TSI INTERNATIONAL SOFTWARE LTD, 424B3, 1997-07-02

TSI INTERNATIONAL SOFTWARE LTD
424B3, 1997-07-02
PREPACKAGED SOFTWARE

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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-27293

4,000,000 SHARES

[LOGO OF TSI SOFT]

COMMON STOCK

Of the 4,000,000 shares of Common Stock offered hereby, 3,000,000 shares are
being sold by TSI International Software Ltd. (the "Company") and 1,000,000
shares are being sold by the Selling Stockholders. See "Principal and Selling
Stockholders." The Company will not receive any of the proceeds from the sale
of shares by the Selling Stockholders. Prior to this offering, there has been
no public market for the Common Stock of the Company. See "Underwriting" for
information relating to the method of determining the initial public offering
price.

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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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<TABLE>
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UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDERS
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<S> <C> <C> <C> <C>
Per Share................... $9.00 $0.63 $8.37 $8.37
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Total(2).................... $36,000,000 $2,520,000 $25,110,000 $8,370,000
</TABLE>
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(1) Before deducting expenses payable by the Company, estimated at $700,000.

(2) Certain of the Selling Stockholders have granted to the Underwriters a 30-
day option to purchase an aggregate of up to an additional 600,000 shares
of Common Stock solely to cover over-allotments, if any. See
"Underwriting." If such option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to Selling
Stockholders will be $41,400,000, $2,898,000 and $13,392,000,
respectively.

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The Common Stock is offered by the Underwriters as stated herein, subject to
receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that the delivery of such shares will be
made through the offices of Robertson, Stephens & Company LLC ("Robertson,
Stephens & Company"), San Francisco, California, on or about July 8, 1997.

ROBERTSON, STEPHENS & COMPANY

SOUNDVIEW FINANCIAL GROUP, INC.

WESSELS, ARNOLD & HENDERSON

The date of this Prospectus is July 1, 1997.
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The inside front cover contains a picture with a title "Integrating Islands of
Automation" at the bottom of the graphic. The graphic contains a compass in the
upper right hand corner of the picture. The picture has the Company's Mercator
product logo labeled as "Mercator" with dotted lines emanating in a spoke like
pattern to pictures of islands, each with a graphic of a piece of computer
hardware. These islands are labeled (clockwise from the upper left corner to the
lower left corner) "Customers, Suppliers, Other Partners," "EDI," "Web
Applications," "Legacy Systems," "SAP R/3," "Best of Breed Applications," and
"Data Warehouses."

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>

NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, BY ANY SELLING STOCKHOLDER OR BY ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT
RELATES, OR AN OFFER TO, OR THE SOLICITATION OF, ANY PERSON IN ANY
JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

UNTIL JULY 26, 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

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TABLE OF CONTENTS

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PAGE
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Summary................................................................ 4
Risk Factors........................................................... 6
Use of Proceeds........................................................ 17
Dividend Policy........................................................ 17
Capitalization......................................................... 18
Dilution............................................................... 19
Selected Financial Data................................................ 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... 21
Business............................................................... 31
Management............................................................. 42
Certain Transactions................................................... 50
Principal and Selling Stockholders..................................... 51
Description of Capital Stock........................................... 53
Shares Eligible for Future Sale........................................ 55
Underwriting........................................................... 57
Legal Matters.......................................................... 58
Experts................................................................ 58
Additional Information................................................. 59
Index to Financial Statements.......................................... F-1
</TABLE>

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The Company was incorporated in Connecticut in 1985 and reincorporated in
Delaware in September 1993. The Company's principal executive offices are
located at 45 Danbury Road, Wilton, CT 06897 and its telephone number is (203)
761-8600. The Company has additional offices in Boca Raton, Florida,
Bannockburn, Illinois and Cobham, England.

The Company intends to furnish its stockholders with annual reports
containing financial statements certified by an independent public accounting
firm and, upon request, quarterly reports containing unaudited financial
statements for the first three quarters of each year.

TSI, the TSI logo, Mercator, Trading Partner, OnCall and KEY/MASTER are
registered trademarks, and Mercator for R/3, Trading Partner EC, Trading
Partner PC, Trading Partner PC/32 and OnCall*EDI are trademarks, of the
Company. This Prospectus also contains trademarks and trade names of other
companies.

3
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SUMMARY

This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this
Prospectus. The following summary is qualified in its entirety by the more
detailed information, including "Risk Factors," and the Financial Statements
and Notes thereto, appearing elsewhere in this Prospectus.

THE COMPANY

TSI International Software Ltd. ("TSI International" or the "Company") is a
leading provider of software and related services that enable organizations to
integrate their business applications both internally and with external
business partners. The Company's flagship product, Mercator, is a data
transformation engine which permits enterprises to exchange information between
internal systems, to implement and integrate advanced client/server
applications such as SAP's R/3 enterprise resource planning ("ERP") system and
to integrate electronic data interchange ("EDI") data and Web-based
applications with their core business systems. In addition to Mercator, the
Company's Trading Partner products permit businesses to exchange information
with business partners and to integrate EDI data with back office applications.

