##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




---

Form 10-K

FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTIONS 13 OR 15(d) OF THE


SECURITIES EXCHANGE ACT OF 1934


|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended December 31,
    2002                                             
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|          
|           |  | For the Transition Period
    from             to             .                             

Commission File Number: 0-22993



---

INDUS INTERNATIONAL, INC.

(Exact name of Registrant as specified in its
charter)


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

Registrants telephone number, including
area code

(770) 952-8444


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

None


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

Common Stock, $.001 par value


(Title of Class)




---

Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports) and
(2) has been subject to such filing requirements for the
past
90 days.    Yes þ        No o

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

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

The aggregate market value of the voting stock
held by non-affiliates of the Registrant, based upon the closing
sale price $2.39 of the Common Stock on June 28, 2002, as
reported on the Nasdaq National Market, was approximately
$51,395,000. Shares of Common Stock held by each officer and
director and by each person who owns 5% or more of the
outstanding Common Stock have been excluded in that such persons
may by deemed to be affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other
purposes.

The number of shares outstanding of the
registrants Common Stock, $.001 par value, was 42,065,530
at March 27, 2003.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for
Registrants 2003 Annual Meeting of Stockholders are
incorporated by reference in Part III hereof, to the extent
stated herein.



---






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TABLE OF CONTENTS



|                                                                                                                                                                          |                                                                                                         |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|TABLE OF CONTENTS                                                                                                                                                        
|CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS                                                                                                                
|PART I                                                                                                                                                                   
|                                                                                                                                                                          | Item 1. Description of Business                                                                        
|                                                                                                                                                                          | Item 2. Properties                                                                                     
|                                                                                                                                                                          | Item 3. Legal Proceedings                                                                              
|                                                                                                                                                                          | Item 4. Submission of Matters to a Vote of Security Holders                                            
|PART II                                                                                                                                                                  
|                                                                                                                                                                          | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                          
|                                                                                                                                                                          | Item 6. Selected Financial Data                                                                        
|                                                                                                                                                                          | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations          
|                                                                                                                                                                          | Item 7A. Quantitative and Qualitative Disclosures About Market Risks                                   
|                                                                                                                                                                          | Item 8. Financial Statements and Supplementary Data                                                    
|                                                                                                                                                                          | Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure           
|PART III                                                                                                                                                                 
|                                                                                                                                                                          | Item 10. Directors and Executive Officers of the Registrant                                            
|                                                                                                                                                                          | Item 11. Executive Compensation                                                                        
|                                                                                                                                                                          | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|                                                                                                                                                                          | Item 13. Certain Relationships and Related Transactions                                                
|                                                                                                                                                                          | Item 14. Controls and Procedures                                                                       
|PART IV                                                                                                                                                                  
|                                                                                                                                                                          | Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K                              
|SIGNATURES                                                                                                                                                               
|CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECURITIES EXCHANGE ACT RULES 13A-14 AND 15D-14 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
|CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECURITIES EXCHANGE ACT RULES 13A-14 AND 15D-14 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
|EX-21.1 LIST OF SUBSIDIARIES                                                                                                                                             
|EX-23.1 CONSENT OF ERNST & YOUNG LLP                                                                                                                                     
|EX-99.1 SECTION 906 CERTIFICATION OF THE CEO                                                                                                                             
|EX-99.2 SECTION 906 CERTIFICATION OF CFO                                                                                                                                 



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##### Table of Contents



INDUS INTERNATIONAL, INC.

FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31,
2002





TABLE OF CONTENTS

|                                                              |  |                                                                                                    |       |      |    | 
|------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------- | ----- | ---- | -- | 
|                                                              |  |                                                                                                    |       | Page
|                                                              |  |                                                                                                    |       |     
|Documents Incorporated by Reference                           |  |                                                                                                    | Cover |     
|Cautionary Statement Regarding Forward-Looking
    Statements |  |                                                                                                    | 2     |     
|PART I                                                       
|Item 1.                                                       |  | Description of Business                                                                            |       |      | 2  | 
|Item 2.                                                       |  | Properties                                                                                         |       |      | 24 | 
|Item 3.                                                       |  | Legal Proceedings                                                                                  |       |      | 24 | 
|Item 4.                                                       |  | Submission of Matters to a Vote of Security
    Holders                                            |       |      | 25 | 
|PART II                                                      
|Item 5.                                                       |  | Market for Registrants Common Equity and
    Related Stockholder Matters                          |       |      | 25 | 
|Item 6.                                                       |  | Selected Financial Data                                                                            |       |      | 27 | 
|Item 7.                                                       |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations          |       |      | 28 | 
|Item 7A.                                                      |  | Quantitative and Qualitative Disclosures About
    Market Risks                                    |       |      | 36 | 
|Item 8.                                                       |  | Financial Statements and Supplementary Data                                                        |       |      | 37 | 
|Item 9.                                                       |  | Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure           |       |      | 61 | 
|PART III                                                     
|Item 10.                                                      |  | Directors and Executive Officers of the Registrant                                                 |       |      | 61 | 
|Item 11.                                                      |  | Executive Compensation                                                                             |       |      | 61 | 
|Item 12.                                                      |  | Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters |       |      | 61 | 
|Item 13.                                                      |  | Certain Relationships and Related Transactions                                                     |       |      | 61 | 
|Item 14.                                                      |  | Controls and Procedures                                                                            |       |      | 61 | 
|PART IV                                                      
|Item 15.                                                      |  | Exhibits, Financial Statement Schedules, and
    Reports on Form 8-K                               |       |      | 63 | 
|Signatures                                                    |  |                                                                                                    | 66    |     
|Power of Attorney                                             |  |                                                                                                    | 66    |     

1



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##### Table of Contents






CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS

This Annual Report on Form 10-K, as well
as documents incorporated herein by reference, may contain
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended. These forward-looking statements are not based on
historical facts, but rather reflect managements current
expectations concerning future results and events. These
forward-looking statements generally can be identified by the
use of phrases and expressions such as believe,
expect, anticipate, intend,
plan, foresee, likely,
will or other similar words or phrases. These
statements, which speak only as of the date given, are subject
to certain risks and uncertainties that could cause actual
results to differ materially from our historical experience and
our expectations or projections. These risks include, but are
not limited to, the successful integration of the acquisition of
Indus Utility Systems, Inc. (IUS) including the
challenges inherent in diverting our managements attention
and resources from other strategic matters and from operational
matters, the successful rationalization of the IUS business and
products, ability to realize anticipated or any synergies or
cost-savings from the acquisition, current market conditions for
Indus and IUS products and services, our ability to
achieve growth in our core product offerings and the combined
Indus/IUS offerings, market acceptance and the success of
Indus and IUS products, the success of our product
development strategy, our competitive position, the ability to
enter into new partnership arrangements and to retain existing
partnership arrangements, uncertainty relating to and the
management of personnel changes, timely development and
introduction of new products, releases and product enhancements,
current economic conditions and the timing and extent of a
recovery, heightened security and war or terrorist acts in
countries of the world that affect our business, and other risks
identified in the section of this Report entitled
Description of Business  Factors Affecting
Future Performance, beginning on page 13. Readers are
cautioned not to place undue reliance on these forward-looking
statements, which reflect managements opinions only as of
the date hereof. The Company undertakes no obligation to revise
or publicly release the results of any revision to these
forward-looking statements.




PART I




Item 1.     Description
of Business

General

Indus International, Inc. (the
Company or Indus) is a leading provider
of integrated enterprise asset management (EAM) and
supply chain software and service products for capital-intensive
industries worldwide that have very complex assets. Through its
March 2003 acquisition of Indus Utility Systems, Inc.
(IUS) (formerly SCT Utility Systems, Inc) from
Systems & Computer Technology Corporation, Indus has become
a leading provider of customer management and billing software
to the energy and utilities markets.



| |          
| | ---------
| | Indus EAM

Indus EAM solutions help its customers
better manage the full array of their assets and optimize their
enterprises. The Company provides three principal EAM software
solutions series  PassPort, EMPAC and Indus InSite.

PassPort and EMPAC are targeted to the large
market, asset-intensive industries, requiring complex
functionality. Each provides a series of business applications
and business process improvement service packages that meet the
EAM needs of businesses such as utilities, oil and gas, pulp and
paper, mining and metals, defense, and process. These products
are designed for large-scale projects with extensive record
keeping requirements and high transaction volume.

Indus InSite is tailored for less asset-intensive
industries that can benefit from managing their assets and
facilities more efficiently. These industries include the
facilities maintenance market in commercial and industrial real
estate, health care, leisure properties, and government and
educational facilities. In 2002 and

2



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continuing in 2003, the Company began combining
the architecture of EMPAC with that of Indus InSite into a
single product offering under the product name InSite. This new
product offering will be comprised of InSite EE, intended for
capital intensive industries, and InSite, for the less capital
intensive industries.


Indus EAM products provide its customers
with increased return on their investment by enabling them to
match the work that must be done with the people, materials,
tools, and permits required to do it. The more efficiently these
resources are used, the greater the reliability in plant
facility and factory availability, and the lower the related
operating costs, thereby increasing the customers return
on assets. Examples of customer benefits realized through
Indus EAM products include:



| |   |                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------
| |  | Proper maintenance of equipment and facilities
    can prevent costly failures, limit disruptions, and minimize
    downtime;
|
| |  | More efficient use of personnel and better
    control of spare parts can reduce costs;                                      
|
| |  | Properly maintained equipment can run at higher
    production speeds and have longer life cycles;                           
|
| |  | Delaying new equipment purchases lowers the
    capital expense budget; and                                                  
|
| |  | Proper regulatory compliance facilitated by
    Indus solutions can help companies avoid fines and forced
    shutdowns.    

As a premier EAM supplier of complex
functionality to asset intensive industries, the Companys
PassPort, EMPAC and Indus InSite software products were licensed
for use by over 300,000 end users in more than 40 countries at
December 31, 2002. Indus customers comprise over 50% of the
energy, oil and gas, pulp and paper, and metals and mining
companies in the Fortune 500.



| |                   
| | ------------------
| | Acquisition of IUS

The Companys acquisition of IUS on
March 5, 2003, adds customer information systems
(CIS), complex billing solutions, and customer
relationship management (CRM) software to the Indus
EAM solution set. IUS is a leading provider of CIS software in
the energy and utilities market with over 200 client sites using
components of IUS solutions. Its customer base includes a broad
spectrum of utilities, including investor owned utilities,
municipal/public utilities, and rural electric cooperatives.
While IUS client base represents utilities of all sizes,
IUS services a significant number of very large organizations,
including approximately 43 percent of the utility/energy
companies in the United States with more than 1 million
customers. As of December 31, 2002, IUS products have been
licensed to manage approximately 63 million services and
generate approximately 40 million bills per month.

The Company believes that the acquisition creates
a new competitive landscape in the utilities market and greatly
strengthens Indus competitive position in this market.
Indus now represents the first vendor that has the capability to
provide an integrated software solution for utilities customers
that ranges from the CIS suite of the IUS Banner software
product to the asset and work management solutions of
Indus EAM products. This acquisition redefines the utility
industry marketplace, giving Indus the widest footprint in an
industry where Indus has been helping customers for over
25 years.

Strategic benefits of the acquisition include:



| |   |                                                                                                    
| | - | ---------------------------------------------------------------------------------------------------
| |  | providing added value to Indus existing
    customers;                                            
|
| |  | allowing Indus to compete in the Service
    Management space, creating new customer opportunities;
|
| |  | lowering total cost of ownership for customers;                                                    
|
| |  | strengthening the alliance between Indus and its
    utility customers; and                        
|
| |  | providing a pathway for increased revenues,
    operational efficiencies and profitability.        

3



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##### Table of Contents



Indus Solutions



| |              
| | -------------
| | EAM Solutions

The Company provides three principal EAM software
solutions series  PassPort, EMPAC and Indus InSite.
PassPort and EMPAC are typically licensed by customers, but both
are also available as a hosted product supported by Indus
through remote data centers while Indus InSite is a hosted
solution. Indus InSite EE will be available as either a licensed
or hosted solution.

Beginning in 2002 and continuing throughout 2003,
the Company is re-architecting its three EAM solutions into two,
after which the previously separate EMPAC and Indus InSite
products will be delivered to the marketplace under the InSite
product name. The Company believes that this more focused
strategy will deliver a wide range of business processes in a
Web-architected format that is easy to use and readily
deployable. Clients who have previously adopted InSite will have
a greater range of functionality available to them than would
have been delivered under previous product plans. Clients who
have previously adopted EMPAC will have a new deployment option
using Web-architected technology, as well as increased
functionality. This combined product offering under the InSite
product name will be delivered to the market in two versions.
One version, with lighter functionality that is appropriate to
markets with less complex asset management needs, will be
provided under the name Indus InSite. A more complex
version, with more comprehensive functionality (equivalent to
EMPAC), will be provided under the name InSite EE.
Each version will have its own price points and maintenance
agreements.



| |              
| | -------------
| | CIS Solutions

Through its acquisition of IUS, Indus also offers
a broad array of CIS solutions to the energy and utilities
markets. Banner Advantage (Banner) is the flagship
CIS product and supports the core customer management and
billing processes of utilities. Banner allows clients to acquire
customers, generate customers bills, post payments to
customers accounts and generate service orders. Banner is
augmented by IUS complex billing solution, EnerLink, which
helps energy and utility companies design, market, administer,
and bill innovative pricing options, regardless of market
requirements. In 2002, a companion system to Banner, CRM
Essentials, was introduced to the market. CRM Essentials was
developed specifically for the functionality requirements of the
energy and utility industry making implementation easier. A
single provider, Indus, is now positioned to offer the combined
functionalities of Banner, Enerlink, and CRM Essentials as one
complete solutions package, leveraging and extending the value
of the utilitys CIS investment. Synchro is IUS new
Microsoft-based customer information system. Designed for
small-sized utilities and energy companies, it is a flexible,
affordable solution, designed to decrease implementation time
and training costs. Fuels Management Systems (FMS)
manages the acquisition, transportation and inventory of fuels,
primarily coal, used to generate electricity.

Key Competitive Strengths

The Company believes it has key competitive
strengths that will help it maintain its leadership within the
EAM space, as well as the CIS space in the energy and utilities
markets. The Companys strategic assets and competitive
advantages include its:



| |   |                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | depth and breadth of products. Over the past
    25 years, Indus has attained the leading market share
    position in the Tier 1 market (customers having
    annual revenues greater than $1 billion dollars) for EAM
    software solutions;                                                                            
|
| |  | scalability of both its EAM and CIS products.
    Indus solutions are able to scale up to multiple thousands
    of users;                                                                                                                                                                                                  
|
| |  | substantial installed base of both the EAM Tier 1
    market and CIS customers in the energy and utilities market.
    This provides Indus with a source for selling additional
    services and add-on modules, as well as providing client
    references that can help the Company close deals with new
    prospects; and

4



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##### Table of Contents





| |   |                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------
| |  | domain knowledge, providing Indus with the
    expertise to enhance implementations with industry-specific best
    practices.

Customers

The Company provides enterprise asset management
software products for large process industry customers in the
following industries (and representative assets):



| |   |                                                                                   
| | - | ----------------------------------------------------------------------------------
| |  | utilities (from generating or production
    facilities to repair trucks);        
|
| |  | oil, gas and petrochemical (drilling platforms
    and large refining facilities);
|
| |  | defense and transportation (airplanes, ships and
    tanks);                      
|
| |  | pulp and paper (paper machines); and                                              
|
| |  | metals and mining (fabrication machinery and
    mines/production plants).        

In addition, the Company intends to target
industries with less complex assets, such as facilities
maintenance market in commercial and industrial real estate,
health care, financial services, leisure properties, and
government and educational facilities through its Indus InSite
software product.

As of December 31, 2002, the Companys
products were licensed for use by more than 300,000 end-users in
over 40 countries.

Sales and Marketing



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

Indus markets and sells its products to customers
in asset-intensive and facilities-intensive industries around
the world. To address that market effectively, the Company
divides its target market by geography and by industry segment,
and tailors its sales strategy to suit the specific needs of
each market segment. In a given market segment, the Company may
sell directly through its internal sales force or indirectly
through business partner relationships and channel partner
programs. The marketing staff is based at the Companys
office in Atlanta, Georgia, while the sales organization is
decentralized throughout the Companys three global regions
described below:



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

In each of these regions, the Company views the
market as consisting of vertical business segments.



| |                  
| | -----------------
| | Vertical Segments

Indus focuses its sales and marketing efforts on
the following industries:



| |   |                               
| | - | ------------------------------
| |  | Utilities                     
|
| |  | Water and waste treatment     
|
| |  | Nuclear power generation      
|
| |  | Fossil power generation       
|
| |  | Hydroelectric power generation

5



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##### Table of Contents





| |   |                                    
| | - | -----------------------------------
| |  | Energy transmission and substations
|
| |  | Energy distribution and delivery   



| |   |                                                  
| | - | -------------------------------------------------
| |  | Energy Resource Extraction and Process Industries



| |   |                                      
| | - | -------------------------------------
| |  | Chemical, petrochemical, oil, and gas
|
| |  | Metals and mining                    
|
| |  | Pulp, paper and forest               
|
| |  | Process manufacturing                
|
| |  | Discrete manufacturing               
|
| |  | Consumer packaged goods              
|
| |  | Public transit                       



| |   |                                    
| | - | -----------------------------------
| |  | Facilities Management & Maintenance



| |   |                                   
| | - | ----------------------------------
| |  | Commercial property management    
|
| |  | Facilities maintenance services   
|
| |  | Hospitality and leisure properties
|
| |  | Education and government          
|
| |  | Hospitals and healthcare providers
|
| |  | Financial services properties     

By addressing the needs of various vertical
industries separately, the Company can package and deliver its
product offerings to meet the specific needs of the industries
its serves. The Company conducts comprehensive industry-specific
vertical marketing programs, which include public relations,
trade advertising, industry seminars, trade shows and ongoing
customer communication programs such as IndusWorld, the
Companys international user group.



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

While the sales cycle varies depending on the
customer and the product being sold, it generally requires from
three to 18 months. The direct sales cycle begins with the
generation of a sales lead or the receipt of a request for
proposal from a prospect, followed by qualification of the lead,
analysis of the customers needs, response to a request for
proposal, one or more presentations to the customer utilizing
the special knowledge of the industry vertical pre-sales staff,
customer internal sign-off activities, and contract negotiation
and finalization.

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

Products and Services

The Company delivers world-class, business
process-based, EAM and CIS products, scaled and priced for
specific industry segments. The Companys PassPort and
EMPAC software products are targeted towards industries with
highly complex assets. For industries with less complex assets,
the Companys Indus InSite hosted software product is the
most appropriate solution. Banner Advantage is the
Companys flagship CIS product and supports the core
customer management and billing processes of utilities. Included
with the Banner product are the Companys other CIS
products, which include Enerlink, CRM Essentials, Synchro

6



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##### Table of Contents



and FMS. All of these products are implemented by
the Companys professional services organization and
supported by its worldwide customer service organization.




| |                   
| | ------------------
| | PassPort and EMPAC

PassPort and EMPAC support an organizations
operations and maintenance workforce, inventory management and
procurement professionals, safety and compliance engineers, and
other decision making personnel affected by asset care decisions
throughout the enterprise. The two solution series are delivered
to these professionals as a series of components, with each
organization selecting the components needed to support their
specific business processes. These solutions typically include
the following components:



| |   |                                   
| | - | ----------------------------------
| |  | asset and work management systems;
|
| |  | materials and procurement systems;
|
| |  | supply chain;                     
|
| |  | eProcurement systems; and         
|
| |  | safety and compliance systems.    

Other available components include: mobile
computing, EAI (enterprise asset integration) tools,
sophisticated search capabilities, data warehousing products,
and integration to leading ERP products for financial and human
resources functions.

PassPort is an integrated work management and
supply chain software product, originally architected for the
nuclear and highly regulated process manufacturing environment.
This depth of regulatory compliance, health and safety, and
personnel qualifications tracking in PassPort are the key
distinguishing features between it and the EMPAC product.
Primary PassPort customers are very large operations that need
size scalability and product depth, such as regulatory
compliance for hazardous chemicals, radiation exposure.

EMPAC is also an integrated maintenance,
inventory, and purchasing software product, originally designed
for discrete manufacturing plants, mining operations, paper
mills and consumer packaged goods. Primary EMPAC customers are
medium and large operations that need flexible product
configurability to fit different plant sizes and product lines

These Indus solutions seamlessly integrate with
various third-party systems, including Oracle Corporations
(Oracle) corporate financial applications, SAP
Corporations (SAP) financial applications, and
PeopleSoft, Incs (PeopleSoft) corporate
financial, payroll, and human resources applications. Beyond
providing departmental information to affected workgroups
throughout the customer organization, EAM techniques employed by
the Company integrate process control systems and optimize
capacity utilization through just-in-time procurement strategies
and through deployment of complex maintenance management
practices.



| |             
| | ------------
| | Indus InSite

Indus InSite is a web-architected hosted solution
designed to maintain and control the assets of less
asset-intensive industries in markets such as commercial and
industrial real estate, health care, leisure properties,
government and educational facilities. As discussed above under
EAM Solutions, the InSite product line is being
combined with the EMPAC product line to provide additional
functionality to both product lines. Upon completion in 2003,
Indus InSite will offer J2EE compliant, web services-based
architecture encompassing the EMPAC server-side business
functionality. It will fully leverage the EMPAC business
functionality and table structure existing within the EMPAC
database, and wrap EMPAC business functions (such as stored
procedures) with J2EE application services.



| |                              
| | -----------------------------
| | Banner and Other CIS Products

At the core of the Indus CIS offerings is the
advanced architecture of the Banner product that is sold as an
independent solution or packaged with other CIS products like
Enerlink, CRM Essentials, Synchro and FMS. Built on the Oracle9i
application server technology, Banner features an adaptive
infrastructure that takes advantage of Oracles world-class
functionality for Internet and intranet deployment and
streamlined

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business processes. It is recognized as a
customer information solution, combining proven and scalable
functionality to facilitate benefits such as:




| |   |                                                                                
| | - | -------------------------------------------------------------------------------
| |  | Enterprise-wide access to information                                          
|
| |  | Cost controls for increased profitability                                      
|
| |  | Regulatory responsiveness                                                      
|
| |  | Accurate information for making decisions                                      
|
| |  | Reduced cycle times from meter reading to
    collection of accounts receivable

EnerLink is a complex billing solution that helps
energy and utility companies use integrated applications to
design, market, administer, and bill various pricing
options  regardless of market requirements. This
solution is for billing commercial and industrial customers, and
includes the following features:



| |   |                                               
| | - | ----------------------------------------------
| |  | Flexible pricing options                      
|
| |  | Robust rate modeling and bill calculation     
|
| |  | Support for a complex array of contract models
|
| |  | Integrated data management                    
|
| |  | Meter data access                             

Although EnerLink is offered with Banner, it can
also be sold as an independent solution to interface with a
clients legacy application or other commercial third-party
CIS.

Also enhancing the Companys CIS solution is
the utility-specific layer of CRM functionality called CRM
Essentials, designed specifically for the energy and utility
marketplace. The CRM components can be deployed modularly,
ensuring that the implementation targets specific business
needs. These components include:



| |   |                                                                                     
| | - | ------------------------------------------------------------------------------------
| |  | Business intelligence and data warehousing                                          
|
| |  | Internet customer self-service and electronic
    bill payment and processing (EBPP)
|
| |  | Data mining to support targeted communications
    and targeted marketing           
|
| |  | Customer contact tracking and employee metrics                                      
|
| |  | Internal work routing and approval                                                  
|
| |  | Service order scheduling and schedule optimization                                  

Synchro is a Microsoft-based CMS system designed
specifically for the utility industry. Synchro handles
multi-service and multi-company requirements, and is fully
integrated with Microsofts suite of back-office products.
IUS developed this product to target those utilities that serve
75,000 or fewer customers. This flexible n-tier system runs on
Microsoft database and operating system technology and can be
quickly implemented using a streamlined methodology. The intent
is to implement Synchro rapidly with few modifications, reducing
a utilitys implementation and ownership costs. The target
market for Synchro does not possess the financial or staff
resources that a typical investor owned utility has, thus
requiring a more standardized implementation. By using Microsoft
technology, Synchro makes use of the Microsoft products that the
majority of this market segment has in place, thereby reducing
incremental infrastructure and support costs.

Fuels Management Systems (FMS)
manages the acquisition, transportation and inventory of fuels,
primarily coal, used to generate electricity. This comprehensive
system manages the most costly components of a utility or energy
provider. As utility and energy providers focus on improving
operations, FMS is a valuable asset to reduce cost and improve
efficiencies. IUS currently has four customers using FMS to
manage 22 power plants.

8



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

The Companys EAM and CIS products include
consulting services provided by subject matter experts that
typically have a long tenure with the Company. These regionally
located experts support the Indus sales organization by helping
customers implement advanced EAM maintenance principles,
materials management theories, and other advanced best
practice strategies designed to provide a competitive
advantage to the customer. The knowledge gained from hundreds of
customer implementations, the extensive plant experience of the
Companys employees, and the global experience of its user
community, provides a high quality information exchange as
customers learn from the professional services organization how
the Indus software solutions address industry-specific
requirements.

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

The Company has also developed alliances with
large systems integrators, as well as smaller third-party
implementers and providers. This ensures that customers with
specific requirements can leverage the value-added services of
these firms when implementing Indus software products.



| |                
| | ---------------
| | Hosted Products

PassPort, EMPAC and Indus InSite are available as
hosted products fully supported through remote data centers. The
Indus Banner CIS solution is also available as a hosted product.
The Indus hosting services provide the EAM and CIS excellence of
Indus solutions, integrated Web-enabled applications, and the
Internets eBusiness opportunities. The Company is
responsible for the customers hosted system and is the
single point of contact for any functionally issues. The hosted
product offers comprehensive functionality, reduces
implementation time, and guarantees service levels.
Additionally, the Indus hosted product integrates with customer
legacy systems, delivering a true best-of-breed product that
includes many touch points with other industry software
application leaders such as Oracle and PeopleSoft.

