FORM 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~September~~June 30, ~~2002~~2003

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission File Number 000-30389

EXE TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization) 751719817 (I.R.S. Employer Identification Number)


Delaware			751719817
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)

8787 Stemmons Freeway
Dallas, Texas 75247
(Address including zip code of principal executive offices)

(214) 775-6000
(Registrant’s telephone number, including area code)

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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES X [ ] NO [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of ~~October~~ July 31, ~~2002~~2003.

Common stock, $0.01 par value, 466,~~059~~665,~~766~~681 shares outstanding.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF OPERATIONS
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II. OTHER INFORMATION
	ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
	ITEM 5. OTHER INFORMATION
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
CERTIFICATIONS
INDEX TO EXHIBITS
EX-10.1 Amended/Restated 1997 Incentive Stock Plan
EX-10.1 Amended/Restated Employment Agreement
EX-99.1 Certification Pursuant to 18 USC Sec. 1350
EX-10.2 Third Amendment to Employment Agreement
EX-31.1 Certification of CEO Pursuant to Sec. 302
EX-31.2 Certification of CFO Pursuant to Sec. 302
EX-32.1 Certification Pursuant to Sec. 906

EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q

PART I.	FINANCIAL INFORMATION	~~FINANCIAL INFORMATION~~
Item 1.	Financial Statements	~~Financial Statements~~3	3
	Consolidated Balance Sheets	~~Consolidated Balance Sheets~~3	3
	Consolidated Statements of Operations	~~Consolidated Statements of Operations~~4	4
	Consolidated Statements of Cash Flows	~~Consolidated Statements of Cash Flows~~5	5
	Notes to Consolidated Financial Statements	~~Notes to Consolidated Financial Statements~~6	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~11	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	~~Quantitative and Qualitative Disclosures About Market Risk~~28	34
Item 4.	Controls and Procedures	~~Controls and Procedures~~28	35
PART II.	OTHER INFORMATION	~~OTHER INFORMATION~~
Item 2.	Changes in Securities and Use of Proceeds	~~Changes in Securities and Use of Proceeds~~29	35
Item 5.		Other Information	36
Item 6.	Exhibits and Reports on Form 8-K	30
Item 6.		Exhibits and Reports on Form 8-K	37
Signatures		31
Signatures			38
Index to Exhibits and Exhibits		32
Index to Exhibits and Exhibits			41

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS

ITEM 1. FINANCIAL STATEMENTS

EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

				~~As of~~	As of			~~As of~~	As of
				~~December 31,~~	December 31,			~~September 30,~~	June 30,
				2001				2002
					2002				2003
								~~(unaudited)~~	(unaudited)
Assets
Current assets:
	Cash and cash equivalents			$	~~30,250,156~~$	20,815,464		$	~~28,807,344~~$	32,006,559
	Marketable securities, short-term				~~12,842,683~~	16,628,465			~~5,143,873~~	—
	Accounts receivable, net of allowance for doubtful accounts and adjustments of approximately $3,721,000 and $3,898,000 at December 31, 2001 and September 30, 2002, respectively				25,029,162				14,740,921
	Accounts receivable, net of allowance for doubtful accounts and adjustments of approximately $4,161,000 and $4,182,000 at December 31, 2002 and June 30, 2003					16,904,889				14,994,227
	Other receivables and advances				~~572,438~~	329,568			~~487,391~~	783,773
	Prepaid and other current assets				~~2,171,409~~	2,747,074			~~5,044,786~~	2,489,265
		Total current assets			~~70,865,848~~	57,425,460			~~54,224,315~~	50,273,824
Marketable securities, long-term					2,203,891				8,547,870
Property and equipment, net						4,432,882				3,504,069
Property and equipment, net					8,424,584				5,499,630
Goodwill, net						5,265,685				5,265,685
Goodwill, net					5,265,685				5,265,685
Intangible assets, net						1,499,891				1,166,557
Intangible assets, net					1,760,666				1,863,518
Other assets						1,745,532				909,154
Other assets					2,549,794				1,844,879
		Total assets			$	70,369,450			$	61,119,289
		Total assets		$	91,070,468			$	77,245,897
			Liabilities and Stockholders’ Equity
Liabilities and Stockholders’ Equity
Current liabilities:
Current Liabilities:
	Accounts payable				$	9,094,823			$	7,140,480
	Accounts payable			$	6,585,936			$	5,984,576
	Accrued expenses					11,326,722				8,694,066
	Accrued expenses				11,557,606				10,134,107
	Accrued payroll and benefits					1,688,815				1,957,310
	Accrued payroll and benefits				1,749,046				1,494,569
	Deferred revenue					7,885,223				8,727,632
	Deferred revenue				9,206,736				10,343,406
	Current portion of long-term debt and capital lease obligations					521,458				511,189
	Current portion of long-term debt and capital lease obligations				435,167				532,900
		Total current liabilities				30,517,041				27,030,677
		Total current liabilities			29,534,491				28,489,558
	Long-term debt and capital lease obligations, net of current portion					416,598				158,317
	Long-term debt and capital lease obligations, net of current portion				995,973				542,961
	Long-term accrued expenses, net of current portion					8,888,841				7,629,606
	Long-term accrued expenses, net of current portion				6,814,018				9,521,111
	Minority interest					198,779				163,413
	Minority interest				169,623				184,562
	Commitments and contingencies
Commitments and contingencies
Stockholders’ equity:
Stockholders’ equity:
	Preferred stock, $.01 par value: shares authorized - 20,000,000; none issued or outstanding					—				—
	Preferred stock, $.01 par value: shares authorized - 20,000,000; none issued or outstanding				—				—
	Common stock, voting, $.01 par value: shares authorized - 150,000,000; shares issued - 6,807,813 and 6,822,099 at December 31, 2002 and June 30, 2003					68,078				68,221
	Common stock, voting, $.01 par value: shares authorized - 150,000,000; shares issued - 46,788,900 and 47,154,689 at December 31, 2001 and September 30, 2002, respectively				467,889				471,547
	Additional paid-in capital					178,871,117				178,926,832
Additional paid-in capital					178,741,296				178,621,848
	Treasury stock, at cost, 156,418 shares of common stock at December 31, 2002 and June 30, 2003					(3,645,859	)			(3,645,859	)
Note receivable from stockholder					(211,750	)			—
	Accumulated deficit					(143,402,453	)			(147,463,973	)
Treasury stock, at cost, 999,483 and 1,094,923 shares of common stock at December 31, 2001 and September 30, 2002, respectively					(3,431,464	)			(3,645,859	)
	Deferred compensation					(809,338	)			(498,338	)
Accumulated deficit					(119,601,384	)			(135,281,100	)
	Other comprehensive loss					(733,354	)			(1,249,607	)
Deferred compensation					(2,515,440	)			(1,266,888	)
		Total stockholders’ equity				30,348,191				26,137,276
Other comprehensive income (loss)					107,216				(391,843	)
		Total liabilities and stockholders’ equity			$	70,369,450			$	61,119,289
		Total stockholders’ equity			53,556,363				38,507,705
		Total liabilities and stockholders’ equity		$	91,070,468			$	77,245,897

See accompanying notes.

EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

				Three Months Ended	~~Three Months Ended~~							Six Months Ended	~~Nine Months Ended~~
					September 30,								September 30,
				June 30,								June 30,
					2001				2002				2001				2002
				2002				2003				2002				2003
Revenue:
	Software license			$	$3,122,592	~~4,935,254~~		$	$3,464,701	~~2,694,478~~		$	$7,266,664	~~20,466,027~~		$	$6,140,504	~~9,961,142~~
	Services and maintenance				12,831,201	~~14,886,946~~			12,659,741	~~12,283,217~~			24,694,834	~~49,316,085~~			23,663,851	~~36,978,051~~
	Resale of software and equipment				2,000,300	~~2,470,094~~			3,241,443	~~1,319,348~~			5,099,369	~~6,582,444~~			4,540,912	~~6,418,717~~
	Reimbursable expenses				477,017	~~606,739~~			456,690	~~436,813~~			1,006,215	~~2,121,394~~			890,376	~~1,443,028~~
		Total revenue			18,431,110	~~22,899,033~~			19,822,575	~~16,733,856~~			38,067,082	~~78,485,950~~			35,235,643	~~54,800,938~~
Costs and expenses:
	Cost of software licenses				86,305	~~323,198~~			170,275	~~236,521~~			199,381	~~453,657~~			470,144	~~435,902~~
	Cost of services and maintenance				8,042,909	~~9,489,045~~			7,894,070	~~7,860,928~~			16,218,209	~~32,105,548~~			14,998,686	~~24,079,137~~
	Cost of resale of software and equipment				1,655,829	~~2,129,455~~			2,651,260	~~1,079,373~~			4,228,063	~~5,445,496~~			3,630,576	~~5,307,436~~
	Cost of reimbursable expenses					606,739				436,813				2,121,394				1,443,028
	Estimated loss on resale equipment sold to company in bankruptcy				—				—				—				456,866
	Sales and marketing					6,225,668				4,479,519				20,865,039				14,448,762
	Cost of reimbursable expenses				477,017				456,690				1,006,215				890,376
	Research and development					3,485,964				2,853,288				11,322,910				8,813,889
	Sales and marketing				4,914,140				4,118,430				9,969,243				8,041,114
	General and administrative					4,162,294				2,810,607				14,202,053				9,006,223
	Research and development				2,907,218				2,234,622				5,960,601				4,797,067
	Amortization of goodwill and intangible assets					2,316,749				335,848				6,520,253				897,148
	General and administrative				3,018,315				3,009,549				6,195,616				5,733,063
	Warrant and stock compensation expense allocated to:
	Amortization of intangible assets				280,293				166,668				561,300				333,335
			Cost of services and maintenance			130,342				49,918				406,961				225,810
	Warrant and stock compensation expense allocated to:
			Sales and marketing			44,952				38,893				285,888				129,785
		Cost of services and maintenance			87,946				69,402				175,892				138,804
			Research and development			39,882				38,893				133,958				129,785
		Sales and marketing			45,446				22,400				90,892				44,800
			General and administrative			161,353				83,294				477,443				262,988
		Research and development			45,446				33,416				90,892				66,832
	Provision for estimated loss on lease abandonment					—				—				7,440,336				3,998,862
		General and administrative			89,847				30,282				179,694				116,422
	Employee severance and other facility closure costs					—				—				2,489,744				2,487,769
	Loss on lease abandonment				3,998,862				—				3,998,862				—
			Total costs and expenses			29,115,641				20,303,895				104,270,680				71,666,524
	Employee severance and other facility closure costs				2,487,769				—				2,487,769				—
Operating loss						(6,216,608	)			(3,570,039	)			(25,784,730	)			(16,865,586	)
		Total costs and expenses			28,137,342				20,857,064				51,362,629				39,718,085
Other income (expense):
Operating loss					(9,706,232	)			(1,034,489	)			(13,295,547	)			(4,482,442	)
	Interest income					554,096				242,123				2,049,341				875,456
Other income (expense):
	Interest expense					(9,618	)			(23,662	)			(29,626	)			(74,478	)
	Interest income				302,356				84,110				633,333				247,579
	Other					117,064				(25,152	)			(269,887	)			728,541
	Interest expense				(20,928	)			(14,862	)			(50,816	)			(30,792	)
		Total other income				661,542				193,309				1,749,828				1,529,519
	Other				807,198				357,447				753,693				609,991
Loss before minority interest and taxes						(5,555,066	)			(3,376,730	)			(24,034,902	)			(15,336,067	)
		Total other income (expense)			1,088,626				426,695				1,336,210				826,778
Minority interest in subsidiary income						(45,388	)			(5,768	)			(146,059	)			(14,939	)
Loss before minority interest and taxes					(8,617,606	)			(607,794	)			(11,959,337	)			(3,655,664	)
Loss before taxes						(5,600,454	)			(3,382,498	)			(24,180,961	)			(15,351,006	)
Minority interest in subsidiary (income) loss					(4,150	)			(14,843	)			(9,171	)			35,366
Income taxes						—				149,889				151,377				328,710
Loss before taxes					(8,621,756	)			(622,637	)			(11,968,508	)			(3,620,298	)
Net loss					$	(5,600,454	)		$	(3,532,387	)		$	(24,332,338	)		$	(15,679,716	)
Income tax provision					178,821				199,856				178,821				441,222
Net loss per common share - basic and diluted					$	(0.12	)		$	(0.08	)		$	(0.54	)		$	(0.34	)
Net loss				$	(8,800,577	)		$	(822,493	)		$	(12,147,329	)		$	(4,061,520	)
Weighted average number of common shares outstanding — basic and diluted						45,612,056				46,059,766				45,261,613				46,008,029
Net loss per common share - basic and diluted					(1.34	)			(0.12	)			(1.85	)			(0.61	)
See accompanying notes
Weighted average number of common shares outstanding - basic and diluted					6,578,519				6,665,681				6,568,880				6,662,348

See accompanying notes.

EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

					Nine Months Ended
					Six Months Ended
					September 30,
					June 30,
					2001			2002
					2002			2003
Cash Flow from Operating Activities:
~~Net loss~~	Net loss				$	(2412,~~332~~147,~~338~~329	)	$	(154,~~679~~061,~~716~~520	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
		~~Depreciation and amortization~~	Depreciation and amortization			92,~~374~~277,~~489~~576			31,~~335~~399,~~348~~877
		~~Write-down of property and equipment~~	Write-down of property and equipment			—1,032,408			~~1,032,408~~—
		Provision for doubtful accounts				2,709,209			2,502,780
			Provision for losses on receivables			1,581,825			332,889
		~~Amortization of deferred compensation~~	Amortization of deferred compensation			1537,~~129,900~~370			~~748~~366,~~368~~858
		Issuance of warrants for services				174,350			—
			Minority interest			9,171			(35,366	)
		Minority interest				154,490			14,939
			Changes in operating assets and liabilities:
		Changes in operating assets and liabilities, net of effect of acquisition:
				Accounts receivable		5,958,741			1,577,773
			Accounts receivable			1,266,409			7,785,461
				Other receivables and advances		126,826			(454,205	)
			Other receivables and advances			(104,881	)		85,047
				Prepaids and other current assets		(681,054	)		257,809
			Prepaids and other current assets			100,784			(2,873,378	)
				Other long-term assets		840,225			836,378
			Other long-term assets			(364,913	)		704,915
				Accounts payable		(11,035	)		(1,954,343	)
			Accounts payable			201,777			(601,360	)
				Accrued payroll and benefits		281,684			268,495
			Accrued payroll and benefits			(1,085,340	)		(254,477	)
				Deferred revenue		922,068			842,409
			Deferred revenue			(2,601,657	)		1,136,670
				Accrued expenses		1,841,161			(3,891,891	)
			Accrued expenses			5,852,462			1,283,592
				Other		(566,652	)		(553,602	)
			Other			(138,285	)		(442,114	)
				Net cash provided by (used in) operating activities		2,002,985			(5,068,439	)
				Net cash used in operating activities		(7,663,544	)		(1,221,517	)
Cash Flow from Investing Activities:
~~Purchases of property and equipment~~	Purchases of property and equipment					(1452,~~987,222~~463	)		(~~605~~100,~~241~~381	)
Purchase of developed software technology						—			(1,000,000	)
	Purchase of marketable securities					(6,210,000	)		—
Purchase of marketable securities						(14,500,000	)		(15,710,000	)
	Proceeds from sale and maturities of marketable securities					9,503,794			16,628,465
Proceeds from sale of marketable securities						16,799,804			17,064,831
				Net cash provided by investing activities		2,841,331			16,528,084
Cash paid for AllPoints acquisition						(1,618,109	)		—
				Net cash used in investing activities		(1,305,527	)		(250,410	)
Cash Flow from Financing Activities:
~~Issuance of common stock for options and warrants~~	Issuance of common stock for options and warrants					1384,~~285,294~~394			~~384,394~~—
Payments on long-term debt						(134,999	)		(355,279	)
	Payments on long-term debt and capital lease obligations					(218,628	)		(268,550	)
Retirement of AllPoints line of credit						(750,000	)		—
				Net cash provided by (used in) financing activities		165,766			(268,550	)
				Net cash provided by financing activities		400,295			29,115
Net increase in cash and cash equivalents						5,010,082			11,191,095
Net decrease in cash and cash equivalents						(8,568,776	)		(1,442,812	)
Cash and cash equivalents at beginning of period						30,250,156			20,815,464
Cash and cash equivalents at beginning of year						39,820,056			30,250,156
Cash and cash equivalents at end of period					$	35,260,238		$	32,006,559
Cash and cash equivalents at end of period					$	31,251,280		$	28,807,344

See accompanying notes.

EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Principles of Consolidation and Basis of Presentation

EXE Technologies, Inc. (the Company or EXE) provides software that drives customers’ supply chain execution processes, including fulfillment, warehousing, distribution, and inventory management. The Company operates from its headquarters in Dallas, Texas, and through its various subsidiary and sales offices serving North America, Europe, the Middle East, Asia and Australia. The accompanying unaudited consolidated financial statements include the accounts of EXE Technologies, Inc. and ~~our~~its majority-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for fiscal year end financial statements. In the opinion of management, all adjustments (consisting only of normal recurring entries) considered necessary for a fair presentation of the results have been included for the interim periods presented. Operating results for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2002~~2003 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, ~~2002~~2003. These statements should be read in conjunction with the Company’s audited financial statements included in the Company’s Form 10-K for the year ended December 31, ~~2001~~2002.

~~Certain~~ All share and per share amounts in ~~prior~~the ~~year~~accompanying financial statements and footnotes have been ~~reclassified~~ adjusted to ~~conform~~reflect tothe ~~current~~Company’s ~~year~~one ~~presentation~~for seven reverse stock split which was effective January 2, 2003.

2. OnNet ~~January 1,~~Loss ~~2002,~~Per ~~the Company adopted Financial Accounting Standards~~Share ~~Board Staff Announcement Topic No. D-103, “Income Statement Characterization of~~ Reimbursements Received for “Out-of-Pocket” Expenses Incurred.” As a result, the Company began recording revenue and a related cost of revenue in its statement of operations for reimbursable expenses such as airfare, hotel lodging, meals, auto rental and other charges related to providing services to our customers. Prior to the adoption of this standard, the Company recorded these expense reimbursements as a reduction of expenses. The Company’s prior period financial statements have been reclassified to comply with the new standard.

~~Effective~~ The ~~January 1, 2002, the~~ Company ~~adopted~~computes ~~Emerging~~net ~~Issues~~income ~~Task Force~~ (~~EITF~~loss) ~~00-25,~~per ~~“Vendor~~share ~~Income~~in ~~Statement~~accordance ~~Characterization~~with ~~of Consideration Paid~~the toprovisions aof ~~Reseller~~Statement of ~~the~~Financial ~~Vendor’s~~Accounting ~~Products"~~Standards No. 128, ~~EITF 00-25 requires consideration~~“Earnings ~~paid~~per toShare” ~~resellers~~(SFAS ~~of the Company’s products be recorded as a reduction in revenue~~128). ~~The~~Basic ~~application of this EITF does not result in any impact to operating or~~ net income (loss) inper ~~any~~common ~~past~~share oris ~~future periods. The Company’s~~computed ~~prior~~using ~~period~~the ~~financial~~weighted ~~statements~~average ~~have~~number ~~been~~of ~~reclassified~~shares toof ~~comply~~common ~~with~~stock ~~the~~outstanding ~~new~~during ~~standard~~each period.

