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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-K

|ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
OR

|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
|- | ----------------------------------------------------------------------------------------------------------

FOR THE TRANSITION PERIOD FROM
 to

COMMISSION FILE NUMBER 000-30883

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I-MANY, INC.

(Exact name of registrant as specified in its charter)

|DELAWARE(State or other jurisdiction of incorporation or organization)                |  | 01-0524931(IRS Employer Identification Number)
|------------------------------------------------------------------------------------- |  | ----------------------------------------------
|537 Congress Street
5th Floor
Portland, Maine(Address of principal executive offices) |  | 04101-3353(Zip Code)                          

(207) 774-3244
(Registrant's telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:None

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

|Title of Class:                 |  | Name of Exchange on Which Registered:
|------------------------------- |  | -------------------------------------
|Common Stock, $0.0001 par value |  | Nasdaq National Market               

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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 ý    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

As
of March 15, 2002, 39,008,933 shares of the registrant's common stock, $.0001 par value, were issued and outstanding. The aggregate market value of the common stock held by
non-affiliates of the registrant (based on the closing price for the common stock in the Nasdaq National Market on March 15, 2002) was approximately $238 million.

DOCUMENTS INCORPORATED BY REFERENCE

The information called for by Part III is incorporated by reference to specified portions of the Registrant's definitive Proxy Statement to be issued in
conjunction with the Registrant's 2002 Annual Meeting of Stockholders, which is expected to be filed not later than 120 days after the Registrant's fiscal year ended December 31, 2001.

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I-MANY, INC.  FORM 10-K  DECEMBER 31, 2001

TABLE OF CONTENTS

|ITEM       |  |                                                                                       |  | PAGE NO.
|---------- |  | ------------------------------------------------------------------------------------- |  | --------
|PART I    
|1.         |  | Business                                                                              |  | 1       
|2.         |  | Properties                                                                            |  | 10      
|3.         |  | Legal Proceedings                                                                     |  | 10      
|4.         |  | Submission of Matters to a Vote of Security Holders                                   |  | 10      
|4A.        |  | Executive Officers of the Registrant                                                  |  | 10      
|PART II   
|5.         |  | Market for Registrant's Common Equity and Related Stockholder Matters                 |  | 12      
|6.         |  | Selected Consolidated Financial Data                                                  |  | 12      
|7.         |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 14      
|7A.        |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 27      
|8.         |  | Financial Statements and Supplementary Data                                           |  | 28      
|9.         |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 59      
|PART III  
|10.        |  | Directors and Executive Officers of the Registrant                                    |  | 59      
|11.        |  | Executive Compensation                                                                |  | 59      
|12.        |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 59      
|13.        |  | Certain Relationships and Related Transactions                                        |  | 59      
|PART IV   
|14.        |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |  | 59      
|SIGNATURES |  | 60                                                                                   

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PART I

The information in this report contains 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. Such statements are based upon current expectations that involve risks and uncertainties. Any statements contained herein that
are not statements of historical fact may be deemed to be forward-looking statements. For example, words such as "may," "will," "should," "estimates," "predicts," "potential," "continue," "strategy,"
"believes," "anticipates," "plans," "expects," "intends," and similar expressions are intended to identify forward-looking statements. Our actual results and the timing of certain events may differ
significantly from the results discussed in the forward-looking statement. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those discussed elsewhere in
this report in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of OperationsCertain Factors That May Affect Future Results" and the risks
discussed in our other Securities and Exchange Commission ("SEC") filings.

ITEM 1. BUSINESS

Overview

We provide software and related professional services that allow our clients to manage important aspects of their contract-based or trade agreement-based
business-to-business relationships, including:



Our
clients include supply chain participants on both the "buy" side and "sell" side of business transactions across numerous vertical markets, including manufacturers, distributors,
demand aggregators, retailers, business-to-business e-commerce exchanges and purchasers.

Our
primary products and services were originally developed to manage complex contract purchasing relationships in the healthcare industry. Over the past year, we have increased the
percentage of business that occurs in industries outside healthcare from approximately 4% of revenues in 2000 to approximately 25% in 2001. Our products are currently used by more than 190 clients,
including eight of the largest ten and 15 of the largest 20 pharmaceutical manufacturers, ranked according to 2000 annual healthcare revenues. Our clients also include leading companies from the
consumer products, foodservice, disposables, consumer durables, industrial products, chemicals, apparel, telecommunications and other industries. Our clients include Bayer, Boehringer Ingelheim,
Premier, Inc., Glaxo Smith Kline, Procter & Gamble, Frito-Lay, Handguards, Pepsi-Cola, Kellogg's, and ConAgra.

We
deliver our products through several means, primarily through software licensed for installation on our clients' computer systems and also software licensed on an application service
provider basis, which we host on our servers as well as on servers hosted and supported by 3rd party providers.

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Business Developments

In 2001, we completed a series of acquisitions, including:



In
April 2001, we entered into a Marketing Alliance Agreement with Accenture LLP, pursuant to which Accenture has designated us as their preferred provider of automated contract
management solutions and we have designated Accenture as our preferred business integration provider for our CARS suite of products.

We
have also licensed the rights to use and commercialize the intellectual property of other companies, and we have made a minority investment in a complementary technology company.

Industry Background

Supply chain participants frequently use purchasing contracts and trade agreements to facilitate the purchase of goods and services. These contracts are
agreements among supply chain participants, such as manufacturers, distributors, retailers, demand aggregators such as buying groups, and the end users of goods and services. These contracts allow
buyers and sellers to budget, plan and manage funds and agree on prices, discounts and volume rebates. Training, maintenance and other non-price incentives can be based upon multiple
factors, including:



Other
examples of contract attributes include a requirement for fulfilling shipments within prescribed time periods, advanced notifications, packaging and labeling requirements.

The Business-To-Business Marketplace

We believe that the growth of business-to-business trade will be characterized by the increasing use of contract purchasing agreements
between supply chain participants. In the consumer products, foodservice, disposables, consumer durables, industrial products, chemicals, apparel, telecommunications and other industries where complex
purchase contracts exist, the process of determining the availability of incentives, compliance issues, availability of funds, non-price attribute specifications and other requirements
under these contracts is often accomplished through the use of paper-based or legacy computer systems that are unsuitable for managing the volume and complexity of contract based

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purchasing. In addition, these industries employ pricing mechanisms such as chargebacks and rebates to adjust amounts paid by purchasers. Calculating, reconciling and distributing these chargebacks
and rebates and other tasks associated with them often results in high administrative costs and disputes involving substantial amounts of money.

Supply chain participants.The business-to-business supply chain includes the following participants:



Complexity of contract purchasing.In the industries we target, purchasing contracts typically contain pricing incentives and
other mechanisms designed to meet the particular goals of the trading partners. The price of any particular product or service purchased under a typical contract may vary substantially, depending
upon, among other things, external factors such as a manufacturer's market share and the purchaser's demographic characteristics, and highly specific factors such as the number of units of a
particular product purchased during a specified time period. Contracts also allow buyers and sellers to budget, plan and manage funds and agree on prices, discounts and volume rebates. Training,
maintenance and other non-price incentives can be based upon multiple factors. Other contract attributes include criteria such as a requirement for fulfilling shipments within prescribed
time periods, advanced notifications, packaging and labeling requirements, and others.

Contracts
are often negotiated on behalf of a large number of purchasers and include pricing incentives, which often result in different prices for otherwise similarly-situated
purchasers, based on the purchasers' achievement of, or failure to achieve, certain goals (usually volume-related) under the contract.

While
many purchase contract variations exist, several fundamental types of pricing mechanisms in purchase contracts are illustrative of the complexity involved. Specific examples
include: chargebacks (also called "deviated billing," depending upon the industry), rebates and trade funds management. Chargebacks are generally used as an incentive tool in contracts between
manufacturers and demand aggregators. Eligible members of a demand aggregator (meaning purchasers who are on a contract of the aggregator, such as a group purchasing organization or buying
cooperative) order products either directly from the manufacturer or, more commonly, through a large distributor. When a product is ordered through a distributor, the distributor must sell the item at
the contracted pricethat is, the price negotiated between the manufacturer and the demand aggregator. Often, the manufacturer asks the distributor to sell to the member at a price below
the price the distributor paid the manufacturer. In these cases, the distributor attempts to verify the eligibility of the member to receive the lower

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contract price and, if the purchaser is eligible, the distributor seeks to recover, or chargeback, from the manufacturer the difference between the distributor's cost and the lower contract price.
Given the large volume of purchases under these contracts, constantly changing membership in demand aggregators, complicated eligibility requirements and disparate information systems involved, it is
not uncommon for
manufacturers, purchasers, demand aggregators, and distributors to calculate significantly different chargebacks, resulting in disputes among the parties.

A
second type of pricing mechanism is a rebate. Typically, rebate provisions entitle a purchaser to a return of a portion of the purchase price based on the volume of product purchased
or increase in market share achieved. Rebate provisions are common in contracts between manufacturers and large volume purchasers. Manufacturers generally adopt this kind of agreement in order to
further their marketing objectives. In order to determine rebates based on market share, the parties must refer to external market share data. As with chargeback contracts, the complicated task of
administering rebate-based contracts often results in high administrative costs and disputes involving substantial amounts of money.

Trade
funds management gives companies, sales agents and other trading partners the ability to budget, plan and measure the success of trade promotions. Trade promotions are typical in
the consumer products industry. One example of a trade promotion is the end-cap, or the display that appears at the end of an aisle in a grocery store. These end-caps are
intended to increase sales volume, but the manufacturer must pay a premium for this space in the store. Manufacturers use sales volume to determine the success of each promotion of this type to
achieve their sales and marketing goals. With real-time access to trade fund balances, promotions can be planned by volume or revenue with comparisons to previous years or other scenarios.

Administrative demands of contract purchasing.As a result of the intricacies of contract purchasing, the administration of
purchase contracts can be difficult and expensive. Among other things, each participant in the supply chain must be able to:



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I-Many's Solutions

Complete offering of contract management capabilities.We provide software and related professional services that allow our
clients to manage important aspects of their contract-based or trade agreement-based business-to-business relationships, including:



Our
clients include supply chain participants on both the "buy" side and "sell" side of business transactions across numerous vertical markets, including manufacturers, distributors,
demand aggregators, retailers, public and private business-to-business e-commerce exchanges and purchasers.

By
providing this broad functionality, we eliminate the need for the users of our solutions to combine often incompatible software from multiple vendors, thereby decreasing costs and
implementation time and enhancing reliability.

Flexible product offerings.We deliver our products through several means, including software licensed for installation on
our clients' computer systems, software licensed on an application service provider basis which we host on our servers as well as on servers hosted and supported by third party providers.

Business Strategy

Our objective is to become the leading provider of contract management solutions that enable companies to manage their
business-to-business relationships more effectively. To achieve this objective, we are pursuing the following strategies:

Target new vertical markets.We have had success in providing contract management solutions to the healthcare and consumer
products industries and intend to continue to penetrate these markets further. We also believe that the contract management solutions we provide are applicable in other vertical industries and we have
sold or intend to sell these solutions into such industries as foodservice, disposables, consumer durables, industrial products, chemicals, apparel and telecommunications. It is our belief that
virtually all industries are candidates for products that manage the contract lifecycle. We believe that our solutions are readily adaptable to these additional markets. For example, the percentage of
revenue occurring in industries outside our initial core market of healthcare has risen from approximately 4% in 2000 to approximately 25% in 2001.

Build upon our strength in the healthcare market.We provide contract management solutions and services to many of the
world's largest pharmaceutical and medical/surgical supply manufacturers, distributors, group purchasing organizations, and other healthcare companies. As a result of our experience in this market, we
have acquired extensive industry knowledge of and experience with contracting practices and the relationships among healthcare industry participants. We believe that we have a reputation as a quality
provider of complex contract management software and services and that we have and will continue to build upon that reputation and our extensive industry knowledge to offer additional services to our
existing client base, and to attract new clients in the healthcare industry.

Increase sales, marketing and support efforts.We intend to increase our direct sales and support forces to facilitate our
growth. We are seeking to promote the awareness of the I-many brand through

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an advertising and marketing campaign, including participation in trade shows and the placement of advertisements in key industry publications.

Maintain a technological leadership position.We seek constant feedback from our clients to understand their needs prior to,
during, and post-implementation. We meet with our clients to identify their needs on an ongoing basis following implementation in focus group format. The feedback from these focus groups
serves as a basis for product upgrades. We believe that, by closely partnering with and listening to our clients, we will continue to develop our products so that they deliver the highest value.

Selectively pursue strategic acquisitions and alliances.We have adopted a selective acquisition strategy as opportunities
have arisen to complement our product offerings, extend our service capabilities and expand the features of our products. In addition, we intend to enter into strategic relationships as opportunities
arise, to help us develop and market our products and services more effectively.

Products and Services

Products.The components and features of our products are designed to address particular business and process areas, which in
combination we refer to as "Contract Management." To date, a significant portion of our revenues have been derived from the sale of software licenses to healthcare manufacturers, distributors, group
purchasing organizations and other companies in healthcare and from the provision of related professional services, representing 96% of our revenues in 2000 and 75% of our revenues in 2001. In
addition, one customer, Premier, Inc., accounted for approximately 29% and 12%, respectively, of our net revenues for the years 2000 and 2001. Our license fees are based on a number of factors,
including the nature and number of modules being licensed, the number of users, the term of the license and the size of the client.

The
following is a list of our principal contract management and trade relationship management software products:

Contract administration and reporting system/integrated system, or "CARS/IS,"is a suite of software products that enables
businesses to model the terms of their purchasing contracts, process data to determine pricing, evaluate contract performance, and manage the overall adjudication of rebates and chargebacks due under
their contracts. CARS/IS allows users to manage a wide variety of contract pricing mechanisms, including rebates, chargebacks, and promotions.

CARS/Medicaidis a healthcare-specific, ready-to-install software solution that automates the
management and clerical tasks of the federal Medicaid Drug Rebate Law. The system processes data and calculates rebates and payments for both federal and state rebate programs. CARS/Medicaid provides
the capability to track and resolve disputes, and it is designed to assist users to comply with applicable federal and state government regulations.

CARS/Analyticsprovides sophisticated analyses and reporting across a spectrum of sales and contract management processes.
CARS/Analytics uses the information generated by CARS/IS and third party information sources through a specific data application in CARS/IS to generate analyses and reports that are designed to enable
users to determine the estimated profitability of contract business strategies and to examine key contract and sales performance measurements and trends.

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Discount pricing system, or "DPS,"is a contract management and rebate processing system for
mid-market
companies, allowing them to control product pricing, control deal incentives, manage end-user and prime vendor relationships, and forecast and report on all aspects of contract management
and administration.

Deduction management system, or "DMS,"enables supply chain partners across industry and geographical boundaries to manage
deductions reflected in their business-to-business invoices, including those arising as a result of inaccurate prices, quantities, products, damaged goods, promotional
discounts or otherwise. DMS monitors chargebacks, write-offs, offsets to credit/promotions, and split deductions.

Trade funds management system, or "TFMS,"is an Internet-based solution designed to empower sales and marketing departments,
along with remote sales agents, to create, distribute, manage, monitor, and track simultaneous campaigns and promotions across products, categories, accounts, and regions. By utilizing TFMS, updates
are immediate, trade deal changes are live, brokers enter commitments on-line, and deductions can be cleared immediately. Key features of TFMS include account planning and forecasting;
deal management and analysis; promotional planning and lift analysis; product/customer reporting; Internet communications to control budgeting, allocations, commitments, and settlement; and
Internet-based triggering of payments via accounts payable request, credit memo, or deduction.

Collection management system, or "CMS,"integrates with accounts receivable systems to automate the
cash-collection process, equipping companies to proactively manage account activity using a tailored, dispute-resolution workflow. It reduces profit-erosion by reducing the number and
value of write offs, and by identifying and correcting the causes of delayed payments. Users can monitor invoice activity, payment trends and customer habits that trigger automatic notifications,
tasks and follow-up actions. The system also measures its own performance by accumulating data to identify internal inefficiencies, collection effectiveness, collector performance metrics
and customer profitability.

Professional Services

Our professional services group provides consulting services, deployment services, educational services and customer support and consulting services. At
December 31, 2001, this group comprised 109 employees. The group is augmented by outside consultants whom we have trained.

Consulting services.We work with our clients before, during and after installation of our solution to optimize the
capabilities of our solutions. These services include project planning and management, business process analysis, technical services including integration with the clients' enterprise resource
planning systems, and quality assurance.

Deployment services.Our deployment services include pre-installation planning, on-site installation,
upgrade services, system testing, database administration support and professional service support.

Educational services.We offer training programs and business analysis services for those persons within the client
organization responsible for using our solutions, such as contract administrators. In addition, we offer user group meetings to enable customers to learn about product directions and influence our
future products.

Customer support.We offer comprehensive maintenance and support services, including telephone hotline service (available
during business hours or, for additional fees, up to 24 hours a day, 7 days a week), documentation updates and new software releases.

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Customers

We have more than 190 customers, approximately 40% of which are companies in the healthcare industry, including pharmaceutical and medical product companies, a
group purchasing organization, wholesale distributors and managed care organizations. We also have sold our solutions to companies in other industries such as consumer products, foodservice,
disposables, consumer durables, industrial products, chemicals, apparel, telecommunications and others. One customer, Premier, Inc., accounted for approximately 29% and 12%, respectively, of
our net revenues for the years 2000 and 2001.

Sales and Marketing

We market our software and services primarily through a direct sales force. As of December 31, 2001, our sales force consisted of a total of 80 employees,
including 42 national account executives and 38 business consultants and sales support employees. We intend to continue to increase the size of our sales force as we seek to expand the market for our
products and services. In addition, we are seeking to enhance the productivity of our direct sales force by hiring additional support personnel.

Technology and Product Development

Since our inception, we have made substantial investments in product development. We believe that our future financial performance depends on our ability to
maintain and enhance our current products and develop new products. Our research and development expenses were approximately $8.2 million in 1999, $12.8 million in 2000 and
$14.8 million in 2001.

As
of December 31, 2001, we employed 128 people in our product development organization who are responsible for the design, development and release of our products. The group is
organized into five disciplines: development, quality assurance, documentation, project management and project engineering. Members from each discipline form separate product teams to work closely
with our sales, marketing, services, client and prospects organizations to better understand market needs and user requirements. Each product team also hosts a series of user focus groups and attends
our user conference. When appropriate, we also use third parties to expand the capacity and technical expertise of our internal product development organization. Periodically, we have licensed
third-party technology and we have acquired companies with products and technologies, which are complementary to our existing products. We believe this approach shortens our time to market without
compromising our competitive position or product quality, and we plan to continue to draw on third-party resources as needed in the future.

Competition

The contract management software market is subject to rapid change. Competitors vary in size and in the scope and breadth of the products and services offered. We
encounter competition primarily from internal information systems departments of potential or current customers that develop custom software, software companies that target the contract management
markets, professional services organizations and, to a lesser degree, Internet-based merchants offering products through on-line catalogs.

We
believe that the principal competitive factors affecting our market include product reputation, functionality, ease-of-use, ability to integrate with other
products and technologies, quality, performance, price, customer service and support and the vendors' reputation. Although we believe that our products currently compete favorably with regard to such
factors, we cannot assure you that we can maintain our competitive position against current and potential competitors. Increased competition may result in price reductions, less beneficial contract
terms, reduced gross margins and loss of market share, any of which could materially and adversely affect our business, operating results and financial condition.