The evolution of enterprise computing has resulted in a proliferation of
business software applications across disparate and heterogeneous computing
systems. To improve effectiveness, efficiency and competitive positioning,
organizations are increasingly seeking to integrate and coordinate these
applications, both within the enterprise and with a growing number of external
business partners. The traditional approach to application integration -- in-
house custom development of interfaces -- is limited in its effectiveness and
is expensive, with integration costs for purchased business applications often
exceeding the cost of the applications themselves. The requirement for
integration, and the need for software tools which automate the integration
process, is increased with each new client/server, electronic commerce or Web-
based application added to the enterprise.

The Company's products provide comprehensive off-the-shelf integration
solutions that can be quickly implemented and easily maintained and that
provide support for a broad range of applications, platforms, and data types.
Mercator was the first product to be certified by SAP for use with its
Application Link Enabling ("ALE") architecture, an inter-application messaging
technology developed by SAP as a standard for interfacing with R/3. Mercator
addresses the need of SAP customers to integrate R/3 with legacy and third-
party applications in less time and at lower cost than developing in-house
custom interfaces. Similarly, for external applications, the Company's Mercator
and Trading Partner tools permit customers to integrate business processes
across their supply and demand chains by leveraging the Internet and other
transport mechanisms for EDI.

The Company's strategy is to be the market leader in providing solutions that
integrate business applications within the enterprise and between business
partners. Specifically, the Company seeks to extend its technology leadership
in application integration, particularly with respect to its Mercator product
line, and intends to target the market for enterprise application integration
with tools and solutions for the SAP R/3 and other enterprise applications
markets. In addition to these market and product strategies, the Company
intends to expand its existing channels of distribution, leverage its customer
base by marketing additional products and services to existing customers, and
to expand its professional services capability to augment its software
offerings.

The Company markets its products and services through its direct sales force
and a network of value added resellers ("VARs"), independent software vendors
("ISVs"), systems integrators ("SIs") and distributors. The Company has
directly licensed its products to over 6,000 customers worldwide, representing
a broad range of industries. The Company's customers include Allegiance
Corporation, American Express Travel Related Services, Inc., CIGNA Corporation,
Citibank, N.A., Federal Express Corporation, Hewlett-Packard Company, Hoechst
AG, International Business Machines Corporation, Lucent Technologies, Inc.,
NYNEX Corporation and Prudential Insurance Company of America.

4
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THE OFFERING

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<S> <C>
Common Stock offered by the Company...... 3,000,000 shares
Common Stock offered by the Selling
Stockholders............................ 1,000,000 shares
Common Stock to be outstanding after the
Offering................................ 9,056,542 shares(1)
Use of Proceeds.......................... Repayment of indebtedness and general
corporate purposes, including working
capital. See "Use of Proceeds."
Nasdaq National Market symbol............ TSFW
</TABLE>

SUMMARY FINANCIAL INFORMATION
(In thousands, except per share data)

<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------- ---------------
1992 1993 1994 1995 1996 1996 1997
----------- ------- ------- ------- ------- ------- -------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues.......... $11,358 $12,843 $13,934 $16,061 $19,004 $ 4,089 $ 5,508
Operating income (loss). (4,794) (1,002) 95 907 1,414 162 352
Net income (loss)....... (4,864) (1,228) (113) 823 1,228 121 313
Net income (loss) per
share(2)............... $ 0.14 $ 0.20 $ 0.02 $ 0.05
Weighted average number
of common and common
equivalent shares
outstanding(2)......... 5,687 6,018 5,728 6,459
SUPPLEMENTARY STATEMENT
OF OPERATIONS DATA(3):
Supplementary net
income................. $ 1,452 $ 360
Supplementary net income
per share.............. .23 .05
Supplementary shares
used to compute
supplementary net
income per share....... 6,306 6,747
</TABLE>

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MARCH 31, 1997
--------------------------------
PRO PRO FORMA AS
ACTUAL FORMA(4) ADJUSTED(4)(5)
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(unaudited)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash........................................... $ 79 $ 79 $21,899
Working capital................................ (158) (158) 21,662
Total assets................................... 8,721 8,721 30,541
Total stockholders' equity (deficiency)........ (2,032) (1,032) 23,378
</TABLE>
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(1) Based on shares outstanding as of May 31, 1997. Excludes (i) an aggregate
of 1,293,757 shares of Common Stock issuable upon the exercise of options
outstanding as of May 31, 1997 under the Company's 1993 Stock Option Plan
(the "1993 Plan") and the Company's 1997 Directors Stock Option Plan (the
"Directors Plan") at a weighted average exercise price of $1.44 per share,
(ii) 711,771 shares of Common Stock issuable upon exercise of outstanding
warrants that will remain outstanding upon the completion of this offering
("Warrants") at an exercise price of $2.00 per share and (iii) an aggregate
of 2,281,764 additional shares of Common Stock reserved for issuance under
the Company's 1997 Equity Incentive Plan, the Directors Plan and 1997
Employee Stock Purchase Plan.
(2) For an explanation of the determination of the number of shares used in
computing per share amounts, see Note 1 of Notes to Financial Statements.
(3) Supplementary net income per share includes the number of shares used in
computing net income per share as well as the number of shares that would
be needed to repay certain indebtedness to be repaid with the net proceeds
from the sale of the shares of the Common Stock offered by the Company
hereby. Supplementary net income also includes interest applicable to such
borrowings. See "Use of Proceeds" and Note 1 of Notes to Financial
Statements.
(4) Gives effect to the sale of 50,000 shares of Preferred Stock on May 15,
1997 and the application of the net proceeds therefrom, as if such
transaction had occurred as of March 31, 1997.
(5) Adjusted to reflect the sale of the 3,000,000 shares offered by the Company
hereby and the application of the net proceeds therefrom, after deducting
the underwriting discounts and commissions and estimated offering expenses.
See "Capitalization" and "Use of Proceeds."

