SOFTWARE 2000 INC /MA/, 10-K, 1996-12-20

SOFTWARE 2000 INC /MA/
10-K, 1996-12-20
COMPUTER INTEGRATED SYSTEMS DESIGN

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<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(MARK ONE)

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

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 0-27030

SOFTWARE 2000, INC.
(Exact name of registrant as specified in its charter)

MASSACHUSETTS
(State or other jurisdiction of
incorporation or organization)

04-2734036
(IRS Employer
identification No.)

25 COMMUNICATIONS WAY, HYANNIS, MA
(Address of principal executive office)

02601
(Zip code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (508) 778-2000

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

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

COMMON STOCK, PAR VALUE $0.01
(Title of class)

------------------------

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

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

The aggregate market value of voting stock held by non-affiliates of the
registrant based upon the closing price of such stock as reported on the Nasdaq
National Market on November 27, 1996, was $71,052,445.

As of November 27, 1996, 11,115,520 shares of the registrant's Common Stock
were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Specifically identified information in the registrant's definitive proxy
statement for its Annual Meeting of Stockholders which is currently expected to
be held on or about February 14, 1997, to be filed pursuant to Regulation 14A is
incorporated by reference into Part III of this Form 10-K.

================================================================================
<PAGE> 2

PART I

ITEM 1. BUSINESS.

The following discussion contains forward-looking statements which involve
risks and uncertainties, and the Company's actual experience may differ
materially from that discussed below. Factors that may cause such differences
include, but are not limited to, those discussed in "Factors Affecting Future
Performance."

Software 2000, Inc. (the "Company" or "Software 2000") develops, markets
and supports enterprise-level business software applications for the financial
management, human resource management and materials management functions of
organizations in a broad range of industries worldwide. The Company also offers
a specialized manufacturing system designed to manage process manufacturing
operations. The Company's current line of products has been designed to take
full advantage of the IBM AS/400 computing environment in a client/server
configuration. The Company is currently developing versions of its principal
products designed to run on additional hardware platforms using the Microsoft
Windows NT Server operating system and to take advantage of World Wide Web
technologies. The Company's more than 1,300 customers include Abbott
Laboratories, Circus Circus Enterprises, Coca-Cola Enterprises, EDS Automotive
Retail Group, Samsonite, Starbucks, TRW Information Systems & Services and
Warner Bros. Records.

PRODUCTS

Software 2000 offers enterprise-level business software applications
designed to automate the back-office operations of mid-sized organizations and
business units of large companies. The Company's products can function as
stand-alone applications or as integrated suites of applications and may be
interfaced with products from other vendors. The Company offers business
applications that automate the financial management, human resources management,
materials management and process manufacturing functions.

The Company's "2000 series" of products are AS/400 server-based products
which can function in a traditional host/terminal configuration or, with the
addition of the Company's Infinium:Desktop Manager, in a host/PC configuration
with a graphical user interface on the users' desktops. In addition, the Company
is developing versions of its products for users of the Microsoft Windows NT
operating system.

The Company's Infinium:Financial Management, Infinium:Human Resources and
Infinium:Materials Management object-oriented software products can be added to
the AS/400-based Financial Management 2000, Human Resources 2000 or Materials
Management 2000 product lines to provide a client/server computing architecture.
In this configuration, some of the product functions traditionally provided by
the AS/400 host application are distributed to the users' personal computers,
providing more intuitive data access and analytical capabilities.

The Company's Infinium products run under the Microsoft Windows, Windows
95, Windows NT and IBM OS/2 operating systems for personal computers.

The Infinium product line is designed to allow non-technical business
professionals to "mine" the information contained in the application databases
without knowledge of the underlying database structure. The Company believes
that Infinium's innovative "drag and drop" object-oriented user interface is an
advance over standard graphical user interfaces because it represents the
underlying data in the form of graphical icons and allows the user to
interactively access data by manipulating the icons. For example, a user can
simply drag the Vendor icon and drop it on an Invoice icon to see the invoice
data for that particular company. Successive drag and drop operations can take
the user to successively lower levels of detail as needed. In addition, the data
in an Infinium application can be easily moved into popular spreadsheets or word
processors for incorporation into reports or presentations. As a result, users
spend less time searching for data and can devote more time to analysis and
decision-making. The Company believes that its "object-oriented user interface"
represents a competitive advantage in the business application software market.

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<PAGE> 3

The Company believes that the Infinium architecture, which allows the
Company's 2000 series AS/400 applications to function as either traditional
host/terminal applications or object-oriented client/server applications,
provides the Company's customers with a means of migrating to client/server
without replacing their existing AS/400 business applications and offers a
competitive solution to customers seeking to combine the benefits of
client/server computing with the performance, stability and low cost of
ownership of an AS/400 server-based architecture.

The Company's financial management and human resources product lines,
including its Infinium products, have been designed to support processing in the
year 2000 and beyond. Software 2000 customers who use these applications will
not experience a business interruption due to the inability to process
transactions dated in the year 2000 or later. The Company's materials management
and process manufacturing product lines are currently being revised to support
year 2000 processing, and those modifications are expected to be completed
during 1997.

In fiscal 1996, the Company announced its Infinium:Websight product which
allows Infinium customers to extend select application functionality to their
customers, suppliers or employees through the Internet or their internal
intranet. The first of these extensions for the Company's accounts receivable
product was shipped during fiscal 1996, with additional releases planned for
fiscal 1997.

The Company presently offers enterprise-level business application products
in the areas of financial management, human resource management, materials
management and process manufacturing. In addition, the Company offers the
Infinium:Desktop Manager product to allow customers of its character-based
AS/400 host/terminal applications to add a graphical user interface and the
Infinium:Websight product to allow Infinium customers to extend select
application functionality to their customers, suppliers or employees through the
Internet or their internal intranet. The product suites and included
applications currently offered by Software 2000 are as follows:

FINANCIAL MANAGEMENT HUMAN RESOURCES/PAYROLL
Infinium: Financial Management Infinium: Human Resources
General Ledger 2000 Payroll 2000
Payables Ledger 2000 Personnel 2000
Accounts Receivable 2000 Flexible Benefits 2000
Fixed Assets 2000 Training 2000
Currency Management 2000 Industrial Health 2000
Global Taxation 2000

MATERIALS MANAGEMENT PROCESS MANUFACTURING
Infinium: Materials Management Regulatory Management 2000
Purchase Management 2000 Formula Management 2000
Inventory Control 2000 Advanced Planning 2000
Order Processing 2000 Manufacturing Control 2000
Electronic Exchange 2000 Laboratory Analysis 2000

FINANCIAL MANAGEMENT. The Company's Financial Management products provide
key financial management and accounting functions for mid-sized organizations
and business units of large companies. Infinium:Financial Management provides
these applications with icon-based user access to the underlying accounting,
statistical and performance data through graphical "drag and drop" operations.
Software 2000's Financial Management products are in use at more than 700
companies. The Company's primary Financial Management applications are currently
available in English, French, German, Dutch and Spanish versions for
multi-national and international businesses. The current list license fees for
Financial Management server products range from $3,800 to $244,000 per
application. License fees vary based on a number of factors, including hardware
configuration, number of users and application options licensed. The current
list license fee for Infinium:Financial Management is $3,000 for a single user,
and multiple user discounts are available.

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<PAGE> 4

HUMAN RESOURCES/PAYROLL. The Company's Human Resources/Payroll products
are designed to handle the requirements of mid-sized organizations and business
units of large companies. For example, the Royal Mail Letters division of the
British Post Office produces payroll for more than 160,000 employees weekly
using Software 2000's Human Resources products. Infinium:Human Resources
provides these applications with icon-based user access to the underlying
accounting, statistical and performance data through graphical "drag and drop"
operations. The Company's Human Resources/Payroll products are in use at more
than 600 organizations. While the Company offers versions of its Human Resources
systems for use around the world, the Payroll system is localized and currently
available for use in the United States, Canada, United Kingdom, Australia and
New Zealand. The current list license fees for Human Resources/Payroll server
products range from $10,000 to $239,000 per application. License fees vary based
on a number of factors, including hardware configuration, number of users and
application options licensed. The current list license fee for Infinium:Human
Resources is $3,000 for a single user, and multiple user discounts are
available.

MATERIALS MANAGEMENT. The Company's Materials Management products are
targeted mainly to non-manufacturing businesses, such as hospitals, hotels,
transportation companies, service organizations and utilities. These products
integrate closely with the Financial Management product line, and are often
considered an extension of the core financial applications. The Company's
Materials Management products are in use at approximately 200 companies. The
current list license fees for Materials Management products range from $15,000
to $143,000 per application. License fees vary based on a number of factors,
including hardware configuration, number of users and application options
licensed. The current list license fee for Infinium:Materials Management is
$3,000 for a single user, and multiple user discounts are available.

PROCESS MANUFACTURING. The Company's Process Manufacturing products cover
a full range of formula-based process manufacturing operations. These products
are fully integrated with the Company's Financial Management 2000 product line.
The Company's Process Manufacturing products are in use at more than 50
companies principally in the paint, sealant, adhesive and specialty chemical
industries. The current list license fees for Process Manufacturing products
range from $5,000 to $139,000 per application. License fees vary based on a
number of factors, including hardware configuration, number of users and
application options licensed.

INFINIUM:DESKTOP MANAGER. Infinium:Desktop Manager is designed to provide
AS/400 customers with a first step toward client/server computing.
Infinium:Desktop Manager provides a graphical user interface (GUI) and PC-based
desktop to the Company's 2000 series business applications. Customers not yet
ready to make a full commitment to client/server computing with the
Infinium:Financial Management or Infinium:Human Resources products can still
provide users with the productivity and ease-of-use of a graphical desktop by
using Infinium:Desktop Manager. An Infinium:Desktop Manager Extended license is
also available which provides the same GUI interface but permits use across
non-Software 2000 character-based AS/400 applications, providing businesses with
a consistent look and feel across all of their AS/400 applications to simplify
training and support. The current list license fee for Infinium:Desktop Manager
and Infinium:Desktop Manager Extended is $1,500 and $1,000, respectively, for a
single user, and multiple user discounts are available.

INFINIUM:WEBSIGHT. Infinium:Websight is designed to provide Infinium
customers the ability to extend select application functionality to their
customers, suppliers or employees through the Internet or their internal
intranet. The first of these extensions for the Company's accounts receivable
product was shipped during fiscal 1996, with additional releases planned for
fiscal 1997. Currently, Infinium:Websight is provided on request, without
charge, to Accounts Receivable 2000 customers who are active on maintenance.

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CUSTOMER SUPPORT AND PRODUCT MAINTENANCE

The Company believes that providing a high level of support to its
customers is a critical requirement for customer satisfaction and the long-term
success of the Company. The Company believes that it has established a strong
history of responsiveness to customer requirements and a high level of support
which have resulted in a loyal customer base. As of September 30, 1996 the
Company had 76 employees in its customer support operations.

The Company provides product updates and enhancements and customer support
services under an annual maintenance program. Initial maintenance fees are based
on a percentage of the list price of the licensed software products. As of
September 30, 1996, the Company's deferred revenue attributable to maintenance
contracts were $14.3 million. The renewal rate for annual maintenance for the
Company's products was approximately 90% for the year ended September 30, 1996.
Under the Company's standard license agreement, customers have the right to
modify or enhance the Company's products; generally, in such event, the
Company's obligation to provide warranty or maintenance service will terminate.
Any modifications or enhancements developed by the customer that do not contain
software code of the Company are owned by the customer.

The Company's primary customer support center is located at the Company's
headquarters in Hyannis, Massachusetts. The Company also maintains a support
operation in its United Kingdom office and Singapore, servicing customers
outside the United States. First-line support services for customers outside
North America, the United Kingdom and Singapore are typically provided by the
Company's independent distributors for those areas. The Company also offers an
electronic support capability, called "S2K Link," which is based on IBM/Lotus
Notes and which allows customers to access product release information, product
bulletins and updates, and tip and technique information as well as to pursue
ordinary customer support dialogues. The Company has recently launched a version
of S2K Link that allows customers to access the Company's customer support
services using Web browsers, called S2K Weblink.

EDUCATION AND CONSULTING SERVICES

The Company offers a comprehensive series of fee-based training courses to
its customers. Courses can be taken at the Company's headquarters in Hyannis,
Massachusetts, or at regional training centers in the Atlanta, Chicago, Los
Angeles, London and Toronto metropolitan areas. Course offerings can also be
delivered at a customer's site.

Software 2000's consulting services organization provides fee-based
services to the Company's customers, including implementation assistance,
project management, application extension or customization, integration with
existing customer applications and similar services. The Company also trains and
certifies third-party organizations, such as consulting firms and system
integrators, to complement the Company's own service operation. The Company had
67 employees in its consulting services organization as of September 30, 1996.

