of compensation
   charge-stock options .............................................              17,900                 --
                                                                                ---------            ---------
   Income (loss) before income taxes, as ............................                (222)              12,674
   adjusted
   Provision for income taxes (federal, state
   and foreign) .....................................................               5,181                6,849
                                                                                ---------            ---------
   Pro forma net income (loss) ......................................           $  (5,403)           $   5,825
                                                                                =========            =========
Income (loss) per share (computed on pro forma
net income (loss) in 1995 and 1996):
Basic
   Income (loss) before extraordinary item ..........................           $   (0.25)           $    0.22            $    0.06
   Extraordinary item ...............................................                --                   --                  (0.03)
                                                                                ---------            ---------            ---------
   Net income (loss) ................................................           $   (0.25)           $    0.22            $    0.03
                                                                                =========            =========            =========
Diluted
   Income (loss) before extraordinary item ..........................           $   (0.25)           $    0.20            $    0.05
   Extraordinary item ...............................................                --                   --                   0.02
                                                                                ---------            ---------            ---------
   Net income (loss) ................................................           $   (0.25)           $    0.20            $    0.03
                                                                                =========            =========            =========

Shares used in computing per share data
   Basic ............................................................              22,027               25,976               28,574
   Diluted ..........................................................              22,027               28,821               33,448

<FN>
                                                       See accompanying notes.
</FN>
</TABLE>

                                                                 4

<PAGE>


<TABLE>
                                                     INDUS INTERNATIONAL, INC.

                                           CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                                           (In thousands)

<CAPTION>
                                                                                                                           Total
                                                              Common       Additional                    Accumulated   Stockholders'
                                                              Stock         Capital         Other          Deficit        Equity
                                                             --------       --------       --------       --------       --------
<S>                                                          <C>            <C>            <C>            <C>            <C>
Balance at December 31, 1994 ...........................     $    131       $  1,399       $     13       $(13,389)      $(11,846)

  Issuance of common stock .............................          481            266           (480)          --              267
  Stock options (1) ....................................         --           18,900           --             --           18,900
  Repurchase and retirement of stock ...................         --             (122)          --             --             (122)
  Issuance of warrants to common stock .................         --              570           --             --              570
  Cash distributions to stockholders ...................         --             --             --           (9,516)        (9,516)
  Other ................................................         --             --             (181)          --             (181)
  Net loss .............................................         --             --             --          (18,545)       (18,545)
                                                             --------       --------       --------       --------       --------
Balance at December 31, 1995 ...........................          612         21,013           (648)       (41,450)       (20,473)

  Conversion of The Indus Group, Inc. to
  a C Corporation effective January 1, 1996 ............         --           (8,223)          --            8,223           --
  Reincorporation ......................................         (494)           494           --             --             --
  Issuance of common stock (2) .........................            4         35,399           --             --           35,403
  Tax benefit from exercise of stock options ...........         --            6,669           --             --            6,669
  Purchase of Indus International, Inc. net
     assets ............................................         (100)            (3)          --             --             (103)
  Other ................................................         --             --               45           --               45
  Net loss .............................................         --           (6,700)          --            5,825           (875)
                                                             --------       --------       --------       --------       --------
Balance at December 31, 1996 ...........................           22         48,649           (603)       (27,402)        20,666

  Issuance of common stock (3) .........................         --            6,725           --             --            6,725
  Tax benefit from exercise of stock options ...........         --            3,479           --             --            3,479
  Capital contribution by a TSW shareholder ............         --            1,717           --             --            1,717
  Reincorporation as Indus International, Inc. .........           (4)             4           --             --             --
  Redemption of TSW subordinated notes (4) .............            8         19,937           --             --           19,945
  Exchange of common stock for TSW
     redeemable preferred stock (5) ....................            3         18,097           --             --           18,100
  Other ................................................         --             --           (1,116)          --           (1,116)
  Net income ...........................................         --             --             --              990            990
  Elimination of TSW's net income for the
     three months ended March 31, 1997 (6) .............         --             --             --             (276)          (276)
                                                             --------       --------       --------       --------       --------

Balance at December 31, 1997 ...........................     $     29       $ 98,608       $ (1,719)      $(26,688)      $ 70,230
                                                             ========       ========       ========       ========       ========

<FN>
                                                       See accompanying notes.
</FN>
</TABLE>

                                                                 5

<PAGE>


                            INDUS INTERNATIONAL, INC.
           CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY--(Continued)

(1)  Value  of  unexercised   stock  options  of  The  Indus  Group,  Inc.  upon
     elimination of contingency  feature,  which had precluded exercise of these
     options.

(2)  Includes $33,864 received from February 29, 1996 initial public offering of
     The Indus Group, Inc.  (2,500,000 common shares offered at $15.00 per share
     less underwriting commission and expenses).

(3)  Includes $4,750 (339,285 shares of common stock at $14.00 per share) issued
     with $250 in cash to acquire a management consulting firm.

(4)  Redemption of TSW  International,  Inc.  subordinated notes and accumulated
     interest in exchange for 1,235,879  common  shares of Indus  International,
     Inc.

(5)  Exchange  of  8,049,025  common  shares of Indus  International,  Inc.  for
     redeemable  preferred  stock of TSW  International,  Inc. and 53,937 common
     shares for accumulated dividends.

(6)  Net income of TSW International,  Inc. for the three months ended March 31,
     1997, $276, included in both 1996 and 1997 combined operating results, as a
     result of change in TSW International, Inc.'s fiscal year end.

                             See accompanying notes.

