UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

 (Mark one)
 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                   SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended  December 31, 1999

                               OR

 [  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                   SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                         to

                         Commission File Number 0-15454

                       TANGRAM ENTERPRISE SOLUTIONS, INC.
             (Exact Name of Registrant as Specified in Its Charter)

              Pennsylvania                             23-2214726
     (State or Other Jurisdiction of      (I.R.S. Employer Identification No.)
      Incorporation or Organization)

                        11000 REGENCY PARKWAY, SUITE 401
                                 CARY, NC 27511
               (Address of Principal Executive Offices) (Zip Code)

                                 (919) 653-6000
              (Registrant's telephone number, including area code)

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

                                      None

           Securities registered pursuant to Section 12(g) of the Act:
                          Common Stock, $0.01 par value
                                (Title of class)
     Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____

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

     The aggregate market value of shares of common stock held by non-affiliates
on March 24, 2000 (as reported on The Nasdaq SmallCap Market tier of The Nasdaq
Stock Market under the symbol TESI) was approximately $37,289,850.

     As of March 24, 2000, there were 16,130,290 shares of the Company's common
stock outstanding.

<PAGE>


                       TANGRAM ENTERPRISE SOLUTIONS, INC.
                               INDEX TO FORM 10-K

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999



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                                     PART I
<S>            <C>                                                                          <C>
                                                                                            Page
Item 1    -    Business                                                                        3

Item 2    -    Properties                                                                     10

Item 3    -    Legal Proceedings                                                              10

Item 4    -    Submission of Matters to a Vote of
                 Security Holders                                                             11

                                 PART II

Item 5    -    Market For Registrant's Common Equity
                 and Related Stockholder Matters                                             12

Item 6    -    Selected Financial Data                                                       13

Item 7    -    Management's Discussion and Analysis of
                 Financial Condition and Results of Operations                               14

Item 7A   -    Quantitative and Qualitative Disclosures About
                 Market Risk                                                                 20

Item 8    -    Financial Statements and Supplementary
                 Data                                                                        20

Item 9    -    Changes in and Disagreements With Accountants
                 on Accounting and Financial Disclosure                                      20

                                PART III

Item 10   -    Directors and Executive Officers of the Registrant                            21

Item 11   -    Executive Compensation                                                        23

Item 12   -    Security Ownership of Certain Beneficial
                 Owners and Management                                                       27

Item 13   -    Certain Relationships and Related Transactions                                28

                                 PART IV

Item 14   -    Exhibits, Financial Statement Schedules, and Reports on Form 8-K              29

</TABLE>


<PAGE>

                                     PART I

ITEM  1. BUSINESS

GENERAL

     Tangram Enterprise Solutions, Inc. (the "Company") develops and markets
asset tracking software that enables automated enterprise-wide information
systems management. The Company markets to Fortune 1000 companies and their
foreign equivalents and to government agencies that are managing heterogeneous
enterprises and mission-critical applications.

     The following discussion contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including, among others, statements containing
the words "believes," "anticipates," "estimates," "expects," and words of
similar import. Such statements are subject to certain risks and uncertainties,
which include but are not limited to those important factors discussed in
cautionary statements throughout the section below and elsewhere in this
document, and are qualified in their entirety by those cautionary statements.

BACKGROUND AND STRATEGY

     Since 1984, the Company has been developing enterprise-wide software
solutions that enable Fortune 1000 companies and government agencies around the
world to manage their distributed information technology resources. The
Company's original software offerings, Arbiter(R) and AM:PM(R), are still in use
today by hundreds of organizations throughout the world, enabling them to
perform electronic software distribution, automated data collection, and remote
resource management on diverse enterprise systems.

     Since early 1996, the Company has focused its business on the asset
tracking market and the introduction and sale of Asset Insight(R) and related
products. Asset Insight is designed to enable corporations to proactively manage
their base of distributed assets without disruption to their business. Asset
Insight discovers hardware, software, and configuration changes and associates
this information with desktop users and departments across the enterprise. Asset
Insight products also provide organizations with current and historical
information that is essential for forward planning technology changes, reducing
the total cost of asset ownership, improving help desk support, reducing
suspicious activity, tracking asset leases and improving software license
management.

     The Company is committed to maintaining its leadership position in the
asset tracking market by supporting an active development program that expands
the utility of the Asset Insight product line through strategic alliances, new
product functionality, and business subsystems. Product development efforts
focus on providing sophisticated management reports and subsystems that assist
companies in relating their IT asset information to business goals and
opportunities. To further extend the applicability of Asset Insight, the Company
plans to pursue bundling opportunities and relationships with original equipment
manufacturers ("OEMs") of complementary hardware and software products. The
Company is actively pursuing relationships with other software vendors to create
interfaces to the Company's products. Technology partnerships allow the Company
to integrate Asset Insight with other software vendors' applications and related
products in areas such as IT asset management, financial accounting, systems
management, procurement, and help desk. These relationships will enable the
Company to provide a more comprehensive solution to its customers, leverage the
customer's investment in existing products, and maintain the Company's
competitive edge in the asset tracking market.

     The Company is currently evaluating its products and corporate strategy and
is likely to undertake organizational changes and product and marketing strategy
modifications. There can be no assurance that these efforts will be successful.
Further, if the Company is successful in achieving its growth plans, that growth
may place a burden on the Company's operating and financial systems, resulting
in increased responsibility for senior management and other personnel within the
Company. There can be no assurance that the Company's existing management or any
new members of management will be able to augment or improve existing systems
and controls or implement new systems and controls in response to future growth,
if any. The Company's failure to do so could have a material adverse effect on
the Company's business, operating results, and financial condition.

                                       3
<PAGE>

PRODUCTS AND SERVICES

     The Company's primary product line is Asset Insight. To help customers
leverage the extensive benefits of Asset Insight, the Company offers a variety
of implementation, customization, and training services to augment the services
available through Asset Insight channel partners.

PRODUCTS

ASSET TRACKING PRODUCTS

     ASSET INSIGHT is an enterprise asset tracking solution that discovers
hardware, software, and configuration changes and associates this information
with desktop users and departments across the enterprise. Asset data is
automatically gathered and distilled into one-page reports that highlight
exceptions, costs, and trends. With this current and historical information,
decision makers can track changes in their hardware and software assets, forward
plan technology requirements (including calculating the cost of software and
hardware upgrades), optimize end-user productivity, identify missing hardware
components, and resolve desktop problems quickly. Asset Insight employs an open
data repository, using standard relational database technology that gives
corporations access to their data and facilitates integration with third-party
products.

ASSET INSIGHT SUBSYSTEMS

     ASSET INSIGHT SUITE MANAGER facilitates the evaluation, implementation, and
management of enterprise systems management suites, such as Tivoli Enterprise,
CA-Unicenter, and HP OpenView. Suite Manager enables organizations to compare
suite solution requirements and compute the true cost of enterprise deployment,
including the cost of upgrading the desktops and servers to meet each solution's
prerequisites. It also provides planning and tracking tools to assist in the
planning and management of an optimum rollout. Post-deployment, Suite Manager
proactively monitors the enterprise, generating alerts on desktops and servers
that have configuration conflicts with the suite or the applications that the
suite supports.

     ASSET INSIGHT INFRASTRUCTURE SUBSYSTEM automatically discovers and tracks
the location and history of any network device that responds to the Simple
Network Management Protocol (SNMP), including bridges, switches, routers, hubs,
and printers. The information that is collected is easily accessible using Asset
Insight's built-in reporting and viewing features.

     ASSET INSIGHT COMPLIANCE MODELER helps customers plan and manage the
installation of multiple software upgrades on individual desktops throughout the
enterprise. First, the Compliance Modeler examines each desktop to determine
which additional components (memory, software, disk space), if any, will be
needed to run multiple upgrades. The Compliance Modeler then combines the net
desktop upgrades and associated costs into a single enterprise-wide case summary
analysis and an individual desktop work order that can be used to obtain
fixed-price quotations from installation vendors and plan and manage the upgrade
project.

ASSET INSIGHT AMBASSADORS

     The Company has developed relationships with several software vendors to
create interfaces, referred to as Ambassadors, to the Company's products.
Technology partnerships allow the Company to integrate Asset Insight with other
software vendors' applications and related products, such as IT asset management
tools, financial accounting systems, systems management offerings, procurement
systems, and help desk systems. These relationships permit the Company to
provide a more comprehensive solution to its customers, while enabling customers
to leverage their investment in diverse products.

Current Asset Insight Ambassadors include:

     REMEDY AMBASSADOR is a customizable interface that allows direct
communication between Remedy's help desk product, Action Request System, and
Asset Insight. On a regular basis, Asset Insight takes "snapshots" of an
organization's desktop assets and continuously stores these snapshots in a
central database. With the Remedy Gateway, the help desk staff can access this
database to immediately identify system files, hardware



                                       4
<PAGE>

configuration, and application changes. This information enables help desk
specialists to diagnose and resolve problems more quickly and efficiently,
minimizing downtime and maximizing productivity.

     PEOPLESOFT AMBASSADOR links the finance and procurement information tracked
by PeopleSoft Financials to the asset information that is discovered by Asset
Insight. The combined information allows organizations to verify that the assets
in their financial system are actually installed, accurately report on and
categorize resource costs, assign depreciation costs, and confirm asset location
and ownership information during mergers and acquisitions.

     ASSET INSIGHT PLUS FOR TIVOLI AMBASSADOR integrates Asset Insight with
Tivoli's systems management suite. This integration enables organizations to
enhance the flexibility of Tivoli software distributions by creating target
distribution lists based on Asset Insight's information. Additionally,
organizations can use Tivoli to install and manage Asset Insight, thereby
maximizing their investment in both solutions.

     HP OPENVIEW AMBASSADOR enables HP OpenView administrators/users to
immediately access historical information tracked by Asset Insight, such as
desktop configurations, installed applications, and configuration file changes.
This integration is the result of the collaboration of Hewlett-Packard and the
Company.

     LAN LICENSER 3 AMBASSADOR was developed as an interface between Asset
Insight and ABC Systems Lan Licenser, a software license metering and network
control system that tracks software usage and software license agreements. The
Ambassador provides a single repository that contains Asset Insight's historical
hardware and software configuration data, as well as Lan Licenser's software
usage information. As a result, organizations can run any number of ad hoc
reports and queries that pinpoint the location and usage of any application in
the enterprise.

     MICROSOFT SMS AMBASSADOR imports data collected by Microsoft's SMS product
into Asset Insight's repository. As a result, the SMS data is available to the
Asset Insight graphical interface for reporting, as well as standard Oracle and
querying tools. Additionally, the results of Asset Insight queries can be
converted to SMS software distribution groups, thereby improving the success of
electronic distributions.

SERVICES

     The Company's Product Services Group offers a variety of expert services to
adapt Asset Insight to each customer's unique enterprise and business
requirements. Augmenting the services provided by Asset Insight channel
partners, the Company's Product Services Group offers implementation services,
deployment planning, database services, custom discovery, and several other
expert services.

ASSET INSIGHT SERVICES

     IMPLEMENTATION SERVICES are provided for Asset Insight products, including
planning and resource allocation, repository and Data Manager installation,
pilot implementation, and complete rollout.

     DATABASE TRIGGER SERVICES allow customers to import data from an external
database into the central Asset Insight repository. Services include trigger
development and testing, plus implementation support.

     TRAINING PROGRAMS are provided to the Company's channel partners for the
implementation and administration of Asset Insight products in different
customer environments. Customer training courses are also offered, allowing
customers to effectively administer Asset Insight and maximize its benefits.

     ADDITIONAL SERVICES are provided, allowing Tangram's experts to assist
customers with product upgrades and customization, the development of best
practices, the creation of specialized discovery modules, the development of
custom data entry panels, and database optimization.

PRODUCT DEVELOPMENT

     Project teams handle product development from specification, design, and
implementation to product release. These project teams operate as autonomous
units and include developers, product managers from



                                       5
<PAGE>

marketing, quality control managers, and members of senior management. Each
product and enhancement is submitted through a process that determines the
marketability of the product, revenue potential, development requirements, and
support requirements. Critical technical factors are also considered in
determining the viability of an Asset Insight product or subsystem, such as
scalability, level of automation, ease of use, support for multiple platforms,
and open architecture.

     The majority of the Company's products and associated documentation have
been developed internally. The Company has acquired in the past, and intends to
continue to acquire, certain software technology from others and integrate those
technologies into its product lines. The Company expended $5.7 million for
product development costs in 1999, compared with $5.3 million in 1998, and $5.0
million in 1997. In accordance with Statement of Financial Accounting Standards
No. 86, the Company capitalizes certain development costs. During fiscal 1999,
1998, and 1997, the Company capitalized $1.7 million, $2.0 million, and $1.7
million, respectively, or 30%, 37%, and 36%, respectively, of total product
development costs. No material expenditures were made in fiscal 1999, 1998, or
1997 for the acquisition of software technology.

     The asset management software and the application suite markets are highly
fragmented and are characterized by ongoing technological developments, evolving
industry standards, and rapid changes in customer requirements. The Company's
success depends upon its ability to offer a broad range of asset tracking
software products, to continue to enhance existing products, to develop and
introduce in a timely manner new products that take advantage of technological
advances, and to respond promptly to new customer requirements. While the
Company believes that it currently offers the broadest product in the asset
tracking market, this market is continuing to evolve and customer requirements
are continuing to change. As the market evolves and competitive pressures
increase, the Company believes that it will need to further expand its product
offerings. The Company has identified a number of enhancements to its existing
product offerings, which it believes are important to its continued success in
the asset tracking market. Failure by the Company in any of these areas could
materially and adversely affect its business, financial condition, and results
of operations. In addition, from time to time, the Company or its competitors
may announce new products with new or additional capabilities or technologies.
Such announcements of new products by competitors could have the potential to
replace or shorten the life cycles of the Company's existing products or to
cause customers to defer purchasing the Company's products.

     In addition to developing new products, the Company's internal development
staff is focused on developing upgrades and updates to existing products. Future
upgrades and updates may, among other things, include additional functionality,
respond to user problems, or address issues of compatibility with changing
operating systems and environments.

     The Company's product development efforts are expected to continue to
require substantial investments by the Company. There can be no assurance that
the Company will have sufficient resources to make the necessary investments.
The Company has in the past experienced development delays and may in the future
experience difficulties that prevent the successful development, introduction,
or marketing of new or enhanced products. The inability of the Company, for
technological or other reasons, to develop and introduce new and enhanced
products in a timely manner could have a material adverse effect on the
Company's business, operating results, and financial condition.

     Software products as complex as those offered by the Company may contain
errors that may be detected at any point in a product's life cycle. The Company
has in the past discovered software errors in certain of its products and has
experienced delays in shipment of products during the period required to correct
these errors. There can be no assurance that, despite testing by the Company and
by current and potential customers, errors will not be found. Such errors may
result in loss of, or delay in, market acceptance and sales, diversion of
development resources, injury to the Company's reputation, or increased service
and warranty costs, any of which could have a material adverse effect on the
Company's business, results of operations, and financial condition.

CUSTOMER AND TECHNICAL SUPPORT

     Customer support representatives answer product inquiry, customer support
and technical support calls, and respond to inquiries addressed to the Company's
Internet web page. The Company surveys its customer base to ensure quality of
service. Historically, license renewals have accounted for a significant portion
of the Company's net revenues; however, there can be no assurance that the
Company will be able to sustain historic renewal rates in the future. The
Company intends to continue to invest in customer and technical support.