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<PAGE> 6

CUSTOMERS

The Company's products are used by more than 1,300 customers in a wide
range of industries. No single customer accounted for 10% or more of revenue in
fiscal years 1994, 1995 or 1996. A representative list of current major
customers, segmented by industry concentration, who are currently active on
maintenance with the Company and who have generated at least $100,000 in total
revenue during the last five years, is shown below:

<TABLE>

<S> <C>
AUTOMOTIVE COMMUNICATIONS
EDS Automotive Retail Group Hearst Magazines
Mazda Motor of America MCA/Universal Studios/MCA Records
Porsche Cars North America Newsweek Data Center
Rolls-Royce Motor Cars USA Network
Volvo North America Warner Bros. Records

CONSUMER PRODUCTS DISTRIBUTION AND TRANSPORTATION
Nintendo of America BOC Distribution Services
NordicTrack Builders Transport
Playtex Apparel Burlington Motor Carriers
Samsonite M.S. Carriers
Timberland Roadway Logistic Systems

FINANCIAL AND INSURANCE SERVICES FOOD AND BEVERAGE PROCESSING
Blue Cross and Blue Shield of Maryland Blue Diamond Growers
Countrywide Credit Industries Coca-Cola Enterprises
The FINOVA Group Sunkist Growers
Texas Workers Insurance Compensation Sysco
Fund Universal Foods
TRW Information Systems & Services

HEALTH CARE HOSPITALITY
Catholic Healthcare West Circus Circus Enterprises
Landmark Medical Center Embassy Suites
Optima Health Harrah's
Tenet Healthcare MGM Grand Hotel
York County Hospital Mirage Resorts

MANUFACTURING PHARMACEUTICALS
Alberta-Pacific Forest Industries Abbott Laboratories
Crown Cork & Seal Company Bausch & Lomb
General Electric Canada Ciba Vision
Harley-Davidson Ortho McNeil
Saint Gobain Corporation Smithkline Beecham Animal Health

RESTAURANTS UTILITIES
Arby's Northwestern Public Service Company
Baskin Robbins Southern Union Company
Brinker International Florida Public Utilities Co.
McDonalds-Australia Buckeye Pipeline Company
Starbucks Pacific Energy
</TABLE>

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<PAGE> 7

SALES AND MARKETING

The Company offers its products and services primarily through a direct
sales force in the United States, Canada and the United Kingdom and through
independent distributors in other geographic locations.

The Company's sales efforts in North America are conducted by a direct
sales force with offices in the Atlanta, Boston, Chicago, Dallas, Houston,
Irvine and Toronto metropolitan areas. The Company also has a telesales
operation in its Hyannis, Massachusetts headquarters to sell training,
consulting services and product licenses to the Company's existing customer
base. The Company conducts comprehensive marketing programs which include
advertising, direct mail, telemarketing, seminars, public relations, trade shows
and customer relations from its headquarters in Hyannis, Massachusetts. The
Company's sales and marketing organization consisted of 115 employees as of
September 30, 1996.

The Company believes that its continued growth and profitability will
require it to expand its existing international operations and enter new
international markets. The Company's strategy is to substantially expand its
network of independent distributors to provide a worldwide sales and marketing
presence for its products. In particular, the Company intends to expand its
distribution capabilities in the Asia/Pacific and Latin American markets by
entering into business partner relationships with established third party
software distribution and support organizations. The Company has recently
entered into relationships with several international distributors, primarily in
the Asia/Pacific markets. The Company had revenue of $3.3 million, $5.5 million
and $7.6 million from sales to customers outside North America for the fiscal
year ended August 31, 1994 and the fiscal years ended September 30, 1995 and
1996, respectively, representing 5.7%, 8.7% and 10.6% of total revenue,
respectively.

PRODUCT DEVELOPMENT

The Company devotes substantial resources to research and development in
order to enhance and maintain the competitiveness of its products. The Company's
research and development priorities fall into three principal areas: first,
AS/400 product enhancements, including the development of new product features
and functions, the incorporation of Internet-related technologies, the further
internationalization of the Company's product lines and integration with third
party complementary products; second, the development of versions of the
Company's products that operate on Microsoft Windows NT; and third, the ongoing
development of the Company's object-oriented Infinium architecture as the basis
for its long-term product differentiation.

The Company's primary research and development operations are located in
Hyannis, Massachusetts, with smaller development teams located in the Company's
Waltham, Massachusetts, Louisville, Kentucky, London, England and Paris, France
area facilities. As of September 30, 1996, the Company had 145 employees in its
research and development operations. The Company's research and development
spending was approximately $16.1 million, $16.4 million and $17.3 million for
the fiscal year ended August 31, 1994 and for the fiscal years ended September
30, 1995 and 1996, respectively.

STRATEGIC RELATIONSHIPS

IBM RELATIONSHIP

Software 2000 has maintained a strategic relationship with IBM in a number
of key areas, including sales, marketing and research and development. The
Company participates in several formal and informal programs with IBM which the
Company believes afford it valuable experience with IBM's AS/400 products and
insights into its marketing plans. The Company is one of IBM's designated
"Premier Business Partners" and has, in recent years, received numerous awards
and recognitions from IBM, including IBM's Mark of Quality for its high-quality
management practices and standards, the International Rightsizing Leadership
Award and the IBM National Business Partner of the Year Award.

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The Company is a member of IBM's Market Development Program and has
received funding and other assistance from IBM for the purposes of jointly
marketing the Company's products and IBM AS/400 systems. In 1996, the Company
participated in IBM's announcement of its new "Network PC" product line. As a
prime provider of AS/400 business solutions, the Company has served as a test
site for new IBM AS/400 and object-oriented products, obtaining valuable early
experience with these technologies. The Company is a member of IBM's "Partners
in Development" program, providing IBM with feedback regarding the design and
development of the database and operating system of the AS/400 Advanced Server.

MICROSOFT RELATIONSHIP

Software 2000 has entered into a relationship with Microsoft Corporation as
part of the Company's overall strategy to provide a line of application products
for the Windows NT server platform. The relationship is currently centered
around the Company's application development activities, and includes
participation in the Windows ISV Advisory Board, Microsoft Solution Developers
Program, Solution Providers program and other less formal programs. The Company
expects that its relationship with Microsoft will become more strategic as the
Company's NT server products near commercial release.

SALES AND MARKETING RELATIONSHIPS

The Company has entered into arrangements with several third party software
vendors to jointly market their products along with the Infinium client/server
product lines in order to provide a more comprehensive solution to Software 2000
customers. Since 1995, the Company has entered into strategic marketing
relationships with:

- SHOWCASE CORPORATION, for their STRATEGY Server, Query and Report
Writer products, which provides client/server, graphical user interface for
AS/400 query and report writing;

- FRX SOFTWARE CORPORATION, a provider of client/server financial
report writing, with remote distribution of reporting datasets via email or
Internet;

- PROCESS LOGISTIX, INC., a provider of supply chain operations and
planning software, for its suite of planning and inventory products used in
conjunction with the Software 2000 Process Manufacturing product suite;

- RIPPE AND KINGSTON SYSTEMS, INC., for its plant and facility
maintenance/management applications;

- EDIFY CORPORATION, for the Edify Electronic Workforce and Agent
Trainer products that provide AS/400 based interactive response services
throughout Software 2000's product family;

- CRITERION INCORPORATED, for its Blueprint product, an extension to
Software 2000 Human Resources products for career development and
succession planning;

- DELTA DATA SOFTWARE, INC., who provides its Defined Contributions
product line fully integrated with Software 2000 Human Resources/Payroll
applications.

COMPETITION

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The Company's primary competitors are presently J.D. Edwards & Company,
Lawson Software, PeopleSoft and SAP AG. The Company believes, however, that
competition in its industry is undergoing rapid change and that the barriers to
competition between market segments that have previously existed are decreasing.
For example, SAP AG and PeopleSoft, which are currently major competitors within
the Microsoft Windows NT client/server market, have entered the AS/400 market.
J.D. Edwards & Company has recently introduced its AS/400 client/server product
as well as products for other platforms. Due to the relatively low barriers to
entry in the software market, the Company expects additional competition from
these and other established and emerging companies as the client/server business
application software market continues to develop and expand. Certain of the
Company's existing and potential competitors are substantially larger than the
Company and have significantly greater financial, technical and marketing
resources and other established, extensive direct and indirect channels of
distribution. As a result, they may be able to respond more quickly to new or
emerging technologies and changes in customer requirements, or to devote greater
resources to the development, promotion and sale of their products than the
Company. The Company also expects that competition will increase as a result of
software industry consolidation. In addition, current and potential competitors
have established or may establish cooperative relationships among themselves or
prospective customers. Accordingly, it is possible that new competitors or
alliances among competitors may emerge and rapidly acquire significant market
share. Increased competition may result in price reductions, reduced gross
margins and loss of market share, any of which would have a material adverse
effect on the Company's business, results of operations and financial condition.
There can be no assurance that the Company will be able to compete successfully
against current or future competitors or that competitive pressures will not
have a material adverse effect on the Company's business, operating results and
financial condition.

INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS AND LICENSES

The Company regards certain features of its internal operations, software
and documentation as confidential and proprietary, and relies on a combination
of contract, copyright, trademark and trade secret laws and other measures to
protect its proprietary intellectual property. The Company has no patents, and
existing copyright laws afford only limited protection. The Company believes
that, because of the rapid rate of technological change in the computer software
industry, trade secret and copyright protection are less significant than
factors such as the knowledge, ability and experience of the Company's
employees, frequent product enhancements and the timeliness and quality of
support services.

The Company provides its products to customers under non-exclusive,
nontransferable licenses. The Company generally licenses its products solely for
the customer's internal operations and only on designated computers. In certain
circumstances, the Company makes available enterprise-wide licenses. The Company
provides source code to its customers for certain of its products and has
escrowed its source code with a commercial bank for the benefit of all
customers. The provision of source code may increase the likelihood of
misappropriation or other misuse of the Company's intellectual property.

From time to time, the Company licenses software from third parties for use
with its products. The Company believes that no such license agreement to which
it is presently a party is material and that if any such license agreement were
to terminate for any reason, the Company would be able to obtain a license or
otherwise acquire other comparable technology or software on terms that would
not be materially adverse to the Company.

EMPLOYEES

As of September 30, 1996, the Company employed 466 people, including 115 in
sales and marketing, 145 in product development, 143 in customer support and
field services and 63 in administration. The Company's success will depend in
large part upon its ability to continue to attract and retain qualified
employees. None of the Company's employees is represented by a labor union or is
subject to a collective bargaining agreement. The Company believes that its
relations with its employees are good.

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ITEM 2. PROPERTIES

The Company is headquartered in Hyannis, Massachusetts, where it leases an
aggregate of 75,000 square feet of space. Administrative, marketing, product
development and customer support and service operations are located in the
Hyannis space. The Company also leases 21,600 additional square feet of space in
Waltham, Massachusetts which is shared by product development and field
operations. Louisville, Kentucky is also used for product development operations
where the Company leases 4,800 square feet. In addition, the Company leases an
aggregate of 48,700 additional square feet for its field operations located in
Atlanta, Chicago, Dallas, Houston, Irvine, Toronto and London. The Company
believes that its existing facilities are adequate to meet current needs and
that suitable additional space will be available as needed to accommodate any
further physical expansion of corporate operations and for additional sales and
service field offices.

ITEM 3. LEGAL PROCEEDINGS

From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. The Company is
not a party to any legal proceedings, the adverse outcome of which, individually
or in the aggregate, would have a material adverse effect on the Company's
results of operations or financial position.

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

No matters were submitted during the fourth quarter of the fiscal year
ended September 30, 1996 to a vote of security holders of the Company, through
the solicitation of proxies or otherwise.

PART II

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

STOCK INFORMATION

PRICE RANGE OF COMMON STOCK

The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "SFWR". Public trading of the Common Stock commenced on November 17,
1995. Prior to that time, there was no public market for the Company's Common
Stock. The following table sets forth the high and low closing prices, as
reported by Nasdaq, for the periods indicated.

<TABLE>
<CAPTION>
FISCAL 1996 HIGH LOW
----------- ---- ---
<S> <C> <C>
First Quarter (from November 17).................................... $10 3/4 $7 1/8
Second Quarter...................................................... 17 1/8 7
Third Quarter....................................................... 19 3/8 12 3/4
Fourth Quarter...................................................... 18 8 1/4
</TABLE>

As of November 27, 1996 there were approximately 394 holders of record.

The Company has never paid any cash dividends on its Common Stock and does
not anticipate paying any cash dividends in the foreseeable future. The Company
currently intends to retain future earnings to fund the development and growth
of its business.

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<PAGE> 11

ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated financial data should be read in conjunction
with, and are qualified in their entirety by, the Company's consolidated
financial statements, related notes and other financial information included
herein.