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



| |                                              
| | ---------------------------------------------
| | Customer Service and Software
    Maintenance

Indus World Wide Customer Service helps customers
increase productivity and system availability. The Company
combines state-of-the-art technology and a highly skilled team
of professionals to deliver service through an international
infrastructure designed to respond promptly and effectively to
customer needs. The Company offers a variety of service options
for each of its products. Indus World Wide Customer Service
Centers are strategically located in North America, the United
Kingdom, and the Asia Pacific region. Two of the Companys
service programs provide extended telephone service after
business hours for production-down and critical issues, 24 hours
a day, either 5 or 7 days a week. Regardless of the calls
time or point-of-origin, the Companys toll-free number
automatically routes the customers call to a fully staffed
Indus Customer Service Center. By accessing a global customer
service database, the Companys customer service
professionals can share the most up-to-date technical
information and provide fast, consistent responses to customer
issues around the clock from anywhere in the world.

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eService is Indus Web-based mechanism for
allowing its customers to access information about the
Companys products and services, as well as log cases,
suggest product enhancements, and search for patches or
resolutions to common product issues. This service is available
on a 24 hours, 7-days-a-week basis.

Training

The Indus Learning Center, the Companys
training division, designs, manages, and implements
comprehensive education and training products for its user
community. The Companys training professionals provide
instructional design and courseware development services,
training coordination support, train-the-trainer and end-user
programs, and technical training for customer installations
worldwide. Open enrollment training courses are provided at the
Companys training centers in Atlanta, Georgia; Columbia,
South Carolina; Woking, England; and Brisbane, Australia.
Training is also provided at customer sites at the
customers option. The Indus Learning Center has developed
a comprehensive set of eLearning training materials to educate
and train customers and internal staff. The eLearning products
include Web-based training courses and Indus eClass, an on-line
step-by-step guide for cycling through Indus product screens.

Strategic Relationships

Through a network of strategic relationships
established with more than 50 technology and service partners,
Indus leverages its internal sales and marketing efforts,
enhances the breadth of its solutions and expands its
implementation capabilities. This network includes long-term
relationships with systems integrators such as Accenture,
Braxton (formerly Deloitte Consulting), and International
Business Machines, and other product partners that extend the
functional footprint of Indus products and complement the
Companys core competency with software providers, such as
Oracle, PeopleSoft, and BEA Systems, Inc. This collaborative
effort creates a software series that provides interoperability
with corporate and financial applications, and certain industry
specific systems that enable Indus customers to improve
operating efficiencies, reduce costs, and comply with
governmental regulation.



| |                                   
| | ----------------------------------
| | Indus Strategic Client
    Program

This program establishes the collaborative
planning framework to recommend improvements to the business
processes of both Indus and its customers, implement innovative
and cost-effective solutions to business needs, and engage the
customer in the Companys strategic vision. The program
improves the competitive positioning of Indus and its strategic
clients, enhances the return on investment that strategic
clients receive from implementing Indus products, and continues
the high quality and reliability of Indus products, project
support, and customer service. The Company and its strategic
clients take mutual responsibility for the overall success of
the program.



| |                                   
| | ----------------------------------
| | Indus Software Partner
    Program

Through its Software Partner Program, the Company
offers a series of partner programs designed to increase the
number of software products it can provide to its customers,
enabling Indus to continue its focus on developing and
delivering functionally advanced EAM and CIS products. The
Company believes that the need to forge strategic partnerships
is continually increasing as the needs of the Companys
customers evolve and the global marketplace expands. By
combining the Companys own market-leading EAM/CIS software
with its partners considerable strengths in market-focused
products and services, Indus provides its customers with the
leverage needed to increase their return on assets, while
providing Indus with additional software license fees and
services.

The Company works with a variety of partners to
create the widest range of possible products for its customers.
The following highlights several of the Companys partners:



| |   |                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | BEA Systems
    Inc. supports Indus
    customers need to design and automate business processes
    that integrate back-end applications and e-commerce technologies.

10



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| |   |                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Oracle
    provides database platform as well as Oracle Financials
    integration. Indus is a member of the Oracle Partner Network, as
    a Certified Advantage Partner.                                      
|
| |  | Business
    Objects provides business
    intelligence that lets organizations access, analyze, and share
    information internally with employees and externally with
    customers, suppliers, and partners.

Research and Development

The Company has dedicated research, development,
and software engineering functions, and regularly releases new
products and enhancements to existing products. Research and
development efforts are directed at increasing overall product
functionality, improving product performance, and extending the
capabilities of the products to interoperate with selected
third-party software products available from alliance partners.
These efforts include developing new applications that address
new horizontal and vertical functions.

The Company believes that research and
development is most effectively accomplished if customers are
involved in the process. Through direct customer involvement and
consensus input from user group oversight committees, product
content is improved and the customer acceptance of new software
deployment is significantly increased. In addition, the
interactive development process promotes increased customer
awareness of the products technological features and
fosters greater product loyalty.

Competition

The EAM and CIS software products businesses are
highly competitive and constantly changing. They are
significantly affected by new product and technology innovations
brought about by industry participants. The Company believes
that the principal competitive factors in its businesses will be:



| |   |                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------
| |  | product quality, ROI, performance and
    functionality;                                                    
|
| |  | adaptability to new trends driven by technology
    and customer requirements;                              
|
| |  | cost of internal product development as compared
    with cost of purchase of products from outside vendors;
|
| |  | ease and speed of implementation;                                                                           
|
| |  | cost of ongoing maintenance; and                                                                            
|
| |  | time-to-market with, and market acceptance of new
    products, enhancements, functionality and services.   

In the EAM market, the Companys competitors
include companies in the enterprise, departmental, and point
products market segments. At the enterprise product level, the
Companys main competitors are SAP, Oracle, and Industrial
and Financial Systems (IFS). In the departmental or
plant products market for Tier 1 customers, the
Company competes primarily with other EAM software vendors such
as SAP, Oracle, Mincom Corp., and IFS. In the market for
Tier 2 customers (customers having annual revenues
between $250 million and $1 billion), the Company competes
primarily with MRO Software, Inc. (formerly Project Software
& Development, Inc.), Invensys, and Datastream Systems, Inc.
In addition, point products vendors such as Severn Trent
Systems, Synercom, and others provide competing software
products to industry sub-sectors such as transmission and
distribution of electric power for utilities. The Company also
faces competition from suppliers of custom-developed business
application software that have focused largely on proprietary
mainframe- and microcomputer-based systems with highly
customized software, such as the systems consulting groups of
major accounting firms and systems integrators.

In the CIS market, the Companys primary
competitors include SPL WorldGroup, PeopleSoft, SAP, Peace
Software, Cayenta (a subsidiary of Titan), and Orcaom.

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Proprietary Rights and Licensing

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

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

The Companys products are generally
provided to customers in object code (machine-readable) format
only. From time to time, in limited circumstances, the Company
has licensed source code (human-readable form) for its EAM
application, subject to customary protections such as use
restrictions and confidentiality agreements. IUS has
historically licensed source code for certain applications,
subject to customary protections such as use restrictions and
confidentiality agreements. In addition, customers can be
beneficiaries of a master source code escrow for the
applications, pursuant to which the source code will be released
to end users upon the occurrence of certain events, such as the
commencement of bankruptcy or insolvency proceedings by or
against the Company, or certain material breaches of the
agreement. The Company has the right to object to the release of
the source code in such circumstances, and to submit the matter
to dispute resolution procedures. In the event of any release of
the source code from escrow, the customers license is
limited to use of the source code to maintain, support and
configure the Company applications.

The Company may from time to time receive notices
from third parties claiming infringement by the Companys
products of proprietary rights of others. As the number of
software products in the industry increases and the
functionality of these products further overlap, the Company
believes that software developers may become increasingly
subject to infringement claims. Any such claims, with or without
merit, can be time consuming and expensive to defend or could
require the Company to enter into royalty and licensing
agreements. Such agreements, if required, may not be available
on terms acceptable to the Company, or at all.

Indus, Indus Solution Series, IndusWorld, Indus
InSite, PassPort Software Solutions, ABACUS, ABACUS
Toolkit, Sextant, PORTAL/G, PORTAL/95, PORTAL/97, PORTAL/J,
ViewPort, Prism Consulting, EMPAC, Enterprise MPAC,
IndusKnowledgeWarehouse, IndusConnect, IndusBuyDemand,
IndusAnyWare, IndusASP, Curator, Enerlink and Synchro are
trademarks and service marks of the Company. All other brand
names or trademarks are the property of their respective holders.

The Company was formed through the combination of
The Indus Group, Inc., a California corporation, and TSW
International, Inc., a Georgia corporation, in August 1997.

Employees

At December 31, 2002, Indus had
approximately 650 full-time employees, representing a 27%
reduction in staffing during 2002 to size the business in line
with current requirements. In connection with its acquisition of
IUS in March 2003, the number of employees increased by
approximately 450.

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The Companys future success depends, in
large part, on the continued service of its key management,
sales, product development and operational personnel and on its
ability to attract and retain highly qualified employees,
including management personnel. There can be no assurance that
the Company will be successful in attracting, retaining and
motivating key personnel.

Executive Officers

The executive officers of the Company as of March
2003 were as follows:

|                          |  |     |    |                      |  |                                                                                               
|------------------------- |  | --- | -- | -------------------- |  | ----------------------------------------------------------------------------------------------
|Name of Executive Officer |  | Age |    | Principal Occupation
|                          |  |     |    |                     
|Thomas R. Madison, Jr.    |  |     | 57 |                      |  | Chairman of the Board of Directors and Chief
    Executive Officer                            
|Jeffrey A. Babka          |  |     | 49 |                      |  | Executive Vice President Finance and
    Administration, Chief Financial Officer and Secretary
|Gregory J. Dukat          |  |     | 42 |                      |  | Executive Vice President of Worldwide Operations                                              

Mr. Madison has served as Chief Executive
Officer of the Company since July 2002 and as Chairman of the
Board of Directors of the Company since December 2001. From
January 2001 until December 2001, Mr. Madison served as an
independent management consultant. From May 1999 until January
2001, he served as President and Chief Executive Officer of
Talus Solutions, an implementer of products and services for
optimizing pricing strategies and practices based upon customer
buying behaviors. From March 1994 until May 1999,
Mr. Madison served as Group President and Corporate Vice
President of Computer Sciences Corp.

Mr. Babka has served as Executive Vice
President Finance and Administration and Chief Financial Officer
of the Company since April 2002. From August 2000 to March 2002,
Mr. Babka served as Vice President, Finance and Chief
Financial Officer for the Global Accounts Business Unit of
Concert Communications, an international Joint Venture between
AT&T and British Telecom, a voice and data service provider.
From August 1999 to August 2000, Mr. Babka served as Vice
President and Corporate Controller for Global Crossing Ltd,
where he headed the implementation of an ERP system for that
companys worldwide operations. From July 1997 to August
1999, he was a Senior Vice President and Chief Financial Officer
for the Technology and Operations Group of Bank of America, N.A.

Mr. Dukat has served as Executive Vice
President of Worldwide Operations of the Company since September
2002. From September 2001 to April 2002, he was the Chief
Executive Officer for 180 Commerce, Inc, a startup reverse
supply chain enterprise software company. From October 1989 to
September 2001, Mr. Dukat served in various positions at
J.D. Edwards, an enterprise software provider, most recently as
Vice President and General Manager.

Employment Agreements

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

FACTORS AFFECTING FUTURE PERFORMANCE

Our business may suffer from risks associated
with growth and acquisitions, including the acquisition of
IUS.

We expect to continue evaluating and pursuing
acquisition and merger opportunities on a selective basis. We
cannot assure you that any business or assets that we acquire,
including the business and assets of IUS, will be integrated
into our existing business in an effective manner. Our inability
to effectively integrate the business and assets that we
acquired in the acquisition of IUS could materially harm our
business.

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All acquisitions, including the IUS acquisition,
also involve specific risks. Some of these risks include:



| |   |                                                                             
| | - | ----------------------------------------------------------------------------
| |  | the assumption of unanticipated liabilities and
    contingencies;          
|
| |  | diversion of our managements attention; and                                
|
| |  | possible reduction of our reported asset values
    and earnings because of:



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

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



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

Our operating results may fluctuate
significantly from quarter to quarter which could negatively
affect our results of operations and our stock price.

Our operating results have fluctuated in the
past, and our results may fluctuate significantly in the future.
We generated net operating losses during each quarter of 2002.
We do not expect to be profitable in the near term and may not
be profitable in future quarters. Our operating results may
fluctuate from quarter to quarter and may be negatively affected
as a result of a number of factors, including:



| |   |                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the relatively long sales cycles for our products;                                                                                                             
|
| |  | delays or difficulties in the integration of IUS;                                                                                                              
|
| |  | delays or deferral in the successful completion
    of product implementations;                                                                                
|
| |  | the variable size and timing of individual
    license transactions;                                                                                           
|
| |  | changes in demand for our products and services;                                                                                                               
|
| |  | market acceptance of new products;                                                                                                                             
|
| |  | delays associated with product development,
    including the development and introduction of new releases of
    existing products;                           
|
| |  | delays in payment or non-payment of accounts
    receivable;                                                                                                   
|
| |  | the development and introduction of new operating
    systems and/or technological changes in computer systems that
    require additional development efforts;
|
| |  | competitive conditions in the industry, including
    changes in our pricing policies or our competitors pricing
    policies;                                
|
| |  | changes in the budgets of our customers and
    prospective customers;                                                                                         
|
| |  | the introduction of new products or product
    enhancements by us or our competitors;                                                                         
|
| |  | our success in, and costs associated with,
    developing, introducing and marketing new products;                                                             
|
| |  | changes in the proportion of revenues
    attributable to licensing fees, hosting fees and services;                                                           
|
| |  | changes in the level of operating expenses;                                                                                                                    

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| |   |                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------
| |  | software defects and other product quality
    problems and the costs associated with solving those problems;                     
|
| |  | successful completion of customer funded
    development;                                                                         
|
| |  | success in expanding sales and marketing programs;                                                                                
|
| |  | personnel changes, including changes in our
    management;                                                                       
|
| |  | changes in our sales organization;                                                                                                
|
| |  | fluctuations in foreign currency exchange rates;                                                                                  
|
| |  | negative effects relating to hostilities, war or
    terrorist acts;                                                              
|
| |  | effect of Securities and Exchange Commission
    requirements and AICPA Statements of Position on our revenue
    recognition; and
|
| |  | other economic conditions, generally, or in
    specific vertical industry segments.                                              

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

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

From time to time, we launch new products and new
modules or upgrades to existing products. For example, in March
2002, we launched our hosted, Internet-based enterprise asset
management product, Indus InSite. There can be no
assurance that any of our new or enhanced products, including
Indus InSite, will be sold successfully or that they can
achieve market acceptance. Our future success with Indus
InSite, our web-based offerings and other next generation
product offerings will depend on our ability to accurately
determine the functionality and features required by our
customers, as well as the ability to enhance our products and
deliver them in a timely manner. We cannot predict the present
and future size of the potential market for our next generation
of products, and we may incur substantial costs to enhance and
modify our products and services in order to meet the demands of
this potential market.

We may not be able to successfully consolidate
our EMPAC and Indus InSite products, which could negatively
affect our business.

In October 2002, we announced our plans to
consolidate our EMPAC and Indus InSite products onto a single
development platform. There can be no assurances that we can
successfully consolidate these two products onto a single
development platform or that our existing EMPAC and MPAC-UX will
migrate to the new development platform, or that we can quickly
and cost effectively affect such migrations. Difficulties or
delays in consolidating these two products or in migrating
customers to the new development platform could result in a
material adverse effect on our business, results of operation
and financial condition.

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

We have in the past experienced delays in product
development, and there can be no assurance that we will not
experience further delays in connection with our current product
development or future development activities. In October 2002,
we announced an accelerated development schedule for Indus
InSiteand the planned consolidation of two products, EMPAC
and Indus InSite, onto a single development platform. If
we are unable to develop and introduce new products, or
enhancements to existing products, or to execute the

15



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consolidation of EMPAC and Indus InSite
development platforms, in a timely manner in response to
changing market conditions or customer requirements, it may
affect our ability to execute the consolidation of the EMPAC and
Indus InSite products and our business, operating results
and financial condition will be materially and adversely
affected. Because we have limited resources, we must effectively
manage and properly allocate and prioritize our product
development efforts and our porting efforts relating to newer
products and operating systems. There can be no assurance that
these efforts will be successful or, even if successful, that
any resulting products or operating systems will achieve
customer acceptance.


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

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

Risk Associated with Magnox Electric plc
(Magnox) Implementation and Indus Hosting

In the third quarter of 2001, we announced that
Magnox had selected us to provide work management and compliance
system software for eight nuclear stations. We are providing a
total business solution, including the PassPort product suite,
implementation services, and five years of application hosting
via our web hosting services. Magnox is a wholly-owned
subsidiary of British Nuclear Fuels Ltd (BNFL),
operating BNFLs nuclear power stations. The project is
scheduled to include site implementations through the second
quarter of 2003, and may be extended. The Magnox contract
represented 12.6% of our revenues for the year ended
December 31, 2002. Due to the size of this project and the
recent percentage of revenue it represents, problems with the
successful and timely completion of the implementation could
have a material adverse effect on our future financial results
or financial position. Moreover, we have limited experience
hosting our Passport product and if there are problems with our
web hosting services that result in the cancellation or material
alteration of the contract for any reason, it may have a
material effect on our future financial results or financial
position.

If our business strategy is not successful, we
may have liquidity difficulties.

As of December 31, 2002, our principal
sources of liquidity consisted of approximately
$47.0 million in cash and cash equivalents, short and
long-term marketable securities, and short and long-term
restricted cash as compared to $63.8 million at
December 31, 2001. We believe that our existing cash, cash
equivalents and marketable securities, together with anticipated
cash from operations will be sufficient to meet our cash needs
for at least the next twelve months, however, if management is
not successful in reducing operating losses and additional
sources of cash are not available to us, this could result in a
material adverse effect on our financial position.

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We generated net losses during each quarter of
2002. The loss during the first quarter of 2002 triggered a
default of profitability and minimum tangible net worth
covenants contained in our bank line of credit. As a result of
this default, we are required to maintain a compensating
balance, equal to all outstanding credit line and letter of
credit usage, with the lender. The lenders requirement
that we maintain a compensating balance for all credit line
usage effectively negates our ability to use the bank line of
credit for any reason other than its current letter of credit
purposes and could negatively impact our liquidity.

If we are required to repay our note to SCT
Financial Corporation or our 8% convertible notes, we may have
liquidity difficulties.

In connection with the acquisition of IUS, we
executed a promissory note in the principal amount of
$10.0 million in favor of SCT Financial Corporation, a
subsidiary of Systems and Computer Technology Corporation. This
note is due on September 5, 2003 and bears interest at 6%
per year. IUS, now a wholly owned subsidiary of the Company, is
a guarantor of the note and this guaranty is secured by certain
real property owned by IUS. We intend to repay the note to SCT
Financial Corporation prior to its maturity with the proceeds of
a third-party mortgage on the IUS real property. We are in
discussions with a commercial lender and expect to enter into a
commercial mortgage on the property within three months. Based
on a market study performed by an independent real estate
services firm, we believe that the fair market value of the
property is at least $18 million. As a result of this appraisal
and the discussions with the commercial lender, we expect the
proceeds of the mortgage will be sufficient to repay the note to
SCT Financial Corporation. However, we cannot assure investors
that we will be able to refinance the note to SCT Financial
Corporation in a timely manner or on terms that are acceptable
to us. In such event, we may be required to repay the principal
and interest on the note out of cash on hand, which would
materially adversely affect our liquidity. If we are unable to
repay the principal and interest on the note, SCT Financial may
foreclose on the security and seek to sell the real property to
pay off our obligations.

On March 5, 2003, we completed a private
placement selling our 8% Convertible Notes in an aggregate
principal amount of approximately $14.5 million. The 8%
Convertible Notes are due on December 5, 2003, are
convertible into shares of common stock upon receipt of the
requisite approval of our stockholders. If our stockholders do
not approve the issuance of the shares of common stock on the
conversion of the notes prior to their maturity date, we will be
required to repay the principal and interest on the notes out of
cash on hand, which would materially adversely affect our
liquidity.

Market acceptance of Indus InSite depends, in
part, on the continued acceptance of the Internet for business
transactions.

The development of the Internet as a medium for
business transactions, and asset management in particular, is in
a relatively formative stage. The Internet market is an emerging
market that may undergo rapid technological change. As we
continue to develop and market Indus InSite and other
Internet-based products, the success of those products will
depend on the continued use and development of the Internet as a
tool for the transaction of business, and asset management in
particular. We cannot assure investors that the infrastructure
or complementary services necessary to maintain the Internet
will be developed or maintained. If the Internet fails as a
medium for business transactions, and asset management in
particular, it would have a material adverse affect on the
market acceptance of Indus InSite and other Internet-based
products we develop.

Security risks and concerns may deter the use
of the Internet, which could adversely affect the market
acceptance of Indus InSite.

A significant barrier to the adoption and success
of Internet-based products like Indus InSite is the secure
transmission of confidential information over public networks.
Advances in computer capabilities, new discoveries in the field
of cryptography or other events or developments could result in
compromises or breaches of security systems. If any
well-publicized compromises of security were to occur, it could
have the effect of substantially reducing the use of the
Internet for commerce and communications. Anyone who circumvents
the security measures for Indus InSite could
misappropriate proprietary information or cause

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interruptions in the services we provide through
Indus InSite and our other Internet-based products. The
Internet is a public network, and data is sent over this network
from many sources. In the past, computer viruses, software
programs that disable or impair computers, have been distributed
and have rapidly spread over the Internet. Computer viruses
could be introduced into the Indus InSite system or those
of our customers or suppliers, which could disrupt Indus
InSite or make it inaccessible to customers. We may be
required to expend significant capital and other resources to
protect against the threat of security breaches or to alleviate
problems caused by breaches. To the extent that our activities
may involve the storage and transmission of proprietary
information, security breaches could expose us to a risk of loss
or litigation and possible liability. Our security measures may
be inadequate to prevent security breaches, and the adoption of
Indus InSite and our business in general would be materially
harmed if we do not prevent them.




| |                                                                                                    
| | ---------------------------------------------------------------------------------------------------
| | Continued decrease in demand for our products
    and services will result in harm to our business.

In recent quarters we have experienced a decrease
in demand for our products and related services, which we
believe is due to unfavorable general economic conditions and
decreased capital spending by companies in the industries we
serve. If these economic conditions persist, our business,
results of operations and financial condition are likely to be
materially adversely affected.

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



| |                                                                              
| | -----------------------------------------------------------------------------
| | Recent changes in management may result in
    difficulties for our business.

We had significant turnover at the executive
management level from 2000 through September 2002, including the
appointment of a new Chief Financial Officer in April 2002 and a
new Chief Executive Officer in July 2002, the elimination of the
Chief Operating Officer position in July 2002, and the
appointment of a new Executive Vice President of Worldwide
Operations in September 2002. Our current executive management
team has only recently begun to work together, and they may be
unable to integrate and work effectively as a team. There can be
no assurance that we will be able to motivate and retain the
current executive management team or that we will be able to
work together effectively. If we lose any members of our
executive management team or they are unable to work together
effectively, our business, operations and financial results
could be adversely affected.



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

Our future success depends, in significant part,
upon the continued service of our key technical, sales and
senior management personnel, as well as our ability to attract
and retain new personnel. For example, we are in the process of
filling several key sales positions. Competition for qualified
sales, technical and other personnel is intense, and there can
be no assurance that we will be able to attract, assimilate or
retain additional highly qualified employees in the future. If
we were unable to hire and retain personnel, particularly in
senior management positions, our business, operating results and
financial condition would be materially adversely affected.
Additions of new personnel and departures of existing personnel,
particularly in key positions, can be disruptive and have a
material adverse effect on our business, operating results and
financial condition.



| |                                                                           
| | --------------------------------------------------------------------------
| | We may not realize the expected benefits of
    our recent restructurings.

Over the last several years we have undertaken
several internal restructuring initiatives. For example, during
2000 and 2001, we restructured some of our operations by, among
other things, relocating our corporate headquarters and
administrative functions to Atlanta, Georgia from San Francisco,
California. In March 2002, the Board of Directors approved a
formal restructuring plan that, among other things, resulted in
a reduction

18



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in force and the closing of our Dallas office.
During the second half of 2002, due to unfavorable financial
performance since the fourth quarter of 2001 and management
reviews of worldwide operations, we reconfigured our business
model and implemented several reductions in workforce and other
cost reductions to restructure and resize the business. These
types of internal restructurings have operational risks,
including reduced productivity and lack of focus as we terminate
some employees and assign new tasks and provide training to
other employees. In addition, there can be no assurance that we
will achieve the anticipated cost savings from these
restructurings and any failure to achieve the anticipated cost
savings could cause our financial results to fall short of
expectations and adversely affect our financial position.


We have taken charges for restructuring expenses,
including $8.0 million in the second quarter of 2001,
$3.4 million in the first quarter of 2002, $4.0 million in
the second quarter of 2002, and $0.8 million in the fourth
quarter of 2002, and there can be no assurance that additional
charges for restructuring expenses will not be taken in future
quarters. Significant future restructuring charges could cause
financial results to be unfavorable.



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

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



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

The enterprise asset management market is
intensely competitive. In order to remain competitive, we must
continually enhance our baseline software and integration
products and develop new products in a timely fashion. We
believe that the principal competitive factors in our businesses
will be:



| |   |                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------
| |  | product performance and functionality;                                                                             
|
| |  | ability to develop new products and new releases
    of existing products in a timely fashion;                     
|
| |  | adaptability to new trends driven by technology
    and customer requirements;                                     
|
| |  | cost of internal product development as compared
    with cost of purchase of products supplied by outside vendors;
|
| |  | cost of ongoing maintenance; and                                                                                   
|
| |  | time-to-market with, market acceptance of,
    enhancements to functionality of, new services and new products.    

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

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



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

The industries in which we participate are
characterized by rapid technological change, evolving industry
standards in computer hardware and software technology, changes
in customer requirements and frequent new product introductions
and enhancements. The introduction of products embodying new
technologies, the emergence of new standards or changes in
customer requirements could render our existing products
obsolete and unmarketable. As a result, our success will depend
in part upon our ability to continue to enhance existing
products and expand our products, continue to provide enterprise
asset management and customer information system products and
develop and introduce new products that keep pace with
technological developments, satisfy increasingly sophisticated
customer requirements and achieve customer acceptance. Customer
requirements include, but are not limited to, product
operability and support across distributed and changing
heterogeneous hardware platforms, operating systems, relational
databases and networks. There can be no assurance that any
future enhancements to existing products or new products
developed by us will achieve customer acceptance or will
adequately address the changing needs of the marketplace. There
can also be no assurance that we will be successful in
developing and marketing enhancements to our existing products
or new products incorporating new technology on a timely basis.