In Diluted ~~October~~net ~~2001,~~income ~~the~~(loss) per ~~Financial~~common ~~Accounting~~share ~~Standards~~is ~~Board~~computed ~~issued~~using ~~Statement~~the weighted average number of ~~Financial~~shares ~~Accounting~~of ~~Standards~~common ~~(SFAS) No. 144,~~stock ~~“Accounting~~outstanding ~~for~~during ~~the~~each period and ~~Impairment~~common orequivalent ~~Disposal~~shares consisting of ~~Long-Lived~~preferred ~~Assets~~stock,” ~~effective~~warrants ~~for~~and ~~fiscal years~~stock ~~beginning~~options ~~after~~(using ~~December 15~~the treasury stock method), ~~2001~~if dilutive. ~~This~~Diluted ~~statement~~loss ~~establishes~~per common ~~new~~share ~~rules~~is ~~for determining~~the ~~impairment~~same ofas ~~certain~~basic ~~other~~loss ~~long-lived~~per ~~assets,~~common ~~including~~share ~~intangible assets~~for ~~subject~~all toperiods presented ~~amortization,~~because ~~property~~all ~~and~~potentially ~~equipment~~dilutive ~~and~~securities ~~long-lived~~were ~~prepaid assets~~anti-dilutive. The following ~~adoption~~table ofsets ~~this~~forth ~~standard~~anti-dilutive ~~did~~securities ~~not~~that have anbeen ~~effect on the operating~~excluded ~~results~~from ordiluted ~~the~~earnings ~~financial~~per ~~position~~share offor the ~~Company.~~periods presented:

In July 2002, the Financial Accounting Standards Board issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities, such as restructuring, involuntarily terminating employees and consolidating facilities. SFAS No. 146 excludes from its scope exit and disposal


	As of June 30,

	2002		2003

Common stock options		1,298,100		1,414,596
Warrants		2,143		145,000

Total anti-dilutive securities excluded		1,300,243		1,559,596

EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

1. Principles of Consolidation and Basis of Presentation (continued)

activities conducted in connection with a business combination and those activities to which SFAS No. 143 and 144 are applicable. SFAS No. 146 is effective for exit and disposal activities initiated after December 31, 2002. We do not expect the adoption of this statement to have a material effect on our consolidated financial position or results of operations.

2. Net Loss Per Share

The Company computes net income (loss) per share in accordance with the provisions of SFAS No. 128, “Earnings per Share.” Basic net income (loss) per common share is computed using the weighted average number of shares of common stock outstanding during each period.

Diluted net income (loss) per common share is computed using the weighted average number of shares of common stock outstanding during each period and common equivalent shares consisting of preferred stock, warrants and stock options (using the treasury stock method), if dilutive. Diluted loss per common share is the same as basic loss per common share for all periods presented because all potentially dilutive securities were anti-dilutive. The following table sets forth anti-dilutive securities which have been excluded from diluted earnings per share for the periods presented:

	As of September 30,
	2001		2002
Common stock options		8,665,665		9,327,964
Warrants		—		1,015,000
Total anti-dilutive securities excluded		8,665,665		10,342,964

3. Comprehensive Loss

Comprehensive loss includes foreign currency translation gains (losses) and unrealized gains (losses) on securities available for sale. The following table sets forth the calculation of comprehensive loss for the periods presented:

	Three Months Ended						~~Nine~~Six Months Ended
	September 30,						September 30,
	June 30,						June 30,
	2001			2002			2001			2002
	2002			2003			2002			2003
Net loss	$	(58,~~600~~800,~~454~~577	)	$	(3822,~~532,387~~493	)	$	(2412,~~332~~147,~~338~~329	)	$	(154,~~679~~061,~~716~~520	)
Foreign currency translation gains (losses)		(116,398	)		109,769			55,553			(374,027	)
Foreign currency translation losses		(566,259	)		(284,949	)		(483,796	)		(460,473	)
Unrealized gain (loss) on securities available for sale		73,399			3,323			188,256			(125,032	)
Unrealized loss on securities available for sale		(12,032	)		—			(128,355	)		(55,780	)
Total comprehensive loss	$	(59,~~643~~378,~~453~~868	)	$	(31,~~419~~107,~~295~~442	)	$	(2412,~~088~~759,~~529~~480	)	$	(164,~~178~~577,~~775~~773	)

4. Derivative Financial Instruments

~~The~~ In January 2001, the Company ~~hedges~~began a foreign currency-hedging program to hedge certain nonfunctional currency exposure. Forward currency exchange contracts are utilized by the Company to reduce foreign currency exchange risks with the goal of offsetting foreign currency transaction gains and ~~interest~~losses recorded ~~rate~~for ~~risks~~accounting purposes with gains and losses realized on the ~~goal~~forward contracts. ofThe Company does not hold derivative financial instruments for trading or speculative purposes.

Gains and losses arising from the changes in the fair value of forward currency exchange contracts are recognized as a component of other income (expense). At June 30, 2003, the Company did not have any outstanding forward currency exchange contracts.

5. Stock-Based Compensation Plans

The Company accounts for its stock-based compensation plans utilizing the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25). Under APB 25, if the exercise price of an employee’s stock option equals or exceeds the fair market value of the underlying stock on the date of grant, no compensation expense is recognized. Any compensation expense associated with employee stock options is recognized ratably over the vesting period of the underlying option. The Company accounts for stock-based compensation for non-employees under the fair value method prescribed by Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123).

Although SFAS 123 allows the APB 25 guidelines to be applied to accounting for stock options, SFAS 123 requires the disclosure of pro forma net income (loss) and earnings (loss) per share information as if the Company had accounted for its employee stock options under the fair value method. The following table sets forth the pro forma information as if the provisions of SFAS 123 had been applied to account for stock-based employee compensation:

EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

45. Stock-Based ~~Derivative~~Compensation ~~Financial~~Plans ~~Instruments~~ (continued)

offsetting foreign currency transaction gains and losses recorded for accounting purposes with gains and losses realized on the forward contracts. The Company does not hold derivative financial instruments for trading or speculative purposes.


	Three Months Ended						Six Months Ended
	June 30,						June 30,

	2002			2003			2002			2003

Reported net loss	$	(8,800,577	)	$	(822,493	)	$	(12,147,329	)	$	(4,061,520	)
Stock compensation expense recorded under the intrinsic value method prescribed by APB 25		268,685			155,500			537,370			366,858
Stock-based employee compensation determined under the fair value method		(1,489,677	)		(780,980	)		(2,979,354	)		(1,872,026	)

Pro forma net loss	$	(10,021,569	)	$	(1,447,973	)	$	(14,589,313	)	$	(5,566,688	)

Reported net loss per common share - basic and diluted	$	(1.34	)	$	(0.12	)	$	(1.85	)	$	(0.61	)

Pro forma net loss per common share - basic and diluted	$	(1.52	)	$	(0.22	)	$	(2.22	)	$	(0.84	)

As The offair ~~September 30,~~value ~~2002,~~for options was estimated at the ~~Company~~date ~~had~~of ~~outstanding~~grant ~~forward~~using ~~currency~~a ~~exchange~~Black-Scholes ~~contracts~~options ofpricing ~~$2.0 million~~model toand ~~sell~~the ~~British~~following ~~Pounds~~weighted-average assumptions ~~Sterling~~for the three and ~~$2.5~~six months ended June ~~million~~30, to2002 ~~sell~~and ~~Japanese~~2003: a ~~yen~~risk-free ~~which~~interest ~~hedge~~rate ~~net~~of ~~balance~~4.47% ~~sheet~~in ~~exposures~~2002, 2.07% ~~Gains~~for ~~and~~the ~~losses~~three ~~arising~~months ~~from~~ended March 31, 2003, and 1.97% for the three months ended ~~changes~~June 30, in2003; ~~the~~no dividend; ~~fair~~an ~~value~~expected life of ~~forward~~three ~~currency~~to ~~exchange~~five ~~contracts~~years; ~~are~~and ~~recognized as~~ a ~~component~~volatility for grants of ~~other income (expense)~~0.93 Atin ~~September 30,~~ 2002, 0.70 for the ~~current market~~three ~~settlement~~months ~~values~~ended ofMarch 31, 2003, and 0.92 for the ~~forward~~three ~~contracts~~months ~~would~~ended beJune 30, ~~immaterial~~2003.

56. Segment ~~Intangible Assets and Goodwill~~Information

In The ~~June~~Company ~~2001,~~provides ~~the~~software ~~Financial~~that ~~Accounting~~drives ~~Standards~~customers’ ~~Board~~supply ~~issued Statements~~chain ofexecution ~~Financial~~processes, ~~Accounting~~including ~~Standards~~fulfillment, ~~(SFAS) No. 141~~warehousing, ~~“Business~~distribution, ~~Combinations”~~ and Noinventory management. ~~142,~~ ~~“Goodwill~~All ~~and~~financial ~~Other~~information ~~Intangible~~is ~~Assets,”~~reviewed ~~effective~~on ~~for~~a ~~fiscal years~~consolidated ~~beginning~~basis ~~after~~with ~~December 15,~~additional ~~2001.~~information ~~Under~~by ~~the~~geographic ~~new~~region ~~rules,~~used ~~goodwill~~to ~~and~~make operating ~~intangible~~decisions ~~assets~~and ~~deemed~~assess tothe ~~have~~results ~~indefinite~~of ~~lives~~the ~~will~~Company. noTotal ~~longer~~assets beare ~~amortized~~presented ~~but~~net ~~will~~of beintercompany ~~subject~~receivables toand ~~annual~~payables. ~~impairment~~The ~~tests~~Company’s ingeographic information ~~accordance~~as ~~with~~of ~~these statements.~~and ~~Other~~for ~~intangible~~the ~~assets~~three ~~will~~and ~~continue~~six tomonths beended ~~amortized over~~June 30, ~~their~~2002 ~~useful~~and ~~lives.~~2003 is as follows:

The Company completed the transitional impairment test for its enterprise goodwill and determined that no impairment loss should be recorded as of January 1, 2002. During the third quarter of 2002, the Company's market capitalization declined to a level that is less than the Company's net book value. The Company's required annual analysis of the impairment to be performed under SFAS No. 142 will be performed in the fourth quarter of each calendar year. If the Company's market capitalization remains at a level less than the Company's net book value, the Company believes that an impairment charge will likely be required.


							Asia Pacific
		North					and the
		America			Europe		Middle East			Eliminations		Total

Three months ended June 30, 2002
	Revenue	$	8,998,368		$	4,848,868	$	4,583,874		$	—	$	18,431,110
	Amortization of intangible assets		280,293			—		—			—		280,293
	Warrant and stock compensation expense		181,209			37,246		50,230			—		268,685
	Provision for estimated loss on lease abandonment		3,900,000			98,862		—					3,998,862
	Employee severance and other facility closure costs		2,252,745			133,105		101,919					2,487,769
	Operating income (loss)		(10,028,920	)		739,736		(417,048	)		—		(9,706,232	)

EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

56. Segment ~~Intangible~~Information ~~Assets and Goodwill~~ (continued)

The Company has applied the new rules on accounting for goodwill and other intangible assets beginning January 1, 2002. With the application of the nonamortization provisions of SFAS No. 142, the Company ceased amortization of goodwill as of January 1, 2002. The following table presents the quarterly results of the Company on a comparative basis assuming the nonamortization provisions of SFAS No. 142 were effective January 1, 2001:


							Asia Pacific
		North					and the
		America			Europe		Middle East			Eliminations			Total

Six months ended June 30, 2002
	Revenue	$	18,275,236		$	10,103,861	$	9,687,985		$	—		$	38,067,082
	Amortization of intangible assets		560,586			714		—			—			561,300
	Warrant and stock compensation expense		362,418			74,492		100,460			—			537,370
	Provision for estimated loss on lease abandonment		3,900,000			98,862		—						3,998,862
	Employee severance and other facility closure costs		2,252,745			133,105		101,919						2,487,769
	Operating income (loss)		(13,707,715	)		759,158		(346,990	)		—			(13,295,547	)
As of June 30, 2002
	Property and equipment, net	$	4,218,833		$	1,094,648	$	766,736		$	—		$	6,080,217
	Total assets		81,017,460			3,985,191		1,159,911			(4,108,034	)		82,054,528
Three months ended June 30, 2003
	Revenue	$	9,881,313		$	4,897,782	$	5,043,480		$	—		$	19,822,575
	Amortization of intangible assets		166,668			—		—			—			166,668
	Warrant and stock compensation expense		46,634			47,078		61,788			—			155,500
	Operating income (loss)		(1,260,401	)		399,066		(173,154	)		—			(1,034,489	)
Six months ended June 30, 2003
	Revenue	$	17,152,156		$	9,154,113	$	8,929,374		$	—		$	35,235,643
	Amortization of intangible assets		333,335			—		—			—			333,335
	Warrant and stock compensation expense		149,126			94,156		123,576			—			366,858
	Operating income (loss)		(4,383,734	)		551,229		(649,937	)		—			(4,482,442	)
As of June 30, 2003
	Property and equipment, net	$	2,254,843		$	744,377	$	504,849		$	—		$	3,504,069
	Total assets		47,399,251			9,764,127		8,090,552			(4,134,641	)		61,119,289

		Three Months Ended September 30,						Nine Months Ended September 30,
		2001			2002			2001			2002
Reported net loss		$	(5,600,454	)	$	(3,532,387	)	$	(24,332,338	)	$	(15,679,716	)
	Goodwill amortization		1,885,595			—			5,286,185			—
Adjusted net loss		$	(3,714,859	)	$	(3,532,387	)	$	(19,046,153	)	$	(15,679,716	)
Reported net loss per common share - basic and dilutive		$	(0.12	)	$	(0.08	)	$	(0.54	)	$	(0.34	)
	Goodwill amortization per common share — basic and dilutive		0.04			—			0.12			—
Adjusted net loss per common share - basic and dilutive		$	(0.08	)	$	(0.08	)	$	(0.42	)	$	(0.34	)

7. Income Taxes

~~Intangible~~ Income tax provisions are primarily due to foreign withholding taxes and taxes on income earned by foreign subsidiaries. The Company has established a valuation allowance to reserve its net deferred tax assets asdue to the uncertainty of ~~December 31,~~the ~~2001~~timing and ~~September 30,~~amount ~~2002~~of ~~were~~future astaxable income. ~~follows:~~

	December 31,			September 30,
	2001			2002
Developed and acquired technology	$	4,700,000		$	5,700,000
Customer base		1,800,000			1,800,000
Less accumulated amortization		(4,739,334	)		(5,636,482	)
Net intangible assets	$	1,760,666		$	1,863,518

8. Commitments and Contingencies

In The ~~July~~Company ~~2002,~~is ~~the~~involved ~~Company~~in ~~acquired~~various ~~developed~~legal ~~software~~actions ~~technology~~and ~~assets~~claims that arise in ~~for~~the annormal ~~order~~course ~~analysis~~of ~~and~~business. ~~planning~~In ~~system~~the ~~for~~opinion ~~$1.0 million.~~of ~~The~~management, ~~acquisition~~the final ~~price~~disposition ~~will~~of bethese ~~paid~~matters ~~quarterly~~will innot ~~four~~have ~~consecutive~~a ~~equal~~material ~~installments~~adverse ~~beginning in~~effect on the Company’s ~~third~~business, ~~quarter~~financial condition, cash flows or results of ~~2002,~~operations. The Company establishes accruals for losses related to such matters that are probable and ~~the~~reasonably ~~intangible~~estimable. ~~assets~~However, ~~associated~~an ~~with~~unfavorable ~~this~~outcome of some or ~~acquisition~~all ~~will~~of bethese ~~amortized~~matters ~~over~~could have a ~~three~~material ~~year~~effect ~~period~~on the Company’s business, financial condition, cash flows and results of operations.

Amortization expense related to intangible assets totaled $0.4 million and $0.3 million during the three months ended September 30, 2001 and 2002, respectively, and $1.2 million and $0.9 million during the nine months ended September 30, 2001 and 2002, respectively. Intangible assets with definite useful lives are amortized on a straight-line basis. The weighted average amortization period is five years for developed

EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

59. Employee ~~Intangible~~Severance ~~Assets~~ and ~~Goodwill~~Lease ~~(continued)~~Abandonment

During the years ended December 31, 2001 and ~~acquired~~2002, ~~technology~~the Company implemented various cost reduction actions to lower the Company’s cost structure, including employee severance, the write-off of equipment and ~~six~~the abandonment of certain leased facilities. As a result, charges totaling approximately $14.3 million and $9.7 million were charged against operating results during the years ~~for~~ended December 31, ~~customer~~2001 ~~base~~and 2002, respectively. ~~The~~Of ~~estimated~~these charges, $6.5 million were ~~aggregate~~recorded ~~future~~during ~~amortization~~the ~~expense~~six months ended June 30, 2002, including $1.4 million for severance ~~intangible~~and ~~assets~~other ~~remaining~~employee asrelated costs for the termination of approximately ~~September~~60 services, sales and marketing, development and administrative employees, $4.0 30million for abandoned facility losses, and $1.1 million for other facility closure costs primarily for the write-down of property and equipment. Additionally, the 2002 ischarges asincluded ~~follows:~~approximately $1.4 million in severance paid to the Company’s former Chief Executive Officer in March 2003, in accordance with his employment agreement.

Remainder of 2002	$	363,519
2003		666,665
2004		638,890
2005		194,444
Total	$	1,863,518

The Company has made cash payments of approximately $12.5 million, of which approximately $3.6 million was paid during the six months ended June 30, 2003. Additionally, the Company has written-off approximately $1.6 million in non-cash charges against the reserves established for these various cost reduction actions.

Substantially all of the remaining liability of $9.9 million at June 30, 2003 related to the abandoned Dallas facility lease. Approximately $6.9 million ~~Segment~~of ~~Information~~the liability is classified as a long term liability and is expected to be paid through 2009. The estimated liability includes estimates pertaining to sublease rates and vacancy periods. Although the Company does not anticipate significant changes, the actual costs may differ from these estimates.