                                       6
<PAGE>

CUSTOMERS

     The customer base is comprised of large, Fortune 1000 enterprises and
government agencies that are managing heterogeneous enterprises and
mission-critical applications. The Company's customers are located primarily in
North America and Europe and include companies in industrial, institutional, and
governmental markets. The Company operates in a single industry and is engaged
in the design and sale of a limited number of software products. No single
channel partner accounted for more than 10% of total revenue in 1999 and 1998.
During 1997, approximately 10% of sales were sold through one of the Company's
channel partners.

     International revenue (including maintenance contracts) represented
approximately 5%, 12%, and 14% of the Company's total revenue in fiscal years
1999, 1998, and 1997, respectively. The overall decrease in international
revenue in 1999 and 1998 reflects the continuing decline in AM:PM and Arbiter
maintenance contract renewals. As the Company continues to focus its business on
the asset tracking market and away from automated software distribution and the
traditional mainframe product lines, it expects this trend of declining AM:PM
and Arbiter maintenance contract renewals to continue. The Company currently has
no international office, but operates through international distributors. The
Company's growth and profitability will require an expansion of its
international operations, particularly in Europe. Accordingly, the Company
intends to expand its current international operations and enter additional
international markets. Such expansion will require management attention and
financial resources. During 1999, the Company has taken the initial steps to
establish a direct sales presence in the United Kingdom, Germany, and the
Netherlands.

SALES AND MARKETING

SALES

     Early in the definition of the Asset Insight product, the Company
recognized the need for an alternate channel in order to acquire an early
presence in the market, cover the expected demand for the product, manage the
geographically dispersed nature of the target market, and build a large number
of salespeople in the field. Therefore, in 1996, the Company converted from a
direct sales force to an indirect sales channel organization. The Company has to
date established relationships with over sixty national, international, and
regional value-added resellers, systems integrators, and other channel partners.
The Company employs an indirect sales force that works closely with its major
resellers and systems integrators to manage the development of the indirect
channel and product implementation. The indirect sales channel is managed out of
the corporate headquarters.

     The Company is currently investing and intends to continue to invest
significant resources in developing additional sales and marketing channels
through VARs, systems integrators, OEMs, and other channel partners. These
channel partners also sell other products that are complementary to, or compete
with, those of the Company. While the Company encourages its channel partners to
focus on their respective products through marketing and support programs, there
can be no assurance that these channel partners will not give greater priority
to products of other suppliers, including competitors. In addition,
reorganizations, mergers, and personnel changes within a channel partner's
organization can cause delays or disruptions in the sales cycle of Asset
Insight. The Company intends to increase its geographical sales force to help
continue the sales process during these disruptions. Channel partners have no
long-term obligations to purchase products from the Company. Any failure by the
Company to establish and maintain such distribution relationships or attract
channel partners that will be able to market the Company's products effectively
and will be qualified to provide timely and cost-effective customer support and
service could have a material adverse effect on the Company's business,
operating results, and financial condition.

                                       7
<PAGE>

     The license of the Company's software generally requires the Company to
engage in a sales cycle that typically takes approximately six to nine months to
complete. The length of the sales cycle may vary depending on a number of
factors over which the Company may have little or no control, including the size
of the transaction and the level of competition that the Company encounters in
its selling activities. During the sales cycle, the Company typically provides a
significant level of education and support to prospective customers regarding
the use and benefits of the Company's products. Because of the nature of its
distribution methods, the Company generally cannot predict with accuracy when a
user will license its products. Any delays in the sale cycles of a large license
or a number of smaller licenses could have a material adverse effect on the
Company's business, operating results, and financial condition.

MARKETING

     During 1999, the Company focused its marketing efforts on continuing to
build the asset tracking market, educating the market on the Asset Insight
product and product enhancements, and generating Asset Insight leads. The
Company has continued to leverage its successful corporate marketing strategy,
emphasizing the position that Asset Insight has attained as the premier offering
in the asset tracking market. The Company has also continued implementation of
its enhanced programs, including speaking engagements, executive briefings,
industry trade shows, surveys, and focused public relations efforts. The book, A
JOURNEY THROUGH OZ: THE BUSINESS LEADERS' ROAD MAP TO TRACKING INFORMATION
TECHNOLOGY ASSETS, written by the Company's former President and CEO, was
enhanced and continues to be a useful marketing tool in market education.

     The Company will continue to focus on generating interest and leads in
order to move the product through the established sales channel. Additionally,
the Company will focus on targeted and active promotional campaigns aimed at
Fortune 1000 and government end users throughout North America and Europe. The
Company positions its products as market-driven business solutions that improve
corporate productivity, leverage customer information systems investments,
assist customers in the migration to new technologies, and provide a superior
value-to-price ratio. To ensure that the products reflect the changing market
requirements, all of the Company's product development efforts are integrated
with marketing and other functions in a team approach (see Product Development).

     Customer requests for enhancements to current products and the development
of new products play a significant role in the Company's product marketing
strategy. Senior management teams make regular customer visits to gain customer
feedback. The Company also conducts regular customer surveys to evaluate overall
customer satisfaction, as well as future product needs.

COMPETITION

     The Company established asset tracking in response to an asset management
market, which includes several diverse products, including procurement systems,
help desk tools, and systems management suites. There are many vendors in the
asset management market, creating confusion and overlap between products. The
Company has positioned asset tracking as a fundamental first step to any asset
management initiative. While this positioning has been successful, Asset Insight
has experienced considerable overlap with complementary products that fall into
different segments of the asset management arena. Such products are very
diverse, ranging from low-end discovery tools (such as Tally's NetCensus and
Blue Ocean's TrackIT) to Discovery/Ownership Management tools with modules for
tracking procurement, contracts, licenses, and other information (such as
Peregrine's AssetCenter and MainControl's MC/Empower) to full product suites
with a long list of features (such as IBM Tivoli's Enterprise, Microsoft's SMS,
Hewlett-Packard OpenView, and Computer Associates' Unicenter). Asset Insight
remains the only product that is exclusively in the asset tracking market, where
the product maintains a strong competitive advantage in functionality and
features. Because barriers to entry in the software market are relatively low,
the Company anticipates additional


                                       8
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competition from other established and emerging companies as the market for
asset tracking and asset management tools expands.

     In the future, vendors of asset management software or application suite
offerings, such as those identified above, may continue to enhance their
products (including separate products that are bundled together) to include
functionality that is currently provided most often by asset tracking and
low-end discovery tool software. The widespread inclusion of such comparable
functionality could impair the marketability of the Company's Asset Insight
products. Furthermore, even if the asset tracking functionality provided as
standard features by asset management and suite offerings is more limited than
that of the Company's Asset Insight products, there can be no assurance that a
significant number of customers would not elect to accept such functionality in
lieu of purchasing additional Asset Insight software.

     The Company expects software industry consolidation to occur in the future,
and it is possible that new competitors or alliances among competitors may
emerge and rapidly acquire significant market share. Increased competition may
result in price reductions, reduced gross margins, and loss of market share.
Further, the Company competes with other software companies for access to
distribution channels. Some of the Company's current and many of its potential
competitors have significantly greater financial, technical, marketing, and
other resources than the Company. As a result, they may be able to respond more
quickly to new or emerging technologies and changes in customer requirements or
to devote greater resources to the development, promotion, and sale of their
products than the Company. Although the Company believes that it currently
competes favorably with respect to such factors, there can be no assurance that
the Company will maintain its competitive position.



INTELLECTUAL PROPERTY

     The Company's success is in part dependent upon proprietary technology. The
Company relies primarily on a combination of copyright and trademark laws,
confidentiality procedures, and contractual provisions to protect its
proprietary rights. The Company's products are generally licensed to end users
pursuant to a license agreement that restricts the use of the products to a
limited number of control point processors and/or a designated site, or a
limited number of nodes. The Company does not allow the source code to be
distributed to customers for its products. The Company has been required from
time to time to enter into source code escrow agreements with certain customers
and distributors for certain of its products. These agreements require the
release of source code only under very limited circumstances, principally a
breach by the Company of its support obligations or a filing of bankruptcy. The
Company seeks to protect its software, documentation, and other written
materials under trademark and copyright laws, which provide only limited
protection. Despite precautions taken by the Company, it may be possible for
unauthorized third parties to copy aspects of its current or future products or
to obtain and use information that the Company regards as proprietary. There can
be no assurance that the Company's means of protecting its proprietary rights
will be adequate or that the Company's competitors will not independently
develop similar or superior technology. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to the same extent as
the laws of the United States.

     There has also been substantial industry litigation regarding intellectual
property rights of technology companies. The Company is not aware that any of
its software product offerings infringes upon the proprietary rights of third
parties. In addition, as the Company may acquire a portion of software included
in future products from third parties, its exposure to infringement actions may
increase because the Company must rely upon such third parties as to the origin
and ownership of any software being acquired. In the future, litigation may be
necessary to enforce and protect intellectual property rights owned by the
Company. The Company may also be subject to litigation to defend it against
claimed infringement of the rights of others or to determine the scope and
validity of the proprietary rights of others. Any such litigation could be
costly and divert management's attention, either of which could have a material
adverse effect on the Company's business, financial condition, and results of
operations. Adverse determinations in such litigation could result in the loss
of the Company's proprietary rights, subject the Company to significant
liabilities, require the Company to seek licenses from third parties, or prevent
the Company from selling its products, any one of which could have a material
adverse effect on the Company's business, financial condition, and results of

                                       9
<PAGE>

operations. Furthermore, there can be no assurance that any necessary licenses
will be available on reasonable terms, or at all.

     The Company believes that patent, trade secret, and copyright protection is
less significant than factors such as knowledge, experience of the Company's
personnel, new products, frequent product enhancements, name recognition, and
ongoing, reliable product maintenance.

     Asset Insight, AM:PM, Arbiter, Tangram, and the Tangram puzzle are
registered trademarks of Tangram Enterprise Solutions, Inc. Other products and
brand names may be trademarks of their respective holders.

EMPLOYEES

     As of March 24, 2000, the Company employed 127 persons, including 53 in
worldwide marketing, sales, and field operations; 52 in product development and
technical support; and 22 in general and administrative. None of the Company's
employees are represented by a labor union. The Company has experienced no work
stoppages and believes that its employee relations are good.

     The Company believes that its future success will depend in large part on
its ability to attract and retain additional highly skilled technical, sales,
management, and marketing personnel. In addition, the Company's continued growth
and success depend to a significant extent on the continued service of its
senior management and other key employees. Competition for highly skilled
business, product development, technical, and other personnel is increasingly
intense due to lower overall unemployment rates and the boom in information
technology spending. The Company's employees currently receive salaries,
incentive bonuses, other fringe benefits, and stock options. New government
regulations, poor stock performance, or other factors could diminish the value
of the option program to current and prospective employees and force the Company
into more of a cash compensation model. Accordingly, the Company expects to
experience increased compensation costs that may not be offset through either
improved productivity or higher prices. Additionally, the Company has at times
in the past experienced difficulty in recruiting qualified personnel. New
employees hired by the Company generally require substantial training in the use
and implementation of the Company's products. In particular, a number of the
Company's sales personnel have been with the Company for only a limited period
of time. There can be no assurances that the Company will be successful in
continuously recruiting and training new personnel and in retaining existing
personnel, and the failure to do so could have a material adverse effect on the
Company's business, operating results, and financial condition.


ITEM  2. PROPERTIES

     The Company leases all of its facilities. The following table sets forth
summary data on the Company's leased facilities:

<TABLE>
<CAPTION>

                      Approximate Square
      Location               Feet                       Use                         Lease Expiration
      --------        ------------------                ---                         ----------------

<S>                          <C>            <C>                                      <C>
Cary, NC                     49,600         Executive, administrative, sales,        September 30, 2004
                                            development, marketing, customer
                                            support, and distribution center


Malvern, PA                  7,400          Development and sales support            February 28, 2003


</TABLE>



ITEM  3. LEGAL PROCEEDINGS

     There are no material pending legal proceedings to which the Company is a
party or of which any of its property is subject.


                                       10
<PAGE>



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

     None.


                                       11
<PAGE>


                                     PART II

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

     (a) The Company's common stock is quoted on The Nasdaq SmallCap Market tier
of The Nasdaq Stock Market under the symbol "TESI". The following table sets
forth the high and low sales prices of the Company's common stock from January
1, 1998 through December 31, 1999.




       1999                              High                       Low
                                         ----                       ---

       Fourth Quarter                   $9.88                     $0.88
       Third Quarter                    $3.00                     $1.00
       Second Quarter                   $4.75                     $2.50
       First Quarter                    $5.00                     $2.25

       1998

       Fourth Quarter                   $6.00                     $2.13
       Third Quarter                    $6.75                     $2.88
       Second Quarter                   $8.25                     $5.56
       First Quarter                   $10.94                     $6.38



     (b) Holders. On March 24, 2000, there were approximately 3,000 beneficial
owners of the Company's common stock.


     (c) Dividends. Holders of the common stock are entitled to receive such
dividends as may be declared by the Company's Board of Directors. No dividends
on the common stock have been paid by the Company. The Company intends to retain
all future earnings for the expansion of its business and consequently does not
presently intend to pay cash dividends on its common stock.


                                       12
<PAGE>

ITEM  6. SELECTED FINANCIAL DATA

     The following selected financial data of the Company have been derived from
the Company's audited financial statements. This data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included in Item 7 of this report and with the
Company's financial statements and the related notes thereto included in Item 8
of this report.


<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------------------
                                                                       YEAR ENDED DECEMBER 31
                                             1999             1998             1997           1996             1995
                                             ----             ----             ----           ----             ----
SUMMARY OF OPERATIONS:                                        (In thousands, except per share data)

<S>                                           <C>            <C>               <C>             <C>              <C>
Revenue                                       $18,678        $20,678           $14,074         $11,142          $12,538

Net earnings (loss)                             (444)          1,116            (3,461)           (253)          (1,185)
Earnings (loss) per common share:
    Basic                                      (0.03)           0.07             (0.22)         (0.02)            (0.08)
    Diluted                                    (0.03)           0.06             (0.22)         (0.02)            (0.08)

Average common shares outstanding:
    Basic                                      15,799         15,747             15,631         14,811           14,459
    Diluted (1)                                15,799         17,265             15,631         14,811           14,459

                                                                           DECEMBER 31
                                             1999             1998             1997           1996             1995
                                             ----             ----             ----           ----             ----
FINANCIAL POSITION:                                                       (In thousands)
Total assets                                 $12,388         $15,170           $12,961         $12,946          $12,829
Long-term debt, including current portion      1,623           3,576             3,044             756            1,319
Shareholders' equity                           5,765           5,764             4,483           8,257            8,246

------------------------------------------------------------------------------------------------------------------------
</TABLE>


(1)  Weighted average number of common shares outstanding on a diluted basis for
     the years 1999 and 1995 through 1997 does not include common stock
     equivalents because the effect of inclusion of common stock equivalents
     would be to reduce the loss per common share.


                                       13
<PAGE>


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


     The following discussion contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, including, among others, statements containing
the words "believes," "anticipates," "estimates," "expects" and words of similar
import. Such statements are subject to certain risks and uncertainties, which
include but are not limited to those important factors discussed in cautionary
statements throughout the section below and elsewhere in this document, and are
qualified in their entirety by those cautionary statements.