Unless otherwise indicated, all information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option. See "Underwriting." Except
as otherwise noted herein, all information in this Prospectus has been adjusted
to give effect to the Company's reincorporation in Delaware in September 1993,
and reflects (i) a 3-for-1 stock split to be effected immediately prior to the
consummation of this offering, (ii) the conversion, upon completion of this
offering, of all outstanding shares of Preferred Stock of the Company into an
aggregate of 2,759,715 shares of Common Stock and (iii) the exercise of certain
outstanding warrants on a net exercise basis into an aggregate of 296,827
shares of Common Stock upon completion of this offering.

5
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RISK FACTORS

This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain
factors, including those set forth in the following risk factors and elsewhere
in this Prospectus. In addition to the other information in this Prospectus,
the following risk factors should be considered carefully in evaluating the
Company and its business before purchasing the Common Stock offered by this
Prospectus.

UNCERTAIN PROFITABILITY; ACCUMULATED DEFICIT

Although the Company has been profitable since 1995, the Company incurred
significant operating losses through 1993 and, at March 31, 1997, the
Company's accumulated deficit was approximately $9.7 million. There can be no
assurance that the Company's profitability will continue. The Company
introduced its Mercator product line in December 1993 and released the latest
version of this product in May 1996. The relatively recent introduction of the
Mercator product line and the relative immaturity of its market, together with
the factors described under "-- Potential Fluctuations in Quarterly Results;
Seasonality," make the prediction of future operating results impossible. The
Company's past financial performance should not be considered indicative of
future results. Although the Company has experienced growth in revenues and
net income in recent periods, there can be no assurance that revenues or net
income will continue to increase or not decrease. Future operating results
will depend on many factors, including the growth of the market for business
application integration software and related services, demand for and market
acceptance of the Company's products and related services, particularly its
Mercator products and related services, demand for and market acceptance of
the SAP R/3 system, the level of competition, the Company's success in
expanding its direct sales force, indirect distribution channels and its
professional services business, the ability of the Company to further develop
and market its products, product enhancements and new products, general
economic conditions and other factors. See "-- Potential Fluctuations in
Operating Results; Seasonality" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

POTENTIAL FLUCTUATIONS IN OPERATING RESULTS; SEASONALITY

The Company's quarterly and annual operating results have varied
significantly in the past and are expected to do so in the future.
Accordingly, the Company believes that period to period comparisons of its
results of operations are not necessarily meaningful and should not be relied
upon as indications of future performance. The Company's revenues and results
of operations are difficult to forecast and could be adversely affected by
many factors, including, among others: the size, timing and terms of
individual license transactions; the sales cycle for the Company's products;
demand for and market acceptance of the Company's products and related
services (particularly its Mercator products); the number of businesses
implementing the SAP R/3 system as well as the number of such businesses
requiring third party business application integration software and related
services; the Company's ability to expand, and market acceptance of, its
professional services business; the timing of expenditures by the Company in
anticipation of product releases or increased revenue; the timing of product
enhancements and product introductions by the Company and its competitors;
market acceptance of enhanced versions of the Company's existing products and
of new products; changes in pricing policies of the Company and its
competitors; variations in the mix of products and services sold by the
Company; the mix of channels through which products and services are sold; the
success of the Company in penetrating international markets; the buying
patterns and budgeting cycles of customers; personnel changes, the Company's
ability to attract and retain qualified sales, professional services and
research and development personnel and the rate at which such personnel become
productive; and general economic conditions. In particular, the ability of the
Company to achieve growth in the future will depend on its success in adding a
substantial number of sales, professional services and research and
development personnel. Competition for such personnel is intense and there can
be no assurance the Company will be able to attract and retain these
personnel.

6
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Licensing of the Company's software products historically has accounted for
a substantial portion of the Company's revenues, and the Company anticipates
that this trend will continue for the foreseeable future. Software license
revenues are difficult to forecast for a number of reasons. The Company
typically does not have a material backlog of unfilled orders, and revenues in
any quarter are substantially dependent on orders booked and shipped in that
quarter. The length of the sales cycles for the Company's products can vary
significantly from customer to customer and from product to product and, in
certain instances, can be as long as nine months or more. Furthermore, the
terms and conditions of individual license transactions, including prices and
discounts, may be negotiated based on volumes and commitments, and may vary
considerably from customer to customer. In addition, the Company has generally
recognized a substantial portion of its quarterly software licensing revenues
in the last month of each quarter. Accordingly, the cancellation or deferral
of even a small number of purchases of the Company's products has in the past
and could in the future have a material adverse effect on the Company's
business, operating results and financial condition.