~~The~~ At June 30, 2003, the Company ~~provides~~occupied ~~software~~less ~~that~~than ~~drives~~50% ~~customers’~~of ~~supply~~the ~~chain~~Dallas ~~execution processes~~facility, ~~including~~most ~~fulfillment,~~of ~~warehousing,~~which ~~distribution,~~has been abandoned. The Company is attempting to sublease the unoccupied leased space and continues to have ~~inventory~~discussions ~~management.~~with ~~All~~the ~~financial~~lessor ~~information~~regarding isa ~~reviewed~~restructuring onor a ~~consolidated~~termination ~~basis~~of ~~with~~the ~~additional~~Dallas ~~information~~lease. byIf ~~geographic~~the ~~region~~Company ~~used~~is able to ~~make~~reach ~~operating~~a settlement ~~decisions~~with ~~and~~the ~~assess~~lessor on terms favorable to the ~~results~~Company, ofthe settlement payment could significantly increase the Company.'s ~~Total~~near ~~assets~~term ~~are~~cash requirements ~~presented~~but could reduce monthly lease payments in the future. ~~net~~If ofa ~~intercompany~~satisfactory ~~receivables~~settlement cannot be reached and ~~payables.~~the ~~The~~unoccupied space cannot be subleased, the Company’s ~~geographic~~will be required to continue ~~information~~to asmake ofsignificant scheduled lease payments and ~~for~~pay operating expenses over the ~~three~~remaining lease term and ~~nine~~this ~~months~~could ~~ended~~result ~~September 30,~~in ~~2001~~additional ~~and~~reserve ~~2002~~requirements isabove asthose ~~follows:~~recorded at June 30, 2003.

10. Related Party Transactions

In October 2002, the Company entered into an agreement with a company in India to provide development services, with a minimum obligation of $2.1 million over a three-year period. A shareholder of the Company, who owns approximately 6% of the outstanding shares, has an indirect financial interest in the India operation. The Company believes that the terms of this agreement are on an arms length basis. The Company has expensed $ 0.7 million for these development services during the six months ended June 30, 2003.

								Asia Pacific
		North						and the
		America			Europe			Middle East			Eliminations			Total
Three months ended September 30, 2001
	Revenue	$	11,816,208		$	4,448,794		$	6,634,031		$	—		$	22,899,033
	Amortization of goodwill and intangible assets		2,292,394			13,450			10,905			—			2,316,749
	Warrant and stock compensation expense		154,696			63,427			158,406			—			376,529
	Operating income (loss)		(6,161,865	)		(713,262	)		658,519			—			(6,216,608	)
Nine months ended September 30, 2001
	Revenue	$	42,725,295		$	12,918,065		$	22,842,590		$	—		$	78,485,950
	Amortization of goodwill and intangible assets		6,446,862			40,624			32,767			—			6,520,253
	Warrant and stock compensation expense		692,007			232,825			379,418			—			1,304,250
	Provision for estimated loss on lease abandonment		7,154,780			285,556			—			—			7,440,336
	Employee severance and other facility closure costs		1,453,984			430,310			605,450			—			2,489,744
	Operating income (loss)		(23,873,445	)		(3,079,900	)		1,168,615			—			(25,784,730	)
As of September 30, 2001
	Property and equipment, net	$	5,637,481		$	1,405,512		$	905,901		$	—		$	7,948,894
	Total assets		104,625,475			9,322,613			15,911,394			(3,108,034	)		126,751,448
Three months ended September 30, 2002
	Revenue	$	7,529,135		$	4,997,838		$	4,206,883			—		$	16,733,856
	Amortization of goodwill and intangible assets		335,848			—			—			—			335,848
	Warrant and stock compensation expense		17,473			86,921			106,604			—			210,998
Operating income (loss)			(3,625,919	)		573,063			(517,183	)		—			(3,570,039	)
Nine months ended September 30, 2002
	Revenue	$	25,804,371		$	15,101,699		$	13,894,868		$	—		$	54,800,938
	Amortization of goodwill and intangible assets		896,434			714			—			—			897,148
	Warrant and stock compensation expense		379,891			161,413			207,064			—			748,368
	Provision for estimated loss on lease abandonment		3,900,000			98,862			—			—			3,998,862
	Employee severance and other facility closure costs		2,252,745			133,105			101,919			—			2,487,769
	Operating income (loss)		(17,333,634	)		1,332,221			(864,173	)		—			(16,865,586	)
As of September 30, 2002
	Property and equipment, net	$	3,747,104		$	1,052,949		$	699,577		$	—		$	5,499,630
	Total assets		62,046,106			10,668,946			8,638,879			(4,108,034	)		77,245,897

EXE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

7. Warrants Granted to IBM

In September 2002, the Company expanded its strategic relationship with IBM. One of the key elements of the expanded relationship was the issuance of 1,000,000 warrants to IBM to purchase the Company’s common stock at an exercise price of $0.01 per share. The warrants are exercisable over a five-year period and will vest over a three-year period based on IBM’s generation of pre-established amounts of incremental software license revenue for the Company. At September 30, 2002, none of the warrants were vested or exercisable.

8. Line of Credit

In October 2002, the Company entered into a revolving line of credit agreement with a financial institution under which the Company can borrow up to $10.0 million over a two-year period. The agreement contains certain financial covenants, including minimum cash and marketable securities balances, and the facility is secured with all of the Company’s tangible assets. Borrowings for half of the revolving credit line will be based on a defined borrowing base, while the balance does not contain this restriction. Interest on any borrowings will be at the prime rate, and the Company will pay a fee on the unused portion of the line of credit of 0.375% per annum.

9. Commitments and Contingencies

The Company is involved in various legal actions and claims which arise in the normal course of business. In the opinion of management, the final disposition of these matters will not have a material adverse effect on the Company’s business, financial condition, cash flows or results of operations. The Company establishes accruals for losses related to such matters that are probable and reasonably estimable. However, an unfavorable outcome of some or all of these matters could have a material effect on the Company’s business, financial condition, cash flows and results of operations.

10. Estimated Provisions for Lease Abandonment, Employee Severance and Other Costs

During the year ended December 31, 2001, the Company announced and implemented plans to reduce costs and improve operating efficiency. Provisions for estimated losses on lease abandonment and employee severance and other facility closure costs was $14.3 million for the year ended December 31, 2001, of which approximately $9.9 million was recognized during the nine months ended September 30, 2001. These estimated charges included: (a) $10.2 million and $7.4 million in abandonment of certain leased office space less estimated sublease rentals at facilities in North America and in Europe for the year ended December 31, 2001 and the nine months ended September 30, 2001, respectively, (b) $3.5 million and $2.4 million for severance and other employee related costs for the termination of 233 and 137 employees for the year ended December 31, 2001 and the nine months ended September 30, 2001, respectively, and (c) $0.6 million and $0.1 million for disposal of fixed assets, abandonment of leased equipment and other facility closure costs for the year ended December 31, 2001 and the nine months ended September 30, 2001, respectively.

In response to the continued global slowdown in customer spending for large-scale IT projects, the Company launched additional cost reduction actions at the end of the second quarter of 2002. These actions, which include the consolidation of the U.S. professional services and development activities into one location in Dallas and the expansion of the Company’s offshore development operations, resulted in estimated

EXE TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)

10. Estimated Provisions for Lease Abandonment, Employee Severance and Other Costs (continued)

provisions of approximately $6.5 million. These provisions consisted of approximately $1.4 million for estimated severance and other employee related costs for the termination of approximately 60 services, sales and marketing, development and administrative employees and approximately $1.1 million for the estimated loss on the abandonment of leased office space in Philadelphia. Additionally, the Company provided $2.9 million for additional estimated losses associated with facilities previously abandoned and $1.1 million in other facility closure costs primarily for the write-down of property and equipment.

The Company has made cash payments of approximately $7.3 million against the reserves established for these various cost reduction actions. The remaining liability at September 30, 2002 is approximately $12.4 million, of which $8.8 million is long-term and is expected to be paid through 2009. These reserves include estimates pertaining to sublease rates, vacancy periods, employee separation costs and settlement of contractual obligations. Although the Company does not anticipate significant changes, the actual costs may differ from these estimates.

11. Related Party

In accordance with an amended employment agreement with the Company’s former Chief Financial Officer dated February 19, 2002, the Company forgave an outstanding loan of approximately $277,000 on July 1, 2002. Accordingly, the outstanding balance was charged against operating results during the six months ended June 30, 2002.

12. Subsequent Events

On November 14, 2002, the Company announced, subject to stockholder approval, a reverse stock split which would result in each stockholder receiving one share of common stock for a range of every five (1:5) up to fifteen (1:15) common shares currently held. It is currently expected that the stockholder meeting to approve the reverse stock split will be held in early January 2003.


ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s discussion and analysis of the financial condition and results of operations should be read in conjunction with the Certain Factors That May Affect Future Results included elsewhere in this Form 10-Q and the Company’s Critical Accounting Policies and Estimates included in the Company’s Form 10-K for the year ended ~~2001~~December 31, 2002.

Overview

~~EXE~~ We ~~Technologies,~~provide ~~Inc. provides~~ software that drives customers’ supply chain execution processes, including fulfillment, warehousing, distribution, and inventory management. Our software solutions deliver the vital, frontline supply chain intelligence necessary to drive customer execution decisions and processes. Our products and services help customers worldwide to increase revenue, reduce distribution costs, manage inventory across the supply chain, and improve customer loyalty and satisfaction. We provide global service and support for our software from established facilities in North America, Europe, the Middle East, Asia, and Australia.

In October 2002, we were notified by the NASDAQ Stock Market, Inc. that our common stock price had failed to maintain a minimum closing bid price greater than or equal to $1.00 for 30 consecutive trading days and thereby subjected our common stock to possible delisting from NASDAQ. In response, effective January 2, 2003, we completed a one for seven reverse stock split.

We derive our revenue from the sale of software licenses; product related consulting, training, maintenance and support (collectively, “services and maintenance”); and the resale of software and equipment.

Our ~~revenues~~business ~~have~~has been adversely impacted byfor athe ~~global~~last ~~slowdown~~two inyears ~~customer~~by a ~~spending~~number ~~for~~of ~~large-scale~~factors. ITA ~~projects~~major ~~during~~factor ~~2001~~has ~~and~~been ~~2002.~~the ~~This~~ global slowdown ~~began~~ ~~to adversely impact our revenues~~ in ~~early 2001 and was impacted further~~customer byspending ~~the terrorist attacks upon the United States on September 11, 2001. While the global economic environment~~ for large-scale IT projects. ~~remains challenging,~~We wemade ~~have~~significant ~~remained~~progress ~~focused~~in lowering ~~on improving~~ our ~~performance~~cost ~~through better~~structure ~~sales~~in ~~execution and expanded product offerings, while significantly reducing global operating costs. At~~ the ~~end~~first ofsix ~~the~~months ~~second quarter~~ of ~~2002,~~2003. weSales ~~made~~and ~~the decision to take significant additional cost reduction actions~~marketing, ~~including~~ ~~the~~research ~~consolidation~~and ~~of our U.S.~~ development and ~~professional~~general ~~services operations in Dallas~~ and ~~expansion of our offshore development activities.~~ ~~These~~administrative ~~actions~~expenses ~~are~~declined ~~expected~~approximately ~~to reduce operating costs in the future~~$3.6 Wemillion, ~~do not~~or ~~expect~~16.1%, ~~the~~compared ~~full benefit of these actions~~ to ~~be achieved until~~ the first ~~quarter~~ six months of ~~2003~~2002. ~~The~~Although ~~cost~~our business ~~reduction~~volumes ~~actions~~improved ~~resulted~~ in ~~special charges of approximately $6.5 million in~~ the second quarter of ~~2002.~~2003 ~~The special charges included estimated severance~~ and ~~related~~our ~~costs~~net ~~and~~loss ~~lease~~was significantly ~~abandonment~~lower ~~costs related~~than toin the ~~closure~~previous ofquarters, ~~our~~we ~~Philadelphia~~continue ~~office~~to ~~and a provision for~~have ~~additional~~operating ~~estimated~~ losses ~~associated with facilities previously abandoned~~.

~~The~~ In ~~benefits~~response ~~from~~to ~~these~~the ~~cost~~less ~~reduction~~than ~~measures~~satisfactory ~~began~~operating inperformance, ~~the~~we ~~three~~took ~~months~~a ~~ended~~number ~~September 30, 2002 as expenses for cost~~ of ~~services~~actions ~~and~~in ~~maintenance, sales~~2002 ~~and~~to ~~marketing,~~improve ~~research~~operating ~~and~~performance. ~~development~~First, ~~and~~we ~~general~~have substantially ~~and~~reduced ~~administrative declined~~our ~~approximately~~cost ~~$0.9 million~~structure ~~from~~to ~~the~~more ~~expense~~closely ~~level~~align ~~during~~with ~~the~~our ~~three~~current ~~months~~levels ~~ended~~of ~~June 30, 2002~~revenue. InThese ~~early~~actions ~~October 2002~~included, weamong ~~signed~~other things, a ~~three-year~~17% reduction ~~offshore~~in ~~development~~global ~~agreement~~headcount, inthe ~~accordance~~closure ~~with~~of our ~~cost~~Philadelphia ~~reduction~~office, ~~plans.~~the consolidation ~~The~~of ~~arrangement~~our ~~provides~~North ~~offshore~~American ~~development~~professional ~~resources~~services inand ~~India~~development atoperations ~~a cost~~in ~~lower~~Dallas ~~than~~and weexpanding ~~have~~our ~~been~~lower-cost ~~historically~~offshore ~~incurring~~development ~~in the United States~~activities. We ~~expect~~also ~~future~~replaced ~~reductions~~our inChief ~~research~~Executive Officer and ~~development~~Chief ~~expenses~~Financial ~~after~~Officer, ~~a transition~~and ~~period~~eliminated ~~during~~ the ~~fourth~~Chief ~~quarter~~Operating ofOfficer ~~2002~~function.

We As ~~have~~a ~~reduced~~result ~~our~~of ~~full~~these ~~time~~actions in 2002 and other actions taken in 2001, we made provisions for severance and related employee ~~headcount~~costs, ~~from~~facility ~~630~~closure costs atand ~~the~~estimated ~~beginning~~losses on abandoned facilities totaling $9.7 million and of$14.3 million in 2002 and 2001, torespectively. ~~459~~Of atthese charges, $6.5 million were recorded in the ~~end~~second quarter of ~~September~~ 2002. The ~~cost~~remaining ~~reduction~~liability ~~actions~~at ~~taken~~June at30, ~~the~~2003 ~~end~~is ofapproximately ~~June~~$9.9 million, ~~2002~~of ~~have~~which, ~~resulted~~$6.9 million inis along-term ~~reduction~~and expected ofto 20be ~~employees~~paid through ~~September 30,~~ ~~2002~~2009. ~~and~~Should ~~further~~additional ~~reductions~~cost ~~are~~reduction ~~expected~~actions bybe required in the ~~first~~future ~~quarter~~or if management’s estimates of the losses on the ~~2003~~current abandoned facility leases are inadequate, future provisions could be required.

~~We will continue to review and evaluate our cost structure in the future~~11 ~~in light of the existing business environment. Further cost reduction actions~~ ~~will be taken, should business volumes not improve.~~

In October 2002, we were notified by the NASDAQ Stock Market, Inc. that our common stock price had failed to maintain a minimum closing bid price greater than or equal to $1.00 for 30 consecutive trading days. This failure to comply with this requirement for continued listing on the NASDAQ National Market subjects our common stock to possible delisting. In accordance with NASDAQ rules, we have 90 calendar days, or until January 21, 2003, to regain compliance with the minimum closing bid requirements.

In order to regain compliance with the minimum closing bid price requirements, on November 14, 2002, the Company announced, subject to stockholder approval, a reverse stock split (see Note 12 to the Consolidated Financial Statements included elsewhere herein).

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and the results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make judgments regarding estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Management bases its ~~judgments~~ judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not apparent from other sources. Although management evaluates these judgments on an ongoing basis, there can be no assurance that actual results will not ultimately differ from those estimates. For a more detailed explanation of these judgments, including our judgments relating to revenue recognition, allowance for doubtful accounts and adjustments, goodwill and intangible impairment, accruals for lease abandonment and employee termination costs, related party transactions, and contingencies you may refer to our Annual Report on Form 10-K for the year ended December 31, ~~2001~~2002.

Results of Operations

Three Months Ended ~~September~~June 30, ~~2002~~2003 Compared to the Three Months Ended ~~September~~June 30, ~~2001~~ 2002

Revenue

Total Revenue. Total revenue ~~declined~~increased $61.24 million, or 267.95%, to $1619.78 million for the three months ended ~~September~~June 30, ~~2002~~2003, from $2218.94 million for ~~the~~ the three months ended ~~September~~June 30, ~~2001~~2002. International revenue accounted for 50.2% 55and 51.02% of total revenue during the three months ended ~~September~~June 30, ~~2002~~2003 and ~~48.3% of total revenue during the three months ended September 30~~2002, ~~2001~~respectively. No single customer accounted for more than 10.0% of total revenue during the three months ended ~~September~~June 30, ~~2002~~2003 or ~~2001~~2002.

In Software ~~September~~License. ~~2002,~~Software ~~the~~license ~~Company~~revenue ~~expanded~~of ~~its strategic relationship with IBM~~$3.5 million ~~One~~for of the ~~key~~three months ~~elements~~ended ofJune 30, ~~the~~2003 ~~expanded relationship~~ was ~~the~~$0.4 million, ~~issuance~~or ~~of 1~~11.0%,~~000,000~~ ~~warrants~~higher tothan ~~IBM~~the to$3.1 million ~~purchase~~recorded during the ~~Company’s~~three ~~common~~months ~~stock~~ended atJune 30, an2002. ~~exercise~~Software license ~~price~~revenue ofas ~~$0.01~~a ~~per~~percentage ~~share.~~of ~~The~~total ~~warrants~~revenue ~~are~~excluding ~~exercisable~~reimbursable ~~over~~expenses awas ~~five-year~~17.9% ~~period~~for ~~and~~the ~~will~~three ~~vest~~months ~~over~~ended aJune 30, ~~three-year~~2003 ~~period based~~versus on17.4% ~~IBM’s~~for ~~generation~~the ofthree months ~~pre-established~~ended ~~amounts~~June 30, of2002. ~~incremental~~The growth in software license revenue ~~for~~was primarily ~~the~~attributable ~~Company~~to a higher volume in Europe.

~~Software~~ Services ~~License~~and Maintenance. ~~Software~~Services ~~license~~and maintenance revenue ~~decreased~~declined $20.2 1 million, or 45 1.43%, to $212.7 million for the three months ended ~~September~~June 30, ~~2002,~~ 2003 from $412.9 8 million for the three months ended ~~September~~June 30, ~~2001~~2002. ~~Software~~Services ~~license~~and maintenance revenue as a percentage of total revenue excluding reimbursable expenses ~~was 16~~declined to 65.54% for the three months ended ~~September~~June 30, ~~2002~~2003 ~~versus~~from 2271.15% for the three months ended ~~September~~June 30, ~~2001~~2002. WeThis ~~believe~~decline ~~these~~is ~~declines~~largely ~~continue~~ attributed to ~~reflect the~~a ~~global~~larger ~~slowdown~~volume inof ~~customer~~resale ~~spending~~software ~~for~~and ~~large-scale~~equipment ITshipments ~~projects~~during ~~that~~the ~~began~~three ~~during~~months ~~2001~~ended June 30, 2003. Services and ~~has~~maintenance ~~extended~~revenue ~~into~~during ~~fiscal~~the current ~~year~~quarter ~~2002~~increased $1.7 million, ~~When~~or 15.0%, when compared with the preceding three months ended March 31, 2003. This increase was attributed to a large implementation rollout project for a customer in Japan.