OVERVIEW

     Tangram Enterprise Solutions, Inc. (the "Company") provides
state-of-the-art enterprise-wide solutions, including asset tracking and
electronic software distribution for large heterogeneous computing environments,
encompassing UNIX-based mini, LAN server and mainframe platforms. Asset Insight,
an information technology asset tracking product launched in 1996, allows
businesses to track changes in their information technology asset base
(including hardware and software), forward plan technology requirements,
optimize end-user productivity, and calculate the cost of software and hardware
upgrades. AM:PM is an automated software distribution, data distribution and
collection, and remote resource management solution that provides businesses
with solutions to manage an enterprise's heterogeneous and remote information
technology systems. Tangram is a partner company of Safeguard Scientifics, Inc.
(NYSE:SFE) ("Safeguard"). Safeguard incubates and operates developing technology
companies in the Internet infrastructure market with a focus on three sectors:
software, communications and eServices. Safeguard also participates in several
private equity funds, which help to expand the Safeguard network to 250
Internet-related companies. Safeguard generally acquires ownership interests in
companies that allow it to have a significant influence over their direction and
management over the long-term. Safeguard owns approximately 67% of the
outstanding voting securities of the Company.

     Since early 1996, the Company has focused its business on the asset
tracking market and the introduction and sale of its Asset Insight product. The
financial results of the Company hereafter reflect the Company's growing
dependence on revenue generated by sales of Asset Insight. As a result, various
risks and uncertainties relating to the development of the asset tracking
business may cause the Company's actual results to differ materially from the
results contemplated. Such uncertainties include the ability of the Company to
sell its Asset Insight product to major accounts with full enterprise-wide
deployment; the possibility of the introduction of superior competitive
products; the ability of the Company to develop a sustainable stream of revenue
from the sale of the Asset Insight product; the ability to recruit and retain
key technical, sales, and marketing personnel; and the ability of the Company to
secure adequate financing on reasonable terms or at all.

     The Company has been and will continue to be dependent on closing large
Asset Insight product sales in a given quarter. The license of the Company's
software generally requires the Company to engage in a sales cycle that
typically takes approximately three to nine months to complete. The length of
the sales cycle may vary depending on factors over which the Company has little
or no control, such as the size of the transaction, the internal activities of
potential customers, and the level of competition that the Company encounters in
selling its products. As such, the Company has historically experienced a
certain degree of variability in its quarterly revenue and earnings patterns.
This variability, in addition to the foregoing reason, is typically driven by
significant events that impact the recognition of licenses, product, and
implementation services revenue. Examples of such events include: the timing of
major enterprise-wide sales of the Asset Insight product; "one-time" payments
from existing customers for license expansion rights (required to install on a
larger or an additional computer base); completion and customer acceptance of
significant implementation rollouts and the related revenue recognition;
budgeting cycles of its potential customers; changes in the mix of software
products and services sold; organizational changes within the Company's channel
partners; and software defects and other product quality problems. Historically,
renewals have accounted for a significant portion of the Company's revenue;
however, there can be no assurance that the Company will be able to sustain
current renewal rates in the future. In addition, the Company has and may
continue to encounter through the first quarter of 2000 potential customers that
are unwilling to purchase any additional software for


                                       14
<PAGE>

their enterprise as a result of Year 2000 initiatives. If a significant number
of the Company's future and potential prospects defer software purchases for
their IT enterprise because of Year 2000 issues, this may have an adverse effect
on the Company's first quarter 2000 revenue. Additionally, the Company has often
shipped and booked a substantial portion of its product revenue in the last
month or weeks of a quarter. Due to the foregoing factors, quarterly revenue is
not predictable with any significant degree of accuracy. In addition, the
Company is experiencing increased market pressure in hiring and retaining
personnel. The Company's growth and success depends to a significant extent on
the continued service of its senior management and other key employees and the
hiring of new qualified employees. Competition for highly skilled business,
product development, technical, and other personnel is increasingly intense due
to lower overall unemployment rates and the boom in information technology
spending. Accordingly, the Company expects to experience increased compensation
costs that may not be offset through either improved productivity or higher
prices. These fluctuations in the timing and amounts of additional operating
expenses may also cause profitability to fluctuate from one quarter to another.

RESULTS OF OPERATIONS

     Revenue decreased 10% in 1999 to $18.7 million from $20.7 million in 1998
and increased 47% in 1998 to $20.7 million from $14.1 million in 1997. 1999
revenue was negatively impacted by lower than expected sales volume due to
organizational budget freezes and desktop lockdowns by the Company's prospect
base, particularly in the third and fourth quarters, as those companies deferred
software purchases for their IT enterprise because of Year 2000 issues. The
Company does not expect significant improvement in corporate IT enterprise
spending through the first half of 2000. Additionally, the Company is beginning
to experience increased pressure from competitors. Historically, the Company has
encountered competition from a number of sources, including system management
and infrastructure management companies. Recently, vendors of asset management
software and infrastructure management offerings have enhanced their products to
include functionality that is currently provided by asset tracking and low-end
discovery tool software. Even though the asset tracking functionality provided
as standard features of asset management and infrastructure management software
is more limited than that of the Company's Asset Insight products, there can be
no assurance that a significant number of customers would not elect to accept
such functionality in lieu of purchasing additional software. While we maintain
a strong competitive advantage in functionality and features, this emergence of
asset management software and infrastructure management offerings is having the
effect of extending the sales cycle for the opportunities the Company is
pursuing, as well as creating pressure on the Company to reduce prices for the
Asset Insight product line. The revenue increase in 1998 was driven by a
three-fold increase in Asset Insight product line revenue offset by a decrease
in AM:PM and traditional mainframe product revenue.

     For the year ended December 31, 1999, the Company recorded a net loss of
$444,000, or $0.03 per share, compared to a net income of $1.1 million, or $0.06
per share (diluted), for the comparable period in 1998 and a net loss of $3.5
million, or $0.22 per share, for the same period in 1997. In January 2000, the
Company, in conjunction with Safeguard, announced its intentions to pursue an
evaluation of various Internet-based business models and related strategic
options. In conjunction with the announced strategic initiative, the Company
recognized a charge to earnings in the fourth quarter of 1999 of approximately
$1.0 million for the accelerated amortization of deferred development costs for
non-strategic product offerings and severance costs associated with a management
change. In addition, the 1999 results reflect as a reduction of general and
administrative expense the recovery of $925,000 of a previously reserved
outstanding receivable.

     As a result of the current unpredictability of the revenue as discussed
above, the Company has made certain reductions in operating expenses, including
staffing through normal attrition. However, the Company will maintain product
development at current levels and take appropriate actions to maintain the sales
and marketing organization. The number of personnel has decreased from 148 at
the end of 1998 to 125 as of December 31, 1999 through normal attrition.

REVENUE

     Licenses and products revenue include the sales of Asset Insight, AM:PM and
related products, and the traditional mainframe products of Arbiter and
gateways, including product upgrades and add-ons. Licenses and products revenue
decreased 24% in 1999 to $11.0 million from $14.4 million in 1998 and increased
81%


                                       15
<PAGE>

in 1998 to $14.4 million from $8.0 million in 1997. Asset Insight licenses and
products revenue contributed $9.5 million, or 86% of total licenses and products
revenue in 1999, $11.3 million, or 78% in 1998, and $3.8 million, or 47% in
1997. The overall decrease in 1999 was the result primarily of a decrease in
Asset Insight product sales for the reasons stated above. Revenue from AM:PM and
traditional mainframe products dropped to $1.5 million in 1999 from $3.1 million
in 1998 and $4.2 million in 1997. In 1999 and 1998, the Company focused most of
its resources toward the Asset Insight product line, and as such, the Company
anticipates the trend of reduced AM:PM and traditional mainframe product
revenues to continue. The Company is no longer actively marketing or selling the
AM:PM and traditional mainframe product lines.

     Services revenue includes software and hardware maintenance contracts,
expert Asset Insight services, and training and support services not otherwise
covered under maintenance agreements. Services revenue increased 23% to $7.7
million in 1999 from $6.3 million in 1998, which followed an increase of 3% from
$6.1 million in 1997. The increase is due principally to an increase in Asset
Insight consulting services and maintenance revenues. This increase reflects the
demand for implementation assistance from customers. In late 1998, in order to
augment the services provided by Asset Insight channel partners, the Company
launched its Product Services Group, which offers a variety of expert services
to adapt Asset Insight to each customer's unique enterprise and business
requirements. As such, Product Services Group revenue increased to $1.6 million
in 1999 from $0.6 million in 1998. Annual maintenance contract revenue from the
sale of the Asset Insight product line increased to $2.6 million in 1999 from
$0.8 million in 1998 and $0.2 million in 1997. The overall increase in services
revenue in 1999 and 1998 was offset by a decrease of $1.4 million and $1.0
million in AM:PM and Arbiter services revenue and maintenance renewals in 1999
and 1998, respectively. As the Company continues to focus its business on the
asset tracking market and away from automated software distribution and the
traditional mainframe product lines, it expects this trend to continue.

     International revenue (including maintenance contracts) represented
approximately 5%, 12% and 14% of the Company's total revenue in 1999, 1998 and
1997, respectively. The overall decrease in international revenue in 1999 and
1998 reflects the continuing decline in AM:PM and Arbiter maintenance contract
renewals. As the Company continues to focus its business on the asset tracking
market and away from automated software distribution and the traditional
mainframe product lines, it expects this trend of declining AM:PM and Arbiter
maintenance contract renewals to continue. The Company's growth and
profitability will require an expansion of our international operations,
particularly in Europe. Accordingly, the Company intends to expand its current
international operations and enter additional international markets. Such
expansion will require management attention and financial resources. The Company
has only limited experience in developing local-language versions of its
products and marketing and distributing its products internationally. The
Company may not be able to successfully translate, market, sell and deliver its
products internationally. During 1999, the Company has taken the initial steps
to establish a direct sales presence in the United Kingdom, Germany, and the
Netherlands. If the Company is unable to expand its international operations
successfully and in a timely manner, its business, operating results, and
financial condition could be adversely affected. To date, the majority of
international revenue has been denominated in United States currency; therefore,
the Company has not experienced any significant currency fluctuations or any
other material adverse effects associated with doing business overseas. If the
Company's international revenues grow as anticipated, the Company will be
exposed to risks inherent with international revenue. Some of the risk factors
include the impact of longer payment cycles, greater difficulty in accounts
receivable collection, and unexpected changes in regulatory requirements and
tariffs. If future international sales are denominated in local currency, there
is an additional risk associated with fluctuating exchange rates.

COST OF REVENUE

     Cost of licenses and products includes costs related to the distribution of
licensed software and hardware products and the amortization of capitalized
software development costs. A significant component of cost of licenses and
products is attributable to the amortization of deferred development costs,
which is generally fixed in nature. In addition, as previously discussed above,
the Company recognized accelerated amortization of deferred development costs
for non-strategic product offerings in 1999. Therefore, as a result of the
reason stated above and lower revenue in 1999, cost of licenses and products as
a percentage of licenses and products revenue increased to 27% from 17% in 1998
after decreasing from 21% in 1997. In absolute dollars, cost of licenses and
products increased 21% in 1999 to $2.9 million from $2.4 million in 1998 after
increasing 42% from $1.7 million in 1997. Amortization of software development
costs for 1999, 1998 and 1997 was $2.2 million, $1.9



                                       16
<PAGE>

million and $1.5 million, respectively. Amortization of software development
cost for 1999 includes $410,000 related to accelerated amortization periods due
to reduced expected useful lives of certain capitalized software costs
recorded prior to 1999. Cost of licenses and products in 1999 and 1998 reflects
the purchase and bundling of a third party software product ($500,000 in 1999
and $200,000 in 1998), that integrates with Asset Insight.

     Cost of services reflects the cost of the direct labor force, including the
associated personnel, travel, and subsistence, and occupancy costs incurred in
connection with providing consulting and maintenance services. The overall
increase in cost of services is primarily a result of higher consulting services
costs associated with increased Asset Insight product services revenue. The
Company utilizes consultants trained in the deployment of Asset Insight who are
either employees of the Company or employees of the Company's selected
subcontractors. The consultants who are subcontractors of the Company generally
cost significantly more than the consultants employed by the Company. While the
growth in the absolute cost reflects the growth in Asset Insight product
services revenue, the Company's gross profit can fluctuate based upon the mix of
use of consultants who are subcontractors versus consultants employed by the
Company. Cost of services as a percentage of services revenue in 1999 decreased
to 29% from 31% in 1998 after increasing from 29% in 1997. Cost of services in
1999 increased 14% to $2.2 million from $1.9 million in 1998 following an
increase of 9% from $1.8 million in 1997 for the reasons stated above.

SALES AND MARKETING

     Sales and marketing expenses consist principally of salaries, commissions
and benefits for sales, marketing, and channel support personnel, and the costs
associated with product promotions and related travel. Sales and marketing
expenses decreased 8% to $7.6 million in 1999 from $8.2 million in 1998 after an
increase of 25% from $6.6 million in 1997. As a percentage of revenue, sales and
marketing expenses were 40%, 40% and 47% in 1999, 1998, and 1997, respectively.
The reduction in spending in 1999 is attributable to lower sales commissions
paid resulting from the decline in sales revenue and the corresponding reduction
in sales related travel. The increase in absolute dollars in 1998 was primarily
due to the Company's continued investment in staffing, principally salaries and
related commissions, marketing and increased travel costs to promote market
awareness and revenue growth of the Asset Insight products. In addition,
competition for highly skilled sales and marketing personnel is increasingly
intense. Accordingly, the Company has experienced increased market pressure
related to hiring and retaining qualified personnel, resulting in increased
staffing costs. Furthermore, the Company expects this trend of increased market
pressure and rising compensation costs to continue.

GENERAL AND ADMINISTRATIVE

     General and administrative expenses consist principally of salaries and
benefit costs for administrative personnel, general operating costs, legal,
accounting and other professional services. General and administrative expenses
decreased 32% in 1999 to $2.3 million from $3.4 million in 1998 after decreasing
18% from $4.2 million in 1997. As a percentage of total revenue, general and
administrative expenses further decreased to 13% in 1999 from 16% in 1998 after
decreasing from 30% in 1997. General and administrative expenses in 1997 include
a charge for $949,000 resulting from claims by a customer which called into
question the collectibility of a receivable that was outstanding at December 31,
1997. In May 1999, the Company and the customer reached an amicable resolution
to the dispute that resulted in the recovery of $925,000 of the outstanding
receivable, which is reflected in the 1999 statement of operations as a
reduction to general and administrative expenses. Excluding this recovery,
general and administrative expenses decreased 4% in 1999 when compared to 1998,
primarily as a result of decreased personnel costs and travel expense.

RESEARCH AND DEVELOPMENT

     Research and development expenses consist primarily of salaries and
benefits for the Company's software development and technical support staff and,
to a lesser extent, costs associated with independent contractors. The Company
capitalizes certain software development costs incurred to develop new software
or to enhance the Company's existing software. Such capitalized costs are
amortized on an individual product basis commencing when a product is generally
available for release. Costs incurred prior to the establishment of
technological feasibility are charged to research and development expense.

                                       17
<PAGE>

     Gross expenditures for research and development increased 7% in 1999 to
$5.7 million from $5.3 million in 1998 after increasing 7% from $5.0 million in
1997. Gross research and development costs increased as a percentage of revenue
to 30% in 1999 from 26% in 1998 after decreasing from 35% in 1997. The increase
in absolute dollars is due to personnel cost increases. The Company has
experienced increased market pressure related to hiring and retaining qualified
personnel, which has also resulted in increased staffing costs. The Company
expects this trend of increased market pressure relating to hiring and retaining
personnel to continue.