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

We believe that our future growth also will
depend on developing and maintaining successful strategic
relationships or partnerships with systems integrators and other
technology companies. Our strategy is to continue to increase
the proportion of customers served through these indirect
channels. We are currently investing, and plan to continue to
invest, significant resources to develop these indirect
channels. This investment could adversely affect our operating
results if these efforts do not generate license and service
revenue necessary to offset this investment. Also, our inability
to partner with our technology companies and qualified systems
integrators could adversely affect our results of operations.
Because lower unit prices are typically charged on sales made
through indirect channels, increased indirect sales could reduce
our average selling prices and result in lower gross margins. In
addition, sales of our products through indirect channels will
reduce our consulting service revenues, as the third-party
systems integrators provide these services. As indirect sales
increase, our direct contact with our customer base will
decrease, and we may have more difficulty accurately forecasting
sales, evaluating customer satisfaction and recognizing emerging
customer requirements. Further, in these cases, we depend
heavily on these third-party integrators to install our products
and to train customers to us our products. Incorrect product
installation, failure to properly train the customer, or general
failure of an integrator to satisfy the customer could have a
negative effect on our relationship with the integrator and the
customer. Such problems could damage our reputation and the
reputation of our products and services. In addition, we may
face additional competition from these systems integrators and
third-party software providers who develop, acquire or market
products competitive with our products.

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

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

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



| |                                                                                   
| | ----------------------------------------------------------------------------------
| | There are significant risks related to growth
    of our international operations.

International revenues (from sales outside the
United States) accounted for approximately 31%, 41% and 34% of
total revenues in 2000, 2001 and 2002. We maintain an
operational presence and have established support offices in the
United Kingdom, Canada, Australia, France and Japan. We expect
international sales to continue to become a more significant
component of our business. However, there can be no assurance
that we will be able to maintain or increase international
market demand for our products. In addition, international
expansion may require us to establish additional foreign
operations and hire additional personnel. This may require
significant management attention and financial resources and
could adversely affect our operating margin. To the extent we
are unable to expand foreign operations in a timely manner, our
growth, if any, in international sales will be limited, and our
business, operating results and financial condition could be
materially and adversely affected.



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

At December 31, 2002, a significant portion
of our cash was held in Pound Sterling or other foreign
currencies (Australian Dollars, Canadian Dollars, Euros,
Japanese Yen, and French Francs). In the future, we may need to
exchange some of the cash held in Pound Sterling, or other
foreign currencies, to U.S. Dollars. We do not engage in hedging
transactions, and an unfavorable foreign exchange rate at the
time of conversion to U.S. Dollars would adversely affect the
net fair value of the foreign denominated cash upon conversion.



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

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



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

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



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

Our success is heavily dependent upon our
proprietary technology. We rely on a combination of the
protections provided under applicable copyright, trademark and
trade secret laws, confidentiality procedures and licensing
arrangements, to establish and protect our proprietary rights.
As part of our confidentiality procedures, we generally enter
into non-disclosure agreements with our employees, distributors
and corporate partners, and license agreements with respect to
our software, documentation and other proprietary information.
Despite these precautions, it may be possible for unauthorized
third parties to copy certain portions of our products or to
reverse engineer or obtain and use information that we regard as
proprietary, to use our products or technology without
authorization, or to develop similar technology independently.
Moreover, the laws of some other countries do not protect our
proprietary rights to the same extent as do the laws of the
United States. Furthermore, we have no patents and existing
copyright laws afford only limited protection. We have made
source code available from time-to time for certain of our
products and providing such source code may increase the
likelihood of misappropriation or other misuses of our
intellectual property. Accordingly, there can be no assurance
that we will be able to protect our proprietary software against
unauthorized third-party copying or use, which could adversely
affect our competitive position.



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

We are not aware that any of our products
infringe the proprietary rights of third parties. There can be
no assurance, however, that a third-party will not assert that
our technology violates its patents or other proprietary rights
in the future. As the number of software products in the
industry increases and the functionality of these products
further overlap, we believe that software developers may become
increasingly subject to infringement claims. Any such claims,
with or without merit, can be time consuming and expensive to
defend or could require us to enter into royalty and licensing
agreements. Such royalty or license agreements, if required, may
not be available on terms acceptable to us or at all, which
could have a material adverse effect upon our business,
operating results and financial condition.



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

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



| |                                                                                                          
| | ---------------------------------------------------------------------------------------------------------
| | If we are not able to license essential
    technology from third parties, our business would
    suffer.

Elements of our products are licensed from third
parties under agreements, which may include certain warranties
and representations that we typically seek to pass through to
the end users through contractual provisions. Reliance on
software licensed from third parties can materially impact the
cost of licensing revenue and reduce gross margins on licensing
fees for some software modules or products. Moreover, the loss
of our right to use and license such technology could limit our
ability to successfully market certain modules or

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products. While we believe that we would be able
to either license or develop alternatives to such component
technologies, there can be no assurance that we would be able to
do so, or that such alternatives would achieve market acceptance
or be available on a timely basis. Failure to obtain the
necessary licenses or to develop needed technologies could have
a material adverse effect on our business, operating results and
financial condition.




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

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



| |                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Changes in Securities and Exchange Commission
    Requirements and American Institute of Certified Public
    Accountants (AICPA) Statements of Position could
    materially adversely affect our results of operations.

In October 1997, the AICPA issued Statement of
Position No. 97-2 Software Revenue Recognition
(SOP 97-2) which superseded SOP No. 91-1.
SOP No. 97-2, as amended by SOP No. 98-4 and SOP
No. 98-9, was effective for our fiscal year beginning
June 1, 1998 and provides guidance on applying generally
accepted accounting principles for software recognition
transactions. In December 1999, the Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in
Financial Statements (SAB 101) which
provides further revenue recognition guidance. The accounting
profession continues to review certain provisions of SOP
No. 97-2 and SAB 101 with the objective of providing
additional guidance on implementing consistent standards for
software revenue recognition. Depending on the outcome of these
reviews and the issuance of implementation guidelines and
interpretations, we may be required to change our revenue
recognition policies and business practices, and such changes
could have a material adverse impact on our business, results of
operations or financial position.



| |                                                                                                        
| | -------------------------------------------------------------------------------------------------------
| | If pending litigation is resolved unfavorably
    to us, our cash position would be adversely affected.

We are involved in certain pending litigation
with former employees that, if resolved unfavorably to us, may
require us to pay material cash payments in settlement. Any such
payment could adversely affect our cash position.



| |                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------
| | Additional shares will become eligible for
    sale in the future, which could result in a decrease in the
    price of our common stock.

The market price of our common stock could drop
as a result of sales of large numbers of shares in the market,
or the perception that such sales could occur. We financed a
portion of the purchase price of the acquisition of IUS through
the sale of approximately 6.8 million shares, or
approximately 19.5%, of our common stock and $14.5 million
aggregate principal amount of convertible notes that will
automatically convert into shares of common stock at $1.50 a
share (approximately 9.6 million shares) upon approval of
the conversion by our stockholders. We intend to hold a
stockholders meeting for the purpose of allowing our
stockholders to vote on the conversion of the convertible notes
as soon as is reasonably practicable.

We have filed a registration statement to
register approximately 6.8 million shares for resale. These
shares are freely transferable without restriction or further
registration under the Securities Act of 1933. We are required
to file another registration statement within 30 days of
the conversion of the convertible notes to register for resale
the shares of our common stock that will be issued upon the
conversion. Once that registration statement is declared
effective by the Commission, those shares will also be freely
transferable.

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






|        |           
|------- | ----------
|Item 2. | Properties

Certain information concerning the Companys
office space at December 31, 2002 is set forth below:

|                       |                                |               |                                                                                       |         |  |           |  |  |  |       | 
|---------------------- | ------------------------------ | ------------- | ------------------------------------------------------------------------------------- | ------- |  | --------- |  |  |  | ----- | 
|                       |                                |               |                                                                                       | Square  |  | Ownership
|Location               |                                | Principal Use |                                                                                       | Footage |  | Interest 
|                       |                                |               |                                                                                       |         |  |          
|Domestic Offices:      |                                |               |                                                                                       |         |  |           |  |  |  |      
|                       | Atlanta, GA                    |               | Corporate Headquarters, Research and Development,
    Sales and Marketing, Operations |         |  | 107,200   |  |  |  | Lease | 
|                       | San Francisco, CA              |               | Regional Operations, Research and Development,
    Sales and Marketing, Operations    |         |  | 51,340    |  |  |  | Lease | 
|                       | Lake Oswego, OR                |               | Regional Operations                                                                   |         |  | 5,057     |  |  |  | Lease | 
|                       | Pittsburgh, PA                 |               | Regional Operations                                                                   |         |  | 10,131    |  |  |  | Lease | 
|                      
|International Offices: |                                |               |                                                                                       |         |  |           |  |  |  |      
|                       | Woking, Surrey, United Kingdom |               | Regional Operations                                                                   |         |  | 9,087     |  |  |  | Lease | 
|                       | Brisbane, Australia            |               | Regional Operations                                                                   |         |  | 8,755     |  |  |  | Lease | 
|                       | Paris, France                  |               | Regional Operations                                                                   |         |  | 6,660     |  |  |  | Lease | 

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

As part of the previously discussed acquisition
of Indus Utility Systems in March 2003, the Company now owns two
office buildings in Columbia, SC, with a combined office space
of 140,000 sq. ft.

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






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

In June 2000, the Company was served with a
demand for arbitration by William Grabske, the Companys
former Chief Executive Officer. Mr. Grabske was seeking
enforcement of a purported Settlement Agreement and Mutual
Release. Mr. Grabske sought severance pay and reimbursement
of expenses of approximately $1.0 million plus interest,
options for approximately 200,000 shares of stock in the
Company, and fees and costs. The Company asserted various
counterclaims. In December 2002, the Company and
Mr. Grabske entered into a Separation Agreement and Mutual
Release pursuant to which the Company and Mr. Grabske agreed,
among other things, to dismiss with prejudice their respective
claims in the arbitration. The Separation Agreement and Mutual
Release did not require any payments to Mr. Grabske by the
Company.

On March 5, 2003, the Company acquired IUS
from Systems and Computer Technology Corporation
(SCT). IUS (formerly known as SCT Utility Systems,
Inc.) is a defendant in a claim brought by KPMG Consulting, Inc.
on June 2, 2002 in the Circuit Court of the 11th Judicial
Circuit. The claim alleges damages of approximately
$15.8 million based on allegations of breach of contract
and detrimental reliance on alleged promises that were not
fulfilled. IUS has asserted multiple defenses and counterclaims.
Pursuant to the terms of the Purchase Agreement among the
Company and SCT and its affiliates, SCT and those affiliates of
SCT

24



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##### Table of Contents



that were a party to the Purchase Agreement
agreed to defend IUS against the claims in this suit and to
indemnify the Company and IUS from all losses relating thereto.


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

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






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

No matters were submitted to a vote of security
holders of the Company during the fourth quarter of the fiscal
year ended December 31, 2002.




PART II






|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity
    and Related Stockholder Matters

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

|                             |                |      |   |      |  |  |   |      | 
|---------------------------- | -------------- | ---- | - | ---- |  |  | - | ---- | 
|                             |                | High |   | Low 
|                             |                |      |   |     
|Year ended December 31, 2001 |                |      |   |      |  |  |   |     
|                             | First Quarter  |      | $ | 5.25 |  |  | $ | 1.63 | 
|                             | Second Quarter |      |   | 9.09 |  |  |   | 3.94 | 
|                             | Third Quarter  |      |   | 8.60 |  |  |   | 4.90 | 
|                             | Fourth Quarter |      |   | 7.90 |  |  |   | 5.24 | 
|Year ended December 31, 2002 |                |      |   |      |  |  |   |     
|                             | First Quarter  |      | $ | 7.85 |  |  | $ | 4.76 | 
|                             | Second Quarter |      |   | 5.05 |  |  |   | 2.02 | 
|                             | Third Quarter  |      |   | 2.58 |  |  |   | 1.00 | 
|                             | Fourth Quarter |      |   | 1.93 |  |  |   | 1.24 | 

On March 27, 2003, there were 256 holders of
record of our common stock. Because many of the Companys
shares are held by brokers and other institutions on behalf of
stockholders, we are unable to estimate the total number of
stockholders represented by these record holders.

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

On July 15, 1999, the Companys Board
of Directors approved a stock repurchase program for up to
2,000,000 shares of the Companys outstanding common stock.
The Company is authorized to use available cash to buy back its
shares in open market transactions from time to time, subject to
price and market conditions. No purchases were made in 2001 and
2002. As of December 31, 2002, the Company held, as treasury
stock, 435,500 shares that had been repurchased at a cost of
$2.2 million under the program.

In April 2002, the Company entered into an
agreement with Robert Felton, a founder of the Company and
former Chief Executive Officer and Chairman of the Board of
Directors. Under this agreement, the Company repurchased 500,000
shares of the Companys common stock from Mr. Felton
at a price of $5.00 per share, which approximated market value
at the time of the agreement, for an aggregate purchase price of

25



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##### Table of Contents



$2.5 million. As part of this agreement, Mr.
Felton agreed not to transfer or enter into any agreement to
transfer the remainder of his shares of the Companys stock
for a period of one year. These repurchased shares are also held
as treasury stock.


Equity Compensation Plan Information

The following table gives information about the
common stock that may be issued under all of the Companys
existing equity compensation plans as of December 31, 2002.

|                                                   |  |                         |           |                      |  |                                 |      |  |  |  |           | 
|-------------------------------------------------- |  | ----------------------- | --------- | -------------------- |  | ------------------------------- | ---- |  |  |  | --------- | 
|                                                   |  |                         |           |                      |  | (c) Number of Securities       
|                                                   |  | (a) Number of           |           | (b) Weighted         |  | Remaining Available for Future 
|                                                   |  | Securities to be Issued |           | Average Exercise     |  | Issuance Under Equity          
|                                                   |  | Upon Exercise of        |           | Price of Outstanding |  | Compensation Plans             
|                                                   |  | Outstanding Options,    |           | Options, Warrants    |  | (Excluding Securities Reflected
|Plan Category*                                     |  | Warrants and Rights     |           | and Rights           |  | in Column(a))                  
|                                                   |  |                         |           |                      |  |                                
|Equity Compensation Plans Approved by Stockholders |  |                         | 9,580,998 |                      |  | $                               | 4.47 |  |  |  | 2,667,335 | 



---



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

Recent Sales of Unregistered
Securities

On March 5, 2003, the Company completed a
private placement to accredited investors under Section 506
of Regulation D, selling 6,826,664 shares of its common
stock at an aggregate purchase price of approximately
$10.3 million and issuing its 8% Convertible Notes in an
aggregate principal amount of approximately $14.5 million. The
8% Convertible Notes are due December 5, 2003 and are
convertible into shares of common stock only upon receipt of the
requisite approval of the Companys stockholders and, once
approved, will automatically be converted at the rate of $1.50
per share for approximately 9.6 million shares of common
stock, subject to adjustment as provided in the notes. The
proceeds of this private placement were used to finance a
portion of the purchase price for the Companys acquisition
of IUS. We paid approximately $1.2 million in fees to a
placement agent in connection with this private placement.

On May 2, 2002, the Company sold 68,369
shares of its common stock to an accredited investor under
Section 506 of Regulation D at a purchase price of
$2.90 per share, for an aggregate purchase price of $198,000.
This sale was made pursuant to the exercise of a warrant held by
the accredited investor. The proceeds of the sale were used for
working capital purposes.

26



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##### Table of Contents








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

The following selected consolidated financial
data of the Company is qualified by reference to and should be
read in conjunction with the consolidated financial statements
and notes thereto and other financial information included
elsewhere herein. The summary consolidated balance sheet data as
of December 31, 2001 and 2002 and summary consolidated
statements of operations data for the years ended
December 31, 2000, 2001, and 2002 are derived from and
qualified by reference to the audited consolidated financial
statements of the Company, which are included elsewhere herein.
The summary consolidated balance sheet data as of
December 31, 1998, 1999 and 2000 and the summary
consolidated statement of operations for the years ended
December 31, 1998 and 1999 are derived from the audited
consolidated financial statements of the Company which are not
included herein, but have been previously filed with the SEC.

|                                                  |                                 |                                       |         |         |         |      |        |         |         |      |         |         |         |   |         |         |         |   |         |         |         | 
|------------------------------------------------- | ------------------------------- | ------------------------------------- | ------- | ------- | ------- | ---- | ------ | ------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                  |                                 |                                      
|                                                  |                                 | Years Ended December 31,             
|                                                  |                                 |                                      
|                                                  |                                 | 1998                                  |         | 1999    |         | 2000 |        | 2001    |         | 2002
|                                                  |                                 |                                       |         |         |         |      |        |         |         |     
|                                                  |                                 |                                      
|                                                  |                                 | (In thousands, except per share data)
|Statement of operations data:                     |                                 |                                       |         |         |         |      |        |         |         |      |         |         |         |   |         |         |         |   |         |        
|Revenues:                                         |                                 |                                       |         |         |         |      |        |         |         |      |         |         |         |   |         |         |         |   |         |        
|                                                  | Software licensing fees         |                                       | $       | 55,546  |         |      | $      | 19,071  |         |      | $       | 12,622  |         |   | $       | 21,005  |         |   | $       | 15,527  |        
|                                                  | Services, maintenance and other |                                       |         | 139,931 |         |      |        | 159,434 |         |      |         | 133,067 |         |   |         | 155,009 |         |   |         | 101,638 |        
|                                                  |                                 |                                       |         |         |         |      |        |         |         |      |         |         |         |   |         |         |         |   |         |        
|                                                  |                                 | Total revenues                        |         |         | 195,477 |      |        |         | 178,505 |      |         |         | 145,689 |   |         |         | 176,014 |   |         |         | 117,165 | 
|Cost of revenues(1)                               |                                 |                                       | 103,517 |         |         |      | 98,050 |         |         |      | 90,880  |         |         |   | 81,116  |         |         |   | 58,984  |        
|                                                  |                                 |                                       |         |         |         |      |        |         |         |      |         |         |         |   |         |         |         |   |         |        
|Gross margin                                      |                                 |                                       | 91,960  |         |         |      | 80,455 |         |         |      | 54,809  |         |         |   | 94,898  |         |         |   | 58,181  |        
|                                                  |                                 |                                       |         |         |         |      |        |         |         |      |         |         |         |   |         |         |         |   |         |        
|Operating expenses:                               |                                 |                                       |         |         |         |      |        |         |         |      |         |         |         |   |         |         |         |   |         |        
|                                                  | Research and development        |                                       |         | 30,372  |         |      |        | 33,801  |         |      |         | 51,607  |         |   |         | 49,522  |         |   |         | 45,745  |        
|                                                  | Sales and marketing             |                                       |         | 31,517  |         |      |        | 31,667  |         |      |         | 49,348  |         |   |         | 30,242  |         |   |         | 29,942  |        
|                                                  | General and administrative      |                                       |         | 15,270  |         |      |        | 18,145  |         |      |         | 20,944  |         |   |         | 17,398  |         |   |         | 13,305  |        
|                                                  | Restructuring expenses          |                                       |         |        |         |      |        |        |         |      |         | 2,063   |         |   |         | 10,188  |         |   |         | 8,199   |        
|                                                  |                                 |                                       |         |         |         |      |        |         |         |      |         |         |         |   |         |         |         |   |         |        
|                                                  |                                 | Total operating expenses              |         |         | 77,159  |      |        |         | 83,613  |      |         |         | 123,962 |   |         |         | 107,350 |   |         |         | 97,191  | 
|                                                  |                                 |                                       |         |         |         |      |        |         |         |      |         |         |         |   |         |         |         |   |         |        
|Income (loss) from operations                     |                                 |                                       | 14,801  |         |         |      | (3,158 | )       |         |      | (69,153 | )       |         |   | (12,452 | )       |         |   | (39,010 | )      
|Gain on sale of investment in TenFold Corporation |                                 |                                       |        |         |         |      | 38,170 |         |         |      |        |         |         |   |        |         |         |   |        |        
|Other income (expense) net                        |                                 |                                       | (936    | )       |         |      | 3,120  |         |         |      | 3,712   |         |         |   | 2,412   |         |         |   | 1,303   |        
|                                                  |                                 |                                       |         |         |         |      |        |         |         |      |         |         |         |   |         |         |         |   |         |        
|Income (loss) before taxes                        |                                 |                                       | 13,865  |         |         |      | 38,132 |         |         |      | (65,441 | )       |         |   | (10,040 | )       |         |   | (37,707 | )      
|Provision (benefit) for income taxes              |                                 |                                       | 450     |         |         |      | 14,295 |         |         |      | (6,666  | )       |         |   | 36      |         |         |   | (3,944  | )      
|                                                  |                                 |                                       |         |         |         |      |        |         |         |      |         |         |         |   |         |         |         |   |         |        
|Net income (loss)                                 |                                 | $                                     | 13,415  |         |         | $    | 23,837 |         |         | $    | (58,775 | )       |         | $ | (10,076 | )       |         | $ | (33,763 | )      
|                                                  |                                 |                                       |         |         |         |      |        |         |         |      |         |         |         |   |         |         |         |   |         |        
|Income (loss) per share:                          |                                 |                                       |         |         |         |      |        |         |         |      |         |         |         |   |         |         |         |   |         |        
|Basic                                             |                                 | $                                     | 0.44    |         |         | $    | 0.74   |         |         | $    | (1.72   | )       |         | $ | (0.29   | )       |         | $ | (0.96   | )      
|                                                  |                                 |                                       |         |         |         |      |        |         |         |      |         |         |         |   |         |         |         |   |         |        
|Diluted                                           |                                 | $                                     | 0.38    |         |         | $    | 0.68   |         |         | $    | (1.72   | )       |         | $ | (0.29   | )       |         | $ | (0.96   | )      
|                                                  |                                 |                                       |         |         |         |      |        |         |         |      |         |         |         |   |         |         |         |   |         |        
|Shares used in computing per share data           |                                 |                                       |         |         |         |      |        |         |         |      |         |         |         |   |         |         |         |   |         |        
|                                                  | Basic                           |                                       |         | 30,717  |         |      |        | 32,109  |         |      |         | 34,248  |         |   |         | 34,857  |         |   |         | 35,237  |        
|                                                  |                                 |                                       |         |         |         |      |        |         |         |      |         |         |         |   |         |         |         |   |         |        
|                                                  | Diluted                         |                                       |         | 35,263  |         |      |        | 35,274  |         |      |         | 34,248  |         |   |         | 34,857  |         |   |         | 35,237  |        
|                                                  |                                 |                                       |         |         |         |      |        |         |         |      |         |         |         |   |         |         |         |   |         |        

|                           |  |                |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|-------------------------- |  | -------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                           |  |               
|                           |  | December 31,  
|                           |  |               
|                           |  | 1998           |         | 1999 |  | 2000 |         | 2001 |  | 2002
|                           |  |                |         |      |  |      |         |      |  |     
|                           |  |               
|                           |  | (in thousands)
|Balance sheet data:        |  |                |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Working capital            |  | $              | 58,609  |      |  | $    | 95,872  |      |  | $    | 43,466  |  |  | $ | 43,393  |  |  | $ | 14,393  | 
|Total assets               |  |                | 150,785 |      |  |      | 168,901 |      |  |      | 140,732 |  |  |   | 139,167 |  |  |   | 100,390 | 
|Short-term debt            |  |                | 21,005  |      |  |      | 301     |      |  |      | 71      |  |  |   | 4       |  |  |   | 266     | 
|Long-term debt             |  |                | 257     |      |  |      | 163     |      |  |      | 71      |  |  |   |        |  |  |   | 124     | 
|Total stockholders equity |  |                | 86,075  |      |  |      | 118,352 |      |  |      | 68,957  |  |  |   | 60,946  |  |  |   | 28,276  | 



---



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

27



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##### Table of Contents








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

In addition to historical information, this
Managements Discussion and Analysis of Financial
Condition and Results of Operations (MD&A) may contain
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended. These forward-looking statements are not based on
historical facts, but rather reflect managements current
expectations concerning future results and events. These
forward-looking statements generally can be identified by the
use of phrases and expressions such as believe,
expect, anticipate, intend,
plan, foresee, likely,
will or other similar words or phrases. These
statements, which speak only as of the date given, are subject
to certain risks and uncertainties that could cause actual
results to differ materially from our historical experience and
our expectations or projections. These risks include, but are
not limited to, the successful integration of the acquisition of
IUS, including the challenges inherent in diverting our
managements attention and resources from other strategic
matters and from operational matters, the successful
rationalization of the IUS business and products, ability to
realize anticipated or any synergies or cost-savings from the
acquisition, current market conditions for Indus and IUS
products and services, our ability to achieve growth in our core
product offerings and the combined Indus/IUS offerings, market
acceptance and the success of Indus and IUS products, the
success of our product development strategy, our competitive
position, the ability to enter into new partnership arrangements
and to retain existing partnership arrangements, uncertainty
relating to and the management of personnel changes, timely
development and introduction of new products, releases and
product enhancements, current economic conditions and the timing
and extent of a recovery, heightened security and war or
terrorist acts in countries of the world that affect our
business, and other risks identified in the section of this
Report entitled Description of Business 
Factors Affecting Future Performance, beginning on
page 13. Readers are cautioned not to place undue reliance
on these forward-looking statements, which reflect
managements opinions only as of the date hereof. The
Company undertakes no obligation to revise or publicly release
the results of any revision to these forward-looking statements.

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

Critical Accounting Policies

Managements discussion and analysis of the
Companys financial condition and results of operations is
based upon the Companys consolidated financial statements,
which have been prepared in accordance with accounting
principles generally accepted in the United States. The
preparation of these financial statements requires the Company
to make estimates and judgments that affect the reported amounts
of assets, liabilities, revenues and expenses, and related
disclosures of contingent assets and liabilities. On an on-going
basis, the Company evaluates its estimates, including those
related to revenue recognition, accounts receivable and
allowance for doubtful accounts, deferred tax assets, property
and equipment, investments, accrued expenses, restructuring,
debt covenants, and contingencies and litigation. The Company
bases its estimates on historical experience and on various
other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or
conditions.

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

28



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

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

Revenue is generated through two sources:
(a) software license revenue and (b) support and
service revenue. Software license revenue is generated from
licensing the rights to use our products directly to end-users
and indirectly, to a lesser extent, through third-party
resellers. Support and service revenue is generated from sales
of customer support services (maintenance contracts), consulting
services and training services performed for customers that
license the Companys products.