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Many
of our competitors and potential competitors have greater resources than we do, and may be able to respond more quickly and efficiently to new or emerging technologies, programming
languages or standards, or to changes in customer requirements or preferences. Many of our competitors can devote greater managerial or financial resources than we can to develop, promote and
distribute contract management software products and provide related consulting, training and support services. We cannot assure you that our current or future competitors will not develop products or
services which may be superior in one or more respects to ours or which may gain greater market acceptance. Some of our competitors have established or may establish cooperative arrangements or
strategic alliances among themselves or with third parties, thus enhancing their abilities to compete with us. It is likely that new competitors will emerge and rapidly acquire market share. We cannot
assure you that we will be able to compete successfully against current or future competitors or that the competitive pressures faced by us will not materially and adversely affect our business,
operating results and financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of OperationsCertain Factors That May Affect Future
ResultsWe have many competitors and potential competitors and we may not be able to compete effectively."

Intellectual Property and Licenses

We rely primarily on a combination of copyright, trademark and trade secrets laws, as well as confidentiality agreements to protect our proprietary rights. In
addition, we have filed applications for patent protection with respect to certain aspects of our products. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to
copy aspects of our products or to obtain the use of information that we regard as proprietary. In addition, the laws of some foreign countries do not protect our proprietary rights to as great an
extent as do the laws of the United States. We cannot assure investors that our means of protecting our proprietary rights will be adequate or that our competitors will not independently develop
similar technology.

We
are not aware that any of our products infringe the proprietary rights of third parties. We cannot assure investors, however, that third parties will not claim infringement by us with
respect to current or future products. We expect that software product developers will increasingly be subject to infringement claims as the number of products and competitors in our industry segment
grows and the functionality of products in different industry segments overlaps. Any such claims, with or without merit, could be time-consuming, result in costly litigation, cause product
shipment delays or require us to enter into royalty or licensing agreements. Such royalty or licensing 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.

From
time to time, we license software from third parties for use with our products. We believe that no such license agreement to which we are presently a party is individually material
and that if any such license agreement were to terminate for any reason, we would be able to obtain a license or otherwise acquire other comparable technology or software on terms and on a timetable
that would not be materially adverse to us.

Employees

As of December 31, 2001, we had a total of 373 employees, of whom 161 were based in Portland, Maine, 74 were based at our sales and marketing headquarters
in Edison, New Jersey, 36 were based at our offices in Chicago, Illinois, 29 were based at our international headquarters in London, England and 73 worked at remote locations. Of the total, 128 were
in research and development, 102 were in sales and marketing, 109 were in professional services, and 34 were in administration and finance. Our future performance depends in significant part upon the
continued service of our key technical, sales and marketing and senior management personnel and our continuing ability to attract and retain highly qualified technical, sales and marketing and
managerial personnel. Competition for such personnel is

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intense and we cannot assure you that we will be successful in attracting or retaining such personnel in the future. None of our employees is represented by a labor union or is subject to a
collective bargaining agreement. We have not experienced any work stoppages and consider our relations with our employees to be good. See "Management's Discussion and Analysis of Financial Condition
and Results of OperationsCertain Factors That May Affect Future ResultsWe rely significantly on certain key individuals and our business will suffer if we are unable to
retain them."

Company Background

I-many was originally incorporated in Massachusetts as Systems Consulting Company, Inc., or SCC, on June 5, 1989. On April 2, 1998, SCC
Technologies, Inc., a Delaware corporation, was formed as a holding company and acquired all the stock of SCC. In January 2000, SCC Technologies, Inc. changed its name to I-many, Inc. and SCC merged
into I-many, Inc.

ITEM 2. PROPERTIES

Our
development, customer support, administrative and operating offices are located in approximately 56,000 square feet of leased office space located in Portland, Maine under leases
expiring in 2003. We also lease approximately 17,000 square feet of office space in Edison, New Jersey under leases expiring in 2003, with 6,000 square feet sublet to a third party and the remaining
space used by executive, sales, marketing and consulting personnel. In addition, we lease approximately 20,000 square feet of office space in Chicago, Illinois under a lease expiring in 2009. Pursuant
to our BCL Vision Ltd. acquisition, we lease approximately 42,000 square feet of office space in London, England under a lease expiring in 2011.

ITEM 3. LEGAL PROCEEDINGS

We are not a party to any material pending litigation or other material legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS

None.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of I-many and other key employees and their ages as of December 31, 2001 are as follows:

|Name                  |  | Age |  | Positions(s)                                   
|--------------------- |  | --- |  | -----------------------------------------------
|A. Leigh Powell       |  | 40  |  | President and Chief Executive Officer, Director
|Terrence M. Nicholson |  | 47  |  | Chief Operating Officer                        
|Timothy M. Curran     |  | 35  |  | Executive Vice President, Sales                
|Kevin Collins         |  | 37  |  | Chief Financial Officer                        

A. Leigh Powellhas served as our president and chief executive officer since July 1999. From February 1998 to
July 1999, Mr. Powell served as our vice president of marketing and as our chief operating officer. From January 1997 to February 1998, he served as vice president of
business alliances for Think Systems/I2 Technologies, a supply-chain software company. From January 1996 to
January 1997, Mr. Powell worked as a vice president for American Software, a supply-chain software company. From March 1985 to December 1995, Mr. Powell worked as a
business consultant for Andersen Consulting, a management consulting firm. Mr. Powell received his M.B.A. and B.S. from Virginia Polytechnic Institute and State University.

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Terrence M. Nicholsonhas served as our chief operating officer since August 1999. From February 1996 to August 1999,
Mr. Nicholson served as executive director, worldwide sales and distribution systems, at Mallinckrodt, Inc, a manufacturer of medical devices. From February 1995 to February 1996,
Mr. Nicholson served as program executive of NCR Corp., a manufacturer of datawarehouse and decision support systems. Mr. Nicholson received a M.S.C.E. from Rensselaer Polytechnic
Institute and a B.S.E.E. from the University of Notre Dame.

Timothy P. Curranhas served as executive vice president of sales since July 2001. From July 1999 to July 2001, he
served as executive vice president of corporate development since July 1999. From June 1998 to July 1999, Mr. Curran served as director, sales and marketing for our
vertical markets line of business. From March 1997 to May 1998, Mr. Curran served as manager, internal consulting at EMC Corporation, a manufacturer of computer storage devices.
Prior to March 1997, Mr. Curran was employed for eight years with Andersen Consulting, a management consulting firm, beginning as a staff consultant in Andersen's systems development
practice and ending as a senior manager focusing on business process re-engineering and management consulting. Mr. Curran received an M.B.A. from the University of Chicago and a
B.S. in chemical engineering from Case Western Reserve University.

Kevin Collinshas served as Chief Financial Officer since September 2001, after serving as vice president, finance since
May 2001. From December 1999 to May 2001, Mr. Collins served as chief financial officer, treasurer and secretary for CommercialWare, Inc., a provider of software
solutions to retailers. From September 1998 to December 1999, Mr. Collins was chief financial officer and principal of Little Harbor Capital, LLC, a boutique investment banking
firm. From December 1994 to September 1998, he was controller and director of finance and business operations at Lightbridge, Inc., a publicly held wireless telecommunications
software company. Mr. Collins holds a B.S. in Business Administration from Salem State College.

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PART II

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

Our common stock is traded on the Nasdaq National Market under the symbol "IMNY." Our initial public offering of stock took place on July 13, 2000 at $9.00
per share. The price range per share reflected in the table below is the highest and lowest sale price for our stock as reported by the Nasdaq National Market during each quarter the stock has been
publicly traded. Our present policy is to retain earnings, if any, to finance future growth. We have never paid cash dividends and have no present intention to pay cash dividends. On
February 28, 2002, the Company had 222 holders of record of its common stock.

Price Range of
Common StockThree Months EndedHigh

LowDecember 31, 2001

$
10.60

$
2.26September 30, 2001


13.73


1.86June 30, 2001


19.35


7.63March 31, 2001


22.75


9.06December 31, 2000


27.38


8.00September 30, 2000*


22.00


7.75


---

During
the quarter ended December 31, 2001, we issued 16,486 shares of our unregistered common stock as additional purchase consideration, pursuant to our acquisitions of ChiCor
Information Management, Inc. and Intersoft International, Inc. These shares were issued pursuant to an exemption from the Securities Act registration requirements set forth in
Rule 506 under the Securities Act and, in the alternative, under Section 4(2) of the Securities Act of 1933.

On
November 21, 2001, we issued 137,363 shares of our unregistered common stock as payment for our license of certain technology from Ozro, Inc. These shares were issued
pursuant to an exemption from the Securities Act registration requirements set forth in Rule 506 under the Securities Act and, in the alternative, under Section 4(2) of the Securities
Act.

ITEM 6. SELECTED CONSOLIDATED CONDENSED FINANCIAL DATA

The selected condensed financial data presented below as of and for each of the years in the five-year period ended December 31, 2001 are
derived from our financial statements. The financial statements as of and for each of the years have been audited by Arthur Andersen LLP, independent public accountants. Historical results are not
necessarily indicative of future results. The following selected financial data should be read in conjunction with "Management's Discussion and Analysis of

12

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Financial Condition and Results of Operations" and our financial statements and notes to those statements and other financial information included elsewhere in this report.

|                                          |         | Year Ended December 31,                                        |                         
|----------------------------------------- | ------- | -------------------------------------------------------------- | ------------------------
|
|
|STATEMENT OF OPERATIONS DATA:             |         |                                                                |                         
|Net revenues:                             |         |                                                                |                         
|                                          | Product |                                                                | $                       
|                                          | Service |                                                                |                         
|                                          |         |                                                                |                         
|                                          |         | Total net revenues                                             |                         
|Cost of revenues                          |         |                                                                | 2,249                   
|                                          |         |                                                                |                         
|                                          |         | Gross profit                                                   |                         
|Operating expenses:                       |         |                                                                |                         
|                                          |         | Sales and marketing                                            |                         
|                                          |         | Research and development                                       |                         
|                                          |         | General and administrative                                     |                         
|                                          |         | Depreciation                                                   |                         
|                                          |         | Amortization of goodwill and other purchased intangible assets |                         
|                                          |         | In-process research and development                            |                         
|                                          |         | Restructuring and other charges                                |                         
|                                          |         |                                                                |                         
|                                          |         |                                                                | Total operating expenses
|                                          |         |                                                                |                         
|Income (loss) from operations             |         |                                                                | 1,056                   
|Other income (expense), net               |         |                                                                | (733                    
|Provision for (benefit from) income taxes |         |                                                                |                        
|                                          |         |                                                                |                         
|                                          |         | Net income (loss)                                              |                         
|                                          |         |                                                                |                         
|Net income (loss) per share:              |         |                                                                |                         
|                                          |         | Basic                                                          |                         
|                                          |         |                                                                |                         
|                                          |         | Diluted                                                        |                         
|                                          |         |                                                                |                         
|Weighted average shares outstanding:      |         |                                                                |                         
|                                          |         | Basic                                                          |                         
|                                          |         |                                                                |                         
|                                          |         | Diluted                                                        |                         
|                                          |         |                                                                |                         

|                                       |  | As of December 31,
|-------------------------------------- |  | ------------------
|
|
|BALANCE SHEET DATA:                    |  |                   
|Cash and cash equivalents              |  | $                 
|Working capital (deficit)              |  |                   
|Total assets                           |  |                   
|Debt, including current portion        |  |                   
|Redeemable convertible preferred stock |  |                   
|Total stockholders' equity (deficit)   |  |                   

13

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations in conjunction with our financial statements and related notes. In
addition to historical information, the following discussion and other parts of this report contain forward-looking statements that involve risks and uncertainties. Our actual results may differ
materially from those anticipated by such forward-looking statements due to various factors, including, but not limited to, those set forth under "Certain Factors That May Affect Future Results" and
elsewhere in this report.

Overview

We provide software and related professional services that allow our clients to more effectively manage their business-to-business
relationships. Our products and services were originally developed to manage complex contract purchasing relationships in the healthcare industry. Our Contract Administration and Reporting System, or
CARS, software suite is used by 8 of the 10 largest and 15 of the 20 largest pharmaceutical manufacturers, ranked according to 2000 annual healthcare revenues. We are seeking to expand our products
and services to new vertical markets, particularly the consumer packaged goods and foodservice industries. Our acquisitions of Chi-Cor Information Management, Inc. (ChiCor) in
November 2000 and Intersoft International, Inc. (Intersoft) in March 2001 have provided us with accepted products, customers and expertise in these new vertical markets. Also, our
acquisition of BCL Vision Ltd. (BCL) (renamed I-many International Limited) in April 2001 has expanded our portfolio of software solutions, which we can market to customers within our
currently-targeted and other vertical markets. Under the rules of purchase accounting, the acquired companies' revenues and results of operations have been included together with those of the Company
from the actual dates of the
acquisitions and materially affect the period-to-period comparisons of the Company's historical results of operations.

We
have generated revenues from both products and services. Product revenues, which had been principally comprised of software license fees generated from our CARS software suite and now
include deductions and trade funds management products and cash and trade receivables management software pursuant to our acquisitions of ChiCor and BCL (now I-many International Limited),
accounted for 42.8% of net revenues in 2000 and 53.5% of net revenues in 2001. Service revenues include maintenance and support fees directly related to our licensed software products, professional
service fees derived from consulting, installation, business analysis and training services related to our software products and hosting fees. Service revenues accounted for 57.2% of net revenues in
2000 and 46.5% of net revenues in 2001.

Software
license revenues are attributable to the addition of new customers, and the expansion of existing customer relationships through licenses covering additional users, licenses of
additional software products and license renewals. We recognize revenue in accordance with Statement of Position (SOP) No. 97-2,Software Revenue
Recognitionand SOP 98-9,Software Revenue Recognition, with Respect to Certain Arrangements. We generate revenues
from licensing our software and providing professional services, training and maintenance and support services.

We
sell software, professional services, training and maintenance and support services. In multiple-element arrangements, we allocate the total fee to professional services, training and
maintenance and support services based on the fair value of those elements, which is defined as the price charged when those elements are sold separately. The residual amount is then allocated to the
software license fee.

We
recognize software license fees upon execution of a signed license agreement and delivery of the software, provided there are no significant post-delivery obligations, the
payment is fixed or determinable and collection is probable. In cases where significant post-delivery obligations exist, such as customization or enhancements to the core software, we
recognize the entire fee on a

14

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percentage-of-completion basis, and include the entire fee in product revenues. If an acceptance period is required, revenues are recognized upon customer acceptance. We
provide for sales returns at the time of revenue recognition based on historical experience. To date, such returns have not been significant.

Service
revenues include professional services, training and maintenance and support services. Professional service revenues are recognized as the services are performed for time and
materials contracts and using the percentage-of-completion method for fixed fee contracts. If conditions for acceptance exist, professional service revenues are recognized upon
customer acceptance. For fixed fee professional service contracts, we provide for anticipated losses in the period in which the loss becomes known and can be reasonably estimated. To date, losses
incurred on fixed fee contracts have not been significant. Training revenues are recognized as the services are provided. Maintenance and customer
support fees are recognized ratably over the term of the maintenance contract, which is generally twelve months. When maintenance and support is included in the total license fee, we allocate a
portion of the total fee to maintenance and support based upon the price paid by the customer to purchase maintenance and support in the second year.

Payments
received from customers at the inception of a maintenance period are treated as deferred service revenues and recognized ratably over the maintenance period. Payments received
from customers in advance of product shipment or revenue recognition are treated as unearned product revenues and recognized when the product is shipped to the customer or when earned. Substantially
all of the amounts included in cost of revenues represent direct costs related to the delivery of professional services, training and maintenance and customer support. To date, cost of product
revenues have not been significant.

We
assess the realizability of long-lived assets in accordance with Statement of Financial Accounting Standards (SFAS) No. 121,Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of. We review our long-lived assets for impairment as events and
circumstances indicate the carrying amount of an asset may not be recoverable. We evaluate the realizability of our long-lived assets based on profitability and cash flow expectations for
the related asset.

Research
and development costs are charged to operations as incurred. SFAS No. 86,Accounting for the Costs of Computer Software to Be Sold, Leased or
Otherwise Marketed, requires capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based on our product development
process, technological feasibility is established upon completion of a working model. Costs incurred by the Company between completion of the working model and the point at which the product is ready
for general release have not been material. As such, all software development costs incurred to date have been expensed as incurred.

We
account for internal-use software, in accordance with SOP 98-1,Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use. In accordance with this statement, costs incurred during the preliminary project stage and costs incurred for data conversion, training and maintenance are
expensed as incurred. Once the preliminary project stage is completed, external direct costs incurred during the application development stage are capitalized and amortized over the estimated useful
life of the asset.

SFAS
No. 105,Disclosure of Information About Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentrations
of Credit Risk, requires disclosure of any significant off-balance-sheet risk and concentrations of credit risk. We do not have any significant
off-balance-sheet risk. Financial instruments that potentially expose the Company to concentrations of credit risk consist of cash equivalents and accounts receivable. Concentration of
credit risk with respect to cash equivalents is limited because we place our investments in highly-rated financial institutions. Concentration of credit risk with respect to accounts receivable is
limited to certain customers to whom

15

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we make substantial sales. To reduce risk, we routinely assess the financial strength of our customers and, as a consequence, believe that our accounts receivable credit risk exposure is limited. We
maintain an allowance for potential credit losses but historically have not experienced any significant losses related to individual customers or groups of customers in any particular industry or
geographic area.

In
accordance with SFAS No. 128,Earnings per Share, basic and diluted net income (loss) per share is computed by dividing the net
income (loss) available to common stockholders for the period by the weighted average basic and diluted number of shares of common stock outstanding during the period. The calculation of basic
weighted average shares outstanding excludes unvested restricted common stock that is subject to repurchase by the Company. For periods in which a net loss has been incurred, the calculation of
diluted net loss per share excludes potential common stock, as their effect is antidilutive. Potential common stock includes (i) incremental shares of common stock issuable upon the exercise of
outstanding stock options and warrants calculated using the treasury stock method; (ii) shares of common stock issuable upon the exchange or conversion of preferred stock and convertible debt
calculated using the as-if-converted method; and (iii) unvested restricted common stock subject to repurchase by the Company. In accordance with the Securities and
Exchange Commission's Staff Accounting Bulletin No. 98,Earnings per Share in an Initial Public Offering, we determined that there were no
nominal issuances of common stock prior to the Company's initial public offering (IPO).

After
being profitable in both 1997 and 1998, we increased our spending significantly during 1999 and the first half of 2000, principally to increase the size of our sales and marketing
workforce and for development and marketing expenses related to the development of our web-based initiatives. Our operating expenses (excluding restructuring charges and
acquisition-related amortization and write-offs) have increased significantly since 1997, from $4.2 million for the 12 months ended December 31, 1997 to
$48.1 million for the 12 months ended December 31, 2001. These increases are primarily due to additions to our staff, including through acquisitions, as we have expanded all
aspects of our operations. We have grown from 46 employees as of December 31, 1996 to 373 employees at December 31, 2001.