     Net research and development expenses increased to $4.0 million in 1999
from $3.3 million and $3.2 million in 1997. Deferred development costs were $1.7
million, $2.0 million, and $1.8 million in 1999, 1998, and 1997, respectively.
As a percentage of gross research and development expenditures, deferred
development costs were 30%, 37%, and 36% in 1999, 1998, and 1997, respectively.
As a result of rapid technological change in the industry, our position in
existing markets can be eroded rapidly by product advances. The life cycles of
our products are difficult to estimate. Our growth and future financial
performance depend in part upon our ability to improve existing products and
develop and introduce new products that keep pace with technological advances,
meet changing customer needs, and respond to competitive products. As such, the
Company will continue to commit substantial resources to research and
development efforts in the future.

PROVISION FOR INCOME TAXES

     In 1999, the Company received an income tax benefit of $19,000 and in 1998,
the Company incurred an income tax expense of $20,000 as a result of the impact
of the alternative minimum tax. The Company had no income tax expense in 1997
due to that year's loss. At December 31, 1999, the Company has net operating
loss carryforwards of approximately $30.4 million, which are available to offset
future federal taxable income and expire in various amounts from 2000 through
2019.

NET EARNINGS (LOSS)

     The Company recorded a net loss of $444,000, or $0.03 per share, in 1999
compared to a net earnings of $1.1 million, or $0.06 per share (diluted), in
1998, and a net loss of $3.5 million, or $0.22 per share, in 1997. The 1999 net
loss is the result primarily of the revenue decline, as noted above, mitigated
in part by cost control measures employed by the Company. The 1998 earnings
reflect the first full year of Asset Insight sales with a significant
distribution channel. The 47% revenue growth in 1998 was offset by an increase
in operating expenses that are the result of the Company's substantial
expenditures for research and development, the sales and marketing campaign,
increased staffing, and infrastructure growth and development in order to
support the Asset Insight product rollout.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

     In October 1997, the Accounting Standards Executive Committee (AcSEC)
issued Statement of Position (SOP) 97-2 Software Revenue Recognition, as amended
in March 1998 by SOP 98-4 and October 1998 by SOP 98-9. These SOPs provide
guidance on applying generally accepted accounting principles in recognizing
revenue on software transactions. The Company adopted SOP 97-2 for software
transactions entered into beginning January 1, 1998. Based on the current
requirements of the SOPs, application of these statements did not have a
material impact on the Company's revenue recognition policies. However, AcSEC is
currently reviewing further modifications to the SOP with the objective of
providing more definitive, detailed implementation guidelines. This guidance
could lead to unanticipated changes in the Company's operational and revenue
recognition practices. Such changes may have a material adverse effect on the
Company's reported revenue, increase administrative costs, or otherwise
adversely modify existing operations.

     The Company does not expect the adoption of other recently issued
accounting pronouncements to have a significant impact on our results of
operations, financial position or cash flows.

                                       18
<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

     The Company has funded its operations through borrowings and cash generated
from operations. To fund the Company's growth plan, the Company has arranged a
$6.0 million unsecured revolving line of credit with Safeguard. Terms of the
line of credit require monthly interest payments at the prime rate plus 1%.
Principal is due thirteen months after date of demand by Safeguard or earlier in
the case of a sale of substantially all of the assets of the Company, a business
combination or upon the closing of a sale of a debt or equity offering. As of
March 24, 2000, borrowings under the line of credit with Safeguard were
$500,000.

     In 1997, the Company entered into a sale-leaseback agreement. Under the
arrangement, the Company has received, at varying times through December 31,
1999, $1.3 million for computer equipment and furniture that had a net book
value of $1.1 million. The leaseback has been accounted for as an operating
lease. The aggregate minimum monthly rental payment under these transactions is
approximately $31,400. The gains recognized in these transactions have been
deferred and are being amortized to income in proportion to rental expense over
the term of the lease.

     Net cash provided by operating activities consisted primarily of non-cash
expenses offset by the net change in working capital items. The increase in net
cash provided by operating activities in 1999 was primarily due to a lower
accounts receivable balance at December 31, 1999 offset by a decrease in other
working capital items when compared to 1998. The lower accounts receivable
balance is primarily attributable to improved collection efforts and lower
revenue in 1999. As noted above, the Company and a customer reached an amicable
resolution to a dispute that resulted in the recovery of $925,000 of an
outstanding receivable, previously fully reserved, which is reflected in the
statement of cash flows as an increase in cash provided by accounts receivable
and a reduction to the reserve for uncollectible accounts.

     Net cash used in investing activities for 1999 consisted primarily of the
investment associated with the Company's ongoing commitment to developing
enhancements and improvements of the Asset Insight products and the purchase of
computer equipment to support the anticipated growth of the business, offset by
the proceeds received under the sale-leaseback agreement described above. The
reduction in net cash used in investing activities from 1998 to 1999 was
primarily due to the repayment on notes receivable due from an officer. During
1999 and 1998, the Company had non-recourse, non-interest bearing loans due
from certain officers of the Company totaling $1.3 million. In December 1999,
outstanding loans in the amount of $788,000 were repaid in full. The total
remaining loans outstanding of $497,000 at December 31, 1999 were repaid in full
on January 10, 2000 through the surrender of 51,501 shares of common stock of
the Company based on the current market price of the Company's common stock as
reflected by that day's average high and low prices.

     Net cash used in financing activities in 1999 consisted primarily of
repayments on borrowings under the Safeguard line of credit used to fund the
Company's operations.

     As stated above, Safeguard has agreed to assist in funding the Company's
projected cash requirements by providing a $6.0 million line of credit, of which
$5.5 million is available for future borrowings as of March 24, 2000. The
facility is available for general corporate purposes. The Company believes that
its current cash, cash flow from operations, and amounts available under the
credit facility will be sufficient to meet its working capital requirements for
at least the next 12 months. Although operating activities may provide cash in
certain periods, to the extent the Company experiences growth in the future, the
Company anticipates that its operating and investing activities may use cash.
Consequently, any such future growth may require the Company to obtain
additional equity or debt financing. However, the Company has no present
understanding, commitment, or agreement with respect to any such transaction.
Accordingly, there can be no assurance that the Company will have access to
adequate debt or equity financing or that, if available, it will be under terms
and conditions satisfactory to the Company or which may not be dilutive.

                                       19
<PAGE>

YEAR 2000 DISCLOSURE

     The Company has assessed its computer systems for year 2000 readiness, and
replaced all systems and software it found to be not compliant. These
replacements were generally part of a regular upgrade program. In addition, the
Company has tested all of its systems and software and has obtained
verifications from its vendors that the systems they supplied are year 2000
ready. The Company has not incurred any material extraordinary expense in
connection with its year 2000 program. The Company believes that any year 2000
problem is unlikely to arise in the future, and that if any problem does arise,
it will be able to fix the problem quickly and without material expenses.

     To date, the Company has not experienced any disruptions of operations due
to year 2000 problems, nor has it received notice from any of its customers
about problems resulting from non-year 2000 compliant software.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     The Company is exposed to market risk from changes in interest rates. Such
changes in interest rates impact interest cost on the Company's interest rate
sensitive liabilities. Interest rate sensitive liabilities are assumed to be
those for which the stated interest rate is not contractually fixed for the next
12-month period. Thus, liabilities which have a market-based index, such as the
prime rate, are rate sensitive. As of December 31, 1999, the only interest rate
sensitive liability of the Company is its $6.0 million unsecured revolving line
of credit with Safeguard. Assuming a hypothetical, immediate 100 basis point
increase in the interest rate, the Company's interest expense over the following
12-month period would be increased by approximately $34,000. The hypothetical
model assumes that the balance of interest rate sensitive liabilities at fiscal
year-end will remain constant over the next 12-month period. Thus, this model
represents a static analysis, which cannot adequately portray how the Company
would respond to significant changes in market conditions. Furthermore, the
analysis does not necessarily reflect the Company's expectations regarding the
movement of interest rates in the near term, including the likelihood of an
immediate 100 basis point change in the interest rates nor the actual effect on
interest cost if such a rate change were to occur. The Company has not
historically used financial instruments to hedge interest rate exposure, does
not use financial instruments for trading purposes, and is not a party to any
leveraged derivatives.

     The majority of international revenue has been denominated in United States
currency; therefore, the Company has not experienced any significant currency
fluctuations. If the Company's international revenues grow as anticipated, the
Company will be exposed to risks inherent with fluctuations in currency exchange
rates.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The consolidated financial statements and schedule filed with this report
appear on pages F-2 through F-17, and are listed on page F-1.



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

     None.


                                       20
<PAGE>

                                    PART III




ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT


     Executive officers and directors of the Company, their ages and their
positions for the last five years are as follows:

<TABLE>
<CAPTION>
                                                                                        EXECUTIVE OFFICER
            NAME                    AGE                      POSITION                   OR DIRECTOR SINCE
            ----                    ---                      --------                   -----------------
<S>                                 <C>        <C>                                            <C>
Norman L. Phelps                     62        President, Chief Executive Officer             2000
                                               and Director

John N. Nelli                        42        Senior Vice President and Chief                1997
                                               Financial Officer

Steven F. Kuekes                     41        Senior Vice President, Chief                   1993
                                               Technology Officer and Director

Scott L. Jaffe                       35        Senior Vice President, Worldwide               2000
                                               Sales and Sales Operations

John F. Owens                        59        Chairman of the Board                          1992

Michael H. Forster                   57        Director                                       1997

James A. Ounsworth                   57        Director                                       1999

Carl G. Sempier                      68        Director                                       1992

Carl Wilson                          53        Director                                       1995

</TABLE>

     Norman L. Phelps has served as President, Chief Executive Officer, and a
director of the Company since December 31, 1999. Prior to joining the Company,
Mr. Phelps held the position of Chief Information Officer at Blue Cross & Blue
Shield of North Carolina, a health insurance company, from June 1995 to
September 1999. Prior to that, he was Chief Executive Officer of National
Liberty Corp., a personal insurance company. Previously, Mr. Phelps had served
as Executive Vice President of Colonial Penn Group, an insurance holding
company. At that time he also served as President of the Colonial Penn Group
Information Systems Data Corporation.

     John N. Nelli joined the Company as Senior Vice President and Chief
Financial Officer in February 1997. Before joining the Company, Mr. Nelli held
various positions at Konover Property Trust, Inc. (formerly FAC Realty, Inc.), a
publicly traded real estate investment trust, from February 1995 to January
1997, including Chief Financial Officer, Senior Vice President - Finance, Chief
Accounting Officer, and Treasurer. Mr. Nelli is a certified public accountant.

     Steven F. Kuekes has served as the Company's Senior Vice President, Chief
Technology Officer, and as a director since October 1993.

     Scott L. Jaffe joined the Company as Vice President of Sales Operations in
August 1998 and was promoted to his current position in January 2000. Prior to
joining the Company, Mr. Jaffe, was employed by Sybase Inc., a database
management solutions company, from April 1994 to August 1998 in various senior
management sales positions. Most recently, Mr. Jaffe was Vice President of North
American Sales Business Unit.

                                       21
<PAGE>

     John F. Owens was appointed Chairman of the Board in December 1999. Mr.
Owens is president of Solo Systems, Inc., a management consulting firm, and
President of Implementation Conversion Services, Inc., a systems software
services company.

     Michael H. Forster is a partner of Internet Capital Group, an Internet
operating company actively engaged in business-to-business e-commerce through a
network of partner companies. From April 1994 to 1998, Mr. Forster was Senior
Vice President of worldwide field operations for Sybase, Inc., a database
management solutions company.

     James A. Ounsworth has served as a Senior Vice President of Safeguard
Scientifics, inc., a company which incubates and operates developing technology
companies in the Internet infrastructure market, a position he has held since
November 1995. He served as Vice President, Secretary and General Counsel of
Safeguard from December 1991 to November 1995.

     Carl G. Sempier is a business consultant.

     Carl Wilson is an Executive Vice President and Chief Information Officer,
Marriott International, an international hospitality company. Mr. Wilson served
as vice president-information resources of Georgia-Pacific Corporation, a
diversified forest products company, from December 1992 to March 1997.



SECTION 16(A)  BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Securities and Exchange Commission requires the
Company disclose late filings of reports of stock ownership by its directors and
executive officers. To the best of our knowledge, there were no late filings
during 1999.



                                       22
<PAGE>


ITEM 11. EXECUTIVE COMPENSATION


     The following table provides summary information concerning the
compensation earned by our chief executive officer and other executive officers
employed by us during the fiscal year ended December 31, 1999.

                            ANNUAL COMPENSATION TABLE

<TABLE>
<CAPTION>

                                                       ANNUAL COMPENSATION                    LONG-TERM
                                 -------- ----------------------------------------------    COMPENSATION
                                                                                               AWARDS
                                                                                          ---------------
                                                                        OTHER ANNUAL         SECURITIES
                                                                        COMPENSATION         UNDERLYING        ALL OTHER
  NAME AND PRINCIPAL POSITION     YEAR     SALARY ($)    BONUS ($)         ($)(3)         OPTIONS/SARS (#)  COMPENSATION ($)(4)
  ---------------------------     ----     ----------    ---------         ------         ---------------   ------------------
<S>                                <C>       <C>         <C>               <C>                 <C>            <C>
Norman L. Phelps                    1999        --           --              --                100,000             --
President and Chief Executive
Officer(1)

W. Christopher Jesse                1999  $   225,000   $   30,000           --                  --           $   261,181
Former President and Chief          1998      202,083       99,520           --                  --                53,725
Executive Officer (2)               1997      196,254       95,565           --                  --                45,685

John N. Nelli                       1999  $   160,000   $   21,333           --                  --           $       405
Senior Vice President and           1998      127,917       31,444           --                50,000                 332
Chief Financial Officer             1997      114,681       13,598           --                50,000                 374

Steven F. Kuekes                    1999  $   150,000   $   17,500           --                  --           $    19,543
Senior Vice President and           1998      136,250       37,579           --                  --                19,491
Chief Technology Officer            1997      132,501       37,838           --                  --                19,076

Nancy M. Dunn                       1999  $   120,000   $    8,000           --                  --           $    20,516
Senior Vice President, Legal        1998      120,000       37,769           --                  --                20,386
and Human Resources                 1997      113,834       65,774           --                  --                16,598

</TABLE>


NOTES TO ANNUAL COMPENSATION TABLE:

(1)  Mr. Phelps joined the Company as an executive officer on December 31, 1999.

(2)  Mr. Jesse resigned as President and CEO of Tangram and as a member of the
     board effective January 3, 2000.

(3)  Personal benefits do not exceed $50,000 or 10% of the total annual salary
     and bonus for any executive.

(4)  For 1999, all other compensation includes the following:

<TABLE>
<CAPTION>
                                                         IMPUTED INTEREST
                                     OTHER               ON INTEREST-FREE,           LIFE INSURANCE
     NAME                        COMPENSATION            NON-INTEREST LOANS           PREMIUMS PAID
     ----                        ------------            ------------------           -------------
<S>                               <C>               <C>                           <C>
     W. Christopher Jesse         $ 225,000**                $34,494                      $1,687
     Steven F. Kuekes                                         18,713                         821
     John N. Nelli                                                 0                         405
     Nancy M. Dunn                                            17,027                       3,489
</TABLE>

 ** Represents obligation due under Mr. Jesse's severance and non-competition
    agreement.


                                       23
<PAGE>

     The following table relates to options to acquire Tangram common stock,
unless otherwise noted in the footnotes.