For license arrangements that do not require
modification of the software, revenue is recognized in
accordance with accounting standards for software companies,
including Statement of Position, or SOP, 97-2, Software
Revenue Recognition, as amended by SOP 98-4 and
SOP 98-9, related interpretations, including Technical
Practice Aids, and SEC Staff Accounting Bulletin No. 101.

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

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

Revenue from the Companys professional
consulting and implementation services is generally time and
material based and is recognized as the work is performed.
Delays in project implementation will result in delays in
revenue recognition. Some professional consulting services
involve fixed-price and/or fixed-time arrangements and are
recognized using contract accounting, which requires the
accurate estimation of the cost, scope and duration of each
engagement. Revenue and the related costs for these projects are
recognized on the percentage-of-completion method, with
progress-to-completion measured by using labor cost inputs and
with revisions to estimates reflected in the period in which
changes become known. Project losses are provided for in their
entirety in the period they become known, without regard to the
percentage-of-completion. If the Company does not accurately
estimate the resources required or the scope of work to be
performed, or does not manage its projects properly within the
planned periods of time or satisfy its obligations under the
contracts, then future consulting margins on these projects may
be negatively affected or losses on existing contracts may need
to be recognized.

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

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

29



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

Billed and unbilled accounts receivable comprise
trade receivables that are credit based and do not require
collateral. The Company maintains an allowance for doubtful
accounts for estimated losses resulting from the inability of
its customers to make required payments. The Company records a
provision for uncollectible accounts on sales in the same period
as the related revenues are recorded. These estimates are based
upon historical collection patterns. If the historical data the
Company uses to calculate these estimates does not properly
reflect future collections, revenue could be overstated. On an
ongoing basis, the Company also evaluates the collectibility of
accounts receivable based upon historical collections and an
assessment of the collectibility of specific accounts. The
Company evaluates the collectibility of specific accounts using
a combination of factors, including the age of the outstanding
balance(s), evaluation of the accounts financial condition
and credit scores, recent payment history, and discussions with
the Companys account executive for the specific customer
and with the customer directly. Based upon this evaluation of
the collectibility of accounts receivable, any increase or
decrease required in the allowance for doubtful accounts is
reflected in the period in which the evaluation indicates that a
change is necessary. If the financial condition of the
Companys customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional
allowances may be required. The allowance amounted to
$5.7 million and $3.4 million as of December 31,
2001 and 2002, respectively.

The Company generates a significant portion of
revenues and corresponding accounts receivable from sales to the
utility industry. As of December 31, 2002, approximately
$16.0 million of our accounts receivable were attributable
to software license fees and support and services sales to
utility customers. In determining the Companys allowance
for doubtful accounts, we have considered the utility
industrys financial condition, as well as the financial
condition of individual utility customers. Recently there have
been well-publicized issues with certain utility companies as a
result of activities in the unregulated wholesale sectors. While
our utility industry customers are generally in the regulated or
retail sector, their unregulated affiliated activities might
affect our ability to collect amounts due. We monitor the credit
status of our customers and, where deemed necessary, provide for
potential uncollectibility.

The Company generated 12.6% ($14.7 million)
of its 2002 revenues from a single customer, Magnox Electric
plc, located in the United Kingdom. As of December 31,
2002, approximately $2.3 million of the Companys
accounts receivable were attributable to this customer. The
Company does not anticipate accounts receivable collectibility
issues related to this customers account. In 2001 the MoD
contract provided 23.3% of revenues, with approximately $7.9
million in accounts receivable at December 31, 2001. This
amount was fully collected.

The Company generates a significant portion of
its revenues and corresponding accounts receivable through sales
denominated in currencies other than the U.S. Dollar. As of
December 31, 2002, approximately $5.0 million of the
Companys gross billed accounts receivable were denominated
in foreign currencies, of which approximately $4.0 million
were denominated in British Pounds. Historically, the foreign
currency gains and losses on these receivables have not been
significant, and the Company has determined that foreign
currency derivative products are not required to hedge the
Companys exposure. If there were a significant decline in
the British Pound exchange rate, the U.S. Dollar equivalents
received from our customers could be significantly less than the
reported amount. A decline in the exchange rate of the British
Pound to the U.S. Dollar of 10% from the rate as of
December 31, 2002 would result in the Company receiving
$400,000 less if the Pounds were converted to U.S. Dollars at
that rate.



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

The Company has accrued the cost of redundant
leased office space in San Francisco, CA, Dallas, TX and
Pittsburgh, PA through restructuring charges in the years 2000
through 2002. The accrual is included in the consolidated
financial statements in Other Accrued Liabilities for amounts
due within one year and Obligations under Capital Leases and
Other Liabilities for amounts due after one year. The redundant
office space was a result of the Companys relocation of
its headquarters and certain administrative functions from San
Francisco to Atlanta, GA in 2000 and 2001, and the suspension of
the MoD contract in 2002. Additions to

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the accrual were made in 2002 due to the
deterioration of the rental markets in all three locations; this
deterioration has resulted in the Company receiving less than
anticipated amounts in sublease arrangements due to lower lease
rates and longer times taken to sublease the office space. The
Company reviews this accrual and evaluates its adequacy on an
ongoing basis. Should rental conditions deteriorate to the point
where the redundant office space is not ever leased, the Company
will incur additional charges totaling approximately
$1.2 million over the period from 2003 through 2008. Should
rental conditions improve, it is possible that higher than
anticipated sublease income will be generated. Any required
increase or decrease in this accrual will be reflected in the
period in which the evaluation indicates that a change is
necessary.


Results of Operations



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

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:

|                                                                                      |                                     |                              |       |      |       |      |      |      |       |   |       |      |       |  
|------------------------------------------------------------------------------------- | ----------------------------------- | ---------------------------- | ----- | ---- | ----- | ---- | ---- | ---- | ----- | - | ----- | ---- | ----- | -
|                                                                                      |                                     |                             
|                                                                                      |                                     | Percentage of Total Revenues
|                                                                                      |                                     | Years Ended December 31,    
|                                                                                      |                                     |                             
|                                                                                      |                                     | 2000                         |       | 2001 |       | 2002
|                                                                                      |                                     |                              |       |      |       |     
|Statement of Operations Data:                                                         |                                     |                              |       |      |       |      |      |      |       |   |       |     
|Revenues:                                                                             |                                     |                              |       |      |       |      |      |      |       |   |       |     
|                                                                                      | Software licensing fees             |                              |       | 8.7  | %     |      |      | 11.9 | %     |   |       | 13.3 | %    
|                                                                                      | Services, and maintenance and other |                              |       | 91.3 | %     |      |      | 88.1 | %     |   |       | 86.7 | %    
|                                                                                      |                                     |                              |       |      |       |      |      |      |       |   |       |     
|                                                                                      |                                     | Total revenues               |       |      | 100.0 | %    |      |      | 100.0 | % |       |      | 100.0 | %
|Cost of revenues (including $6,838 writedown
    of
    third party software in 2000) |                                     |                              | 62.4  | %    |       |      | 46.1 | %    |       |   | 50.3  | %   
|                                                                                      |                                     |                              |       |      |       |      |      |      |       |   |       |     
|Gross margin                                                                          |                                     |                              | 37.6  | %    |       |      | 53.9 | %    |       |   | 49.7  | %   
|                                                                                      |                                     |                              |       |      |       |      |      |      |       |   |       |     
|Operating expenses:                                                                   |                                     |                              |       |      |       |      |      |      |       |   |       |     
|                                                                                      | Research and development            |                              |       | 35.4 | %     |      |      | 28.1 | %     |   |       | 39.0 | %    
|                                                                                      | Sales and marketing                 |                              |       | 33.9 | %     |      |      | 17.2 | %     |   |       | 25.6 | %    
|                                                                                      | General and administrative          |                              |       | 14.4 | %     |      |      | 9.9  | %     |   |       | 11.4 | %    
|                                                                                      | Restructuring expenses              |                              |       | 1.4  | %     |      |      | 5.8  | %     |   |       | 7.0  | %    
|                                                                                      |                                     |                              |       |      |       |      |      |      |       |   |       |     
|                                                                                      |                                     | Total operating expenses     |       |      | 85.1  | %    |      |      | 61.0  | % |       |      | 83.0  | %
|                                                                                      |                                     |                              |       |      |       |      |      |      |       |   |       |     
|Income (loss) from operations                                                         |                                     |                              | (47.5 | )%   |       |      | (7.1 | )%   |       |   | (33.3 | )%  
|Other income (expense) net                                                            |                                     |                              | 2.5   | %    |       |      | 1.4  | %    |       |   | 1.1   | %   
|                                                                                      |                                     |                              |       |      |       |      |      |      |       |   |       |     
|Income (loss) before income taxes                                                     |                                     |                              | (45.0 | )%   |       |      | (5.7 | )%   |       |   | (32.2 | )%  
|Provision (benefit) for income taxes                                                  |                                     |                              | (4.6  | )%   |       |      |     |      |       |   | (3.4  | )%  
|                                                                                      |                                     |                              |       |      |       |      |      |      |       |   |       |     
|Net income (loss)                                                                     |                                     |                              | (40.4 | )%   |       |      | (5.7 | )%   |       |   | (28.8 | )%  
|                                                                                      |                                     |                              |       |      |       |      |      |      |       |   |       |     

Revenues.The
Companys revenues are derived from software licensing fees
and from services, which include implementation and training
services, customer funded development, and support fees. Total
revenue increased 20.8% from $145.7 million in 2000 to
$176.0 million in 2001, before decreasing 33.4% to
$117.2 million in 2002. The increase in total revenue from
2000 to 2001 was due to an increase in revenues from both
software license fees and services in the utility market, as
well as growth attributable to the MoD project. The decrease in
total revenue from 2001 to 2002 was attributable to the
suspension of the MoD project, a slow-down in the demand for
services and lower software licensing fee revenue due to weak
capital spending in the markets that the Company serves.

Revenues from software licensing fees were 8.7%,
11.9% and 13.3% of total revenues for 2000, 2001 and 2002,
respectively. Revenues from software license fees increased
66.4% from $12.6 million in 2000 to $21.0 million in
2001. This increase in 2001 is attributable to recognition of
deferred elements and revenue

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from 2000 contracts and strong sales in the
utility vertical market. Revenues from software license fees
decreased 26.1% from $21.0 million in 2001 to
$15.5 million in 2002. This decrease in 2002 is a result of
a lower level of new license revenue bookings during 2002.
During 2000, 2001 and 2002, the Company signed new licensing
contracts valued at $28.0 million, $27.0 million and
$7.2 million, respectively.


Revenues from services were 91.3%, 88.1% and
86.7% of total revenues for 2000, 2001 and 2002, respectively.
Revenues from services increased 16.5% from $133.1 million
in 2000 to $155.0 million in 2001. This increase in service
and support revenue in 2001 is attributable to customer funded
development and services provided under the United
Kingdoms MoD project, as well as implementation and
consulting services generated from new software licensing
contracts sold from mid-2000 through mid-2001. Revenues from
professional services decreased 34.4% from $155.0 million
in 2001 to $101.6 million in 2002. The decrease in services
revenue in 2002 as compared to 2001 is attributable to the
suspension of the MoD project and lower implementation
consulting services in 2002 due to the Companys lower
level of new license bookings during 2002 and lower revenue from
the multi-year British Energy project as it winds down toward
completion in 2003.

From a geographic perspective, revenue from
international customers (from sales outside the United States)
accounted for 31%, 41% and 34% of revenues for 2000, 2001 and
2002, respectively. Revenue growth from international customers
in 2001 as compared to 2000 was attributable to the MoD project.
In the aggregate, the regions identified as EMEA (Europe, Middle
East and Africa), Canada, and APAC (Australia, Asia and the
Pacific Rim) represented the following percentages of total
revenues:

|                                       |  |      |    |      |  |      |    |   |  |  |    |  
|-------------------------------------- |  | ---- | -- | ---- |  | ---- | -- | - |  |  | -- | -
|                                       |  | 2000 |    | 2001 |  | 2002
|                                       |  |      |    |      |  |     
|EMEA (Europe, Middle East & Africa)    |  |      | 23 | %    |  |      | 35 | % |  |  | 26 | %
|Canada                                 |  |      | 4  | %    |  |      | 3  | % |  |  | 5  | %
|APAC (Australia, Asia & Pacific Rim)   |  |      | 4  | %    |  |      | 3  | % |  |  | 3  | %
|Total International (sales outside US) |  |      | 31 | %    |  |      | 41 | % |  |  | 34 | %

Most of the Companys existing contracts are
denominated in U.S. Dollars, thus foreign currency fluctuations
have not significantly impacted the results of operations.
Historically, foreign currency gains and losses have not been
significant, and the Company has determined that foreign
currency derivative products are not required to hedge the
Companys exposure.

The Magnox project represented 12.6% of the
Companys total revenues for 2002. The MoD project
represented 23.3% of total revenues for 2001.

Cost of Revenues.Cost of revenues consists of: (i) personnel and related
costs for implementation and consulting services,
(ii) training and customer support services, and
(iii) license fees to third parties upon the sale of the
Companys products containing third-party software. Gross
profits on license fees are substantially higher than gross
profits on services revenues, reflecting the low packaging and
production costs of software products compared with the
relatively high personnel costs associated with providing
implementation, maintenance, consulting and training services.

Cost of revenues decreased 10.7% from
$90.9 million in 2000 to $81.1 million in 2001 and
decreased 27.3% to $59.0 million in 2002. As a percentage
of total revenue, cost of revenues was 62.4%, 46.1% and 50.3%
for 2000, 2001 and 2002, respectively. The 2001 cost of revenue
decrease in absolute dollars was due to a $6.8 million
third-party software write down in 2000. The write down was made
to properly reflect the future estimated economic value of the
third-party software. The decrease in cost of revenues in 2001,
as a percentage of revenues, was due to the aforementioned
$6.8 million write down in 2000 and a higher proportion of
license fees (which have lower costs than services revenues) in
2001 versus 2000 for both license fees and services. The 2002
decrease in absolute dollars in cost of revenues was due to a
reduced level of new license revenue in 2002 and staffing
reductions throughout 2002. The 4.2% increase in cost of
revenues in 2002, as a percentage of total revenues, was due to
higher costs related to license revenues due to higher component
levels of third-party software costs, and third-party software
write downs of $318,000 to adjust the balances of the
third-party software licenses to reflect anticipated use over
the remaining lives of the licenses.

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The cost of software licensing fees was
$9.6 million, $1.4 million and $3.0 million for
2000, 2001 and 2002, respectively. As a percentage of total
revenue, cost of software licensing fees was 6.6%, 0.8% and 2.5%
for 2000, 2001 and 2002, respectively. The cost of software
license fees in 2000 was impacted by the previously noted
$6.8 million third-party software write down. Excluding
this write down, the 2000 cost would have approximated 1.9%. The
lower cost for 2001 over 2000 is the result of product mix,
where license fees recognized in 2001 were less dependent on
third-party products than in 2000. The 2002 increase in cost of
revenues was due to a write down of third-party product of
$318,000 as well as a product mix in which license fees
recognized in 2002 were more dependent on third-party products
than in 2001.

The cost of services revenue was
$81.3 million, $79.7 million and $56.0 million
for 2000, 2001 and 2002, respectively. As a percentage of total
revenue, cost of services revenues were 55.8%, 45.3% and 47.8%
for 2000, 2001 and 2002, respectively. The decrease in cost
percentage in 2001 was a result of improved utilization rates
for services personnel and higher realized billable rates per
hour. The increase in cost percentage in 2002 was a result of
lower professional services utilization because of the
suspension of the MoD project and a lower level of new software
licenses, which generally result in additional services revenue.

Research and Development
(R&D).Research and development
expenses consist of personnel and related costs, computer
processing costs and third-party consultant fees attributable to
the development of new software application products and
enhancements to existing products.

Research and development expenses decreased 4.0%
from $51.6 million in 2000 to $49.5 million in 2001,
and decreased 7.6% to $45.7 million in 2002, and
represented 35.4%, 28.1% and 39.0%, respectively, of total
revenues in those years. The Companys higher research and
development expense levels in 2000 and 2001 reflect the
Companys investment in the Indus InSite Internet-based
product for the mid-tier, collaborative asset management market.
InSite development continued in 2002, but at a lower level,
resulting in lower costs for the year.

To date, the Company has expensed all software
development costs as incurred since the time between development
of a working model and release to the market has been
insignificant.

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

Sales and marketing expenses decreased 38.7% from
$49.3 million in 2000 to $30.2 million in 2001, and
remained relatively constant at $29.9 million in 2002. As a
percentage of total revenues, sales and marketing expenses were
33.9%, 17.2% and 25.6% for 2000, 2001 and 2002, respectively.

The decrease in sales and marketing expenses from
2000 to 2001 related to a continuing review and rationalization
of ongoing sales and marketing investments in the Companys
vertical and geographic markets. This resulted in lower salaries
and benefit costs from reductions in headcount and a more
focused advertising and promotion program, which taken together
resulted in lower expenses.

General and
Administrative.General and
administrative expenses include the costs of finance, human
resources and administrative operations. General and
administrative expenses decreased 16.9% from $20.9 million
in 2000 to $17.4 million in 2001, and decreased 23.5% to
$13.3 million in 2002. These expenses represented 14.4%,
9.9% and 11.4% of total revenues in those years, respectively.

The reduction in general and administrative
expenses in 2001 and 2002 is a result of lower salaries and
benefits from reduced headcount and lower lease costs due to the
elimination of redundant space in the Companys San
Francisco, Pittsburgh and Dallas offices.

Restructuring
Expenses.The Company recorded
$2.1 million, $10.2 million and $8.2 million in
restructuring charges in 2000, 2001 and 2002, respectively.

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

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reducing leased office space in the
Companys San Francisco office. The San Francisco office
lease expires May 31, 2008.


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

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

Through December 31, 2002, approximately
$9.2 million of these costs have paid. Of the balance
remaining to be paid, $2.9 million was included in other
current liabilities and $7.8 in other non-current liabilities.

Interest and Other Income and Interest
Expense.Interest income is generated
from the Companys investments in marketable securities and
interest-bearing cash and cash equivalents. Interest and other
income decreased 35% from $3.7 million in 2000 to
$2.4 million in 2001, and decreased 46% to
$1.3 million in 2002. The year-over-year decrease in
interest income in 2001 and 2002 is a result of a lower interest
rate environments in 2001 and 2002 and a decrease in the average
cash balances available for investment for those years.

Provision for Income
Taxes.The income tax benefit of
$6.7 million in 2000 relates to refundable federal income
taxes previously paid as a result of net operating loss
carrybacks. In 2002, U.S. federal income tax law changed to
allow the carryback of losses for five years rather than two
years under the prior law. As a result of this change, the
Company has recorded a 2002 income tax benefit of
$4.7 million. The provision for income taxes of $36,000 in
2001 includes federal, state and foreign income taxes. As of
December 31, 2002, the Company has net operating loss
carryforwards, for tax purposes, of approximately
$47.1 million, which, subject to certain limitations, may
be used to offset future income through 2022. As of
December 31, 2002, the Company had a net operating loss
carryforward of approximately $5.8 million related to stock
option deductions. The tax benefit for this carryforward will be
directly allocated to stockholders equity as realized.

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

Net Income (Loss).The Company reported net losses of $58.8 million in 2000,
$10.1 million in 2001, and $33.8 million in 2002. The
$48.7 million reduction in net loss from 2000 to 2001 is
attributable to a $40.1 million increase in gross margin in
2001, due to a $30.3 million increase in revenues and to an
increase in gross profit margin percentage of total revenues
from 37.6% in 2000 to 53.9% in 2001. In addition, operating
expenses (including restructuring expenses) were reduced 13.4%,
or $16.6 million, from 2000 to 2001, partially offset by
$1.3 million of lower interest income in 2001 and the
aforementioned $6.7 million income tax credit in 2000. The
$23.7 million increase in net loss from 2001 to 2002 is
primarily attributable to a $36.7 million decrease in gross
margin in 2002, due to a $58.8 million decrease in revenues
and to a decrease in gross profit margin percentage of total
revenues from 53.9% in 2001 to 49.7% in 2002, due to the
suspension of the MoD project as well as a weakness in capital
spending in the primary markets served by the Company. This
decrease is partially offset by a reduction in operating
expenses in 2002 of $10.2 million and a $3.9 million
net income tax benefit in 2002.

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Liquidity and Capital Resources

As of December 31, 2002, the Companys
principal sources of liquidity consisted of approximately
$37.5 million in cash and cash equivalents, $4.2 million in
short and long-term marketable securities and $5.5 million
in short and long-term restricted cash. The Company has a
revolving bank line of credit of $15.0 million, which
requires a restricted compensating balance to be provided for
any amounts borrowed against the facility. The revolving credit
facility expires on May 31, 2003. Borrowings under the line
of credit bear interest at the LIBOR rate plus 1.00%. At
December 31, 2002, $2.3 million in standby letters of
credit were outstanding under the bank line of credit.

During 2002, the Company generated a first
quarter net loss of $9.5 million. This loss triggered a default
of the profitability and minimum tangible net worth covenants in
the Companys revolving bank line of credit. This default
requires the Company to establish and maintain a restricted
compensating balance with the lender, California Bank and Trust,
equal to all outstanding credit line and letter of credit usage.
On April 1, 2002, the Company established a restricted,
interest bearing, compensating balance account for
$2.3 million, to support a standby letter of credit for the
same amount held by the Companys San Francisco office
landlord. No other usage of the line of credit is anticipated
and the Company intends to maintain the restricted compensating
balance for as long as required.

The lender has provided the Company with waivers
of the covenant defaults for the first and second quarters of
2002. In addition, the lender has provided the Company with a
forward looking waiver for each quarter after the second quarter
of 2002, up to and including the quarter ending March 31,
2003 (the credit facility expires on May 31, 2003), if the
Company maintains the required compensating balance. The Company
is not in reliance on the line of credit, except for the
$2.3 million standby letter of credit.

Cash provided by (used in) operations was ($22.3)
million, $13.8 million and ($13.5) million in 2000, 2001
and 2002, respectively. In 2000, cash generated from an increase
in deferred revenue and the receipt of $9.1 million in U.S.
federal income tax refunds partially reduced the cash used to
finance the Companys net loss for the period. In 2001,
cash generated from improved working capital management and the
receipt of $7.7 million in U.S. federal income tax refunds
were more than sufficient to offset the cash used to finance the
Companys net loss for the period. In 2002, cash generated
from accounts receivable reductions and the receipt of
$3.0 million in federal income tax refunds partially offset
the cash used to finance the Companys net loss for the
period. The effect of exchange rate differences on cash was
($34,000), ($251,000) and $1.5 million in 2000, 2001 and
2002, respectively.

Cash provided by (used in) investing activities
was $34.5 million, $6.7 million and ($9.7) million in 2000,
2001 and 2002, respectively. In 2002, the Company used net cash
of $0.5 million from the sale/purchase of marketable
securities. Capital expenditures were $4.0 million for 2002
and were made primarily to support the Companys internal
information systems. Restricted cash increased by
$5.2 million during 2002, which was related to the $2.3
million compensating balance necessary to support the
Companys standby letter of credit held by its San
Francisco office landlord, and a $2.9 million performance
bond that was established in April 2002 for the Magnox project,
which matures in July 2003.

Financing activities provided $9.0 million
in 2000 and $2.1 million in 2001, primarily due to the
exercise of stock options and the sale of common stock under the
employee stock purchase plan. Financing activities in 2002
resulted in a use of cash of $0.7 million, due to a
$2.5 million repurchase of the Companys stock, offset
by $1.6 million generated from the exercise of employee
stock options and stock purchases under the employee stock
purchase plan. In April 2002, the Company entered into an
agreement with Robert W. Felton, a founder of the Company and
former Chief Executive Office and Chairman of the Board of
Directors to purchase 500,000 shares of the Companys
common stock from Mr. Felton at a price of $5.00 per share,
for an aggregate purchase price of $2.5 million. As part of
this agreement, Mr. Felton agreed not to transfer or enter
into any agreement to transfer the remainder of his shares of
the Companys common stock for a period of one year.

As of December 31, 2002, the Companys
primary commitments are its leased office space in Atlanta,
Georgia; San Francisco, California; and Woking, England. The
Company leases its office space under non-cancelable lease
agreements that expire at various times through 2012.

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On March 5, 2003, the Company completed a
private placement, selling 6,826,664 shares of its common stock
at an aggregate purchase price of approximately
$10.3 million and issuing its 8% Convertible Notes in an
aggregate principal amount of approximately $14.5 million.
The 8% Convertible Notes are due on December 5, 2003, are
convertible into shares of common stock upon receipt of the
requisite approval of the Companys stockholders and, once
approved, will automatically be converted at the rate of $1.50
per share into approximately 9.6 million shares of common
stock, subject to adjustment as provided in the notes. The
proceeds of this private placement were used to finance a
portion of the purchase price for the Companys acquisition
of IUS.

Also, in connection with the acquisition of IUS,
the Company executed a promissory note in the principal amount
of $10 million in favor of SCT Financial Corporation, a
subsidiary of Systems and Computer Technology Corporation. This
note is due on September 5, 2003 and bears interest at 6%
per year. IUS is a guarantor of the note and this guaranty is
secured by certain real property owned by IUS. The Company
intends to repay the note to SCT Financial Corporation prior to
its maturity with the proceeds of a third-party mortgage on the
Indus Utility Systems real property. The Company is in
discussions with a commercial lender and expects to enter into a
commercial mortgage on the property within three months. Based
on a market study performed by an independent real estate
services firm, the Company believes that the fair market value
of the property is at least $18 million. As a result of
this appraisal and the discussions with the commercial lender,
the Company expects that the proceeds of the mortgage will be
sufficient to repay in full the note to SCT Financial
Corporation.

Except as discussed in this MD&A and for
operating/capital leases, the Company has no guarantees of debt
or similar capital commitments to third parties, written options
on non-financial assets, standby repurchase agreements, or other
commercial commitments.

The Company believes that its existing cash, cash
equivalents and marketable securities, together with anticipated
cash flows from operations, will be sufficient to meet its cash
requirements for at least the next 12 months. If management
were not successful in completing the refinancing of the note to
SCT Financial Corporation, further reducing operating losses and
additional sources of cash might be required and could result in
a material adverse effect on the Companys financial
results.