The Company's future revenues will also be difficult to predict and the
Company has, in the past, failed to achieve its revenue expectations for
certain periods. The Company's expense levels are based, in part, on its
expectation of future revenues, and expense levels are, to a large extent,
fixed in the short term. The Company may be unable to adjust spending in a
timely manner to compensate for any unexpected revenue shortfall. If revenue
levels are below expectations for any reason, operating results are likely to
be materially and adversely affected. Net income may be disproportionately
affected by a reduction in revenue because a large portion of the Company's
expenses is related to headcount that cannot be easily reduced without
adversely affecting the Company's business. In addition, the Company currently
intends to increase its operating expenses by expanding its research and
product development staff, particularly research and development personnel to
be devoted to the Company's Mercator product line, increasing its professional
services and sales and marketing operations, expanding distribution channels
and hiring personnel in other operating areas. The Company expects to
experience a significant time lag between the date professional services,
sales and technical personnel are hired and the date such personnel become
fully productive. The timing of such expansion and the rate at which new
technical, professional services and sales personnel become productive as well
as the timing of the introduction and success of new distribution channels
could cause material fluctuations in quarterly results of operations.
Furthermore, to the extent such increased operating expenses precede or are
not subsequently followed by increased revenues, the Company's business,
operating results and financial condition could be materially and adversely
affected.

Due to the foregoing factors, it is likely that in some future quarter the
Company's revenue or operating results will not meet the expectations of
public market analysts and investors. In such event, the price of the
Company's Common Stock would likely be materially and adversely affected.

While the Company has not historically experienced any significant seasonal
fluctuations in its revenues or results of operations, it is not uncommon for
software companies to experience strong fourth quarters followed by weaker
first quarters, in some cases with sequential declines in revenues or
operating profit. The Company believes that many software companies exhibit
this pattern in their sales cycles primarily due to customers' buying patterns
and budget cycles. There can be no assurance that the Company will not display
this pattern in future years. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

DEPENDENCE ON MERCATOR PRODUCT LINE

The Company introduced its Mercator products in 1993. In recent years, a
significant portion of the Company's revenue has been attributable to licenses
of its Mercator products and related services, and the Company expects that
revenue attributable to its Mercator products and related services will
represent an increasing portion of the Company's total revenue for the
foreseeable future. The development and marketing of its Mercator product line
has required the Company to, among other things, focus its attention and
resources away from some of its traditional products, market its products to a
different customer base and shift a large portion of its development efforts
to the Mercator product line. Accordingly, the Company's

7
<PAGE>

future operating results are highly dependent on the market acceptance and
growth of its Mercator product line and enhancements thereto. There can be no
assurance that market acceptance of the Mercator product line will increase or
remain at current levels or that the Company will be able to successfully
market the Mercator product line and develop extensions and enhancements to
this product line on a long-term basis. In the event the Company's current or
future competitors release new products that provide, or are perceived as
providing, more advanced features, greater functionality, better performance,
better compatibility with other systems or lower prices than the Mercator
product line, demand for the Company's products and services would likely
decline. See "-- Risks Associated with Technological Change, Product
Enhancements and New Product Development" and "-- Competition." A decline in
demand for, or market acceptance of, the Mercator product line as a result of
competition, technological change or other factors would have a material
adverse effect on the Company's business, operating results and financial
condition. See "Business -- Products and Services."

DEPENDENCE ON SAP R/3 SYSTEM IMPLEMENTATIONS

A substantial portion of the Company's sales of its Mercator products and
related services has been attributable to sales of Mercator for R/3 and
related services. The Company believes that its future revenue growth, if any,
will also depend in part upon continued sales of Mercator for R/3 and related
services. The Company has devoted and must continue to devote substantial
resources to identifying potential customers in the R/3 market, building
relationships with strategic partners and attracting and retaining skilled
technical, sales and professional services personnel with expertise in R/3
systems. Personnel with expertise in the R/3 system are in high demand and as
such are typically difficult to hire and retain. Regardless of the investments
the Company makes in pursuing this new market, there can be no assurance that
the Company will be successful in implementing a sales and marketing strategy
appropriate for this market or in attracting and retaining the necessary
skilled personnel.

Demand for and market acceptance of Mercator for R/3 and related services
will be dependent on the continued market acceptance of the SAP R/3 system. As
a result, any factor adversely affecting demand for or use of SAP's R/3 system
could have a material adverse effect on the Company's business, operating
results and financial condition. Implementation of the SAP R/3 system is a
costly and time-consuming process and there can be no assurance that
businesses will choose to purchase such systems. Furthermore, there can be no
assurance that businesses which may implement such systems will wish to commit
the additional resources required to implement Mercator for R/3. In addition,
SAP could in the future introduce business application integration solutions
competitive with Mercator for R/3 and related services. Moreover, any changes
in or new versions of SAP's R/3 system could materially and adversely affect
the Company's business, operating results and financial condition if the
Company were not able to successfully develop or implement any related changes
to Mercator for R/3 in a timely fashion. The Company will also be required to
maintain ALE certification for Mercator for R/3. In order to maintain such
certification, the Company's product must adhere to SAP's technical
specifications which are updated by SAP from time to time, and the Company has
no control over whether and when such specifications will be changed. Any
material change by SAP in such specifications could require the Company to
devote significant development resources to updating this product to comply
with such specifications. In such event, there can be no assurance that the
Company would be able to successfully modify Mercator for R/3 on a timely
basis, if at all, and any failure to do so could materially and adversely
affect the Company's business, operating results and financial condition.