           STOCK OPTION GRANTS DURING THE YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                                                              POTENTIAL REALIZABLE
                                                                                            VALUE AT ASSUMED ANNUAL
                                                                                              RATES OF STOCK PRICE
                                                                                                  APPRECIATION
                                        INDIVIDUAL GRANTS                                      FOR OPTION TERM(1)
                             ------------------------------------------------------------   -----------------------
                             NUMBER OF        % OF TOTAL
                             SECURITIES        OPTIONS/
                             UNDERLYING          SARS
                              OPTIONS/        GRANTED TO      EXERCISE OR
                                SARS         EMPLOYEES IN      BASE PRICE     EXPIRATION        5%            10%
          NAME              GRANTED (#)      FISCAL YEAR       ($/SH)(3)         DATE           ($)           ($)
          ----              -----------      -----------       ---------         ----           ---           ---
<S>                          <C>                 <C>              <C>          <C>   <C>    <C>           <C>
Norman L. Phelps             100,000(2)          29.2%            $7.88        12/31/09     $1,282,755    $2,042,572
W. christopher Jesse             --                --              --             --            --            --
Steven F. Kuekes                 --                --              --             --            --            --
John N. Nelli                    --                --              --             --            --            --
Nancy M. Dunn                    --                --              --             --            --            --
</TABLE>

(1)  These values assume that the shares appreciate at the compounded annual
     rate shown from the grant date until the end of the option term. These
     values are not estimates of future stock price growth of Tangram.
     Executives will not benefit unless the common stock price increases above
     the stock option exercise price.

(2)  Mr. Phelps' options are to acquire common stock and have a term of 10
     years. The first 25% of the options will vest pro ratably in 12 monthly
     installments through the first anniversary of the date of grant and 25%
     will vest on the second, third and fourth anniversaries of the date of
     grant. Options continue to vest and remain exercisable so long as the Mr.
     Phelps is employed by Tangram. The option exercise price may be paid in
     cash, by delivery of previously acquired shares (under certain conditions),
     or same-day sales (that is, cashless exercises). The compensation committee
     has the authority to modify the terms of outstanding options, including
     acceleration of the exercise date.

(3)  All options have an exercise price equal to the fair market value of the
     shares subject to each option on the grant date.


                                       24
<PAGE>

     The following table set forth information about option exercises by each of
the officers named in the annual compensation table.

<TABLE>
<CAPTION>

                          YEAR-END STOCK OPTION VALUES
                                DECEMBER 31, 1999
                                                                NUMBER OF SECURITIES
                                                               UNDERLYING UNEXERCISED          VALUE OF UNEXERCISED
                                SHARES                              OPTIONS/SARS            IN-THE-MONEY OPTIONS/SARS
                             ACQUIRED ON        VALUE          AT FISCAL YEAR-END (#)       AT FISCAL YEAR-END ($)(1)
           NAME              EXERCISE (#)     REALIZED($)     EXERCISABLE/UNEXERCISABLE     EXERCISABLE/UNEXERCISABLE
           ----              ------------     -----------     -------------------------   ----------------------------
<S>                              <C>            <C>           <C>               <C>       <C>           <C>
Norman L. Phelps                  --             --                --            100,000  $     --      $       --
W. Christopher Jesse              --             --              575,000          --         3,665,625          --
Steven F. Kuekes                  --             --              360,000          --         2,295,000          --
John N. Nelli                     --             --               37,500          62,500        93,750       121,875
Nancy M. Dunn                     --             --               90,000          --           573,750          --

</TABLE>

(1)  Value is calculated using the difference between the option exercise price
     and the year-end stock price, multiplied by the number of shares subject to
     an option. The year-end stock price used was $7.88 for each share.

COMPENSATION OF DIRECTORS

     Employee directors receive no additional compensation other than their
normal salary for serving on the board or its committees. Directors who are not
employees of the Company or Safeguard receive:

          o $1,000 for each board meeting attended,

          o $500 for each committee meeting attended,

          o $500 for each telephonic meeting attended, and

          o reimbursement of out-of-pocket expenses.

     Directors who are not employees of the Company or Safeguard receive:

          o a stock option to purchase 10,000 shares of common stock upon
            initial election to the board, and

          o service grants to purchase 2,000 shares of common stock every two
            years after election to the board.

     Directors' initial options have a ten-year term and vest 25% each year
starting on the first anniversary of the grant date. Service grants have a
ten-year term and vest 50% each year starting on the anniversary of the grant
date. The exercise price is equal to the fair market value of Tangram common
stock on the date of grant. The maximum number of shares subject to option
grants for any individual director is 20,000.

     In November 1999, Messrs. Forster and Wilson each received a grant to
purchase 2,000 shares at an exercise price of $1.13 and $1.63 per share,
respectively.

EMPLOYMENT CONTRACTS; TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS

     In October 1993, Tangram entered into severance and non-competition
agreements with Messrs. Jesse and Kuekes and Ms. Dunn that provide for continued
health and dental benefits for up to one year and severance payments equal to
one year of their respective base salaries upon termination of employment for
any reason other than cause or voluntary termination. Tangram may, at its
discretion, provide these benefits upon termination for cause or voluntary
termination. Each officer has agreed to refrain from competing with


                                       25
<PAGE>

Tangram for one year after termination during which time severance payments and
health benefits would continue to be paid by Tangram.

     On January 3, 2000, Mr. Jesse voluntarily resigned and the board exercised
its option to grant the benefits provided under the severance and
non-competition agreement with Mr. Jesse.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The Compensation Committee currently consists of Mr. Wilson, Mr. Forster
and Mr. Ounsworth. Mr. Owens and Mr. Sempier served with Mr. Wilson as members
of the Compensation Committee from January 1, 1999 through May 19, 1999. Mr.
Charles A. Root served as a member of the Compensation Committee from May 19,
1999 through December 31, 1999. Mr. Root served as Chairman and as a member of
the board until his resignation, which was effective December 31, 1999.

     No executive officer of the Company served as a member of the Compensation
Committee (or other board committee performing similar functions or, in the
absence of any such committee, the entire board of directors) of another
corporation, one of whose executive officers served on the Compensation
Committee. No executive officer of the Company served as a director of another
corporation, one of whose executive officers served on the Compensation
Committee. No executive officer of the Company served as a member of the
Compensation Committee (or other board committee performing equivalent functions
or, in the absence of any such committee, the entire board of directors) of
another corporation, one of whose executive officers served as a director of the
Company.


                                       26
<PAGE>


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


     The following table sets forth certain information regarding beneficial
ownership of our common stock as of March 24, 2000 by:

          o each person (or group of affiliated persons) who is known by us to
            own more than five percent of the outstanding shares of our common
            stock;

          o each of our directors and our executive officers named in the
            summary compensation table; and

          o all of our executive officers and directors as a group.

     Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or investment power with respect to securities.
Unless otherwise noted, we believe that all persons named in the table have sole
voting and sole investment power with respect to all shares beneficially owned
by them. All figures include shares of the Company's common stock issuable upon
exercise of options exercisable within 60 days of March 24, 2000. These options
are deemed to be outstanding and to be beneficially owned by the person holding
them for the purpose of computing the percentage ownership of that person but
are not treated as outstanding for the purpose of computing the percentage
ownership of any other person.

          STOCK OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND GREATER
                    THAN 5% SHAREHOLDERS AS OF MARCH 24, 2000

<TABLE>
<CAPTION>
                                                                                             SHARES BENEFICIALLY
                                              SHARES BENEFICIALLY   OPTIONS EXERCISABLE         OWNED ASSUMING         PERCENT OF
                  NAME                               OWNED           WITHIN 60 DAYS(1)        EXERCISE OF OPTIONS        SHARES
                  ----                               -----           --------------           -------------------        ------

<S>                                               <C>                      <C>                   <C>                      <C>
Safeguard Scientifics, Inc. (2)                   10,816,604                     0               10,816,604                67.1%
  800 The Safeguard building
  435 Devon Park Drive
  Wayne, PA 19087
Norman L. Phelps                                           0                10,417                   10,417                    *
W. Christopher Jesse (3)                              41,746               575,000                  616,746                 3.7%
Michael H. Forster                                         0                 5,000                    5,000                    *
Steven F. Kuekes                                     940,727               360,000                1,300,727                 7.9%
John F. Owens                                              0                15,000                   15,000                    *
James A. Ounsworth                                         0                     0                        0                    *
Charles A. Root (4)                                  145,000                     0                  145,000                    *
Carl G. Sempier                                            0                15,000                   15,000                    *
Carl Wilson                                                0                12,000                   12,000                    *
Nancy M. Dunn                                         13,922                90,000                  103,922                    *
John N. Nelli                                              0                62,500                   62,500                    *
Executive officers and directors as a
group (11 persons)                                 1,141,395             1,144,917                2,286,312                   13.2%
</TABLE>

*     Less than 1% of Tangram's outstanding shares of common stock

(1)   Except as otherwise disclosed, each individual has the sole power to vote
      and to dispose of the shares (other than shares held jointly with spouse).

(2)   Safeguard Scientifics, Inc. includes shares held by Safeguard Scientifics
      (Delaware), Inc., a wholly-owned subsidiary of Safeguard Scientifics, Inc.
      All of the shares beneficially owned by Safeguard have been pledged by
      Safeguard as collateral under its line of credit.

(3)   Mr. Jesse resigned as President and CEO of Tangram and as a member of the
      board effective January 3, 2000.

(4)   Mr. Root resigned as Chairman and as a member of the board effective
      December 31, 1999.



                                       27
<PAGE>


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


     Safeguard provides Tangram an unsecured revolving line of credit of up to
$6,000,000. The loan is evidenced by a promissory note which bears interest at
an annual rate of the prime rate plus 1%. The principal amount is due and
payable thirteen months after the date of demand by Safeguard or earlier in the
case of a sale of substantially all the assets of Tangram, a business
combination or upon the closing of a debt or equity offering. Interest is
payable monthly. At December 31, 1999, the principal balance outstanding under
the loan that Tangram borrowed was $1,623,000. Tangram paid interest costs
totaling $253,000, $360,000 and $186,000 in 1999, 1998 and 1997, respectively.

     During 1999, Tangram had non-recourse, non-interest bearing loans
outstanding to each of Mr. Jesse, Mr. Kuekes and Ms. Dunn, for a total amount of
$1,284,000. These loans were secured by shares of the Company's common stock
owned by the officers and matured at various dates through April 15, 2000 or
termination of employment, whichever occurred first. In December 1999, Mr. Jesse
repaid in full his outstanding loans in the amount of $787,500. Payment was made
from the proceeds of Mr. Jesse's sale of 367,866 shares of Tangram common stock
to Safeguard at $2.14 per share. On January 10, 2000, Mr. Kuekes and Ms. Dunn
retired their respective loans outstanding of $250,000 and $246,500 by
surrendering to Tangram 51,501 shares of common stock of Tangram. The number of
shares surrendered was determined based on the current market price of Tangram's
common stock as reflected by the average of the high and low prices for the day.

     Tangram pays Safeguard an administrative support services fee equal to 1/4
of 1% of net sales, up to a maximum of $200,000 annually, including
reimbursement of certain out-of-pocket expenses incurred by Safeguard. The
administrative support services include consultation regarding Tangram's general
management, investor relations, financial management, certain legal services,
insurance programs administration, and tax research and planning, but does not
cover extraordinary services or services that are contracted out. The agreement
is subject to termination by Tangram or Safeguard upon notice 90 days' prior to
the end of any fiscal year. During the years ended December 31, 1999, 1998 and
1997, Tangram paid administrative services fees to Safeguard totaling
approximately $183,000, $267,000 and $254,000, respectively.

     Tangram employs an indirect sales force that works closely with its major
resellers and partners to manage the development of the indirect channel,
distribution of its product and product implementation. CompuCom Systems, Inc.
has been a reseller of the Asset Insight product since 1996. During the years
ended December 31, 1999, 1998 and 1997, Tangram has recognized revenue of
$882,100, $1,575,500 and $1,209,000, respectively from CompuCom Systems, Inc.
associated with their purchase and resell of the product and related
implementation services and annual maintenance contracts. As of December 31,
1999, CompuCom Systems, Inc. has an outstanding receivable with Tangram of
$662,900. Safeguard is the majority shareholder of CompuCom Systems, Inc.,
holding approximately 60% of CompuCom's outstanding voting securities.


                                       28
<PAGE>


                                     PART IV

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


(a)       The following documents are filed as a part of this report:

     (1)  Financial Statements

<TABLE>
<S>                                                                                                                 <C>
          (i)     Report of Independent Auditors....................................................................F-2

          (ii)    Balance Sheets at December 31, 1999 and 1998......................................................F-3

          (iii)   Statements of Operations for the years ended
                  December 31, 1999, 1998 and 1997..................................................................F-4

          (iv)    Statements of Shareholders' Equity for the years ended
                  December 31, 1999, 1998 and 1997..................................................................F-5

          (v)     Statements of Cash Flows for the years ended
                  December 31, 1999, 1998 and 1997..................................................................F-6

          (vi)    Notes to Financial Statements........................................................F-7 through F-15

     (2)  Financial Statement Schedule


          (i)     Schedule II -Valuation and Qualifying Accounts for the years ended
                  December 31, 1999, 1998 and 1997.................................................................F-17

</TABLE>

          All other schedules have been omitted because they are not applicable,
          not required, or the information has been otherwise supplied in the
          financial statements or notes to the financial statements.

     (3)  Exhibits


          See Item 14(c) of this Report.

(b)       Reports on Form 8-K.

          No reports on Form 8-K have been filed by the Registrant during the
          quarter ended December 31, 1999.


(c)       Exhibits

          The following is a list of exhibits required by Item 601 of Regulation
          S-K to be filed as part of this Report. For exhibits incorporated by
          reference, the location of the exhibit in the previous filing is
          indicated in parentheses.