                                       6

<PAGE>


<TABLE>
                                                      INDUS INTERNATIONAL, INC.
                                                CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                           (In thousands)

<CAPTION>
                                                                                                 Years Ended December 31,
                                                                                             --------------------------------------
                                                                                               1995           1996           1997
                                                                                             --------       --------       --------
<S>                                                                                          <C>            <C>            <C>
Cash flows from operating activities
Net income (loss) .....................................................................      $(18,545)      $   (875)      $    990
Elimination of TSW's net income for the three months ended March 31, 1997 .............          --             --             (276)
Adjustments  to  reconcile  net  income  (loss)  to net cash  used in  operating
activities:
   Compensation charge - stock options ................................................        18,900           --             --
   Depreciation and amortization ......................................................         2,789          3,440          5,969
   Provision for doubtful accounts ....................................................           747            370            891
   Amortization of deferred compensation ..............................................            48            555             74
   Loss on sale of fixed assets .......................................................            89           --              332
   Write-off goodwill .................................................................          --              688           --
   Cumulative effect of deferred income taxes provided January 1, 1996 ................          --            6,700           --
   Tax benefit from exercise of stock options .........................................          --             --            3,479
   Merger expense resulting from equity transaction ...................................          --             --            2,009
   Extraordinary charge to net income from debt extinguishment ........................          --             --              787
   Changes in operating assets and liabilities:
     Billed accounts receivable .......................................................        (9,455)        (6,536)        (8,604)
     Unbilled accounts receivable .....................................................        (9,909)        (3,946)       (10,952)
     Other current assets .............................................................          (316)        (1,403)           592
     Other assets .....................................................................           (22)        (3,415)           798
     Employee notes receivable ........................................................            13            (61)           121
     Accounts payable .................................................................           355           (328)         1,424
     Deferred income taxes ............................................................           384         (3,189)        (3,418)
     Income taxes payable .............................................................         1,906          6,451           --
     Other accrued liabilities ........................................................         2,243          5,889          4,336
     Deferred revenue .................................................................         2,857          3,444         (7,953)
     Cumulative currency translation ..................................................          (229)            (9)        (1,246)
     Other ............................................................................           427            481             20
                                                                                             --------       --------       --------
     Net cash (used)/provided by in operating activities ..............................        (7,718)         8,256        (10,627)
                                                                                             --------       --------       --------
Cash flows from investing activities
Purchase of marketable securities .....................................................          --          (39,010)        (3,104)
Sale of marketable securities .........................................................          --           10,314         15,100
Investments and intangible assets .....................................................          (642)          --           (8,288)
Acquisition of property and equipment .................................................        (2,767)        (6,982)        (8,901)
                                                                                             --------       --------       --------
Net cash used in investing activities .................................................        (3,409)       (35,678)        (5,193)
                                                                                             --------       --------       --------
Cash flows from financing activities
Net drawdown/(repayment) of line of credit ............................................        12,471            (81)        10,659
Net drawdown of capital leases/notes payable ..........................................         5,574            725            423
Net proceeds from issuance of redeemable preferred stock ..............................         2,000          5,000           --
Net proceeds from issuance of common stock ............................................           145         35,399          1,975
Distributions to shareholders .........................................................        (9,517)          --             --
Purchase of Indus International, Inc. net assets ......................................          --             (103)          --
                                                                                             --------       --------       --------
Net cash provided by financing activities .............................................        10,673         40,940         13,057
                                                                                             --------       --------       --------
Net increase/(decrease) in cash and cash equivalents ..................................          (454)        13,518         (2,763)
Cash and cash equivalents at beginning of period ......................................           751            297         13,815
                                                                                             --------       --------       --------
Cash and cash equivalents at end of period ............................................      $    297       $ 13,815       $ 11,052
                                                                                             ========       ========       ========
Supplemental disclosures of cash flow information
Interest paid .........................................................................      $    598       $  1,464       $  2,004
                                                                                             ========       ========       ========
Income taxes paid .....................................................................      $    523       $  5,712       $  4,775
                                                                                             ========       ========       ========
Supplemental schedule of noncash, investing and financing activities
Issuance of common stock in exchange for notes receivable .............................      $    480       $   --         $   --
Issuance of common stock in exchange for TSW  subordinated  notes and
redeemable preferred stock ............................................................          --             --           38,045
                                                                                             ========       ========       ========
Issuance of common stock in exchange for investment ...................................      $   --         $   --         $  4,750
                                                                                             ========       ========       ========

<FN>
                                                       See accompanying notes
</FN>
</TABLE>

                                                                 7

<PAGE>


                            INDUS INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  Nature of Business and Significant Accounting Policies

Organization and Business

Business

Indus International,  Inc. develops,  markets and supports a proprietary line of
enterprise asset management  software and implementation  services.  The Company
serves as an agent of change for its customers, who seek to improve their return
on investment and  efficiencies in core business  functions in the utilities and
energy industry,  process,  discreet and consumer  packaged goods companies,  as
well as educational, municipal and transportation authorities worldwide.

Merger

         The Indus Group,  Inc. entered into an agreement and plan of merger and
reorganization  on  June  5,  1997  with  TSW  International,  Inc.,  a  Georgia
corporation  (the  "Merger"),  pursuant to which The Indus  Group,  Inc. and TSW
International, Inc. each became subsidiaries of a new Delaware corporation named
Indus  International,  Inc. (the "Company")  which was formed for the purpose of
the  transactions  contemplated  under the Merger.  On December  31,  1997,  the
Company's subsidiaries, The Indus Group, Inc. and TSW International,  Inc., each
merged with and into the Company (the  "Roll-up  Merger").  The Company,  as the
surviving  corporation,  assumed all  obligations  of the two  subsidiaries,  in
connection  with the Roll-up  Merger.  The Merger was  consummated on August 25,
1997, as a tax-free  reorganization pursuant to the provisions of Section 368 of
the Internal  Revenue Code of 1986,  and has been  accounted for as a pooling of
interests.  In connection with the Merger,  (a) each share of outstanding common
stock of The Indus Group,  Inc. was converted  into one share of Common Stock of
the Company ("Common  Stock") and (b) each outstanding  share of common stock of
TSW ("TSW Common Stock"),  and each outstanding  share of preferred stock of TSW
("TSW Preferred  Stock"),  was converted into  approximately  2.73 shares of the
Company's Common Stock; (c) the outstanding  subordinated floating rate notes of
TSW  (including  accrued  interest  thereon) were  exchanged for an aggregate of
1,235,879  shares of the Company's  Common Stock;  (d) all rights to receive any
unpaid  dividends on TSW  Preferred  Stock were  converted  into an aggregate of
53,937 shares of the Company's Common Stock and (e) each  outstanding  option or
warrant to purchase  TSW Common Stock was  converted  into an option or warrant,
respectively,  to purchase that number of shares of the  Company's  Common Stock
determined  by  multiplying  the number of shares of TSW Common Stock subject to
such option or warrant by approximately  2.73, at an exercise price per share of
the Company's  Common Stock equal to the exercise  price per share of TSW Common
Stock pursuant to such option or warrant divided by approximately 2.73. Based on
the  capitalization  of  TSW   International,   Inc.  as  of  August  25,  1997,
approximately  10.2 million shares of the Company's  Common Stock were issued in
the transaction and the Company has reserved approximately 7.9 million shares of
its Common Stock for issuance pursuant to the assumption of outstanding  options
and warrants to purchase TSW Common Stock.