<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------
AUGUST 31, SEPTEMBER 30,(1)
----------------------------- ------------------
CONSOLIDATED INCOME STATEMENT DATA: 1992 1993 1994 1995 1996
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue:
Software license fees.................. $22,900 $20,679 $20,163 $21,080 $24,115
Services revenue....................... 22,228 28,366 36,637 42,083 47,693
------- ------- ------- ------- -------
Total revenue..................... 45,128 49,045 56,800 63,163 71,808
Costs and expenses:
Cost of software license fees.......... 1,378 1,923 2,845 3,829 3,823
Cost of services....................... 8,623 11,096 13,396 15,333 16,562
Research and development............... 9,208 8,911 12,980 12,725 13,775
Sales and marketing.................... 16,502 19,747 20,008 19,651 23,822
General and administrative............. 5,258 6,524 5,330 6,245 6,616
Write-off of goodwill(2)............... 1,805 -- -- -- --
------- ------- ------- ------- -------
Total operating costs and
expenses........................ 42,774 48,201 54,559 57,783 64,598
------- ------- ------- ------- -------
Income from operations...................... 2,354 844 2,241 5,380 7,210
Other income (expense), net................. (367) 62 (83) 293 1,526
------- ------- ------- ------- -------
Income before provision for income taxes and
cumulative effect of change in accounting
principle................................. 1,987 906 2,158 5,673 8,736
Provision for income taxes.................. 1,206 367 916 1,989 3,146
------- ------- ------- ------- -------
Income before cumulative effect of change in
accounting principle...................... 781 539 1,242 3,684 5,590
Cumulative effect of change in accounting
principle................................. -- -- 260 -- --
------- ------- ------- ------- -------
Net income.................................. $ 781 $ 539 $ 1,502 $ 3,684 $ 5,590
======= ======= ======= ======= =======
Net income per share(3)..................... $ 0.08 $ 0.05 $ 0.15 $ 0.40 $ 0.49
======= ======= ======= ======= =======
Weighted average common and common
equivalent shares outstanding(3).......... 10,214 10,495 10,825 9,401 11,369
======= ======= ======= ======= =======
</TABLE>

<FN>
- ---------------

(1) The Company changed its fiscal year end to September 30, effective with the
fiscal year ended September 30, 1995. Accordingly, the September 1994
results are not included in the data presented above. See Note 2 to the
consolidated financial statements.

(2) Goodwill, representing the excess of the purchase price over the fair value
of net assets acquired at the date of acquisition, was determined to be
permanently impaired and therefore written-off based on significantly less
than anticipated results of operations subsequent to the acquisition and
lower projected future results.

(3) The Company repurchased 1,632,000 shares of common stock from venture
capital investors in September 1994. See Note 8 to consolidated financial
statements.

</TABLE>

11
<PAGE> 12

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

All statements contained herein that are not historical facts, including
but not limited to, statements regarding anticipated future capital
requirements, the Company's future development plans, the Company's ability to
obtain debt, equity or other financing, and the Company's ability to generate
cash from operations, are based on current expectations. These statements are
forward looking in nature and involve a number of risks and uncertainties, as
more fully described under "Factors Affecting Future Performance." Actual
results may differ materially.

OVERVIEW

Software 2000 was founded in 1981 and offers a broad range of financial
management, human resource management, materials management and process
manufacturing business software applications that presently run on the IBM
AS/400 hardware platform. The Company's revenue is derived from two sources:
software license fees and service revenue. License fees include revenue from
noncancellable software license agreements entered into between the Company and
its customers with respect to both the Company's products and third party
products marketed by the Company. Software license fee revenue is recognized
upon shipment of the software and when all significant contractual obligations
have been satisfied.

The Company released for general availability its first client/server
products, the Infinium line, during the second quarter of fiscal 1995. From
fiscal 1992 through the second quarter of fiscal 1995, software license fees
were relatively constant due to the unavailability of such client/server
products. Service revenue continued to grow, however, due to the increase in the
Company's installed base of customers and the growth in the Company's consulting
services practice.

The Company did not have any software license fees categorized as
client/server revenues in fiscal 1994. Software license fee revenue from the
Company's client/server products for the year ended September 30, 1995 was $6.2
million, which constituted 29.4% of total license fees and 9.8% of total revenue
for such fiscal year. For the year ended September 30, 1996, client/server
revenue was $14.1 million or 58.5% of total license fees and 19.6% of total
revenue.

The Company's service revenue is comprised of software maintenance fees and
fees for consulting services. Maintenance fees are billed separately and are
recognized ratably over the maintenance period, which is typically one year. The
Company's growing customer base has led to continued growth in maintenance fees.
For each of the years ended September 30, 1995 and 1996 the Company experienced
a maintenance renewal rate in excess of 90%. Gross margins for the Company's
maintenance revenue is typically higher than gross margins for the Company's
other sources of service revenue. In addition to offering maintenance services,
the Company commenced a consulting services practice in fiscal 1992 to offer
implementation, consulting and training services for Software 2000 products.
Consulting services revenue is recognized as the services are performed. The
table below summarizes the composition and growth in the Company's service
revenue.

<TABLE>
<CAPTION>
YEAR ENDED
------------------------------
SEPTEMBER 30,
AUGUST 31, -----------------
1994 1995 1996
---------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Software maintenance revenue......................... $ 21,698 $25,952 $30,300
Consulting services revenue.......................... 14,939 16,131 17,393
--------- ------- -------
Total service revenue........................... $ 36,637 $42,083 $47,693
========= ======= =======
</TABLE>

The Company changed its fiscal year end from August 31 to September 30
effective with the fiscal year ended September 30, 1995. Accordingly, the
results of operations for the year ended September 30, 1995 do not include the
results of operations for the month of September 1994. See Note 2 to
consolidated financial statements.

12
<PAGE> 13

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated the Company's
consolidated income statement data expressed as a percentage of total revenues.

<TABLE>
<CAPTION>
YEAR ENDED
----------------------------
SEPTEMBER 30,
AUGUST 31, ---------------
1994 1995 1996
---------- ----- -----
<S> <C> <C> <C>
Revenue:
Software license fees....................................... 35.5% 33.4% 33.6%
Service revenue............................................. 64.5 66.6 66.4
----- ----- -----
Total revenue.......................................... 100.0 100.0 100.0
----- ----- -----
Costs and expenses:
Cost of software license fees............................... 5.0 6.1 5.3
Cost of services............................................ 23.6 24.3 23.1
Research and development.................................... 22.9 20.1 19.2
Sales and marketing......................................... 35.2 31.1 33.2
General and administrative.................................. 9.4 9.9 9.2
----- ----- -----
Total operating costs and expenses..................... 96.1 91.5 90.0
----- ----- -----
Income from operations........................................... 3.9 8.5 10.0
Other income (expense), net...................................... (0.1) 0.5 2.1
----- ----- -----
Income before provision for income taxes and cumulative effect of
change in accounting principle................................. 3.8 9.0 12.1
Provision for income taxes....................................... 1.6 3.2 4.4
----- ----- -----
Income before cumulative effect of change in accounting
principle...................................................... 2.2 5.8 7.7
Cumulative effect of change in accounting principle.............. 0.5 -- --
----- ----- -----
Net income....................................................... 2.7% 5.8% 7.7%
===== ===== =====
</TABLE>

YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO YEAR ENDED SEPTEMBER 30, 1995

REVENUE. Total revenue, consisting of software license fees and service
revenue, increased 13.7%, from $63.2 million for the year ended September 30,
1995 to $71.8 million for the year ended September 30, 1996. The increase was
primarily due to growth in maintenance fees, and to a lesser extent, software
license fees and consulting services revenue.

License fee revenue increased 14.4%, from $21.1 million for the year ended
September 30, 1995 to $24.1 million for the year ended September 30, 1996. The
growth was due primarily to continued market acceptance of the Company's
Infinium client/server products and continued growth in international revenue,
primarily in the Asia/Pacific Region.

Service revenue increased 13.3%, from $42.1 million for the year ended
September 30, 1995 to $47.7 million for the year ended September 30, 1996. The
increase was primarily attributable to an increase in the installed base of
customers resulting in an increase in both maintenance and consulting services
revenue.

Revenue in North America increased 11.3%, from $57.7 million for the year
ended September 30, 1995 to $64.2 million for the year ended September 30, 1996.
Income from operations in North America increased from $5.7 million in fiscal
1995 to $7.2 million in fiscal 1996. Europe and other international revenue grew
38.2%, from $5.5 million for the year ended September 30, 1995 to $7.6 million
for the year ended September 30, 1996 due to greater market penetration in
Europe and the Asia/Pacific Region. Loss from operations in Europe decreased
from $864,000 in fiscal 1995 to $272,000 in fiscal 1996 primarily due to
profitable operations in the United Kingdom. Operating losses in Europe outside
of the United Kingdom can be attributed to product investments for the European
market. Income from operations in other international areas (primarily in the
South East Asian markets) was impacted by sales and marketing investments
resulting in a decrease of operating profit from $518,000 in fiscal 1995 to
$285,000 in fiscal 1996.

13
<PAGE> 14

COST OF SOFTWARE LICENSE FEES. Cost of software license fees consists
primarily of the cost of product media, manuals, shipping and amortization
expense related to capitalized software development costs. Cost of software
license fees remained unchanged at $3.8 million for fiscal years ended September
30, 1995 and 1996. Cost of software license fees as a percentage of software
license fee revenue decreased from 18.2% for the year ended September 30, 1995
to 15.9% for the year ended September 30, 1996. The decrease in the cost of
software license fees as a percentage of software license fee revenue was
primarily due to a $160,000 write-off of certain capitalized software
development costs in the first fiscal quarter of 1995 offset by increased
capitalized software amortization in fiscal 1996.

COST OF SERVICES. Cost of services consists of costs to provide training,
technical support and implementation consulting services to customers of
Software 2000 products. Cost of services increased from $15.3 million for the
year ended September 30, 1995 to $16.6 million for the year ended September 30,
1996. Cost of services as a percentage of service revenue declined from 36.4%
for the year ended September 30, 1995 to 34.7% for the year ended September 30,
1996. The decrease in the cost of services as a percentage of service revenue is
primarily attributed to a higher rate of growth in software maintenance revenue
as compared to the associated expense of delivering such incremental services.
The increase in dollar amount of such costs resulted primarily from increased
staffing in the consulting and support organizations in response to increased
demand for consulting services, continued growth in the customer base and the
resulting increase in customer support call volume.

RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of engineering personnel costs. Software 2000 has made significant
investments in research and development spending (that is, research and
development expenses as reflected in the Company's consolidated statement of
income plus capitalized software development costs and funded research) in the
past several fiscal years to bring the Infinium client/server products to
market. The Company believes that this significant level of research and
development spending is critical to building long-term product and technology
advantages in the market. The following table sets forth for the periods
indicated the relationship between the Company's research and development
expenses as recorded on its consolidated statement of income and its total
research and development spending.

<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------
SEPTEMBER 30,
AUGUST 31, ------------------
1994 1995 1996
---------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Research and development expenses........................... $12,980 $12,725 $13,775
Capitalized software development costs...................... 3,166 2,542 3,543
Funded research............................................. -- 1,131 --
------- ------- -------
Research and development spending........................... $16,146 $16,398 $17,318
======= ======= =======
Research and development spending as a percentage of
revenue................................................... 28.4% 26.0% 24.1%
======= ======= =======
</TABLE>

Research and development expenses increased from $12.7 million for the year
ended September 30, 1995 to $13.8 million for the year ended September 30, 1996.
Research and development expenses as a percentage of total revenue was 20.1% for
the year ended September 30, 1995 and 19.2% for the year ended September 30,
1996. Research and development spending increased 5.6%, from $16.4 million for
the year ended September 30, 1995 to $17.3 million for the year ended September
30, 1996. The Company capitalized $2.5 million of software development costs for
the year ended September 30, 1995 and $3.5 million for the year ended September
30, 1996. Additionally, in August, 1994, the Company and a business partner
entered into an agreement under which the business partner has partially funded
certain of the Company's client/server development activities. Of the funding
received under this agreement, $1.1 million has been reflected as a reduction of
research and development expenses for the year ended September 30, 1995. No such
amounts were received in fiscal 1996.

In November 1996, the Company entered into an agreement with a business
partner for the business partner to partially fund the Company's development
activities in enabling double byte character set capabilities of certain of the
Company's Human Resources products. The agreement could provide up to $490,000
of assistance towards this initiative based on the achievement of certain
milestones.