RISKS ASSOCIATED WITH TECHNOLOGICAL CHANGE, PRODUCT ENHANCEMENTS AND NEW
PRODUCT DEVELOPMENT

8
<PAGE>

emergence of new industry standards could render existing products obsolete
and unmarketable. Accordingly, the life cycles of the Company's products are
difficult to estimate. The Company's future success will depend in part upon
its ability to anticipate changes and enhance its current products and develop
and introduce new products that keep pace with technological advancements and
address the increasingly sophisticated needs of its customers. The Company's
products may be rendered obsolete if the Company fails to anticipate or react
to change. Development of enhancements to existing products and new products
depends, in part, on the timing of releases of new versions of applications
systems by vendors, the introduction of new applications, systems or computing
platforms, the timing of changes in platforms, the release of new standards or
changes to existing standards, and changing customer requirements, among other
factors. 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, evolving industry standards and changing customer
requirements, that the Company will not experience difficulties that could
delay or prevent the successful development, introduction and marketing of
these products or product enhancements, or that its product enhancements or
new products will adequately meet the requirements of the marketplace and
achieve any significant degree of market acceptance. The Company has in the
past experienced delays in the introduction of product enhancements and new
products and may experience such delays in the future. Furthermore, as the
number of applications, systems and platforms supported by the Company's
products increases, the Company could experience difficulties in developing on
a timely basis product enhancements which address the increased number of new
versions of applications, systems or platforms served by its existing
products. Failure of the Company, for technological or other reasons, to
develop and introduce product enhancements or new products in a timely and
cost-effective manner or to anticipate and respond adequately to changing
market conditions, as well as any significant delay in product development or
introduction, could cause customers to delay or decide against purchases of
the Company's products, which could have a material adverse effect on the
Company's business, operating results and financial condition.

The Company may, in the future, seek to develop and market enhancements to
existing products or new products which are targeted for applications, systems
or platforms which the Company believes will achieve commercial acceptance.
These efforts could require the Company to devote significant development and
sales and marketing personnel as well as other resources to such efforts which
would otherwise be available for other purposes. There can be no assurance
that the Company will be able to successfully identify such applications,
systems or platforms, or that such applications, systems or platforms will
achieve commercial acceptance or that the Company will realize a sufficient
return on its investment. Failure of these targeted applications, systems or
platforms to achieve commercial acceptance or the failure of the Company to
achieve a sufficient return on its investment could have a material adverse
effect on the Company's business, operating results and financial condition.

In addition, the introduction or announcement by the Company, or by one or
more of its current or future competitors, of products embodying new
technologies or features could render the Company's existing products obsolete
or unmarketable. There can be no assurance that the introduction or
announcement of enhanced or new product offerings by the Company or its
current or future competitors will not cause customers to defer or cancel
purchases of existing Company products. Such deferment or cancellation of
purchases could have a material adverse effect on the Company's business,
operating results and financial condition.

DEPENDENCE UPON DEVELOPMENT OF DISTRIBUTION CHANNELS

An integral part of the Company's strategy is to expand both its direct
sales force and its indirect sales channels such as VARs, ISVs, SIs and
distributors. Although VARs, ISVs, SIs and distributors have not accounted for
a substantial percentage of the Company's total revenues historically, the
Company is increasing resources dedicated to developing and expanding its
indirect distribution channels. There can be no assurance that the Company
will be successful in expanding the number of indirect distribution channels
for its products.

9
<PAGE>

Furthermore, any new VARs, ISVs, SIs or distributors may offer competing
products, or have no minimum purchase requirements of the Company's products.
There can also be no assurance that such third parties will provide adequate
levels of services and technical support. The inability of the Company to
enter into additional indirect distribution arrangements, the failure of such
third parties to perform under agreements with the Company and to penetrate
their markets, or the inability of the Company to retain and manage VARs,
ISVs, SIs and distributors with the technical and industry expertise required
to market the Company's products successfully could have a material adverse
effect on the Company's business, operating results and financial condition.
There can be no assurance that the Company's planned efforts to expand its use
of VARs, ISVs, SIs and distributors will be successful. To the extent that the
Company is successful in increasing its sales through indirect sales channels,
it expects that those sales will be at lower per unit prices than sales
through direct channels, and revenue to the Company for each such sale will be
less than if the Company had licensed the same product to the customer
directly.

Selling through indirect channels may limit the Company's contacts with its
customers. As a result, the Company's ability to accurately forecast sales,
evaluate customer satisfaction and recognize emerging customer requirements
may be hindered. The Company's strategy of marketing its products directly to
end-users and indirectly through VARs, ISVs, SIs and distributors may result
in distribution channel conflicts. The Company's direct sales efforts may
compete with those of its indirect channels and, to the extent different
resellers target the same customers, resellers may also come into conflict
with each other. Although the Company has attempted to manage its distribution
channels to avoid potential conflicts, there can be no assurance that channel
conflicts will not materially and adversely affect its relationships with
existing VARs, ISVs, SIs or distributors or adversely affect its ability to
attract new VARs, ISVs, SIs and distributors.