Resale Software and Equipment. Resale software and equipment revenue 15increased $1.2 million, or 62.0%, to $3.2 million for the three months ended June 30, 2003, from $2.0 million for the three months ended June 30, 2002. Resale software and equipment as a percentage of total revenue excluding reimbursable expenses was 16.7% for the three months ended June 30, 2003 versus 11.1% for the three months ended June 30, 2002. This increase was due to a higher volume of shipments in the North American region. Resale software and equipment revenue increased $1.9 million when compared with the preceding three months ended March 31, 2002. This increase is attributed to an increase in resale revenues from our North American region.

prior year, the largest decline in license revenue occurred in our Asia Pacific region. Software license revenue declined $0.4 million or 13.7% when compared with the preceding three months ended June 30, 2002. This decline was attributed to lower license revenue in our North America and Asia Pacific regions.

Services and Maintenance. Services and maintenance revenue declined $2.6 million, or 17.5%, to $12.3 million for the three months ended September 30, 2002 from $14.9 million for the three months ended September 30, 2001. Services and maintenance revenue as a percentage of total revenue excluding reimbursable expenses was 75.4% for the three months ended September 30, 2002 versus 66.8% for the three months ended September 30, 2001. We believe the global slowdown in customer spending for large-scale IT projects has adversely impacted our ability to generate new license revenue resulting in a shift in our revenue mix. This decline in new projects from new license revenue has contributed to the decline in services and maintenance revenue. Most of the decline was in our North America and Asia Pacific regions since these areas have been the most adversely affected by license revenue declines. Revenues from consulting services have declined 27.7% when compared to the same three month period of the prior year and is largely attributed to the continued decline of consulting revenue from our EXceed Fulfill WMS Unix-based products. In addition, revenues from the AllPoints product line have declined approximately $0.9 million as a result of our November 2001 decision to no longer sell and market these products. Services and maintenance revenue declined $0.5 million or 4.3% when compared to the preceding three months ended June 30, 2002. This decline is attributed to the European vacation season and decreased consulting revenues in Japan.

Resale Software and Equipment. Resale software and equipment revenue decreased $1.2 million, or 46.7%, to $1.3 million for the three months ended September 30, 2002, from $2.5 million for the three months ended September 30, 2001. Resale software and equipment as a percentage of total revenue excluding reimbursable expenses was 8.1% for the three months ended September 30, 2002 versus 11.1% for the three months ended September 30, 2001. Resale software and equipment revenue decreased $0.7 million or 34.0% when compared with the preceding three months ended June 30, 2002. This decrease is attributed to a decline in resale revenues from our North American region.

Costs and Expenses

Cost of Software Licenses. Cost of software licenses consists primarily of royalties associated with software used to develop our software products, the cost of reproduction, and the cost of complementary software applications that we purchase to sell to our customers. Cost of software licenses represented 84.89% of software license revenue for the three months ended June ~~September~~ 30, ~~2002~~2003 and 62.58% for the three months ended ~~September~~June 30, ~~2001~~2002. The increase in cost of software licenses as a percentage of software license revenue was attributed to an increase in purchasing of complementary software that was sold during the three months ended ~~September~~June 30, ~~2002~~2003.

Cost of Services and Maintenance. Cost of services and maintenance consists primarily of salaries of professional staff and costs associated with implementation, consulting and training services, hotline telephone support, new releases of software and updating user documentation. ~~Cost~~As ofa percentage of services and maintenance ~~declined $1.6 million~~revenue, orcost ~~17.2%,~~of toservices ~~$7.9 million~~and ~~for~~maintenance ~~the three~~was ~~months~~approximately ~~ended September 30, 2002, from $9~~62.~~5 million~~4% for the three months ended ~~September~~ June 30, ~~2001.~~2003 ~~The~~compared ~~decrease was related primarily~~ to ~~a reduction in the number of full time and contract services and maintenance employees~~62. ~~Cost of~~7% ~~services~~for ~~and maintenance decreased $0.2 million or 2.3% when compared to~~ the ~~preceding~~ three months ended June 30, 2002. AsCost ~~a percentage~~ of services and ~~maintenance~~ ~~revenue, cost of services and~~ maintenance decreased ~~was approximately 64~~1.09% ~~for~~, ~~the~~or ~~three months ended September~~$0.1 30million, ~~2002~~to ~~and~~$7.9 million for the three months ended ~~September~~June 30, ~~2001~~2003, ~~and was slightly increased~~ from 62$8.7%0 million for the three months ended June 30, 2002. Increased ~~The~~costs ~~increase~~during inthe ~~cost~~current asquarter aassociated ~~percentage~~with ofthe ~~services~~use ~~and~~of a ~~maintenance~~subcontractor ~~revenue~~to ~~was~~perform ~~largely~~a ~~due~~large ~~primarily~~implementation torollout aproject ~~decline~~for ina ~~utilization~~customer ~~attributed~~in toJapan ~~the~~were ~~traditional~~substantially ~~third~~offset ~~quarter~~by ~~European~~lower ~~vacation~~internal ~~season~~staff costs and higher staff utilization.

Cost of Resale Software and Equipment. Cost of resale software and 16equipment consists primarily of the costs of the database software tools and hardware we purchase to resell to our customers. Cost of resale software and equipment increased $1.0 million, or 60.1%, to $2.7 million for the three months ended June 30, 2003, from $1.7 million for the three months ended June 30, 2002. This increase was due to a large resale transaction for a customer in our North American region during the current quarter. As a percentage of resale software and equipment revenue, cost of resale software and equipment was 81.8% for the three months ended June 30, 2003, and 82.8% for the three months ended June 30, 2002.

Sales and Marketing. Sales and marketing expenses consist primarily of salaries, commissions, bonuses, recruiting costs, travel, marketing materials and trade shows. Sales and marketing expenses declined $0.8 million, or 16.2%, to $4.1 million for the three months ended June 30, 2003, from $4.9 million for the three months ended June 30, 2002. The decline was related primarily to a 26.0% reduction in the number of sales and marketing employees and lower marketing expense. As a percentage of total revenue excluding reimbursable expenses, sales and marketing expenses declined to 21.3% for the three months ended June 30, 2003, from 27.4% for the three months ended June 30, 2002.

Research and Development. Research and development expenses consist primarily of salaries and other personnel-related costs for our product development activities. Research and development expenses declined $0.7 million, or 23.1%, to $2.2 million for the three months ended June 30, 2003, from $2.9 million for the three months ended June 30, 2002. As a percentage of total revenue excluding reimbursable expenses, research and development expenses decreased to 11.5% for the three months ended June 30, 2003, from 16.2% for the three months ended June 30, 2002. As a part of our cost reduction program, in late 2002 we signed a three-year agreement with a company to provide offshore development resources in India at a cost that is lower than our historic development costs. Additionally, we reduced the number of full time research and development employees in North America.

General and Administrative. General and administrative expenses consist primarily of salaries and other personnel-related costs of our finance, human resources, information systems, administrative, legal and executive departments, insurance costs and the costs associated with legal, accounting, and other administrative services. General and administrative costs were unchanged at $3.0 million for the three months ended June 30, 2003, and 2002. As a percentage of total revenue excluding reimbursable expenses, general and administrative expenses decreased to 15.5% for the three months ended June 30, 2003, from 16.8% for the three months ended June 30, 2002.

~~Cost~~ Amortization of ~~Resale~~Intangible ~~Software and Equipment~~Assets. ~~Cost~~Amortization of ~~resale~~intangible ~~software and~~assets ~~equipment~~relates ~~consists~~ primarily ofto ~~the~~acquired ~~costs~~developed ~~of the database~~ software ~~tools~~technology and ~~hardware~~ weassets ~~purchase~~acquired in toconnection ~~resell~~with tothe ~~our~~1997 ~~customers.~~acquisition ~~Cost~~ of ~~resale~~Dallas ~~software~~Systems. ~~and~~Amortization of ~~equipment~~intangible assets decreased $10.1 million, ~~or 49.3%,~~ to $1.0.2 million for the three ~~months~~ months ended ~~September~~June 30, ~~2002~~2003, from $20.13 million for the three months ended ~~September~~ June 30, ~~2001~~ 2002. AsThe adecline ~~percentage~~from ofthe ~~resale~~prior ~~software~~year ~~and~~is ~~equipment~~attributed ~~revenue,~~to intangible assets ~~cost~~acquired ofin ~~resale~~the ~~software~~1997 ~~and~~acquisition ~~equipment~~of ~~was~~Dallas ~~81.8%~~Systems ~~for~~that ~~the~~were ~~three~~fully ~~months~~amortized ~~ended~~in ~~September 30,~~the ~~2002,~~final ~~86.2%~~quarter ~~for~~of the ~~three~~prior ~~months~~year. ~~ended~~In ~~September 30,~~November of 2001 and ~~82.8%~~ ~~for~~July ~~the~~of ~~three months ended June 30~~2002, ~~2002.~~we acquired ~~The~~a ~~decrease~~total ~~in cost~~ of ~~resale as~~$2.0 million ~~a percentage~~ of ~~resale~~developed software ~~and~~technology ~~equipment~~that ~~revenue was largely attributed~~has toresulted ~~the~~in ~~increase~~$0.2 million in ~~revenues~~amortization ~~obtained~~during ~~from~~the ~~commissions~~three ~~earned~~months onended ~~resale~~June 30, ~~referrals~~2003.

~~Sales~~ Non-Cash ~~and~~Warrant ~~Marketing. Sales~~ and ~~marketing~~Stock ~~expenses~~Compensation. ~~consist~~Non-cash ~~primarily~~warrant ~~of salaries,~~and ~~commissions, bonuses, recruiting costs, travel, marketing materials~~stock ~~and~~compensation ~~trade~~expense ~~shows.~~relates ~~Sales and marketing expenses decreased $1.7 million, or 28.0%,~~ to ~~$4.5 million for~~ the ~~three~~amortization ~~months~~of ~~ended~~deferred ~~September 30,~~compensation recorded ~~2002,~~primarily ~~from~~in ~~$6.2 million~~connection ~~for~~with ~~the~~stock ~~three~~options ~~months~~granted ~~ended~~to ~~September 30, 2001~~employees. The ~~decrease was~~ ~~related~~deferred ~~primarily~~compensation torecorded arepresented ~~26.4%~~the ~~reduction~~difference inbetween the ~~number of sales and marketing~~exercise ~~employees~~price and tothe ~~lower~~deemed ~~commission~~fair ~~expenses~~value ~~for sales staff and partners as a result~~ of ~~lower~~our ~~software~~common ~~license~~stock ~~revenues.~~on Asthe adate ~~percentage~~ of ~~total~~grant ~~revenue~~of ~~excluding~~these ~~reimbursable~~options. ~~expenses,~~Non-cash ~~sales~~warrant and ~~marketing~~stock ~~expenses~~compensation ~~remained~~expense ~~steady at~~decreased 27$0.~~5% for the three months ended September 30, 2002, 27.9% for the three~~1 ~~months~~million ~~ended~~to ~~September~~$0.2 ~~30,~~million ~~2001, and 27.4%~~ for the three months ended June 30, ~~2002.~~ ~~Sales~~2003, ~~and~~from ~~marketing expenses decreased~~ $0.4 3 million orfor ~~8.8% when compared with~~ the ~~preceding~~ three months ended June 30, 2002 ~~primarily due to reduced staff headcount and lower commission expenses as a result of lower software license revenues~~.

~~Research~~ Estimated ~~and~~Provisions ~~Development.~~for ~~Research~~Lease ~~and~~Abandonment, ~~development~~Employee ~~expenses~~Severance ~~consist~~and Other ~~primarily~~Facility ofClosure ~~salaries~~Costs. ~~and~~In ~~other~~response ~~personnel-related~~to ~~costs~~the ~~for~~continued ~~our~~global ~~product~~slowdown in ~~development~~customer ~~activities.~~spending ~~Research~~for ~~and~~large-scale ~~development~~IT ~~expenses decreased $0.6 million~~projects, orwe ~~18.1%,~~launched toadditional ~~$2.9 million~~cost reduction ~~for~~actions during the ~~three~~second ~~months~~quarter ~~ended~~of ~~September 30,~~ 2002,. ~~from~~These ~~$3.5 million~~actions, ~~for~~which included the ~~three~~consolidation ~~months~~of ~~ended~~the ~~September 30, 2001~~U.S. ~~The decrease~~professional inservices ~~research~~ and development activities ~~expenses~~into ~~was~~one ~~largely~~location ~~due~~in toDallas ~~efforts~~and ~~to improve~~ the ~~utilization~~expansion of ~~development~~our ~~staff on billable service projects and~~offshore ~~lower~~development ~~travel~~operations, ~~and~~resulted ~~equipment~~in ~~costs as~~ a ~~result~~charge of ~~our~~approximately ~~decision~~$6.5 million ~~to close the~~in ~~Philadelphia~~the ~~facility~~second inquarter ~~June~~ of 2002. AsThe aprovisions ~~percentage~~consisted of ~~total~~approximately ~~revenue~~$1.4 ~~excluding~~million ~~reimbursable~~for ~~expenses,~~estimated ~~research~~severance and ~~development~~other ~~expenses~~employee ~~increased~~related ~~to 17.5%~~costs for the termination ~~three~~of ~~months~~approximately ~~ended~~60 ~~September 30~~services, ~~2002,~~sales ~~from~~and ~~15.6% for the three months ended September 30~~marketing, ~~2001,~~development and ~~from 16.2% for the three months ended June~~ ~~30,~~administrative ~~2002.~~employees ~~Research~~ and ~~development~~approximately ~~expenses slightly decreased~~ $01.1 million ~~or 1.9%~~for ~~when~~the ~~compared~~estimated ~~with~~loss on the ~~preceding~~abandonment ~~three~~of ~~months~~leased ~~ended~~office ~~June 30,~~space ~~2002~~in Philadelphia. ~~As part of our cost reduction program~~Additionally, we ~~have signed a three-year agreement with~~ aprovided ~~company~~$2.9 million tofor ~~provide~~additional ~~offshore~~estimated ~~development~~losses ~~resources~~associated ~~in India at a cost that~~with ~~will~~facilities bepreviously ~~lower~~abandoned ~~than~~and ~~our historic development costs~~$1.1 million ~~Due to transitional costs~~ in ~~the~~other ~~final~~facility ~~quarter of this year, reduced research and development costs from the~~ closure ~~of our Philadelphia development operations and the outsourcing of~~ ~~development~~costs ~~from~~primarily ~~the~~for ~~offshore development contract are not expected to be fully realized until~~ the ~~first~~write-down ~~quarter~~ of ~~next~~property ~~year~~and equipment.

~~General~~ Other ~~and~~Income ~~Administrative~~(Expense). ~~General~~Other ~~and~~income ~~administrative~~(expense) consists ~~expenses consist primarily~~ of ~~salaries~~gains and ~~other personnel-related costs of our finance, human~~ ~~resources,~~losses ~~information~~from ~~systems,~~currency ~~administrative~~fluctuations, ~~legal~~interest ~~and executive departments~~expense, ~~insurance costs~~ and ~~the~~interest ~~costs~~income ~~associated with legal, accounting,~~on ~~and other administrative services~~investments. ~~General~~Other ~~and~~income ~~administrative~~declined ~~costs decreased~~ $10.47 million, ~~or 32.5%,~~ to $20.~~8 million for the three months ended September 30, 2002, from $~~4.2 million ~~for~~during ~~the~~ three months ended ~~September~~June 30, ~~2001.~~2003 ~~The decrease~~compared ~~in general and administrative expenses was due primarily~~ to ~~a 26~~$1.5% reduction in the number of general and administrative employees and contractors. As a percentage of total revenue excluding reimbursable expenses, general and administrative expenses decreased to 17.2% for the three months ended September1 ~~30,~~million ~~2002,~~during ~~from 18.7% for~~ the three months ~~ended September 30,~~ ~~2001, and increased from 16.8% for the three months~~ ended June 30, 2002. ~~General~~ ~~and~~This ~~administrative~~decline ~~expenses~~was ~~decreased $0.2 million or 6.9% when compared with the preceding three months ended June 30, 2002~~ primarily due to ~~efforts~~ tolower ~~reduce~~foreign ~~contractor~~currency gains ~~expenses~~ and ~~from~~lower ~~reduced~~interest ~~depreciation~~earned ~~expense caused~~on byinvestment securities.

Income Taxes. An income tax provision of $0.2 million was recognized 17during the three months ended June 30, 2003 and 2002. The income tax provisions were primarily due to foreign withholding taxes and taxes on income earned by foreign subsidiaries.

~~Table~~Six ofmonths ~~Contents~~Ended June 30, 2003 Compared to the Six months Ended June 30, 2002

property and equipment write-offs associated with the facility closure actions during the three months ended June 30, 2002. In November 2002, we hired a new Chief Executive Officer. The existing Chief Executive Officer will continue with the Company as Chairman of the Board of Directors. As a result, we expect general and administrative expenses will increase in the future.

Amortization of Goodwill and Intangible Assets. Amortization of goodwill and intangible assets relates primarily to assets acquired in connection with the 1997 acquisition of Dallas Systems and the 2001 acquisition of AllPoints. Amortization of goodwill and intangible assets decreased $2.0 million to $0.3 million for the three months ended September 30, 2002, from $2.3 million for the three months ended September 30, 2001, and is consistent with $0.3 million for the three months ended June 30, 2002. Of the decline from the prior year, $1.3 million of the decline is attributed to the goodwill and intangible impairment write-off of AllPoints at the end of 2001 and approximately $0.8 million is attributed to the implementation in the current year of Statement of Financial Accounting Standards Board (SFAS) No. 142, Goodwill and Other Intangible Assets, which directs that goodwill and intangible assets which are deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests. In November of 2001 and July of 2002, we acquired a total of $2.0 million of developed software technology that has resulted in $0.1 million in amortization during the three months ended September 30, 2002.

Non-Cash Warrant and Stock Compensation. Non-cash warrant and stock compensation expense relates to the amortization of deferred compensation recorded primarily in connection with stock options granted to employees. The deferred compensation recorded represented the difference between the exercise price and the deemed fair value of our common stock on the date of grant of these options. Non-cash warrant and stock compensation expense decreased $0.2 million to $0.2 million for the three months ended September 30, 2002, from $0.4 million for the three months ended September 30, 2001, and $0.3 million for the three months ended June 30, 2002.

Other Income (Expense). Other income (expense) consists of gains and losses from currency fluctuations, interest expense, and interest income on investments. Other income decreased $0.5 million to an income of $0.2 million for the three months ended September 30, 2002, from an income of $0.7 million for the three months ended September 30, 2001. The decrease was due primarily to $0.2 million decline in foreign exchange gains and a decrease in interest income of $0.3 million due to a decline in interest rates and a decline in funds held in marketable securities during the three months ended September 30, 2002. Other income (expense) declined $0.9 million when compared with the preceding three months ended June 30, 2002 primarily due to foreign exchange gains during the three months ended June 30, 2002. Although we periodically buy forward contracts to hedge against certain foreign currency fluctuations, we may have foreign currency gains and losses that can significantly vary from quarter to quarter.