Recent Events

In the quarter ended December 31, 2001, we recorded a $1.7 million charge in connection with a restructuring of our operations and the impairment in
value of goodwill related to our acquisition of Intersoft International, Inc. ("Intersoft"). The $1.7 million charge consisted of $368,000 in severance pay, $445,000 in facility closing
and related costs, and a $895,000 write-off of goodwill related to the Intersoft acquisition.

On
February 20, 2002, we completed a private placement with investors (the "Purchasers"), pursuant to the terms of a Securities Purchase Agreement among us and the Purchasers (the
"Purchase Agreement"). The private placement was exempt from registration under the Securities Act of 1933, as amended, pursuant to Section 4(2) of such Act. The terms of this private placement
were reported on a Form 8-K, which we filed with the Securities and Exchange Commission of February 28, 2002.

At
the closing, we issued 1,100,413 shares of common stock at a purchase price of $7.27 per share, aggregating $8,000,000, and 1,700 shares of a newly designated series of preferred
stock, at a purchase price of $10,000 per share. The preferred stock has no dividends or coupon, no liquidation preference and no financial covenants.

The
preferred stock will be convertible into common stock at a price equal to the higher of $7.00 or 93% of the average price of our stock measured over a period following the
effectiveness of the registration statement covering the resale of the shares, which we will file with the Securities and Exchange Commission on or before March 29, 2002. We have the right to
establish a new floor for the conversion price, which will serve as the minimum conversion price. Subject to the establishment of a

16

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new floor price, the conversion price of the preferred stock also will not exceed $8.72 or 80% of the average price of our common stock measured over a period following the effectiveness of the
registration statement, whichever is greater.

The
shares of preferred stock may be converted into common stock at the option of the holder during the five trading-day period commencing on the later to occur of 110
business days after the closing date and 30 trading days after the effective date of the registration statement covering the resale of the shares. We may require the conversion of such shares into
common stock during the same five-day period if the floor price established by us is less than the applicable conversion price. In the event that the preferred stock is not converted into
common stock by the date set for conversion, the shares of preferred stock will be redeemed by us. Pending conversion or redemption of the shares of preferred stock, the proceeds from the sale of the
preferred stock are being held in escrow.

We
intend to use the proceeds from the private placement for working capital and other general corporate purposes, which may include acquisitions of, or investments in, one or more new
technologies, products or businesses.

In
addition, we granted the investors certain common stock purchase warrants, consisting of (i) warrants exercisable for 180 days after the closing to purchase up to an
additional aggregate of 165,062 shares of common stock at an exercise price of $7.27 per share; (ii) seven-year warrants to purchase up to an additional aggregate of 165,062 shares
of common stock at an exercise price of $7.50 per share; and (iii) seven-year warrants to purchase a number of additional shares of common stock equal to 15% of the shares of common
stock received on conversion of the preferred stock, at an exercise price equal to 120% of the conversion price. The exercise price of the seven-year warrants is subject to downward
adjustment on a "weighted average" basis in the event we issue additional shares of common stock, or instruments convertible or exercisable for common stock, at an effective price less than the then
applicable exercise price. This adjustment does not apply, however, to the issuance of common stock or such instruments in underwritten public offerings, strategic transactions or pursuant to equity
incentive plans. The warrants described in clause (iii) of this paragraph will become void if we redeem the preferred stock.

On
March 12, 2002, we acquired substantially all the assets of NetReturn, LLC, a Connecticut limited liability company located in Fairfield, Connecticut, for a purchase price of
up to $5.3 million. The primary asset acquired was NetReturn's library of software applications and tools. The initial consideration of approximately $3.3 million consisted of $500,000
of cash, 429,017 shares of the Company's common stock with a fair value at the time of acquisition of $2.7 million and estimated transaction costs of $100,000. In addition, upon achievement of
certain revenue milestones through March 31, 2003, the NetReturn shareholders are entitled to additional consideration of up to $2 million, payable in cash or stock at our election.

17

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Results of Operations

The following table sets forth statement of operations data for the periods indicated expressed as a percentage of total net revenues for each period indicated.
The historical results are not necessarily indicative of the results to be expected for any future period.

|                                          |                                                                | Years Ended December 31, |     
|----------------------------------------- | -------------------------------------------------------------- | ------------------------ | ----
|
|Net revenues:                             |                                                                |                          |     
|                                          | Product                                                        |                          | 67.1
|                                          | Service                                                        |                          | 32.9
|                                          |                                                                |                          |     
|                                          |                                                                | Total net revenues       |     
|Cost of revenues                          |                                                                | 29.9                     |     
|                                          |                                                                |                          |     
|                                          |                                                                | Gross profit             |     
|Operating expenses:                       |                                                                |                          |     
|                                          | Sales and marketing                                            |                          | 16.3
|                                          | Research and development                                       |                          | 20.3
|                                          | General and administrative                                     |                          | 17.3
|                                          | Depreciation                                                   |                          | 2.1 
|                                          | Amortization of goodwill and other purchased intangible assets |                          | 0.0 
|                                          | In process research and development                            |                          | 0.0 
|                                          | Restructuring and other charges                                |                          | 0.0 
|                                          |                                                                |                          |     
|                                          |                                                                | Total operating expenses |     
|                                          |                                                                |                          |     
|Income (loss) from operations             |                                                                | 14.1                     |     
|Other income (expense), net               |                                                                | (9.8                     | )   
|                                          |                                                                |                          |     
|Income (loss) before income taxes         |                                                                | 4.3                      |     
|Provision for (benefit from) income taxes |                                                                | 0.0                      |     
|                                          |                                                                |                          |     
|                                          |                                                                | Net income (loss)        |     

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Net Revenues

Net revenues increased by $19.6 million, or 54%, to $56.1 million for the year ended December 31, 2001 from $36.5 million for the year
ended December 31, 2000. Product revenues increased by $14.4 million, or 92%, to $30.0 million for the year ended December 31, 2001, from $15.6 million for the year
ended December 31, 2000. This increase is attributable to a significant increase in the number of software licenses sold, due in part to the contribution of the ChiCor subsidiary subsequent to
its acquisition in November 2000. 55% of our product revenues in 2001 came from existing customers, for the purchase of additional modules, new user licenses, and license renewals.

As
a percentage of total net revenues, product revenues increased to 53.5% for the year ended December 31, 2001, from 42.8% for the year ended December 31, 2000. This
increase in product revenues as a percentage of total net revenues is attributable to the increase in our software licensing activity during the period, relative to the slower growth of our
professional services business. Service revenues increased by $5.2 million, or 25%, to $26.1 million for the year ended December 31, 2001, from $20.9 million for the year
ended December 31, 2000.

18

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Cost of Revenues

Cost of revenues consists primarily of payroll and related costs and subcontractor costs for providing professional services and maintenance and support services,
and to a lesser extent amounts due to third parties for licensed integrated technology. Historically, cost of product revenues has not been a significant component of total cost of revenues. Cost of
revenues decreased by $548,000, or 3%, to $15.4 million for the year ended December 31, 2001, from $15.9 million for the year ended December 31, 2000. This decrease is due
primarily to a significant decrease in subcontractor consulting costs from $6.4 million during 2000 to $2.6 million during 2001, partially offset by the costs associated with the
increased number of employees in our professional services group.

As
a percentage of total net revenues, cost of revenues decreased to 27.4% for the year ended December 31, 2001, from 43.6% for the year ended December 31, 2000. This
decrease in cost of revenues as a percentage of total net revenues is attributable to the smaller level of service revenues as a percent of total revenues (service revenues typically generate lower
margins than product revenues) and the decrease in subcontractor costs.

Operating Expenses

Sales and marketing.Sales and marketing expenses consist primarily of payroll and related benefits for sales and marketing
personnel, commissions for sales personnel, travel costs, recruiting fees, expenses for trade shows, and advertising and public relations expenses. Also, sales and marketing expenses included
one-time, non-cash charges of $800,000 during 2001 and $2.6 million during 2000 related to the value associated with the granting of common stock warrants to Accenture
and Procter & Gamble, respectively. Excluding the charges related to the issuance of warrants, sales and marketing expense increased by $1.2 million, or 6%, to $20.2 million in
the year ended December 31, 2001 from $19.0 million in the year ended December 31, 2000. This increase in sales and marketing expense is primarily the result of an increase in
headcount levels and significantly higher commission costs attributable to the increase in product revenues, partially offset by significant reductions in spending for advertising, marketing and
promotional materials, and decreases in travel expenses. As a percentage of total net revenues, sales and marketing expense, excluding non-cash warrant charges, decreased to 35.9% for the
year ended December 31, 2001, from 52.1% for the year ended December 31, 2000.

Research and development.Research and development expenses consist primarily of payroll and related costs for development
personnel and external consulting costs associated with the development of our products and services. Research and development expenses increased by $2.0 million, or 16%, to
$14.8 million for the year ended December 31, 2001 from $12.8 million in the year ended December 31, 2000. The increase in research and development expenses is primarily
the result of an increase in the number of research and development personnel, partially offset by a significant reduction in subcontractor costs associated principally with the development of our
Internet portal incurred during the first half of 2000. Subcontractor costs amounting to $4.6 million were expensed as incurred during 2000, as compared to $1.1 million during 2001. As a
percentage of total net revenues, research and development expense decreased to 26.4% for the year ended December 31, 2001, from 35.2% for the year ended December 31, 2000.

General and administrative.General and administrative expenses consist primarily of salaries and related costs for personnel
in our administrative, finance and human resources departments, and legal, accounting and other professional service fees. Excluding the $810,000 value of I-many stock granted as
compensation to our chief executive officer, general and administrative expenses increased by $2.6 million, or 52%, to $7.5 million in the year ended December 31, 2001 from
$4.9 million in the year ended December 31, 2000. The increase in general and administrative expenses is primarily attributable to an increase in headcount, higher professional services
fees, and to a full year's worth of costs associated with being a publicly-held company. As a percentage of total net revenues, general and

19

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administrative expenses, excluding stock-based compensation, decreased to 13.4% for the year ended December 31, 2001, from 13.6% for the year ended December 31, 2000.

Depreciation.From March 2000 to June 2001, depreciation included amortization of capitalized
internal-use software development costs related to the company's Internet portal. Depreciation expense decreased by $70,000, or 2%, from $4.1 million in the year ended
December 31, 2000 to $4.0 million in the year ended December 31, 2001. During 2001, the amortization expense related to capitalized internal-use software development
costs amounted to $1.7 million, as compared to $2.6 million of amortization during 2000.

Amortization of goodwill and other purchased intangible assets.Amortization of goodwill and other purchased intangibles
related to our acquisitions amounted to $6.8 million in the year ended December 31, 2001. During 2000, only $335,000 was amortized as a result of the acquisition of ChiCor in
November 2000.

In-process research and development.In connection with the acquisitions of BCL and Provato, Inc., we
allocated a total $3.7 million of the purchase prices to in-process research and development, which was immediately expensed as it had no future alternative use. The fair value was
determined based on independent appraisals conducted for the purpose of allocating the initial consideration to the tangible and intangible assets acquired in the respective acquisitions.

Restructuring and other charges.In the quarters ended September 30, 2001 and December 31, 2001, we recorded
charges of $3.0 million and $1.7 million, respectively, in connection with a restructuring of the Company's operations, the abandonment of our proprietary internet portal, and a partial
write-down of the carrying value of goodwill related to the Intersoft acquisition. Included in the charges were the $2.4 million net carrying value of the internet portal, $908,000
in severance pay, a $895,000 goodwill write-down, and $553,000 in facility lease and related costs.

Other income, net.Other income, net increased by $4,000, or less than 1%, to $1.4 million in the year ended
December 31, 2001. This increase is the result of interest earned on higher average cash balances due to the net cash proceeds from our initial public offering, which occurred in
July 2000, largely offset by lower investment yields realized during 2001.

Provision for income taxes.We incurred operating losses for all quarters in 2000 and 2001 and have consequently recorded a
valuation allowance for the full amount of our net deferred tax asset, which consists principally of our net operating loss carryforwards, as the future realization of the tax benefit is uncertain. No
provision or benefit for income taxes has been recorded in the years ended December 31, 2001 and 2000.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

Net revenues.Net revenues increased by $17.1 million, or 88%, to $36.5 million for the year ended
December 31, 2000 from $19.4 million for the year ended December 31, 1999. Product revenues increased by $6.4 million, or 69%, to $15.6 million for the year ended
December 31, 2000 from $9.2 million for the year ended December 31, 1999. This increase in product revenues is attributable to an increase in the average size of licenses sold,
partially offset by a decrease in the number of software licenses sold. As a percentage of net revenues, product revenues decreased to 42.8% for the year ended December 31, 2000 from 47.5% for
the year ended December 31, 1999.

Service
revenues increased by $10.7 million, or 105%, to $20.9 million for the year ended December 31, 2000 from $10.2 million for the year ended
December 31, 1999. As a percentage of net revenues, service revenues increased to 57.2% for the year ended December 31, 2000 from 52.5% for the year ended December 31, 1999. This
increase in service revenues both in dollars and as a percentage of net revenues is attributable to the increase in software licenses for which maintenance

20

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and support fees are being earned, and to an overall increase in professional services, including implementation, business analysis and training.

Cost of revenues.Cost of revenues increased by $10.5 million, or 197%, to $15.9 million for the year ended
December 31, 2000 from $5.4 million for the year ended December 31, 1999. This increase is due to the increased number of employees in our professional services group, which
increased from 37 employees at December 31, 1999 to 81 employees at December 31, 2000, as well as increased costs related to subcontractor consultants working on our professional service
engagements, which increased from $1.5 million in the year ended December 31, 1999 to $6.4 million in the year ended December 31, 2000. As a percentage of net revenues,
cost of revenues increased to 43.6% for the year ended December 31, 2000 from 27.6% for the year ended December 31, 1999. This increase in cost of revenues as a percentage of net
revenues is attributable to the increased level of service revenues, which typically generate lower margins than product revenues, and an increase in the personnel, both internal and subcontracted,
within our professional services organization.

Sales and marketing.Sales and marketing expenses increased by $15.0 million, or 227%, to $21.6 million for the
year ended December 31, 2000, from $6.6 million for the year ended December 31, 1999. Excluding the one-time, non-cash charge of $2.6 million
related to the value associated with the common stock warrant granted to Procter & Gamble, sales and marketing expenses increased by $12.4 million, or 187%, to $19.0 million for
the year ended December 30, 2000. As a percentage of net revenues, sales and marketing expenses, excluding the warrant charge, increased to 52.1% for the year ended December 31, 2000
from 34.1% for the year ended December 31, 1999. This increase in sales and marketing expense both in dollars and as a percentage of net revenues is primarily the result of advertising,
marketing and promotional materials related to our web-based initiatives, an increase in the number of sales and marketing personnel, which increased from 33 at December 31, 1999 to
85 at December 31, 2000, and increased participation at trade shows.

Research and development.Research and development expenses increased by $4.6 million, or 56%, to $12.8 million
for the year ended December 31, 2000 from $8.2 million for the year ended December 31, 1999. This increase is primarily due to an increase in research and development personnel,
which increased from 66 employees at December 31, 1999 to 100 employees at December 31, 2000, and associated recruiting and training costs incurred to develop new software products
within the CARS software suite. Additionally, subcontractor costs associated with the development of our Internet portal increased to $8.0 million in the year ended December 31, 2000
from $3.0 million in the year ended December 31, 1999. Internal-use software development costs incurred to build our Internet portal were accounted for in accordance with
Statement of Position No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." Under this Statement of Position, costs incurred during the
preliminary project stage are expensed as incurred, and costs incurred during the application development stage are capitalized. Of this $8.0 million incurred in the year ended
December 31, 2000, $3.4 million was expensed as incurred. As a percentage of net revenues, research and development expenses decreased to 35.2% for the year ended December 30,
2000 from 42.4% for the year ended December 31, 1999.

General and administrative.General and administrative expenses increased by $1.4 million, or 39%, to
$4.9 million for the year ended December 31, 2000 from $3.6 million for the year ended December 31, 1999. As a percentage of net revenues, general and administrative
expenses decreased to 13.6% for the year ended December 31, 2000 from 18.3% for the year ended December 31, 1999. The increase in general and administrative expenses in dollars is
primarily related to the addition of administrative,
finance and human resources employees to support our increased sales, marketing and development activities, and to increased costs associated with being a publicly-held company.

Depreciation.Depreciation and amortization expense increased by $3.3 million, or 439%, to $4.1 million for the
year ended December 31, 2000 from $751,000 for the year ended December 31,

21

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1999. This increase is a result of additions of computer hardware and computer software related to our increased personnel as well as the amortization of capitalized website development costs. For
the year ended December 30, 2000, the amortization expense related to capitalized software development costs amounted to $2.6 million. There was no amortization of capitalized software
development costs in the year ended December 31, 1999.

Amortization of goodwill and other purchased intangible assets.Amortization of goodwill and other purchased intangibles,
related to the November 2000 acquisition of Chi-Cor, amounted to $335,000 in the year ended December 31, 2000. There was no amortization of goodwill and other purchased
intangibles in 1999.

In process research and development.In connection with the acquisition of Chi-Cor, we allocated
$2.4 million of the purchase price to in-process research and development. This allocation was based on an independent appraisal conducted for the purpose of allocating the initial
consideration to the tangible and intangible assets acquired and liabilities assumed in the Chi-Cor acquisition.

Other income, net.Other income, net increased by $1.3 million to $1.4 million for the year ended
December 31, 2000 from $146,000 for the year ended December 31, 1999. This increase is primarily the result of an increase in interest income from higher cash balances in the period
following the initial public offering of our stock in July 2000.

Provision for income taxes.We have incurred operating losses for all quarters in 1999 and 2000 and have consequently
recorded a valuation allowance for the full amount of our net deferred tax asset, as the future realization of the tax benefit is uncertain. No provision for income taxes has been recorded in the year
ended December 31, 2000. The tax provision of $281,000 in the year ended December 31, 1999 represents the reversal of a deferred tax asset previously recorded in 1998.

Liquidity and Capital Resources

On July 13, 2000, we completed our initial public offering and issued 7,500,000 shares of our common stock at an offering price of $9.00 per share. On
August 9, 2000, our underwriters exercised a 30-day option to purchase an additional 1,125,000 shares of common stock to cover over-allotments. Net cash
proceeds to us from the initial public offering and subsequent option exercise were approximately $70.7 million.

From
inception until our initial public offering, our capital and liquidity needs were met, in large part, with the net proceeds from the private placement of debt and equity securities,
cash flows generated from operations and through equipment lease financings.

At
December 31, 2001, we had cash and cash equivalents of $36.0 million and a net working capital surplus of $33.6 million. At December 31, 2001, we had no
long-term or short-term debt, other than obligations under capital lease financings.

On
February 20, 2002, we completed a private placement of common stock, preferred stock and warrants, resulting in our receipt of $25 million in gross proceeds. Of this
amount, $17 million is being held in an escrow account pending conversion of the preferred stock into common stock. In the event that the preferred stock is not so converted, we will redeem it
for an aggregate redemption price equal to $17 million. See "Recent Events" above.