         As a  result  of the  transaction,  the  Company  incurred  charges  to
operations  of $9.98  million of Merger  related  costs during  fiscal 1997 that
primarily  related  to  approximately  $6.7  million  for  transaction  fees and
professional  services,  $1.7  million  for  consulting  services  incurred by a
significant stockholder and $1.6 million for other costs incident to the Merger.
Of the total  charge,  cash  outflow to date is $7.6  million and  $700,000  are
future  outflows as of December 31, 1997. The future  outflows will primarily be
paid  during the next 9 months.  In addition to the  Merger related  costs,  the
Company accrued costs and losses for the  restructuring  of the Company totaling
$2.1 million.  Of the total cost,  $916,000 results from excess  facilities that
will be vacated and $1.2 million from  termination  costs of excess or redundant
employees. Of the total charge, cash outflow to date is $404,000.

         Prior to the Merger, TSW International,  Inc. used a fiscal year ending
on March 31.  Accordingly,  the restated financial  statements combine the March
31, 1996 and March 31, 1997 financial statements of TSW International, Inc. with
the December 31, 1995 and 1996  financial  statements of The Indus Group,  Inc.,
respectively.  Revenues  and the net income of TSW  International,  Inc. for the
three-month  period  ended  March 31, 1997 were $21.4  million and $0.3  million
respectively,  with  the net  income  reflected  as an  adjustment  to  retained
earnings effective January 1, 1997.

                                       8

<PAGE>


                            INDUS INTERNATIONAL, INC.
                   NOTES TO FINANCIAL STATEMENTS--(Continued)

<TABLE>
         Separate  results of the combined  entities for the years 1995 and 1996
and for the period  ending  August 25,  1997 (date of Merger) are as follows (in
thousands):

<CAPTION>
                                                                             The Indus Group            TSW               Combined
                                                                             ---------------         ---------            ---------
<S>                                                                             <C>                  <C>                  <C>
Eight months ended August 25, 1997 (Unaudited)
   Revenue ..........................................................           $  57,862            $  28,034            $  85,896
                                                                                ---------            ---------            ---------
   Net Income (loss) ................................................               5,680               (2,887)               2,793
                                                                                =========            =========            =========

1996
   Revenue ..........................................................              75,939               67,099              143,038
                                                                                ---------            ---------            ---------
   Net Income (loss) ................................................               2,528               (3,403)                (875)
                                                                                =========            =========            =========

1995
   Revenue ..........................................................              53,791               48,033              101,824
                                                                                ---------            ---------            ---------
   Net Loss .........................................................           $  (6,820)           $ (11,725)           $ (18,545)
                                                                                =========            =========            =========
</TABLE>


Significant Accounting Policies

Basis of Presentation

         All periods include the combined  results of The Indus Group,  Inc. and
TSW  International,  Inc. on a pooling-of-interests  basis,   as a result of the
Merger effective August 25, 1997.

         The  consolidated  financial  statements  include the accounts of Indus
International,  Inc.  and its  subsidiaries  (collectively,  the  Company).  All
significant  intercompany  balances and transactions  have been eliminated.  The
functional currencies of the Company's foreign subsidiaries are their respective
local  currencies.  Accordingly,  gains and losses from the  translation  of the
financial  statements of the foreign  subsidiaries are included in stockholder's
equity.

Revenue Recognition

         The Company  provides its software to customers  under  contracts which
provide  for both  software  license  fees and system  implementation  services.
Revenues  from system  implementation  services,  which  generally are time- and
material-based,  are recognized as direct contract costs are incurred. Effective
in the quarter ended  September 30, 1997, The Indus Group,  Inc. began to report
applicable  new  license  fees  on  standard  software  products  not  requiring
substantial  modification  or  customization  as earned revenue upon shipment to
customers.  Previously,  because  substantial  modification and customization of
software products was expected by customers,  The Indus Group, Inc. had deferred
the applicable  license fees initially and recognized  those fees as earned over
the period of modification,  customization and other installation  services. TSW
International,   Inc.  which  had  not  been  required  to  perform  substantial
customization services, continued to recognize the applicable portion of license
fees as earned upon shipment of standard software products to customers.

         A portion  of  license  fees is  deferred  initially  and  subsequently
recognized  over the one-year  period during which  continuing  maintenance  and
support  services  are  provided to customers  under the  contracts.  After that
initial contract period, additional maintenance and support services are subject
to separate  contracts for which revenue is recognized ratably over the contract
period.

         Unbilled accounts receivable represent amounts related to revenue which
has been recorded either as deferred revenue or earned revenue but which has not
been billed. Generally, unbilled amounts are billed within 90 days.

         Deferred  revenue  represents   primarily  unearned  license  fees  and
unearned maintenance and support fees.

                                       9

<PAGE>


                            INDUS INTERNATIONAL, INC.
                   NOTES TO FINANCIAL STATEMENTS--(Continued)

Concentration of Credit Risk

         The Company's  customers are generally large companies in the utilities
and energy industry, process, discreet and consumer packaged goods companies, as
well as  educational,  municipal  and  transportation  authorities.  The Company
performs  ongoing  credit  evaluations  of its  customers  and does not  require
collateral.  The Company  maintains  allowances for potential  credit losses and
such losses have been within management's expectations.  No individual customers
represented greater than 10% of sales in 1995, 1996 and 1997.