14
<PAGE> 15

SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses, travel, promotional expenses, facilities and
computers and communications costs. Sales and marketing expenses increased 21.2
% from $19.7 million for the year ended September 30, 1995 to $23.8 million for
the year ended September 30, 1996. Sales and marketing expenses as a percentage
of total revenue increased from 31.1% for the year ended September 30, 1995 to
33.2% for the year ended September 30, 1996. The increase in dollar amount as
well as the percentage of total revenue for the year was attributable to an
increase in commissions expense due to increased software license fees,
including an increase in the sale of Software 2000 products by business partners
in international markets which typically carry higher commission costs. The
Company is in the process of expanding its distribution channels, both
domestically and internationally, with an emphasis on the Asia/Pacific and Latin
America markets. Accordingly, sales and marketing expenses may continue to
increase in the future.

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries of executive, administrative, financial and legal
personnel, as well as provisions for doubtful accounts, insurance and outside
professional fees. General and administrative expenses increased 5.9%, from $6.2
million for the year ended September 30, 1995 to $6.6 million for the year ended
September 30, 1996. General and administrative expenses as a percentage of total
revenue decreased from 9.9% for the year ended September 30, 1995 to 9.2% for
the year ended September 30, 1996. The increase in dollar amount of general and
administrative expenses was related to an increase in additional costs, such as
Directors and Officers liability insurance costs, and professional fees related
to operating a public company.

OTHER INCOME (EXPENSE), NET. Other income (expense), net consists of
interest income, interest expense and foreign exchange loss. Other income
(expense), net increased from $293,000 for the year ended September 30, 1995 to
$1.5 million for the year ended September 30, 1996. The increase is primarily
attributed to interest income earned from invested funds attained in connection
with the Company's public stock offerings. See Note 5 to consolidated financial
statements.

PROVISION FOR INCOME TAXES. The provisions for federal, state and foreign
income taxes were $2.0 million and $3.1 million for the years ended September
30, 1995 and 1996, respectively. The effective tax rates were 35.1% for the year
ended September 30, 1995 and 36.0% for the year ended September 30, 1996. The
increase in the effective tax rate was primarily due to an increase in the
provision for state income taxes.

YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO YEAR ENDED AUGUST 31, 1994

REVENUE. Total revenue increased 11.2%, from $56.8 million for the year
ended August 31, 1994 to $63.2 million for the year ended September 30, 1995.
The increase was primarily due to growth in maintenance fees, and to a lesser
extent, software license fees and consulting services revenue.

License fee revenue increased 4.5%, from $20.2 million for the year ended
August 31, 1994 to $ 21.1 million for the year ended September 30, 1995. This
modest growth was due to the unavailability of the Company's client/server
products until late in the second quarter of fiscal 1995. After the introduction
of client/server product software, license fees grew 23.0% in the last two
quarters of fiscal 1995 as compared to the last two quarters of fiscal 1994,
from $11.3 million to $13.9 million, respectively.

Service revenue increased 14.9%, from $36.6 million for the year ended
August 31, 1994 to $42.1 million for the year ended September 30, 1995. The
increase was primarily attributable to an increase in the installed base of
customers and to a lesser extent increases in consulting services and training
revenue.

Revenue in North America increased 7.7%, from $53.5 million for the year
ended August 31, 1994 to $57.7 million for the year ended September 30, 1995.
Income from operations in North America increased from $3.9 million in fiscal
1994 to $5.7 million in fiscal 1995. Europe and other international revenue grew
68.1%, from $3.3 million for the year ended August 31, 1994 to $5.5 million for
the year ended September 30, 1995 due to greater market penetration in Europe
and the Asia/Pacific Region. Loss from operations in Europe decreased from $1.8
million in fiscal 1994 to $864,000 in fiscal 1995. Operating losses in Europe
can be attributed to the investment in infrastructure for the European market.
Income from operations in other international areas increased from $128,000 in
fiscal 1994 to $518,000 in fiscal 1995.

15
<PAGE> 16

COST OF SOFTWARE LICENSE FEES. Cost of software license fees increased
34.6%, from $2.8 million for the year ended August 31, 1994 to $3.8 million for
the year ended September 30, 1995. Cost of software license fees as a percentage
of software license fee revenue increased from 14.1% for the year ended August
31, 1994 to 18.2% for the year ended September 30, 1995. The increase in dollar
amount and as a percentage of revenue was primarily due to a $510,000 increase
in amortization expense related to capitalized software development costs and a
$160,000 write-off of certain capitalized software development costs relating to
a foreign language version of the Company's financial management products for a
market the Company decided not to enter into in the near term. All associated
capitalized software development costs were written off.

COST OF SERVICES. Cost of services increased from $13.4 million for the
year ended August 31, 1994 to $15.3 million for the year ended September 30,
1995. Cost of services as a percentage of service revenue remained relatively
constant at 36.6% for the year ended August 31, 1994 and 36.4% for the year
ended September 30, 1995. The increase in dollar amount of such costs resulted
primarily from increased staffing in the consulting and support organizations in
response to increased demand for consulting services, continued growth in the
customer base and the resulting increase in customer support call volume.

RESEARCH AND DEVELOPMENT. Research and development expenses remained
relatively constant at $13.0 million for the year ended August 31, 1994 and
$12.7 million for the year ended September 30, 1995. Research and development
expenses as a percentage of total revenue were 22.9% for the year ended August
31, 1994 and 20.1% for the year ended September 30, 1995. Research and
development spending increased 1.6%, from $16.1 million for the year ended
August 31, 1994 to $16.4 million for the year ended September 30, 1995. The
Company capitalized $3.2 million of software development costs for the year
ended August 31, 1994 and $2.5 million for the year ended September 30, 1995.
Additionally, in August, 1994, the Company and a business partner entered into
an agreement under which the business partner has partially funded certain of
the Company's client/server development activities. Of the funding received
under this agreement, $1.1 million has been reflected as a reduction of research
and development expenses for the year ended September 30, 1995.

SALES AND MARKETING. Sales and marketing expenses remained relatively
constant at $20.0 million for the year ended August 31, 1994 and $19.7 million
for the year ended September 30, 1995. Sales and marketing expenses as a
percentage of total revenue decreased from 35.2% for the year ended August 31,
1994 to 31.1% for the year ended September 30, 1995. The decrease as a
percentage of total revenue for the year ended September 30, 1995 was
attributable to the increase in service revenue, which typically have lower
sales and marketing costs relative to license fee revenue.

GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
17.2%, from $5.3 million for the year ended August 31, 1994 to $6.2 million for
the year ended September 30, 1995. General and administrative expenses as a
percentage of total revenue increased from 9.4% for the year ended August 31,
1994 to 9.9% for the year ended September 30, 1995. The increases in dollar
amount and as a percentage of revenue resulted primarily from a $296,000
increase in the provision for doubtful accounts due to continued growth in the
customer base as well as a $359,000 related to an increase in staffing necessary
to support growth, principally from the creation of internal training and
quality standards departments.

PROVISION FOR INCOME TAXES. The provisions for federal, state and foreign
income taxes were $916,000 and $2.0 million for the year ended August 31, 1994
and for the year ended September 30, 1995, respectively. The effective tax rates
were 42.4% for the year ended August 31, 1994 and 35.1% for the year ended
September 30, 1995. The decrease in the effective tax rate was primarily due to
a reduction in permanent differences between net income for financial statement
and income tax purposes for the year ended September 30, 1995. Effective
September 1, 1993, the Company has adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes", on a prospective basis. The
adoption of this standard did not have a material impact on the Company's
financial position or results of operations. See Note 6 to consolidated
financial statements.

16
<PAGE> 17

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 1996, the Company had cash, cash equivalents and
marketable securities of $43.3 million. This was $27.1 million more than the
$16.2 million in cash, cash equivalents and marketable securities on hand at
September 30, 1995. The principal sources of cash, cash equivalents and
marketable securities were the net proceeds from the Company's public stock
offerings as well as provided by operating activities. The principal uses of
cash, cash equivalents and marketable securities during the year were
expenditures to fund software development and purchases and leasing of property
and equipment.

The Company's $5.0 million working capital revolving line of credit with a
bank expired October 1, 1996. The Company had no borrowings under this facility
and thus no amounts were outstanding at September 30, 1996.

The Company's accounts receivable balances, net of the allowance for
doubtful accounts were $11.8 million at September 30, 1995 and $12.4 million at
September 30, 1996. Days sales of receivables outstanding remained unchanged at
54 days at both September 30, 1995 and 1996. Deferred revenue was essentially
unchanged year over year or $25.0 million at September 30, 1995 and $24.9
million at September 30, 1996. Included in the September 30, 1996 deferred
revenue balance was $14.4 million of deferred maintenance revenue, $8.6 million
of deferred consulting services revenue and $1.9 million of deferred software
license fee revenue. Included in deferred software license fee revenue at
September 30, 1996 is $1.4 million representing a software license agreement
entered into in the fourth quarter of fiscal 1995 with Electronic Data Systems
Corporation that will be recognized ratably through fiscal 1998.

The Company believes that cash, cash equivalents and marketable securities
as well as cash flow from operations will be sufficient to fund its operations
at least through fiscal 1997.

RECENTLY ISSUED ACCOUNTING STANDARDS

In October, 1995 the Financial Accounting Standards Board issued Statement
No. 123 "Accounting for Stock-Based Compensation". The Company has elected to
adopt SFAS 123 through disclosure only.

FACTORS AFFECTING FUTURE PERFORMANCE

The Company's quarterly revenue and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future. Such fluctuations may result in volatility in the price
of the Company's common stock. Quarterly revenue and operating results may
fluctuate as a result of a variety of factors, including the Company's lengthy
sales cycle, the proportion of revenue attributable to license fees versus
service revenue, changes in the level of operating expenses, demand for the
Company's products, the introduction of new products and product enhancements by
the Company or its competitors, changes in customer budgets, competitive
conditions in the industry and general economic conditions. Further, the
purchase of the Company's products often involves a significant commitment of
capital by its customers with the attendant delays frequently associated with
large capital expenditures and authorization procedures within an organization.
For these and other reasons, the sales cycles for the Company's products are
typically lengthy and subject to a number of significant risks over which the
Company has little or no control. The Company historically has operated with
little software license backlog because its software products are generally
shipped as orders are received. The Company has often recognized a substantial
portion of its revenue in the last month of the quarter and often in the last
week of that month. As a result, license fees in any quarter are substantially
dependent on orders booked and shipped in the last month or last week of that
quarter. Accordingly, a small variation in the timing of recognition of revenue
for specific transactions is likely to adversely and disproportionately affect
the Company's operating results for a quarter because the Company establishes
its expenditure levels on the basis of its expected future revenue and only a
small portion of the Company's expenses vary with its revenue. Accordingly, the
Company believes that period to period comparisons of results of operations are
not necessarily meaningful and should not be relied upon as indicative of future
performance. Although the Company has been profitable in recent quarterly
periods, there can be no assurance that the Company will remain profitable on a
quarterly basis, if at all.

17
<PAGE> 18

The Company's business has experienced and is expected to continue to
experience significant seasonality. In recent years, the Company has had greater
demand for its products in its fourth fiscal quarter and has experienced lower
revenue in its succeeding first and second fiscal quarters. The fluctuations are
caused primarily by customer purchasing patterns and the Company's sales
recognition programs which reward and recognize sales personnel on the basis of
achievement of annual performance quotas. Due to the foregoing factors and the
factors set forth under "Overview" and "Results of Operations" above, it is
likely that in some future quarter the Company's operating results will be below
the expectations of the Company and public market analysts and investors. In
such event, the price of the Company's common stock would likely be materially
adversely affected.

The business applications software market is characterized by rapid
technological change, frequent new product introductions, evolving industry
standards and changes in customer demands. The introduction of products
embodying new technologies and the emergence of new industry standards can
render existing products obsolete and unmarketable. The Company's future success
will depend in part on its ability to enhance products and services and to
develop and introduce new products and services to meet changing client
requirements. There can be no assurance that the Company will be successful in
developing and marketing product enhancements or new products that respond to
technological change or evolving industry standards, that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction and marketing of these products and enhancements, or that any new
products and product enhancements it may introduce will achieve market
acceptance. In addition, there can be no assurance that the Company will not
encounter product development delays in the future or that, despite testing by
the Company, errors will not be found in new products or product enhancements
after commencement of commercial shipments, resulting in loss of market share,
delay in market acceptance, or warranty claims which could have a material
adverse effect upon the Company's business, operating results and financial
condition.

The Company's products, maintenance and other services related thereto, are
presently designed for users of IBM AS/400 mid-range computers. Future revenue
from licenses of present products and sales of services and recurring
maintenance revenue are therefore dependent on continued widespread use of the
AS/400 and the continued support of such computers by IBM. Because the Company's
primary current source of revenue comes from customers using IBM mid-range
computers, a significant shift in the way the Company's customers use computers
may have a material adverse effect on the Company's business. In addition,
because the Company's current product line requires the use of IBM's OS/400
operating system, the Company may be required to adapt its products to any
changes made in such operating system in the future. The Company's inability to
adapt to future changes in the OS/400 operating system, or delays in doing so,
could have a material adverse effect on the Company's business, operating
results and financial condition.