Net
cash used in operating activities for the year ended December 31, 2001 was $2.2 million, as compared to net cash used in operating activities of $20.2 million
during 2000. For the year ended December 31, 2001, net cash used in operating activities consisted primarily of our net loss of $21.2 million, as adjusted for non-cash
itemsdepreciation, amortization and acquisition-related and other non-cash chargestotaling $19.3 million, and a decrease of $1.8 million in deferred
revenue, partially offset by a $2.1 million decrease in accounts receivable. Net cash used in operating activities

22

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during 2000 consisted primarily of our net loss of $24.2 million, as adjusted for depreciation, amortization and acquisition-related non-cash charges totaling $6.7 million
and $2.7 million in non-cash charges related to issuance of warrants, an increase in accounts receivable of $5.6 million and a $823,000 decrease in unearned product revenue.

Net
cash used in investing activities for the years ended December 31, 2001 and 2000 was $15.6 million. For the year ended December 31, 2001, net cash used in
investing activities consisted of $1.8 million in purchases of property and equipment, $11.9 million related to acquisitions, and a $1.6 million investment in preferred stock of
Tibersoft Corporation, a privately-held provider of business-to-business network trading solutions for the foodservice industry. For the year ended
December 31, 2000, net cash used in investing activities consisted of the initial cash consideration and transaction costs totaling $6.2 million related to the acquisition of
Chi-Cor, purchases of property and equipment of $8.4 million, which included approximately $4.7 million of capitalized software development costs, and an increase in other
assets of $1.0 million.

Net
cash provided by financing activities for the year ended December 31, 2001 was $3.2 million, consisting primarily of proceeds from stock option exercises. Net cash
provided by financing activities for the year ended December 31, 2000 was $71.1 million and consisted primarily of proceeds from the initial public offering.

At
December 31, 2001, we had approximately $42.3 million of net operating loss carryforwards to offset future taxable income. Due to the uncertainty related to the
realization of such benefits, we have placed a full valuation allowance against this otherwise recognizable deferred tax asset.

We
currently anticipate our cash and cash equivalents as of December 31, 2001, together with the proceeds of the February 2002 private placement, will be sufficient to meet
our anticipated needs for working capital, capital expenditures, and possible acquisitions for at least the next 12 months. Our future long-term capital needs will depend
significantly on the rate of growth of our business, acquisitions, the timing of expanded product and service offerings and the success of these offerings once they are launched. Accordingly, any
projections of future long-term cash needs and cash flows are subject to substantial uncertainty. If our available funds and cash generated from operations are insufficient to satisfy our
long term liquidity needs, we may seek to sell additional equity or debt securities to raise funds, and those securities may have rights, preferences or privileges senior to those of the rights of our
common stock. In connection with such a sale of stock, our stockholders may experience dilution. In addition, we cannot be certain that additional financing will be available to us on favorable terms
when required, or at all.

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141,Business
Combinations.SFAS No. 141, which requires all business combinations to be accounted for using the purchase method, is effective for all business combinations initiated
after June 30, 2001.

In
July 2001, the FASB issued SFAS No. 142,Goodwill and Other Intangible Assets.This statement applies to goodwill and
intangible assets acquired after June 30, 2001, as well as to goodwill and intangible assets previously acquired. Under this statement, goodwill and other certain intangible assets deemed to
have an infinite life will no longer be amortized. Instead, these assets will be reviewed for impairment on a periodic basis. This statement is effective for the Company on July 1, 2001 with
respect to any acquisitions completed after June 30, 2001, and on January 1, 2002 for all other goodwill and intangible assets.Management
is currently evaluating the impact that this statement will have on the Company's financial statements.

In
August 2001, the FASB issued SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets.This statement supersedes SFAS No. 121,Accounting for the Impairment of

23

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Long-Lived Assets and for Long-Lived Assets to be Disposed Ofand APB No. 30,Reporting the Results of
OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.This
statement provides guidance on recognizing and measuring impairment for long-lived assets excluding certain long-lived assets, such as goodwill, non-amortized
intangible assets and deferred tax assets. This statement is effective for the Company in the first quarter of its fiscal year ending December 2002. Management is currently evaluating the
impact that this statement will have on the Company's financial statements.

Certain Factors That May Affect Future Results

In addition to other information in this Annual Report on Form 10-K, the following factors could cause actual results to differ materially from
those indicated by forward-looking statements made in this Annual Report on Form 10-K and presented elsewhere by management from time to time.

We Have Incurred Substantial Losses in Recent Years and Our Return to Profitability Is Uncertain

We incurred net losses of approximately $5.2 million in the year ended December 31, 1999, $24.2 million in the year ended December 31,
2000 and $21.2 million in the year ended December 31, 2001, and we had an accumulated deficit at December 31, 2001 of $51.0 million. We expect to continue spending
significantly, principally for sales, marketing and development expenses, and therefore we will need to grow our revenues significantly before we reach profitability. In addition, our second quarter
2001 results were impacted by a number of factors that deferred purchases from us, and we cannot assure you that we will not be affected by these factors in future periods. Although we have been
profitable in certain years, we cannot assure you that we will achieve sufficient revenues to become profitable in the future. If our revenue grows more slowly than we anticipate or if our operating
expenses either increase more than we expect or cannot be reduced in light of lower than expected revenue, we may not be profitable.

It is difficult for us to predict when or if sales will occur and we often incur significant selling expenses in advance of our recognition of any related revenue

Our clients view the purchase of our software applications and related professional services as a significant and strategic decision. As a result, clients
carefully evaluate our software products and services. The length of this evaluation process is affected by factors such as the client's need to rapidly implement a solution and whether the client is
new or is extending an existing implementation. The license of our software products may also be subject to delays if the client has lengthy internal budgeting, approval and evaluation processes which
are quite common in the context of introducing large enterprise-wide tools. We may incur significant selling and marketing expenses during a client's evaluation period, including the costs
of developing a full proposal and completing a rapid proof of concept or custom demonstration, before the client places an order with us. Clients may also initially purchase a limited number of
licenses before expanding their implementations. Larger clients may purchase our software products as part of multiple simultaneous purchasing decisions, which may result
in additional unplanned administrative processing and other delays in the recognition of our license revenues. If revenues forecasted from a significant client for a particular quarter are not
realized or are delayed, as occurred in our second quarter 2001, we may experience an unplanned shortfall in revenues during that quarter. This may cause our operating results to be below the
expectations of public market analysts or investors, which could cause the value of our common stock to decline.

24

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We have two management locations and other facilities and as we continue to grow we may experience difficulties in operating from these facilities

Certain members of our management team are based at our corporate headquarters located in Portland, Maine, and other members of our management team are based at
our sales office in Edison, New Jersey. In addition, as a result of our acquisitions, we have added additional facilities, including offices in Chicago, Illinois, Fairfield, Connecticut and London,
United Kingdom. The geographic distance between these offices could make it difficult for our management and other employees to effectively communicate with each other and, as a result, could place a
significant strain on our managerial, operational and financial resources. Our total revenue increased from $7.5 million in the year ended December 31, 1997 to $56.1 million in
the year ended December 31, 2001, and the number of our employees increased from 67 as of December 31, 1997 to 373 as of December 31, 2001. If we continue to grow, we will need to
recruit, train and retain a significant number of employees, particularly employees with technical, marketing and sales backgrounds. Because these individuals are in high demand, we may not be able to
attract the staff we need to accommodate our expansion.

We are highly dependent upon the healthcare industry, and factors that adversely affect that market could also adversely affect us

Most of our revenue to date has come from pharmaceutical companies and a limited number of other clients in the healthcare industry, and our future growth
depends, in large part, upon increased sales to the healthcare market. In 2001, one customer, in the healthcare market, accounted for approximately 12 percent of our total revenues. As a
result, demand for our solutions could be affected by any factors that could adversely affect the demand for healthcare products, which are purchased and sold pursuant to contracts managed through our
solutions. The financial condition of our clients and their willingness to pay for our solutions are affected by factors that may impact the purchase and sale of healthcare products, including
competitive pressures, decreasing operating margins within the industry, currency fluctuations, active geographic expansion and government regulation. The healthcare market is undergoing intense
consolidation. We cannot assure you that we will not experience declines in revenue caused by mergers or consolidations among our clients and potential clients.

Our efforts to target markets other than the healthcare market may divert resources and management attention away from our core competencies

In connection with our efforts to expand into other markets, it may be necessary for us to hire additional personnel with expertise in these other industries. We
may also have to divert funds, talent, management attention and other resources toward markets that have not traditionally been the primary source of our revenues. The risks of such diversification
include the possibility that we will not be successful in generating the revenue we expect from these markets and the possible detrimental effect of diverting resources from our traditional markets.

We may not be successful in acquiring new technologies or businesses and this could hinder our expansion efforts

We intend in the future to consider additional acquisitions of or new investments in complementary businesses, products, services or technologies. We cannot
assure you that we will be able to identify appropriate acquisition or investment candidates. Even if we do identify suitable candidates, we cannot assure you that we will be able to make such
acquisitions or investments on commercially acceptable terms. Furthermore, we may incur debt or issue equity securities to pay for any future acquisitions. The issuance of equity securities could be
dilutive to our existing stockholders and the issuance of debt could limit our available cash and accordingly restrict our activities.

25

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We have made several acquisitions and may make additional acquisitions and we may have difficulty integrating them

We have acquired ChiCor, Intersoft, BCL Vision Ltd. (now I-many International Limited), and Provato, which are or were located in Chicago,
Illinois, Cleveland, Ohio, London, U.K. and Oakland, California, respectively, and we are likely to make additional acquisitions. Any company that we acquire is likely to be distant from our
headquarters in Portland, Maine and will have a culture different from ours as well as technologies, products and services that our employees will need to understand and integrate with our own. We are
continuing to assimilate the employees, technologies and products of the companies that we have acquired and will need to do the same with any new companies we may acquire, and that effort has been,
and will likely continue to be difficult, time-consuming and may be unsuccessful. If we are not successful, our investment in the acquired entity may be lost, and even if we are
successful, the process of integrating an acquired entity may divert our attention from our core business.

If we do acquire new technologies or businesses, our results of operations may be adversely affected

In connection with our acquisitions, we have recorded substantial goodwill and other intangible assets. In addition, we recorded charges for
write-offs of a portion of the purchase prices of acquired companies as in-process research and development. Although the amortization of goodwill will be discontinued pursuant
to the recent issuance of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, the carrying value of any intangible assets will need to be reviewed for
impairment on a periodic basis. We cannot assure you that future write-downs of any such assets will not affect future operating results.

Our fixed costs have led, and may continue to lead, to fluctuations in operating results which has resulted, and could in the future result, in a decline of our stock price

A significant percentage of our expenses, particularly rent, are fixed costs and are based in part on expectations of future revenues. In addition, our personnel
costs, while variable over the long term, include commitments such as executive severance and similar expectations for other employees. Thus, we may be unable to reduce spending in a timely manner to
compensate for any significant fluctuations in revenues. Accordingly, shortfalls in revenues, as we experienced in the second quarter of fiscal 2001, may cause significant variations in operating
results in any quarter. If our quarterly results do not meet the expectations of market analysts or investors, our stock price is likely to decline.

We have many competitors and potential competitors and we may not be able to compete effectively

The market for our products and services is competitive and subject to rapid change. We encounter significant competition for the sale of our contract management
software from the internal information systems departments of existing and potential clients, software companies that target the contract management markets, professional services organizations and
Internet-based merchants offering healthcare and other products through online catalogs. Our competitors vary in size and in the scope and breadth of products and services offered. We anticipate
increased competition for market share and pressure to reduce prices and make sales concessions, which could materially and adversely affect our revenues and margins.

Many
of our existing competitors, as well as a number of potential new competitors, have longer operating histories, greater name recognition, larger customer bases and significantly
greater financial, technical and marketing resources than we do. Such competitors may also engage in more extensive research and development, undertake more far-reaching marketing
campaigns, adopt more aggressive pricing policies and make more attractive offers to existing and potential employees and strategic partners. We cannot assure you that our competitors will not develop
products or services that are

26

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equal or superior to our solutions or that achieve greater market acceptance than our solutions. In addition, current and potential competitors have established or may establish cooperative
relationships among themselves or with third parties. We cannot assure you that we will be able to compete successfully or that competitive pressures will not require us to make concessions that will
adversely affect our revenues and our margins, or reduce the demand for our products and services.

Our efforts to target markets other than the healthcare market for our CARS products have not yet resulted in significant revenue, and we cannot be sure that our initiatives in
these other markets will be successful

As part of our growth strategy, we have acquired companies that target markets other than the healthcare market and have begun initiatives to sell our CARS
software suite of products and services in markets other than the healthcare market, including the consumer packaged goods, foodservice and other industries. While we believe that the contractual
purchase relationships between manufacturers and customers in these markets have similar attributes to those in the healthcare market, we cannot assure you that our assumptions are correct or that we
will be successful in adapting our technology to these other markets. Although we have entered into strategic relationships with Procter & Gamble and Accenture, we do not yet know how rapidly
or successfully our purchase contract management software solutions will be implemented in the commercial products and other industries.

We rely significantly upon certain key individuals and our business will suffer if we are unable to retain them

We depend on the services of our senior management and key technical personnel. In particular, our success depends on the continued efforts of A. Leigh Powell,
our Chief Executive Officer, and other key employees. The loss of the services of any key employee could have a material adverse effect on our business, financial condition and results of operations.

Current economic conditions may weaken our sales

Current world economic and political conditions, including the effects of the September 11, 2001 terrorist attacks and the resulting military conflict, may
reduce the willingness of our customers and prospective customers to commit funds to purchase our products and services. The resulting loss or delay in our sales could have a material adverse effect
on our business, financial condition and results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

The Company's exposure to market risk for changes in interest rates relate primarily to the Company's investment portfolio. The Company does not use derivative
financial instruments in its investment portfolio. The primary objective of the Company's investment activities is to preserve principal while maximizing yields without assuming significant risk. This
is accomplished by investing in widely diversified investments, consisting primarily of short-term investment-grade securities. Due to the nature of our investments, we believe there is no
material risk exposure.

As
of December 31, 2001, the Company's cash and cash equivalents consisted entirely of money market investments with maturities under 30 days and non-interest
bearing checking accounts. The weighted average interest rate yield for all cash and cash equivalents at December 31, 2001 amounted to 2.11 percent.

27

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following table presents quarterly financial data for each of the eight quarters in the two-year period ended December 31, 2001. The
information for each of these quarters is unaudited, but has been prepared on the same basis as the audited financial statements appearing elsewhere in this report.

|                   |  | Three Months Ended |       
|------------------ |  | ------------------ | ------
|
|
|Total net revenues |  | $                  | 6,789 
|Gross profit       |  |                    | 3,545 
|Net loss           |  |                    | (5,702
|Net loss per share |  |                    | (0.47 

28

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Index to Consolidated Financial Statements

|                                                                               |  | Page
|------------------------------------------------------------------------------ |  | ----
|I-MANY, INC. AND SUBSIDIARIES                                                  |  |     
|Report of Independent Public Accountants                                       |  | 30  
|Consolidated Balance Sheets                                                    |  | 31  
|Consolidated Statements of Operations                                          |  | 32  
|Consolidated Statements of Redeemable Preferred Stock and Stockholders' Equity |  | 33  
|Consolidated Statements of Cash Flows                                          |  | 34  
|Notes to Consolidated Financial Statements                                     |  | 36  

29

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To
the Board of Directors and Stockholders of
I-many, Inc. and subsidiaries

We
have audited the accompanying consolidated balance sheets of I-many, Inc. and subsidiaries (a Delaware corporation) as of December 31, 2000 and 2001 and the
related consolidated statements of operations, redeemable preferred stock and stockholders' equity and cash flows for the three years in the period ended December 31, 2001. 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 financial statements referred to above present fairly, in all material respects, the financial position of I-many, Inc. and subsidiaries as of
December 31, 2000 and 2001 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States.



Boston,
Massachusetts
January 24, 2002
(except for the matters discussed in
Note 13, as to which the dates are
February 20, 2002 and March 12, 2002)

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I-MANY, INC. AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS        (In thousands, except share and per share amounts)

|                                                  |                                                                                                                  | December 31,                |                                           
|------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------- | --------------------------- | ------------------------------------------
|
|ASSETS                                            |                                                                                                                 
|Current assets:                                   |                                                                                                                  |                             |                                           
|                                                  | Cash and cash equivalents                                                                                        |                             | $                                         
|                                                  | Accounts receivable, net of allowances of $766 and $757, respectively                                            |                             |                                           
|                                                  | Prepaid expenses and other current assets                                                                        |                             |                                           
|                                                  |                                                                                                                  |                             |                                           
|                                                  |                                                                                                                  |                             | Total current assets                      
|Property and Equipment, net                       |                                                                                                                  |                             | 8,625                                     
|Other Assets                                      |                                                                                                                  |                             | 1,059                                     
|Goodwill and Other Purchased Intangibles, net     |                                                                                                                  |                             | 10,080                                    
|                                                  |                                                                                                                  |                             |                                           
|                                                  |                                                                                                                  |                             | Total assets                              
|                                                  |                                                                                                                  |                             |                                           
|LIABILITIES AND STOCKHOLDERS' EQUITY              |                                                                                                                 
|Current liabilities:                              |                                                                                                                  |                             |                                           
|                                                  | Accounts payable                                                                                                 |                             | $                                         
|                                                  | Accrued expenses                                                                                                 |                             |                                           
|                                                  | Deferred revenue                                                                                                 |                             |                                           
|                                                  |                                                                                                                  |                             |                                           
|                                                  |                                                                                                                  |                             | Total current liabilities                 
|                                                  |                                                                                                                  |                             |                                           
|Capital Lease Obligations, net of current portion |                                                                                                                  |                             | 115                                       
|Deferred Rent                                     |                                                                                                                  |                             |                                          
|                                                  |                                                                                                                  |                             |                                           
|Commitments and Contingencies                     |                                                                                                                  |                             |                                           
|Stockholders' Equity:                             |                                                                                                                  |                             |                                           
|                                                  | Undesignated preferred stock, $.01 par value                                                                     |                             |                                           
|                                                  |                                                                                                                  | Authorized5,000,000 shares |                                           
|                                                  | Issued and outstanding0 shares                                                                                  |                             |                                           
|Common stock, $.0001 par value                   |                                                                                                                  |                             |                                           
|                                                  | Authorized100,000,000 shares                                                                                    |                             |                                           
|                                                  | Issued and outstanding32,940,767 shares and 37,200,988 at December 31, 2000 and December 31, 2001, respectively |                             |                                           
|                                                  | Additional paid-in capital                                                                                       |                             |                                           
|                                                  | Deferred stock-based compensation                                                                                |                             |                                           
|                                                  | Stock subscription payable                                                                                       |                             |                                           
|                                                  | Accumulated other comprehensive loss                                                                             |                             |                                           
|                                                  | Accumulated deficit                                                                                              |                             |                                           
|                                                  |                                                                                                                  |                             |                                           
|                                                  |                                                                                                                  |                             | Total stockholders' equity                
|                                                  |                                                                                                                  |                             |                                           
|                                                  |                                                                                                                  |                             | Total liabilities and stockholders' equity
|                                                  |                                                                                                                  |                             |                                           

The
accompanying notes are an integral part of these consolidated financial statements.