Cash Equivalents and Marketable Securities

         The Company considers all highly liquid, low risk debt instruments with
a  maturity  of  three  months  or less  from the  date of  purchase  to be cash
equivalents.  The Company  generally  invests its cash and cash  equivalents  in
money market  accounts and agency  repurchase  agreements,  which are secured by
government agency securities.

   The   Company   presently    classifies   all   marketable    securities   as
available-for-sale investments and carries them at fair market value. Marketable
securities  represent U.S.  government  obligations and indirect  investments in
municipal  obligations.  Marketable securities classified as long-term mature no
later than July 1, 1999.  Unrealized holding gains and losses, net of taxes, are
included in stockholders' equity.

Property and Equipment

         Property  and  equipment  is stated at cost.  Equipment  under  capital
leases is  stated  at 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.

Capitalized Software

         No  amounts  related  to  internally   developed   software  have  been
capitalized.   Purchased  software  costs  included  in  other  assets  resulted
principally  from the  acquisition  by TSW  International,  Inc.  of SQL Systems
International  plc.  These costs are amortized  over three years,  the estimated
life of the related  product.  Amortization  expense recorded in 1995, 1996, and
1997 was approximately $356,000, $459,000, and $294,000 respectively.

Investments and Intangibles, net

         In 1997, The Indus Group, Inc. acquired convertible  preferred stock in
Tenfold Corporation, a privately held software company in the development stage,
for approximately $8 million in cash. This investment,  which if converted would
result in a 10%  interest,  is carried at cost.  Also in 1997,  The Indus Group,
Inc.  acquired a management  consulting  firm for $4.75  million in common stock
(339,285  shares of The Indus Group,  Inc. valued at $14 per share) and $250,000
in cash.  The $5 million  acquisition  cost is being  amortized over a four year
period,  which is consistent with the related  employment,  confidentiality  and
non-competition agreements.

Advertising Costs

         Advertising  costs are  charged  to expense in the period the costs are
incurred.  Advertising expense was approximately $370,000, $486,000 and $472,000
in 1995, 1996, and 1997, respectively.

                                       10

<PAGE>


                            INDUS INTERNATIONAL, INC.
                   NOTES TO FINANCIAL STATEMENTS--(Continued)

Income Taxes

         Effective  January 1, 1996, The Indus Group, Inc. elected C Corporation
status for income tax purposes.  Prior to 1996,  The Indus Group,  Inc. was an S
Corporation and, as a result, income determined on the cash basis for income tax
purposes was taxable to the  shareholders,  and not The Indus Group,  Inc.,  for
federal  and  certain  state  income  tax  purposes.   In  connection  with  the
termination  of S  Corporation  status  on  January  1,  1996,  a  $6.7  million
cumulative  effect charge was recorded.  The majority of the  cumulative  effect
charge is due to changing  from the cash basis of accounting as an S Corporation
to the accrual basis of accounting as a C Corporation.  The related deferred tax
liability is payable over four years.

   TSW  International,   Inc.  had  accumulated  operating  loss  carryovers  of
approximately $10.3 million through its fiscal year end March 31, 1997 (included
with the  December  31,  1996 year end of The Indus  Group,  Inc.).  Those  loss
carryovers were subject to a separate taxpayer  limitation  through December 31,
1997 because TSW  International,  Inc. remained as a separate  corporation until
that date. No benefit has been  accorded  those  carryovers in the  accompanying
financial statements.

         The provision for income taxes included in the  accompanying  financial
statements  represents  state and foreign taxes in all years and federal  income
taxes of The Indus Group, Inc. and Indus International,  Inc. for 1996 and 1997,
without any benefit for the operating losses or operating loss carryovers of TSW
International, Inc.

Pro Forma Statement of Operations Data

         Pro forma net income  data in 1995  includes a $1 million  nonrecurring
compensation  charge  representing the fair value of the options granted in 1995
and excludes an $18.9 million nonrecurring  compensation charge representing the
value  of  unexercised  non-qualified  stock  options  upon  elimination  of the
contingency  feature. The contingency feature was intended to preserve The Indus
Group,   Inc.'s  S   Corporation   qualification   by  limiting  the  number  of
shareholders.  If The  Indus  Group,  Inc.  had not  been an S  Corporation,  no
liquidity event  contingency  feature would have been necessary and the value of
all stock options  would have been measured at their grant dates.  Pro forma net
income in 1995 and 1996 reflects  provisions for income taxes assuming The Indus
Group, Inc. was taxed as a C Corporation in both years.

Per Share Data

         The average  outstanding share numbers used in computing basic earnings
per share  data in 1997 and pro forma  basic  earnings  (loss) per share data in
1995 and 1996  reflect  the  average  outstanding  shares of each of the  merged
companies, as adjusted for the effective exchange rates, and also the equivalent
common  shares  required  for  the  redemption  of the  preferred  stock  of TSW
International,  Inc.  As a  result  of new  accounting  pronouncements,  certain
additional  equivalent  shares  are  no  longer  included  in  the  computation.
Additional equivalent shares related to options and warrants are included in the
diluted computations only.

Use of Estimates

         The  preparation  of  the  financial   statements  in  conformity  with
generally accepted  accounting  principles 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.

Recent Accounting Pronouncements

         A new  pronouncement  containing  rules for  timing of  recognition  of
software  company  revenues,  particularly  license fee revenues where there are
multiple  elements  to be  delivered  under a  contract  or  arrangement  with a
customer,  will be  effective  for  transactions  beginning  in 1998.  Under the
Company's  current  policy,  license  fees on  standard  software  products  not
requiring  substantial  modification and customization are recognized as revenue
upon shipment to customers.  The Company has not yet assessed what the impact of
these  rules  will be on its  recognition  of  revenues  in its  1998  financial
statements.

         Other recent  pronouncements relate primarily to disclosure matters and
not  to  timing  of  recognition  of  income.  One  pronouncement  will  require
disclosure of "comprehensive  income",  including items such as unrealized gains
and  losses on  foreign  currency  translation  and  marketable  securities,  in
addition to income in  determined  under  customary  accounting  rules.  Another
pronouncement will require additional or different  "segment" footnote data. The
Company has not yet assessed  what the impact of these rules will be in terms of
additional  or  changed  disclosures  to  be  included  in  its  1998  financial
statements.