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




Item 7A.     Quantitative
and Qualitative Disclosures About Market Risks

The Companys cash flow can be exposed to
market risks primarily in the form of changes in interest rates
in its short-term borrowings available under its revolving bank
line of credit as well as its investments in certain
available-for-sale securities. The Companys cash
management and investment policies restrict investments to
highly liquid, low risk debt instruments. The Company currently
does not use interest rate derivative instruments to manage
exposure to interest rate changes. A hypothetical 100 basis
point adverse move (decrease in) interest rates along the entire
interest rate yield curve would adversely affect the net fair
value of all interest sensitive financial instruments by
approximately $0.4 million at December 31, 2002.

We provide our services to customers primarily in
the United States and, to some extent, in Europe, Asia Pacific
and elsewhere throughout the world. As a result, our financial
results could be affected by factors such as changes in foreign
currency exchange rates or weak economic conditions in foreign
markets. Sales are primarily made in U.S. Dollars; however, as
we continue to expand our operations, more of our contracts may
be denominated in Australian Dollars, British Pounds, Euros and
Japanese Yen. A strengthening of the U.S. Dollar could make our
products less competitive in foreign markets. A hypothetical 5%
unfavorable foreign currency exchange move versus the U.S.
Dollar, across all foreign currencies, would adversely affect
the net fair value of foreign denominated cash, cash equivalent
and investment financial instruments by approximately
$1.2 million at December 31, 2002.

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Item 8.     Financial
Statements and Supplementary Data

INDUS INTERNATIONAL, INC.

INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                                   |  |  |    | 
|-------------------------------------------------- |  |  | -- | 
|REPORT OF INDEPENDENT AUDITORS                     |  |  | 38 | 
|CONSOLIDATED BALANCE SHEETS                        |  |  | 39 | 
|CONSOLIDATED STATEMENTS OF OPERATIONS              |  |  | 40 | 
|CONSOLIDATED STATEMENT OF STOCKHOLDERS
    EQUITY |  |  | 41 | 
|CONSOLIDATED STATEMENTS OF CASH FLOWS              |  |  | 42 | 
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS         |  |  | 43 | 

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REPORT OF ERNST & YOUNG LLP, INDEPENDENT
AUDITORS

The Board of Directors and Stockholders

Indus International, Inc.


We have audited the accompanying consolidated
balance sheets of Indus International, Inc. as of
December 31, 2001 and 2002, and the related consolidated
statements of operations, stockholders equity and cash
flows for each of the three years in the period ended
December 31, 2002. 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
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the consolidated financial position of Indus
International, Inc. as of December 31, 2001 and 2002, and
the consolidated results of its operations and its cash flows
for each of the three years in the period ended
December 31, 2002, in conformity with accounting principles
generally accepted in the United States.



| |                      
| | ---------------------
| | /s/ Ernst & Young LLP

Atlanta, Georgia

January 24, 2003


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INDUS INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

|                                                           |                                                                                                                                              |                                                                   |        |         |         |  |        |         |         | 
|---------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ------ | ------- | ------- |  | ------ | ------- | ------- | 
|                                                           |                                                                                                                                              |                                                                  
|                                                           |                                                                                                                                              | December 31,                                                     
|                                                           |                                                                                                                                              |                                                                  
|                                                           |                                                                                                                                              | 2001                                                              |        | 2002   
|                                                           |                                                                                                                                              |                                                                   |        |        
|                                                           |                                                                                                                                              |                                                                  
|                                                           |                                                                                                                                              | (In thousands)                                                   
|ASSETS                                                     |                                                                                                                                              |                                                                   |        |         |         |  |        |        
|Current assets:                                            |                                                                                                                                              |                                                                   |        |         |         |  |        |        
|                                                           | Cash and cash equivalents                                                                                                                    |                                                                   | $      | 59,901  |         |  | $      | 37,527  |        
|                                                           | Marketable securities                                                                                                                        |                                                                   |        | 1,757   |         |  |        | 2,171   |        
|                                                           | Restricted cash, current                                                                                                                     |                                                                   |        |        |         |  |        | 2,883   |        
|                                                           | Billed acccounts receivable, net of allowance for
    doubtful accounts of $5,713 and $3,445 at December 31, 2001
    and 2002, respectively |                                                                   |        | 31,337  |         |  |        | 22,387  |        
|                                                           | Unbilled accounts receivable                                                                                                                 |                                                                   |        | 14,666  |         |  |        | 3,411   |        
|                                                           | Income tax receivable                                                                                                                        |                                                                   |        | 1,430   |         |  |        | 5,122   |        
|                                                           | Other current assets                                                                                                                         |                                                                   |        | 5,445   |         |  |        | 3,858   |        
|                                                           |                                                                                                                                              |                                                                   |        |         |         |  |        |        
|                                                           |                                                                                                                                              | Total current assets                                              |        |         | 114,536 |  |        |         | 77,359  | 
|Property and equipment, net                                |                                                                                                                                              |                                                                   | 21,877 |         |         |  | 17,471 |        
|Investments                                                |                                                                                                                                              |                                                                   | 1,930  |         |         |  | 2,048  |        
|Other assets                                               |                                                                                                                                              |                                                                   | 824    |         |         |  | 3,512  |        
|                                                           |                                                                                                                                              |                                                                   |        |         |         |  |        |        
|                                                           |                                                                                                                                              | Total assets                                                      |        | $       | 139,167 |  |        | $       | 100,390 | 
|                                                           |                                                                                                                                              |                                                                   |        |         |         |  |        |        
|LIABILITIES AND STOCKHOLDERS
    EQUITY                   |                                                                                                                                              |                                                                   |        |         |         |  |        |        
|Current liabilities:                                       |                                                                                                                                              |                                                                   |        |         |         |  |        |        
|                                                           | Accounts payable                                                                                                                             |                                                                   | $      | 6,190   |         |  | $      | 5,207   |        
|                                                           | Income tax payable                                                                                                                           |                                                                   |        | 1,747   |         |  |        | 4,535   |        
|                                                           | Other accrued liabilities                                                                                                                    |                                                                   |        | 23,232  |         |  |        | 16,042  |        
|                                                           | Current portion of obligations under capital
    leases                                                                                      |                                                                   |        | 4       |         |  |        | 266     |        
|                                                           | Deferred revenue                                                                                                                             |                                                                   |        | 39,970  |         |  |        | 36,916  |        
|                                                           |                                                                                                                                              |                                                                   |        |         |         |  |        |        
|                                                           |                                                                                                                                              | Total current liabilities                                         |        |         | 71,143  |  |        |         | 62,966  | 
|Obligations under capital leases and other
    liabilities |                                                                                                                                              |                                                                   | 7,078  |         |         |  | 9,148  |        
|Commitments and contingencies                              |                                                                                                                                              |                                                                   |       |         |         |  |       |        
|Stockholders equity:                                      |                                                                                                                                              |                                                                   |        |         |         |  |        |        
|                                                           | Preferred stock, $.001 par value                                                                                                             |                                                                   |        |        |         |  |        |        |        
|                                                           |                                                                                                                                              | Shares authorized: 10 million; shares
    issued: none            |        |         |         |  |        |         |         | 
|                                                           | Common stock, $.001 par value                                                                                                                |                                                                   |        | 35      |         |  |        | 36      |        
|                                                           |                                                                                                                                              | Shares authorized: 100 million                                    |        |         |         |  |        |         |         | 
|                                                           |                                                                                                                                              | Shares issued and outstanding: December 31,
    2001  35,210,251 |        |         |         |  |        |         |         | 
|                                                           |                                                                                                                                              | Shares issued and outstanding: December 31,
    2002  35,237,403 |        |         |         |  |        |         |         | 
|                                                           | Additional paid-in capital                                                                                                                   |                                                                   |        | 123,671 |         |  |        | 125,608 |        
|                                                           | Treasury stock, at cost                                                                                                                      |                                                                   |        | (2,181  | )       |  |        | (4,681  | )      
|                                                           |                                                                                                                                              | Shares: December 31, 2001  435,500                               |        |         |         |  |        |         |         | 
|                                                           |                                                                                                                                              | Shares: December 31, 2002  935,500                               |        |         |         |  |        |         |         | 
|                                                           | Note receivable from stockholder                                                                                                             |                                                                   |        | (55     | )       |  |        |        |        
|                                                           | Deferred compensation                                                                                                                        |                                                                   |        | (157    | )       |  |        | (104    | )      
|                                                           | Accumulated deficit                                                                                                                          |                                                                   |        | (58,287 | )       |  |        | (92,050 | )      
|                                                           | Accumulated other comprehensive loss                                                                                                         |                                                                   |        | (2,080  | )       |  |        | (533    | )      
|                                                           |                                                                                                                                              |                                                                   |        |         |         |  |        |        
|                                                           |                                                                                                                                              | Total stockholders equity                                        |        |         | 60,946  |  |        |         | 28,276  | 
|                                                           |                                                                                                                                              |                                                                   |        |         |         |  |        |        
|                                                           |                                                                                                                                              | Total liabilities and stockholders equity                        |        | $       | 139,167 |  |        | $       | 100,390 | 
|                                                           |                                                                                                                                              |                                                                   |        |         |         |  |        |        

See accompanying notes.

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INDUS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                                  |                                 |                                 |         |         |         |      |         |         |         |   |         |         |         | 
|--------------------------------------------------------------------------------- | ------------------------------- | ------------------------------- | ------- | ------- | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                                                  |                                 |                                
|                                                                                  |                                 | Years ended December 31,       
|                                                                                  |                                 |                                
|                                                                                  |                                 | 2000                            |         | 2001    |         | 2002
|                                                                                  |                                 |                                 |         |         |         |     
|                                                                                  |                                 |                                
|                                                                                  |                                 | (In thousands, except per share
|                                                                                  |                                 | amounts)                       
|Revenues:                                                                         |                                 |                                 |         |         |         |      |         |         |         |   |         |        
|                                                                                  | Software licensing fees         |                                 | $       | 12,622  |         |      | $       | 21,005  |         |   | $       | 15,527  |        
|                                                                                  | Services, maintenance and other |                                 |         | 133,067 |         |      |         | 155,009 |         |   |         | 101,638 |        
|                                                                                  |                                 |                                 |         |         |         |      |         |         |         |   |         |        
|                                                                                  |                                 | Total revenues                  |         |         | 145,689 |      |         |         | 176,014 |   |         |         | 117,165 | 
|Cost of revenues (including $6,838 writedown of
    third party software in 2000) |                                 |                                 | 90,880  |         |         |      | 81,116  |         |         |   | 58,984  |        
|                                                                                  |                                 |                                 |         |         |         |      |         |         |         |   |         |        
|                                                                                  |                                 |                                 | 54,809  |         |         |      | 94,898  |         |         |   | 58,181  |        
|                                                                                  |                                 |                                 |         |         |         |      |         |         |         |   |         |        
|Operating expenses:                                                               |                                 |                                 |         |         |         |      |         |         |         |   |         |        
|                                                                                  | Research and development        |                                 |         | 51,607  |         |      |         | 49,522  |         |   |         | 45,745  |        
|                                                                                  | Sales and marketing             |                                 |         | 49,348  |         |      |         | 30,242  |         |   |         | 29,942  |        
|                                                                                  | General and administrative      |                                 |         | 20,944  |         |      |         | 17,398  |         |   |         | 13,305  |        
|                                                                                  | Restructuring expenses          |                                 |         | 2,063   |         |      |         | 10,188  |         |   |         | 8,199   |        
|                                                                                  |                                 |                                 |         |         |         |      |         |         |         |   |         |        
|                                                                                  |                                 | Total operating expenses        |         |         | 123,962 |      |         |         | 107,350 |   |         |         | 97,191  | 
|                                                                                  |                                 |                                 |         |         |         |      |         |         |         |   |         |        
|Loss from operations                                                              |                                 |                                 | (69,153 | )       |         |      | (12,452 | )       |         |   | (39,010 | )      
|Interest and other income                                                         |                                 |                                 | 3,784   |         |         |      | 2,454   |         |         |   | 1,362   |        
|Interest expense                                                                  |                                 |                                 | (72     | )       |         |      | (42     | )       |         |   | (59     | )      
|                                                                                  |                                 |                                 |         |         |         |      |         |         |         |   |         |        
|Income (loss) before income taxes                                                 |                                 |                                 | (65,441 | )       |         |      | (10,040 | )       |         |   | (37,707 | )      
|Provision (benefit) for income taxes                                              |                                 |                                 | (6,666  | )       |         |      | 36      |         |         |   | (3,944  | )      
|                                                                                  |                                 |                                 |         |         |         |      |         |         |         |   |         |        
|Net income (loss)                                                                 |                                 | $                               | (58,775 | )       |         | $    | (10,076 | )       |         | $ | (33,763 | )      
|                                                                                  |                                 |                                 |         |         |         |      |         |         |         |   |         |        
|Net income (loss) per share:                                                      |                                 |                                 |         |         |         |      |         |         |         |   |         |        
|                                                                                  | Basic                           |                                 | $       | (1.72   | )       |      | $       | (0.29   | )       |   | $       | (0.96   | )      
|                                                                                  |                                 |                                 |         |         |         |      |         |         |         |   |         |        
|                                                                                  | Diluted                         |                                 | $       | (1.72   | )       |      | $       | (0.29   | )       |   | $       | (0.96   | )      
|                                                                                  |                                 |                                 |         |         |         |      |         |         |         |   |         |        
|Shares used in computing per share data                                           |                                 |                                 |         |         |         |      |         |         |         |   |         |        
|                                                                                  | Basic                           |                                 |         | 34,248  |         |      |         | 34,857  |         |   |         | 35,237  |        
|                                                                                  |                                 |                                 |         |         |         |      |         |         |         |   |         |        
|                                                                                  | Diluted                         |                                 |         | 34,248  |         |      |         | 34,857  |         |   |         | 35,237  |        
|                                                                                  |                                 |                                 |         |         |         |      |         |         |         |   |         |        

See accompanying notes.

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INDUS INTERNATIONAL, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS
EQUITY

|                                             |                                          |                |        |         |  |         |    |          |  |          |         |          |  |          |        |        |  |   |      |   |  |   |         |         |   |   |        |       |   |   |         |         |  
|-------------------------------------------- | ---------------------------------------- | -------------- | ------ | ------- |  | ------- | -- | -------- |  | -------- | ------- | -------- |  | -------- | ------ | ------ |  | - | ---- | - |  | - | ------- | ------- | - | - | ------ | ----- | - | - | ------- | ------- | -
|                                             |                                          |                |        |         |  |         |    |          |  |          |         |          |  | Accum-   |        |       
|                                             |                                          |                |        |         |  |         |    |          |  |          |         | Retained |  | ulated   |        |       
|                                             |                                          |                |        |         |  |         |    | Deferred |  | Earnings |         | Other    |  | Total   
|                                             |                                          | Common Stock   |        | Addl   |  | Trea-   |    | Compen-  |  | (Accum-  |         | Compre-  |  | Stock-  
|                                             |                                          |                |        | Paid-In |  | sury    |    | sation & |  | ulated   |         | hensive  |  | holders
|                                             |                                          | Shares         |        | $ Amnt  |  | Capital |    | Stock    |  | Other    |         | Deficit) |  | Loss     |        | Equity
|                                             |                                          |                |        |         |  |         |    |          |  |          |         |          |  |          |        |       
|                                             |                                          |               
|                                             |                                          | (In thousands)
|Balance at December 31, 1999                 |                                          |                | 32,992 |         |  | $       | 33 |          |  | $        | 112,473 |          |  | $        | (2,181 | )      |  | $ | (700 | ) |  | $ | 10,564  |         |   | $ | (1,837 | )     |   | $ | 118,352 |        
|Exercise of stock options                    |                                          |                | 1,485  |         |  |         | 2  |          |  |          | 7,899   |          |  |          |       |        |  |   |     |   |  |   |        |         |   |   |       |       |   |   | 7,901   |        
|Sale of common stock under ESPP              |                                          |                | 218    |         |  |         |   |          |  |          | 941     |          |  |          |       |        |  |   |     |   |  |   |        |         |   |   |       |       |   |   | 941     |        
|Notes receivable from stockholder            |                                          |                |       |         |  |         |   |          |  |          |        |          |  |          |       |        |  |   | 524  |   |  |   |        |         |   |   |       |       |   |   | 524     |        
|Amortization of deferred compensation        |                                          |                |       |         |  |         |   |          |  |          |        |          |  |          |       |        |  |   | 48   |   |  |   |        |         |   |   |       |       |   |   | 48      |        
|Comprehensive loss:                          |                                          |                |        |         |  |         |    |          |  |          |         |          |  |          |        |        |  |   |      |   |  |   |         |         |   |   |        |       |   |   |         |        
|                                             | Net loss                                 |                |        |        |  |         |    |         |  |          |         |         |  |          |        |       |  |   |      |  |  |   |         | (58,775 | ) |   |        |      |   |   |         | (58,775 | )
|                                             | Unrealized gain on marketable securities |                |        |        |  |         |    |         |  |          |         |         |  |          |        |       |  |   |      |  |  |   |         |        |   |   |        |      |   |   |         |        |  
|                                             | Foreign currency translation             |                |        |        |  |         |    |         |  |          |         |         |  |          |        |       |  |   |      |  |  |   |         |        |   |   |        | (34   | ) |   |         | (34     | )
|                                             |                                          |                |        |         |  |         |    |          |  |          |         |          |  |          |        |        |  |   |      |   |  |   |         |         |   |   |        |       |   |   |         |        
|Total comprehensive loss                     |                                          |                |        |         |  |         |    |          |  |          |         |          |  |          |        |        |  |   |      |   |  |   |         |         |   |   |        |       |   |   | (58,809 | )      
|                                             |                                          |                |        |         |  |         |    |          |  |          |         |          |  |          |        |        |  |   |      |   |  |   |         |         |   |   |        |       |   |   |         |        
|Balance at December 31, 2000                 |                                          |                | 34,695 |         |  |         | 35 |          |  |          | 121,313 |          |  |          | (2,181 | )      |  |   | (128 | ) |  |   | (48,211 | )       |   |   | (1,871 | )     |   |   | 68,957  |        
|Exercise of stock options                    |                                          |                | 276    |         |  |         |   |          |  |          | 1,330   |          |  |          |       |        |  |   |     |   |  |   |        |         |   |   |       |       |   |   | 1,330   |        
|Sale of common stock under ESPP              |                                          |                | 240    |         |  |         |   |          |  |          | 894     |          |  |          |       |        |  |   |     |   |  |   |        |         |   |   |       |       |   |   | 894     |        
|Notes receivable from stockholder            |                                          |                |       |         |  |         |   |          |  |          |        |          |  |          |       |        |  |   | (31  | ) |  |   |        |         |   |   |       |       |   |   | (31     | )      
|Deferred stock compensation                  |                                          |                |       |         |  |         |   |          |  |          | 134     |          |  |          |       |        |  |   | (134 | ) |  |   |        |         |   |   |       |       |   |   |        |        
|Amortization of deferred compensation        |                                          |                |       |         |  |         |   |          |  |          |        |          |  |          |       |        |  |   | 81   |   |  |   |        |         |   |   |       |       |   |   | 81      |        
|Comprehensive loss:                          |                                          |                |        |         |  |         |    |          |  |          |         |          |  |          |        |        |  |   |      |   |  |   |         |         |   |   |        |       |   |   |         |        
|                                             | Net loss                                 |                |        |        |  |         |    |         |  |          |         |         |  |          |        |       |  |   |      |  |  |   |         | (10,076 | ) |   |        |      |   |   |         | (10,076 | )
|                                             | Unrealized gain on marketable securities |                |        |        |  |         |    |         |  |          |         |         |  |          |        |       |  |   |      |  |  |   |         |        |   |   |        | 42    |   |   |         | 42      |  
|                                             | Foreign currency translation             |                |        |        |  |         |    |         |  |          |         |         |  |          |        |       |  |   |      |  |  |   |         |        |   |   |        | (251  | ) |   |         | (251    | )
|                                             |                                          |                |        |         |  |         |    |          |  |          |         |          |  |          |        |        |  |   |      |   |  |   |         |         |   |   |        |       |   |   |         |        
|Total comprehensive loss                     |                                          |                |        |         |  |         |    |          |  |          |         |          |  |          |        |        |  |   |      |   |  |   |         |         |   |   |        |       |   |   | (10,285 | )      
|                                             |                                          |                |        |         |  |         |    |          |  |          |         |          |  |          |        |        |  |   |      |   |  |   |         |         |   |   |        |       |   |   |         |        
|Balance at December 31, 2001                 |                                          |                | 35,211 |         |  |         | 35 |          |  |          | 123,671 |          |  |          | (2,181 | )      |  |   | (212 | ) |  |   | (58,287 | )       |   |   | (2,080 | )     |   |   | 60,946  |        
|Exercise of stock options                    |                                          |                | 291    |         |  |         | 1  |          |  |          | 1,041   |          |  |          |       |        |  |   |     |   |  |   |        |         |   |   |       |       |   |   | 1,042   |        
|Sale of common stock under ESPP              |                                          |                | 168    |         |  |         |   |          |  |          | 459     |          |  |          |       |        |  |   |     |   |  |   |        |         |   |   |       |       |   |   | 459     |        
|Notes receivable from stockholder            |                                          |                |       |         |  |         |   |          |  |          |        |          |  |          |       |        |  |   | 55   |   |  |   |        |         |   |   |       |       |   |   | 55      |        
|Warrant exercise                             |                                          |                | 68     |         |  |         |   |          |  |          | 198     |          |  |          |        |        |  |   |      |   |  |   |         |         |   |   |        |       |   |   | 198     |        
|Benefit from Carryback of Net Operating Loss |                                          |                |       |         |  |         |   |          |  |          | 182     |          |  |          |       |        |  |   |     |   |  |   |        |         |   |   |       |       |   |   | 182     |        
|Purchase of treasury stock                   |                                          |                | (500   | )       |  |         |   |          |  |          |        |          |  |          | (2,500 | )      |  |   |     |   |  |   |        |         |   |   |       |       |   |   | (2,500  | )      
|Amortization of deferred compensation        |                                          |                |       |         |  |         |   |          |  |          | 57      |          |  |          |       |        |  |   | 53   |   |  |   |        |         |   |   |       |       |   |   | 110     |        
|Comprehensive loss:                          |                                          |                |        |         |  |         |    |          |  |          |         |          |  |          |        |        |  |   |      |   |  |   |         |         |   |   |        |       |   |   |         |        
|                                             | Net loss                                 |                |        |        |  |         |    |         |  |          |         |         |  |          |        |       |  |   |      |  |  |   |         | (33,763 | ) |   |        |      |   |   |         | (33,763 | )
|                                             | Unrealized gain on marketable securities |                |        |        |  |         |    |         |  |          |         |         |  |          |        |       |  |   |      |  |  |   |         |        |   |   |        | 27    |   |   |         | 27      |  
|                                             | Foreign currency translation             |                |        |        |  |         |    |         |  |          |         |         |  |          |        |       |  |   |      |  |  |   |         |        |   |   |        | 1,520 |   |   |         | 1,520   |  
|                                             |                                          |                |        |         |  |         |    |          |  |          |         |          |  |          |        |        |  |   |      |   |  |   |         |         |   |   |        |       |   |   |         |        
|Total comprehensive loss                     |                                          |                |        |         |  |         |    |          |  |          |         |          |  |          |        |        |  |   |      |   |  |   |         |         |   |   |        |       |   |   | (32,216 | )      
|                                             |                                          |                |        |         |  |         |    |          |  |          |         |          |  |          |        |        |  |   |      |   |  |   |         |         |   |   |        |       |   |   |         |        
|Balance at December 31, 2002                 |                                          |                | 35,238 |         |  | $       | 36 |          |  | $        | 125,608 |          |  | $        | (4,681 | )      |  | $ | (104 | ) |  | $ | (92,050 | )       |   | $ | (533   | )     |   | $ | 28,276  |        
|                                             |                                          |                |        |         |  |         |    |          |  |          |         |          |  |          |        |        |  |   |      |   |  |   |         |         |   |   |        |       |   |   |         |        

See accompanying notes.