31

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I-MANY, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF OPERATIONS        (In thousands, except per share amounts)

|                                                 |                                                                | Year Ended December 31, |                         
|------------------------------------------------ | -------------------------------------------------------------- | ----------------------- | ------------------------
|
|Net Revenues:                                    |                                                                |                         |                         
|                                                 | Product                                                        |                         | $                       
|                                                 | Service                                                        |                         |                         
|                                                 |                                                                |                         |                         
|                                                 |                                                                |                         | Total net revenues      
|Cost of revenues                                 |                                                                |                         | 5,354                   
|                                                 |                                                                |                         |                         
|                                                 | Gross profit                                                   |                         |                         
|Operating expenses:                              |                                                                |                         |                         
|                                                 | Sales and marketing                                            |                         |                         
|                                                 | Research and development                                       |                         |                         
|                                                 | General and administrative                                     |                         |                         
|                                                 | Depreciation                                                   |                         |                         
|                                                 | Amortization of goodwill and other purchased intangible assets |                         |                         
|                                                 | In-process research and development                            |                         |                         
|                                                 | Restructuring and other charges                                |                         |                         
|                                                 |                                                                |                         |                         
|                                                 |                                                                |                         | Total operating expenses
|                                                 |                                                                |                         |                         
|Loss from operations                             |                                                                |                         | (5,085                  
|Other income, net                                |                                                                |                         | 146                     
|                                                 |                                                                |                         |                         
|Loss before income taxes                         |                                                                |                         | (4,939                  
|Provision for income taxes                       |                                                                |                         | 281                     
|                                                 |                                                                |                         |                         
|Net loss                                         |                                                                |                         | (5,220                  
|Accretion of dividends on redeemable convertible |                                                                |                         |                         
|preferred stock                                  |                                                                |                         | 3                       
|                                                 |                                                                |                         |                         
|Net loss applicable to common stockholders       |                                                                | $                       | (5,223                  
|                                                 |                                                                |                         |                         
|Basic and diluted net loss per common share      |                                                                | $                       | (0.46                   
|                                                 |                                                                |                         |                         
|Weighted average shares outstanding              |                                                                |                         | 11,433                  
|                                                 |                                                                |                         |                         

The
accompanying notes are an integral part of these consolidated financial statements.

32

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I-MANY, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(In thousands, except share and per share amounts)

|                           |                                                                                 |           |            |   |        | Convertible Preferred Stock |           |            |   |    |     |         |          |   |   |    |            |           |   |   |   |   |        
|-------------------------- | ------------------------------------------------------------------------------- | --------- | ---------- | - | ------ | --------------------------- | --------- | ---------- | - | -- | --- | ------- | -------- | - | - | -- | ---------- | --------- | - | - | - | - | -------
|
|
|
|
|Balance, December 31, 1998 |                                                                                 |          |            | $ |       |                             | 2,023,550 |            | $ | 20 |     | 400,000 |          | $ | 4 |    | 11,946,450 |           | $ | 1 |   | $ | 5,264  
|                           | Issuance of Series C redeemable preferred stock, net of issuance costs of $17   |           | 1,244,325  |   |        | 12,489                      |           |           |   |    |    |         |         |   |   |   |            |          |   |   |  |   |        
|                           | Accretion of dividends on Series C redeemable preferred stock                   |           |           |   |        | 3                           |           |           |   |    |    |         |         |   |   |   |            |          |   |   |  |   |        
|                           | Exercise of stock options                                                       |           |           |   |        |                            |           |           |   |    |    |         |         |   |   |   |            | 337,435   |   |   |  |   |        
|                           | Deferred stock-based compensation associated with the issuance of stock options |           |           |   |        |                            |           |           |   |    |    |         |         |   |   |   |            |          |   |   |  |   |        
|                           | Amortization of deferred stock-based compensation                               |           |           |   |        |                            |           |           |   |    |    |         |         |   |   |   |            |          |   |   |  |   |        
|                           | Net Loss                                                                        |           |           |   |        |                            |           |           |   |    |    |         |         |   |   |   |            |          |   |   |  |   |        
|                           |                                                                                 |           |            |   |        |                             |           |            |   |    |     |         |          |   |   |    |            |           |   |   |   |   |        
|Balance, December 31, 1999 |                                                                                 | 1,244,325 |            |   | 12,492 |                             | 2,023,550 |            |   | 20 |     | 400,000 |          |   | 4 |    | 12,283,885 |           |   | 1 |   |   | 5,522  
|                           | Exercise of stock options                                                       |           |           |   |        |                            |           |           |   |    |    |         |         |   |   |   |            | 1,821,192 |   |   |  |   |        
|                           | Accretion of dividends on Series C redeemable preferred stock                   |           |           |   |        | 544                         |           |           |   |    |    |         |         |   |   |   |            |          |   |   |  |   |        
|                           | Initial public offering of common stock, net of issuance costs of $1,482        |           |           |   |        |                            |           |           |   |    |    |         |         |   |   |   |            | 7,500,000 |   |   | 1 |   |        
|                           | Conversion of preferred stock to common stock                                   |           | (1,244,325 | ) |        | (13,036                     | )         | (2,023,550 | ) |    | (20 | )       | (400,000 | ) |   | (4 | )          | 9,169,688 |   |   | 1 |   |        
|                           | Exercise of underwriters' overallotment                                         |           |           |   |        |                            |           |           |   |    |    |         |         |   |   |   |            | 1,125,000 |   |   |  |   |        
|                           | Issuance of common stock pursuant to ChiCor acquisition                         |           |           |   |        |                            |           |           |   |    |    |         |         |   |   |   |            | 251,601   |   |   |  |   |        
|                           | Amortization of deferred stock-based compensation                               |           |           |   |        |                            |           |           |   |    |    |         |         |   |   |   |            |          |   |   |  |   |        
|                           | Value of warrants issued for services                                           |           |           |   |        |                            |           |           |   |    |    |         |         |   |   |   |            |          |   |   |  |   |        
|                           | Issuance of common stock related to employee stock purchase plan                |           |           |   |        |                            |           |           |   |    |    |         |         |   |   |   |            | 4,254     |   |   |  |   |        
|                           | Exercise of warrants to purchase common stock                                   |           |           |   |        |                            |           |           |   |    |    |         |         |   |   |   |            | 785,147   |   |   |  |   |        
|                           | Net Loss                                                                        |           |           |   |        |                            |           |           |   |    |    |         |         |   |   |   |            |          |   |   |  |   |        
|                           |                                                                                 |           |            |   |        |                             |           |            |   |    |     |         |          |   |   |    |            |           |   |   |   |   |        
|Balance, December 31, 2000 |                                                                                 |          |            |   |       |                             |          |            |   |   |     |        |          |   |  |    | 32,940,767 |           |   | 3 |   |   | 98,746 
|                           | Exercise of stock options                                                       |           |           |   |        |                            |           |           |   |    |    |         |         |   |   |   |            | 1,206,992 |   |   |  |   |        
|                           | Issuance of common stock pursuant to acquisitions                               |           |           |   |        |                            |           |           |   |    |    |         |         |   |   |   |            | 2,888,882 |   |   | 1 |   |        
|                           | Issuance of common stock pursuant to asset acquistion                           |           |           |   |        |                            |           |           |   |    |    |         |         |   |   |   |            | 137,363   |   |   |  |   |        
|                           | Amortization of deferred stock-based compensation                               |           |           |   |        |                            |           |           |   |    |    |         |         |   |   |   |            |          |   |   |  |   |        
|                           | Value of Stock-based compensation                                               |           |           |   |        |                            |           |           |   |    |    |         |         |   |   |   |            |          |   |   |  |   |        
|                           | Value of warrants issued for services                                           |           |           |   |        |                            |           |           |   |    |    |         |         |   |   |   |            |          |   |   |  |   |        
|                           | Issuance of common stock pursuant to Employee Stock Purchase Plan               |           |           |   |        |                            |           |           |   |    |    |         |         |   |   |   |            | 21,886    |   |   |  |   |        
|                           | Exercise of warrants to purchase common stock                                   |           |           |   |        |                            |           |           |   |    |    |         |         |   |   |   |            | 5,098     |   |   |  |   |        
|                           | Foreign currency translation adjustment                                         |           |           |   |        |                            |           |           |   |    |    |         |         |   |   |   |            |          |   |   |  |   |        
|                           | Net Loss                                                                        |           |           |   |        |                            |           |           |   |    |    |         |         |   |   |   |            |          |   |   |  |   |        
|                           |                                                                                 |           |            |   |        |                             |           |            |   |    |     |         |          |   |   |    |            |           |   |   |   |   |        
|Balance, December 31, 2001 |                                                                                 |          |            | $ |       |                             |          |            | $ |   |     |        |          | $ |  |    | 37,200,988 |           | $ | 4 |   | $ | 125,224
|                           |                                                                                 |           |            |   |        |                             |           |            |   |    |     |         |          |   |   |    |            |           |   |   |   |   |        

The accompanying notes are an integral part of these consolidated financial statements.

33

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I-MANY, INC. AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS        (In thousands)

|                                                     |                                                                      | Year Ended December 31,                                                   |                                         
|---------------------------------------------------- | -------------------------------------------------------------------- | ------------------------------------------------------------------------- | ----------------------------------------
|
|Cash Flows from Operating Activities:                |                                                                      |                                                                           |                                         
|                                                     | Net loss                                                             |                                                                           | $                                       
|                                                     | Adjustments to reconcile net loss to cash provided by                |                                                                           |                                         
|                                                     | (used in) operating activities:                                      |                                                                           |                                         
|                                                     |                                                                      | Depreciation and amortization                                             |                                         
|                                                     |                                                                      | In-process research and development                                       |                                         
|                                                     |                                                                      | Restructuring and other charges                                           |                                         
|                                                     |                                                                      | Deferred income taxes                                                     |                                         
|                                                     |                                                                      | Amortization of deferred stock-based compensation                         |                                         
|                                                     |                                                                      | Deferred rent                                                             |                                         
|                                                     |                                                                      | Noncash marketing expense related to issuance of warrant                  |                                         
|                                                     |                                                                      | Noncash interest expense related to issuance of warrant                   |                                         
|                                                     |                                                                      | Stock compensation expense                                                |                                         
|                                                     |                                                                      | Changes in current assets and liabilities net of acquisitions:            |                                         
|                                                     |                                                                      |                                                                           | Accounts receivable                     
|                                                     |                                                                      |                                                                           | Prepaid expense and other current assets
|                                                     |                                                                      |                                                                           | Accounts payable                        
|                                                     |                                                                      |                                                                           | Accrued expenses                        
|                                                     |                                                                      |                                                                           | Deferred revenue                        
|                                                     |                                                                      |                                                                           |                                         
|                                                     |                                                                      |                                                                           |                                         
|                                                     |                                                                      |                                                                           |                                         
|Cash Flows from Investing Activities:                |                                                                      |                                                                           |                                         
|                                                     | Purchases of property and equipment, net                             |                                                                           |                                         
|                                                     | Purchase of technology                                               |                                                                           |                                         
|                                                     | Additional cash paid to acquire Chi-Cor Information Management, Inc. |                                                                           |                                         
|                                                     | Cash paid to acquire Vintage, Inc.                                   |                                                                           |                                         
|                                                     | Cash paid to acquire Intersoft International, Inc.                   |                                                                           |                                         
|                                                     | Cash paid to acquire BCL Vision Ltd.                                 |                                                                           |                                         
|                                                     | Cash paid to acquire Provato, Inc.                                   |                                                                           |                                         
|                                                     | (Increase) decrease in other assets                                  |                                                                           |                                         
|                                                     |                                                                      |                                                                           |                                         
|                                                     |                                                                      |                                                                           |                                         
|                                                     |                                                                      |                                                                           |                                         
|                                                     | Cash Flows from Financing Activities:                                |                                                                           |                                         
|                                                     |                                                                      | Net proceeds from initial public offering and over-allotment exercise     |                                         
|                                                     |                                                                      | Net proceeds from sale of Series C redeemable convertible preferred stock |                                         
|                                                     |                                                                      | Proceeds from exercise of common stock warrants                           |                                         
|                                                     |                                                                      | Payments on capital lease obligations                                     |                                         
|                                                     |                                                                      | Proceeds from exercise of stock options                                   |                                         
|                                                     |                                                                      | Proceeds from Employee Stock Purchase Plan                                |                                         
|                                                     |                                                                      | Bank overdraft                                                            |                                         
|                                                     |                                                                      |                                                                           |                                         
|                                                     |                                                                      |                                                                           |                                         
|                                                     |                                                                      |                                                                           |                                         
|Effect of foreign exchange rate changes              |                                                                      |                                                                           |                                        
|                                                     |                                                                      |                                                                           |                                         
|Net Increase (Decrease) in Cash and Cash Equivalents |                                                                      |                                                                           | 10,193                                  
|                                                     | Cash and Cash Equivalents, beginning of period                       |                                                                           |                                         
|                                                     |                                                                      |                                                                           |                                         
|                                                     | Cash and Cash Equivalents, end of period                             |                                                                           | $                                       
|                                                     |                                                                      |                                                                           |                                         

34

---

|Supplemental Disclosure of Cash Flow Information:                                                                                             |                                                                             |  |   |     |  |   |         |   |   |        
|--------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- |  | - | --- |  | - | ------- | - | - | -------
|                                                                                                                                              | Cash paid during the period for interest                                    |  | $ | 11  |  | $ | 50      |   | $ | 43     
|                                                                                                                                              |                                                                             |  |   |     |  |   |        
|                                                                                                                                              | Cash paid (refunded) during the period for taxes                            |  | $ | 354 |  | $ | (253    | ) | $ |       
|                                                                                                                                              |                                                                             |  |   |     |  |   |        
|Supplemental Disclosure of Noncash Activities:                                                                                                |                                                                             |  |   |     |  |   |         |   |   |        
|                                                                                                                                              | Conversion of preferred stock to common stock                               |  | $ | -   |  | $ | 13,060  |   | $ |       
|                                                                                                                                              |                                                                             |  |   |     |  |   |        
|                                                                                                                                              | Accretion of dividends on Series C preferred stock                          |  | $ | 3   |  | $ | 544     |   | $ |       
|                                                                                                                                              |                                                                             |  |   |     |  |   |        
|                                                                                                                                              | Deferred stock-based compensation associated with issuance of stock options |  | $ | 188 |  | $ |        |   | $ |       
|                                                                                                                                              |                                                                             |  |   |     |  |   |        
|                                                                                                                                              | Issuance of common stock pursuant to cashless exercise of warrants          |  | $ |    |  | $ | 7,875   |   | $ | 100    
|                                                                                                                                              |                                                                             |  |   |     |  |   |        
|                                                                                                                                              | Issuance of warrants to purchase common stock                               |  | $ |    |  | $ | 3,868   |   | $ | 800    
|                                                                                                                                              |                                                                             |  |   |     |  |   |        
|                                                                                                                                              | Property and equipment acquired under capital leases                        |  | $ |    |  | $ | 173     |   | $ |       
|                                                                                                                                              |                                                                             |  |   |     |  |   |        
|As of December 31, 2001, the Company incurred additional costs related to its acquisition of Chi-Cor Information Management, Inc. as follows: |                                                                             |  |   |     |  |   |         |   |   |        
|                                                                                                                                              | Fair value of additional assets acquired                                    |  | $ |    |  | $ | (13,571 | ) | $ | (3,694 
|                                                                                                                                              | Cash paid                                                                   |  |   |    |  |   | 6,155   |   |   | 2,690  
|                                                                                                                                              | Common stock issued/accrued                                                 |  |   |    |  |   | 4,944   |   |   | 904    
|                                                                                                                                              |                                                                             |  |   |     |  |   |        
|                                                                                                                                              | Liabilities assumed                                                         |  | $ |    |  | $ | (2,472  | ) | $ | (100   
|                                                                                                                                              |                                                                             |  |   |     |  |   |        
|On January 25, 2001, the Company acquired Vintage Software, Inc. as follows:                                                                  |                                                                             |  |   |     |  |   |         |   |   |        
|                                                                                                                                              | Fair value of assets acquired                                               |  | $ |    |  | $ |        |   | $ | (1,210 
|                                                                                                                                              | Cash paid for acquisition                                                   |  |   |    |  |   |        |   |   | 731    
|                                                                                                                                              | Common stock issued                                                         |  |   |    |  |   |        |   |   | 400    
|                                                                                                                                              |                                                                             |  |   |     |  |   |        
|                                                                                                                                              | Liabilities assumed                                                         |  | $ |    |  | $ |        |   | $ | (79    
|                                                                                                                                              |                                                                             |  |   |     |  |   |        
|On March 2, 2001, the Company acquired Intersoft International, Inc. as follows:                                                              |                                                                             |  |   |     |  |   |         |   |   |        
|                                                                                                                                              | Fair value of assets acquired                                               |  | $ |    |  | $ |        |   | $ | (3,322 
|                                                                                                                                              | Cash paid for acquisition                                                   |  |   |    |  |   |        |   |   | 591    
|                                                                                                                                              | Common stock issued                                                         |  |   |    |  |   |        |   |   | 2,320  
|                                                                                                                                              |                                                                             |  |   |     |  |   |        
|                                                                                                                                              | Liabilities assumed                                                         |  | $ |    |  | $ |        |   | $ | (411   
|                                                                                                                                              |                                                                             |  |   |     |  |   |        
|On April 9, 2001, the Company acquired BCL Vision Ltd. as follows:                                                                            |                                                                             |  |   |     |  |   |         |   |   |        
|                                                                                                                                              | Fair value of assets acquired                                               |  | $ |    |  | $ |        |   | $ | (12,201
|                                                                                                                                              | Cash paid for acquisition                                                   |  |   |    |  |   |        |   |   | 4,539  
|                                                                                                                                              | Common stock issued                                                         |  |   |    |  |   |        |   |   | 6,900  
|                                                                                                                                              |                                                                             |  |   |     |  |   |        
|                                                                                                                                              | Liabilities assumed                                                         |  | $ |    |  | $ |        |   | $ | (762   
|                                                                                                                                              |                                                                             |  |   |     |  |   |        
|On August 16, 2001, the Company acquired Provato, Inc. as follows:                                                                            |                                                                             |  |   |     |  |   |         |   |   |        
|                                                                                                                                              | Fair value of assets acquired                                               |  | $ |    |  | $ |        |   | $ | (15,937
|                                                                                                                                              | Cash paid for acquisition                                                   |  |   |    |  |   |        |   |   | 3,382  
|                                                                                                                                              | Common stock and warrant issued                                             |  |   |    |  |   |        |   |   | 11,208 
|                                                                                                                                              |                                                                             |  |   |     |  |   |        
|                                                                                                                                              | Liabilities assumed                                                         |  | $ |    |  | $ |        |   | $ | (1,347 
|                                                                                                                                              |                                                                             |  |   |     |  |   |        

The accompanying notes are an integral part of these consolidated financial statements.

35

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I-MANY, INC. AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        (In thousands, except share and per share amounts)

(1) Operations and Significant Accounting Policies

I-many, Inc. (the Company), formerly SCC Technologies, Inc., provides software and Internet-based solutions and related professional
services that allow clients to manage complex contract purchasing arrangements. Historically, the Company's primary customer base has included parties involved in the sale and distribution of
pharmaceutical and other healthcare products, including manufacturers, purchasers, groups of purchasers and distributors. The Company was originally incorporated in 1989 in the Commonwealth of
Massachusetts as a Subchapter S corporation. On April 2, 1998, the Company reorganized and reincorporated in the State of Delaware as a Subchapter C corporation.