The Company also plans to expand its direct sales force. The Company's
future success will depend in part upon the ability of the Company to attract,
integrate, train, motivate and retain new sales personnel. There can be no
assurance that the Company's efforts to expand its direct sales force will be
successful or that the cost of such efforts will not exceed the revenue
generated. In addition, the Company expects to experience a significant time
lag between the date sales personnel are hired and the date such personnel
become fully productive. The Company's inability to manage its sales force
expansion effectively could have a material adverse effect on the Company's
business, operating results and financial condition.

DEPENDENCE ON KEY PERSONNEL; NEED TO ATTRACT AND RETAIN SALES, PROFESSIONAL
SERVICES AND TECHNICAL PERSONNEL

The Company's future success depends in large part on the continued service
of its key technical, professional services and sales personnel, as well as
senior management. The loss of the services of any of one or more of the
Company's key employees could have a material adverse effect on the Company's
business, operating results and financial condition. All employees are
employed at-will and the Company has no fixed-term employment agreements with
its employees. The Company's future success also depends on its ability to
attract, train and retain highly qualified sales, technical, professional
services and managerial personnel, particularly sales, professional services
and technical personnel with expertise in the SAP R/3 system. An increase in
the Company's sales staff is required to expand both the Company's direct and
indirect sales activities and to achieve revenue growth. Competition for such
personnel is intense, particularly for personnel with expertise in the SAP R/3
system, and there can be no assurance that the Company can attract, assimilate
or retain such personnel. The Company has at times experienced and continues
to experience difficulty in recruiting qualified technical and sales
personnel, and anticipates such difficulties in the future. The Company has in
the past experienced and in the future expects to continue to experience a
significant time lag between the date technical, professional services and
sales personnel are hired and the date such personnel become fully productive.
If the Company is unable to hire and train on a timely basis and subsequently
retain such personnel in the future, the Company's business, operating results
and financial condition could be materially and adversely affected.

10
<PAGE>

MANAGEMENT OF GROWTH

The Company's business has grown in recent periods, with total revenues
increasing from $13.9 million in 1994 to $16.1 million in 1995 and $19.0
million in 1996 and increasing from $4.1 million for the first quarter of 1996
to $5.5 million for the comparable period of 1997. The growth of the Company's
business has placed, and is expected to continue to place, a strain on the
Company's administrative, financial, sales and operational resources and
increased demands on its systems and controls. In particular, the Company
noted an increase in days sales outstanding from December 31, 1996 to March
31, 1997 from approximately 70 days to approximately 86 days, and an increase
in total accounts receivable from $4.4 million to $5.3 million. The Company
believes this increase resulted from difficulties in implementing a new
financial accounting system which have since been resolved, and from a lack of
sufficient collections resources in light of the Company's increased sales
levels.

To deal with these concerns, the Company has implemented or is in the
process of implementing and will be required to implement in the future a
variety of new and upgraded operational and financial systems, procedures and
controls and to hire additional administrative personnel. There can be no
assurance that the Company will be able to complete the implementation of
these systems, procedures and controls or hire such personnel in a timely
manner. The failure of the Company or its management to respond to, and
manage, its growth and changing business conditions, or to adapt its
operational, management and financial control systems to accommodate its
growth could have a material adverse effect on the Company's business,
operating results and financial condition. To promote growth in the Company's
sales and operations, the Company will also have to expand its sales and
marketing organizations, expand and develop its distribution channels, fund
increasing levels of product development and increase the size of its
training, professional services and customer support organization to
accommodate expanded operations, and there can be no assurance that the
Company will be successful in these endeavors. See "Business -- Employees" and
"Management."

DEPENDENCE ON THE INTERNET AND INTRANETS

The Company believes that demand for business application integration
solutions such as those offered by the Company will depend in part upon the
adoption by businesses and end-users of the Internet and intranets as a
platform for electronic commerce and communications both within and outside
the enterprise. The Internet and intranets are new and evolving, and there can
be no assurance of their widespread adoption, particularly for electronic
commerce and communications among businesses. Critical issues concerning the
Internet and intranets, including security, reliability, cost, ease of use and
access and quality of service, remain unresolved at this time, inhibiting
adoption by many enterprises and end-users. If the Internet and intranets are
not widely used by businesses and end-users, particularly for electronic
commerce, this could have an adverse effect on the Company's business,
operating results and financial condition.

COMPETITION

The market for the Company's products and services is extremely competitive
and subject to rapid change. Because there are relatively low barriers to
entry in the software market, the Company expects additional competition from
other established and emerging companies. The Company believes that the
competitive factors affecting the market for the Company's products and
services include product functionality and features; quality of professional
services offerings; product quality, performance and price; ease of product
implementation; quality of customer support services; customer training and
documentation; and vendor and product reputation. The relative importance of
each of these factors depends upon the specific customer environment. Although
the Company believes that its products and services currently compete
favorably with respect to such factors, there can be no assurance that the
Company can maintain its competitive position against current and potential
competitors.