                                       29
<PAGE>

<TABLE>
<CAPTION>
          EXHIBIT
          NUMBER           EXHIBIT DESCRIPTION

          <S>              <C>
          3.1              Articles of Incorporation of the Company, as amended (3) (Exhibit 3a)

          3.2              Articles of Amendment of Rabbit Software Corporation (4) (Exhibit 3.2)

          3.3              Articles of Amendment of the Company (5) (Exhibit 3.3)

          3.4              By-Laws of the Company, as amended (3) (Exhibit 3b)

          4.1              Form of Certificate evidencing Common Stock, $0.01 par value, of
                           the Company (5) (Exhibit 4.2)

          4.2**            The Company's 1988 Stock Option Plan, as amended (5) (Exhibit 4.5)

          4.3**            The Company's 1997 Equity Compensation Plan (7) (Exhibit 4.1)

          10.1             Agreement of Lease, executed by the Company on December 23, 1996, with
                           Rexford LLC (6) (Exhibit 10.1)

          10.2             Agreement of Lease, executed by the Company on February 17, 1986, with
                           Morehall Associates Limited  Partnership (1) (Exhibit 10m)

          10.3             First Amendment to Agreement of Lease, dated June 13, 1986, with
                           Morehall Associates Limited Partnership (2) (Exhibit 10i)

          10.4             Second Amendment to Agreement of Lease, dated June 1, 1989, with
                           Morehall Associates Limited Partnership (2) (Exhibit 10j)

          10.5             Third Amendment to Agreement of Lease, dated October 12, 1992, with
                           Morehall Associates Limited Partnership (3) (Exhibit 10d)

          10.6             Fourth Amendment to Agreement of Lease, dated January 28, 1997, with
                           Morehall Associates Limited Partnership (6) (Exhibit 10.6)

          10.7             Fifth Amendment to Agreement of Lease, dated March 10, 1997, with
                           Morehall Associates Limited Partnership (6) (Exhibit 10.7)

          10.8*            Sixth Amendment to Agreement of Lease, dated October 29, 1999, with
                           Rouse and Associates Limited Partnership

          10.9             Administrative Services Agreement with Safeguard Scientifics, Inc., dated
                           December 15, 1985 (1) (Exhibit 10s)

          10.10            Second Amended Revolving Note dated September 11, 1997, between the
                           Company and Safeguard Scientifics, Inc. (8) (Exhibit 10.1)

          10.11**          Promissory Note dated August 19, 1994, and Pledge
                           Agreement dated July 22, 1994, between the Company
                           and Chris Jesse (5) (Exhibit 10.12)

          10.12**          Promissory Note dated August 19, 1994, and Pledge
                           Agreement dated July 22, 1994, between the Company
                           and Steve Kuekes (5) (Exhibit 10.13)

                                       30
<PAGE>


          EXHIBIT
          NUMBER           EXHIBIT DESCRIPTION

          10.13**          Promissory Note dated August 19, 1994, and Pledge
                           Agreement dated July 22, 1994, between the Company
                           and Nancy Dunn (5) (Exhibit 10.14)

          10.14**          Promissory Note, Pledge Agreement and Agreement to Transfer or
                           Terminate dated January 31, 1995, between the Company and
                           Chris Jesse (5) (Exhibit 10.15)

          10.15**          Promissory Note  and Pledge Agreement dated January 31, 1995, between
                           the Company and Steve Kuekes (5) (Exhibit 10.16)

          10.16**          Promissory Note, Pledge Agreement and Agreement to Transfer or
                           Terminate dated January 31, 1995, between the Company and Nancy
                           Dunn (5) (Exhibit 10.17)

          10.17**          Memorandum of Agreement Regarding Compensation and Benefits dated
                           June 3, 1994 among Safeguard Scientifics, Inc., the Company, Chris Jesse,
                           Steven Kuekes and Nancy Dunn (5) (Exhibit 10.18)

          10.18**          Employee Non-Disclosure and Non-Competition Agreement dated
                           October 4, 1993, and First Amendment dated June 3, 1994, between the
                           Company and Chris Jesse (5) (Exhibit 10.19)

          10.19**          Employee Non-Disclosure and Non-Competition Agreement dated
                           October 4, 1993, and First Amendment dated June 3, 1994, between the
                           Company and Steve Kuekes (5) (Exhibit 10.20)

          10.20**          Employee Non-Disclosure and Non-Competition Agreement dated
                           October 4, 1993, and First Amendment dated June 3, 1994, between the
                           Company and Nancy Dunn (5) (Exhibit 10.21)

          10.21            Master Lease Agreement and Addendum No.1 dated July 23, 1997 between
                           the Company and Triangle Technology Leasing (8) (Exhibit 10.2)

          10.22**          Promissory Note and Pledge Agreement dated April 15, 1997, between
                           the Company and Chris Jesse (9) (Exhibit 10.21)

          10.23**          Promissory Note and Pledge Agreement dated April 15, 1997, between
                           the Company and Nancy Dunn (9) (Exhibit 10.22)

          23.1*            Consent of Ernst & Young LLP

          27.1*            Financial Data Schedule for the year ended December 31, 1999

          *                Filed herewith.
          **               Management contract or compensatory plan or
                           arrangement in which directors and/or executive
                           officers of the registrant may participate.
</TABLE>


                                       31
<PAGE>


           (1) Filed as an exhibit to the Company's Registration Statement on
               Form S-1 (No. 33-9525), and incorporated herein by reference.

           (2) Filed as an exhibit to the Company's Annual Report on Form 10-K
               for fiscal year ended December 31, 1989, and incorporated herein
               by reference.

           (3) Filed as an exhibit to the Company's Annual Report on Form 10-K
               for fiscal year year ended December 31, 1992, and incorporated
               herein by reference.

           (4) Filed as an exhibit to the Company's Current Report on Form 8-K
               dated ended September 30, 1993, and incorporated herein by
               reference.

           (5) Filed as an exhibit to the Company's Annual Report on Form 10-K
               for fiscal year ended December 31, 1994, and incorporated herein
               by reference.

           (6) Filed as an exhibit to the Company's Annual Report on Form 10-K
               for fiscal year ended December 31, 1996, and incorporated herein
               by reference.

           (7) Filed as an exhibit to the Company's Quarterly Report on Form
               10-Q for the period ended June 30, 1997, and incorporated herein
               by reference.

           (8) Filed as an exhibit to the Company's Quarterly Report on Form
               10-Q for the period ended September 30, 1997, and incorporated
               herein by reference.

           (9) Filed as an exhibit to the Company's Annual Report on Form 10-K
               for fiscal year ended December 31, 1998, and incorporated herein
               by reference.


(d)       See Item 14(a) of this Report




                                       32
<PAGE>


                                   SIGNATURES


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

                                        TANGRAM ENTERPRISE SOLUTIONS, INC.


Dated:  March 27, 2000                  By: /s/ Norman L. Phelps
                                            ---------------------
                                        Norman L. Phelps,
                                        President, Chief Executive Officer and
                                        Director


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

<TABLE>

<S>                                    <C>
Dated:  March 27, 2000                 /s/ Norman L. Phelps
                                       ---------------------
                                       Norman L. Phelps,
                                       President, Chief Executive Officer and
                                       Director
                                       (Principal Executive Officer)

Dated:  March 27, 2000                 /s/ John N. Nelli
                                       -----------------
                                       John N. Nelli,
                                       Senior Vice President and
                                       Chief Financial Officer
                                       (Principal Financial and Accounting Officer)


Dated:  March 27, 2000                 /s/ John F. Owens
                                       -----------------
                                       John F. Owens,
                                       Chairman of the Board of Directors

Dated:  March 27, 2000                 /s/ Steven F. Kuekes
                                       --------------------
                                       Steven F. Kuekes,
                                       Senior Vice President, Chief Technology
                                       Officer and Director

Dated:  March 27, 2000                 /s/ Michael H. Forster
                                       ----------------------
                                       Michael H. Forster,
                                       Director

Dated:  March 27, 2000                 /s/James A. Ounsworth
                                       ---------------------
                                       James A. Ounsworth,
                                       Director

Dated:  March 27, 2000                 /s/ Carl G. Sempier
                                       -------------------
                                       Carl G. Sempier,
                                       Director

Dated:  March 27, 2000                 /s/ Carl Wilson
                                       ---------------
                                       Carl Wilson,
                                       Director
</TABLE>

                                       33
<PAGE>
                       TANGRAM ENTERPRISE SOLUTIONS, INC.

                          AUDITED FINANCIAL STATEMENTS
                      AND ADDITIONAL FINANCIAL INFORMATION

                  YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997


                                    Contents


Report of Independent Auditors...............................................F-2

Audited Financial Statements

Balance Sheets...............................................................F-3
Statements of Operations.....................................................F-4
Statements of Shareholders' Equity...........................................F-5
Statements of Cash Flows.....................................................F-6
Notes to Financial Statements................................................F-7

Additional Financial Information

Schedule II - Valuation and Qualifying Accounts.............................F-17

                                      F-1
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS


Board of Directors and Shareholders
Tangram Enterprise Solutions, Inc.

We have audited the balance sheets of Tangram Enterprise Solutions, Inc. as of
December 31, 1999 and 1998, and the related statements of operations,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. Our audits also included the financial statement
schedule listed in the Index at Item 14(a). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule 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 Tangram Enterprise Solutions,
Inc. as of December 31, 1999 and 1998, and the results of its operations and
cash flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.


                                                           /s/ Ernst & Young LLP

Raleigh, North Carolina
January 31, 2000

                                      F-2
<PAGE>

                       TANGRAM ENTERPRISE SOLUTIONS, INC.

                                 BALANCE SHEETS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                 DECEMBER 31
                                                                          1999                 1998
                                                                  ------------------------------------------
<S>                                                                     <C>                  <C>
 ASSETS
 Current assets:
    Cash and cash equivalents                                           $     445            $     245
    Accounts receivable, net of allowance of $509 and
      $1,262 in 1999 and 1998                                               5,148                5,930
    Notes receivable - officers                                               496                  392
    Other                                                                     203                  262
                                                                  ------------------------------------------
  Total current assets                                                      6,292                6,829

 Property and equipment:
    Computer equipment and software                                           715                  709
    Office equipment and furniture                                            118                  102
    Leasehold improvements                                                     88                   88
                                                                  ------------------------------------------
                                                                              921                  899
    Less accumulated depreciation and amortization                           (670)                (518)
                                                                  ------------------------------------------
  Total property and equipment                                                251                  381

 Other assets:
    Notes receivable - officers, less current portion                          -                   892
    Deferred software costs, net                                            2,894                3,369
    Cost in excess of net assets of business acquired, net                  2,911                3,659
    Other                                                                      40                   40
                                                                  ------------------------------------------
  Total other assets                                                        5,845                7,960
                                                                  ------------------------------------------
  Total assets                                                          $  12,388            $  15,170
                                                                  ==========================================

 LIABILITIES AND SHAREHOLDERS' EQUITY
 Current liabilities:
    Accounts payable                                                    $     371            $     794
    Accrued expenses                                                        1,030                1,088
    Deferred revenue                                                        3,371                3,476
                                                                  ------------------------------------------
  Total current liabilities                                                 4,772                5,358

 Long-term debt - shareholder                                               1,623                3,576
 Other liabilities                                                            428                  472

 Shareholders' equity:
    Common stock, par value $0.01, authorized 48,000,000 shares,
      15,922,238 issued and outstanding in 1999 and 15,805,817
      issued and 15,781,124 outstanding in 1998                               159                  158
    Additional paid-in capital                                             44,622               44,522
    Accumulated deficit                                                   (39,216)             (38,772)
    Treasury stock, at cost, 24,693 shares in 1998                             -                  (144)
                                                                  ------------------------------------------
  Total shareholders' equity                                                5,565                5,764
                                                                  ------------------------------------------
  Total liabilities and shareholders' equity                            $  12,388            $  15,170
                                                                  ==========================================
</TABLE>

SEE ACCOMPANYING NOTES.

                                      F-3
<PAGE>


                       TANGRAM ENTERPRISE SOLUTIONS, INC.

                            STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31
                                                         1999               1998               1997
                                                  ---------------------------------------------------------
<S>                                                  <C>                 <C>               <C>
Revenue:
   Licenses and products                             $    10,963         $    14,387       $     7,968
   Services                                                7,715               6,291             6,106
                                                  ---------------------------------------------------------
Total revenue                                             18,678              20,678            14,074

 Cost of revenue:
   Cost of licenses and products                           2,942               2,427             1,705
   Cost of services                                        2,204               1,934             1,778
                                                  ---------------------------------------------------------
Total cost of revenue                                      5,146               4,361             3,483
                                                  ---------------------------------------------------------

 Gross profit                                             13,532              16,317            10,591

Operating expenses:
   Sales and marketing                                     7,550               8,171             6,545
   General and administrative                              2,326               3,398             4,160
   Research and development                                3,965               3,340             3,192
                                                  ---------------------------------------------------------
Total operating expenses                                  13,841              14,909            13,897
                                                  ---------------------------------------------------------

(Loss) income from operations                               (309)              1,408            (3,306)

Other expense, net                                          (154)               (272)             (155)
                                                  ---------------------------------------------------------

(Loss) income before income taxes                           (463)              1,136            (3,461)
Income tax provision (benefit)                               (19)                 20                 -
                                                  ---------------------------------------------------------

Net (loss) income                                    $      (444)        $     1,116       $    (3,461)
                                                  =========================================================

(Loss) earnings per common share:
   Basic                                             $     (0.03)        $      0.07       $     (0.22)
                                                  =========================================================
   Diluted                                           $     (0.03)        $      0.06       $     (0.22)
                                                  =========================================================

Weighted average number of common shares outstanding:
   Basic                                                  15,799              15,747            15,631
                                                  =========================================================
   Diluted                                                15,799              17,265            15,631
                                                  =========================================================
</TABLE>

SEE ACCOMPANYING NOTES.

                                      F-4
<PAGE>

                       TANGRAM ENTERPRISE SOLUTIONS, INC.

                       STATEMENTS OF SHAREHOLDERS' EQUITY
                     (IN THOUSANDS, EXCEPT NUMBER OF SHARES)


<TABLE>
<CAPTION>
                                     COMMON STOCK       ADDITIONAL                    TREASURY STOCK
                                  ----------------------  PAID-IN    ACCUMULATED   -----------------------  SHAREHOLDERS'
                                  SHARES      AMOUNT      CAPITAL      DEFICIT        SHARES      AMOUNT        EQUITY
                                -----------------------------------------------------------------------------------------
<S>                             <C>              <C>      <C>         <C>           <C>            <C>        <C>
Balance at December 31, 1996    15,665,363       $157     $44,729     $(36,427)     (32,331)       $(202)     $8,257
   Exercise of stock options       102,384          1         (16)           -       32,331          202         187
   Acquisition of treasury
   stock                                 -          -           -            -      (86,018)        (500)       (500)
   Net loss                              -          -           -       (3,461)           -            -      (3,461)
                                -----------------------------------------------------------------------------------------

Balance at December 31, 1997    15,767,747        158      44,713      (39,888)     (86,018)        (500)      4,483
   Exercise of stock options        38,070          -        (191)           -       61,325          356         165
   Net income                            -          -           -        1,116            -            -       1,116
                                -----------------------------------------------------------------------------------------

Balance at December 31, 1998    15,805,817        158      44,522      (38,772)     (24,693)        (144)      5,764
   Exercise of stock options       116,421          1         100            -       24,693          144         245
   Net loss                              -          -           -         (444)           -            -        (444)
                                -----------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999    15,922,238       $159     $44,622     $(39,216)           -        $   -      $5,565
                                =========================================================================================
</TABLE>

SEE ACCOMPANYING NOTES.

                                      F-5
<PAGE>

                       TANGRAM ENTERPRISE SOLUTIONS, INC.

                            STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                      YEAR ENDED DECEMBER 31
                                                                              1999             1998             1997
                                                                         --------------------------------------------------
<S>                                                                         <C>             <C>               <C>
OPERATING ACTIVITIES
Net (loss)income                                                            $    (444)      $   1,116         $  (3,461)
Adjustments to reconcile net earnings (loss) to net cash provided
   by operating activities:
   Depreciation                                                                   183             216               286
   Amortization                                                                 2,945           2,656             2,248
   Reserve for doubtful accounts                                                 (550)            113             1,018
   Other                                                                          (65)              -               314
   Cash provided by changes in working capital items:
     Accounts receivable and other current assets                               1,391          (3,073)             (992)
     Accounts payable                                                            (423)            123                81
     Accrued expenses                                                             (58)           (359)              724
     Deferred revenue                                                            (105)            611               245
                                                                         --------------------------------------------------
   Net cash provided by operating activities                                    2,874           1,403               463

INVESTING ACTIVITIES
Deferred software costs                                                        (1,722)         (1,988)           (1,777)
Repayment (borrowing) on notes receivable-officers                                788               -              (500)
Expenditures for property and equipment                                          (137)           (483)             (953)
Sale-leaseback of equipment and furniture                                         105             373               826
Decrease (increase) in other assets                                                 -              (3)               36
                                                                         --------------------------------------------------
   Net cash used in investing activities                                         (966)         (2,101)           (2,368)

FINANCING ACTIVITIES
Net (repayments) borrowings on note payable to shareholder                     (1,953)            570             2,606
Proceeds from exercise of stock options                                           245             165               187
Repayment on notes payable                                                          -             (38)             (318)
Acquisition of treasury stock                                                       -               -              (500)
                                                                         --------------------------------------------------
   Net cash (used in) provided by financing activities                         (1,708)            697             1,975
                                                                         --------------------------------------------------

Net increase (decrease) in cash                                                   200              (1)               70
Cash and cash equivalents, beginning of year                                      245             246               176
                                                                         --------------------------------------------------
Cash and cash equivalents, end of year                                      $     445       $     245         $     246
                                                                         ==================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
   Cash paid during the year for interest                                   $     254       $     363         $     208
                                                                         ==================================================
</TABLE>

SEE ACCOMPANYING NOTES.