In
July 2000, the Company completed its initial public offering (IPO) and issued 7,500,000 shares of common stock, which resulted in total net proceeds to the Company of
approximately $61.3 million. In August 2000, the underwriters exercised their overallotment option for an additional 1,125,000 shares of common stock, which resulted in total net
proceeds to the Company of approximately $9.4 million.

During
2000 and 2001, the Company completed several acquisitions in order to expand its product offerings and strengthen its position in vertical markets other than the pharmaceutical
industry. Each of these acquisitions has been accounted for as a purchase business combination, with the excess of the purchase price over the net assets acquired allocated to goodwill (see
Note 2).

The
Company's consolidated financial statements reflect the application of certain accounting policies, as described below and elsewhere in these notes to consolidated financial
statements.

(a) Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

(b) Revenue Recognition

The Company recognizes revenue in accordance with Statement of Position (SOP) No. 97-2,Software Revenue
Recognitionand SOP 98-9,Software Revenue Recognition, with Respect to Certain Arrangements. The Company generates
revenues from licensing its software and providing professional services, training and maintenance and support services.

The
Company sells software, professional services, training and maintenance and support services. In multiple-element arrangements, the Company allocates the total fee to professional
services, training and maintenance and support services based on the fair value of those elements, which is defined as the price charged when those elements are sold separately. The residual amount is
then allocated to the software license fee.

The
Company recognizes software license fees upon execution of a signed license agreement and delivery of the software, provided there are no significant post-delivery
obligations, the payment is fixed or determinable and collection is probable. In cases where significant post-delivery obligations exist, such as customization or enhancements to the core
software, the Company recognizes the entire fee on a percentage-of-completion basis, and includes the entire fee in product revenues. During the years ended December 31,
1999, 2000 and 2001, revenues of approximately $0, $2,425 and $3,468 resulted from fees earned under percentage-of-completion arrangements. If an acceptance period is required,

36

---

revenues are recognized upon customer acceptance. The Company provides for sales returns at the time of revenue recognition based on historical experience. To date, such returns have not been
significant.

Service
revenues include professional services, training and maintenance and support services. Professional service revenues are recognized as the services are performed for time and
materials contracts and using the percentage-of-completion method for fixed fee contracts. If conditions for acceptance exist, professional service revenues are recognized upon
customer acceptance. For fixed fee professional service contracts, the Company provides for anticipated losses in the period in which the loss becomes known and can be reasonably estimated. To date,
losses incurred on fixed fee contracts have not been significant. Training revenues are recognized as the services are provided. Maintenance
and customer support fees are recognized ratably over the term of the maintenance contract, which is generally twelve months. When maintenance and support is included in the total license fee, the
Company allocates a portion of the total fee to maintenance and support based upon the price paid by the customer to purchase maintenance and support in the second year.

Payments
received from customers at the inception of a maintenance period are treated as deferred service revenues and recognized ratably over the maintenance period. Payments received
from customers in advance of product shipment or revenue recognition are treated as unearned product revenues and recognized when the product is shipped to the customer or when earned. Substantially
all of the amounts included in cost of revenues represent direct costs related to the delivery of professional services, training and maintenance and customer support. To date, cost of product
revenues have not been significant.

(c) Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

(d) Cash and Cash Equivalents

The Company considers all highly liquid securities purchased with original maturities of 90 days or less to be cash equivalents. Cash equivalents are
stated at cost, which approximates market value, and primarily consist of money market funds and overnight investments that are readily convertible to cash.

37

---

(e) Depreciation and Amortization

The Company provides for depreciation and amortization on its property and equipment as well as goodwill and other purchased intangibles using the
straight-line method over the following estimated useful lives:

Description

Estimated Useful
LivesComputer software

2-3 yearsComputer hardware

3 yearsFurniture and equipment

5-7 yearsLeasehold improvements

5 yearsGoodwill

4 yearsDeveloped technology

4 yearsAssembled workforce

2 years


(f) Long-Lived Assets

The Company assesses the realizability of long-lived assets in accordance with Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of. The Company reviews its
long-lived assets for impairment as events and circumstances indicate the carrying amount of an asset may not be recoverable. The Company evaluates the realizability of its
long-lived assets based on profitability and cash flow expectations for the related asset. As a result of its review, the Company recorded asset impairment charges of $3.3 million
for the year ended December 31, 2001 which have been included in restructuring and other costs.

(g) Research and Development Costs

Research and development costs are charged to operations as incurred. SFAS No. 86,Accounting for the Costs of Computer Software to
Be Sold, Leased or Otherwise Marketed, requires capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based on the
Company's product development process, technological feasibility is established upon completion of a working model. Costs incurred by the Company between completion of the working model and the point
at which the product is ready for general release have not been material. As such, all software development costs incurred to date have been expensed as incurred.

(h) Computer Software Developed or Obtained for Internal Use

The Company accounts for internal-use software, in accordance with SOP 98-1,Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. In accordance with this statement, costs incurred during the preliminary project stage and costs incurred for data conversion,
training and maintenance are expensed as incurred. Once the preliminary project stage is completed, external direct costs incurred during the application development stage are capitalized and
amortized over the estimated useful life of the asset.

38

---

The
Company incurred significant expenditures related to the design and development of an Internet website that are accounted for under SOP 98-1. For the years ended
December 31, 1999 and 2000 the Company incurred approximately $3.0 million and $8.0 million, respectively, of internal-use software development costs related to the
website, of which a total of $6.7 million was capitalized primarily related to costs incurred with a third party; the remainder was charged to research and development expense. The Company
began amortizing capitalized website development costs in February 2000, upon launch of the website, over its estimated useful life of two years. During 2001, the Company wrote off the
remaining unamortized capitalized website development costs of $2.4 million as part of the restructuring and other charges (see Note 12).

(i) Concentrations of Credit Risk

SFAS No. 105,Disclosure of Information About Financial Instruments with Off-Balance-Sheet Risk and Financial
Instruments with Concentrations of Credit Risk, requires disclosure of any significant off-balance-sheet risk and concentrations of credit risk. The Company does
not have any significant off-balance-sheet risk. Financial instruments that potentially expose the Company to concentrations of credit risk consist of cash equivalents and accounts
receivable. Concentration of credit risk with respect to cash equivalents is limited because the Company places its investments in highly-rated financial institutions. Concentration of credit risk
with respect to accounts receivable is limited to certain customers to whom the Company makes substantial sales. To reduce risk, the Company routinely assesses the financial strength of its customers
and, as a consequence, believes that its accounts receivable credit risk exposure is limited. The Company maintains an allowance for potential credit losses but historically has not experienced any
significant losses related to individual customers or groups of customers in any particular industry or geographic area.

The
Company had certain customers whose accounts receivable balances, including unbilled receivables, individually represented a significant percentage of total receivables at
period-end, as follows:

December 31,2000

2001Customer A

28
%
*Customer B

18
%
*Customer C

12
%
*


The
Company had certain customers whose revenues individually represented a significant percentage of total net revenues, as follows:

December 31,1999

2000

2001Customer A

*

29
%
12
%Customer D

11
%
*

*


---

39

---

(j) Fair Value of Financial Instruments

The carrying amounts of the Company's financial instruments, including its cash and cash equivalents, accounts receivable, accounts payable and capital lease
obligations approximate fair value due to the short-term nature of these instruments.

(k) Net Income (Loss) per Share

In accordance with SFAS No. 128,Earnings per Share, basic and diluted net income (loss) per share is
computed by dividing the net income (loss) available to common stockholders for the period by the weighted average basic and diluted number of shares of common stock outstanding during the period. The
calculation of basic weighted average shares outstanding excludes unvested restricted common stock that is subject to repurchase by the Company. For periods in which a net loss has been incurred, the
calculation of diluted net loss per share excludes potential common stock, as their effect is antidilutive. Potential common stock includes (i) incremental shares of common stock issuable upon
the exercise of outstanding stock options and warrants calculated using the treasury stock method; (ii) shares of common stock issuable upon the exchange or conversion of preferred stock and
convertible debt calculated using the as-if-converted method; and (iii) unvested restricted common stock subject to repurchase by the Company. In accordance with the
Securities and Exchange Commission's Staff Accounting Bulletin No. 98,Earnings per Share in an Initial Public Offering, the Company determined
that there were no nominal issuances of common stock prior to the Company's initial public offering (IPO).

A
reconciliation between the shares used to compute basic and diluted net income (loss) per share is as follows:

|                                                         |  | Year Ended December 31,
|-------------------------------------------------------- |  | -----------------------
|
|Weighted average common shares outstanding               |  | 12,137,097             
|LessWeighted average unvested common shares outstanding |  | 704,152                
|                                                         |  |                        
|Basic and diluted weighted average shares outstanding    |  | 11,432,945             
|                                                         |  |                        

The
calculation of diluted net income (loss) per share excludes the following potential shares of common stock as their effect on net income (loss) per share is
anti-dilutive:

|                                 |  | Year Ended December 31,
|-------------------------------- |  | -----------------------
|
|Unvested restricted common stock |  | 704,152                
|Convertible preferred stock      |  | 6,067,421              
|Stock options                    |  | 2,543,594              
|Stock warrants                   |  | 164,780                
|                                 |  |                        
|                                 |  | 9,479,947              
|                                 |  |                        

40

---

(l) Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141,Business
Combinations.SFAS No. 141, which requires all business combinations to be accounted for using the purchase method, is effective for all business combinations initiated
after June 30, 2001.

In
July 2001, the FASB issued SFAS No. 142,Goodwill and Other Intangible Assets.This statement applies to goodwill and
intangible assets acquired after June 30, 2001, as well as to goodwill and intangible assets previously acquired. Under this statement, goodwill and other certain intangible assets deemed to
have an infinite life will no longer be amortized. Instead, these assets will be reviewed for impairment on a periodic basis. This statement is effective for the Company on July 1, 2001 with
respect to any acquisitions completed after June 30, 2001, and on January 1, 2002 for all other goodwill and intangible assets.Management
is currently evaluating the impact that this statement will have on the Company's financial statements.

In
August 2001, the FASB issued SFAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets.This statement supersedes SFAS No. 121,Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Ofand APB No. 30,Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions.This statement provides guidance on recognizing and measuring impairment for long-lived
assets excluding certain long-lived assets, such as goodwill, non-amortized intangible assets and deferred tax assets. This statement is effective for the Company in the first
quarter of its fiscal year ending December 2002. Management is currently evaluating the impact that this statement will have on the Company's financial statements.

(m) Comprehensive Income (Loss)

SFAS No. 130,Reporting Comprehensive Income, requires disclosure of all components of comprehensive income
(loss) on an annual and interim basis. Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from
nonowner sources. For the years ended December 31, 1999 and 2000, the Company had no material items of other comprehensive income (loss); therefore, comprehensive income (loss) for all periods
presented is the same as reported net income (loss). For the year ended December 31, 2001, the Company's comprehensive loss is comprised of the currency translation adjustment of $5, and the
reported net loss.

(n) Reclassifications

Certain prior year account balances have been reclassified to be consistent with the current year's presentation.

(2) Acquisitions

Chi-Cor Information Management, Inc.

On November 16, 2000, the Company acquired in a merger transaction all of the outstanding capital stock of Chi-Cor Information
Management, Inc. ("Chicor") for an initial purchase price of $13.5 million, which consisted of cash of $5.7 million, a portion of which was used to pay off a $754

41

---

outstanding bank loan, 251,601 shares of Company common stock with a fair value at the date of closing of $4.9 million, assumed liabilities of $2.5 million and transaction costs of
$458. In addition, upon achievement of certain quarterly revenue and income milestones through December 31, 2001, the ChiCor shareholders were entitled to additional consideration of up to
$6.9 million, one half of which was payable in cash and the balance payable in the form of Company stock at a derived per share value of $19.65. The acquisition was accounted for as a purchase
business combination in accordance with Accounting Principles Board (APB) Opinion No. 16,Business Combinations. The Company has consolidated the
operations of ChiCor beginning on the date of acquisition. The Company retained an independent appraiser for the purpose of allocating the initial consideration of $13.5 million to the tangible
and intangible assets acquired and liabilities assumed. The portion of the purchase price allocated to in-process research and development, totaling $2.4 million, was based on a risk-adjusted
cash flow appraisal method and represented projects that had not yet reached technological feasibility and had no alternative future use. This portion of the purchase price was expensed upon
consummation of the ChiCor acquisition.

Based
on the revenue and income levels realized by ChiCor during the three month periods ended December 31, 2001, September 30, 2001, June 30, 2001 and
March 31, 2001 and the closing price of I-many stock on those respective dates, the ChiCor shareholders were entitled to receive additional consideration valued at
$1.1 million, $409, $713 and $1.3 million, respectively. The earnout amounts for the first three quarters of 2001 were paid in cash and stock prior to December 31, 2001. The
additional consideration for the three-month period ended December 31, 2001 will be paid in cash and stock no later than April 30, 2002. At December 31, 2001, the stock portion of
this consideration with a market value of $349 was recorded as Stock Subscription Payable and the $712 cash portion was recorded in Accrued Expenses, with the entire amount treated as additional
purchase price and recorded as goodwill.

The
following is a summary of the allocation of the initial consideration in the acquisition of ChiCor:

Current assets

$
756Developed technology


3,200Assembled workforce


300In-process research and development


2,400Goodwill


6,915Total initial consideration

$
13,571


The
following unaudited pro forma information summarizes the effect of the ChiCor acquisition as if the acquisition had occurred as of January 1, 1999. This pro forma information
is presented for informational purposes only. It is based on historical information and does not purport to represent the

42

---

actual results that may have occurred had the Company acquired ChiCor on January 1, 1999, nor is it necessarily indicative of future results of operations of the combined enterprises.

Year Ended December 31,1999

2000(Unaudited)Pro forma revenues

$
21,087

$
38,932Pro forma net loss

$
(10,694
)
$
(28,086
)Pro forma net loss per share

$
(0.92
)
$
(1.26
)


The
pro forma results of operations excludes the one-time in-process research and development expense of $2.4 million for the years ended
December 31, 1999 and 2000.

Vintage Software, Inc.

On January 25, 2001, the Company acquired all of the outstanding capital stock of Vintage Software, Inc. (Vintage), a software company, which
marketed a competing product to the Company's CARS software suite of products to mid-market pharmaceutical companies. The aggregate purchase price of $1.1 million included $433 of
cash, 34,096 shares of Company common stock with a fair value of $400, $200 in earnout bonuses, and transaction costs of $98. The acquisition was accounted for as a purchase business combination in
accordance with APB Opinion No. 16,Business Combinations,and the Company has consolidated the operations of Vintage beginning on the date of
acquisition. No pro forma information for the period ended December 31, 2001 has been presented as this purchase was not material.

Intersoft International, Inc.

On March 2, 2001, the Company acquired all of the outstanding capital stock of Intersoft International, Inc. (Intersoft), a supplier of sales and
marketing automation products for the foodservice broker industry. The initial purchase price of $3.2 million included $500 of cash, 115,733 shares of Company common stock with a fair value of
$2.2 million, assumed liabilities of $411 and transaction costs of $99. In addition, upon achievement of certain quarterly revenue and income milestones through March 31, 2002, the
Intersoft shareholders are entitled to additional consideration of up to $1.25 million, payable in the form of Company stock. The acquisition was accounted for as a purchase business
combination in accordance with APB Opinion No. 16,Business Combinations, and the Company has consolidated the operations of Intersoft beginning
on the date of acquisition. No pro forma information for the period ended December 31, 2001 has been presented as this purchase was not material.

Based
on the revenue and income levels realized by Intersoft during the three-month periods ended December 31, 2001, September 30, 2001 and June 30, 2001, the
Intersoft shareholders were entitled to receive additional consideration of $9, $33 and $39, respectively, to be paid in stock within 45 days of the period then ended. The consideration amount
payable at December 31, 2001 of $9 was recorded as Stock Subscription Payable and treated as additional purchase price and recorded as goodwill. Any additional consideration paid to the
Intersoft shareholders as a result of future quarterly earnouts will be treated as additional purchase price and recorded as goodwill.

43

---

In
the quarter ended December 31, 2001, the Company wrote-down $895 of the carrying value of goodwill related to the Intersoft acquisition in accordance with
SFAS 121. (Also see Note 12.)

BCL Vision Ltd.

On April 9, 2001, the Company acquired all of the outstanding capital stock of BCL Vision Ltd. (BCL), a provider of collection and dispute
management software and services based in London, United Kingdom. The initial purchase price of $12.1 million consisted of cash of $4.0 million, 690,000 shares of Company common stock
with a fair value of $6.9 million, assumed liabilities of $680 and transaction costs of $500. In addition, upon achievement of a certain revenue milestone through June 30, 2001, which
was not realized, the BCL shareholders would have been entitled to additional consideration of up to $1.0 million, payable in the form of Company stock. The acquisition was accounted for as a
purchase business combination in accordance with APB Opinion No. 16,Business Combinations, and the Company has consolidated the operations of
BCL beginning on the date of acquisition. The Company retained an independent appraiser for the purpose of allocating the consideration of approximately $12.1 million to the tangible and
intangible assets acquired. Based on this appraisal, $952 was allocated to tangible assets and $10.2 million was allocated to goodwill and other intangible assets. The portion of the purchase
price allocated to in-process research and development, totaling $1.0 million, was based on a risk-adjusted cash flow appraisal method and represents projects that had
not yet reached technological feasibility and had no alternative future use. This portion of the purchase price was expensed upon consummation of the BCL acquisition. No pro forma information for the
period ended December 31, 2001 has been presented as this purchase was not material.

Provato, Inc.

On August 16, 2001, the Company acquired in a merger transaction all of the outstanding capital stock of Provato, Inc. (Provato). The purchase price
of $16.0 million consisted of 1,975,739 shares of the Company's common stock valued at approximately $11.2 million, a warrant to purchase 4,546 shares of the Company's stock valued at
approximately $25, the assumption of approximately $1.3 million of liabilities, and $1.7 million in convertible notes issued by the Company to Provato during the two month period
immediately preceding the merger. In connection with the acquisition, the Company has incurred transaction costs of $1.8 million, which included approximately $1.2 million of Provato's
merger-related costs. The acquisition was accounted for as a purchase business combination in accordance with APB Opinion No. 16,Business
Combinations,and the Company has consolidated the operations of Provato beginning on the date of acquisition. The Company retained an independent appraiser for the purpose of
allocating the merger consideration of $16.0 million to the tangible and intangible assets acquired. Based on this appraisal, $870 was allocated to tangible assets and $12.4 was allocated to
goodwill and other intangible assets. The portion of the purchase price allocated to in-process research and development, totaling $2.7 million, was based on a
risk-adjusted cash flow appraisal method and represents projects that had not yet reached technological feasibility and had no alternative future use. This portion of the purchase price
was expensed upon consummation of the Provato acquisition.

The
following unaudited pro forma information as of December 31, 2000 summarizes the effect of the Provato and ChiCor acquisitions as if the acquisitions had occurred as of
January 1, 2000. All other

44

---

acquisitions that occurred during 2001 were insignificant and therefore excluded from the pro forma amounts below. This pro forma information is presented for informational purposes only. It is based
on historical information and does not purport to represent the actual results that may have occurred had the Company acquired Provato and ChiCor on January 1, 2000, nor is it necessarily
indicative of future results of operations of the combined enterprises.