11
<PAGE>

business application integration needs. As a result, the Company must educate
prospective customers as to the advantages of the Company's products and
services as opposed to internally developed solutions and there can be no
assurance that the Company will be able to adequately educate potential
customers to the benefits provided by the Company's products and services. In
the EDI market, the Company's Trading Partner products compete with products
offered by companies offering proprietary Value-Added Network ("VAN") services
as part of their EDI solution and the Company's PC-based Trading Partner
products also compete with PC-based products offered by a number of other EDI
software vendors.

Many of the Company's current and potential competitors have longer
operating histories, significantly greater financial, technical, product
development and marketing resources, greater name recognition and larger
customer bases than the Company. The Company's present or future competitors
may be able to develop products comparable or superior to those offered by the
Company, adapt more quickly than the Company to new technologies, evolving
industry trends or customer requirements, or devote greater resources to the
development, promotion and sale of their products than the Company.
Accordingly, there can be no assurance that the Company will be able to
compete effectively in its markets, that competition will not intensify or
that future competition will not have a material adverse effect on the
Company's business, operating results and financial condition.

The Company expects that it will face increasing pricing pressures from its
current competitors and new market entrants. The Company's competitors may
engage in pricing practices that reduce the average selling prices of the
Company's products and related services. To offset declining average selling
prices, the Company believes that it must successfully introduce and sell
enhancements to existing products and new products on a timely basis and
develop enhancements to existing products and new products that incorporate
features that can be sold at higher average selling prices. To the extent that
enhancements to existing products and new products are not developed in a
timely manner, do not achieve customer acceptance or do not generate higher
average selling prices, the Company's gross margins may decline, and such
decline could have a material adverse effect on the Company's business,
operating results and financial condition. See "Business -- Competition."

DEPENDENCE ON PROPRIETARY TECHNOLOGY

The Company's success is dependent upon its proprietary software technology.
The Company does not currently have any patents and relies principally on
trade secret, copyright and trademark laws, nondisclosure and other
contractual agreements and technical measures to protect its technology. The
Company also believes that factors such as the technological and creative
skills of its personnel, product enhancements and new product developments are
essential to establishing and maintaining a technology leadership position.
The Company enters into confidentiality and/or license agreements with its
employees, distributors and customers, and limits access to and distribution
of its software, documentation and other proprietary information. There can be
no assurance that the steps taken by the Company will prevent misappropriation
of its technology, and such protections do not preclude competitors from
developing products with functionality or features similar to the Company's
products. Furthermore, there can be no assurance that third parties will not
independently develop competing technologies that are substantially equivalent
or superior to the Company's technologies. In addition, effective copyright
and trade secret protection may be unavailable or limited in certain foreign
countries. Any failure by or inability of the Company to protect its
proprietary technology could have a material adverse effect on the Company's
business, operating results and financial condition.

12
<PAGE>

making claims against the Company could secure substantial damages, as well as
injunctive or other equitable relief which could effectively block the
Company's ability to license its products in the United States or abroad. Such
a judgment could have a material adverse effect on the Company's business,
operating results and financial condition. If it appears necessary or
desirable, the Company may seek licenses to intellectual property that it is
allegedly infringing. There can be no assurance, however, that licenses could
be obtained on commercially reasonable terms, if at all, or that the terms of
any offered licensed will be acceptable to the Company. The failure to obtain
the necessary licenses or other rights could have a material adverse effect on
the Company's business, operating results and financial condition. As the
number of software products in the industry increases and the functionality of
these products further overlaps, the Company believes that software developers
may become increasingly subject to infringement claims. Any such claims, with
or without merit, can be time consuming and expensive to defend and could
adversely affect the Company's business, operating results and financial
condition. There are currently no pending claims that the Company's products,
trademarks or other proprietary rights infringe upon the proprietary rights of
third parties. See "Business -- Proprietary Technology."

RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION

Although international revenues currently account for only approximately 10%
of the Company's total revenues, the Company intends to expand its sales and
marketing resources outside of the United States, which will require
significant management attention and financial resources. The Company also
expects to commit additional time and development resources to customizing its
products for selected international markets and to developing international
sales and support channels. None of the Company's products is currently a
"double byte" product, which is required to localize these products in certain
non-English character set markets such as Asia. The Company believes that it
will be required to develop double byte versions of its products and engage in
other localization activities. There can be no assurance that such efforts
will be successful.

International operations involve a number of additional risks, including the
impact of possible recessionary environments in economies outside the United
States, longer receivables collection periods and greater difficulty in
accounts receivable collection, unexpected changes in regulatory requirements,
dependence on independent resellers, reduced protection for intellectual
property rights in some countries, tariffs and other trade barriers, foreign
currency exchange rate fluctuations, difficulties in staffing and managing
foreign operations, the burdens of complying with a variety of foreign laws,
potentially adverse tax consequences and political and economic instability.
To the extent the Company's international operations expand, the Company
expects that an increasing portion of its international license and service
and other revenues will be denominated in foreign currencies, subjecting the
Company to fluctuations in foreign currency exchange rates. The Company does
not currently engage in foreign currency hedging transactions. However, as the
Company continues to expand its international operations, exposures to gains
and losses on foreign currency transactions may increase. The Company may
choose to limit such exposure by the purchase of forward foreign exchange
contracts or similar hedging strategies. There can be no assurance that any
currency exchange strategy would be successful in avoiding exchange-related
losses. There can be no assurance that the foregoing factors will 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. The Company believes that its growth will require expansion of its
sales in foreign markets and expects to rely principally on resellers in those
markets, rather than substantially increase its direct sales force to serve
those markets. There can be no assurance that the Company will be able to
sustain or increase revenue derived from international sources.