Although the Company is developing software applications to operate on
additional hardware platforms and operating systems, such as the Microsoft
Windows NT operating system, as well as to operate over the Internet and within
corporate intranets, there can be no assurance that the Company will be
successful in developing and implementing such capabilities. The Company's
development and implementation of versions of its business software applications
to run on Microsoft Windows NT servers involve significant research and
development expenditures and more intense competition from a larger number of
competitors. There can be no assurance that the Company will be successful in
developing and marketing these products or will be able to compete successfully
against current or future competitors.

The business applications software market is highly competitive and rapidly
changing. A number of companies offer products similar to the Company's products
and target the same customers as the Company. The Company believes its ability
to compete depends upon many factors within and outside its control, including
the timely development and introduction of new products and product
enhancements, product functionality, performance, price reliability, customer
service and support, sales and marketing efforts and product distribution. The
Company believes that competition in its industry is undergoing rapid change and
that the barriers to competition between market segments that have previously
existed are decreasing. Due to the relatively low barriers to entry in the
software market, the Company expects additional competition from other
established and emerging companies as the client/server business applications
software market continues to develop and expand. Increased competition may
result in price reductions, reduced gross margins and loss of market share, any
of which would have a material adverse effect on the Company's business,
operating results and financial condition. There can be no assurance that the
Company will be able to compete successfully against current or future
competitors or that competitive pressures will not have a material adverse
effect on the Company's business, operating results and financial condition.

18
<PAGE> 19

Revenue from customers outside North America represented 8.7% and 10.6% of
the Company's total revenue in fiscal 1995 and fiscal 1996, respectively. The
Company believes that its revenue and future operating results will depend, in
part, on its ability to increase sales in international markets. There can be no
assurance that the Company will be able to maintain or increase its current
level of international revenue. An important part of the Company's strategy is
to expand its indirect marketing channels in international markets. There can be
no assurance that the Company will be able to attract and retain international
distributors and resellers that will be able to market the Company's products
effectively and will be qualified to provide timely and cost-effective customer
support and service. The inability to attract and retain important resellers
could materially and adversely affect the Company's business, operating results
and financial condition. Other risks inherent in the Company's international
business activities generally include unexpected changes in regulatory
requirements, tariffs and other trade barriers, costs and difficulties of
localizing products for foreign countries, lack of acceptance of localized
products in foreign countries, longer accounts receivable payments cycles,
difficulties in managing international operations, potentially adverse tax
consequences including restrictions on the repatriation of earnings, the burdens
of complying with a wide variety of foreign laws and economic instability. There
can be no assurance that such factors would not have a material adverse effect
on the Company's future international revenue and, consequently, on the
Company's business, operating results and financial condition.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item and as listed in Item 14(a)(1) and
(2) of this Report is included in this Report beginning on page F-1.

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

There have been no changes in or disagreements with accountants on
accounting or financial disclosure matters.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item with respect to the directors of the
Company is hereby incorporated by reference from the information contained under
the heading "Election of Directors" in the Company's definitive proxy statement
of the Company's 1996 Annual Meeting of Stockholders which will be filed with
the Commission within 120 days after the close of the fiscal year (the
"Definitive Proxy Statement").

Certain information concerning directors and executive officers is hereby
incorporated by reference to the information contained under the headings
"Occupation of Directors and Executive Officers" and "Stock Ownership Reporting"
in the Definitive Proxy Statement.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is hereby incorporated by reference
to the information contained under the heading "Compensation and Other
Information Concerning Directors and Officers" in the Definitive Proxy
Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is hereby incorporated by reference
to the information contained under the heading "Management and Principal Holders
of Voting Securities" in the Definitive Proxy Statement.

19
<PAGE> 20

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is hereby incorporated by reference
to the information contained under the heading "Certain Relationships and
Related Transactions" in the Definitive Proxy Statement.

PART IV

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

(a)(1) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

The following Consolidated Financial Statements of the Company are filed as
part of this Report:

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of independent accountants.................................................... F-1

Consolidated balance sheet at September 30, 1995 and 1996............................ F-2

Consolidated statement of income for the year ended August 31, 1994, and the years
ended September 30, 1995 and 1996.................................................. F-3

Consolidated statement of stockholders' equity (deficit) for the year ended August
31, 1994 and the years ended September 30, 1995 and 1996........................... F-4

Consolidated statement of cash flows for the year ended August 31, 1994 and the years
ended September 30, 1995 and 1996.................................................. F-5

Notes to consolidated financial statements........................................... F-6
</TABLE>

(a)(2) INDEX TO FINANCIAL STATEMENT SCHEDULES

The following Financial Statement Schedule of the Company is filed as part
of this Report:

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Schedule II -- Valuation and Qualifying Accounts...................................... S-1
</TABLE>

Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
accompanying Consolidated Financial Statements or notes thereto.

(a)(3) INDEX TO EXHIBITS

See attached Index to Exhibits on pages X-1 through X-2 of this Form 10-K.

(b) REPORTS ON FORM 8-K

None.

20
<PAGE> 21

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, this 20th day of
December, 1996.
SOFTWARE 2000, INC.

BY: /S/ DANIEL J. KOSSMANN
.................................
DANIEL J. KOSSMANN
VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER

We, the undersigned officers and directors of Software 2000, Inc., hereby
severally constitute and appoint Robert A. Pemberton and Daniel J. Kossmann, and
each of them singly, our true and lawful attorneys, with full power to them and
each of them singly, to sign for us in our names in the capacities to do all
things in our names and on behalf in such capacities to enable Software 2000,
Inc. to comply with the provisions of the Securities Exchange Act of 1934, as
amended, and all requirements of the Securities Exchange Commission.

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

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/S/ ROBERT A. PEMBERTON Chairman of the Board December 20, 1996
..........................................
ROBERT A. PEMBERTON

/S/ FREDERICK J. LIZZA President, Chief Executive December 20, 1996
.......................................... Officer and Director
FREDERICK J. LIZZA (Principal Executive
Officer)

/S/ DANIEL J. KOSSMANN Chief Financial Officer, December 20, 1996
.......................................... (Principal Financial and
DANIEL J. KOSSMANN Accounting Officer)

/S/ R. STEPHEN CHEHEYL Director December 20, 1996
..........................................
R. STEPHEN CHEHEYL

/S/ MANUEL CORREIA Director December 20, 1996
..........................................
MANUEL CORREIA

/S/ ROLAND D. PAMPEL Director December 20, 1996
..........................................
ROLAND D. PAMPEL

/S/ ROBERT P. SCHECHTER Director December 20, 1996
..........................................
ROBERT P. SCHECHTER
</TABLE>

21
<PAGE> 22

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Stockholders of Software 2000, Inc.

In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) on page 20 present fairly, in all material
respects, the financial position of Software 2000, Inc. and its subsidiaries at
September 30, 1995 and 1996, and the results of their operations and their cash
flows for the year ended August 31, 1994, for the one-month period ended
September 30, 1994, and for the years ended September 30, 1995 and 1996, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

PRICE WATERHOUSE LLP

Boston, Massachusetts
October 25, 1996

F-1
<PAGE> 23

SOFTWARE 2000, INC.

CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1995 1996
-------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 8,161 $ 7,817
Marketable securities at fair market value........................... 8,022 35,520
Accounts receivable, less allowance for doubtful accounts of $1,145
and $1,250 at September 30, 1995 and 1996, respectively............. 11,836 12,354
Deferred income taxes................................................ 2,583 2,427
Prepaid expenses and other current assets............................ 2,444 3,569
------- -------
Total current assets............................................ 33,046 61,687
Property and equipment, net............................................... 4,053 6,047
Capitalized software development costs, net............................... 5,371 6,171
Other assets.............................................................. 1,534 1,799
------- -------
Total assets.................................................... $44,004 $75,704
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................................... $ 3,259 $ 4,495
Accrued expenses..................................................... 7,064 7,300
Income taxes payable................................................. 2,375 1,368
Deferred revenue..................................................... 25,017 24,853
------- -------
Total current liabilities....................................... 37,715 38,016
------- -------
Deferred income taxes..................................................... 1,457 2,038
------- -------
Commitments (Notes 12 and 13)
Common stock, $.01 par value; authorized 40,000 shares, issued and
outstanding 8,258 and 11,114 shares at September 30, 1995 and 1996,
respectively............................................................ 83 111
Additional paid-in capital................................................ 2,573 27,394
Retained earnings......................................................... 2,555 8,145
Notes receivable -- stockholders.......................................... (379) --
------- -------
Total stockholders' equity...................................... 4,832 35,650
------- -------
Total liabilities and stockholders' equity...................... $44,004 $75,704
======= =======
</TABLE>

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

F-2
<PAGE> 24

SOFTWARE 2000, INC.

CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------
SEPTEMBER 30,
AUGUST 31, --------------------
1994 1995 1996
---------- ------- -------
(NOTE 2)
<S> <C> <C> <C>
Revenue:
Software license fees...................................... $20,163 $21,080 $24,115
Service revenue............................................ 36,637 42,083 47,693
------- ------- -------
Total revenue........................................... 56,800 63,163 71,808
------- ------- -------
Costs and expenses:
Cost of software license fees.............................. 2,845 3,829 3,823
Cost of services........................................... 13,396 15,333 16,562
Research and development................................... 12,980 12,725 13,775
Sales and marketing........................................ 20,008 19,651 23,822
General and administrative................................. 5,330 6,245 6,616
------- ------- -------
Total operating costs and expenses...................... 54,559 57,783 64,598
------- ------- -------
Income from operations....................................... 2,241 5,380 7,210
------- ------- -------
Other income (expense), net.................................. (83) 293 1,526
------- ------- -------
Income before provision for income taxes and cumulative
effect of change in accounting principle................... 2,158 5,673 8,736
Provision for income taxes................................... 916 1,989 3,146
------- ------- -------
Income before cumulative effect of change in accounting
principle.................................................. 1,242 3,684 5,590
Cumulative effect of change in accounting principle.......... 260 -- --
------- ------- -------
Net income................................................... $ 1,502 $ 3,684 $ 5,590
======= ======= =======
Per share data:
Income before cumulative effect of change in accounting
principle............................................... $ 0.12 $ 0.40 $ 0.49
Cumulative effect of change in accounting principle........ 0.03 -- --
------- ------- -------
Net income per share.................................... $ 0.15 $ 0.40 $ 0.49
======= ======= =======
Weighted average common and common equivalent shares
outstanding................................................ 10,825 9,401 11,369
======= ======= =======
</TABLE>

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

F-3
<PAGE> 25

SOFTWARE 2000, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED AUGUST 31, 1994 AND THE
YEARS ENDED SEPTEMBER 30, 1995 AND 1996
(IN THOUSANDS)

<TABLE>
<CAPTION>
RETAINED TOTAL
COMMON ADDITIONAL EARNINGS NOTES STOCKHOLDERS'
SHARES COMMON PAID-IN (ACCUMULATED RECEIVABLE- EQUITY
ISSUED STOCK CAPITAL DEFICIT) STOCKHOLDERS (DEFICIT)
------ ------ ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at August 31, 1993......... 8,232 $ 82 $ 1,146 $(2,285) $(474) $(1,531)
Stock issued upon exercise of stock
options.......................... 14 40 40
Compensatory stock option
issuance......................... 80 80
Repayments of notes receivable
stockholders..................... 17 17
Net income for the year............ 1,502 1,502
------ ---- ------- ------- ----- -------
Balance at August 31, 1994......... 8,246 82 1,266 (783) (457) 108
Net loss for the one-month period
ended September 30, 1994
(Note 2)......................... (346) (346)
------ ---- ------- ------- ----- -------
Balance at September 30, 1994...... 8,246 82 1,266 (1,129) (457) (238)
Stock issued upon exercise of stock
options.......................... 12 1 32 33
Repayments of notes receivable --
stockholders..................... 78 78
Capital contributions from
stockholders (Note 11)........... 1,275 1,275
Net income for the year............ 3,684 3,684
------ ---- ------- ------- ----- -------
Balance at September 30, 1995...... 8,258 83 2,573 2,555 (379) 4,832
Stock issued in connection with
initial public stock offering,
net of offering expenses......... 1,334 13 12,814 12,827
Stock issued in connection with
follow-on public stock offering,
net of offering expenses......... 500 5 6,558 6,563
Stock issued upon exercise of stock
options and warrants............. 974 10 3,052 3,062
Stock issued in connection with
employee stock purchase plan..... 48 -- 447 447
Income tax benefit from exercise of
stock options.................... 1,950 1,950
Repayments of notes receivable --
stockholders..................... 379 379
Net income for the year............ 5,590 5,590
------ ---- ------- ------- ----- -------
Balance at September 30, 1996...... 11,114 $111 $27,394 $ 8,145 $ -- $35,650
====== ==== ======= ======= ===== =======
</TABLE>