Income Taxes. An income tax provision of $0.1 million was recognized during the three months ended September 30, 2002 compared to no income tax provision or benefit during the same period of 2001. The income tax provision was primarily due to tax on income earned by foreign subsidiaries while corresponding domestic tax benefit generated by foreign tax credits was not recognized due to the uncertainty of the timing and amount of future taxable income.

Nine Months Ended September 30, 2002 Compared to the Nine Months Ended September 30, 2001

Revenue

Total Revenue. Total revenue decreased $232.79 million, or 307.24%, to $5435.82 million for the ~~nine~~six months ended ~~September~~June 30, ~~2002~~2003, from $7838.51 million for the ~~nine~~ six months ended ~~September~~June 30, ~~2001~~2002. International revenue accounted for 51.3% and 52.90% of total revenue during the ~~nine~~six months ended ~~September~~June 30, 2003 and 2002, respectively. No single customer accounted for more than 10.0% of total revenue during the six months ended June 30, 2003 or 2002.

14 18

~~2002~~ Software ~~and 45~~License.6% ofSoftware ~~total~~license revenue ~~during~~of ~~the~~$6.1 million ~~nine~~for the six months ended ~~September~~June 30, ~~2001.~~ No2003 ~~single~~was ~~customer~~$1.2 million, ~~accounted~~or ~~for~~15.5%, ~~more~~lower than 10the $7.0%3 million recorded during the six months ended June 30, 2002. Software license revenue as a percentage of total revenue ~~during~~excluding reimbursable expenses was 17.9% for the ~~nine~~six months ended ~~September~~June 30, 2003 versus 19.6% for the six months ended June 30, 2002. orThe ~~2001~~lower software license revenue primarily occurred in our North America and Asia Pacific regions.

~~Software~~ Services ~~License~~and Maintenance. ~~Software~~Services ~~license~~and maintenance revenue ~~decreased~~declined $101.5 0 million, or 51 4.32%, to $1023.07 million for the ~~nine~~six months ended ~~September~~June 30, ~~2002,~~2003 from $2024.57 million for the ~~nine~~six months ended ~~September~~June 30, ~~2001~~2002. ~~Software~~The lower license revenue asof athe ~~percentage~~last ofseveral ~~total~~quarters ~~revenue~~has ~~excluding~~impacted ~~reimbursable~~services ~~expenses~~and ~~was~~maintenance ~~18.7%~~revenues, ~~for~~since ~~the~~there ~~nine~~have ~~months~~been ~~ended~~fewer ~~September 30,~~software ~~2002~~implementation ~~versus 26~~projects.8% ~~for~~As ~~the nine~~a ~~months~~result, ~~ended~~revenue ~~September 30,~~from ~~2001.~~consulting Weservices ~~believe~~has ~~these~~declined. ~~declines~~Services ~~were~~and ~~primarily~~maintenance ~~attributed~~revenue toas ~~the~~a ~~global~~percentage ~~slowdown~~of intotal ~~customer~~revenue ~~spending~~excluding reimbursable expenses increased to 68.9% for ~~large-scale~~the ~~IT projects~~six ~~that~~months ~~began~~ended ~~during~~June 30, ~~2001~~2003 ~~and~~from ~~has~~66.6% ~~extended~~for ~~into~~the six ~~fiscal~~months ~~year~~ended June 30, 2002.

~~Services~~ Resale Software and ~~Maintenance~~Equipment. ~~Services~~Resale software and ~~maintenance~~equipment revenue ~~decreased~~ decreased $120.36 million, or 2511.0%, to $374.05 million for the ~~nine~~six months ended ~~September~~June 30, ~~2002~~2003, from $495.31 million for the ~~nine~~six months ended ~~September~~June 30, ~~2001~~2002. ~~Services~~ ~~and maintenance revenue as a percentage of total revenue excluding~~This ~~reimbursable~~decline ~~expenses~~ was ~~69.3%~~due ~~for~~to the ~~nine~~exclusion ~~months~~of ~~ended September 30, 2002 versus 64~~$0.~~6% for the nine months ended September~~5 ~~30,~~million ~~2001.~~of Werevenue ~~believe~~associated ~~the~~with ~~global~~resale ~~slowdown~~equipment insold ~~customer spending for large-scale IT projects has adversely impacted our ability~~ to ~~generate~~a ~~new~~customer ~~license~~during ~~revenue~~the ~~resulting~~first inquarter aof ~~shift~~2003 inthat ~~our~~subsequently ~~revenue~~filed ~~mix~~for bankruptcy. ~~This~~We ~~decline~~did innot ~~new~~recognize ~~projects~~this ~~from new license~~ revenue ~~has contributed~~from to the ~~decline in services and maintenance revenue. The decline~~ ~~occurred~~resale inequipment ~~our~~sale ~~North America~~ and ~~Asia~~provided ~~Pacific~~an ~~regions~~estimated ~~since~~loss ~~these~~for ~~areas have been~~ the ~~most~~cost ~~adversely~~of ~~affected by license revenue declines. Revenues from~~the ~~consulting services have declined 34~~equipment.3% ~~when~~Resale ~~compared~~software toand ~~the~~equipment ~~same~~as ~~nine~~a ~~month period~~percentage of ~~the~~total ~~prior~~revenue excluding ~~year~~reimbursable ~~and~~expenses iswas ~~largely~~13.2% ~~attributed~~for to the ~~continued~~six ~~decline~~months ofended June 30, ~~consulting~~2003 ~~revenue~~versus ~~from our EXceed Fulfill WMS Unix-based products~~13.8% ~~In addition,~~for ~~revenues from~~ the ~~AllPoints~~six ~~product~~months ~~line~~ended ~~have declined approximately $2.2~~June ~~million~~30, ~~as a result of our November 2001 decision to no longer sell and market these products~~2002.

Resale Software and Equipment. Resale software and equipment revenue decreased $0.2 million, or 2.5%, to $6.4 million for the nine months ended September 30, 2002, from $6.6 million for the nine months ended September 30, 2001. Resale software and equipment as a percentage of total revenue excluding reimbursable expenses increased to 12.0% for the nine months ended September 30, 2002 from 8.6% for the nine months ended September 30, 2001. This increase was due to improved resale revenue from Europe that accompanied a large new license and services contract during the first quarter of 2002.

Costs and Expenses

Cost of Software Licenses. Cost of software licenses represented 47.47% of software license revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2002~~2003 and 2.27% ~~for~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2001~~2002. The increase in cost of software ~~licenses~~ licenses as a percentage of software license revenue was attributed to an increase in purchasing of complementary software that was sold during the ~~nine~~ six months ended ~~September~~ June 30, ~~2002~~2003.

Cost of Services and Maintenance. Cost of services and maintenance were ~~decreased~~lower $8by 7.~~0 million~~5%, or 25$1.0%2 million, to $2415.10 million for the ~~nine~~six months ended June ~~September~~ 30, ~~2002~~2003, from $3216.12 million for the ~~nine~~six months ended ~~September~~June 30, ~~2001.~~ ~~The decrease was related primarily to a reduction in the number of full time and contract services and maintenance employees~~2002. As a percentage of services and maintenance revenue, cost of services and maintenance was 65approximately 63.14% for the six months ended June 30, 2003 compared to 65.7% for the ~~nine~~six months ended ~~September~~June 30, 2002. This improvement was due to improved utilization of our staff and ~~2001~~the reduced number of full time services and maintenance employees.

Cost of Resale Software and Equipment. Cost of resale software and equipment decreased $0.16 million, or 214.51%, to $5.3.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2002~~2003, from $5.4.2 million for the ~~nine~~six months ended ~~September~~ June 30, ~~2001~~2002. As a percentage of resale software and equipment revenue, cost of ~~resale~~ resale software and equipment was 82improved to 80.70% for the ~~nine~~six months ended ~~September~~June 30, 2003, compared to 82.9% for the six months ended June 30, 2002, ~~and~~due ~~2001~~to sales of higher margin database software during 2003.

Estimated Loss on Resale Equipment Sold to Company in Bankruptcy. We sold 19approximately $0.5 million of resale equipment early in the first quarter of 2003 to a customer who subsequently filed bankruptcy in April 2003. As a result, we did not recognize the revenue from the equipment sale and provided $0.5 million loss for the cost of the equipment.

Sales and Marketing. Sales and marketing expenses declined $2.0 million, or 19.3%, to $8.0 million for the six months ended June 30, 2003, from $10.0 million for the six months ended June 30, 2002. The decline was related primarily to a 25.0% reduction in the number of sales and marketing employees. As a percentage of total revenue excluding reimbursable expenses, sales and marketing expenses declined to 23.4% for the six months ended June 30, 2003, from 26.9% for the six months ended June 30, 2002.

~~Sales~~ Research and ~~Marketing~~Development. ~~Sales~~Research and ~~marketing~~development expenses ~~decreased~~declined $61.4 2 million, or 3019.85%, to $~~14.~~4.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2002~~2003, from $206.80 million for the ~~nine~~six months ended ~~September~~June 30, ~~2001~~2002. ~~The~~As ~~decrease was related primarily to~~ a ~~reduction~~percentage inof ~~the~~total revenue ~~number~~excluding ofreimbursable ~~sales~~expenses, research and ~~marketing~~development ~~employees~~expenses ~~and~~decreased to ~~lower~~14.0% ~~commission~~for ~~expenses~~the ~~for~~six ~~sales~~months ~~staff~~ended ~~and~~June 30, ~~partners~~2003, asfrom a16.1% ~~result~~for ofthe ~~lower~~six ~~software~~months ~~license~~ended ~~revenues~~June 30, 2002. As a ~~percentage~~part of ~~total~~our ~~revenue~~cost ~~excluding reimbursable~~reduction ~~expenses~~program, ~~sales~~in late ~~and~~2002 ~~marketing~~we ~~expenses~~signed ~~decreased~~a tothree-year ~~27.1%~~agreement ~~for~~with ~~the~~a company to provide offshore ~~nine~~development ~~months~~resources ~~ended~~in ~~September 30,~~India ~~2002,~~at ~~from~~a 27cost that is lower than our historic development costs.3% ~~for~~Additionally, we reduced the ~~nine~~number ~~months~~of ~~ended~~full time research ~~September 30,~~and ~~2001~~development employees in North America.

~~Research~~ General and ~~Development~~Administrative. ~~Research~~General and ~~development~~administrative ~~expenses~~costs ~~decreased~~declined $20.5 million, or 227.25%, to $85.87 million for the ~~nine~~six months ended ~~September~~June 30, ~~2002,~~ 2003, from $116.32 million for the ~~nine~~six months ended ~~September~~June 30, ~~2001~~2002. The ~~decrease~~ indecline ~~research~~is largely ~~and~~attributed ~~development~~to ~~expenses~~lower ~~was~~depreciation costs due ~~primarily~~ to aasset ~~reduction~~disposals and inretirements ~~the~~and ~~number~~lower ofpayroll ~~research~~cost ~~and~~due ~~development~~to ~~employees~~staff ~~and contractors~~reductions. As a percentage of total revenue, excluding reimbursable expenses, ~~research~~general and ~~development~~ administrative expenses ~~increased~~were to 16.57% for ~~the~~both ~~nine months ended September 30, 2002, from 14.8% for~~ the ~~nine~~six months ended ~~September~~June 30, ~~2001.~~2003 ~~The~~and ~~increase was primarily due to lower revenue we have experienced since the beginning of the slowdown in global IT spending~~2002.

~~General~~ Amortization ~~and~~of ~~Administrative~~Intangible Assets. ~~General~~Amortization of intangible assets relates primarily to acquired developed software technology and ~~administrative~~assets ~~costs~~acquired in ~~decreased~~connection with the 1997 acquisition of Dallas Systems. Amortization of intangible assets decreased $50.23 million, ~~or 36.6%,~~ to $9.0.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2002~~ 2003, from $140.26 million for the ~~nine~~six months ended ~~September~~June 30, ~~2001~~2002. ~~The~~ The decline infrom ~~general~~the ~~and~~prior ~~administrative~~year ~~expenses~~is ~~was~~attributed ~~largely~~to ~~due~~intangible toassets aacquired ~~reduction~~ in the ~~number~~1997 acquisition of ~~general~~Dallas ~~and~~Systems ~~administrative~~that ~~employees~~were ~~and~~fully ~~contractors.~~amortized Asin athe final ~~percentage~~quarter of ~~total~~the ~~revenue~~prior ~~excluding~~year. ~~reimbursable~~In ~~expenses,~~November ~~general~~of 2001 and ~~administrative~~ ~~expenses~~July ~~decreased~~of to2002, ~~16.9%~~we ~~for~~acquired ~~the~~a total ~~nine~~of ~~months~~$2.0 million ~~ended~~of ~~September 30,~~developed ~~2002,~~software ~~from~~technology 18that has resulted in $0.6%3 million ~~for~~in amortization during the ~~nine~~six months ended ~~September~~June 30, ~~2001~~2003.

~~Amortization~~ Non-Cash ofWarrant ~~Goodwill~~ and ~~Intangible~~Stock ~~Assets~~Compensation. ~~Amortization~~Non-cash ofwarrant ~~goodwill~~ and ~~intangible~~stock compensation ~~assets~~expense ~~decreased~~relates ~~$5.6 million~~ to ~~$0.9 million for~~ the ~~nine months~~amortization ~~ended~~of ~~September 30,~~deferred ~~2002, from $6.5 million for the nine months ended~~compensation ~~September 30,~~recorded ~~2001.~~primarily Ofin ~~the~~connection ~~decline~~with ~~from~~stock ~~the~~options ~~prior~~granted ~~year,~~to $3employees.~~4 million~~ ~~of the~~The ~~decline~~deferred iscompensation ~~attributed~~recorded torepresented the ~~goodwill~~difference ~~and~~between ~~intangible~~the ~~impairment write-off of~~exercise ~~AllPoints~~price atand the ~~end~~deemed offair ~~2001~~value ~~and~~of ~~approximately~~our ~~$2.5 million~~common isstock ~~attributed~~on to the ~~implementation~~date ~~in the current year~~ of ~~Statement~~grant of ~~Financial Accounting~~ ~~Standards~~these ~~Board (SFAS) No~~options. ~~142,~~ ~~Goodwill~~Non-cash ~~and~~warrant ~~Other Intangible Assets, which directs that goodwill~~ and ~~intangible~~stock ~~assets~~compensation ~~which~~expense ~~are~~decreased ~~deemed to have indefinite~~$0.1 ~~lives~~million ~~are no longer amortized but are subject~~ to ~~annual impairment tests. In November of 2001 and July of 2002, we acquired a total of~~ $2.0.4 million ~~of developed~~for ~~software~~the ~~technology~~six ~~that~~months ~~has~~ended ~~resulted~~June 30, in2003, from $0.3 5 million infor ~~amortization during~~ the ~~nine~~six months ended ~~September~~June 30, 2002.

~~Non-Cash~~ Estimated ~~Warrant~~Provisions for Lease Abandonment, Employee Severance and ~~Stock~~Other Facility ~~Compensation~~Closure Costs. ~~Non-cash~~During ~~warrant~~the years ended December 31, 2001 and ~~stock~~2002, ~~compensation~~the ~~expense~~Company ~~decreased~~implemented ~~$0.6 million~~various cost reduction actions to ~~$0.7 million~~lower ~~for~~the Company’s cost structure, including employee severance, the ~~nine~~write-off ~~months~~of equipment and ~~ended~~the ~~September 30,~~abandonment ~~2002~~of certain leased facilities. As a result, ~~from~~charges totaling approximately $114.3 million ~~for~~and ~~the~~$9.7 million ~~nine~~were ~~months~~charged ~~ended~~against ~~September~~operating ~~30,~~results in 2001. ~~The~~and ~~decline~~2002, ~~primarily~~respectively. ~~was~~Of ~~attributed~~these tocharges, ~~employee~~$6.5 million ~~reductions and the~~were ~~associated~~recorded ~~cancellation~~during of the ~~remaining~~six ~~vesting~~months ofended ~~options~~June 30, 2002.

~~Estimated~~ We ~~Provisions~~have ~~for~~made ~~Lease~~payments ~~Abandonment,~~of ~~Employee~~approximately ~~Severance~~$12.5 million, ~~and~~of ~~Other~~which ~~Facility~~approximately ~~Closure Costs~~$3.6 million Inwere ~~response~~paid ~~to the continued global slowdown in customer spending for large-scale IT projects, we launched additional cost reduction actions~~ during the ~~three~~six months ended June 30, ~~2002. These actions~~2003, ~~which~~and ~~include~~have ~~the~~written-off ~~consolidation~~approximately of$1.6 million ~~the~~in ~~U.S.~~non-cash ~~professional~~charges ~~services~~against ~~and~~the ~~development~~reserves ~~activities~~established ~~into~~for ~~one~~the ~~location~~various incost ~~Dallas~~reduction ~~and~~actions ~~the~~that ~~expansion~~occurred during of2002 ~~our offshore~~and ~~development~~2001. ~~operations,~~The ~~resulted~~remaining inliability aat ~~charge~~June 30, of2003 is approximately $69.5 9 million., ~~These provisions consisted~~ of ~~approximately~~which $16.49 million ~~for estimated~~is ~~severance~~long-term and ~~other~~is ~~employee~~expected to ~~related~~be ~~costs~~paid ~~for~~though ~~the~~2009. ~~termination~~The ~~of approximately~~reserves 60include ~~services,~~estimates ~~sales~~pertaining ~~and~~to ~~marketing~~sublease rates, ~~development~~vacancy ~~and~~periods, ~~administrative employees~~employee ~~and~~separation ~~approximately~~costs ~~$1.1 million~~and ~~for~~settlement ~~the estimated loss on the abandonment~~ of ~~leased office space in Philadelphia~~contractual obligations. ~~Additionally,~~Although we ~~provided $2.9 million~~do ~~for~~not ~~additional~~anticipate ~~estimated~~significant ~~losses~~changes, ~~associated~~the ~~with facilities~~actual ~~previously abandoned and $1.1 million in other facility closure~~ costs ~~primarily for~~may ~~the~~differ ~~write-down~~from ofthese ~~property and equipment~~estimates.

Other Income (Expense). Other income declined $0.5 million to $0.8 20million during the six months ended June 30, 2003 compared to $1.3 million during the six months ended June 30, 2002. This decline was primarily due to lower foreign currency gains and lower interest earned on investment securities.

Income Taxes. An income tax provision of $0.4 million and $0.2 million was recognized during the six months ended June 30, 2003 and 2002, respectively. The income tax provisions were primarily due to foreign withholding taxes and taxes on income earned by foreign subsidiaries.

During the nine months ended September 30, 2001, we implemented cost reduction plans and recorded a pretax charge of $9.9 million that included approximately $2.4 million for severance and other employee related costs for the termination of 137 services, sales and marketing, development and administrative employees, $7.4 million for the abandonment of certain leased office space, less estimated sublease recoveries, at our North American and United Kingdom facilities, and $0.1 million for other costs associated with the downsizing of operations at our Hong Kong office.

These provisions are based on management’s judgment of the estimated costs related to the severance, lease abandonments and other related costs. Actual future costs could vary from these estimates and result in additional provisions in the future.