41



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##### Table of Contents



INDUS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                                |                                              |                              |          |       |        |      |         |       |        |   |         |        |        |  
|----------------------------------------------------------------------------------------------- | -------------------------------------------- | ---------------------------- | -------- | ----- | ------ | ---- | ------- | ----- | ------ | - | ------- | ------ | ------ | -
|                                                                                                |                                              |                             
|                                                                                                |                                              | Years Ended December 31,    
|                                                                                                |                                              |                             
|                                                                                                |                                              | 2000                         |          | 2001  |        | 2002
|                                                                                                |                                              |                              |          |       |        |     
|                                                                                                |                                              |                             
|                                                                                                |                                              | (In thousands)              
|Cash flows from operating
    activities:                                                       |                                              |                              |          |       |        |      |         |       |        |   |         |       
|Net loss                                                                                        |                                              | $                            | (58,775  | )     |        | $    | (10,076 | )     |        | $ | (33,763 | )     
|Adjustments to reconcile net income to net cash
    provided by (used in) operating activities: |                                              |                              |          |       |        |      |         |       |        |   |         |       
|                                                                                                | Depreciation and amortization                |                              |          | 8,472 |        |      |         | 8,067 |        |   |         | 8,541  |       
|                                                                                                | Provision for doubtful accounts              |                              |          | 1,388 |        |      |         | 333   |        |   |         | (2,267 | )     
|                                                                                                | Amortization of deferred compensation        |                              |          | 48    |        |      |         | 81    |        |   |         | 53     |       
|                                                                                                | Loss on sale of fixed assets                 |                              |          |      |        |      |         | 95    |        |   |         | 205    |       
|                                                                                                | Changes in operating assets and liabilities: |                              |          |       |        |      |         |       |        |   |         |        |       
|                                                                                                |                                              | Billed accounts receivable   |          |       | 209    |      |         |       | 2,165  |   |         |        | 11,217 |  
|                                                                                                |                                              | Unbilled accounts receivable |          |       | 696    |      |         |       | (1,627 | ) |         |        | 11,255 |  
|                                                                                                |                                              | Income tax receivable        |          |       | (5,983 | )    |         |       | 4,553  |   |         |        | (3,693 | )
|                                                                                                |                                              | Other current assets         |          |       | (399   | )    |         |       | 1,491  |   |         |        | 1,587  |  
|                                                                                                |                                              | Other assets                 |          |       | 1,597  |      |         |       | 2,427  |   |         |        | (405   | )
|                                                                                                |                                              | Accounts payable             |          |       | 335    |      |         |       | 323    |   |         |        | (984   | )
|                                                                                                |                                              | Deferred income taxes        |          |       | 9,512  |      |         |       |       |   |         |        |       |  
|                                                                                                |                                              | Income taxes payable         |          |       |       |      |         |       | 1,747  |   |         |        | 2,788  |  
|                                                                                                |                                              | Other accrued liabilities    |          |       | 4,391  |      |         |       | 3,133  |   |         |        | (5,244 | )
|                                                                                                |                                              | Deferred revenue             |          |       | 16,822 |      |         |       | 1,381  |   |         |        | (3,055 | )
|                                                                                                |                                              | Other                        |          |       | (642   | )    |         |       | (214   | ) |         |        | 255    |  
|                                                                                                |                                              |                              |          |       |        |      |         |       |        |   |         |       
|Net cash provided by (used in) operating
    activities                                         |                                              |                              | (22,329  | )     |        |      | 13,879  |       |        |   | (13,510 | )     
|                                                                                                |                                              |                              |          |       |        |      |         |       |        |   |         |       
|Cash flows from investing
    activities:                                                       |                                              |                              |          |       |        |      |         |       |        |   |         |       
|Purchase of available-for-sale marketable
    securities                                        |                                              |                              | (361,567 | )     |        |      | (52,041 | )     |        |   | (52,953 | )     
|Sale of available-for-sale marketable securities                                                |                                              |                              | 408,422  |       |        |      | 66,192  |       |        |   | 52,399  |       
|(Increase) decrease in restricted cash                                                          |                                              |                              |         |       |        |      |        |       |        |   | (5,159  | )     
|Acquisition of property and equipment                                                           |                                              |                              | (12,346  | )     |        |      | (7,467  | )     |        |   | (3,994  | )     
|                                                                                                |                                              |                              |          |       |        |      |         |       |        |   |         |       
|Net cash provided by (used in) investing
    activities                                         |                                              |                              | 34,509   |       |        |      | 6,684   |       |        |   | (9,707  | )     
|                                                                                                |                                              |                              |          |       |        |      |         |       |        |   |         |       
|Cash flows from financing
    activities:                                                       |                                              |                              |          |       |        |      |         |       |        |   |         |       
|Repayment of capital leases/notes payable                                                       |                                              |                              | (322     | )     |        |      | (139    | )     |        |   | (170    | )     
|Net proceeds from issuance of common stock                                                      |                                              |                              | 8,842    |       |        |      | 2,224   |       |        |   | 1,938   |       
|Changes in stockholder receivables                                                              |                                              |                              | 524      |       |        |      | (31     | )     |        |   | 55      |       
|Purchase of treasury stock                                                                      |                                              |                              |         |       |        |      |        |       |        |   | (2,500  | )     
|                                                                                                |                                              |                              |          |       |        |      |         |       |        |   |         |       
|Net cash provided by (used in) financing
    activities                                         |                                              |                              | 9,044    |       |        |      | 2,054   |       |        |   | (677    | )     
|                                                                                                |                                              |                              |          |       |        |      |         |       |        |   |         |       
|Effect of exchange rate differences on cash                                                     |                                              |                              | (34      | )     |        |      | (251    | )     |        |   | 1,520   |       
|Net increase/(decrease) in cash and cash
    equivalents                                        |                                              |                              | 21,190   |       |        |      | 22,366  |       |        |   | (22,374 | )     
|Cash and cash equivalents at beginning of period                                                |                                              |                              | 16,345   |       |        |      | 37,535  |       |        |   | 59,901  |       
|                                                                                                |                                              |                              |          |       |        |      |         |       |        |   |         |       
|Cash and cash equivalents at end of period                                                      |                                              | $                            | 37,535   |       |        | $    | 59,901  |       |        | $ | 37,527  |       
|                                                                                                |                                              |                              |          |       |        |      |         |       |        |   |         |       
|Supplemental disclosures of cash flow
    information:                                          |                                              |                              |          |       |        |      |         |       |        |   |         |       
|Interest paid                                                                                   |                                              | $                            | 72       |       |        | $    | 42      |       |        | $ | 59      |       
|                                                                                                |                                              |                              |          |       |        |      |         |       |        |   |         |       
|Income taxes paid                                                                               |                                              | $                            | 729      |       |        | $    | 1,631   |       |        | $ | 315     |       
|                                                                                                |                                              |                              |          |       |        |      |         |       |        |   |         |       
|Income tax refunds                                                                              |                                              | $                            | 9,262    |       |        | $    | 8,021   |       |        | $ | 3,703   |       
|                                                                                                |                                              |                              |          |       |        |      |         |       |        |   |         |       

See accompanying notes.

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##### Table of Contents



INDUS INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

1.     Nature of
Business and Significant Accounting Policies

Organization
and Business

Business

Indus International, Inc. (the
Company) is a multi-product company that develops,
markets, implements and supports integrated Enterprise Asset
Management (EAM) and Supply Chain software and
service products for capital-intensive industries worldwide. The
Companys software and service products help customers
maximize return on assets and improve efficiencies in core
business functions in the utilities, oil and gas, defense, pulp
and paper, metals and mining and process industries worldwide.

Significant
Customers

In 2001, Magnox Electric plc (Magnox)
selected the Company to provide work management and compliance
system software for eight nuclear stations. The Company is
providing a total business solution, including the PassPort
product suite, implementation services, and five years of
application hosting via Indus web hosting services. Magnox
is a wholly-owned subsidiary of British Nuclear Fuels Ltd
(BNFL), operating BNFLs nuclear power
stations. The project is scheduled to include eight
implementations into 2003. The Magnox contract represented 3.8%
and 12.6% of the Companys revenue for the year ended
December 31, 2001 and 2002, respectively. In 2001, the
United Kingdoms Ministry of Defense (MoD)
selected the Company as the application provider for logistics
and asset management. The MoD project represented 23.3% of total
revenues for 2001. The MoD suspended this project indefinitely
in the first quarter of 2002 and, as a result, revenues from the
project during 2002 were insignificant. Another customer
accounted for 12.2% of the Companys total revenues in 2000.

Significant
Accounting Policies

Basis
of Presentation

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

Revenue
Recognition

The Company provides its software to customers
under contracts that provide for both software license fees and
implementation and other services. The revenues from software
license fees are recognized in accordance with AICPA Statements
of Position (SOP) 97-2, 98-4, and 98-9, and SEC
Staff Accounting Bulletin No. 101. Revenue for software is
recognized when persuasive evidence of a non-cancelable license
agreement exists, delivery has occurred, the license fee is
fixed or determinable, and collection is probable. Revenue from
services, which generally are time and material based, are
recognized as the work is performed. When software is licensed
through indirect sales channels, licensing fees are recognized
as revenue when the reseller sells the software to an end user
customer and the criteria described above have been met. For
arrangements that include rights to multiple software products
and/or services, the total arrangement fee is allocated among
each of the elements using the residual method, under which
revenue applicable to the undelivered elements is deferred based
on vendor specific objective evidence of fair value, where it
exists, and the residual amount of revenue is allocated to the
delivered elements. Vendor-specific objective evidence is based
on the price charged when an element is sold separately or, in
the case of an element not yet sold separately, the price
established by authorized management, if it is probable that the
price, once established, will not change once the element is
sold separately.

Revenue is recognized using contract accounting
for arrangements involving significant customization or
modification of the software or where software services are
considered essential to the functionality of the

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INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

software. Revenue from these software
arrangements is recognized using the percentage-of-completion
method with progress-to-completion measured using labor cost
inputs and with revisions to estimates reflected in the period
in which changes become known. Project losses are provided for
in their entirety in the period in which they become known.

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

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

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

For arrangements that include multiple elements,
the fee is allocated to the various elements based on
vender-specific objective evidence of fair value established by
independent sale of the elements when sold separately.

Deferred revenue represents unearned support
fees, services and unearned license fees for which future
performance obligations remain.

Foreign
Currency Translation

The functional currencies of the Companys
foreign subsidiaries are their respective local currencies. The
financial statements of foreign subsidiaries have been
translated into U.S. Dollars. All balance sheet accounts have
been translated using the exchange rates in effect at the
balance sheet date. The gains and losses resulting from the
translation of the accounts of the Companys foreign
subsidiaries have been reported in other comprehensive income
(loss) within stockholders equity. The foreign
statements of operations have been translated during the year
using average exchange rates. Gains and losses resulting from
foreign currency transactions are included in determination of
net income (loss). Historically, the foreign currency gains and
losses have not been significant, and the Company has determined
that foreign currency derivative products are not required to
hedge the Companys exposure.

Concentration
of Credit Risk

Financial instruments where the Company may be
subject to concentrations of credit risk consist principally of
cash and cash equivalents, short-term investments and trade
accounts receivable. The Company invests excess cash primarily
in money market funds and commercial paper, which are highly
liquid securities that bear minimal risk. In addition, the
Company has investment policies and procedures that are reviewed
periodically to minimize credit risk. The Companys
customers are generally large companies in the utilities, oil
and gas, defense, pulp and paper, metals and mining and process
industries. The Company performs ongoing credit evaluations and
generally does not require collateral. In addition, the Company
routinely assesses the financial strength of its customers and,
as a consequence, believes that its accounts receivable credit
risk exposure is limited.

The Company added approximately $3.1 million
in 2000 and $3.4 million in 2001, and reversed to income
approximately $807,000 in 2002 to its allowance for doubtful
accounts through charges to operations. Total write-offs of
uncollectible amounts were $1.7 million in 2000,
$3.1 million in 2001 and $1.5 million in 2002.

One customer (Magnox) represented 12.6% of total
revenues for 2002 and 10.7% of total billed and unbilled
accounts receivable at December 31, 2002. One customer
(MoD) represented 23.3% of total revenues for 2001 and 17.2% of
total billed and unbilled accounts receivable at
December 31, 2001. Another customer accounted for 12.2% of
the Companys total revenues in 2000.

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INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Cash
Equivalents and Marketable Securities

The Company considers all non-auctionable, highly
liquid, low risk debt instruments with maturities 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 funds, and commercial paper and corporate notes.

The Company presently classifies all marketable
securities as available-for-sale investments and carries them at
fair market value. Unrealized holding gains and losses, net of
taxes, are included in accumulated other comprehensive income
(loss) within stockholders equity.

Restricted
Cash

Restricted cash of approximately
$5.5 million includes $2.9 million in other current
assets and $2.6 million in other non-current assets. The
$2.9 million restricted cash in other current assets is a
$2.9 million performance bond denominated in British pounds
(GBP 1.8 million) maturing in July 2003, which was
established in April 2002 for the Magnox project. The
$2.6 million in non-current assets is comprised of a
$2.3 million compensating balance arrangement to support a
standby letter of credit for the same amount, held by the
Companys San Francisco office landlord, and a
$0.3 million certificate of deposit used as security for a
letter of credit.

The recoverability of the cash used for the
performance bond is tied to satisfactory fulfillment of specific
performance criteria in the Magnox contract. The cash used for
the standby letter of credit with the San Francisco office
landlord will be recoverable upon fulfillment of the
Companys lease obligation in May 2008.



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

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

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



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

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

The Company expenses all research and development
costs as incurred.



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

SOP 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use,
requires that entities capitalize certain costs related to
internal use software once certain criteria have been met.
Capitalized internal-use software development costs associated
with the Companys information systems are included in
property and equipment and are depreciated on a straight-line
basis over three year periods. Depreciation expense recorded in
2000, 2001 and 2002 was approximately $1.1 million,
$1.8 million and

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INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

$2.4 million, respectively. The costs that
have been capitalized and are being amortized are for external
purchases and implementation services obtained for internal use.



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

Advertising costs are charged to expense in the
period the costs are incurred. Advertising expense was
approximately $920,000, $214,000 and $846,000 in 2000, 2001 and
2002, respectively, and are included in Sales and Marketing in
the accompanying Consolidated Statement of Operations.



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

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



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

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

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

|                                                                                         |                        |                          |         |      |  |      |         |   |  |   |         |   | 
|---------------------------------------------------------------------------------------- | ---------------------- | ------------------------ | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - | 
|                                                                                         |                        |                         
|                                                                                         |                        | Years Ended December 31,
|                                                                                         |                        |                         
|                                                                                         |                        | 2000                     |         | 2001 |  | 2002
|                                                                                         |                        |                          |         |      |  |     
|Net income (loss)                                                                        |                        | $                        | (58,775 | )    |  | $    | (10,076 | ) |  | $ | (33,763 | )
|                                                                                         |                        |                          |         |      |  |      |         |   |  |   |         |  
|Weighted average shares of common stock
    outstanding                                  |                        |                          | 34,248  |      |  |      | 34,857  |   |  |   | 35,237  |  
|                                                                                         |                        |                          |         |      |  |      |         |   |  |   |         |  
|Basic net income (loss) per share                                                        |                        | $                        | (1.72   | )    |  | $    | (0.29   | ) |  | $ | (0.96   | )
|                                                                                         |                        |                          |         |      |  |      |         |   |  |   |         |  
|Calculation of shares outstanding for computing
    diluted net (loss) income per share: |                        |                          |         |      |  |      |         |   |  |   |         |  
|Shares used in computing basic net income (loss)
    per share                           |                        |                          | 34,248  |      |  |      | 34,857  |   |  |   | 35,237  |  
|Shares to reflect the effect of the assumed
    exercise of:                             |                        |                          |         |      |  |      |         |   |  |   |         |  
|                                                                                         | Employee stock options |                          |         |     |  |      |         |  |  |   |         |  | 
|                                                                                         | Warrants               |                          |         |     |  |      |         |  |  |   |         |  | 
|                                                                                         |                        |                          |         |      |  |      |         |   |  |   |         |  
|Shares used in computing diluted net income
    (loss) per share                         |                        |                          | 34,248  |      |  |      | 34,857  |   |  |   | 35,237  |  
|                                                                                         |                        |                          |         |      |  |      |         |   |  |   |         |  
|Diluted net income (loss) per share                                                      |                        | $                        | (1.72   | )    |  | $    | (0.29   | ) |  | $ | (0.96   | )
|                                                                                         |                        |                          |         |      |  |      |         |   |  |   |         |  

The Company has excluded all outstanding stock
options and warrants to purchase common stock from the
calculation of diluted net loss per share because all securities
are antidilutive for all periods presented. As of
December 31, 2000, 2001 and 2002, stock options and
warrants to purchase common stock in the amount of 9,257,103,
8,946,531 and 9,885,531 were outstanding. See Notes 7 and 8 for
further information on those securities.

46



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INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

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



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

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

For purposes of pro forma disclosures, 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, 2000, 2001 and 2002, respectively, is as
follows (in thousands except for earnings per share information):

|                                                                                                           |             |                         |         |        |   |      |         |        |   |   |         |        |  
|---------------------------------------------------------------------------------------------------------- | ----------- | ----------------------- | ------- | ------ | - | ---- | ------- | ------ | - | - | ------- | ------ | -
|                                                                                                           |             |                        
|                                                                                                           |             | Year Ended December 31,
|                                                                                                           |             |                        
|                                                                                                           |             | 2000                    |         | 2001   |   | 2002
|                                                                                                           |             |                         |         |        |   |     
|Net income (loss) as reported                                                                              |             | $                       | (58,775 | )      |   | $    | (10,076 | )      |   | $ | (33,763 | )     
|Add: Total stock-based compensation expense
    determined under the intrinsic value method                |             | $                       | 48      |        |   | $    | 81      |        |   | $ | 53      |       
|Deduct: Total stock-based compensation expense
    determined under fair-value based method for all awards |             | $                       | (12,483 | )      |   | $    | (8,743  | )      |   | $ | (4,809  | )     
|                                                                                                           |             |                         |         |        |   |      |         |        |   |   |         |       
|Pro forma net income (loss)                                                                                |             | $                       | (71,210 | )      |   | $    | (18,738 | )      |   | $ | (38,519 | )     
|                                                                                                           |             |                         |         |        |   |      |         |        |   |   |         |       
|Earnings (loss) per share:                                                                                 |             |                         |         |        |   |      |         |        |   |   |         |       
|Basic:                                                                                                     |             |                         |         |        |   |      |         |        |   |   |         |       
|                                                                                                           | As reported |                         | $       | (1.72  | ) |      | $       | (0.29  | ) |   | $       | (0.96  | )
|                                                                                                           |             |                         |         |        |   |      |         |        |   |   |         |       
|                                                                                                           | Pro forma   |                         | $       | (2.08  | ) |      | $       | (0.54  | ) |   | $       | (1.09  | )
|                                                                                                           |             |                         |         |        |   |      |         |        |   |   |         |       
|Diluted:                                                                                                   |             |                         |         |        |   |      |         |        |   |   |         |       
|                                                                                                           | As reported |                         | $       | (1.72  | ) |      | $       | (0.29  | ) |   | $       | (0.96  | )
|                                                                                                           |             |                         |         |        |   |      |         |        |   |   |         |       
|                                                                                                           | Pro forma   |                         | $       | (2.08  | ) |      | $       | (0.54  | ) |   | $       | (1.09  | )
|                                                                                                           |             |                         |         |        |   |      |         |        |   |   |         |       
|Shares used in computing per share data                                                                    |             |                         |         |        |   |      |         |        |   |   |         |       
|                                                                                                           | Basic       |                         |         | 34,248 |   |      |         | 34,857 |   |   |         | 35,237 |  
|                                                                                                           |             |                         |         |        |   |      |         |        |   |   |         |       
|                                                                                                           | Diluted     |                         |         | 34,248 |   |      |         | 34,857 |   |   |         | 35,237 |  
|                                                                                                           |             |                         |         |        |   |      |         |        |   |   |         |       

The weighted average fair value of options
granted under all plans was $4.34, $3.91 and $2.22 in 2000, 2001
and 2002, respectively.

47



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##### Table of Contents



INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Recent
Accounting Pronouncements

In June 2001, the FASB issued SFAS No. 142,
Goodwill and Other Intangible Assets. Under SFAS
No. 142, goodwill is no longer subject to amortization;
instead it will be subject to new impairment testing criteria.
Other intangible assets will continue to be amortized over their
estimated useful lives, although those with indefinite lives are
not to be amortized but will be tested at least annually for
impairment, using a lower of cost or fair value approach. The
Company adopted SFAS No. 142 in the first quarter of 2002,
with no significant impact on its financial statements.

In August 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, which addresses financial accounting
and reporting for the impairment or disposal of long-lived
assets and supersedes SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of, and the accounting and reporting
provisions of Accounting Principles Board Opinion No. 30,
Reporting the Results of Operations  Reporting
the Effects of Disposal of a Segment of a Business. The
Company adopted SFAS No. 144 in the first quarter in 2002,
with no significant impact on its financial statements.

In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44 and 64, Amendment
of FASB Statement No. 13, and Technical Corrections. SFAS
No. 145 rescinds SFAS No. 4, Reporting Gains and
Losses from Extinguishment of Debt, and an amendment of that
statement, SFAS No. 64, Extinguishments of Debt Made
to Satisfy Sinking-Fund Requirements. SFAS No. 145
amends SFAS No. 13, Accounting for Leases, to
eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects similar
to sale-leaseback transactions. SFAS No. 145 also amends
other existing authoritative pronouncements to make various
technical corrections, clarify meanings, or describe their
applicability under changed conditions. SFAS No. 145 is
effective for financial statements issued on or after
May 15, 2002. The Company adopted SFAS No. 145
effective May 15, 2002, with no significant impact on its
financial statements.

In July 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities. SFAS No. 146 addresses the financial
accounting and reporting for costs associated with exit or
disposal activities, including a definition of Restructuring,
and nullifies EITF 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an
Activity. SFAS No. 146 requires companies to
recognize costs associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an
exit or disposal plan. The effective date of SFAS No. 146
is January 1, 2003, with early application encouraged. The
Company will adopt SFAS No. 146 on January 1, 2003,
and does not anticipate a significant impact on its financial
statements from the adoption of SFAS No. 146.

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. SFAS
No. 148 amends SFAS No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods
of transition to Statement 123s fair value method of
accounting for stock-based employee compensation. SFAS
No. 148 also amends the disclosure provisions of SFAS
No. 123 and Accounting Principles Board Opinion
No. 28, Interim Financial Reporting, to require
disclosure in the summary of significant accounting policies of
the effects of an entitys accounting policy with respect
to stock-based compensation, regardless of whether the Company
accounts for that compensation using the fair value method of
SFAS No. 123 or the intrinsic value method of APB
No. 25, Accounting for Stock Issued to
Employees. SFAS No. 148s amendment of the
transition and annual disclosure requirements of SFAS
No. 123 are effective for fiscal years ending after
December 15, 2002. The Company accounts for stock-based
compensation using the intrinsic value method prescribed in APB
No. 25 and related interpretations. Management has not yet
evaluated the alternative transition methods if the Company were
to adopt the fair value provisions of SFAS No. 123 under
this new standard.

48



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##### Table of Contents



INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

2.     Marketable
Securities

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

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

|                                     |  |              |       |      |  |   |       | 
|------------------------------------ |  | ------------ | ----- | ---- |  | - | ----- | 
|                                     |  |             
|                                     |  | December 31,
|                                     |  |             
|                                     |  | 2001         |       | 2002
|                                     |  |              |       |     
|Money market funds                   |  | $            | 131   |      |  | $ | 401   | 
|Government agency notes              |  |              | 1,601 |      |  |   | 2,206 | 
|Commercial paper and corporate notes |  |              | 2,109 |      |  |   | 6,364 | 
|Auction rate notes                   |  |              | 1,175 |      |  |   |      | 
|                                     |  |              |       |      |  |   |       | 
|                                     |  | $            | 5,016 |      |  | $ | 8,971 | 
|                                     |  |              |       |      |  |   |       | 
|Included in:                         |  |              |       |      |  |   |       | 
|Cash and cash equivalents            |  | $            | 1,397 |      |  | $ | 4,797 | 
|Marketable securities                |  |              | 1,757 |      |  |   | 2,171 | 
|Investments                          |  |              | 1,862 |      |  |   | 2,003 | 
|                                     |  |              |       |      |  |   |       | 
|                                     |  | $            | 5,016 |      |  | $ | 8,971 | 
|                                     |  |              |       |      |  |   |       | 

Maturities of investment securities classified as
available for sale at December 31, 2002 by contractual
maturity are shown below (in thousands):

|                                      |  |   |       | 
|------------------------------------- |  | - | ----- | 
|Due within one year                   |  | $ | 6,168 | 
|Due after one year through five years |  |   | 2,803 | 
|                                      |  |   |       | 
|                                      |  | $ | 8,971 | 
|                                      |  |   |       | 

At December 31, 2001 and 2002, the gross
amortized cost of marketable securities approximates the
estimated fair value. 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):

|                                               |  |              |        |      |  |   |        | 
|---------------------------------------------- |  | ------------ | ------ | ---- |  | - | ------ | 
|                                               |  |             
|                                               |  | December 31,
|                                               |  |             
|                                               |  | 2001         |        | 2002
|                                               |  |              |        |     
|Furniture and fixtures                         |  | $            | 6,465  |      |  | $ | 6,380  | 
|Office equipment                               |  |              | 38,993 |      |  |   | 40,828 | 
|Leasehold improvements                         |  |              | 3,847  |      |  |   | 4,323  | 
|Internal-use software                          |  |              | 12,408 |      |  |   | 13,605 | 
|                                               |  |              |        |      |  |   |        | 
|                                               |  |              | 61,713 |      |  |   | 65,136 | 
|Less accumulated depreciation and amortization |  |              | 39,836 |      |  |   | 47,665 | 
|                                               |  |              |        |      |  |   |        | 
|                                               |  | $            | 21,877 |      |  | $ | 17,471 | 
|                                               |  |              |        |      |  |   |        | 

49



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INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Depreciation and amortization expense, totaled
$7.0 million, $8.0 million and $8.5 million for
the years ended December 31, 2000, 2001 and 2002,
respectively.

4.     Other Accrued
Liabilities

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

|                                      |  |              |        |      |  |   |        | 
|------------------------------------- |  | ------------ | ------ | ---- |  | - | ------ | 
|                                      |  |             
|                                      |  | December 31,
|                                      |  |             
|                                      |  | 2001         |        | 2002
|                                      |  |              |        |     
|Accrued commissions                   |  | $            | 1,242  |      |  | $ | 604    | 
|Accrued payroll and related expenses  |  |              | 6,426  |      |  |   | 3,995  | 
|Accrued taxes payable                 |  |              | 5,350  |      |  |   | 1,846  | 
|Accrued restructuring expenses        |  |              | 1,628  |      |  |   | 2,887  | 
|Accrued project reserves              |  |              | 1,444  |      |  |   | 580    | 
|Accrued legal and accounting expenses |  |              | 1,674  |      |  |   | 1,116  | 
|Other                                 |  |              | 5,468  |      |  |   | 5,014  | 
|                                      |  |              |        |      |  |   |        | 
|                                      |  | $            | 23,232 |      |  | $ | 16,042 | 
|                                      |  |              |        |      |  |   |        | 

5.     Lines of
Credit

The Company has a revolving bank line of credit
in the amount of $15.0 million, which expires on May 31,
2003. During the first quarter of 2002, the Company generated a
net loss of $9.5 million. This loss triggered a default of
the profitability and minimum tangible net worth covenants
within the Companys revolving bank line of credit. This
default requires the Company to establish and maintain a
restricted compensating balance with the lender, California Bank
and Trust, equal to all outstanding credit line and letter of
credit usage. On April 1, 2002, the Company established a
restricted, interest bearing, compensating balance account for
$2.3 million, to support a standby letter of credit for the
same amount, held by the Companys San Francisco office
landlord. No other usage of the line of credit is anticipated
and the Company intends to maintain the restricted compensating
balance for as long as required.

There were no borrowings outstanding under this
line of credit at December 31, 2000, 2001 and 2002. There
was a $2.3 million standby letter of credit outstanding on
this line of at December 31, 2000, 2001 and 2002
respectively. The line of credit agreement contains certain
affirmative and negative covenants. The Company was either in
compliance with or had received waivers for each of the
financial covenants at December 31, 2000, 2001 and 2002.
The lender has provided the Company with waivers of the covenant
defaults for the first quarter of 2002, and each quarter
thereafter, up to and including the quarter ending
March 31, 2003 (the line of credit expires on May 31,
2003), if the Company maintains the required compensating
balance. The Company is not in reliance on the line of credit,
except for the $2.3 million standby letter of credit.