                                      F-6
<PAGE>


                       TANGRAM ENTERPRISE SOLUTIONS, INC.

                          NOTES TO FINANCIAL STATEMENTS

                                DECEMBER 31, 1999



1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION AND DESCRIPTION OF BUSINESS

Tangram Enterprise Solutions, Inc (the "Company") provides enterprise wide
solutions, including asset tracking and electronic software distribution for
large heterogeneous computing environments, encompassing mainframe, UNIX-based
mini and LAN server platforms. The Company's common stock trades on The Nasdaq
SmallCap Market tier of The Nasdaq Stock Market under the symbol TESI. The
Company is a partner company of Safeguard Scientifics, Inc. ("Safeguard").
Safeguard incubates and operates developing technology companies in the
Internet infrastructure market with a focus on three sectors: software,
communications and eServices. Safeguard also participates in several private
equity funds, which help to expand the Safeguard network to 250 Internet-related
companies. Safeguard generally requires ownership interest in companies that
allow it to have a significant influence over their direction and management
over the long-term. Safeguard is the majority shareholder of the  Company
holding approximately 67% of the Company's outstanding common shares.

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 amounts reported in the financial statements and accompanying notes.
Actual results can differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments with a maturity of less than
three months when purchased to be cash equivalents.

REVENUE RECOGNITION

In October 1997, the Accounting Standards Executive Committee (AcSEC) issued
Statement of Position (SOP) 97-2 Software Revenue Recognition, as amended in
March 1998 by SOP 98-4 and October 1998 by SOP 98-9. These SOPs provide guidance
on applying generally accepted accounting principles in recognizing revenue on
software transactions. The Company adopted SOP 97-2 for software transactions
entered into beginning January 1, 1998. Based on the current requirements of the
SOPs, application of these statements did not have a material impact on the
Company's revenue recognition policies. However, AcSEC is currently reviewing
further modifications to the SOP with the objective of providing more
definitive, detailed implementation guidelines. This guidance could lead to
unanticipated changes in the Company's operational and revenue recognition
practices.

The Company derives revenue from software licenses, postcontract customer
support (PCS), and consulting services. Licenses and products revenue include
software license fees under perpetual and period licensing agreements and
revenue from the sale of gateway and other products, which include both hardware
and software. Postcontract customer support includes telephone support, bug
fixes, and rights to upgrades on a when-and-if available basis. Consulting
services consist primarily of implementation services performed on a time and
material basis for the installation of the Company's software products, database
trigger services which create a mechanism for importing data from a third party
system into the Company's software products and on-site training services.
Revenue from software license agreements and product sales are recognized upon
delivery, provided that all of the following conditions are met: a
non-cancelable license agreement has been signed; the software has been
delivered;

                                      F-7
<PAGE>

                       TANGRAM ENTERPRISE SOLUTIONS, INC.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)


1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

no significant production, modification or customization of the software is
required; the vendor's fee is fixed or determinable; and collection of the
resulting receivable is deemed probable. In software arrangements that include
rights to software products, specified upgrades or gateways, PCS, and/or other
services, the Company allocates the total arrangement fee among each deliverable
based on vendor-specific objective evidence. Revenue from maintenance agreements
are recognized ratably over the term of the maintenance period, generally one
year. Consulting and training services, which are not considered essential to
the functionality of the software products, are recognized as the respective
services are performed.

COST OF REVENUE

Cost of licenses and products includes the cost related to the distribution of
licensed software and hardware products and amortization of capitalized software
development costs. Costs of services includes the cost of the direct labor
force, including the associated personnel, travel and subsistence, and occupancy
costs incurred in connection with providing consulting and maintenance services.

SALES AND CONCENTRATION OF CREDIT RISK

The Company operates in a single industry and is engaged in design and sale of a
limited number of software products. No single customer accounted for more than
10% of total revenue in 1999 and 1998. During 1997 approximately 10% of sales
were made to the Company's largest customer. Two of the Company's customers
represented 20% and 12% of the accounts receivable balance at December 31, 1999
and one customer accounted for 14% at December 31, 1998.

International sales (including maintenance contracts) represented approximately
5%, 12%, and 14% of the Company's total revenue in fiscal years 1999, 1998, and
1997, respectively. To date, the majority of international revenue has been
denominated in United States currency; therefore, the Company's results of
operations have not been affected by currency fluctuation.

The Company's principal financial instrument subject to potential concentration
of credit risk is accounts receivable, which are unsecured. The Company performs
ongoing credit evaluations of its customer's financial condition. Management
believes that the concentration of credit risk with respect to trade receivables
is further mitigated as the Company's customer base consists primarily of
Fortune 1000 companies. The Company maintains reserves for credit losses and
such losses historically have been within management estimates.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation and amortization of
property and equipment is provided using the straight-line method over estimated
useful lives ranging from three to seven years.

INTANGIBLE ASSETS

Intangible assets are amortized by the methods and over the estimated lives as
set forth in Note 2.

INCOME TAXES

The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes". Under SFAS 109, the liability method is used in accounting for income
taxes and deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax basis of assets and
liabilities.

                                      F-8
<PAGE>

                       TANGRAM ENTERPRISE SOLUTIONS, INC.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)



1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

EARNINGS PER SHARE

The basic earnings per common share calculations for the three years ended
December 31, 1999, 1998 and 1997 are computed based on the weighted-average
number of common shares outstanding during each period. Diluted earnings per
common share reflect the potential dilution that would occur assuming the
exercise of stock options. Basic and diluted earnings per share are the same in
1999 and 1997 because the effect of inclusion of the exercise of stock options
would be to reduce the loss per common share. If the exercise of stock options
were included, the weighted average number of common shares outstanding would
have increased by 895,000 and 1,622,000 for the years ended December 31, 1999
and 1997, respectively.

ACCOUNTING FOR STOCK OPTIONS

The Company has adopted Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation" which gives companies
the option to adopt the fair value method for expense recognition of employee
stock options and other stock-based awards or to continue to account for such
items using the intrinsic value method as outlined under Accounting Principles
Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees" with
pro forma disclosures of net income (loss) and net income (loss) per share as if
the fair value method had been applied. The Company has elected to continue to
apply APB 25 for stock options and other stock based awards and has disclosed
pro forma net loss and net loss per share as if the fair value method had been
applied.

2.  INTANGIBLE ASSETS

Intangible assets consist of the following at December 31, 1999 and 1998 (IN
THOUSANDS):

<TABLE>
<CAPTION>
                                            AMORTIZATION        ESTIMATED
                                               METHOD             LIVES           1999           1998
                                          ------------------ ---------------- -------------- -------------
<S>                                       <C>                  <C>              <C>            <C>
Cost in excess of net assets of
   business acquired                      Straight-line        10-15 years      $   8,588      $   8,588
Software development costs                Straight-line            3 years          4,018          6,079
                                                                              -------------- -------------
                                                                                   12,606         14,667
Less accumulated amortization                                                      (6,801)        (7,639)
                                                                              -------------- -------------
Net intangible assets                                                           $   5,805      $   7,028
                                                                              ============== =============
</TABLE>

The Company assesses the recoverability of the excess of cost over net assets of
business acquired based on management's projections of future cash flow of the
respective operation.

Software development costs are accounted for in accordance with Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed". Costs associated with the
planning and designing phase of software development, including coding and
testing activities necessary to establish technological feasibility, are
classified as product development and expensed as incurred. Once technological
feasibility has been determined, additional costs incurred in development,
including coding, testing, and product quality assurance, are capitalized.

                                      F-9
<PAGE>

                       TANGRAM ENTERPRISE SOLUTIONS, INC.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)



2.  INTANGIBLE ASSETS (CONTINUED)

Amortization is provided on a product-by-product basis over the estimated
economic life of the software, not to exceed three years, using the
straight-line method. Amortization commences when a product is available for
general release to customers. During 1999 and 1998, approximately $3,784,000 and
$2,187,000, respectively, of fully amortized software development costs were
removed from intangible assets and accumulated amortization.

Research and development costs are comprised of the following as of December 31
(IN THOUSANDS):

<TABLE>
<CAPTION>
                                                                 1999           1998           1997
                                                             ------------- --------------- --------------
<S>                                                           <C>           <C>             <C>
Research and development costs incurred                       $   5,687     $   5,328       $   4,969
Less - capitalized software development costs                    (1,722)       (1,988)         (1,777)
                                                             ------------- --------------- --------------
Research and development costs, net                           $   3,965     $   3,340       $   3,192
                                                             ============= =============== ==============
</TABLE>

Included in cost of revenue is amortization of software development costs of
$2,198,000, $1,908,000 and $1,510,000 in 1999, 1998 and 1997, respectively.
Amortization of software development cost for the year ended December 31, 1999
includes $410,000 related to accelerated amortization periods due to reduced
expected useful lives of certain capitalized software costs recorded prior to
1999.

3.  DEBT

The Company has a $6.0 million unsecured revolving line of credit with
Safeguard. Terms of the line of credit require monthly interest payments at the
prime rate plus 1%. Principal is due thirteen months after date of demand by
Safeguard or earlier in the case of a sale of substantially all of the assets of
the Company, a business combination or upon the closing of a debt or equity
offering.

Total interest expense was $244,000, $377,000 and $256,000 for the years ended
1999, 1998 and 1997, respectively.

4.  LEASES

In July 1997, the Company entered into a sale-leaseback agreement. Under the
arrangement, the Company has received, at varying times through December 31,
1999, $1.3 million for computer equipment and furniture that had a net book
value of $1.1 million. The leaseback has been accounted for as an operating
lease. The aggregate minimum monthly rental payment under these transactions is
approximately $31,400. The gains recognized in these transactions have been
deferred and are being amortized to income in proportion to rental expense over
the term of the lease.

The Company leases its facilities and certain equipment under several
non-cancelable operating lease agreements that expire at various times through
2004. Rental expense under these leases for the years ended December 31, 1999,
1998 and 1997 totaled approximately $1,477,000, $1,406,000 and $1,184,000,
respectively.

                                      F-10
<PAGE>


                       TANGRAM ENTERPRISE SOLUTIONS, INC.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)



4.  LEASES (CONTINUED)

Future minimum lease payments under noncancelable operating leases at December
31, 1999 are as follows (IN THOUSANDS):

   2000                                               $     1,476
   2001                                                     1,379
   2002                                                     1,205
   2003                                                       996
   2004                                                       719
                                                      ---------------
                                                      $     5,775
                                                      ===============

5.  STOCK OPTIONS

The Company has granted incentive and non-qualified stock options to employees
and directors, both under and outside of formal option plans. The Company has
three outstanding stock option plans: the 1988 Stock Option Plan (the "1988
Plan"), the Stock Option Plan for Directors (the "Directors' Plan") and the 1997
Equity Compensation Plan (the "1997 Plan").

The Company may no longer grant options under the 1988 Plan or the Directors'
Plan. Through December 31, 1999, the Company had options outstanding under these
plans of 1,675,200 shares (1988 Plan), 188,000 shares (Director's Plan) and
753,900 shares (1997 Plan). Under the plans, the Board of Directors determines
the option exercise price on a per-grant basis, but the price shall not be less
than fair market value on the date of grant. Generally, outstanding options vest
over periods not exceeding 4 years after the date of grant and expire 10 years
after the date of grant. All options granted under the plans to date have been
at prices which have been equal to fair market value at date of grant. At
December 31, 1999, the Company has approximately 3,858,500 shares of common
stock reserved for future issuance under the plans.

Option activity under the Company's plans are summarized below (IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS):

<TABLE>
<CAPTION>
                                                1999                    1998                    1997
                                      ------------------------- ---------------------- ------------------------
                                                    WEIGHTED                WEIGHTED               WEIGHTED
                                                     AVERAGE                AVERAGE                 AVERAGE
                                                    EXERCISE                EXERCISE               EXERCISE
                                        SHARES        PRICE      SHARES      PRICE      SHARES       PRICE
                                      ------------ ------------ ---------- ----------- --------- --------------
<S>                                      <C>           <C>         <C>         <C>        <C>        <C>
Outstanding at beginning of year         2,549         $2.29       2,342       $2.27      2,219      $1.65
Options granted                            342          4.84         766        4.86        290       6.73
Options exercised                         (141)         1.76         (99)       1.66       (134)      1.39
Options canceled                          (133)         3.95        (460)       6.65        (33)      6.55
                                      ------------ ------------ ---------- ----------- --------- --------------
Outstanding at end of year               2,617         $2.54       2,549       $2.29      2,342      $2.27
                                      ============ ============ ========== =========== ========= ==============

Options exercisable at year-end          1,933                     1,807                  1,652
Shares available for future grant        1,242                     1,444                  1,787
</TABLE>

                                      F-11
<PAGE>

                       TANGRAM ENTERPRISE SOLUTIONS, INC.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5.  STOCK OPTIONS (CONTINUED)

The following summarizes information about the Company's stock options
outstanding at December 31, 1999 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS):

<TABLE>
<CAPTION>
                                         OPTIONS OUTSTANDING                       OPTIONS EXERCISABLE
                          -------------------------------------------------- --------------------------------
        RANGE OF              NUMBER          WEIGHTED.         WEIGHTED         NUMBER         WEIGHTED
        EXERCISE           OUTSTANDING     AVG. REMAINING    AVG. EXERCISE    EXERCISABLE     AVG. EXERCISE
          PRICES          AT 12/31/99    CONTRACTUAL LIFE       PRICE        AT 12/31/99        PRICE
     ------------------ ---------------- ------------------ --------------- -------------- -----------------
<S>                             <C>               <C>           <C>                <C>            <C>
     $1.00 - $1.25              352               4.4 yrs.      $  1.11            350            $  1.11
     $1.50 - $1.75            1,272               4.4              1.50          1,270               1.50
     $2.19 - $2.53              144               5.6              2.20            139               2.19
     $3.00 - $3.50              196               9.2              3.15              0               0.00
     $3.75 - $3.75              283               8.5              3.75             55               3.75
     $4.50 - $4.75              125               8.1              4.68             44               4.68
     $5.00 - $5.75                8               7.9              5.27              6               5.22
     $6.13 - $6.75              100               7.4              6.44             62               6.25
     $7.00 - $7.88              137               9.8              7.80              7               7.09
                          --------------- ------------------ --------------- --------------- ----------------
                              2,617               5.8 yrs.      $  2.54          1,933            $  1.80
                          =============== ================== =============== =============== ================
</TABLE>

The Company applies APB 25 and related interpretations in accounting for its
various stock option plans. Had compensation expense been recognized consistent
with SFAS 123, the Company's net loss would have been $1,252,000, or $0.08 per
share, in 1999, $165,000 or $0.01 per share, in 1998, $3,959,000, or $0.25 per
share, in 1997.