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

F-4
<PAGE> 26

SOFTWARE 2000, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
SEPTEMBER 30,
AUGUST 31, ----------------------
1994 1995 1996
---------- -------- --------
(NOTE 2)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 1,502 $ 3,684 $ 5,590
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 4,357 4,641 4,801
Allowance for doubtful accounts................... 474 770 662
Compensation expense related to stock options..... 80 -- --
Deferred income taxes............................. (96) (620) 737
Changes in operating assets and liabilities:
Accounts receivable............................ (4,481) (2,455) (1,180)
Prepaid expenses and other current assets...... (121) (266) (1,125)
Other assets................................... -- (259) (265)
Accounts payable............................... 455 1,301 1,236
Accrued expenses............................... 872 1,843 236
Income taxes payable........................... 274 1,601 943
Deferred revenue............................... 4,582 4,590 (164)
-------- -------- --------
Net cash provided by operating
activities.............................. 7,898 14,830 11,471
-------- -------- --------
Cash flows from investing activities:
Purchase of marketable securities...................... (11,547) (15,939) (82,815)
Sale of marketable securities.......................... 12,513 10,461 55,317
Purchase of property and equipment..................... (1,727) (1,358) (4,051)
Capitalization of software development costs........... (3,166) (2,542) (3,544)
-------- -------- --------
Net cash used in investing activities..... (3,927) (9,378) (35,093)
-------- -------- --------
Cash flows from financing activities:
Net proceeds from public stock offerings............... -- -- 19,390
Proceeds from the exercise of stock options, warrants,
and employee stock purchase plan.................... 40 33 3,509
Principal payments under capital lease obligations..... (1,421) (672) --
Proceeds from repayments of notes receivable --
stockholders........................................ 17 78 379
-------- -------- --------
Net cash provided by (used in) financing
activities.............................. (1,364) (561) 23,278
-------- -------- --------
Net increase (decrease) in cash and cash equivalents..... 2,607 4,891 (344)
Cash and cash equivalents, beginning of year............. 10,614 3,270 8,161
-------- -------- --------
Cash and cash equivalents, end of year................... $ 13,221 $ 8,161 $ 7,817
======== ======== ========
</TABLE>

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

F-5
<PAGE> 27

SOFTWARE 2000, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

1. THE COMPANY

Software 2000, Inc. (the "Company") was incorporated in 1981. The Company
develops, markets and supports enterprise-level business software applications
for the financial management, human resource management and materials management
functions of organizations in a broad range of industries worldwide. In
addition, the Company provides post-contract support ("maintenance") and
consulting services.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its wholly-owned domestic and foreign subsidiaries. All significant
intercompany transactions and balances have been eliminated.

FISCAL YEAR

The Company changed its fiscal year end from August 31 to September 30
effective with the fiscal year ended September 30, 1995. The consolidated
statements of income and cash flows are presented for the year ended August 31,
1994 and for each of the two years ended September 30, 1995 and 1996, exclusive
of September 1994 results.

The Company's results of operations for the month of September 1994 are as
follows:

<TABLE>
<S> <C>
Revenue:
Software license fees....................................... $ 521
Service revenue............................................. 3,086
------
Total revenue.......................................... 3,607
Costs and expenses:
Cost of software license fees............................... 264
Cost of services............................................ 1,207
Research and development.................................... 917
Sales and marketing......................................... 1,328
General and administrative.................................. 492
------
Total operating costs and expenses..................... 4,208
------
Loss from operations............................................. (601)
Other income, net................................................ 68
------
Loss before tax benefit..................................... (533)
Tax benefit...................................................... 187
------
Net loss......................................................... $ (346)
======
Net loss per share............................................... $(0.04)
======
</TABLE>

During the month of September 1994, net cash of $1,306, $776 and $7,869 was
used in operating, investing and financing activities, respectively. Net cash
used in financing activities included $7,752 of cash used to repurchase 1,632
shares of the Company's mandatorily redeemable common stock from investors (Note
8). The resulting $9,951 net decrease in cash and cash equivalents during the
period reduced the $13,221 of cash at the beginning of September to $3,270 at
the end of September.

REVENUE RECOGNITION

Revenues from software license fees are recognized when a contract has been
executed, the product has been shipped, all significant contractual obligations
have been satisfied and collection of the related receivable is probable.

F-6
<PAGE> 28

SOFTWARE 2000, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Maintenance revenue, including those bundled with the initial license fee,
are deferred and recognized ratably over the service period. Consulting and
training service revenue are recognized as the services are performed based on
the ratio that the total costs incurred to date bear to estimated total costs at
completion. These contracts are assessed for losses and such losses are provided
for in total in the period in which the losses become known.

CASH EQUIVALENTS AND MARKETABLE SECURITIES

The Company invests its excess cash primarily in securities of government
agencies, high-grade commercial paper and mutual funds which invest primarily in
the securities of government agencies. These investments are subject to minimal
credit and market risk. For purposes of the consolidated statements of cash
flows, the Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Marketable
securities include securities purchased with an original maturity of greater
than three months.

Cash equivalents and marketable securities are classified as available for
sale and are carried at fair market value. Unrealized gains and losses are
recorded as a component of stockholders' equity. Unrealized gains and losses at
September 30, 1995 and 1996 were not material.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the depreciable
assets. Repair and maintenance costs are expensed as incurred.

CONCENTRATION OF CREDIT RISK

Financial instruments which potentially expose the Company to
concentrations of credit risk include accounts receivable. To minimize this
risk, the Company generally requires a cash deposit upon contract signing. In
addition, the Company maintains reserves for potential credit losses and such
losses, in the aggregate, have not exceeded management expectations.

RESEARCH AND DEVELOPMENT AND CAPITALIZED SOFTWARE DEVELOPMENT COSTS

Research and development expenses, other than certain software development
costs, are charged to expense as incurred. In accordance with the provisions of
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to Be Sold, Leased, or Otherwise Marketed," the Company
capitalizes certain software development costs upon technological feasibility.
Amortization of capitalized software development costs is provided upon
commercial release of the products at the greater of the ratio of current
product revenue to the total of current and anticipated product revenue or on a
straight-line basis over the estimated economic life of the software, which the
Company has determined is not more than three years.

Amortization expense during the year ended August 31, 1994 and the years
ended September 30, 1995 and 1996 amounted to approximately $1,815, $2,485 and
$2,744, respectively. Included in amortization expense in fiscal 1995 are $160
of certain capitalized software development costs relating to a foreign language
version of the Company's financial management products which were determined not
to be realizable, and accordingly, all associated capitalized software
development costs were written off. Accumulated amortization of capitalized
software development costs was $6,237 and $8,981 at September 30, 1995 and 1996,
respectively. Included in capitalized software development costs at September
30, 1995 and 1996 are $1,381 and $1,801, respectively, related to products which
have not yet been commercially released. Accordingly, amortization of these
costs had not commenced.

F-7
<PAGE> 29

SOFTWARE 2000, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

FOREIGN CURRENCY TRANSLATION

The functional currency of the Company's foreign subsidiaries is the U.S.
dollar. Monetary assets and liabilities of the subsidiaries are translated into
U.S. dollars at the exchange rate in effect at period end and nonmonetary assets
and liabilities are remeasured at historic exchange rates. Income and expenses
are remeasured at the average exchange rate for the period. Translation gains
and losses are reflected in the consolidated statement of income.

INCOME TAXES

Effective September 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 ("FAS 109"), "Accounting for Income Taxes," on a
prospective basis. The consolidated financial statements for prior years have
not been restated. The cumulative effect of this accounting change on years
prior to 1994, which was recorded upon adoption, was to increase net income by
$260 or $0.03 per share.

FAS 109 is an asset and liability approach that requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. In estimating future tax consequences, FAS 109 generally considers all
expected future events other than enactments of changes in the tax law or rates.
Prior to the adoption of FAS 109, income tax expense was determined using the
deferred method. Deferred tax expense was based on items of income and expenses
that were reported in different years in the financial statements and tax
returns and were measured at the tax rate in effect in the year the difference
originated.

NET INCOME (LOSS) PER SHARE

Net income (loss) per share is determined by dividing net income (loss)
applicable to common stock by the weighted average number of common shares and
common equivalent shares outstanding during the period. Common share equivalents
are computed using the treasury stock method and consist of common stock which
may be issuable upon exercise of outstanding common stock options and warrants
to purchase common stock, when dilutive.

Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, common stock options granted by the Company during the twelve months
preceding the offering date have been included in the calculation of common and
common equivalent shares outstanding as if they were outstanding for all periods
presented.

RECENTLY ISSUED ACCOUNTING STANDARD

In October, 1995 the Financial Accounting Standards Board issued Statement
No. 123 "Accounting for Stock-Based Compensation". The Company has elected to
adopt SFAS 123 through disclosure only.

RISKS AND UNCERTAINTIES

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

F-8
<PAGE> 30

SOFTWARE 2000, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

3. CASH EQUIVALENTS AND MARKETABLE SECURITIES

Following is a summary of the fair market value of available-for-sale
securities, by balance sheet classification, as of September 30, 1995 and 1996:

<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1995 1996
-------- -------
<S> <C> <C>
Cash equivalents:
U.S. Government obligations.............................. $ 1,984 $ --
State Government obligations............................. -- 1,000
Corporate debt obligations............................... 1,496 997
Foreign government obligations........................... 497 --
Money market fund........................................ 890 2,077

Marketable securities:
U.S. Government obligations.............................. 7,922 14,571
State Government obligations............................. -- 6,601
Corporate debt obligations............................... -- 14,248
Other.................................................... 100 100
------- -------
$12,889 $39,594
======= =======
</TABLE>

The contractual maturities of all available-for-sale securities classified
as cash equivalents are less than three months. Available-for-sale securities
classified as marketable securities with fair market values of $29,413, $2,007,
$1,000, and $3,100 have contractual maturities of less than one, one to five,
five to ten, and greater than ten years, respectively. All of the Company's
marketable securities are classified as current at September 30, 1996 as these
funds are highly liquid and are available to meet working capital needs and to
fund current operations. Gross unrealized gains and losses as of September 30,
1995 and 1996 and realized gains and losses on sales of securities for the years
ended September 30, 1995 and 1996 were not significant.

4. BALANCE SHEET COMPONENTS

Property and equipment consists of the following:

<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
USEFUL LIFE 1995 1996
------------- ------- -------
<S> <C> <C> <C>
Computer equipment............................... 2 to 5 years $13,533 $17,020
Furniture and fixtures........................... 5 years 3,497 3,741
Leasehold improvements........................... Lease term 2,009 2,035
Land............................................. -- 287
------- -------
19,039 23,083
Less-accumulated depreciation and amortization... 14,986 17,036
------- -------
$ 4,053 $ 6,047
======= =======
</TABLE>

Accrued expenses consist of the following:

<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1995 1996
------- -------
<S> <C> <C>
Employee compensation and benefits........................... $4,151 $4,716
Accrued royalties............................................ 593 638
Accrued professional fees.................................... 268 329
Accrued distributor commissions.............................. 107 245
Other........................................................ 1,945 1,372
------ ------
$7,064 $7,300
====== ======
</TABLE>

F-9
<PAGE> 31

SOFTWARE 2000, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

5. OTHER INCOME (EXPENSE), NET

Other income (expense), net consists of the following:

<TABLE>
<CAPTION>
YEAR ENDED
------------------------------
SEPTEMBER 30,
AUGUST 31, ---------------
1994 1995 1996
---------- ------ ------
<S> <C> <C> <C>
Interest income...................................... $ 421 $ 456 $1,620
Interest expense..................................... (420) (42) (4)
Foreign exchange loss................................ (84) (121) (90)
----- ----- ------
$ (83) $ 293 $1,526
===== ===== ======
</TABLE>

Cash paid for interest totaled $304, $46 and $4 for the year ended August
31, 1994 and for the years ended September 30, 1995 and 1996, respectively.