6.     Commitments

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

50



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##### Table of Contents



INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Total rental expense under these leases was
approximately $8.1 million, $7.0 million and
$6.6 million for 2000, 2001 and 2002, respectively. Future
minimum lease payments under all non-cancelable leases are as
follows (in thousands):

|                                                             |  |           |        |         |  |   |      |  
|------------------------------------------------------------ |  | --------- | ------ | ------- |  | - | ---- | -
|                                                             |  | Operating |        | Capital
|Years Ending December 31,                                    |  | Leases    |        | Leases 
|                                                             |  |           |        |        
|2003                                                         |  | $         | 9,955  |         |  | $ | 295  |  
|2004                                                         |  |           | 9,068  |         |  |   | 129  |  
|2005                                                         |  |           | 8,082  |         |  |   |     |  
|2006                                                         |  |           | 6,486  |         |  |   |     |  
|2007                                                         |  |           | 6,482  |         |  |   |     |  
|Thereafter                                                   |  |           | 10,196 |         |  |   |     |  
|                                                             |  |           |        |         |  |   |      |  
|Total minimum payments required                              |  | $         | 50,269 |         |  | $ | 424  |  
|                                                             |  |           |        |         |  |   |      |  
|Less amounts representing interest                           |  |           |        |         |  |   | (34  | )
|                                                             |  |           |        |         |  |   |      |  
|Present value of minimum lease payments                      |  |           |        |         |  | $ | 390  |  
|Less current portion                                         |  |           |        |         |  |   | (266 | )
|                                                             |  |           |        |         |  |   |      |  
|Obligations under capital leases, net of current
    portion |  |           |        |         |  | $ | 124  |  
|                                                             |  |           |        |         |  |   |      |  

At December 31, 2001 and 2002, the Company
had capital lease obligations of approximately $4,000 and
$390,000, respectively. Equipment leased under capital leases is
included in property and equipment. At December 31, 2001
and 2002, equipment under capital leases was approximately
$4.1 million and $4.6 million, respectively, with
accumulated depreciation of $4.1 million and $4.1 million,
respectively.

As of December 31, 2002, the Company has
subleased 43,981 square feet related to excess office space in
its San Francisco location and 3,570 square feet in its
Pittsburgh location, and has available for sublease 41,318
square feet in San Francisco, Pittsburgh, Dallas and Irvine, CA.
Future reduction in rent anticipated from existing subleases is
shown in the below chart (in thousands):

|                                               |  |           |       | 
|---------------------------------------------- |  | --------- | ----- | 
|                                               |  | Sub-Lease
|Years Ending December 31,                      |  | Income   
|                                               |  |          
|2003                                           |  | $         | 1,006 | 
|2004                                           |  |           | 1,049 | 
|2005                                           |  |           | 1,050 | 
|2006                                           |  |           | 1,014 | 
|2007                                           |  |           | 1,014 | 
|Thereafter                                     |  |           | 422   | 
|                                               |  |           |       | 
|Total sub-lease income under current contracts |  | $         | 5,555 | 
|                                               |  |           |       | 

7.     Stockholders
Equity

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

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INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 July 1999, the Companys Board of
Directors approved a stock repurchase program for up to
2,000,000 shares of the Companys outstanding common stock.
The Company is authorized to use available cash to buy back its
shares in open market transactions from time to time, subject to
price and market conditions. As of December 31, 2002, the
Company held, as treasury stock, 435,500 shares that had been
repurchased at a cost of approximately $2.2 million under
the program.

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

At December 31, 2002, the Company had issued
304,533 outstanding warrants to purchase an equal number of
shares of the Companys common stock at an exercise price
of $2.79 per share. See Note 15 for discussion of the price
adjustment due to a subsequent event. These stock purchase
warrants can be exercised at any time from June 20, 1994 to
and including June 20, 2004.

8.     Stock
Plans



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

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



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

The 1997 Stock Plan provides for the grant of
incentive or nonstatutory stock options to employees, including
officers and directors, and nonstatutory options only to
consultants of the Company. A total of 12,500,000 shares have
been reserved for issuance under the Stock Plan. The incentive
stock options will be granted at not less than fair market value
of the stock on the date of grant. The options generally vest
over one to four years and have a maximum term of ten years.



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

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

52



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##### Table of Contents



INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

The 1998 Indus International, Inc. Company Share
Option Plan (the UK Stock Plan) provides for the
grant of stock options to employees of Indus International, Ltd.
(a UK foreign subsidiary of the Company). A total of 500,000
shares of the Companys common stock have been reserved for
issuance under the Stock Plan. Options were granted in the
amounts of 135,235 in 2000 and 69,250 in 2001; there were no
options granted in 2002. Options of 37,625 in 2000, 50,050 in
2001 and 43,930 in 2002 were cancelled or expired. A total of
40,100 options have been exercised to date. The stock options
will be granted at not less than fair market value of the stock
on the date of grant. The options generally vest over one to
three years and have a maximum term of three years.

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

|                              |                     |           |           |                     |   |                |           |            |   |   |      |      | 
|----------------------------- | ------------------- | --------- | --------- | ------------------- | - | -------------- | --------- | ---------- | - | - | ---- | ---- | 
|                              |                     |           |           |                    
|                              |                     |           |           | Options Outstanding
|                              |                     | Shares    |           |                    
|                              |                     | Available |           |                     |   | Weighted-     
|                              |                     | for       |           |                     |   | Average       
|                              |                     | Grant     |           | Shares              |   | Exercise Price
|                              |                     |           |           |                     |   |               
|Balances at December 31, 1999 |                     |           | 4,644,569 |                     |   |                | 6,931,766 |            |   | $ | 5.24 |     
|                              | Shares authorized   |           |           | 500,000             |   |                |           |           |   |   |      |     | 
|                              | Options granted     |           |           | (5,721,073          | ) |                |           | 5,721,073  |   |   | $    | 6.20 | 
|                              | Options forfeited   |           |           | 2,291,705           |   |                |           | (2,291,705 | ) |   | $    | 5.86 | 
|                              | Options exercised   |           |           |                    |   |                |           | (1,476,933 | ) |   | $    | 9.03 | 
|                              | Plan shares expired |           |           | (133,859            | ) |                |           |           |   |   |      |     | 
|                              |                     |           |           |                     |   |                |           |            |   |   |      |     
|Balances at December 31, 2000 |                     |           | 1,581,342 |                     |   |                | 8,884,201 |            |   | $ | 5.66 |     
|                              | Shares authorized   |           |           | 2,500,000           |   |                |           |           |   |   |      |     | 
|                              | Options granted     |           |           | (1,673,100          | ) |                |           | 1,673,100  |   |   | $    | 5.12 | 
|                              | Options forfeited   |           |           | 1,707,981           |   |                |           | (1,707,981 | ) |   | $    | 6.46 | 
|                              | Options exercised   |           |           |                    |   |                |           | (275,691   | ) |   | $    | 6.93 | 
|                              | Plan shares expired |           |           | (92,332             | ) |                |           |           |   |   |      |     | 
|                              |                     |           |           |                     |   |                |           |            |   |   |      |     
|Balances at December 31, 2001 |                     |           | 4,023,891 |                     |   |                | 8,573,629 |            |   | $ | 5.43 |     
|                              | Shares authorized   |           |           |                    |   |                |           |           |   |   |      |     | 
|                              | Options granted     |           |           | (3,587,000          | ) |                |           | 3,587,000  |   |   | $    | 2.50 | 
|                              | Options forfeited   |           |           | 2,288,889           |   |                |           | (2,288,889 | ) |   | $    | 5.08 | 
|                              | Options exercised   |           |           |                    |   |                |           | (290,742   | ) |   | $    | 5.64 | 
|                              | Plan shares expired |           |           | (58,445             | ) |                |           |           |   |   |      |     | 
|                              |                     |           |           |                     |   |                |           |            |   |   |      |     
|Balances at December 31, 2002 |                     |           | 2,667,335 |                     |   |                | 9,580,998 |            |   | $ | 4.47 |     
|                              |                     |           |           |                     |   |                |           |            |   |   |      |     

53



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INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table summarizes information about
stock options outstanding as of December 31, 2002:

|                         |        |                     |           |                 |  |           |      |                |  |           |       |      |  |  |           |           |  |   |       |      | 
|------------------------ | ------ | ------------------- | --------- | --------------- |  | --------- | ---- | -------------- |  | --------- | ----- | ---- |  |  | --------- | --------- |  | - | ----- | ---- | 
|                         |        |                     |           |                 |  |           |      |               
|                         |        |                     |           | Options Vested 
|                         |        | Options Outstanding |           | and Exercisable
|                         |        |                     |           |                
|                         |        |                     |           | Weighted-       |  |           |      |               
|                         |        | Number              |           | Average         |  | Weighted- |      | Number         |  | Weighted-
|                         |        | Outstanding at      |           | Remaining       |  | Average   |      | Exercisable at |  | Average  
|                         |        | December 31,        |           | Contractual     |  | Exercise  |      | December 31,   |  | Exercise 
|Range of Exercise Prices |        | 2002                |           | Life            |  | Price     |      | 2002           |  | Price    
|                         |        |                     |           |                 |  |           |      |                |  |          
|$0.2830 -  $2.8750       |        |                     | 2,823,597 |                 |  |           | 9.19 |                |  | $         | 1.54  |      |  |  | 262,666   |           |  | $ | 1.99  |     
|$3.3800 -  $3.8750       |        |                     | 313,235   |                 |  |           | 4.30 |                |  | $         | 3.45  |      |  |  | 290,291   |           |  | $ | 3.42  |     
|$3.9375 -  $3.9375       |        |                     | 940,831   |                 |  |           | 7.80 |                |  | $         | 3.94  |      |  |  | 445,618   |           |  | $ | 3.94  |     
|$3.9400 -  $4.5000       |        |                     | 574,703   |                 |  |           | 7.24 |                |  | $         | 4.38  |      |  |  | 421,453   |           |  | $ | 4.47  |     
|$4.5620 -  $4.5620       |        |                     | 1,568,717 |                 |  |           | 5.86 |                |  | $         | 4.56  |      |  |  | 1,306,217 |           |  | $ | 4.56  |     
|$4.5900 -  $5.9600       |        |                     | 1,109,023 |                 |  |           | 8.89 |                |  | $         | 5.58  |      |  |  | 181,933   |           |  | $ | 5.79  |     
|$6.0000 -  $7.6000       |        |                     | 569,030   |                 |  |           | 8.15 |                |  | $         | 6.65  |      |  |  | 196,902   |           |  | $ | 6.67  |     
|$7.6250 -  $7.6250       |        |                     | 862,500   |                 |  |           | 7.08 |                |  | $         | 7.63  |      |  |  | 862,500   |           |  | $ | 7.63  |     
|$7.6800 -  $8.0625       |        |                     | 669,362   |                 |  |           | 7.45 |                |  | $         | 7.99  |      |  |  | 375,352   |           |  | $ | 8.00  |     
|$13.7500 - $15.3750      |        |                     | 150,000   |                 |  |           | 2.36 |                |  | $         | 13.97 |      |  |  | 150,000   |           |  | $ | 13.97 |     
|                         |        |                     |           |                 |  |           |      |                |  |           |       |      |  |  |           |           |  |   |       |     
|                         | Totals |                     |           | 9,580,998       |  |           |      | 7.72           |  |           | $     | 4.47 |  |  |           | 4,492,932 |  |   | $     | 5.60 | 
|                         |        |                     |           |                 |  |           |      |                |  |           |       |      |  |  |           |           |  |   |       |     

1997 Employee
Stock Purchase Plan

The 1997 Employee Stock Purchase Plan had
1,000,000 shares of common stock reserved for issuance. The plan
allowed for eligible employees to purchase stock at 85% of the
lower of the fair market value of the Companys common
stock as of the first day of each six-month offering period or
the fair market value of the stock at the end of the offering
period. Purchases were limited to 10% of each employees
compensation and a maximum of 4,000 shares. Under the plan the
Company issued 218,151, 239,601 and 167,606 shares in 2000, 2001
and 2002, respectively, at prices ranging from $1.50 to $3.33
per share. Effective November 1, 2002, the 1997 Employee
Stock Purchase Plan was concluded as all the authorized shares
under the plan had been distributed. The Company anticipates
seeking stockholder approval for a new Employee Stock Purchase
Plan at its 2003 Annual Meeting of stockholders.

9.     Alternative
Method of Valuing Stock Options

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

Pro forma information regarding net income and
earnings per share is required by SFAS No. 123, as amended
by SFAS No. 148, and described and disclosed in Note 1, and
has been determined as if the Company had accounted for its
employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the
date of grant using the Black-Scholes option pricing model with
the following weighted-average assumptions for 2000, 2001 and
2002, respectively: risk free interest rate of 6.12%, 5.06% and
4.25%; dividend yields of 0%; volatility of 139%, 89%, and 128%;
and a weighted-average expected life of the option of
5 years.

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INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

10.     Employee
Benefit and Profit-Sharing Plans

The Company has a defined contribution 401(K)
plan. All employees over the age of 18 who have completed at
least three months of service are eligible to participate. Each
participant may elect to have amounts deducted from his or her
compensation and contribute to the plan up to 15% of his or her
base salary, subject to maximums imposed by Federal law. All
employee contributions are fully vested at the time the employee
becomes an active participant. The Companys matching
contributions are equal to 50% of pre-tax contributions, up to
3% of eligible pay. This match is distributed to all eligible
employees participating in the plan. The matching contribution
is made quarterly. The Companys matching contributions
were approximately $984,000, $1,389,000 and $559,000 in 2000,
2001 and 2002, respectively.

11.     Geographic
Information

Geographic information is as follows (in
thousands):

|                                      |                     |                             |        |         |         |      |        |         |         |   |        |        |         | 
|------------------------------------- | ------------------- | --------------------------- | ------ | ------- | ------- | ---- | ------ | ------- | ------- | - | ------ | ------ | ------- | 
|                                      |                     |                            
|                                      |                     | Year Ended December 31,    
|                                      |                     |                            
|                                      |                     | 2000                        |        | 2001    |         | 2002
|                                      |                     |                             |        |         |         |     
|Revenues (based on selling location): |                     |                             |        |         |         |      |        |         |         |   |        |       
|                                      | United States       |                             | $      | 101,256 |         |      | $      | 104,442 |         |   | $      | 76,757 |        
|                                      | International:      |                             |        |         |         |      |        |         |         |   |        |        |        
|                                      |                     | United Kingdom              |        |         | 29,816  |      |        |         | 60,234  |   |        |        | 28,299  | 
|                                      |                     | France                      |        |         | 3,475   |      |        |         | 2,035   |   |        |        | 2,705   | 
|                                      |                     | Japan                       |        |         | 1,387   |      |        |         | 2,407   |   |        |        | 1,045   | 
|                                      |                     | Canada                      |        |         | 5,854   |      |        |         | 4,719   |   |        |        | 5,852   | 
|                                      |                     | Australia                   |        |         | 3,901   |      |        |         | 2,177   |   |        |        | 2,507   | 
|                                      |                     |                             |        |         |         |      |        |         |         |   |        |       
|                                      | Total International |                             |        | 44,433  |         |      |        | 71,572  |         |   |        | 40,408 |        
|                                      |                     |                             |        |         |         |      |        |         |         |   |        |       
|                                      |                     | Total consolidated revenues |        | $       | 145,689 |      |        | $       | 176,014 |   |        | $      | 117,165 | 
|                                      |                     |                             |        |         |         |      |        |         |         |   |        |       
|Long-lived assets:                    |                     |                             |        |         |         |      |        |         |         |   |        |       
|                                      | United States       |                             | $      | 19,096  |         |      | $      | 19,368  |         |   | $      | 16,060 |        
|                                      | International:      |                             |        |         |         |      |        |         |         |   |        |        |        
|                                      |                     | United Kingdom              |        |         | 1,979   |      |        |         | 1,742   |   |        |        | 1,098   | 
|                                      |                     | France                      |        |         | 169     |      |        |         | 129     |   |        |        | 105     | 
|                                      |                     | Japan                       |        |         | 3       |      |        |         | 35      |   |        |        | 31      | 
|                                      |                     | Canada                      |        |         | 686     |      |        |         | 471     |   |        |        | 80      | 
|                                      |                     | Australia                   |        |         | 300     |      |        |         | 132     |   |        |        | 97      | 
|                                      |                     |                             |        |         |         |      |        |         |         |   |        |       
|Total consolidated long-lived assets  |                     | $                           | 22,233 |         |         | $    | 21,877 |         |         | $ | 17,471 |       
|                                      |                     |                             |        |         |         |      |        |         |         |   |        |       

12.     Restructuring
Expenses

The Company recorded restructuring costs of
$2.1 million, $10.2 million and $8.2 million in
2000, 2001 and 2002, respectively.

The restructuring costs of $2.1 million and
$10.2 million for 2000 and 2001 were in connection with the
ongoing relocation of the Companys headquarters and
certain administrative functions to Atlanta, Georgia, severance
payments related to the elimination of 56 global positions, and
charges representing the estimated excess lease costs associated
with subleasing redundant San Francisco office space. This
relocation was approved by the Board of Directors in July 2000
and includes costs of approximately $2.8 million for severance

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INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

pay for employees affected, and approximately
$9.5 million for lease termination costs associated with
reducing leased space in San Francisco. Due to the excess
capacity of available lease space in the San Francisco market,
lease rates have declined from approximately $60 per square foot
at the beginning of 2001 to the $18-$20 per square foot range,
which is below the Companys actual lease cost of $45 per
square foot. The San Francisco office leases expire May 31,
2008.

The Company recorded restructuring costs of
approximately $3.4 million in the first quarter of 2002, in
connection with the suspension of the MoD project and the
Companys subsequent demobilization and reduction in
workforce and required support office facilities. A formal
restructuring plan was approved by the Board of Directors in
March 2002 and included costs of approximately $947,000 for
computer lease termination costs, approximately $728,000 of
severance payments related to the elimination of 81 global
positions, and approximately $1.7 million for lease
termination costs associated with closing the Companys
Dallas office and reducing leased space in the Companys
Pittsburgh office. The Dallas lease expires December 31,
2005 and the Pittsburgh lease expires September 30, 2005.

In the second and fourth quarters of 2002, the
Company incurred additional restructuring expenses of
$4.8 million. These expenses related to a change in the
Companys estimates of excess lease costs associated with
subleasing redundant office space in San Francisco, Dallas and
Pittsburgh. Due to the excess capacity of available lease space
in these markets, lease rates have significantly declined and
the ability to sublease has become difficult. In San Francisco,
rates have declined from approximately $60 per square foot at
the beginning of 2001 to the $18-$20 per square foot range,
which is below the Companys actual lease cost of $45 per
square foot. In Dallas and Pittsburgh, current lease rates for
both markets are in the $10-$14 range, which is below the
Companys actual lease costs of $25-$26 per square foot.

|                    |                  |                |     |           |   |            |   |       |   |   |        |        |   |   |        |        |  
|------------------- | ---------------- | -------------- | --- | --------- | - | ---------- | - | ----- | - | - | ------ | ------ | - | - | ------ | ------ | -
|                    |                  | Severance and  |     |           |   |            |   |      
|                    |                  | Related Costs  |     | Equipment |   | Facilities |   | Total
|                    |                  |                |     |           |   |            |   |      
|                    |                  |               
|                    |                  | (In thousands)
|Balance at 12/31/99 |                  | $              |    |           |   | $          |  |       |   | $ |       |        |   | $ |       |       
|                    |                  |                |     |           |   |            |   |       |   |   |        |        |   |   |        |       
|                    | Payments in 2000 |                |     | (466      | ) |            |   |      |   |   |        |       |   |   |        | (466   | )
|                    | Accruals in 2000 |                |     | 803       |   |            |   |      |   |   |        | 1,260  |   |   |        | 2,063  |  
|                    |                  |                |     |           |   |            |   |       |   |   |        |        |   |   |        |       
|Balance at 12/31/00 |                  | $              | 337 |           |   | $          |  |       |   | $ | 1,260  |        |   | $ | 1,597  |       
|                    |                  |                |     |           |   |            |   |       |   |   |        |        |   |   |        |       
|                    | Payments in 2001 |                |     | (1,716    | ) |            |   |      |   |   |        | (2,189 | ) |   |        | (3,905 | )
|                    | Accruals in 2001 |                |     | 1,553     |   |            |   |      |   |   |        | 8,261  |   |   |        | 9,814  |  
|                    |                  |                |     |           |   |            |   |       |   |   |        |        |   |   |        |       
|Balance at 12/31/01 |                  | $              | 174 |           |   | $          |  |       |   | $ | 7,332  |        |   | $ | 7,506  |       
|                    |                  |                |     |           |   |            |   |       |   |   |        |        |   |   |        |       
|                    | Payments in 2002 |                |     | (762      | ) |            |   | (953  | ) |   |        | (3,100 | ) |   |        | (4,815 | )
|                    | Accruals in 2002 |                |     | 593       |   |            |   | 953   |   |   | $      | 6,475  |   |   |        | 8,021  |  
|                    |                  |                |     |           |   |            |   |       |   |   |        |        |   |   |        |       
|Balance at 12/31/02 |                  | $              | 5   |           |   | $          |  |       |   | $ | 10,707 |        |   | $ | 10,712 |       
|                    |                  |                |     |           |   |            |   |       |   |   |        |        |   |   |        |       

The $10.7 million remaining accrual at
December 31, 2002 is allocated between current and
long-term classification on the Companys consolidated
balance sheet, with $2.9 million included as current (less
than one year) within other accrued liabilities and
$7.8 million included as long-term (greater than one year)
within obligations under capital lease and other liabilities.

The Company does not anticipate taking any
significant further restructuring charges related to the
relocation of administrative functions to Atlanta. The Company
could incur future charges or credits, in the event that the
underlying assumptions used to develop the Companys
estimates of excess lease costs, such as the timing and the
amount of any sublease income, change.

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INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

13.     Income
Taxes

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

|          |                   |                         |         |         |   |      |    |    |  |   |        |        |  
|--------- | ----------------- | ----------------------- | ------- | ------- | - | ---- | -- | -- |  | - | ------ | ------ | -
|          |                   |                        
|          |                   | Year Ended December 31,
|          |                   |                        
|          |                   | 2000                    |         | 2001    |   | 2002
|          |                   |                         |         |         |   |     
|Current:  |                   |                         |         |         |   |      |    |    |  |   |        |       
|          | Federal           |                         | $       | (14,794 | ) |      | $  |   |  |   | $      | (4,799 | )
|          | State and foreign |                         |         | (1,384  | ) |      |    | 36 |  |   |        | 855    |  
|          |                   |                         |         |         |   |      |    |    |  |   |        |       
|          |                   |                         | (16,178 | )       |   |      | 36 |    |  |   | (3,944 | )     
|          |                   |                         |         |         |   |      |    |    |  |   |        |       
|Deferred: |                   |                         |         |         |   |      |    |    |  |   |        |       
|          | Federal           |                         |         | 8,384   |   |      |    |   |  |   |        |       |  
|          | State and foreign |                         |         | 1,128   |   |      |    |   |  |   |        |       |  
|          |                   |                         |         |         |   |      |    |    |  |   |        |       
|          |                   |                         | 9,512   |         |   |      |   |    |  |   |       |       
|          |                   |                         |         |         |   |      |    |    |  |   |        |       
|          |                   | $                       | (6,666  | )       |   | $    | 36 |    |  | $ | (3,944 | )     
|          |                   |                         |         |         |   |      |    |    |  |   |        |       

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

|                                                         |                |                              |         |         |        |      |         |         |        |   |         |         |       |  
|-------------------------------------------------------- | -------------- | ---------------------------- | ------- | ------- | ------ | ---- | ------- | ------- | ------ | - | ------- | ------- | ----- | -
|                                                         |                |                             
|                                                         |                | Year Ended December 31,     
|                                                         |                |                             
|                                                         |                | 2000                         |         | 2001    |        | 2002
|                                                         |                |                              |         |         |        |     
|Income (loss) before income taxes                        |                |                              |         |         |        |      |         |         |        |   |         |        
|                                                         | United States  |                              | $       | (59,420 | )      |      | $       | (13,168 | )      |   | $       | (38,978 | )    
|                                                         | International: |                              |         |         |        |      |         |         |        |   |         |         |      
|                                                         |                | Europe, Middle East & Africa |         |         | (1,504 | )    |         |         | 4,723  |   |         |         | 1,311 |  
|                                                         |                | Asia                         |         |         | 185    |      |         |         | (41    | ) |         |         | (97   | )
|                                                         |                | Canada                       |         |         | (2,237 | )    |         |         | (1,080 | ) |         |         | 621   |  
|                                                         |                | Australia                    |         |         | (2,465 | )    |         |         | (474   | ) |         |         | (564  | )
|                                                         |                |                              |         |         |        |      |         |         |        |   |         |        
|Total consolidated income (loss) before income
    taxes |                | $                            | (65,441 | )       |        | $    | (10,040 | )       |        | $ | (37,707 | )      
|                                                         |                |                              |         |         |        |      |         |         |        |   |         |        

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 Year Ended
|                                              |  | December 31,         
|                                              |  |                      
|                                              |  | 2000                  |       | 2001 |  | 2002
|                                              |  |                       |       |      |  |     
|Federal statutory rate                        |  |                       | 35.0  | %    |  |      | 35.0  | %  |  |  | 35.0  | %
|State taxes, net of federal benefit           |  |                       | 1.4   |      |  |      |      |    |  |  |      |  
|Foreign taxes                                 |  |                       | (5.4  | )    |  |      | (0.3  | )  |  |  | 1.1   |  
|Reported losses and tax credits not benefited |  |                       | (19.3 | )    |  |      | (33.9 | )  |  |  | (31.0 | )
|Other                                         |  |                       | (1.2  | )    |  |      | (1.2  | )  |  |  | 5.4   |  
|                                              |  |                       |       |      |  |      |       |    |  |  |       |  
|                                              |  |                       | 10.5  | %    |  |      | (0.4  | )% |  |  | 10.5  | %
|                                              |  |                       |       |      |  |      |       |    |  |  |       |  

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INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                                        |  |              |         |      |  |   |         |  
|--------------------------------------- |  | ------------ | ------- | ---- |  | - | ------- | -
|                                        |  |             
|                                        |  | December 31,
|                                        |  |             
|                                        |  | 2001         |         | 2002
|                                        |  |              |         |     
|Accounts receivable allowances          |  | $            | 1,831   |      |  | $ | 3,050   |  
|Depreciation                            |  |              | 176     |      |  |   | 381     |  
|Other (prepaid license writedown)       |  |              | 2,598   |      |  |   | 2,449   |  
|Nondeductible accruals                  |  |              | 3,130   |      |  |   | 976     |  
|Deferred revenue                        |  |              | 3,678   |      |  |   | 1,820   |  
|Net operating loss carryforwards        |  |              | 7,943   |      |  |   | 18,065  |  
|Research and other credit carryforwards |  |              | 4,066   |      |  |   | 6,391   |  
|Foreign tax credits and losses          |  |              | 8,326   |      |  |   | 3,423   |  
|                                        |  |              |         |      |  |   |         |  
|                                        |  |              | 31,748  |      |  |   | 36,555  |  
|Valuation allowance                     |  |              | (31,748 | )    |  |   | (36,555 | )
|                                        |  |              |         |      |  |   |         |  
|                                        |  | $            |        |      |  | $ |        |  
|                                        |  |              |         |      |  |   |         |  

The net valuation allowance increased by
approximately $22.3 million, $4.3 million and
$4.8 million during 2000, 2001 and 2002, respectively.
Approximately $2.0 million of the valuation allowance for
the deferred tax asset at December 31, 2002 relates to
benefits of stock option deductions which, when recognized, will
be directly allocated to stockholders equity.