Other Income (Expense). Other income decreased $0.2 million to an income of $1.5 million for the nine months ended September 30, 2002, from an income of $1.7 million for the nine months ended September 30, 2001. The decrease was due primarily to a $1.2 million decline in interest income caused by a decline in interest rates and a decline in funds held in marketable securities during the nine months ended September 30, 2002. This decrease was offset by and increase of $1.0 million from foreign exchange gains. Although we periodically buy forward contracts to hedge against foreign currency fluctuations, we may have foreign currency gains or losses that can significantly vary from quarter to quarter.

Income Taxes. An income tax provision of $0.3 million was recognized during the nine months ended September 30, 2002 compared to $0.2 million tax provision during the same period of 2001. The income tax provisions were primarily due to taxes on income earned by foreign subsidiaries while corresponding domestic tax benefits generated by foreign tax credits was not recognized due to the uncertainty of the timing and amount of future taxable income.

Liquidity and Capital Resources

We have funded our operations through the issuance of our preferred and common stock, bank borrowings and cash flow from operations. As of ~~September~~ June 30, 2003 ~~2002~~ we had approximately $4232.50 million in cash and marketable securities, ~~including~~ ~~long-term marketable securities,~~ a decline of approximately $25.8 4 million ~~during~~from the ~~first~~end ~~nine months~~ of 2002.

Net cash used by operating activities was approximately $15.21 million for the ~~nine~~six months ended ~~September~~June 30, ~~2002~~2003. The net loss ~~after~~adjusted ~~deducting~~for non-cash adjustments ~~was approximately~~(depreciation ~~$8.1 million.~~and ~~This~~amortization, ~~net~~provision ~~cash~~for ~~use~~losses ~~was~~on receivables, ~~significantly~~amortization ~~offset~~of bydeferred ~~cash generated~~compensation, ~~from~~and ~~changes~~minority ininterest) was approximately $2.0 million, and operating assets and liabilities ~~of approximately~~consumed approximately $63.91 million of cash. ~~Accounts~~Although ~~receivable~~we ~~declined~~generated approximately $71.~~8 million,~~6 ~~resulting~~million ~~from~~of ancash ~~improvement~~by inlowering our receivable days ~~outstanding~~ from ~~121~~80 days at in the ~~end~~fourth quarter of ~~2001~~2002 to 8068 days atin the ~~end~~second ~~of the third~~ quarter of ~~2002. Additionally~~2003, ~~accrued~~we ~~liabilities~~used ~~grew by~~ approximately $14.37 million of cash primarily from the reduction of accounts payable and ~~deferred~~accrued ~~revenues~~liabilities. ~~increased~~The byreduction ~~approximately~~of ~~$1.1 million.~~accounts ~~Prepaids~~payable was primarily due to payments to resale software and ~~other~~equipment vendors related to resale equipment ~~current~~deliveries ~~assets~~that ~~increased~~were bymade $2in the fourth quarter of 2002.~~9 million~~ The reduction of accrued liabilities was due primarily to ~~prepayment~~payments offor employee severance and ~~insurance~~lease ~~premiums,~~payments ~~including~~on ~~director~~our ~~and~~abandoned ~~officer~~Dallas ~~liability~~facility ~~insurance~~related to cost reduction actions taken during 2002. Net cash ~~used~~provided inby operating activities was approximately $72.70 million for the comparable ~~nine months~~six ~~ended~~month ~~September 30,~~period ~~2001~~in 2002.

~~Net~~ During ~~cash used in investing activities was $0.3 million for~~ the ~~nine~~six months ended ~~September~~June 30, ~~2002.~~2003, Wewe ~~acquired~~used ~~the~~approximately ~~rights to certain developed software~~$0.1 ~~technology,~~million ~~during~~for ~~the~~capital ~~third~~expenditures ~~quarter~~and ofapproximately ~~2002, for~~ $1.0.3 million ~~(see~~for ~~Note 5 to~~scheduled ~~the~~debt ~~consolidated~~payments. ~~financial~~Capital ~~statements~~expenditures ~~included~~in ~~elsewhere~~the ~~herein)~~first ~~and~~half ~~purchased property and equipment~~ of ~~$0.6 million.~~2002 ~~Additionally, we generated~~were approximately $10.45 million ~~of cash from net sales of marketable securities~~. Net cash ~~used~~provided inby ~~investing~~financing activities was $10.3 2 million for the ~~comparable~~six ~~nine~~ months ended ~~September~~June 30, ~~2001~~2002. We ~~believe~~expect that capital expenditures ~~over the next twelve months~~ will not exceed $1.0 million for the next 12 months.

In October 2002, we entered into a revolving line of credit agreement with 21a financial institution under which we can borrow up to $10.0 million over a two-year period. The agreement contains certain financial covenants, including a minimum $10.0 million cash and marketable securities balance, restrictions on dividends and the facility is secured with all of our tangible assets. Borrowings for half of the revolving credit line will be based on a defined borrowing base, while the balance does not contain this restriction. Interest on any borrowings will be at the prime rate, and we will pay a fee on the unused portion of the line of credit of 0.375% per annum. As of June 30, 2003, we have had no borrowings under this agreement.

~~Table~~ We currently have operating lease obligations of ~~Contents~~approximately $40.7 million. Approximately $37.2 million of the total lease obligations relate to our Dallas facility lease for approximately 195,000 square feet, which expires in 2015. Currently, we occupy less than 50% of the Dallas facility and we are attempting to sublease the unoccupied leased space. A provision has been made for estimated losses on the portion of the Dallas lease that has been abandoned (see Note 9 of the Notes to the Consolidated Financial Statements included elsewhere herein), but cash payments will be required for the remaining term of the existing lease obligation.

~~Net~~ We ~~cash~~have ~~provided~~had bydiscussions ~~financing~~with ~~activities~~the ~~was~~lessor ~~less~~regarding ~~than~~a restructuring $0or a termination of the Dallas lease.~~1 million~~ ~~for~~To date, we have been unable to reach an agreement acceptable to us. If we are able to reach a settlement with the ~~nine~~lessor ~~months~~on ~~ended~~terms ~~September 30~~favorable to the Company, ~~2002.~~the settlement Wepayment ~~generated~~could significantly increase our near term cash requirements, ofbut $0could reduce monthly lease payments in the future.~~4 million~~ If a satisfactory settlement cannot be ~~from~~reached and the ~~issuance~~unoccupied ofspace ~~common~~cannot ~~stock~~be subleased, we will be required to continue to make the significant scheduled lease payments and ~~reduced~~pay ~~long-term~~operating ~~debt~~expenses byover ~~approximately~~the ~~$0.4 million.~~remaining ~~Net~~lease ~~cash~~term ~~provided~~and bythis ~~financing~~could ~~activities~~result ~~was~~in ~~$0.4 million~~additional ~~for~~reserve ~~the~~requirements ~~comparable~~above ~~nine~~those ~~months~~recorded ~~ended~~at ~~September~~ June 30, ~~2001~~ 2003.

In We ~~October~~believe ~~2002,~~that weour ~~entered~~existing ~~into~~working acapital ~~revolving~~and ~~line~~the availability of ~~credit agreement with~~cash aunder ~~financial~~the ~~institution~~revolving ~~under~~credit ~~which~~line wewill ~~can~~be ~~borrow~~sufficient up to ~~$10.0 million~~fund ~~over~~our aoperations for ~~two-year~~at ~~period.~~least ~~The~~the ~~agreement~~next ~~contains~~year. ~~certain financial covenants~~However, ~~including minimum~~there ~~cash~~can ~~and~~be ~~marketable~~no ~~securities~~assurance ~~balances,~~that ~~and~~we ~~the~~will ~~facility is secured~~not ~~with~~require ~~all~~additional offinancing ~~our~~in ~~tangible~~the ~~assets~~future. ~~Borrowings~~We ~~for~~cannot ~~half~~be ofsure ~~the~~that ~~revolving~~we ~~credit line~~ will be ~~based on a defined borrowing base, while the balance does not~~ ~~contain~~able ~~this~~to ~~restriction.~~obtain ~~Interest on~~ any ~~borrowings~~additional ~~will~~required befinancing ator ~~the prime rate~~that, ~~and~~if we ~~will~~can, ~~pay a facility fee on~~ the ~~unused portion of the line of~~terms ~~credit~~will ofbe ~~0.375%~~acceptable ~~per~~to ~~annum~~us.

We currently have operating lease obligations of approximately $44.2 million, of which $5.0 million is payable over the next year and the balance is due over an additional 13 years. Certain of the leases are abandoned and provisions have been made for the estimated losses on these leases (see Note 10 to the consolidated financial statements included elsewhere herein), but cash payments will be required for the remainder of the existing lease obligations. In October 2002, we agreed to pay the landlord of our abandoned Philadelphia facility $0.4 million in early 2003 to terminate the facility lease. If we are able to reach a settlement with the lessors of other abandoned facilities on terms favorable to the Company within the next twelve months, additional settlement payments might be required which could be considerably higher than the scheduled lease payments during that period.

Although we expect to continue to use some cash over the next six months due to operating losses, severance and facility related costs associated with the cost reduction actions taken at the end of the second quarter of 2002 and certain other expenditures previously discussed, we believe that our existing working capital and the availability of cash under the new revolving credit line will be sufficient to fund our operations for at least the next year. However, there can be no assurance that we will not require additional financing in the future. We cannot be sure that we will be able to obtain any additional required financing or that, if we can, the terms will be acceptable to us.

We do not engage in any activities involving special purpose entities or off-balance sheet financing.

~~Forward-Looking Statements~~17

In addition to historical information, this filing and our Annual Report on Form 10-K may contain forward-looking statements. Any statements contained herein (including without limitation statements to the effect that the Company or its management “believes,” “expects,” “anticipates,” “plans,” and similar expressions) that relate to future events or conditions, including, among others, statements relating to economic conditions, sales execution, cost reduction and restructuring actions and their impact on earnings and cash flows, sufficiency of working capital, accounting for goodwill and other intangible assets, interest rate risk, the enhancement of the Company’s software and a reverse stock split should be considered forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in the section entitled “Certain Factors That May Affect Future Results” below. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. The Company undertakes no obligations to revise or publicly release the results of any revision to these forward-looking statements, whether as a result of new information, future events, or otherwise.

Special Note Regarding Forward-Looking Statements

In addition to historical information, this filing and our Annual Report on Form 10-K contain forward-looking statements. Any statements contained herein (including, without limitation, statements to the effect that EXE or its management “believes,” “expects,” “anticipates,” “plans,” “estimates,” “predicts,” “seeks,” “intends” and similar expressions) that relate to future events or conditions should be considered forward-looking statements. The forward-looking statements are made pursuant to safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in these forward-looking statements. Factors that might cause such a difference include, but are not limited to; those discussed in the section entitled “Certain Factors That May Affect Future Results” below and in subsequently and previously filed reports. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. We undertake no obligations to revise or publicly release the results of any revision to these forward-looking statements, whether as a result of new information, future events or otherwise.

Certain Factors That May Affect Future Results

Risks Relating to Our Business

Our customers may continue to delay or cancel spending on software and services because of the current economic climate.

Since the beginning of 2001, some companies have experienced financial difficulties or uncertainty and, as a result, have delayed or canceled spending on information technology projects such as fulfillment software and services. If companies continue to delay, or cancel, their information technology initiatives because of the current economic climate, or for other reasons, our business, financial condition and results of operations could be materially adversely affected.

We can give you no assurance that we will be able to maintain or grow our level of revenue or achieve profitability in the future.

Our future operating results may be affected by any of the following factors:

•		a continued decline in general economic conditions;

•		the level of market acceptance of, and demand for, our software;

•		the overall growth rate of the markets in which we compete;

•		our competitors’ products and prices;

•		our ability to establish strategic marketing relationships;

•		our ability to develop and market new and enhanced products;

•		our ability to successfully train alliance companies and consulting organizations;

•		our ability to control costs;

•		changes in our products and services mix; and

•		our ability to train and expand our direct sales force and indirect distribution channels worldwide.

We may not be profitable in the future.

With the exception of the third and fourth quarters of the year ended December 31, 2000, we have experienced quarterly and annual losses since the formation of EXE in September 1997. We experienced net losses of $2663.19 million in ~~1999~~2001, $323.38 million in ~~2000,~~2002 ~~$63.9 million in 2001,~~ and $154.71 million for the ~~nine~~ six months ended ~~September~~ June 30, ~~2002~~2003. We may continue to incur losses on both a quarterly and an annual basis. Moreover, we expect to continue to ~~incur~~ significant sales and marketing, research and development and general and administrative expenses and, as a result, we will need to generate significant revenue to report net income in future periods. We may not achieve our planned growth or generate sufficient revenue to report net income in future periods.

~~Our revenue could decline if our customers do not continue to accept our~~18 ~~existing products, including fulfillment and collaboration products.~~

incur ~~will~~significant ~~continue~~sales toand ~~depend~~marketing, onresearch ~~revenue~~and ~~from~~development ~~new~~ and ~~enhanced~~general ~~versions of our~~and ~~fulfillment~~administrative expenses and, ~~collaboration~~as ~~products~~a result, ~~and~~we ~~our~~will need to generate significant revenue ~~could~~to ~~decline~~report ifnet ~~our target~~income ~~customers~~in dofuture periods. We may not ~~continue~~achieve toour ~~adopt~~planned growth ~~and~~or ~~expand~~generate ~~their~~sufficient ~~use~~revenue ofto ~~these products~~report ~~and~~net ~~their~~income ~~components~~in future periods.

Our non-cancelable, long-term lease of office space in Dallas, Texas is substantially in excess of our expected facility requirements resulting in significant future cash obligations for unused office space, which could negatively impact our financial condition in the future.

We lease approximately 195,000 square feet of office space in Dallas, Texas under a lease that extends to 2015. Amounts due the landlord over the remaining term of the lease are in excess of $37.2 million. Currently, we occupy less than 50% of the Dallas facility and we are attempting to sublease the unoccupied leased space. A provision has been made for estimated losses on the portion of the Dallas lease that has been abandoned (see Note 9 of the Notes to the Consolidated Financial Statements included elsewhere herein), but cash payments will be required for the remaining term of the existing lease obligation.

We have had discussions with the lessor regarding a restructuring or a termination of the Dallas lease. To date, we have been unable to reach an agreement acceptable to us. If we are able to reach a settlement with the lessor on terms favorable to the Company, the settlement payment could significantly increase our near term cash requirements, but could reduce monthly lease payments in the future. If a satisfactory settlement cannot be reached and the unoccupied space cannot be subleased, we will be required to continue to make the significant scheduled lease payments and pay operating expenses over the remaining lease term and this could result in additional reserve requirements above those recorded at June 30, 2003.

Our revenue could decline if our customers do not continue to accept our existing products, including fulfillment and collaboration products.

We expect to derive a majority of our product license revenue in the future from our fulfillment and collaboration products and their components. Our business depends on continued customer acceptance of these products and the release, introduction and customer acceptance of new products. We expect that we will continue to depend on revenue from new and enhanced versions of our fulfillment and collaboration products, and our revenue could decline if our target customers do not continue to adopt and expand their use of these products and their components.

Our quarterly operating results depend heavily on software license revenue, which is difficult to forecast and may fluctuate.

Our quarterly software license revenue is difficult to forecast because our sales cycles, from initial evaluation to delivery of software, vary substantially from customer to customer. Revenue in any quarter is dependent on orders received, contracts signed and products shipped in that quarter. We typically recognize the majority of our revenue in the last month of the quarter, frequently in the last week or even days of the quarter. In addition, the timing of large individual license sales is difficult for us to predict, and, in some cases, transactions are concluded later than anticipated. Since our operating expenses are based on anticipated revenue levels and most of our operating expenses, particularly personnel and facilities costs, are relatively fixed in advance of any particular quarter, any revenue shortfall may cause fluctuations in operating results in any particular quarter. We can give you no assurance that revenue will grow in future periods, that revenue will grow at historical rates, or that we will achieve and maintain positive operating margins in future quarters. If revenue falls below our expectations in a particular quarter, our operating results could be harmed.

Because our sales cycles are lengthy and subject to uncertainties, it is difficult to forecast our sales, and the delay or failure of a significant software license transaction or our inability to anticipate a delay could harm our operating results.

Our software is used for mission critical division- or enterprise-wide purposes and involves a significant commitment of resources by customers. A ~~customers~~customer’s decision to license our software usually involves ~~the evaluation of~~ the ~~available alternatives by a number of personnel in multiple functional and~~ geographic areas, each often having specific and conflicting requirements. Accordingly, we typically must expend substantial resources educating prospective customers about the value of our solutions. For these and other reasons, the length of time between the date of initial contact with the potential customer and the execution of a software license agreement typically ranges from three to nine months, and is subject to delays over which we may have little or no control. As a result of the length and variability of the sales cycle for our software products, our ability to forecast the timing and amount of specific sales is limited, and the delay or failure to complete one or more anticipated large license transactions could harm our operating results.

~~We depend on the services of a number of key personnel, some of whom have~~19 ~~recently joined us. A failure to integrate these personnel into the Company or~~ ~~a loss of any of these personnel could disrupt our operations and result in reduced revenue.~~

Our success depends on the continued services and performance of our senior management staff. The loss of the services of any of our senior management staff or key employees could seriously impair our ability to operate and achieve our objectives, which could reduce our revenue. We have employment agreements with all of our executive officers. However, these employment agreements do not prevent key employees, from voluntarily terminating their employment with us.

Joseph Cowan, our President and Chief Executive Officer, and Ken Vines, our Senior Vice President, Chief Financial Officer and Treasurer, joined us in November 2002 and May 2002, respectively.

~~Failure~~evaluation toof ~~integrate~~the Mravailable alternatives by a number of personnel in multiple functional and geographic areas, each often having specific and conflicting requirements. ~~Cowan~~ orAccordingly, Mrwe typically must expend substantial resources educating prospective customers about the value of our solutions. ~~Vines~~ ~~into~~For these and other reasons, the ~~Company~~length orof time between the date of initial contact with the potential customer and the ~~senior~~execution of a software license agreement ~~management~~typically ~~team~~ranges ~~could~~from ~~disrupt~~three ~~our~~to ~~operations~~nine months, and ~~harm~~is subject to delays over which we may have little or no control. As a result of the length and variability of the sales cycle for our ~~business~~software products, our ability to forecast the timing and amount of specific sales is limited, and the delay or failure to complete ~~financial~~one or more anticipated large license transactions could harm our operating results.

We depend on the services of a number of key personnel. A loss of any of these personnel could disrupt our operations and result in reduced revenue.

Our success depends on the continued services and performance of our senior management staff. The loss of the services of any of our senior management staff or key employees could seriously impair our ability to operate and achieve our objectives, which could reduce our revenue. We have employment agreements with all of our executive officers. However, these employment agreements do not prevent key employees from voluntarily terminating their employment with us.

Failure to expand our alliance relationships with consulting firms and complementary software vendors and to establish new strategic alliances may slow acceptance of our software and delay the growth of our revenue.