2000

2001(Unaudited)Pro forma revenues

$
40,973

$
56,187Pro forma net loss


(42,619
)

(27,635
)Pro forma net loss per share


(1.76
)

(0.76
)


45

---



I-MANY, INC. AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        (In thousands, except share and per share amounts)

(3) Details of Financial Statement Components

December 31,2000

2001Property and Equipment:Computer software

$
8,208

$
2,405Computer hardware


3,948


4,874Furniture and equipment


1,415


1,934Leasehold improvements


254


32813,825


9,541LessAccumulated depreciation and amortization


5,200


4,832$
8,625

$
4,709


Included
in furniture and equipment are assets with a gross value of $307 and $380 as of December 31, 2000 and 2001, respectively, pursuant to capital lease arrangements.

December 31,2000

2001Goodwill and Other Purchased Intangibles:Goodwill

$
6,915

$
26,328Developed technology


3,200


13,921Customer list





1,200Assembled workforce


300


50010,415


41,949LessAccumulated amortization


335


7,135$
10,080

$
34,814


December 31,2000

2001Accrued Expenses:Accrued payroll and benefits

$
2,402

$
3,667Accrued commissions


1,075


819Earnout consideration





712Accrued other


425


703Accrued lease loss costs





556Accrued consulting and professional fees


637


542Current portion of capital lease obligations


59


83$
4,598

$
7,082


46

---

(4) Strategic Relationship Agreements

The Procter & Gamble Company

In May 2000, the Company entered into a Strategic Relationship Agreement (the Agreement) with The Procter & Gamble Company (P&G), pursuant to which
P&G has designated the Company for a period of at least three years as their exclusive provider of purchase contract management software for their commercial products group. In addition, P&G has
agreed to provide the Company with certain strategic marketing and business development services over the term of the Agreement. P&G also entered into an agreement to license certain software and
technology from the Company.

As
consideration for entering into the Agreement, the Company will pay P&G a royalty of up to 10% of the revenue generated from the commercial products market, as defined. To date, no
such royalties have been earned or paid. In addition, the Company granted to P&G a fully exercisable warrant to purchase 875,000 shares of common stock as more fully described in Note 7(f).

Accenture

In April 2001, the Company entered into a Marketing Alliance Agreement (the Agreement) with Accenture LLP, pursuant to which Accenture has designated the
Company for a period of at least one year as their preferred provider of automated contract management solutions. In addition, Accenture has agreed to provide the Company with certain strategic
marketing and business development services at no charge over the term of the Agreement.

As
consideration for entering into the Agreement, the Company has designated Accenture as its preferred business integration provider for the Company's CARS suite of products. In
addition, the Company granted to Accenture a fully exercisable warrant to purchase 124,856 shares of the Company's common stock as more fully described in Note 7(f).

(5) Line-of-Credit Agreement

In April 2000, the Company entered into a revolving line-of-credit agreement with a bank whereby the Company could borrow up to
$3.0 million, limited to 80% of eligible accounts receivable, as defined in the agreement. Borrowings under the line-of-credit agreement bore interest at the bank's
prime rate plus 2.0% per annum and were secured by substantially all assets of the Company. Subsequent to the IPO in July 2000, the Company used a portion of the IPO proceeds to repay all
amounts then outstanding under the line of credit and terminated the agreement. As consideration for entering into the line-of-credit agreement, the Company issued to the bank
a warrant to purchase 11,111 shares of the Company's common stock as more fully described in Note 7(f).

(6) Redeemable Convertible Preferred Stock

Prior to its IPO, the Company had authorized 1,250,000 shares of redeemable convertible preferred stock, all of which were designated Series C redeemable
convertible preferred stock (the Series C). On December 30, 1999, the Company sold 1,244,325 shares of the Series C for aggregate proceeds of approximately $12.5 million.
The Series C held certain rights and preferences, including a cumulative 8% dividend, voting rights, a liquidation preference of $10.05 per share plus accrued dividends, redemption rights, and
the option to convert each share of Series C into 2.5 shares of voting common stock. In July 2000, upon the effectiveness of the Company's IPO described in Note 7(a), each

47

---

share of Series C then outstanding was converted into 2.5 shares of voting common stock, or an aggregate of 3,110,813 shares. At December 31, 2000 and 2001, no shares of Series C
preferred stock remain authorized or outstanding.

(7) Stockholders' Equity

(a) Initial Public Offering

In July 2000, the Company completed an IPO of 7,500,000 shares of common stock at a per share price of $9.00. The Company received proceeds of
approximately $61.3 million, net of underwriting discounts, commissions and offering expenses of approximately $6.2 million. In August 2000, the underwriters exercised their
overallotment option for an additional 1,125,000 shares of common stock, for which the Company received net proceeds of approximately $9.4 million, net of underwriting discounts and
commissions. Upon the effectiveness of the IPO all shares of Series A, Series B and Series C convertible preferred stock were converted into an aggregate of 9,169,688 shares of
common stock. At December 31, 2000 and 2001, no shares of Series A, Series B or Series C preferred stock remain authorized or outstanding.

(b) Common Stock

Upon its re-incorporation in March 1998, the Company effected a 25-for-1 stock split. In March 2000, the Company
approved a 2.5-for-1 stock split, which was effected as a stock dividend on July 11, 2000. All share and per share amounts in the accompanying consolidated financial
statements and notes have been retroactively adjusted in all periods presented to reflect these stock splits. In March 2000, the Board voted to amend the Company's authorized capital stock to
include 105,000,000 shares of capital stock, of which 100,000,000 shares are designated as common stock, $0.0001 par value per share, and 5,000,000 shares are undesignated preferred stock, $0.01 par
value per share. At December 31, 2000 and 2001, the Company had reserved 8,287,301 and 13,257,239, respectively, shares of common stock for issuance upon the exercise of stock options and
warrants.

During
1999, the Company granted 187,500 options to purchase common stock at less than fair market value to a director of the Company, for which the Company recorded deferred stock-based
compensation of $188 that is being amortized over the four-year vesting period of the options.

(c) Convertible Preferred Stock

Prior to its IPO, the Company had authorized 2,500,000 shares of convertible preferred stock with a par value of $.01 per share, of which 2,100,000 shares were
designated Series A convertible preferred stock (the Series A) and 400,000 shares were designated Series B convertible preferred stock (the Series B) (collectively, the
Convertible Preferred Stock). The Convertible Preferred Stock held certain rights and preferences, including dividends, voting rights, liquidation rights and the option to convert each share of
Convertible Preferred Stock into 2.5 shares of voting common stock. In July 2000, upon the effectiveness of the Company's IPO described in Note 7(a), each share of Convertible Preferred
Stock then outstanding was converted into 2.5 shares of voting common stock, or an aggregate of 6,058,875 shares of common stock. At December 31, 2000 and 2001, no shares of Series A or
Series B Convertible Preferred Stock remain authorized or outstanding.

48

---

The
Company's Bylaws provide for and the Board of Directors and stockholders authorized 5,000,000 shares of $0.01 par value undesignated preferred stock. The Board of Directors has the
authority to issue such shares in one or more series and to fix the relative rights, preferences, privileges and restrictions without vote or action by the stockholders.

(d) Stock Incentive Plans

In May 1994, the Company adopted the 1994 Stock Plan (the 1994 Plan), for which 4,375,000 shares of common stock were reserved. Under the terms of the 1994
Plan, the Company may could grant nonqualified or incentive stock options, make awards of stock or authorize stock purchases by directors, officers, employees or consultants of the Company. The
exercise price for option grants was to be determined by the Board of Directors but in no event would be less than (i) the fair market value of the common stock, in the case of incentive stock
options, or (ii) the lesser of (a) the book value per share of the Company or (b) 10% of the fair market value of the common stock, in the case of nonqualified stock options.
Option grants under the 1994 Plan would generally vest over a period of five years and terminate 10 years from the date of grant. The Board of Directors terminated the 1994 Plan in conjunction
with the Stockholders' approval of the 2000 Stock Incentive Plan.

In
April 1997, the Company adopted the 1997 Stock Option/Stock Issuance Plan (the 1997 Plan), for which 6,250,000 shares of common stock were reserved. Under the terms of the 1997
Plan, the Company could grant nonqualified or incentive stock options, make awards of stock or authorize stock purchases by directors, officers, employees or consultants of the Company. The exercise
price for option grants was to be determined by the Board of Directors but in no event would be less than (i) the fair market value of the common stock in the case of incentive stock options or
(ii) the lesser of (a) the book value per share of the Company or (b) 30% of the fair market value of the common stock in the case of nonqualified stock options. Option grants
under the 1997 Plan would generally vest over a period of four to five years, as determined by the Board of Directors, and expire 10 years from the date
of grant. The Board of Directors terminated the 1997 Plan in conjunction with the Stockholders' approval of the 2000 Stock Incentive Plan.

In
March 2000, the Company adopted the 2000 Stock Incentive Plan and the 2000 Non-Employee Director Stock Option Plan. The 2000 Stock Incentive Plan provided for the
grant of up to 2,500,000 shares of common stock in the form of incentive stock options, nonqualified stock options, restricted stock awards and other stock-based awards. All of the Company's officers,
employees, directors, consultants and advisors were eligible to receive awards under the 2000 Stock Incentive Plan. The 2000 Non-Employee Director Stock Option Plan provides for the grant
of up to 562,500 shares of common stock in the form of nonqualified stock options to directors who are not employees. Each non-employee director will initially be granted an option to
purchase 62,500 shares of common stock; in addition, each non-employee director will receive an option to purchase 25,000 shares of common stock on the date of each annual meeting of
stockholders. The Board of Directors terminated the 2000 Stock Incentive Plan in conjunction with the Stockholder' approval of the 2001 Stock Incentive Plan.

In
April 2001, the Company adopted the 2001 Employee Stock Option Plan, which provides for the grant of up to 1,000,000 shares of common stock in the form of nonqualified stock
options. All of the Company's officers, employees, directors, consultants and advisors are eligible to receive awards

49

---

under the 2001 Employee Stock Option Plan, with not more than 25,000 shares to be issued in the aggregate to officers or directors of the Company.

In
June 2001, the Company adopted the 2001 Stock Incentive Plan, pursuant to approval by the Company's shareholders. The 2001 Stock Incentive Plan provides for the grant of up to
5,000,000 shares of common stock in the form of incentive stock options, nonqualified stock options, restricted stock awards and other stock-based awards. In addition, if any previous award under the
2001 Stock Incentive Plan or other option plans of the Company expires or is terminated, surrendered or cancelled without having been fully exercised, the unissued shares covered by any such award
shall be available for grant under the 2001 Stock Incentive Plan. All of the Company's officers, employees, directors, consultants and advisors are eligible to receive awards under the 2001 Stock
Incentive Plan.

The
following table summarizes total common shares available for future option grants at December 31, 2001:

2000 Non-Employee Director Stock Option Plan

437,5002001 Employee Stock Option Plan

402,2162001 Stock Incentive Plan

2,484,321Total available for future grant

3,324,037


50

---

The
following table summarizes stock option activity under all of the Company's stock incentive plans:

|                               |           | Number of
Shares |            | Range of
Exercise
Price |              | Weighted
Average
Exercise
Prices
|------------------------------ | --------- | ---------------- | ---------- | ----------------------- | ------------ | --------------------------------
|Balance, December 31, 1998     |           | 3,110,188        |            | $                       | 0.0161.516  |                                 
|                               | Granted   |                  | 3,153,188  |                         |              | 1.5163.800                     
|                               | Exercised |                  | (337,435   | )                       |              | 0.0161.200                     
|                               | Canceled  |                  | (370,078   | )                       |              | 0.0161.516                     
|                               |           |                  |            |                         |              |                                 
|Balance, December 31, 1999     |           | 5,555,863        |            |                         | 0.0163.800  |                                 
|                               | Granted   |                  | 1,886,777  |                         |              | 4.20018.500                    
|                               | Exercised |                  | (1,821,192 | )                       |              | 0.0163.000                     
|                               | Canceled  |                  | (336,464   | )                       |              | 1.20011.750                    
|                               |           |                  |            |                         |              |                                 
|Balance, December 31, 2000     |           | 5,284,984        |            | $                       | 0.01618.500 |                                 
|                               | Granted   |                  | 6,291,854  |                         |              | 1.96014.250                    
|                               | Exercised |                  | (1,206,991 | )                       |              | 0.01614.000                    
|                               | Canceled  |                  | (1,660,505 | )                       |              | 1.20018.500                    
|                               |           |                  |            |                         |              |                                 
|Balance, December 31, 2001     |           | 8,709,342        |            | $                       | 0.01618.500 |                                 
|                               |           |                  |            |                         |              |                                 
|Exercisable, December 31, 1998 |           | 1,648,500        |            | $                       | 0.0161.516  |                                 
|                               |           |                  |            |                         |              |                                 
|Exercisable, December 31, 1999 |           | 1,698,020        |            | $                       | 0.0163.800  |                                 
|                               |           |                  |            |                         |              |                                 
|Exercisable, December 31, 2000 |           | 977,661          |            | $                       | 0.01615.250 |                                 
|                               |           |                  |            |                         |              |                                 
|Exercisable, December 31, 2001 |           | 1,380,730        |            | $                       | 0.01618.500 |                                 
|                               |           |                  |            |                         |              |                                 

Additional
information regarding options outstanding and exercisable as of December 31, 2001 is as follows:

|  |               |  |           |  |   | Options Exercisable |  |     
|- | ------------- |  | --------- |  | - | ------------------- |  | ----
|
|
|
|$ | 0.016$1.516  |  | 424,227   |  | $ | 1.238               |  | 6.47
|  | 1.9602.800   |  | 2,903,441 |  |   | 2.022               |  | 9.62
|  | 3.0004.200   |  | 1,585,620 |  |   | 3.329               |  | 7.75
|  | 5.0507.330   |  | 1,537,475 |  |   | 5.781               |  | 9.60
|  | 8.16011.750  |  | 845,461   |  |   | 10.801              |  | 9.01
|  | 13.37518.500 |  | 1,413,118 |  |   | 14.983              |  | 8.98
|  |               |  |           |  |   |                     |  |     
|  |               |  | 8,709,342 |  | $ | 5.841               |  | 8.96
|  |               |  |           |  |   |                     |  |     

51

---

The
Company applies APB Opinion No. 25,Accounting for Stock Issued to Employees, in accounting for its stock compensation plans.
In cases where options are granted or stock is issued at a price below fair market value, the Company calculates compensation expense as the difference between the fair market value, as determined by
the Board of Directors or as listed on a public exchange, and the exercise or issuance price. The Company recognizes compensation expense over the vesting term of the related option or common share.
Had compensation expense for stock options been determined based on the fair value method of accounting proscribed by SFAS No. 123,Accounting for Stock-Based
Compensation, the Company's net loss would have been increased to the pro forma amounts indicated below.

Year Ended December 31,1999

2000

2001Net lossAs reported

$
(5,220
)
$
(24,175
)
$
(21,207
)Pro forma


(5,378
)

(25,838
)

(27,576
)Basic and diluted net loss per shareAs reported

$
(0.46
)
$
(1.12
)
$
(0.60
)Pro forma


(0.47
)

(1.20
)
$
(0.79
)


The
Company's calculations of the fair value of stock options were made using the Black-Scholes option pricing model with the following assumptions and resulted in the following weighted
average fair value of options granted during the period:

Year Ended December 31,1999

2000

2001Risk-free interest rates

6%

6%

4.5%Dividend yield





Volatility



0%-85%

115%Expected term

7 years

7 years

7 yearsWeighted average fair value of options granted during the period

$0.95

$8.69

$4.30


52

---



I-MANY, INC. AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        (In thousands, except share and per share amounts)

(e) Employee Stock Purchase Plan

In March 2000, the Company adopted the 2000 Employee Stock Purchase Plan. The 2000 Employee Stock Purchase Plan authorizes the issuance of up to 1,250,000
shares of common stock to participating employees at 85% of the closing price of the common stock on the first day or last day of each offering period, whichever is lower. The following table
summarizes the number of shares and per share exercise prices for grants since the Plan's inception:

Number of
shares

Exercise
priceDecember 2000

4,254

$
9.669June 2001

9,177


11.794December 2001

12,709


6.885


(f) Warrants

At December 31, 2000 and 2001, the Company had warrants outstanding at exercise prices ranging from $9.00 to $13.20, as described below.

In
May 1997, the Company issued warrants to purchase 223,187 shares of common stock at an exercise price of $0.67 per share to investors in connection with a private placement of
the Company's convertible promissory notes. The Company had 223,187 warrants outstanding at December 31, 1998 and 1999. In January 2000, the warrant holders exercised all warrants then
outstanding for total proceeds to the Company of approximately $150.

In
April 2000, the Company issued warrants to purchase 11,111 shares of common stock as consideration for entering into a line-of-credit agreement with a
bank, as more fully described in Note 5. The warrant is exercisable through July 2002 and has an exercise price of $9.00 per share. The Company has calculated the fair value of this
warrant as $48, which has been recorded as interest expense in the accompanying consolidated financial statements. During 2001, the bank exercised 5,098 shares in a cashless transaction.

In
May 2000, the Company granted to P&G a fully exercisable warrant to purchase 875,000 shares of common stock as consideration for entering into a strategic relationship
agreement (the Agreement), as more fully described in Note 4. The warrant, which was exercisable for a period of two years at an exercise price of $9.00 per share, was converted into 561,960
shares of common stock via a cashless exercise during 2000. In addition, the Company agreed to grant P&G warrants to purchase up to 125,000 additional shares of common stock, exercisable at the then
current fair market value per share,
upon the achievement of milestones set forth in the Agreement, as defined. To date, no such milestones have been achieved.

Using
the Black-Scholes option pricing model and based upon an exercise price of $9.00 per share and a volatility factor of 85%, the Company calculated the fair value of the fully
exercisable warrant to purchase 875,000 shares of common stock as approximately $3.8 million. In accordance with Emerging Issues Task Force Issue No. 96-18, Accounting for Equity Instruments that are Issued to Other
than Employees for Acquiring, or in Conjunction with Selling, Goods or Services,this amount
was recorded by the Company in the second quarter of 2000 as, first, a $1.2 million reduction of the revenue derived from the license agreement with P&G, and, second, a component of sales and
marketing expense for

53

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$2.6 million. The Company will calculate and record the fair value of the warrants to purchase up to 125,000 additional shares of common stock as sales and marketing expense as P&G provides
the services set forth in the Agreement.

In
April 2001, the Company granted to Accenture a fully exercisable warrant to purchase 124,856 shares of the Company's common stock. The warrant is exercisable for a period of
three years at an exercise price of $9.725 per share. In addition, the Company has agreed to grant Accenture additional future warrants, each with a value equal to 10% of any revenues generated from
certain future software licenses to Accenture's clients and prospects. To date, no such warrants have been earned or paid.

Using
the Black-Scholes option pricing model and based upon an exercise price of $9.725 per share and a volatility factor of 104.6%, the Company calculated the fair value of the fully
exercisable warrant to purchase 124,856 shares of common stock as approximately $800. In accordance with Emerging Issues Task Force Issue No. 96-18, Accounting for Equity Instruments that are Issued to Other than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services,this amount
was recorded by the Company in the second quarter of 2001 as a component of sales and marketing expense. The Company will calculate and record the fair value of the warrants to purchase additional
shares of common stock as sales and marketing expense as revenues from certain future software licenses to Accenture's clients and prospects are generated as set forth in the Agreement.