The per share weighted-average fair value of stock options issued by the Company
during 1999, 1998 and 1997 was $4.22, $4.25 and $5.26, respectively, on the
dates of grant.

The following assumptions were used by the Company to determine the fair value
of stock options granted using the Black-Scholes option-pricing model:

<TABLE>
<CAPTION>
                                                           1999               1998                1997
                                                    ------------------- ----------------- ----------------------
<S>                                                             <C>                <C>                       <C>
     Dividend yield                                             0%                 0%                        0%
     Expected volatility                                      100%               100%                      100%
     Expected option life                            8 to 10 years      5 to 10 years             5 to 10 years
     Risk-free interest rate                          5.5% to 6.8%       4.6% to 5.9%              5.9% to 6.8%
</TABLE>

Pro forma net loss reflects only options granted since January 1, 1995.
Therefore, the full impact of calculating compensation expense for stock options
under SFAS 123 is not reflected in the pro forma net loss amounts presented
above because compensation expense is reflected over the options' vesting period
and compensation expense for options granted prior to January 1, 1995 is not
considered.

6.  RELATED PARTY TRANSACTIONS

During the years ended December 31, 1999, 1998 and 1997, the Company paid
administrative services fees to Safeguard totaling approximately $183,000,
$267,000 and $254,000, respectively. The Company also paid Safeguard interest
costs under a revolving credit agreement of $253,000, $360,000 and $186,000 in
1999, 1998 and 1997, respectively.

                                      F-12
<PAGE>

                       TANGRAM ENTERPRISE SOLUTIONS, INC.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)



6.  RELATED PARTY TRANSACTIONS (CONTINUED)

During 1999 and 1998, the Company had non-recourse, non-interest bearing loans
due from certain officers of the Company totaling $1,284,000. These loans were
secured by shares of the Company's common stock owned by the officers and
matured at various dates through April 15, 2000 or termination of employment,
whichever occurred first. In December 1999, outstanding loans in the amount of
$787,500 were repaid in full. The total remaining loans outstanding of $496,500
at December 31, 1999 were repaid in full in January 2000 through the surrender
of 51,501 shares of common stock of the Company based on the current market
price of the Company's common stock as reflected by the average of the high and
low prices on January 10, 2000.

The Company employs an indirect sales force that works closely with its major
resellers and partners to manage the development of the indirect channel,
distribution of its product and product implementation. CompuCom Systems, Inc.
has been a reseller of the Asset Insight product since 1996. During the years
ended December 31, 1999, 1998 and 1997, the Company has recognized revenue of
$882,100, $1,575,500 and $1,209,000, respectively from CompuCom Systems, Inc.
associated with their purchase and resell of Company products and related
implementation services and annual maintenance contracts. As of December 31,
1999, CompuCom Systems, Inc. has an outstanding receivable with the Company of
$662,900. Safeguard is the majority shareholder of CompuCom Systems, Inc.,
holding approximately 60% of CompuCom's outstanding voting securities.

7.  INCOME TAXES

The components of income tax (benefit) expense for the years ended December 31
consist of the following (IN THOUSANDS):

<TABLE>
<CAPTION>
                                                          1999               1998                1997
                                                   ----------------------------------------------------------
<S>                                                     <C>                <C>                 <C>
Current (benefit) expense
   Federal                                              $     (19)         $      20           $       -
   State                                                        -                  -                   -
                                                   ----------------------------------------------------------
                                                              (19)                20                   -
Deferred (benefit) expense
   Federal                                                      -                  -                   -
   State                                                        -                  -                   -
                                                   ----------------------------------------------------------
                                                                -                  -                   -
                                                   ----------------------------------------------------------
Total                                                   $     (19)         $      20           $       -
                                                   ==========================================================
</TABLE>


The components of net deferred taxes as of December 31 are as follows (IN
THOUSANDS):

<TABLE>
<CAPTION>
                                                1999               1998
                                         --------------------------------------
<S>                                           <C>                <C>
Deferred tax assets
   Tax loss carryforwards                     $  10,336          $   9,941
   Tax credit carryforwards                         392                400
   Deferred software costs                         (835)            (1,112)
   Allowance for doubtful accounts                  173                429
   Other                                            437                317
                                         --------------------------------------
Total gross deferred tax assets                  10,503              9,975
Valuation allowance                             (10,503)            (9,975)
                                         --------------------------------------
Net deferred tax assets                       $       -          $       -
                                         ======================================
</TABLE>

                                      F-13
<PAGE>


                       TANGRAM ENTERPRISE SOLUTIONS, INC.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)



7.  INCOME TAXES (CONTINUED)

The actual income tax expense for 1999, 1998 and 1997 differs from the
"expected" amount (computed by applying the statutory federal income tax rate of
34% to the loss before income taxes) as follows (IN THOUSANDS):

<TABLE>
<CAPTION>
                                                          1999               1998                1997
                                                   ----------------------------------------------------------
<S>                                                     <C>                <C>                 <C>
Computed "expected" tax expense (benefit)               $    (157)         $     379           $    (868)
Non-deductible amortization                                   254                254                 251
Change in valuation allowance and other                      (116)              (613)                617
                                                   ----------------------------------------------------------
Actual tax expense                                      $     (19)         $      20           $       -
                                                   ==========================================================
</TABLE>

At December 31, 1999, the Company has net operating loss carryforwards of
approximately $30.4 million. The net operating loss carryforwards expire in
various amounts from 2000 through 2019. The Tax Reform Act of 1986 contains
provisions that limit the ability to utilize net operating loss carryforwards in
the case of certain events including significant changes in ownership interests.
As there was a significant change in ownership interests (as defined) on June
29, 1989, the Company is limited in its ability to utilize approximately $18.0
million of its net operating loss carryforwards. The annual limitation for the
utilization of these carryforwards is approximately $1.3 million, and any unused
amount can be utilized in subsequent years within the carryforward period.

At December 31, 1999, the Company had available approximately $376,000 and
$16,000 of research and development and investment credit carryforwards,
respectively, which expire in varying amounts from 2000 through 2003.

8.  EMPLOYEE BENEFIT PLANS

The Company provides certain health and medical benefits to eligible employees,
their spouses and dependents pursuant to a benefit plan funded by the Company.
Each participating employee contributes to the Company's costs associated with
such benefit plan. The Company's obligation to fund this benefit plan and pay
for these benefits is capped through the Company's purchase of an insurance
policy from a third party insurer. The amount established as a reserve is
intended to recognize the Company's estimated obligations with respect to its
payment of claims and claims incurred but not yet reported under the benefit
plan. Management believes that the recorded liability for medical self-insurance
at December 31, 1999 is adequate to cover the losses and claims incurred, but
these reserves are necessarily based on estimates and the amount ultimately paid
may be more or less than such estimates. These estimates are based upon
historical information along with certain assumptions about future events,
including increases in projected medical costs.

The Company has a retirement plan which is qualified under Section 401(k) of the
Internal Revenue Code. This plan covers substantially all employees who meet
minimum age requirements and allows participants to defer a portion of their
annual compensation on a pre-tax basis. Company contributions to the plan may be
made at the discretion of the Board of Directors. No Company contributions have
been made through December 31, 1999.

The Company does not offer post-retirement or post-employment benefits.

                                      F-14
<PAGE>

                       TANGRAM ENTERPRISE SOLUTIONS, INC.

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)




9.  CONTINGENCIES

Since February 1998, the Company has disclosed a dispute regarding a customer's
failure to pay for software products sold and delivered by the Company. As a
result of the customer's non-payment, the Company fully reserved in 1997 for the
outstanding receivable due. In May 1999, the Company and the customer reached an
amicable resolution to the dispute that resulted in the recovery of $925,000 of
the outstanding receivable which is reflected in the 1999 statements of
operations as a reduction to general and administrative expenses.

There are no other material pending legal proceedings to which the Company is a
party or of which any of its property is subject.

                                      F-15
<PAGE>

                       TANGRAM ENTERPRISE SOLUTIONS, INC.

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                  YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997


<TABLE>
<CAPTION>

                                                           BALANCE AT      ADDITIONS CHARGED
                                                          BEGINNING OF       TO COSTS AND      DEDUCTIONS FROM    BALANCE AT END OF
                                                             PERIOD            EXPENSES            RESERVES            PERIOD
                                                        ---------------    ----------------    ---------------    ------------------
<S>                                                      <C>                <C>                 <C>                <C>
Year ended December 31, 1999:
  Allowance for doubtful accounts                        $   1,262,400      $     375,000       $   1,128,700      $     508,700

Year ended December 31, 1998:
  Allowance for doubtful accounts                            1,148,600            442,500             328,700          1,262,400

Year ended December 31, 1997:
  Allowance for doubtful accounts                              244,100          1,017,900             113,400          1,148,600
</TABLE>

                                      F-16

<PAGE>


                                  EXHIBIT INDEX


     Except as indicated by footnote, all of the following exhibits were filed
with the Company's Annual Report on Form 10-K, dated December 31, 1999. For
exhibits incorporated by reference, the location of the exhibit in the previous
filing is indicated in parentheses.


<TABLE>
<CAPTION>

        EXHIBIT NO.        EXHIBIT DESCRIPTION
<S>                        <C>
          3.1              Articles of Incorporation of the Company, as amended (3) (Exhibit 3a)

          3.2              Articles of Amendment of Rabbit Software Corporation (4) (Exhibit 3.2)

          3.3              Articles of Amendment of the Company (5) (Exhibit 3.3)

          3.4              By-Laws of the Company, as amended (3) (Exhibit 3b)

          4.1              Form of Certificate evidencing Common Stock, $0.01 par value, of
                           the Company (5) (Exhibit 4.2)

          4.2**            The Company's 1988 Stock Option Plan, as amended (5) (Exhibit 4.5)

          4.3**            The Company's 1997 Equity Compensation Plan (7) (Exhibit 4.1)

          10.1             Agreement of Lease, executed by the Company on December 23, 1996, with
                           Rexford LLC (6) (Exhibit 10.1)

          10.2             Agreement of Lease, executed by the Company on February 17, 1986, with
                           Morehall Associates Limited  Partnership (1) (Exhibit 10m)

          10.3             First Amendment to Agreement of Lease, dated June 13, 1986, with
                           Morehall Associates Limited Partnership (2) (Exhibit 10i)

          10.4             Second Amendment to Agreement of Lease, dated June 1, 1989, with
                           Morehall Associates Limited Partnership (2) (Exhibit 10j)

          10.5             Third Amendment to Agreement of Lease, dated October 12, 1992, with
                           Morehall Associates Limited Partnership (3) (Exhibit 10d)

          10.7             Fourth Amendment to Agreement of Lease, dated January 28, 1997, with
                           Morehall Associates Limited Partnership (6) (Exhibit 10.6)

          10.7             Fifth Amendment to Agreement of Lease, dated March 10, 1997, with
                           Morehall Associates Limited Partnership (6) (Exhibit 10.7)

          10.8*            Sixth Amendment to Agreement of Lease, dated October 29, 1999, with
                           Rouse and Associates Limited Partnership

          10.9             Administrative Services Agreement with Safeguard Scientifics, Inc., dated
                           December 15, 1985 (1) (Exhibit 10s)

          10.10            Second Amended Revolving Note dated September 11, 1997, between the
                           Company and Safeguard Scientifics, Inc. (8) (Exhibit 10.1)

          10.11**          Promissory Note dated August 19, 1994, and Pledge
                           Agreement dated July 22, 1994, between the Company
                           and Chris Jesse (5) (Exhibit 10.12)


<PAGE>

                                  EXHIBIT INDEX


          EXHIBIT NO.      EXHIBIT DESCRIPTION
          10.12**          Promissory Note dated August 19, 1994, and Pledge
                           Agreement dated July 22, 1994, between the Company
                           and Steve Kuekes (5) (Exhibit 10.13)

          10.13**          Promissory Note dated August 19, 1994, and Pledge
                           Agreement dated July 22, 1994, between the Company
                           and Nancy Dunn (5) (Exhibit 10.14)

          10.14**          Promissory Note, Pledge Agreement and Agreement to Transfer or
                           Terminate dated January 31, 1995, between the Company and
                           Chris Jesse (5) (Exhibit 10.15)

          10.15**          Promissory Note and Pledge Agreement dated January 31, 1995, between
                           the Company and Steve Kuekes (5) (Exhibit 10.16)

          10.16**          Promissory Note, Pledge Agreement and Agreement to Transfer or
                           Terminate dated January 31, 1995, between the Company and Nancy
                           Dunn (5) (Exhibit 10.17)

          10.17**          Memorandum of Agreement Regarding Compensation and Benefits dated
                           June 3, 1994 among Safeguard Scientifics, Inc., the Company, Chris Jesse,
                           Steven Kuekes and Nancy Dunn (5) (Exhibit 10.18)

          10.18**          Employee Non-Disclosure and Non-Competition Agreement dated
                           October 4, 1993, and First Amendment dated June 3, 1994, between the
                           Company and Chris Jesse (5) (Exhibit 10.19)

          10.19**          Employee Non-Disclosure and Non-Competition Agreement dated
                           October 4, 1993, and First Amendment dated June 3, 1994, between the
                           Company and Steve Kuekes (5) (Exhibit 10.20)

          10.20**          Employee Non-Disclosure and Non-Competition Agreement dated
                           October 4, 1993, and First Amendment dated June 3, 1994, between the
                           Company and Nancy Dunn (5) (Exhibit 10.21)

          10.21            Master Lease Agreement and Addendum No.1 dated July 23, 1997 between
                           the Company and Triangle Technology Leasing (8) (Exhibit 10.2)

          10.22**          Promissory Note and Pledge Agreement dated April 15, 1997, between
                           the Company and Chris Jesse (9) (Exhibit 10.21)

          10.23**          Promissory Note and Pledge Agreement dated April 15, 1997, between
                           the Company and Nancy Dunn (9) (Exhibit 10.22)

          23.1*            Consent of Ernst & Young LLP

          27.1*            Financial Data Schedule for the year ended December 31, 1999

          *                Filed herewith.
          **               Management contract or compensatory plan or
                           arrangement in which directors and/or executive
                           officers of the registrant may participate.
</TABLE>


<PAGE>


                                       EXHIBIT INDEX

           (1) Filed as an exhibit to the Company's Registration Statement on
               Form S-1 (No. 33-9525), and incorporated herein by reference.

           (2) Filed as an exhibit to the Company's Annual Report on Form 10-K
               for fiscal year ended December 31, 1989, and incorporated herein
               by reference.

           (3) Filed as an exhibit to the Company's Annual Report on Form 10-K
               for fiscal year year ended December 31, 1992, and incorporated
               herein by reference.

           (4) Filed as an exhibit to the Company's Current Report on Form 8-K
               dated ended September 30, 1993, and incorporated herein by
               reference.

           (5) Filed as an exhibit to the Company's Annual Report on Form 10-K
               for fiscal year ended December 31, 1994, and incorporated herein
               by reference.

           (6) Filed as an exhibit to the Company's Annual Report on Form 10-K
               for fiscal year ended December 31, 1996, and incorporated herein
               by reference.

           (7) Filed as an exhibit to the Company's Quarterly Report on Form
               10-Q for the period ended June 30, 1997, and incorporated herein
               by reference.

           (9) Filed as an exhibit to the Company's Quarterly Report on Form
               10-Q for the period ended September 30, 1997, and incorporated
               herein by reference.

           (9) Filed as an exhibit to the Company's Annual Report on Form 10-K
               for fiscal year ended December 31, 1998, and incorporated herein
               by reference.