To supplement our direct sales force and our implementation capabilities, we have established strategic marketing alliances with consulting firms and complementary software vendors, and we rely on them to recommend our software to their customers and to periodically install and support our software. To increase our sales and implementation capabilities, one of our key strategies is to expand our existing relationships and establish new strategic alliances with consulting firms and complementary software vendors. The loss of, or failure to expand, existing relationships or our failure to establish new strategic alliances could limit the number of transactions we may complete, may result in our inability to recognize revenue and may harm our operating results.

We depend on a limited number of sales personnel who have recently joined us.

We sell our software primarily through a direct sales force and through strategic relationships with systems integrators, consulting services companies, vendors of complementary software and hardware vendors. During the past year we have experienced significant turnover in our U.S. sales force. Almost all of the current members of our U.S. sales force have joined us within the past year. Our future success will depend in part on the efforts of our direct sales force. Most of the members of our sales force have not worked together in the past and, as a result, may not work together effectively as a team. In addition, our newly hired sales personnel may fail to develop the necessary skills to be productive within our organization, or if they reach productivity more slowly than anticipated, our ability to increase our revenue and grow our business will be compromised. In addition, due to the competitive nature of our industry, we may not be able to retain some or all of the members of our sales force.

If our new or enhanced products do not gain market acceptance, our business and results of operations would be harmed.

The growth of our business will depend on the successful development, introduction and acceptance of new and enhanced versions of our products. The introduction of new or enhanced products requires that we manage the transition from existing products to these new or enhanced products. We have recently introduced our EXceed AIM and EXceed SNx software solutions to work in conjunction with our existing fulfillment software suite in order to extend our product reach into complementary markets. We expect to derive a ~~significant~~ portion of our revenues in the future from ~~EXceed~~new ~~AIM~~ and ~~EXceed~~enhanced ~~SNx~~products ~~and~~currently ~~other~~being ~~new~~developed, including EXceed AIM and ~~enhanced~~EXceed ~~products~~SNx. If EXceed AIM and EXceed SNx and our other new and enhanced products do not gain market acceptance, our revenues may decline. Factors that may affect the market acceptance of EXceed AIM ~~and EXceed SNx and~~ ~~our other new and enhanced products, some of which are beyond our control, may include:~~

• the changing requirements of our industry; • the performance, quality and price of our new and enhanced products; and • the availability, performance, quality and price of competing products and technologies.20

and EXceed SNx and our other new and enhanced products, some of which are beyond our control, may include:

•		the changing requirements of our industry;

•		the performance, quality and price of our new and enhanced products; and

•		the availability, performance, quality and price of competing products and technologies.

We may experience delays in the scheduled introduction of new or upgraded software, and our software may contain undetected errors or “bugs,” resulting in loss of revenue and harm to our reputation.

Historically, we have issued significant new software products or new releases of our software periodically, with interim releases issued more frequently. Our software is particularly complex, because it must perform in environments operating multiple computer systems and respond to customer demand for high performance fulfillment, warehousing and distribution applications and major new product enhancements. Our software requires long development and testing periods before it is commercially released. For example, the development cycle for the introduction of our EXceed Crossdock component took approximately nine months. If we experience delays in the scheduled introduction of new software or software upgrades, our customers may become dissatisfied and our reputation and operating results could be harmed.

Also, despite testing by us, our software may contain undetected errors or “bugs.” In the past, we have discovered software bugs in new versions of our software after its release. We may experience software bugs in the future. These bugs could result in a delay or loss of revenue, diversion of development resources, damage to our reputation, increased service and warranty costs, or impaired market acceptance and sales of this software, any of which could harm our operating results.

If we are unsuccessful in identifying, financing and integrating suitable acquisition candidates, including businesses, products and technologies, our growth could be harmed.

Due to the intense competition we face, we may not be able to identify suitable acquisition candidates available for purchase at reasonable prices, consummate any acquisition or successfully integrate any acquired business into our operations.

Further, acquisitions may involve a number of additional risks, including:

• diversion of management’s attention; • failure to retain key personnel of the acquired businesses; • unanticipated events or circumstances; • legal liabilities; and • impairment charges on goodwill and intangible assets.

We expect to finance any future acquisitions with cash on hand, as well as with possible debt financing or by issuing common or preferred stock. If we were to proceed with one or more future acquisitions for cash, a substantial portion of our available cash could be used to complete them. If we were to proceed with one or more acquisitions for stock, our stockholders would suffer dilution of their interests. We can give you no assurance that we would be able to arrange for any needed debt financing on terms acceptable to us. Most of the businesses that might be attractive acquisition candidates are likely to have significant intangible assets. During 2001, amortization of acquired or existing intangible assets represents a substantial charge and has and will continue to reduce earnings. However, under new accounting rules effective for fiscal years beginning after December 15, 2001, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the new rules. Other intangible assets will continue to be amortized over their useful lives.

If we are unable to timely collect our accounts receivable, our cash flow will be harmed.

Although we have recently improved on the time required to collect accounts receivable from our customers, there is no assurance that this trend will continue. Historically, we have experienced longer receivable collection periods that ~~has~~have largely been attributed to the deterioration of certain of ~~our~~ our customers’ financial condition due to the negative economic climate in the United States and the international markets we serve. The failure of any significant customer to pay for our products on a timely basis could adversely affect our results of operations and our operating cash flow.

If we do not expand our customer base, our business may not grow.

Our growth is dependent in part on our ability to attract new customers for our products. We derive a substantial portion of our revenue from the sale of additional products and services to our existing customers. If we are unable to expand our customer base by attracting new customers for our products, our business will suffer. In addition, a material reduction in the demand for our products and services from our existing customers would have a material adverse effect on our business, financial condition and results of operations.

Our international operations, ~~which we could expand in the future,~~ are subject to heightened risks. If any of these risks actually occur, our earnings could decline.

International revenue accounted for approximately 5251.93% of our total revenue during the ~~nine~~six months ended ~~September~~June 30, ~~2002~~2003, 4652.92% of our total ~~revenue~~ revenue during the year ended December 31, ~~2001~~2002, 40and 46.56% of our total revenue ~~during~~ during the year ended December 31, ~~2000 and approximately 36~~2001.~~2% of our total~~ ~~revenue during 1999. We expect international revenue to continue to account for~~ ~~a significant percentage of total revenue in the future, and we plan to~~ continue to expand our international activities as part of our growth strategy. This expansion will require significant financial resources and management attention that could have a negative effect on our earnings. As our international operations continue to develop, they may become increasingly subject to risks inherent in international business activities, including:

Our international operations are subject to risks inherent in international business activities, including:

•		difficulty in staffing and managing geographically diverse operations;

•		longer accounts receivable payment cycles in certain countries;

•		compliance with a variety of foreign laws and regulations;

•		unexpected changes in regulatory requirements and overlap of different tax structures;

•		greater difficulty in safeguarding intellectual property;

•		trade restrictions;

•		changes in tariff rates and import and export licensing requirements; and

•		general economic conditions in international markets.

In addition, we have expanded our offshore research and development activities. In the instance of a political upheaval in certain regions, our development process could be severely disrupted. Our ~~earnings~~operating results could be ~~decline~~negatively impacted if these or other factors affect international operations.

Approximately 25.3% of our revenues were from our Asia Pacific region during the six months ended June 30, 2003, where the Severe Acute Respiratory Syndrome (SARS) outbreak has occurred. Although we are hopeful that our business will not be significantly impacted by the uncertainty caused by the SARS outbreak, revenues could be negatively impacted until this illness is controlled.

Because many of our customers pay us in foreign currencies, we may be exposed to exchange rate risks and our profitability may suffer due to currency fluctuations.

A majority of the revenue and expenses incurred by our international operations are denominated in currencies other than the United States dollar. In particular, our revenue and costs of operations in Japan and Singapore are denominated in Japanese ~~yen~~Yen and Singapore ~~dollars~~Dollars and in Europe some of our contracts are denominated in the Euro. InExchange ~~addition,~~rate ~~with~~fluctuations ~~the~~have ~~expansion~~caused and will continue to cause currency transaction gains and losses. We experienced currency transaction gains (losses) of $0.7 million for the six ~~international~~months ~~operations~~ended June 30, 2003, $1.2 million for the ~~number~~year ofended ~~foreign~~December 31, 2002, and $(0.5) million for the year ended December 31, 2001. We can give you no assurance that currency transaction losses will not adversely affect our results in future periods.

currencies in which we must operate is likely to increase, resulting in increased exposure to exchange rate fluctuations. Exchange rate fluctuations have caused and will continue to cause currency transaction gains and losses. We experienced currency transaction gains (losses) of $0.8 million for the nine months ended September 30, 2002, $(0.5) million for the year ended December 31, 2001 and $(0.8) million for the year ended December 31, 2000. We can give you no assurance that currency transaction losses will not adversely affect our results in future periods.

Our success depends on our ability to attract and retain key personnel, in particular knowledgeable and experienced sales and marketing personnel and professional services personnel. If we are unable to attract these personnel and use them efficiently, our ability to sell and implement our software could be harmed.

We believe our success will depend significantly on our ability to attract, motivate and retain highly skilled technical, managerial, consulting, sales and marketing personnel and professional services personnel. We compete intensely for these personnel, and we may be unable to achieve our personnel goals. Our failure to attract, motivate and retain such highly skilled personnel could seriously limit our ability to expand our business.

~~Also,~~ Our weoperating ~~believe~~performance, ~~our success will depend on our ability to productively manage our~~ personnel. Wereductions ~~expect future increases in the number of our sales~~ and ~~professional~~ ~~services staff. Growth may result in increased salary expenses and training costs in advance of any resulting increase in services revenue due to the typically~~ lower ~~productivity~~stock ~~levels~~price ~~of newer personnel. Moreover, any~~over ~~growth in software license revenue will likely generate~~ the ~~need~~last ~~for~~two ~~more professional~~years ~~services~~has ~~personnel~~made toit ~~deploy~~difficult ~~and implement software and~~ to ~~train customers.~~retain Akey ~~shortage in the number of trained~~ personnel~~, either within our Company or available from outside consulting firms, could limit our ability to implement our software on a timely and cost-effective basis~~. ~~Our~~There ~~earnings~~is ~~will~~no ~~suffer~~assurance if we ~~generate~~will ~~insufficient~~be ~~revenue~~able to ~~cover~~retain ~~growth-related expenses, significantly strain management resources with additional responsibilities, fail to successfully expand~~ our ~~relationships~~key ~~and develop additional relationships with third-party implementers and complementary software vendors or fail to have sufficiently trained sales and marketing~~ personnel ~~and professional~~in ~~services~~the ~~personnel~~future.

Also, we believe our success will depend on our ability to productively manage our personnel. Any significant growth in software license revenue will likely generate the need for more professional services personnel to deploy and implement software and to train customers. A shortage in the number of trained personnel, either within our Company or available from outside consulting firms, could limit our ability to implement our software on a timely and cost-effective basis. Our operating performance will suffer if we

generate insufficient revenue to cover growth-related expenses, significantly strain management resources with additional responsibilities, fail to successfully expand our relationships and develop additional relationships with third-party implementers and complementary software vendors or fail to have sufficiently trained sales and marketing personnel and professional services personnel.

The length and complexity of our implementation cycle may result in implementation delays, which may cause customer dissatisfaction.

The introduction of new products and the size and complexity of some of our software implementations can result in lengthy implementation cycles and may result in delays. These delays could result in customer dissatisfaction, which could adversely affect our reputation. Additional delays could result if we fail to attract, train and retain services personnel, or if our alliance companies fail to commit sufficient resources towards implementing our software. These delays and resulting customer dissatisfaction could harm our reputation and cause our revenue to decline.

The use of fixed-price service contracts subjects us to the risk that we may not successfully complete these contracts on budget.

We offer software implementation and related consulting services to our customers. Although we typically provide services on a “time and material” basis, we have from time to time entered into fixed-price service contracts, and we expect that some customers will demand these contracts in the future. These contracts specify certain milestones to be met by us regardless of actual costs incurred in meeting those obligations. If we are unable to successfully complete these contracts on budget, our earnings could suffer.

We rely on software licenses that may be terminated or unavailable to us on commercially reasonable terms.

We market and resell, under license, third party software, including:

•		software embedded in our products;

•		software that enables our software to interact with other software systems or databases; and

•		software in conjunction with which our software operates.

We also license software tools used to develop our software and software for internal systems. We cannot assure you that the third party software or software tools will continue to be available to us on commercially reasonable terms. The loss or inability to maintain any of these software licenses could result in delays or reductions in product shipments until equivalent software could be identified and licensed or compiled, which could harm our business.

We could be subject to legal actions by former personnel, which could be costly, divert management time and attention and harm our operating results.

During ~~the~~2001 ~~calendar~~and ~~year 2001~~2002, we terminated approximately ~~233~~343 of our services, sales, development and administrative personnel. ~~Additionally, at the end of June 2002, we announced that approximately an additional 60 employees would be terminated.~~ It is possible that some of these employees could bring legal actions against us under applicable federal, state or local laws. Any such claims, whether with or without merit, could subject us to costly litigation and the diversion of management time and attention, and successful claims could result in awards of damages to or reinstatement of former employees, any of which could harm our operating results.

Product liability and other claims related to our customers’ business operations could result in substantial costs.

Many of our installations involve projects that are critical to the operations of our clients’ businesses and provide benefits that may be difficult to quantify. Any failure in a client’s system or any intellectual property infringement claims by third parties could result in a claim for substantial damages against us, regardless of our responsibility for the failure or for the alleged intellectual property infringement. We cannot assure you that our customer contracts will protect us in the event of any such claim. In addition, although we maintain general liability insurance coverage, including coverage for errors or omissions, we cannot assure you that this coverage will continue to be available on reasonable terms or will be available in sufficient amounts to cover one or more large claims, or that the insurer will not disclaim coverage.

The successful assertion of one or more large claims against us that exceeds available insurance coverage or changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could result in substantial costs.

Five customers have requested defense and indemnification from us for threatened patent claims against them by a third party relating to bar code technology. For additional information about these requests, see “Item 1. Business—Intellectual Property” inof our Annual Report on Form 10-K for the year ended December 31, 2002.

Should our stock price fall below $1 per share for a period of time our common 29stock could be de-listed from the NASDAQ National market.

~~Table~~ During the last half of ~~Contents~~2002 our common stock price was subject to de-listing on the NASDAQ National Market due to our stock price being below $1 per share for a specified period of time. Our shareholders approved a one for seven reverse stock split which was effective in January 2003. As a result of the reverse stock split, our stock price increased substantially above $1 per share. Should our stock price fall below $1 per share again, we could be subject to de-listing again.

We If ~~may~~our ~~implement~~common astock ~~reverse~~is ~~stock~~de-listed ~~split~~by inNASDAQ and our securities begin to trade on the ~~range~~OTC ofBulletin ~~one~~Board maintained by NASDAQ, another over-~~for~~the-~~five~~counter quotation system, or on the pink sheets, investors may find it more difficult to dispose of or obtain accurate quotations as to the market value of the ~~one~~securities. In addition, we would be subject to a rule promulgated by the Securities and Exchange Commission that, if we fail to meet criteria set forth in such rule, imposes various practice requirements on broker-~~for-fifteen~~dealers who sell securities governed by the rule to persons other than established customers and accredited investors. ~~The~~For ~~effect~~these types of transactions, the broker-dealer must make a ~~reverse~~special ~~split~~suitability ondetermination for the ~~trading~~purchaser ~~price~~and have received the purchaser’s written consent to the transactions prior to sale. Consequently, the rule may deter broker-dealers from recommending or selling our common stock, which may further affect the liquidity of our common stock. De-listing isfrom ~~unpredictable~~NASDAQ will make trading our shares more difficult for investors, potentially leading to further declines in our share price. It would also make it more difficult for us to raise additional capital. Further, if we are de-listed we could also incur additional costs under state blue-sky laws in connection with any sales of our securities.

Our Board of Directors has approved a reverse stock split in the range of one-for-five to one-for-fifteen. This proposal is to be considered for approval by our stockholders at an upcoming Special Meeting of stockholders. We believe that, if the reverse stock split is approved, there is a greater likelihood that the minimum bid price of our common stock will be maintained at a level over $1.00 per share. There can be no assurance, however, that approval of the reverse stock split will succeed in raising the bid price of our common stock above $1.00 per share, or that a bid price of $1.00, if achieved, would be maintained, or that even if the Nasdaq’s minimum bid price requirements were satisfied, our common stock would not be delisted by the Nasdaq for other reasons. Although the theoretical effect of a reverse stock split is to increase the per share price of Common Stock, the actual price effect of a reverse stock split is difficult to predict. It is possible that the post-split trading price of our stock could be below the level one would expect based on the proportional effect of the split alone. In addition, the fewer number of shares that will be available to trade will possibly cause the trading market of the common stock to become less liquid, which could have an adverse effect on the price of the common stock.

The low price of our common stock could result in the delisting of our common stock.

If our common stock is delisted from the Nasdaq National Market, we would likely seek to list our common stock on the Nasdaq SmallCap Market, if possible, or for quotation on the American Stock Exchange or a regional stock exchange, if available. However, listing or quotation on such a market or exchange could reduce the market liquidity for the common stock. If our common stock is not listed or quoted on another market or exchange, trading of our common stock could be conducted in the over-the-counter market on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board.

If our common stock is delisted by Nasdaq and our securities begin to trade on the OTC Bulletin Board maintained by Nasdaq, another over-the-counter quotation system, or on the pink sheets, investors may find it more difficult to dispose of or obtain accurate quotations as to the market value of the securities. In addition, we would be subject to a rule promulgated by the Securities and Exchange Commission that, if we fail to meet criteria set forth in such rule, imposes various practice requirements on broker-dealers who sell securities governed by the rule to persons other than established customers and accredited investors. For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transactions prior to sale. Consequently, the rule may deter broker-dealers from recommending or selling our common stock, which may further affect the liquidity of our common stock. Delisting from Nasdaq will make trading our shares more difficult for investors, potentially leading to further declines in our share price. It would also make it more difficult for us to raise additional capital. Further, if we are delisted we could also incur additional costs under state blue sky laws in connection with any sales of our securities.

Additionally, because brokers’ commissions on low-priced stocks generally represent a higher percentage of the stock price than commissions on higher priced stocks, the low share price of the common stock can result in an individual stockholder paying transaction costs that represent a higher percentage of total share value than would be the case if the share price were higher. This factor may also limit the willingness of institutions to purchase our common stock.

24 30

We expect our results of operations to fluctuate, and the price of our common stock could fall if quarterly results differ from the expectations of securities analysts.

Our operating results historically have fluctuated on a quarterly basis and may continue to do so in the future. If our quarterly results differ from the expectations of securities analysts, the price of our common stock could fall. Some of the factors ~~which~~that could cause our operating results to fluctuate include:

•		general economic conditions;

•		demand for our products and services;

•		our competitors’ products and prices;

•		the timing and market acceptance of new product introductions and upgrades by us or our competitors;

•		our success in expanding our services, customer support and marketing and sales organizations, and the timing of these activities;

•		the mix of products and services sold;

•		delays in, or cancellations of, customer implementations;

•		customers’ budget constraints;

•		the level of research and development expenditures;

•		the size of recurring compensation charges;

•		changes in foreign currency exchange rates;

•		our ability to control costs; and

•		the timing of acquisitions and of the amortization or impairment of intangible assets.