                                       11

<PAGE>


                            INDUS INTERNATIONAL, INC.
                   NOTES TO FINANCIAL STATEMENTS--(Continued)

2.  Marketable Securities

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

<CAPTION>
                                                                        Gross             Gross             Gross
                                                                       Amortized       Unrealized         Unrealized       Estimated
                                                                         Cost             Gains             Losses        Fair Value
                                                                        -------          -------           --------          -------
<S>                                                                     <C>              <C>               <C>               <C>
1996
U.S.  Treasury  securities and  obligations
of U.S. government agencies ..................................          $16,067          $  --             $    (65)         $16,002
Municipal obligations ........................................           13,628               23               --             13,651
                                                                        -------          -------           --------          -------
                                                                        $29,695          $    23           $    (65)         $29,653
                                                                        =======          =======           ========          =======

Included in:
Cash and cash equivalents ....................................          $ 1,000          $  --             $   --            $ 1,000
Short term investments .......................................           26,579               10                (65)          26,524
Long term investments ........................................            2,116               13               --              2,129
                                                                        -------          -------           --------          -------
                                                                        $29,695          $    23           $    (65)         $29,653
                                                                        =======          =======           ========          =======
1997
U.S.  Treasury  securities and  obligations
of U.S. government agencies ..................................          $  --            $  --             $   --            $  --
Municipal obligations ........................................           23,649               24               --             23,673
                                                                        -------          -------           --------          -------
                                                                        $23,649          $    24           $   --            $23,673
                                                                        =======          =======           ========          =======

Included in:
Cash and cash equivalents ....................................          $ 6,975          $  --             $   --            $ 6,975
Marketable securities-current ................................           11,874                6               --             11,880
Marketable securities-non current ............................            4,800               18               --              4,818
                                                                        -------          -------           --------          -------
                                                                        $23,649          $    24           $   --            $23,673
                                                                        =======          =======           ========          =======
</TABLE>


         There  have been no  significant  realized  gains or losses on sales of
marketable securities.

3.  Property and Equipment

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

                                                               1996        1997
                                                             -------     -------
Furniture & fixtures ...................................     $ 3,984     $ 4,615
Office equipment .......................................      16,383      19,089
Leasehold improvements .................................       2,391       2,617
Capitalized software ...................................       1,899       2,763
Capital lease ..........................................        --         4,104
                                                             -------     -------
                                                             $24,657     $33,188
Less accumulated depreciation and amortization .........      12,387      16,618
                                                             -------     -------
                                                             $12,270     $16,570
                                                             =======     =======

                                       12

<PAGE>


                            INDUS INTERNATIONAL, INC.
                   NOTES TO FINANCIAL STATEMENTS--(Continued)

4.  Other Accrued Liabilities

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

                                                               December 31
                                                          ----------------------
                                                            1996           1997
                                                          -------        -------
Merger and restructuring .........................        $  --          $ 1,898
Accrued commissions ..............................          2,257          3,089
Accrued payroll and related expenses .............          2,093          2,674
Other accrued liabilities ........................          5,382          6,407
                                                          -------        -------
                                                          $ 9,732        $14,068
                                                          =======        =======

5.  Lines of Credit

The  Company  has a  revolving  bank line of credit of $35.0  million,  which is
secured by all of the  Company's  accounts  receivables.  The  revolving  credit
facility  expires on July 31, 1999 and bears an  interest  rate of the one month
LIBOR rate plus 1.5% (7.19% as of December 31, 1997). This facility replaced and
eliminated The Indus Group, Inc. and TSW International, Inc., revolving lines of
credit, which bore higher interest rates. Borrowings outstanding under this line
of credit were $26.7  million at December 31, 1997.  Stand-by  letters of credit
outstanding  on this line of credit were $0.6 million at both  December 31, 1996
and  1997,   respectively.   The  line  of  credit  agreement  contains  certain
affirmative  and negative  covenants.  The Company was in compliance  with these
covenants at December 31, 1997.

6.  Related Party Transactions

Immediately  prior to the  Merger,  TSW  International,  Inc.  had  subordinated
long-term  notes of  $15,706,000  and accrued  interest of $4,075,000  that were
payable to its principal  stockholder.  The notes bore an interest rate of prime
plus 1.5% with  varying  maturity  dates from July 31, 1999 to October 13, 2000.
Pursuant to the Merger, the outstanding  subordinated floating rate notes of TSW
International,  Inc. and accrued  interest  were  exchanged  for an aggregate of
1,235,879  common shares of the Company.  Deferred  issuance costs in connection
with the notes were written off as an extraordinary item in 1997.

         In 1997, TSW  International,  Inc.  forgave two notes  receivable  from
officers and stockholders  totaling $457,000.  TSW  International,  Inc. lent an
additional  $161,850 to the individuals for payment of taxes in conjunction with
the note forgiveness.

         The Company  held  employee  notes  receivable  totaling  $537,000  and
$416,000  at  December  31,  1996 and  1997,  respectively,  from  officers  and
employees of the Company.

In 1995, TSW International,  Inc. purchased  approximately $557,000 of specified
research  and  development  services  from a  company  in  which  its  principal
shareholder had an ownership interest for a portion of the year.

         Through 1995, The Indus Group,  Inc had a software  license and royalty
agreement with its Chief Executive Officer and principal  shareholder.  In 1995,
accrual and payment under this agreement was waived.

                                       13

<PAGE>


                            INDUS INTERNATIONAL, INC.
                   NOTES TO FINANCIAL STATEMENTS--(Continued)

7.  Commitments

         The Company leases its office  facilities under various operating lease
agreements.  The leases  require  monthly  rental  payments  in varying  amounts
through 2005.  These leases also require the Company to pay all property  taxes,
normal maintenance, and insurance on the leased facilities.