6. INCOME TAXES

The components of the provision (benefit) for income taxes, excluding the
cumulative effect of the change in accounting principle, are as follows:

<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------
SEPTEMBER 30,
AUGUST 31, -----------------
1994 1995 1996
---------- ------ ------
<S> <C> <C> <C>
Current:
Federal........................................... $583 $2,339 $2,496
State............................................. 120 230 143
Foreign........................................... 48 40 59
---- ------ ------
Total current................................ 751 2,609 2,698
---- ------ ------
Deferred:
Federal........................................... 139 (496) 382
State............................................. 26 (124) 66
---- ------ ------
Total deferred............................... 165 (620) 448
---- ------ ------
$916 $1,989 $3,146
==== ====== ======
</TABLE>

The income tax provision differs from an amount computed by applying the
U.S. statutory federal income tax rate to pretax income as follows:

<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------
SEPTEMBER 30,
AUGUST 31, -----------------
1994 1995 1996
---------- ------ ------
<S> <C> <C> <C>
Statutory federal income tax rate................... 34.0% 34.0% 34.0%
State income taxes.................................. 4.5 1.2 1.6
Research and development credit..................... (11.0) (7.8) (1.6)
Foreign tax rate differential....................... 2.0 0.6 (1.0)
Other............................................... 12.9 7.1 3.0
----- ---- ----
42.4% 35.1% 36.0%
===== ==== ====
</TABLE>

F-10
<PAGE> 32

SOFTWARE 2000, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

Deferred tax assets and liabilities are comprised of the following:

<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------
1995 1996
------ ------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.............................. $ 180 $ 144
Deferred revenue.............................................. 2,437 2,372
Accrued expenses and reserves not currently deductible........ 817 804
Other......................................................... 382 246
------ ------
Total deferred tax assets................................ 3,816 3,566
====== ======
Deferred tax liabilities:
Prepaid expenses deducted currently........................... 395 496
Capitalized software development costs........................ 1,908 2,288
Foreign translation losses.................................... 274 279
Other......................................................... 113 115
------ ------
Total deferred tax liabilities........................... 2,690 3,178
------ ------
$1,126 $ 388
====== ======
</TABLE>

As of September 30, 1996, the Company had federal net operating loss
carryforwards of $423 which expire at various dates through 2010.

Ownership changes, as defined in the Internal Revenue Code, may limit the
amount of net operating loss and tax credit carryforwards that can be utilized
to offset future taxable income or tax liability. The amount of the annual
limitation is determined in accordance with Section 382 of the Internal Revenue
Code.

Provision has not been made for U.S. or additional foreign taxes on
undistributed earnings of foreign subsidiaries because those earnings are
intended to be permanently reinvested. Such earnings would become taxable upon
the sale or liquidation of these foreign subsidiaries or upon the remittance of
dividends. It is not practicable to estimate the amount of additional tax that
might be payable on the foreign earnings. Upon remittance, certain foreign
countries impose withholding taxes that are then available, subject to certain
limitations, for use against the Company's U.S. tax liability. The amount of
withholding tax that would be payable upon remittance of the entire amount of
undistributed earnings would not be material.

Cash paid for income taxes totaled $608, $1,013 and $1,707 for the year
ended August 31, 1994 and the years ended September 30, 1995 and 1996,
respectively.

7. REVOLVING LINE OF CREDIT

The Company had a revolving line of credit agreement with a bank under
which it could borrow up to $5,000 for working capital. Borrowings under the
credit line were subject to a borrowing base, as defined in the agreement, and
were collateralized by the Company's accounts receivable. Outstanding borrowings
bore interest at the bank's prime rate (8.25% at September 30, 1996) plus 2.0%
(subject to adjustment under the terms of the agreement), payable monthly. Under
the terms of the agreement, the Company was required to comply with certain
covenants, including maintaining minimum amounts of working capital. Other
restrictive covenants limit indebtedness, liens, mergers and acquisitions and
additional stock issuances. The Company was in compliance with those covenants
at September 30, 1996. The line of credit expired in October 1996. There were no
borrowings outstanding under the agreement at either September 30, 1995 or 1996.

F-11
<PAGE> 33

SOFTWARE 2000, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

8. STOCKHOLDERS' EQUITY

RECAPITALIZATION

On October 2, 1995, the Company's Board of Directors authorized 1,000
shares of $0.01 par value preferred stock. Preferred stock may be issued at the
discretion of the Board of Directors of the Company (without stockholder
approval) with such designations, rights and preferences as the Board of
Directors may determine from time to time. The preferred stock may have
dividend, liquidation, redemption, conversion, voting or other rights which may
be more expansive than the rights of the holders of the common stock.

The Company's Board of Directors declared a 2-for-1 stock split, effected
in the form of a stock dividend, paid in August 1995 to stockholders of record
on August 14, 1995. On October 2, 1995, the Company's Board of Directors
approved an increase in the authorized number of shares of common stock from
10,000 shares to 40,000 shares. The Company's Board of Directors also declared a
1.4-for-1 stock split, effected in the form of a stock dividend paid to
stockholders of record on November 13, 1995. All shares and per share amounts
included in the consolidated financial statements have been adjusted to give
retroactive effect to the stock splits for all periods presented.

PRIVATE PLACEMENT

Through a private placement pursuant to a securities purchase agreement
dated June 16, 1989, the Company sold 1,053 shares of its common stock for $4.75
per share and warrants to purchase 322 shares of common stock exercisable at
$4.75 per share to venture capital investors. Certain stockholders also sold 580
shares of common stock to the investors for $4.75 per share.

The securities purchase agreement contained a put option. This put option
allowed the investors to obligate the Company to repurchase any of the shares of
common stock at their original purchase price per share. On June 16, 1994, the
investors notified the Company of their intention to exercise the put option.
The put was exercised for the repurchase of all 1,632 shares on September 16,
1994, and the Company repurchased the shares for $7,752. This amount was
classified as mandatorily redeemable common stock in the consolidated balance
sheet at August 31, 1994. The warrants expired unexercised on June 16, 1994.

PUBLIC OFFERINGS

The Company completed an initial public offering of common stock on
November 17, 1995. A total of 2,300 shares were sold at $11.00 per share, of
which 1,334 were sold by the Company and 966 by selling stockholders. Proceeds
to the Company were $12,827, net of underwriting discounts and offering
expenses. Additionally, the Company completed a follow-on public offering of
common stock on May 9, 1996. A total of 2,870 shares were sold at $14.75 per
share, of which 500 were sold by the Company and 2,370 by selling stockholders.
Proceeds to the Company were $6,563, net of underwriting discounts and offering
expenses.

STOCK OPTIONS

In September 1989, the Company's Board of Directors approved the 1989
Incentive Stock Option Plan (the "1989 Plan"), which, as amended, authorizes the
granting of options for the purchase of up to 2,800 shares of common stock. The
1989 Plan permits the granting of both qualified and nonqualified options to
employees, consultants, directors and key advisers of the Company. The options
are generally exercisable over three to five year periods, as determined by the
Compensation Committee. The Compensation Committee is comprised of members of
the Company's Board of Directors. The option price is set at the fair market
value of the Company's stock on the date of the option grant, as determined by
the Compensation Committee.

F-12
<PAGE> 34

SOFTWARE 2000, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The Company also has a 1984 Incentive Stock Option Plan (the "1984 Plan"),
with authorized options for 1,400 shares of common stock under terms similar to
those described in the preceding paragraph. Authority to grant additional
options under the 1984 Plan has expired.

On October 2, 1995, the Board of Directors approved the 1995 Stock Plan
(the "1995 Plan") which provides for the issuance of up to 3,500 shares of
common stock pursuant to the grant of qualified and non-qualified stock options,
stock awards or purchase rights to employees, consultants, directors and
officers of the Company under terms similar to those of the 1989 Plan and the
1984 Plan. In conjunction with the approval of the 1995 Plan, the Board of
Directors formally terminated the 1989 Plan and as such no future grants will be
made under this plan.

At September 30, 1996, the Company had 2,891 shares of its common stock
available for future grant and had reserved 1,927 shares of its common stock for
issuance upon exercise of outstanding stock options and warrants under the
Plans.

Aggregate stock option activity under these Plans is as follows for the
year ended August 31, 1994, the one-month period ended September 30, 1994 and
for the years ended September 30, 1995 and 1996:

<TABLE>
<CAPTION>
SHARES OPTION PRICE
------- ---------------
<S> <C> <C>
Outstanding at August 31, 1993............................ 1,679 $ 0.71 to $3.57
Granted.............................................. 1,502 3.57 to 4.10
Exercised............................................ (14) 2.85 to 3.57
Canceled............................................. (920) 2.85 to 4.10
-----
Outstanding at August 31, 1994............................ 2,247 0.71 to 4.10
Granted.............................................. 22 4.10
Canceled............................................. (58) 2.85 to 3.57
-----
Outstanding at September 30, 1994......................... 2,211 0.71 to 4.10
Granted.............................................. 859 4.10 to 5.35
Exercised............................................ (12) 2.77 to 4.10
Canceled............................................. (661) 2.85 to 4.10
-----
Outstanding at September 30, 1995......................... 2,397 0.71 to 5.35
-----
Granted.............................................. 722 0.71 to 8.75
Exercised............................................ (919) 2.85 to 18.625
Canceled............................................. (273) 2.85 to 16.25
-----
Outstanding at September 30, 1996......................... 1,927 $2.85 to $16.25
=====
Exercisable at September 30, 1996......................... 441
=====
</TABLE>

1995 EMPLOYEE STOCK PURCHASE PLAN

On October 2, 1995, the Board of Directors approved the 1995 Employee Stock
Purchase Plan (the "Purchase Plan") which enables eligible employees to purchase
shares of the Company's common stock. The Purchase Plan is administered by the
Compensation Committee of the Board of Directors. Under the Purchase Plan,
eligible employees may purchase common shares during six-month payment periods.
The exercise price per share is 85% of the lesser of the market price per share
on the first or last business day of the six-month period. The maximum number of
shares of common stock that an employee may purchase in any six-month period is
five hundred shares. An employee's rights under the Purchase Plan terminate upon
voluntary withdrawal from the plan at any time or upon termination of
employment. The Company has reserved 1,400 shares of common stock for issuance
under the Purchase Plan.

F-13
<PAGE> 35

SOFTWARE 2000, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The first period commenced on November 17, 1995 (the effective date of the
Company's initial public offering) and ended on June 30, 1996. Employees
purchased 48 shares of stock at $9.35 per share.

1995 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN

On October 2, 1995, the Board of Directors approved (effective upon the
closing of the Company's initial public offering) the 1995 Non-Employee Director
Stock Option Plan (the "Director Plan") under which options to purchase a
maximum of 210 shares of the Company's common stock may be granted to
non-employee directors. Under the Director Plan, each non-employee director will
be granted an option to purchase 28 shares of common stock upon first joining
the Board of Directors and 4 shares at each successive annual meeting of
stockholders, beginning at the Company's annual meeting of stockholders for the
fiscal year ended September 30, 1996, at an exercise price per share equal to
the then fair market value per common share. Options granted under the Director
Plan become exercisable in four equal annual installments commencing one year
after the date of grant provided that the optionee then remains a director or
consultant. The term of each option granted under the Director Plan will be for
a period of ten years from the date of the grant.

COMMON STOCK WARRANTS

In connection with the revolving line of credit agreement discussed in Note
7, warrants were issued for the purchase of 49 shares of the Company's common
stock. The warrants are exercisable at an initial per share price of $6.07,
subject to adjustment under the terms of the agreement, and expire on June 10,
1999. The value of the warrants at the issuance date was immaterial. On July 17,
1996, the warrants were exercised in full and 31 shares were issued.

9. RETIREMENT SAVINGS PLAN

The Company has a savings and profit-sharing plan covering all eligible
employees which is qualified under Section 401(k) of the Internal Revenue Code
of 1986, as amended. The Company may, at its option, provide matching
contributions up to 50% of each participating employee's contributions to the
plan, subject to a maximum of 2% of salary. Total contributions by the Company
to the plan for the years ended August 31, 1994 and the years ended September
30, 1995 and 1996 were $232, $261 and $283, respectively.

In June 1996, a Group Personal Pension Plan was established for eligible
employees in the United Kingdom allowing employees to contribute a percentage of
their salary into a personal retirement savings plan. For those employees
electing to contribute more than 3% of their salary into their plan, the Company
contributes a fixed 3% on their behalf. Company contributions to individual
plans aggregated $32 for the year ended September 30, 1996.

10. INDUSTRY SEGMENT, GEOGRAPHIC INFORMATION AND CUSTOMER INFORMATION

The Company operates in a single industry segment: the design, development,
sale, service and support of proprietary software products.

The Company operates in diverse geographic areas. Income (loss) from
operations by geographic area is as follows:

<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------
SEPTEMBER 30,
AUGUST 31, ------------------
1994 1995 1996
---------- ------ ------
<S> <C> <C> <C>
North America (principally the United States)................ $ 3,870 $5,726 $7,197
Europe (principally the United Kingdom)...................... (1,757) (864) (272)
Other international.......................................... 128 518 285
------- ------ ------
$ 2,241 $5,380 $7,210
======= ====== ======
</TABLE>

F-14
<PAGE> 36

SOFTWARE 2000, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

No geographic area outside North America accounted for more than 10% of the
Company's consolidated revenues or identifiable assets for the year ended August
31, 1994 or the years ended September 30, 1995 and 1996.