In
August 2001, the Company acquired in a merger transaction all of the outstanding capital stock of Provato, Inc. (Provato). As part of this transaction, the purchase
price included a warrant to purchase 4,546 shares of the Company's stock at an exercise price of $13.20. This warrant was valued at approximately $25 using the Black-Scholes option pricing model.

(8) Income Taxes

At its inception, the Company elected to be treated as a Subchapter S corporation for income tax purposes. Since income taxes related to the income of Subchapter
S corporations are the responsibility
of the individual stockholders, no provision for income taxes was recorded in the accompanying financial statements for the period from January 1, 1998 through April 2, 1998. On
April 2, 1998, the Company re-incorporated as a Subchapter C corporation and the Company's Subchapter S corporation status was terminated. On that date, the accumulated losses
incurred during the period in which the Company was a Subchapter S corporation were reclassified to additional paid-in capital. The Company's results of operations were taxed as a
Subchapter C corporation for the period from April 3 through December 31, 1998, for which period a benefit for income taxes was recorded in the accompanying financial statements related
to recording a deferred tax asset for certain future tax deductions for which it was deemed at the time more likely than not that the assets would be realized, due to actual and expected taxable
income. Due to a change in the Company's profitability in 1999, the deferred tax asset was deemed not to be recoverable and, therefore, was expensed in the 1999 tax provision.

The
Company accounts for income taxes in accordance with the provisions of SFAS No. 109,Accounting for Income Taxes. Under SFAS
No. 109, a deferred tax asset or liability is recorded for all temporary differences between book and tax reporting of assets and liabilities. A deferred tax valuation allowance is required if
it is more likely than not that all or a portion of any deferred tax assets will not be realized. At December 31, 2001, the Company has available net operating losses (NOL's) of
approximately $42.3 million that are available to offset future taxable income through 2020. If substantial changes in the Company's ownership should occur, as defined by Section 382 of
the Internal

54

---

Revenue Code, there could be annual limitations on the amount of carryforwards, which can be realized in future periods. Due to the uncertainty surrounding the Company's ability to realize these
NOL's and the Company's other deferred tax assets, a full valuation allowance has been placed against the otherwise recognizable net deferred tax asset.

The
components of the (benefit from) provision for income taxes are for the year ended December 31, 1999 as follows:

CurrentFederal

$
(94
)State


(32
)(126
)DeferredFederal


305State


102407Total (benefit) provision

$
281


There
was no provision for income taxes recorded in the years ended December 31, 2000 and 2001.

The
approximate income tax effect of each type of temporary difference and carryforwards is as follows:

December 31,2000

2001Net operating loss carryforwards

$
12,052

$
14,569Cash to accrual adjustment


203


200Nondeductible reserves and accruals


333


271Capitalized software development costs


(1,591
)

(1,591
)Nondeductible amortization of purchased intangibles


(1,400
)

(1,400
)LessValuation allowance


(9,597
)

(12,049
)Net deferred tax asset

$


$



55

---

A
reconciliation of the federal statutory rate to the effective rate is as follows:

Year Ended December 31,1999

2000

2001Federal statutory rate

(34.0
)%
(34.0
)%
(34.0
)%State taxes, net of federal benefit

(8.0
)
(6.1
)
(2.2
)Nondeductible amortization



0.6

11.1In-process research and development



4.0

6.2Increase in valuation allowance

48.2

35.6

14.1Other

(0.5
)
(0.1
)
4.8Effective rate

5.7
%

%

%


(9) Commitments

The Company leases its facilities under operating lease agreements and certain of its equipment under noncancelable capital and operating lease agreements through
2011. The current portion of capital lease obligations is included in accrued expenses in the Company's consolidated balance sheet. Future minimum lease commitments under all noncancelable leases at
December 31, 2001 are approximately as follows:

Operating
Leases

Capital
LeasesYear ending December 31,2002

$
2,071

$
932003


1,871


882004


838


292005


582


2006


595


Thereafter


2,496


Total minimum lease payments


8,453


210LessAmount representing interest





22Present value of minimum lease payments





188LessCurrent portion of capital lease obligations





83Capital lease obligations, net of current portion





105


Total
rent expense was approximately $409, $829 and $1,413 for the years ended December 31, 1999, 2000 and 2001, respectively.

(10) Segment Disclosure

The Company measures operating results as three reportable segments, each of which provide multiple products and services that allow manufacturers, purchasers and
intermediaries to manage their complex contracts for the purchase and sale of goods. The accounting policies of the segments are the

56

---

same as those described in the summary of significant accounting policies. The Company's reportable segments are strategic business units that market to separate and distinct industry groups:
(i) life sciences, which includes pharmaceutical manufacturers, (ii) consumer packaged goods and food services, and (iii) other industries. The following tables reflect the
results of the segments consistent with the company's management system.

|For the year ended December 31, 2001: |  | Life Science |        | Consumer
Packaged Goods
& Food Services |   | Other  |   | Segment Totals |       
|------------------------------------- |  | ------------ | ------ | --------------------------------------- | - | ------ | - | -------------- | ------
|Revenues                              |  | $            | 44,919 |                                         | $ | 9,879  |   | $              | 1,273 
|Depreciation and amortization         |  |              | 4,150  |                                         |   | 3,996  |   |                | 2,635 
|Segment loss                          |  |              | (8,587 | )                                       |   | (3,863 | ) |                | (8,757
|Segment assets                        |  |              | 54,587 |                                         |   | 15,612 |   |                | 21,772
|Expenditures for segment assets       |  |              | 1,585  |                                         |   | 179    |   |                | 58    

|For the year ended December 31, 2000: |  | Life Science |         | Consumer
Packaged Goods
& Food Services |   | Other  |   | Segment Totals |  
|------------------------------------- |  | ------------ | ------- | --------------------------------------- | - | ------ | - | -------------- | -
|Revenues                              |  | $            | 36,148  |                                         | $ | 319    |   | $              | 
|Depreciation and amortization         |  |              | 4,052   |                                         |   | 334    |   |                | 
|Segment loss                          |  |              | (21,147 | )                                       |   | (3,028 | ) |                | 
|Segment assets                        |  |              | 74,745  |                                         |   | 10,643 |   |                | 
|Expenditures for segment assets       |  |              | 8,379   |                                         |   |       |   |                | 

|For the year ended December 31, 1999: |  | Life Science |        | Consumer
Packaged Goods
& Food Services |   | Other |  | Segment Totals |  
|------------------------------------- |  | ------------ | ------ | --------------------------------------- | - | ----- |  | -------------- | -
|Revenues                              |  | $            | 19,411 |                                         | $ |      |  | $              | 
|Depreciation and amortization         |  |              | 751    |                                         |   |      |  |                | 
|Segment loss                          |  |              | (5,223 | )                                       |   |      |  |                | 
|Segment assets                        |  |              | 27,182 |                                         |   |      |  |                | 
|Expenditures for segment assets       |  |              | 3,764  |                                         |   |      |  |                | 

Intersegment
revenues, interest revenue, interest expense, other significant noncash items, equity in the net income of investees accounted for by the equity method, income tax expense
or benefit, unusual items and extraordinary items that are attributable to the segments do not have a significant effect on the financial results of the segments.

57

---

Geographic Information:

Revenue*

Long-lived Assets1999

2000

2001

1999

2000

2001United States

100
%
99
%
98
%
$
4,074

$
19,764

$
33,347United Kingdom

**

**

**








8,505Other

**

**

**








Total

100
%
100
%
100
%
$
4,074

$
19,764

$
41,852


---

(11) Valuation and Qualifying Accounts

A rollforward of the Company's allowance for doubtful accounts is as follows:

Balance at December 31, 1999

$
550Additions


350Write-offs


(134
)Balance at December 31, 2000


766Additions


26Write-offs


(35
)Balance at December 31, 2001

$
757


(12) Restructuring and Other Charges

In the quarter ended September 30, 2001, the Company recorded a $3.0 million charge in connection with a restructuring of the Company's operations
and the abandonment of its proprietary internet portal. Included in the $3.0 million charge is $2.4 million, which was the net carrying value of the Company's internet portal, $540 in
severance costs, and $108 in facility lease costs. In abandoning its internet portal, the Company has ceased all support of the portal site, discontinued all related development, and eliminated or
reassigned all personnel previously assigned to the project. The balance of the severance and related charges were incurred in association with the Company's decision to restructure certain of its
operations in order to improve workforce efficiencies.

In
the quarter ended December 31, 2001, the Company recorded $1.7 million in charges in connection with the closing of its Oakland, California office and a
write-down in value of certain intangible assets. Included in the $1.7 million charge is $368 in severance costs, $445 in facility lease and related costs, and a
write-down $895 of the carrying value of goodwill related to the Intersoft acquisition.

58

---

As
of December 31, 2001, $868 in restructuring charges is accrued and unpaid, consisting of $240 in severance costs and $628 in facility lease and related costs.

(13) Subsequent Events

(a) Private Placement

On February 20, 2002, the Company completed a private placement of its common stock and preferred stock, issuing 1,100,413 shares of its common stock at a
price of $7.27 per share and 1,700 shares of redeemable convertible preferred stock at a purchase price of $10,000 per share. The preferred stock has no dividends or coupon, no liquidation preference
and no financial covenants. The Company
received proceeds of approximately $7.7 million, net of commissions and other fees, from the sale of the common stock. The proceeds of $17.0 million related to the issuance of preferred
stock are being held in escrow pending conversion or redemption of the shares of preferred stock.

The
preferred stock is convertible into common stock at a price equal to the higher of (i) a floor price set by the Company, currently set at $7.00 a share, and (ii) a
conversion price equal to the greater of $8.72 per share (but see below) or 80% of the average price of the Company's stock, measured over a 20-day period following the effectiveness of a
registration statement. However, the conversion price of the preferred stock will not exceed 93% of the average price of the Company's stock, measured over the same 20-day period following
the effectiveness of a registration statement. Also, the Company has the right to establish a new floor price above $7.00. In the event that the preferred stock is not converted into common stock by
the date set for conversion, expected to be on or about August 2, 2002, the shares of preferred stock will be redeemed and the proceeds held in escrow will be refunded to the investors.

In
addition, the Company granted the investors certain common stock purchase warrants, consisting of a warrant exercisable for 180 days after the closing to purchase up to an
additional 165,062 shares at an exercise price of $7.27 per share, and a seven-year warrant to purchase up to an additional 165,062 shares at an exercise price of $7.50 per share. If the
preferred stock is converted into common stock, the Company will grant a seven-year common stock warrant to purchase up to a number of additional shares equal to 15% of the shares of
common stock received on conversion, at an exercise price equal to 120% of the conversion price.

(b) Acquisition of NetReturn, LLC.

On March 12, 2002, the Company acquired substantially all the assets of NetReturn, LLC, a Connecticut limited liability company located in Fairfield,
Connecticut, for a purchase price of up to $5.3 million. The primary asset acquired was NetReturn's library of software applications and tools. The initial consideration of approximately
$3.3 million consisted of $500 of cash, 429,017 shares of the Company's common stock with a fair value at the time of acquisition of $2.7 million and estimated transaction costs of $100.
In addition, upon achievement of certain revenue milestones through March 31, 2003, the NetReturn shareholders are entitled to additional consideration of up to $2 million, payable in
cash or stock at the Company's election. The acquisition will be accounted for as a purchase business combination in accordance with APB Opinion No. 16,Accounting for
Business Combinations. The Company will consolidate the operating results of NetReturn beginning on the date of acquisition.

59

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

See the information set forth in the section entitled "Election of Directors" in the Company's Proxy Statement for the 2002 Annual Meeting of Stockholders to be
filed with the Securities and Exchange Commission within 120 days after the end of the Company's fiscal year ended December 31, 2001 (the "2002 Proxy Statement"), which is incorporated
herein by reference, and the information set forth in the section entitled "Executive Officers of the Registrant" in Part I, Item 4A of this Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

See the information set forth in the section entitled "Executive Compensation and Related Information" in the 2002 Proxy Statement, which is incorporated herein
by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

See the information set forth in the section entitled "Stock Ownership of Certain Beneficial Owners and Management" in the 2002 Proxy Statement, which is
incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

See the information set forth in the section entitled "Certain Relationships and Related Transactions" in the 2002 Proxy Statement, which is incorporated herein
by reference.

PART IV

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

The
consolidated financial statements listed below together with the report thereon of the independent auditors dated January 24, 2002 are included in this report in Item 8 and is
incorporated herein by reference.

Consolidated
Balance Sheets as of December 31, 2000 and 2001

Consolidated
Statements of Operations for the years ended December 31, 1999, 2000
and 2001

Consolidated
Statements of Stockholders' Equity for the years ended December 31, 1999, 2000 and 2001

Consolidated
Statements of Cash Flows for the years ended December 31, 1999, 2000 and 2001

Notes
to Consolidated Financial Statements

The
information called for by this paragraph is contained in the Exhibit Index of this report which is incorporated herein by reference.

On
October 30, 2001, we filed a current report of Form 8-K/A pursuant to Items 2 and 7 thereof, reporting the audited financial statements and pro forma
financial information for the acquisition of Provato, Inc. On February 28, 2002, we filed a current report of Form 8-K pursuant to Item 5 thereof, reporting the terms
of a private placement.

60

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this
Form 10-K to be signed on its behalf by the undersigned thereunto duly authorized.

| |  | I-MANY, INC.
| |  | ------------
| |  | By:         
| |  | By:         

KNOW
ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints A. Leigh Powell and Kevin Collins, jointly and severally, his
attorney-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K and to file
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
attorney-in-fact, or his 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 10-K 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/A. LEIGH POWELLA. Leigh Powell   |  | Chief Executive Officer, President and Director (principal executive officer) |  | March 25, 2002
|/s/KEVIN COLLINSKevin Collins       |  | Chief Financial Officer and Treasurer (principal financial officer)           |  | March 25, 2002
|/s/WILLIAM F. DOYLEWilliam F. Doyle |  | Director                                                                      |  | March 25, 2002
|/s/KARL NEWKIRKKarl Newkirk         |  | Director                                                                      |  | March 25, 2002
|/s/MURRAY B. LOWMurray B. Low       |  | Director                                                                      |  | March 25, 2002
|E. David Hetz                       |  | Director                                                                      |  |               

61

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INDEX TO EXHIBITS

|Exhibit
No. |  | Description                                                                                                                                                                                              
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1(i)(1)   |  | Amended and Restated Certificate of Incorporation                                                                                                                                                        
|3.1(ii)(2)  |  | Certificate of Designation for Series A Preferred Stock                                                                                                                                                  
|3.2(1)      |  | Amended and Restated Bylaws                                                                                                                                                                              
|4.1(1)      |  | Specimen certificate for shares of common stock                                                                                                                                                          
|4.2(1)(2)   |  | Description of capital stock (contained in the Certificate of Incorporation filed as filed in Exhibit 3.1(i) and the Certificate of Designation for Series A Preferred Stock as filed in Exhibit 3.1(ii))
|10.1(1)     |  | 1994 Stock Plan                                                                                                                                                                                          
|10.2(1)     |  | 1997 Stock Option/Incentive Plan                                                                                                                                                                         
|10.3(1)     |  | 2000 Stock Incentive Plan                                                                                                                                                                                
|10.4(1)     |  | 2000 Non-Employee Director Stock Option Plan                                                                                                                                                             
|10.5(3)     |  | 2001 Stock Incentive Plan                                                                                                                                                                                
|10.6        |  | 2001 Employee Stock Plan                                                                                                                                                                                 
|10.7(1)     |  | Form of sublease agreement, dated February 11, 2000, between PXRE Corp and Registrant regarding premises at 399 Thornall Street, Edison, New Jersey                                                      
|10.8(1)     |  | Lease agreement, dated September 30, 1998, between Registrant and Metro Four Associates Limited Partnership regarding premises at 379 Thornall Street, Suite 406, Edison, New Jersey                     
|10.9(1)     |  | Lease agreement, dated September 25, 1997, between Registrant and Hega Realty Trust regarding premises at 537 Congress St., Portland, Maine                                                              
|10.10(1)    |  | Lease agreement, dated May 24, 1996, between Registrant and Hega Realty regarding premises at 537 Congress St., Suites 500, 501 and 504, Portland, Maine                                                 
|10.11(1)    |  | First Amendment, dated February 8, 1999, to lease agreement, dated May 24, 1996, for premises at 537 Congress St., Suites 500, 501 and 504, Portland, Maine                                              
|10.12(1)    |  | Second Amendment, dated May 27, 1999, to lease agreement, dated May 24, 1996, for premises at 537 Congress St., Suites 500, 501 and 504, Portland, Maine                                                 
|10.13(1)    |  | Third Amendment, dated March 13, 2000, to lease agreement, dated May 24, 1996, for premises at 537 Congress St., Suites 500, 501 and 504, Portland, Maine                                                
|10.14(1)    |  | Fourth Amendment, dated April 5, 2000, to lease agreement, dated May 24, 1996, for premises at 537 Congress St., Suites 500, 501 and 504, Portland, Maine                                                
|10.15(4)    |  | Employment agreement, dated October 13, 2000, between Registrant and A. Leigh Powell                                                                                                                     
|10.16       |  | Amendment to employment agreement between Registrant and A. Leigh Powell, dated January 7, 2002                                                                                                          
|10.17(5)    |  | Employment agreement, dated July 1, 2001, between Registrant and Terrence Nicholson                                                                                                                      
|10.18(5)    |  | Employment agreement, dated July 1, 2001, between Registrant and Timothy Curran                                                                                                                          
|10.19(5)    |  | Employment agreement, dated as of July 1, 2001, between Registrant and Kevin Collins                                                                                                                     
|10.20(1)    |  | Form of Indemnification Agreement between the Registrant and each of its directors and officers                                                                                                          
|10.21(1)    |  | Strategic Relationship Agreement with The Procter and Gamble Company, dated May 1, 2000                                                                                                                  
|10.22(1)    |  | Warrant issued to The Procter and Gamble Company, dated May 1, 2000                                                                                                                                      
|10.23(6)    |  | Warrant issued to Accenture LLP, dated April 11, 2001                                                                                                                                                    
|10.24(7)    |  | Agreement and Plan of Merger and Reorganization, dated as of November 3, 2000, by and among the Registrant, Cimian Corporation, Chi-Cor Information Management, Inc. and certain stockholders            
|10.25(8)    |  | Share Purchase Agreement, dated as of April 9, 2001 among the Registrant and the stockholders of, I-many International Limited (formerly BCL Vision Ltd.)                                                

62

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|10.26(9) |  | Amended and Restated Agreement and Plan of Merger, dated as of June 26, 2001, by and among the Registrant, Lunalight, Inc., a wholly-owned subsidiary of the Registrant, and Provato, Inc.
|-------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.27(2) |  | Securities Purchase Agreement, dated February 15, 2002, among the Registrant and the purchasers named therein.                                                                            
|10.28(2) |  | Registration Rights Agreement, dated February 15, 2002, among the Registrant and the purchasers named therein.                                                                            
|21.1     |  | Subsidiaries of the Registrant                                                                                                                                                            
|23.1     |  | Consent of Arthur Andersen LLP                                                                                                                                                            
|24.1     |  | Power of Attorney of Directors (see signature page)                                                                                                                                       
|99.1     |  | Letter to the Commission Pursuant to Temporary Note 3T                                                                                                                                    

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