         Total   rental   expense   under  these  leases  (in   thousands)   was
approximately $4,508,  $6,683 and $5,215 for 1995, 1996 and 1997,  respectively.
Future minimum lease payments under all  non-cancelable  operating leases are as
follows (in thousands):

                                                          Operating      Capital
Years Ending December 31                                    Leases        Leases
------------------------                                    ------        ------

     1998 ..........................................       $ 4,347       $ 2,404
     1999 ..........................................         4,441         1,053
     2000 ..........................................         3,919           197
     2001 ..........................................         2,419            19
     2002 ..........................................         1,899             4
     Thereafter ....................................         4,057          --
                                                           -------       -------
Total minimum payments required ....................       $21,082       $ 3,677
                                                           =======
Less amounts representing interest .................                         168
                                                                         -------
Present value of future lease payments .............                     $ 3,509
Less current portion ...............................                       2,404
                                                                         -------
Long term portion ..................................                     $ 1,105
                                                                         =======


         In 1995,  Sumitomo  Bank issued four  irrevocable  stand-by  letters of
credit  totaling  $29,967.   In  1996,   Sumitomo  Bank  issued  two  additional
irrevocable  stand-by letters of credit totaling  $370,000.  These letters are a
requirement of two of the Company's licensing agreements.  This letter of credit
requirement will terminate in January 1998.

         In 1996,  Nations Bank issued an  irrevocable  standby letter of credit
for $200,000,  as a requirement for a licensing agreement.  In 1997, this letter
of credit was  increased  to  $325,000.  This letter of credit will expire March
1998.

8.  Stockholders' Equity

         On June 4, 1997, the articles of incorporation for Indus International,
Inc. were filed.

   The following is a summary of the authorized and issued  Preferred and Common
Stock of Indus International, Inc:

                                                                     December 31
                                                                        1997
                                                                    ------------
Preferred Stock
Authorized shares, $.001 par value per share ...............          10,000,000
Issued and outstanding .....................................                --
Amount .....................................................        $       --

Common Stock
Authorized shares, $.001 par value per share ...............         100,000,000
Issued and outstanding .....................................          29,935,980
Amount (in thousands) ......................................        $     29,936

                                       14

<PAGE>


                            INDUS INTERNATIONAL, INC.
                   NOTES TO FINANCIAL STATEMENTS--(Continued)

8.  Stockholders' Equity - (Continued)

         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 unissued 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  or  preventing  a change in control of the
Company. The Company has no current plan to issue any shares of Preferred Stock.

In June 1995,  The Indus Group,  Inc.  issued  162,622 shares of common stock to
several employees in exchange for notes aggregating $109,626.  The notes will be
forgiven  over a five-year  period  provided  the note  holders  continue  their
employment with the Company.  Additional  deferred  compensation of $370,000 was
recorded for the  difference  between the notes and the deemed fair value of the
shares at the date of issuance.  The $479,626  total  deferred  compensation  is
being amortized over the five-year period.


9.  Stock Plans

Stock Option and Benefit Plans

         Upon  consummation  of the  Merger,  The  Indus  Group,  Inc.  and  TSW
International,  Inc. stock option plans terminated and each  outstanding  option
under the plans as well as any individual non-plan options of TSW International,
Inc. were assumed and converted  into options to purchase  Indus  International,
Inc. Common Stock, at the respective exchange rates in the Merger.

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

1997 Stock Option Plan

         The 1997 Stock Option Plan (the "Stock Plan") provides for the grant of
incentive  stock options to employees,  including  officers and  directors,  and
consultants  of the  Company  or any  subsidiary  of the  Company.  A  total  of
5,000,000  shares has been  reserved  for  issuance  under the Stock  Plan.  The
incentive  stock  options  will be granted at not less than fair market value of
the stock on the date of grant. The options will generally vest over one to four
years and have a maximum term of ten years.

1997 Director Stock Option Plan

         Each  director  who is not an employee of the Company is  automatically
granted a nonstatutory stock option to purchase 10,000 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  Stock Option Plan (the
"Director  Option Plan").  Thereafter,  each such person will  automatically  be
granted an option to acquire  2,500  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 200,000  shares have
been reserved for issuance under the Director  Option Plan.  Each option granted
under the Director  Option Plan will become  exercisable as to 25% of the Shares
subject to such option on each anniversary of its date of grant.

                                       15

<PAGE>


                            INDUS INTERNATIONAL, INC.
                   NOTES TO FINANCIAL STATEMENTS--(Continued)

9.  Stock Plans - (Continued)

<TABLE>
         The activity under the option plans, combined, was as follows:

<CAPTION>
                                                   Options Outstanding
                                               --------------------------
                              Shares Available  Number of        Price
                                 for Grant       Shares         Per Share
                              ----------------  ---------       ---------
<S>                              <C>           <C>          <C>
Balances at December 31, 1994    7,040,963     2,748,197    $ 0.28 - $ 1.65
   Shares reserved ..........         --            --
   Options granted ..........     (627,847)      627,847    $ 0.35 - $ 4.20
   Options canceled .........       56,440       (56,440)            $ 0.28
   Options exercised ........         --            --
                                ----------     ----------
Balances at December 31, 1995    6,469,556     3,319,604    $ 0.28 - $ 4.20
   Shares reserved ..........    1,600,000          --
   Options granted ..........   (2,925,942)    2,925,942    $ 3.38 - $22.75
   Options canceled .........        7,350        (7,350)   $ 0.28 - $16.50
   Options exercised ........         --        (916,845)   $ 0.28 - $ 0.69
                                ----------     ----------
Balances at December 31, 1996    5,150,964     5,321,351    $ 0.28 - $22.75
   Shares reserved ..........    8,400,000          --
   Options granted ..........   (4,396,604)    4,396,604    $ 3.94 - $25.75
   Options canceled .........      577,466      (577,466)   $ 0.28 - $25.00
   Options exercised ........         --        (784,481)   $ 0.28 - $15.00
   Plan shares expired ......   (8,027,326)         --
                                ==========     ==========
Balances at December 31, 1997    1,704,500     8,356,008    $ 0.28 - $25.75
                                ==========     ==========
</TABLE>