As of December 31, 2002 the Company had
federal net operating loss carryforwards of approximately
$47.1 million. The Company also had federal research tax
credit carryforwards of approximately $4.5 million and
state research tax credit carryforwards of approximately
$1.9 million. The federal net operating loss and credit
carryforwards will expire beginning in the year 2020, if not
utilized. The Company also has foreign net operating loss
carryforwards of approximately $8.7 million. The Company
also has foreign tax credits of approximately $0.2 million,
which will expire in the years 2003 through 2004 if not utilized.

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

14.     Litigation

In June 2000, the Company was served with a
demand for arbitration by William Grabske, the Companys
former Chief Executive Officer. Mr. Grabske was seeking
enforcement of a purported Settlement Agreement and Mutual
Release. Mr. Grabske sought severance pay and reimbursement
of expenses of approximately $1.0 million plus interest,
options for approximately 200,000 shares of stock in the
Company, and fees and costs. The Company asserted various
counterclaims. In December 2002, the Company and
Mr. Grabske entered into a Separation Agreement and Mutual
Release pursuant to which the Company and Mr. Grabske agreed,
among other things, to dismiss with prejudice their respective
claims in the arbitration. The Separation Agreement and Mutual
Release did not require any payments to Mr. Grabske by the
Company.

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

58



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INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

15.     Subsequent
Events (unaudited)

On March 5, 2003, the Company completed its
acquisition of SCT Utility Systems, Inc. (SCTUS), a
subsidiary of Systems & Computer Technology Corporation
(SCT). At the time of acquisition, SCTUS was renamed
Indus Utility Systems, Inc. (IUS). The aggregate
purchase price for the acquisition was approximately
$37.8 million and is subject to post-closing adjustment
based upon closing working capital calculations. IUS is a
provider of customer information system software solutions for
energy and utility companies principally in North America. The
Company believes the acquisition will provide utility customers
with a single provider for their important software requirements.

On the same date, the Company completed a private
placement offering to purchasers of approximately
6.8 million shares (the Shares) of the
Companys common stock, par value $0.001 at a purchase
price of $1.50 per share, or a total of approximately
$10.2 million, and approximately $14.5 million of the
Companys 8% convertible notes due nine months after
issuance. The convertible notes are convertible into shares of
common stock at face value plus accrued interest only upon
receipt of the requisite approval of new share issuance by the
Companys stockholders, and, upon approval, will
automatically be converted at the same price per share as the
Shares, subject to certain adjustments. While the number of
shares to be issued in exchange for the convertible notes is
dependent upon the timing of stockholder approval, due to
accrued interest being a part of the consideration, the Company
estimates that between 9.8 million and 10.0 million
additional shares will be issued.

The Company financed the remainder of the
acquisition purchase price with approximately $3.0 million
from cash in currently available funds and the issuance of a
$10.0 million, 6% promissory note, due September 5,
2003, to SCT Financial Corporation, a subsidiary of SCT,
indirectly secured by a mortgage on certain real property that
the Company acquired in the acquisition. The Company intends to
repay the note to SCT Financial Corporation prior to its
maturity with the proceeds of a third-party mortgage on the
acquired real property.

The allocation of the purchase price to the
assets and liabilities acquired is presently in process. The
results of IUS will be included from March 6, 2003 forward.

59



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##### Table of Contents



INDUS INTERNATIONAL, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

16.     Quarterly
Results of Operations (unaudited)

The following is a summary of the quarterly
results of operations for the years ended December 31, 2002
and 2001 (in thousands, except per share amounts):

|                            |           |           |        |          |   |               |         |              |   |   |        |       |   |   |        |       |  
|--------------------------- | --------- | --------- | ------ | -------- | - | ------------- | ------- | ------------ | - | - | ------ | ----- | - | - | ------ | ----- | -
|                            |           | Reported  |        | Reported |   | Reported      |         | Reported    
|                            |           | March 31, |        | June 30, |   | September 30, |         | December 31,
|                            |           |           |        |          |   |               |         |             
|2002                        |           |           |        |          |   |               |         |              |   |   |        |       |   |   |        |      
|Total revenues              |           | $         | 32,443 |          |   | $             | 31,032  |              |   | $ | 26,457 |       |   | $ | 27,233 |      
|Cost of revenues            |           |           | 15,800 |          |   |               | 16,475  |              |   |   | 13,868 |       |   |   | 12,841 |      
|                            |           |           |        |          |   |               |         |              |   |   |        |       |   |   |        |      
|Gross margin                |           |           | 16,643 |          |   |               | 14,557  |              |   |   | 12,589 |       |   |   | 14,392 |      
|Net income (loss)           |           | $         | (9,508 | )        |   | $             | (15,069 | )            |   | $ | (3,283 | )     |   | $ | (5,903 | )    
|                            |           |           |        |          |   |               |         |              |   |   |        |       |   |   |        |      
|Net income (loss) per share |           |           |        |          |   |               |         |              |   |   |        |       |   |   |        |      
|                            |  Basic   |           | $      | (0.27    | ) |               | $       | (0.43        | ) |   | $      | (0.09 | ) |   | $      | (0.17 | )
|                            |  Diluted |           | $      | (0.27    | ) |               | $       | (0.43        | ) |   | $      | (0.09 | ) |   | $      | (0.17 | )
|2001                        |           |           |        |          |   |               |         |              |   |   |        |       |   |   |        |      
|Total revenues              |           | $         | 42,377 |          |   | $             | 43,135  |              |   | $ | 44,207 |       |   | $ | 46,295 |      
|Cost of revenues            |           |           | 21,032 |          |   |               | 20,424  |              |   |   | 19,757 |       |   |   | 19,903 |      
|                            |           |           |        |          |   |               |         |              |   |   |        |       |   |   |        |      
|Gross margin                |           |           | 21,345 |          |   |               | 22,711  |              |   |   | 24,450 |       |   |   | 26,392 |      
|Net income (loss)           |           | $         | (6,409 | )        |   | $             | (6,696  | )            |   | $ | 383    |       |   | $ | 2,646  |      
|                            |           |           |        |          |   |               |         |              |   |   |        |       |   |   |        |      
|Net income (loss) per share |           |           |        |          |   |               |         |              |   |   |        |       |   |   |        |      
|                            |  Basic   |           | $      | (0.18    | ) |               | $       | (0.19        | ) |   | $      | 0.01  |   |   | $      | 0.08  |  
|                            |  Diluted |           | $      | (0.18    | ) |               | $       | (0.19        | ) |   | $      | 0.01  |   |   | $      | 0.07  |  

60



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

None.




PART III

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






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

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






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

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






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

The information concerning security ownership
required by this Item is incorporated by reference to the
information contained under the caption Security Ownership
of Management; Principal Stockholders and Proposal
Three  Adoption of Employee Stock Purchase
Plan  Equity Compensation Plan Information in
the Proxy Statement.






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

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






|         |                        
|-------- | -----------------------
|Item 14. | Controls and Procedures

We maintain disclosure controls and procedures
that are designed to ensure that information required to be
disclosed in our Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified in the
Commissions rules and forms, and that such information is
accumulated and communicated to the management, including the
Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required
disclosure. Management necessarily applied its judgment in
assessing the costs and benefits of such controls and
procedures, which, by their nature, can provide only reasonable
assurance regarding managements control objectives.

61



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##### Table of Contents



Within 90 days prior to the date of filing
of this report, we carried out an evaluation, under the
supervision and with the participation of management, including
the Chief Executive Officer and the Chief Financial Officer, of
the effectiveness of the design and operation of our disclosure
controls and procedures pursuant to Exchange Act
Rule 13a-14. Based upon the foregoing, the Chief Executive
Officer along with the Chief Financial Officer concluded that
our disclosure controls and procedures are effective, in all
material respects, in the timely alerting of them to material
information relating to our company and its consolidated
subsidiaries required to be included in our Exchange Act
reports. There have been no significant changes in our internal
controls or in other factors that could significantly affect
internal controls subsequent to the date we carried out the
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

62



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PART IV




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

(a) (1) Financial Statements



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

(2) Financial Statement Schedule



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

(3) Exhibits

The following exhibits are filed herewith or
incorporated by reference.

| |  |         |      |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | ------- | ---- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Exhibit |      |            
| |  | Number  |      | Description
| |  |         |      |            
| |  |         | 2.1  |             |  | Purchase Agreement, dated as of February 12,
    2003, by and among the Registrant, SCT Utility Systems, Inc.,
    SCT, SCT Financial Corporation, SCT Property, Inc., SCT
    International Limited, SCT Technologies (Canada) Inc., SCT
    Software & Resource Management Corporation and Systems &
    Computer Technology International B.V. (incorporated by
    reference to Exhibit 10.1 to the Form 8-K filed on
    February 14, 2003)           
| |  |         | 2.2  |             |  | Amendment No. 1 to Purchase Agreement, dated
    as of March 5, 2003, by and among the Registrant, SCT
    Utility Systems, Inc., SCT, SCT Financial Corporation, SCT
    Property, Inc., SCT International Limited, SCT Technologies
    (Canada) Inc., SCT Software & Resource Management
    Corporation and Systems & Computer Technology International
    B.V. (incorporated by reference to Exhibit 10.3 to the
    Form 8-K filed on March 6, 2003)
| |  |         | 3.1  |             |  | Registrants Certificate of Incorporation
    (incorporated by reference to Exhibit 3.1 to the
    Registration Statement on Form S-4 (No. 333-33113)
    filed on August 7, 1997 (the 1997 Proxy
    Statement))                                                                                                                                                                                                                                        
| |  |         | 3.2  |             |  | Registrants Amended and Restated Bylaws
    (incorporated by reference to Exhibit 4.2 to the
    Registration Statement on Form S-8 filed with the
    Commission on July 5, 2001)                                                                                                                                                                                                                                                                        
| |  |         | 4.1  |             |  | Registration Rights Agreement entered into among
    the Registrant, Warburg, Pincus Investors, L.P.
    (Warburg), Robert W. Felton, Richard W. MacAlmon,
    John W. Blend, III and John R. Oltman (incorporated by reference
    to Exhibit 4.1 to the 1997 Proxy Statement)                                                                                                                                                                          
| |  |         | 4.2  |             |  | Nomination Agreement entered into among the
    Registrant, Warburg and Robert W. Felton (incorporated by
    reference to Exhibit 4.6 to the 1997 Proxy Statement)                                                                                                                                                                                                                                                                                        
| |  |         | 4.3  |             |  | Registration Rights Agreement for Shares, dated
    as of February 12, 2003, by and among the Company and each
    of the Purchasers of the Shares, as listed on the Schedule of
    Purchasers accompanying the Purchase Agreement (incorporated by
    reference to Exhibit 10.3 to the Form 8-K filed on
    February 14, 2003)                                                                                                                         
| |  |         | 4.4  |             |  | Registration Rights Agreement for Conversion
    Shares, dated as of February 12, 2003, by and among the
    Company and each of the Purchasers of the Notes, as listed on
    the Schedule of Purchasers accompanying the Purchase Agreement
    (incorporated by reference to Exhibit 10.4 to the
    Form 8-K filed on February 14, 2003)                                                                                                               
| |  |         | 4.5  |             |  | Form of Convertible Note (incorporated by
    reference to Exhibit 4.1 to the Form 8-K filed on
    March 6, 2003)                                                                                                                                                                                                                                                                                                                                         
| |  |         | 10.1 | *           |  | Indus International, Inc. 1997 Stock Plan
    (incorporated by reference to Exhibit 10.1 to the 1997
    Proxy Statement)                                                                                                                                                                                                                                                                                                                                  
| |  |         | 10.2 | *           |  | Amendment No. 1 to the Indus International,
    Inc. 1997 Stock Plan (incorporated by reference to
    Exhibit 99.1 to the Registration Statement on Form S-8
    filed with the Commission on July 5, 2001)                                                                                                                                                                                                                                               
| |  |         | 10.3 | *           |  | Amendment No. 2 to the Indus International,
    Inc. 1997 Stock Plan (incorporated by reference to
    Exhibit 99.2 to the Registration Statement on Form S-8
    filed with the Commission on July 5, 2001)                                                                                                                                                                                                                                               

63



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| |  |         |       |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | ------- | ----- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Exhibit |       |            
| |  | Number  |       | Description
| |  |         |       |            
| |  |         | 10.4  | *           |  | Amendment No. 3 to the Indus International,
    Inc. 1997 Stock Plan (incorporated by reference to
    Exhibit 99.3 to the Registration Statement on Form S-8
    filed with the Commission on July 5, 2001)                                                                                                                                                                                                                
| |  |         | 10.5  | *           |  | Indus International, Inc. 1997 Director Option
    Plan (incorporated by reference to Exhibit 10.3 to the 1997
    Proxy Statement)                                                                                                                                                                                                                                                                                         
| |  |         | 10.6  | *           |  | Rules of the Indus International, Inc. Company
    Share Option Plan (the UK Option Plan) (incorporated by
    reference to Exhibit 10.7 of the Registrants Annual
    Report on Form 10-K for the fiscal year ended
    December 31, 2001)                                                                                                                                                                               
| |  |         | 10.7  |             |  | Stock Purchase Warrant dated August 25, 1997
    between the Registrant and Warburg Pincus Investors, L.P., as
    amended by that certain Amendment to Stock Purchase Warrant
    dated October 23, 2001 (incorporated by reference to
    Exhibit 10.8 of the Registrants Annual Report on
    Form 10-K for the fiscal year ended December 31, 2001)                                                                    
| |  |         | 10.8  |             |  | Stock Purchase Agreement dated January 13,
    1999 between Robert W. Felton, Warburg Pincus Investors, L.P.
    and the Registrant (incorporated by reference to
    Exhibit 10.37 to the Registrants Annual Report on
    Form 10-K for the fiscal year ended December 31, 1998)                                                                                                                                         
| |  |         | 10.9  |             |  | Amended and Restated Credit Agreement dated
    June 10, 1998 by and among the Registrant, Sumitomo Bank of
    California, as agent, and the financial institutions named
    therein (incorporated by reference to Exhibit 10.11 of the
    Registrants Annual Report on Form 10-K for the fiscal
    year ended December 31, 2001)                                                                                      
| |  |         | 10.10 |             |  | First Amendment to Amended and Restated Credit
    Agreement dated as of June 30, 1998 by and among the
    Registrant, Sumitomo Bank of California, as agent, and the
    financial institutions named therein (incorporated by reference
    to Exhibit 10.12 of the Registrants Annual Report on
    Form 10-K for the fiscal year ended December 31, 2001)                                                             
| |  |         | 10.11 |             |  | Second Amendment to Amended and Restated Credit
    Agreement dated as of August 1, 1998 by and among the
    Registrant, Sumitomo Bank of California, as agent, and the
    financial institutions named therein (incorporated by reference
    to Exhibit 10.13 of the Registrants Annual Report on
    Form 10-K for the fiscal year ended December 31, 2001)                                                           
| |  |         | 10.12 |             |  | Third Amendment to Amended and Restated Credit
    Agreement dated as of September 20, 1999, by and among the
    Registrant, California Bank & Trust, as successor by merger
    to Sumitomo Bank of California, as agent, and the financial
    institutions named therein (incorporated by reference to
    Exhibit 10.14 of the Registrants Annual Report on
    Form 10-K for the fiscal year ended December 31, 2001)
| |  |         | 10.13 |             |  | Fourth Amendment to Amended and Restated Credit
    Agreement dated as of December 10, 2001, by and among the
    Registrant, California Bank & Trust, as successor by merger
    to Sumitomo Bank of California, as agent, and the financial
    institutions named therein (incorporated by reference to
    Exhibit 10.15 of the Registrants Annual Report on
    Form 10-K for the fiscal year ended December 31, 2001)
| |  |         | 10.14 |             |  | Fifth Amendment to Amended and Restated Credit
    Agreement dated as of March 29, 2002, by and among the
    Registrant, California Bank & Trust, as successor by merger
    to Sumitomo Bank of California, as agent, and the financial
    institutions named therein (incorporated by reference to
    Exhibit 10.16 of the Registrants Annual Report on
    Form 10-K for the fiscal year ended December 31, 2001)    
| |  |         | 10.15 |             |  | Amended and Restated Lease Agreement for the
    Registrants Atlanta, Georgia corporate headquarters by and
    between Cousins Properties Incorporated and the Registrant dated
    August 1, 2000 (incorporated by reference to
    Exhibit 10.12 to the Registrants Annual Report on
    Form 10-K for the fiscal year ended December 31, 2000)                                                                        
| |  |         | 10.16 |             |  | Office Lease Agreement for the Registrants
    San Francisco, California regional office between EOP  60
    Spear, L.L.C. and the Registrant dated March 3, 2000, as
    amended (incorporated by reference to Exhibit 10.8 to the
    Registrants Annual Report on Form 10-K for the fiscal
    year ended December 31, 2000)                                                                                          
| |  |         | 10.17 | *           |  | Employment Agreement dated December 19, 2001
    by and between the Registrant and Thomas R. Madison
    (incorporated by reference to Exhibit 10.20 to the
    Registrants Annual Report on Form 10-K for the fiscal
    year ended December 31, 2001)                                                                                                                                                                    

64



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| |  |         |       |             |  |                                                                                                                                                                                                                                                                                       
| |  | ------- | ----- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Exhibit |       |            
| |  | Number  |       | Description
| |  |         |       |            
| |  |         | 10.18 | *           |  | Employment Agreement dated April 1, 2002 by
    and between the Registrant and Jeffrey A. Babka (incorporated by
    reference to Exhibit 10.1 to the Registrants
    Quarterly Report on Form 10-Q for the fiscal quarter ended
    March 31, 2002)                                 
| |  |         | 10.19 | *           |  | Letter Agreement dated April 10, 2002
    between the Registrant and Robert Felton (incorporated by
    reference to Exhibit 10.2 to the Registrants
    Quarterly Report on Form 10-Q for the fiscal quarter ended
    March 31, 2002)                                              
| |  |         | 10.20 | *           |  | Amendment to the Indus International, Inc. 1997
    Director Option Plan (incorporated by reference to
    Exhibit 10.3 to the Registrants Quarterly Report on
    Form 10-Q for the fiscal quarter ended March 31, 2002)                                                            
| |  |         | 10.21 | *           |  | Amendment to the Indus International, Inc. 1997
    Director Option Plan (incorporated by reference to
    Exhibit 10.1 to the Registrants Quarterly Report on
    Form 10-Q for the fiscal quarter ended June 30, 2002)                                                             
| |  |         | 10.22 | *           |  | Employment Agreement dated September 16,
    2002 by and between the Registrant and Gregory J. Dukat
    (incorporated by reference to Exhibit 10.2 to the
    Registrants Quarterly Report on Form 10-Q for the
    fiscal quarter ended June 30, 2002)                             
| |  |         | 10.23 | *           |  | Change of Control Severance Agreement dated
    September 16, 2002 by and between the Registrant and
    Gregory J. Dukat (incorporated by reference to Exhibit 10.3
    to the Registrants Quarterly Report on Form 10-Q for
    the fiscal quarter ended June 30, 2002)            
| |  |         | 10.24 |             |  | Purchase Agreement, dated as of February 12,
    2003, by and among the Company and each of the Purchasers listed
    on the Schedule of Purchasers accompanying the Purchase
    Agreement (incorporated by reference to Exhibit 10.2 to the
    Form 8-K filed on February 14, 2003)
| |  |         | 10.25 |             |  | Promissory Note, dated March 5, 2003, issued
    by the Registrant in favor of SCT Financial Corporation
    (incorporated by reference to Exhibit 10.1 to the
    Form 8-K filed on March 6, 2003)                                                                                   
| |  |         | 10.26 |             |  | Guaranty and Suretyship Agreement, dated
    March 5, 2003, by Indus Utility Systems, Inc. (f/k/a SCT
    Utility Systems, Inc.) in favor of SCT Financial Corporation
    (incorporated by reference to Exhibit 10.2 to the Form 8-K
    filed on March 6, 2003)                     
| |  |         | 21.1  |             |  | Subsidiaries of Registrant                                                                                                                                                                                                                                                            
| |  |         | 23.1  |             |  | Consent of Ernst & Young LLP, Independent
    Auditors                                                                                                                                                                                                                                
| |  |         | 24.1  |             |  | Power of Attorney, included on the signature page
    of this report                                                                                                                                                                                                                  
| |  |         | 99.1  |             |  | Statement of the Chief Executive Officer of the
    Company, pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                             
| |  |         | 99.2  |             |  | Statement of the Chief Financial Officer of the
    Company, pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                             



---



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

(b) Reports on Forms 8-K.

No reports on Form 8-K were filed during the
fourth quarter of the fiscal year ended December 31, 2002.

65



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##### Table of Contents






SIGNATURES

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



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



| |     |                           
| | --- | --------------------------
| | By: | /s/ THOMAS R. MADISON, JR.

| |                          
| | -------------------------
| | Thomas R. Madison, Jr.   
| | Chairman of the Board and
| | Chief Executive Officer  

Date: March 31, 2003

POWER OF ATTORNEY

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

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

|                                                 |  |                                                                                                                                                 |  |                |  | 
|------------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|                                                 |  |                                                                                                                                                 |  |               
|Signature                                        |  | Title                                                                                                                                           |  | Date          
|                                                 |  |                                                                                                                                                 |  |               
|                                                
|/s/ THOMAS R. MADISON, JR.Thomas R. Madison, Jr. |  | Chairman of the Board and Chief Executive Officer
    (Principal Executive Officer) Director                                                    |  | March 31, 2003
|                                                
|/s/ JEFFREY A. BABKAJeffrey A. Babka             |  | Executive Vice President Finance and
    Administration, Chief Financial Officer and Secretary (Principal
    Financial and Accounting Officer) |  | March 31, 2003
|                                                
|/s/ GAYLE A. CROWELLGayle A. Crowell             |  | Director                                                                                                                                        |  | March 31, 2003
|                                                
|/s/ EDWARD GRZEDZINSKIEdward Grzedzinski         |  | Director                                                                                                                                        |  | March 31, 2003
|                                                
|/s/ WILLIAM H. JANEWAYWilliam H. Janeway         |  | Director                                                                                                                                        |  | March 31, 2003
|                                                
|/s/ JOSEPH P. LANDYJoseph P. Landy               |  | Director                                                                                                                                        |  | March 31, 2003

66



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|                                           |  |          |  |                |  | 
|------------------------------------------ |  | -------- |  | -------------- |  | 
|                                           |  |          |  |               
|Signature                                  |  | Title    |  | Date          
|                                           |  |          |  |               
|                                          
|/s/ THOMAS S. ROBERTSONThomas S. Robertson |  | Director |  | March 31, 2003
|                                          
|/s/ THOMAS E. TIMBIEThomas E. Timbie       |  | Director |  | March 31, 2003

67



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CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECURITIES

EXCHANGE ACT RULES 13A-14 AND 15D-14 AS
ADOPTED PURSUANT TO


SECTION 302 OF THE SARBANES-OXLEY ACT OF
2002


I, Thomas R. Madison, Jr., Chief Executive
Officer of Indus International, Inc., certify that:

1. I have reviewed this annual report on
Form 10-K of Indus International, Inc.;

2. Based on my knowledge, this annual report
does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial
statements, and other financial information included in this
annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of
registrant as of, and for, the periods presented in this annual
report;

4. The registrants other certifying
officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:



| |                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | (b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of the
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                    
|
| | (c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5. The registrants other certifying
officers and I have disclosed, based on our most recent
evaluation, to the registrants auditors and that the audit
committee of the registrants board of directors (or
persons performing the equivalent functions):



| |                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | (b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

6. The registrants other certifying
officers and I have indicated in this annual report whether
there were significant changes in internal controls or in other
factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.



| |     |                           
| | --- | --------------------------
| | By: | /s/ THOMAS R. MADISON, JR.

| |                          
| | -------------------------
| |                          
| | Thomas R. Madison, Jr.   
| | Chairman of the Board and
| | Chief Executive Officer  

Date: March 31, 2003

68



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##### Table of Contents






CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO

SECURITIES EXCHANGE ACT RULES 13A-14 AND
15D-14 AS ADOPTED


PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002


I, Jeffrey A. Babka, Chief Financial Officer of
Indus International, Inc., certify that:

1. I have reviewed this annual report on
Form 10-K of Indus International, Inc.;

2. Based on my knowledge, this annual report
does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial
statements, and other financial information included in this
annual report, fairly present in all material respects the
financial condition, results of operations and cash flows of
registrant as of, and for, the periods presented in this annual
report;

4. The registrants other certifying
officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and have:



| |                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | (b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of the
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                    
|
| | (c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5. The registrants other certifying
officers and I have disclosed, based on our most recent
evaluation, to the registrants auditors and that the audit
committee of the registrants board of directors (or
persons performing the equivalent functions):



| |                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | (b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                                    

6. The registrants other certifying
officers and I have indicated in this annual report whether
there were significant changes in internal controls or in other
factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.



| |     |                     
| | --- | --------------------
| | By: | /s/ JEFFREY A. BABKA

| |                                                          
| | ---------------------------------------------------------
| |                                                          
| | Jeffrey A. Babka                                         
| | Executive Vice President Finance and                     
| | Administration, Chief Financial Officer and
    Secretary

Date: March 31, 2003

69