No single customer accounted for more than 10% of the Company's
consolidated revenues for the year ended August 31, 1994 or the years ended
September 30, 1995 and 1996.

11. RELATED PARTY TRANSACTIONS

NOTES RECEIVABLE -- STOCKHOLDERS

In connection with a business combination in September 1991, which was
accounted for as a purchase, the Company loaned an aggregate of $500 to two
owners of the acquired company. Such owners became stockholders of the Company
in connection with the business combination. The notes, which bore interest at
9.0%, were payable in minimum semi-monthly installments. In addition, any
bonuses and severance pay earned by the holders and any proceeds to the holders
from the sale of common stock of the Company were offset against the notes until
the entire principal and interest due on the notes were paid. The notes were
collateralized by, among other things, any proceeds from the sale of common
stock by the holders and, accordingly, are included as a reduction of
stockholders' equity in the consolidated balance sheet. The notes were repaid in
full on November 24, 1995.

LIFE INSURANCE TRUSTS

Three stockholders of the Company, including a principal stockholder, have
split-dollar life insurance policies (the "Policies"). The Policies are owned by
various trusts. The trusts have executed Collateral Assignment Agreements for
the benefit of the Company. Under the Collateral Assignment Agreements, the
Company pays the annual premiums of the Policies, which approximated $263 for
each of the years ended August 31, 1994, September 30, 1995 and 1996,
respectively. The premium payments made under the Policies are recorded as
advances to the trusts and are secured by the cash surrender value of related
insurance policies. Cash advances in excess of the cash surrender value of the
related insurance policies are expensed when advanced. Total advances to the
trusts of $1,534 and $1,799 at September 30, 1995 and 1996, respectively, are
included in other assets in the consolidated balance sheets. Each Collateral
Assignment Agreement can be terminated at any time on thirty days' notice by
either the Company or the related trust. Upon termination, (i) the Company and
the trust can agree on disposition of the policy, or (ii) the trust can repay
the advances to the Company or (iii) the net cash surrender value would be
distributed to the Company to the extent of the advances with the balance of the
net cash surrender value being paid to the trust. If a Collateral Assignment
Agreement is not terminated and the principal stockholder dies, the death
benefits will be paid first to the Company to the extent of the advances. There
is no agreement between the Company and any of the principal stockholders as to
whether the Collateral Assignment Agreement would be terminated on the
disassociation of the stockholder from the Company.

In October 1994, the three stockholders of the Company waived their right
to the cash surrender value of the Policies through that date. Advances to the
trusts equal to the cash surrender value at October 1, 1994 of $1,275, were
recorded as other assets in the consolidated balance sheet as a noncash capital
contribution.

In fiscal 1995, the trusts borrowed $875 of the cash surrender value of the
Policies. The trusts' obligations to repay those funds had been secured by a
pledge of an aggregate of 330 shares of the Company's common stock owned by the
stockholders. The trusts had assigned the stock pledges to the Company as
replacement collateral. During fiscal 1996, the trusts repaid a net $565 of
those borrowings, and released 232 shares of the Company's common stock from the
pledge.

CONSULTING ARRANGEMENT

The Company has engaged a stockholder of the Company, for consulting
services provided to the Company under various agreements since July 1, 1984.
The current agreement was amended on September

F-15
<PAGE> 37

SOFTWARE 2000, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

13, 1995 to provide that the stockholder will be paid for such consulting
services in the future at a daily rate plus reimbursement for expenses. For
fiscal years 1994, 1995 and 1996, the Company paid this stockholder a total of
$157, $144 and $24, respectively, for consulting services rendered to the
Company. There were no significant amounts owed to the stockholder at September
30, 1995 or 1996.

12. RESEARCH AND DEVELOPMENT AGREEMENT

In August 1994, the Company entered into an arrangement whereby a third
party agreed to fund certain research and development activities of the Company.
Product development fees received under the agreement for research and
development activities were recorded as a reduction of research and development
expenses on a percentage-of-completion basis. Payments received for previously
developed products were recorded as liabilities in light of the Company's future
royalty obligations. Through September 30, 1995, the Company received cumulative
product development fees of $1,911, of which $1,318 was recorded as a reduction
of research and development expenses and $593 was recorded as a liability. There
was no external funding in fiscal 1996.

The agreement provides for future royalty payments based on revenues
generated by products resulting from the funded activities. Total payments,
which are based on a percentage of the related product revenues, are limited to
130% of the funds received by the Company under the agreement. Royalties of $36
and $242 were incurred during the year ended September 30, 1995 and 1996,
respectively.

In November 1996, the Company entered into an agreement with a business
partner for the business partner to partially fund the Company's development
activities in enabling double byte character set capabilities of certain of the
Company's Human Resources product. The agreement could provide up to $490,000 of
assistance towards this initiative based on the achievement of certain
milestones.

13. COMMITMENTS

LEASES

The Company has several operating lease agreements primarily involving real
estate and computers and equipment. These leases are noncancelable and expire on
various dates through 2000 except for the Company's Hyannis, Massachusetts
facility lease, which expires in 2005, and its U.K. facility lease, which
expires in 2015.

Future minimum lease payments under operating leases with initial or
remaining terms of one year or more are as follows:

<TABLE>
<CAPTION>
OPERATING
FISCAL YEAR LEASES
----------- ---------
<S> <C>
1997.......................................................... $ 3,974
1998.......................................................... 3,170
1999.......................................................... 1,730
2000.......................................................... 1,021
2001.......................................................... 907
Thereafter.................................................... 7,640
-------
Total future minimum lease payments........................... $18,442
=======
</TABLE>

Total rent expense for operating leases was $3,841, $4,594 and $4,515 for
the year ended August 31, 1994 and the years ended September 30, 1995 and 1996,
respectively.

F-16
<PAGE> 38

SCHEDULE II

SOFTWARE 2000, INC.

VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)

Allowance for doubtful accounts:

BALANCE AT CHARGED TO CHARGED TO
BEGINNING COSTS AND OTHER DEDUCTIONS BALANCE AT
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS AND WRITE-OFFS END OF PERIOD
----------- ---------- ---------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Year ended August 31, 1994............. $1,455 $474 $ -- $(679) $1,250
Year ended September 30, 1995.......... 1,300 770 -- (925) 1,145
Year ended September 30, 1996.......... 1,145 662 -- (557) 1,250
</TABLE>

S-1
<PAGE> 39

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <C> <S>
3.1 -- Intentionally omitted.
3.2 -- Second Restated Articles of Organization of the Registrant (incorporated
by reference to Exhibit 3.2 to the Registrant's Registration Statement on
Form S-1, Registration No. 33-97866).
3.3 -- Intentionally omitted.
3.4 -- Second Amended and Restated By-laws of the Registrant (incorporated by
reference to Exhibit 3.4 to the Registrant's Registration Statement on
Form S-1, Registration No. 33-97866).
4.1 -- Specimen certificate representing the Common Stock (incorporated by
reference to Exhibit 4.1 to the Registrant's Registration Statement on
Form S-1, Registration No. 33-97866).
4.2 -- Intentionally omitted.
10.1* -- 1984 Incentive Stock Option Plan, as amended as of August 23, 1988
(incorporated by reference to Exhibit 10.1 to the Registrant's
Registration Statement on Form S-1, Registration No. 33-97866).
10.2* -- 1989 Stock Option Plan, as amended as of October 1, 1994 (incorporated by
reference to Exhibit 10.2 to the Registrant's Registration Statement on
Form S-1, Registration No. 33-97866).
10.3* -- 1995 Stock Plan (incorporated by reference to Exhibit 10.3 to the
Registrant's Registration Statement on Form S-1, Registration No.
33-97866).
10.4* -- 1995 Employee Stock Purchase Plan, (incorporated by reference to Exhibit
10.4 to the Registrant's Registration Statement on Form S-1, Registration
No. 33-97866).
10.5* -- 1995 Non-Employee Director Stock Option Plan (incorporated by reference to
Exhibit 10.5 to the Registrant's Registration Statement on Form S-1,
Registration No. 33-97866).
10.6 -- Lease dated March 31, 1995, between the Registrant and Independence Park
Associates Realty Trust as of August 1995 (incorporated by reference to
Exhibit 10.6 to the Registrant's Registration Statement on Form S-1,
Registration No. 33-97866).
10.7 -- Purchase and Sale Agreement dated May 31, 1984, between the Registrant and
Donald K. Emery (incorporated by reference to Exhibit 10.7 to the
Registrant's Registration Statement on Form S-1, Registration No.
33-97866).
10.8 -- Consulting Agreement dated as of September 13, 1995 between the Registrant
and Donald K. Emery (incorporated by reference to Exhibit 10.8 to the
Registrant's Registration Statement on Form S-1, Registration No.
33-97866).
10.9* -- Form of Executive Compensation Plan (incorporated by reference to Exhibit
10.9 to the Registrant's Registration Statement on Form S-1, Registration
No. 33-97866).
10.10 -- IBM Assistance Agreement, as amended as of June 30, 1995, between the
Registrant and International Business Machines Corporation (incorporated
by reference to Exhibit 10.10 to the Registrant's Registration Statement
on Form S-1, Registration No. 33-97866).
10.11 -- Intentionally omitted.
10.12 -- Intentionally omitted.
10.13 -- Intentionally omitted.
10.14 -- Intentionally omitted.
10.15 -- Intentionally omitted.
10.16* -- Form of 1995 Stock Plan Option Agreement (incorporated by reference to
Exhibit 10.16 to the Registrant's Registration Statement on Form S-1,
Registration No. 33-97866).
</TABLE>

X-1
<PAGE> 40

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <C> <S>
10.17* -- Register of Amendments, Subsections 3.1 and 7.3.4, 1989 Stock Option Plan
(incorporated by reference to Exhibit 10.17 to the Registrant's
Registration Statement on Form S-1, Registration No. 33-97866).

10.18* -- Register of Amendments, Article 5, 1995 Employee Stock Purchase Plan
(incorporated by reference to Exhibit 10.18 to the Registrant's
Registration Statement on Form S-1, Registration No. 33-97866).

11.1 -- Statement regarding Computation of Per Share Earnings.

21.1 -- Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1
to the Registrant's Registration Statement on Form S-1, Registration No.
33-97866).

23.1 -- Consent of Price Waterhouse LLP.

24.1 -- Power of Attorney (included on page 21).
</TABLE>

- ---------------
* Indicates a management contract or any compensatory plan, contract or
arrangement required to be filed as an exhibit to Item 14(c).

X-2

<PAGE> 1

EXHIBIT 11.1

SOFTWARE 2000, INC.

COMPUTATION OF NET INCOME PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------
AUGUST 31, SEPTEMBER 30,
---------- -----------------
1994 1995 1996
---------- ------ -------
<S> <C> <C> <C>
Net income...................................................... $ 1,502 $3,684 $ 5,590
Net interest income pursuant to APB 15, paragraph 38(b)......... 91 88 --
------- ------ -------
Net income attributable to common shares........................ $ 1,593 $3,772 $ 5,590
======= ====== =======
Weighted average common and common equivalent shares outstanding
a. Shares attributable to common stock outstanding.............. 9,877 8,251 10,070
b. Shares attributable to common stock options and warrants
pursuant to APB 15, paragraph 38(a).......................... 618 820 1,299
c. Shares attributable to common stock options pursuant to SAB
83........................................................... 306 330 --
------- ------ -------
Weighted average common and common equivalent shares
outstanding................................................... 10,801 9,401 11,369
======= ====== =======
Net income per share............................................ $ 0.15 $ 0.40 $ 0.49
======= ====== =======
</TABLE>

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-05439) of Software 2000, Inc. of our report dated
October 25, 1996 appearing on page F-1 of Software 2000 Inc.'s Annual Report on
Form 10-K for the year ended September 30, 1996.

PRICE WATERHOUSE LLP

Boston, Massachusetts
December 19, 1996

<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 7,817
<SECURITIES> 35,520
<RECEIVABLES> 13,604
<ALLOWANCES> 1,250
<INVENTORY> 0
<CURRENT-ASSETS> 61,687
<PP&E> 23,083
<DEPRECIATION> 17,036
<TOTAL-ASSETS> 75,704
<CURRENT-LIABILITIES> 38,016
<BONDS> 0
0
0
<COMMON> 111
<OTHER-SE> 35,539
<TOTAL-LIABILITY-AND-EQUITY> 75,704
<SALES> 24,115
<TOTAL-REVENUES> 71,808
<CGS> 3,823
<TOTAL-COSTS> 20,385
<OTHER-EXPENSES> 43,551
<LOSS-PROVISION> 662
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<INCOME-TAX> 3,146
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</TABLE>