1992 Stock Option Plan (former Indus Group, Inc.)

         Under a stock option plan of The Indus Group,  Inc.  effective prior to
its becoming a C Corporation,  options granted would not be exercisable  until a
"liquidity  event" had  occurred.  A liquidity  event was defined as the sale of
more than 20% of the voting stock interest to an independent party or parties or
an  acquisition  of the Company,  which would result in termination of the plan.
Options  granted would expire on the earlier of termination of employment or ten
years.  Upon  expiration  of an option,  the  Company was  obligated  to pay the
optionee the increase in book value over the term of the option ("the book value
appreciation feature"). If any options were exercised,  the Company would retain
the right to  repurchase  the  issued  shares  at their  then  book  value  upon
termination  of  employment.  As of September  29, 1995,  the Board of Directors
eliminated the liquidity  event  contingency,  thereby  causing the options then
outstanding as to 1,791,970  common shares to be exercisable in their  entirety.
As a result,  these  options were valued as of September  30, 1995 for financial
statement  purposes  and a one-time  charge of  $18,900,000  was recorded in the
statement of operations.  The book value appreciation  feature,  in the event of
expiration of an option, also was eliminated at that time.

1997 Employee Stock Purchase Plan

         Indus  International,  Inc. has an employee  stock  purchase plan under
which 1,000,000 shares of Common Stock have been reserved 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.  The initial  offering  period began  November  1997.  Purchases will be
limited to 10% of each employee's  compensation.  The Company has not issued any
stock under the plan.

         Under a prior  employee  stock  purchase plan of The Indus Group,  Inc.
71,309 and 39,101 shares were issued in 1996 and 1997,  respectively,  at prices
ranging from $12.75 to $17.21 per share.

                                       16

<PAGE>


                            INDUS INTERNATIONAL, INC.
                   NOTES TO FINANCIAL STATEMENTS--(Continued)

10.  Alternative Method of Valuing Stock Options

         For employee stock options granted with exercise prices at or above the
existing  market price and without any  contingent  feature as to the optionee's
ability to exercise  (other than the passage of time as a continuing  employee),
the Company records no compensation expense.

   The following  pro forma data is based on an  alternative  in which  employee
stock  options  granted  after  1994  are  valued  at  grant  date  based on the
Black-Scholes  option pricing model, a model that was developed to value options
subject to an active  trading  market.  Although  employee stock options are not
subject to a trading market, active or inactive,  the pro forma disclosures that
follow are required by applicable accounting pronouncements.

         The Indus Group, Inc. estimated the fair value for these options at the
date of grant  using the  minimum  value  method for 1995 and the  Black-Scholes
option  pricing  model for 1996 and 1997,  with the  following  weighted-average
assumptions for 1995, 1996 and 1997,  respectively:  risk-free interest rates of
6.0%, 5.75% and 6.43%, dividend yields of 0%; volatility factors of the expected
market price of the company's  stock of 0.0, 0.75 and 0.60; and an expected life
of the options of one, four and six years. TSW International, Inc. estimated the
fair value for these options at the date of grant using the minimum value option
pricing model for 1995 and 1996 and the  Black-Scholes  option pricing model for
1997, with the following  weighted-average  assumptions for 1995, 1996 and 1997,
respectively:  risk-free  interest  rates of 5.86%,  6.15% and  6.43%,  dividend
yields of 0%;  volatility  factors of the expected market price of the company's
stock of 0.0,  0.0 and 0.60,  and an expected  life of the options of five years
for 1995, 1996 and 1997. Indus International,  Inc. has estimated the fair value
for the  options at the date of grant  using the  Black-Scholes  option  pricing
model,  with the  following  weighted-average  assumptions  for 1997:  risk-free
interest rate of 6.43%,  dividend yield of 0%, volatility factor of the expected
market price of the company's stock of 0.60, and an expected life of the options
of six years.

         For purposes of pro forma disclosures,  the estimated fair value of the
options is amortized to expense over the options' vesting period.  The Company's
pro forma  information  net  income  (loss)  including  pro  forma  compensation
expense,  net of tax for the  years  ended  December  31,  1995,  1996 and 1997,
respectively,  is as  follows  (in  thousands  except  for  earnings  per  share
information):

                                             1995           1996         1997
                                           --------       --------     --------
Pro forma net income (loss)...........     $(20,207)      $  5,740     $ (1,546)
Pro forma net income (loss) per share.     $  (0.92)      $   0.22     $  (0.05)

                                       17

<PAGE>


                            INDUS INTERNATIONAL, INC.
                   NOTES TO FINANCIAL STATEMENTS--(Continued)

10.  Alternative Method of Valuing Stock Options - (Continued)

<TABLE>
         The  following  table  summarizes   information   about  stock  options
outstanding as of December 31, 1997.

<CAPTION>
                                                                                            Options
                                         Options Outstanding                              Exercisable
                             --------------------------------------------          ------------------------
                                                Weighted-        Weighted-                         Weighted-
                                                 Average          Average                           Average
                               Number of         Remaining        Exercise        Number of         Exercise
  Range of Exercise Prices      Shares       Contractual Life       Price          Shares             Price
  ------------------------   -----------     ----------------       -----          --------           -----
<S>                           <C>                   <C>           <C>              <C>              <C>
       $ 0.28  -  $ 1.65      1,752,531             4.56          $  1.06          1,573,470        $  0.99
       $ 2.20  -  $ 2.20          8,354             7.24             2.20              8,354           2.20
       $ 3.38  -  $ 3.38      1,894,485             8.70             3.38            927,132           3.38
       $ 3.94  -  $13.50        486,212             9.27             5.47            103,657           5.02
       $13.75  -  $13.75      3,290,750             9.85            13.75                  -              -
       $14.13  -  $25.75        923,676             8.58            16.62            179,256          16.67
                              ---------             ----          -------          ---------        -------
        Total                 8,356,008             8.30          $  8.56          2,791,869        $  2.95
                              =========             ====          =======          =========        =======
</TABLE>


         The weighted  average fair value of options  granted in 1995,  1996 and
1997 is $3.91, $8.57 and $8.20, respectively, using these alternative methods of
valuation.

11.  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 one-half year of service are eligible
to participate.  Each participant may elect to have amounts deducted from his or
her  compensation  and  contributed  to the  plan  up to 15% of his or her  base
salary.  All  contributions are fully vested at the time the employee becomes an
active participant.