A large portion of our expenses, including expenses for facilities, equipment and personnel, is relatively fixed. Accordingly, if our revenue declines or does not grow as anticipated, we may not be able to correspondingly reduce our operating expenses in a timely manner. Failure to achieve anticipated levels of revenue could therefore significantly harm our operating results for a particular fiscal period.

Our stock price could be extremely volatile and may result in litigation against us.

The stock market has experienced significant price and volume fluctuations, and the market price for our common stock has been in the past and could continue to be volatile. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted. Litigation could result in substantial costs and a diversion of management’s attention and resources.

The concentration of ownership of our common stock may have the effect of delaying or preventing a change of control of us.

Our directors, executive officers and their affiliated companies beneficially own more than ~~forty~~40% ~~percent~~ of our outstanding common stock. As a result, these stockholders will have the ability to significantly influence the election of our directors and the outcome of corporate actions requiring stockholder approval. This concentration of ownership may have the effect of delaying or preventing a change of control of us. As a result, if these stockholders voted as a group, they would have the ability to significantly influence the outcome of corporate actions requiring stockholder approval.

We have implemented anti-takeover provisions that may discourage a change of control.

Our certificate of incorporation authorizes the issuance of 20,000,000 shares of preferred stock. Our board of directors has the power to determine the price and terms of any preferred stock. The ability of our board of directors to issue one or more series of preferred stock without stockholder approval could deter or delay unsolicited changes of control by discouraging open market purchases of our common stock or a non-~~negotiated tender or~~ ~~exchange offer for our common stock. Discouraging open market purchases may be~~ ~~disadvantageous to our stockholders who may otherwise desire to participate in~~ ~~a transaction in which they would receive a premium for their shares.~~

negotiated tender or exchange offer for our common stock. Discouraging open market purchases may be disadvantageous to our stockholders who may otherwise desire to participate in a transaction in which they would receive a premium for their shares.

In addition, some provisions of our certificate of incorporation and by-laws may also discourage a change of control by means of a tender offer, open market purchase, proxy contest or otherwise. These provisions include:

•		a board that is divided into three classes, each of which is elected to serve staggered three year terms;

•		provisions under which only the board of directors or our chief executive officer or secretary may call a special meeting of the stockholders;

•		provisions which permit the board of directors to increase the number of directors and to fill these positions without a vote of the stockholders;

•		provisions under which no director may be removed at any time except for cause and by a majority vote of the outstanding shares of voting stock; and

•		provisions under which stockholder action may be taken only at a stockholders meeting and not by written consent of the stockholders.

These provisions may have the effect of discouraging takeovers and encouraging persons seeking to acquire control first to negotiate with us.

Risks Relating to Our Industry

We face intense competition from numerous competitors, some of whom have a significant competitive advantage over us. If we lose our competitive position, our revenue could decline.

The market for fulfillment, collaboration and inventory management solutions is intensely competitive, fragmented and subject to rapid technological change. The principal competitive factors in our market include:

• adherence to emerging Internet-based technology standards; • comprehensiveness of applications; • adaptability and flexibility; • immediate, interactive capability with customer and partner systems; • financial viability; • global capability; • references from existing customers; • industry domain experience and expertise; • ability to support specific industry requirements; • ease of application use and deployment; • speed of implementation; • customer service and support; and • initial price and total cost of ownership.

• ability to support specific industry requirements; • ease of application use and deployment; • speed of implementation; • customer service and support; and • initial price and total cost of ownership.

Because we offer fulfillment, traditional supply chain, collaboration, inventory management and supply network execution software, we consider a number of companies in different market categories to be our competitors. Our competitors include companies and groups that:

•		focus on providing fulfillment applications;

•		offer enterprise platforms for order management, fulfillment and inventory management; and

•		service internal customers, such as internal information technology groups.

We believe that the market for integrated fulfillment, collaboration, inventory management and supply network execution solutions is still in its formative stage, and that no currently identified competitor represents a dominant presence in this market.

We expect competition to increase as a result of software industry consolidation. New competitors could emerge and rapidly capture market share. We can give you no assurance that we can maintain our competitive position against current and potential competitors, especially those with greater name recognition, comparable or superior products, significant installed customer bases, long-standing customer relationships or the ability to price products as incremental add-ons to existing systems. If we lose our competitive position, our revenue could decline.

The market for our software is characterized by rapid technological change. If we fail to respond promptly and effectively to technological change and competitors’ innovations, our growth and operating results could be harmed.

The market for fulfillment, warehousing, distribution, inventory management and supply network execution systems experiences rapid technological change, changing customer needs, frequent new product introductions and evolving industry standards that may render existing products and services obsolete. Our growth and future operating results will depend in part on our ability to enhance existing applications and develop and introduce new applications or components. These new applications must:

•		meet or exceed technological advances in the marketplace;

•		meet changing customer requirements;

•		respond to competitive products; and

•		achieve market acceptance.

Our product development and testing efforts have required, and are expected to continue to require, substantial investments. Also, we may be unable to successfully identify new software opportunities and develop and bring new software to market quickly and efficiently. Our software may not achieve market acceptance and current or future products may not conform to industry standards in the markets served. If we are unable to develop and introduce new and enhanced software in a timely manner, our growth and operating results could be harmed.

We depend on intellectual property laws, which may not fully protect us from unauthorized use or misappropriation of our proprietary technologies.

We rely on intellectual property laws, confidentiality procedures and contractual provisions to protect our proprietary rights in our products and technology. These measures afford only limited protection to us, particularly on an international basis. We may be unable to avoid infringement or misappropriation claims regarding current or future technology, or unable to adequately deter misappropriation or independent third-party development of our technology. In addition, policing unauthorized use of our products is difficult.

We are unable to determine the extent to which piracy of our software products exists and software piracy could become a problem. Litigation to defend and enforce our intellectual property rights could result in substantial costs and diversion of resources, regardless of the final outcome of such litigation.

~~ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~27

We develop products in the United States and market our products in North America, Europe, the Middle East, Asia and Australia. Revenues outside the United States were 40.5%, 46.9% and 52.9% of our total revenues for the years ended December 31, 2000 and 2001 and for the nine months ended September 30, 2002, respectively. Most of our foreign subsidiaries’ sales and expenses are made in local currencies. International sales denominated in currencies other than the U.S. dollar are primarily in the Japanese Yen, Singapore dollar and the Euro. Accordingly, we are exposed to fluctuations in currency exchange rates. Foreign currency transaction gains (losses) were approximately $(0.8) million, $(0.5) million and $0.8 million for the years ended December 31, 2000 and 2001 and for the nine months ended September 30, 2002, respectively. Because most of our sales are currently made in U.S. dollars, a strengthening of the dollar could make our products less competitive in foreign markets.

In January 2001, we began a foreign currency-hedging program to hedge certain nonfunctional currency exposure. Forward currency exchange contracts are utilized by us to reduce foreign currency exchange and interest rate risks with the goal of offsetting foreign currency transaction gains and losses recorded for accounting purposes with gains and losses realized on the forward contracts. We do not hold derivative financial instruments for trading or speculative purposes.

As of September 30, 2002, the Company had outstanding forward currency exchange contracts of $2.0 million to sell British Pounds Sterling and $2.5 million to sell Japanese yen which hedge net balance sheet exposures. Gains and losses arising from the changes in the fair value of forward currency exchange contracts are recognized as a component of other income (expense). At September 30, 2002, the current market settlement values of the forward contracts would be immaterial.

We used a portion of the proceeds obtained from our August 2000 initial public offering to repay all outstanding amounts under our revolving credit facility and term loan, which we subsequently terminated. To the extent that we utilize our new credit facility (see Note 8 to the Consolidated Financial Statements included elsewhere herein) in the future, future interest expense could be subject to fluctuations based on the general level of U.S. interest rates.

We have invested the remaining proceeds from our initial public offering in investment grade corporate and government securities and money market funds. The primary objective of our investment activities is to preserve capital while at the same time maximizing the income we receive from our

~~investments~~ITEM without significantly increasing risk. Some of the securities that we invest in may have market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. For example, if we hold a security that was issued with a fixed interest rate at the then-prevailing rate and the prevailing interest rate later rises, the principal amount of our investment will probably decline. As of September 30, 2002, we had $25.4 million of securities which mature in 90 days or less, $3.~~1 million~~ ofQUANTITATIVE ~~securities~~AND ~~which~~QUALITATIVE ~~mature~~DISCLOSURES ~~between~~ABOUT ~~90 days~~MARKET ~~and one year, and $8.5~~RISK ~~million of securities which mature between one and two years. We do not believe~~ ~~that we have any material exposure to interest rate risk.~~

We market and sell our products in North America, South America, Europe, the Middle East, Asia and Australia. Revenues outside the United States were 46.6%, 52.2% and 51.3% of our total revenues for the years ended December 31, 2001 and 2002, and for the six months ended June 30, 2003, respectively. Most of our foreign subsidiaries’ sales and expenses are made in local currencies. International sales denominated in currencies other than the U.S. dollar are primarily in the Japanese Yen, Singapore dollar and the Euro. Accordingly, we are exposed to fluctuations in currency exchange rates. Foreign currency transaction gains (losses) were approximately $(0.5) million, $1.2 million and $0.7 million for the years ended December 31, 2001 and 2002, and for the six months ended June 30, 2003, respectively. Because most of our sales are currently made in U.S. dollars, a strengthening of the dollar could make our products less competitive in foreign markets.

Our net assets denominated in currencies other than U.S. dollars as of June 30, 2003 were approximately $9.1 million. A potential loss in the value of these net assets resulting from a hypothetical 10% adverse change in foreign exchange rates would be approximately $0.9 million.

In January 2001, we began a foreign currency-hedging program to hedge certain nonfunctional currency exposure. Forward currency exchange contracts are utilized by us to reduce foreign currency exchange risks with the goal of offsetting foreign currency transaction gains and losses recorded for accounting purposes with gains and losses realized on the forward contracts. We do not hold derivative financial instruments for trading or speculative purposes. At June 30, 2003, we do not have any outstanding foreign currency exchange contracts.

We used a portion of the proceeds obtained from our August 2000 initial public offering to repay all outstanding amounts under our revolving credit facility and term loan, which we subsequently terminated. To the extent that we enter into a new credit facility in the future, future interest expense could be subject to fluctuations based on the general level of U.S. interest rates.

ITEM 4. CONTROLS AND PROCEDURES

~~Within~~ Based ~~the~~on ~~90 days~~their ~~prior~~evaluation toas ~~the date~~ of ~~this report,~~ the ~~Company~~end ~~carried out~~of ~~an evaluation, under~~ the ~~supervision~~period ~~and~~covered ~~with~~by ~~the~~this Quarterly ~~participation~~Report ofon ~~the Company’s management~~Form 10-Q, ~~including~~ the Company’s Chief Executive Officer and Chief Financial Officer, ofhave ~~the~~concluded ~~effectiveness~~that of the ~~design and operation of the~~ Company’s “disclosure controls and procedures.” ~~The~~(as ~~Company’s~~defined ~~disclosure controls~~in Rules 13a-15(e) and ~~procedures~~15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)), are ~~designed~~effective to ensure that information required to be disclosed by the Company in ~~its~~the ~~periodic~~reports ~~SEC~~that ~~filings~~it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in ~~the~~Securities ~~SEC’s rules~~ and ~~forms. Based~~Exchange ~~upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company~~Commission’s ~~disclosure~~rules ~~controls~~ and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic SEC filingsforms.

~~There~~ During ~~were~~our nofiscal ~~significant~~quarter ~~changes~~ended inJune 30, ~~the~~2003, ~~Company’s~~no ~~internal~~change ~~controls~~occurred or in our ~~other~~internal ~~factors~~control over financial reporting that ~~could~~has ~~significantly~~materially ~~affect~~affected, ~~these~~or ~~controls~~is reasonably ~~subsequent~~likely to ~~the date~~materially ofaffect, ~~their~~our ~~evaluation~~internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

~~(c) Recent~~Use ~~Sales~~ of ~~Unregistered Securities~~Proceeds

~~During~~ (d) The ~~the~~Company ~~three~~completed ~~months~~its ~~ended~~initial ~~September 30,~~public ~~2002~~offering of 1,142,857 million shares weof ~~issued~~its ~~warrants~~common stock pursuant to ~~purchase~~ a Registration Statement on Form S-1 (Registration No. 333-35106,~~000~~ effective August 3,~~000~~ ~~shares~~2000) ofon ~~Common~~August 9, ~~Stock~~2000. Total toproceeds ~~IBM~~from atthe anoffering, ~~exercise~~including ~~price~~the exercise of ~~$0.01~~the over-allotment ~~per~~option, ~~share~~were approximately $63.9 million ~~The~~net ~~warrants~~of ~~were~~underwriting ~~not~~discounts ~~registered~~and commissions ~~under~~of ~~the~~approximately ~~Securities~~$5.0 million ~~Act~~and other fees and expenses of approximately ~~1933~~$1.8 million.

We From ~~believe that~~ the ~~transaction~~date ~~described~~of ~~above~~receipt ~~were~~through ~~exempt from registration under Section~~June ~~3(b)~~30, or2003, ~~4(2)~~we ~~of the Securities Act because the subject securities were issued to one entity which was believed to be a sophisticated investor or to~~ have ~~had~~used ~~a pre-existing business or personal relationship with us or our management and to have been purchasing for investment without a view to further distribution. In addition,~~ the ~~recipient~~proceeds ofas ~~securities in such transaction represented their intention to acquire the~~follows: ~~securities for investment only and not with a view to or for sale in connection~~ ~~with any distribution thereof and appropriate legends were affixed to the~~ ~~certificate issued in such transaction. The recipient had adequate access, through its relationship with us, to information about us.~~

(d) Use of Proceeds


Repayment of indebtedness	$	16.6 million
Acquisition of businesses		4.4 million
Working capital		21.3 million

Total	$	42.3 million

The Company completed its initial public offering of 8.0 million shares of its common stock pursuant to a Registration Statement on Form S-1 (Registration No. 333-35106, effective August 3, 2000) on August 9, 2000. Total proceeds from the offering, including the exercise of the over-allotment option, were approximately $63.9 million, net of underwriting discounts and commissions of approximately $5.0 million

and other fees and expenses of approximately $1.8 million.

From the date of receipt through September 30, 2002, we have used the proceeds as follows:

Repayment of indebtedness	$	16.6 million
Acquisition of businesses		3.7 million
Working capital		12.3 million
Total	$	32.6 million

The remainder of the proceeds has been invested in investment grade corporate and government securities and money market funds. We intend to use the remaining proceeds for research and development activities; expenditures on sales and marketing, consulting services, and general and administrative personnel; systems costs; and working capital and general corporate purposes, including possible acquisitions of, or investments in, businesses and technologies that are complementary to our business. None of the net proceeds of the offering were paid by us, directly or indirectly, to any director, officer or general partner of ours or any of their associates, or to any persons owning ten percent or more of any class of our equity securities, or any affiliates of ours.

~~ITEM 5. OTHER INFORMATION~~29

The National Association of Securities Dealers, Inc. (the “NASD”) has promulgated Nasdaq Marketplace Rules requiring that listed companies have audit committees of at least three members comprised solely of “independent directors” as defined under their Marketplace Rule 4200(a)(14). The Company believes that each of the current members of the Audit Committee is an “independent director” within the meaning of NASD Marketplace Rule 4200(a)(14) except for Mr. William J. Lansing. Nasdaq Marketplace Rule 4350(d)(2)(B) establishes an exemption to the “three independent members” rule by permitting a listed company’s audit committee “under exceptional and limited circumstances” to include one director who is not independent if the Board of Directors determines that his or her membership on that committee is required “by the best interests of the company and its stockholders.”

In the meeting of the Board of Directors of the Company on November 6, 2002, the Board of Directors determined that it is in the best interests of the Company its stockholders for Mr. Lansing to continue serving on the Audit Committee because Mr. Lansing is not an employee or immediate family member of any employee of the Company and the Board believes that Mr. Lansing’s service as managing member of General Atlantic Partners, LLC will not impair or influence his judgment. The Board has determined that because Mr. Lansing has extensive business, financial and accounting experience and significant knowledge of the Company’s industry, he will be able to provide valuable service and counsel to the Audit Committee. Accordingly, the Board of Directors determined that exceptional and limited circumstances exist which require Mr. Lansing to continue to serve as a Director on the Audit Committee. The Board believes that the interests of the Company and its stockholders are best served by Mr. Lansing’s continued membership in the Audit Committee.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)

Exhibits

	10.1		Amended and Restated ~~EXE~~Employment ~~Technologies,~~Agreement ~~Inc.~~dated ~~1997~~May ~~Incentive~~13, ~~and~~2003 ~~Non-Qualified~~between ~~Stock~~Kenneth ~~Option~~R. ~~Plan,~~Vines asand ~~amended~~the Company.
	99.1		Certification pursuant to 18 U.S.C. Section 1350.
	10.2		Third Amendment to Amended and Restated Employment Agreement between Mark R. Weaser and the Company.
	31.1		Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2		Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K ~~None.~~

On April 25, 2003, the Company filed a current report on Form 8-K under 37Item 9. Regulation FD Disclosure (pursuant to Item 12. Results of Operations and Financial Condition) announcing that on April 24, 2003, the Company issued a press release with its fiscal 2003 first quarter results.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	EXE TECHNOLOGIES, INC.		~~EXE TECHNOLOGIES, INC.~~
Date: November 14, 2002			By: /s/ RAYMOND R. HOOD
Date: August 13, 2003	By:	/s/ Joseph L. Cowan
			Raymond R. Hood Chairman of the Board of Directors and Chief Executive Officer
	Joseph L. Cowan
Date: November 14, 2002			By: /s/ KENNETH R. VINES
	President and Chief Executive Officer
			Kenneth R. Vines Senior Vice President, Finance, Chief Financial Officer and Treasurer
Date: August 13, 2003	By:	/s/ Kenneth R. Vines
	Kenneth R. Vines
	Senior Vice President, Chief Financial
	Officer, Secretary and Treasurer

31 38

CERTIFICATIONS

I, Raymond R. Hood, Chief Executive Officer of the registrant certify that:

1. I have reviewed this quarterly report on Form 10-Q of the registrant. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934, as amended) for the registrant and have:

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

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

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

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Dated: November 14, 2002

/s/ Raymond R. Hood

Chief Executive Officer

CERTIFICATIONS

I, Kenneth R. Vines, Chief Financial Officer of the registrant certify that:

Dated: November 14, 2002

/s/ Kenneth R. Vines

Chief Financial Officer

INDEX TO EXHIBITS

~~10.1~~	10.1	~~Amended and Restated EXE Technologies, Inc. 1997 Incentive and Non-Qualified Stock Option Plan, as amended.~~	Amended and Restated Employment Agreement dated May 13, 2003 between Kenneth R. Vines and the Company.
99.1		Certification pursuant to 18 U.S.C. Section 1350.
	10.2		Third Amendment to Amended and Restated Employment Agreement between Mark R. Weaser and the Company.
	31.1		Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2		Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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Filing Compare · EXE TECHNOLOGIES INC