   The Company also has a profit  sharing plan. All employees over the age of 21
who  have   completed  at  least  one-half  year  of  service  are  eligible  to
participate.  Contributions  to the plan are at the  discretion  of the board of
directors and are made to eligible employees'  individual accounts in proportion
to their base salary.  Contribution  expense  related to the profit sharing plan
for 1995,  1996 and 1997 was  approximately  $238,000,  $250,000  and  $250,000,
respectively.

                                       18

<PAGE>


                            INDUS INTERNATIONAL, INC.
                   NOTES TO FINANCIAL STATEMENTS--(Continued)

12.  Geographic Information

<TABLE>
Geographic information is as follows (in thousands):

<CAPTION>
                                                                                      1995               1996                1997
                                                                                    ---------          ---------          ---------
<S>                                                                                 <C>                <C>                <C>
Net sales (based on destination)
   United States ..........................................................         $  79,287          $ 101,691          $ 135,763
   International (including United States exports shown
   below):
     Europe ...............................................................             9,259             16,891             14,668
     Asia .................................................................             5,060              7,987              7,070
     Canada ...............................................................             1,772             12,252             15,422
     Other ................................................................             6,446              4,217              4,111
                                                                                    ---------          ---------          ---------
Total International .......................................................            22,537             41,347             41,271
                                                                                    ---------          ---------          ---------
   Total consolidated net sales ...........................................         $ 101,824          $ 143,038          $ 177,034
                                                                                    =========          =========          =========
Income from operations
   United States ..........................................................         $  42,011          $  56,377          $  75,506
   International:
     Europe ...............................................................             4,906              9,364              8,158
     Asia .................................................................             2,681              4,428              3,932
     Canada ...............................................................               939              6,792              8,577
     Other ................................................................             3,416              2,338              2,286
Corporate administrative and other expenses ...............................           (69,962)           (64,738)           (88,306)
Interest and other expenses, net ..........................................            (2,113)            (1,887)            (1,968)
                                                                                    =========          =========          =========
Total consolidated income (loss) before income taxes ......................         $ (18,122)         $  12,674          $   8,185
                                                                                    =========          =========          =========
Identifiable assets
   United States ..........................................................         $  41,536          $ 100,105          $ 118,918
   International:
     Europe ...............................................................             8,025              8,834              5,490
     Asia .................................................................             2,163              3,951              3,225
     Canada ...............................................................             3,114              3,228              5,895
     Other ................................................................             2,896              1,737              3,197
                                                                                    =========          =========          =========
Total consolidated identifiable assets ....................................         $  57,734          $ 117,855          $ 136,725
                                                                                    =========          =========          =========
United States export sales (reported in international sales
above)
     Europe ...............................................................         $   2,017          $   7,337          $   3,201
     Asia .................................................................             1,766              2,326                871
     Canada ...............................................................             1,772             12,252             15,422
     Other ................................................................             6,446              4,217              4,069
                                                                                    =========          =========          =========
Total consolidated export sales ...........................................         $  12,001          $  26,132          $  23,563
                                                                                    =========          =========          =========
</TABLE>

                                                                 19

<PAGE>


                            INDUS INTERNATIONAL, INC.
                   NOTES TO FINANCIAL STATEMENTS--(Continued)

13.  Income Taxes

         The  provision  for  income  taxes  (state  and  foreign  only in 1995)
consists of the following (in thousands):

                                         1995            1996            1997
                                       --------        --------        --------
Current:
   Federal .....................       $   --          $  7,639        $  7,993
   State and foreign ...........            193           2,497           1,823
                                       --------        --------        --------
Deferred: ......................            193          10,136           9,816
                                       --------        --------        --------
   Federal .....................           --            (2,522)         (3,057)
   State and foreign ...........            230            (765)           (351)
                                       --------        --------        --------
                                            230          (3,287)         (3,408)
                                       --------        --------        --------
                                       $    423        $  6,849        $  6,408
                                       ========        ========        ========


         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:

                                                   Percentage
                                                 --------------
                                                 1996      1997
                                                 ----      ----
Federal statutory rate ...................       35.0 %    35.0 %
Merger expenses ..........................         --      41.1
State taxes, net of federal benefit ......        6.5       9.3
Foreign Taxes ............................        2.3       3.7
FSC benefit ..............................       (2.3)     (1.5)
R&D credit ...............................       (1.1)     (4.8)
TSW NOL tax benefit, net .................        8.6     (10.3)
Other ....................................        5.0       5.8
                                                 ----      ----
                                                 54.0 %    78.3 %
                                                 ====      ====


         The 1996 and 1997  current  federal  and  state tax  provisions  do not
reflect the tax savings of $6,669,000  and  $3,479,000,  respectively  resulting
from  deductions  associated  with the exercise of stock options by employees in
1996. This tax benefit has been included in additional capital.

         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 liability are as follows (in thousands):

                                                               December 31,
                                                           --------------------
                                                             1996         1997
                                                           --------    --------
Accounts receivable allowances .........................   $   (444)   $   (804)
Tax over book depreciation and amortization ............        703         782
Nondeductible accruals .................................     (1,287)     (2,100)
Deferred licensing fee revenue .........................     (7,027)     (4,641)
State income taxes .....................................       (339)       (672)
Conversion from cash to accrual basis of accounting ....      8,612       5,542
Net operating loss and tax credit carryforwards ........     (6,445)     (6,826)
Other, net .............................................       --            (2)
                                                           --------    --------
   Subtotal ............................................     (6,227)     (8,721)
Less valuation allowance ...............................     10,064       9,140
                                                           --------    --------
Net deferred tax liability .............................   $  3,837    $    419
                                                           ========    ========

         The additional  taxable  income  resulting from the change by The Indus
Group,  Inc. from the cash to accrual  basis of  accounting  for income taxes in
1996 will be reportable in taxable  income over the years 1996 through 1999. The
valuation  allowance is attributable to TSW International,  Inc.'s net operating
loss and tax credit carryforwards and other temporary differences on the date of
the Merger.

                                       20