RISK OF SOFTWARE DEFECTS; PRODUCT LIABILITY

Software products as complex as those offered by the Company may contain
defects or failures when introduced or when new versions are released. The
Company has in the past discovered software defects in certain of its products
and may experience delays or lost revenue to correct such defects in the
future.

13
<PAGE>

Although the Company has corrected known material defects in its current
products and has not experienced material adverse effects resulting from any
such defects to date, there can be no assurance that, despite testing by the
Company, errors will not be found in new products or releases after
commencement of commercial shipments, resulting in loss of market share or
failure to achieve market acceptance. Any such occurrence could have a
material adverse effect upon the Company's business, operating results and
financial condition.

The Company's license agreements with its customers typically contain
provisions designed to limit the Company's exposure to potential product
liability claims. It is possible, however, that the limitation of liability
provisions contained in the Company's license agreements, especially unsigned
"shrink-wrap" licenses, may not be effective under the laws of certain
jurisdictions. Consequently, the sale and support of the Company's software
entails the risk of such claims in the future. The Company currently has a
standard business owner's insurance policy but does not have insurance
specifically for software product liability risks or software errors and
omissions. Any product liability claim brought against the Company could have
a material adverse effect upon the Company's business, operating results and
financial condition.

POTENTIAL ACQUISITIONS

If appropriate opportunities present themselves, the Company intends to
acquire businesses, products or technologies that the Company believes are
strategic, although the Company currently has no understandings, commitments
or agreements with respect to any material acquisition and no material
acquisition is currently being pursued. There can be no assurance that the
Company will be able to successfully identify, negotiate or finance such
acquisitions, or to integrate such acquisitions with its current business. The
process of integrating an acquired business, product or technology into the
Company may result in unforeseen operating difficulties and expenditures and
may absorb significant management attention that would otherwise be available
for ongoing development of the Company's business. Moreover, there can be no
assurance that the anticipated benefits of any acquisition will be realized.
Acquisitions could result in potentially dilutive issuances of equity
securities, the incurrence of debt, contingent liabilities and/or amortization
expenses related to goodwill and other intangible assets, which could
materially adversely affect the Company's business, operating results and
financial condition. Any such future acquisitions of other technologies,
products or companies may require the Company to obtain additional equity or
debt financing, which may not be available or may be dilutive.

NO PRIOR MARKET; VOLATILITY OF STOCK PRICE

Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market will
develop or be sustained after this offering. The initial public offering price
was determined by negotiations among the Company and the representatives of
the Underwriters based on several factors and may not be indicative of the
market price of the Common Stock after this offering. See "Underwriting" for a
discussion of the factors considered in determining the initial public
offering price. The market price of the shares of Common Stock is likely to be
highly volatile and may be significantly affected by factors such as actual or
anticipated fluctuations in the Company's operating results, announcements of
technological innovations or new products by the Company or its competitors,
developments with respect to patents, copyrights or proprietary rights,
conditions and trends in the software or other industries, general market
conditions and other factors. In addition, the stock market has from time to
time experienced significant price and volume fluctuations that have
particularly affected the market prices for the common stocks of technology
companies. These broad market fluctuations may adversely affect the market
price of the Company's Common Stock. In the past, following periods of
volatility in the market price of a company's securities, securities class
action litigation has often resulted. There can be no assurance that such
litigation will not occur in the future with respect to the Company. Such
litigation could result in substantial costs and a diversion of management's
attention and resources, which could have a material adverse effect upon the
Company's business, operating results and financial condition.

14
<PAGE>

CONTROL BY EXISTING STOCKHOLDERS; FACTORS INHIBITING TAKEOVER

Upon completion of this offering, officers and directors of the Company and
their affiliated entities will beneficially own approximately 48.7% of the
outstanding Common Stock of the Company (47.3% if the Underwriters' over-
allotment option is exercised in full). As a result, such persons and entities
will be able to control the management and affairs of the Company and exercise
significant influence over all matters requiring stockholder approval,
including election of directors, any merger, consolidation or sale of all or
substantially all of the Company's assets, and any other significant corporate
transaction. The concentration of ownership could have the effect of delaying
or preventing a change in control of the Company. See "Principal and Selling
Stockholders." Immediately prior to the completion of this offering, the
Company's Certificate of Incorporation will be amended and restated to include
a provision that allows the Board of Directors to issue up to 5,000,000 shares
of Preferred Stock and to determine the price, rights, preferences,
privileges, and restrictions, including voting rights, of those shares without
any further vote or action by the stockholders. Preferred Stock could be
issued, without stockholder approval, that could have voting, liquidation and
dividend rights superior to that of existing stockholders. The issuance of
Preferred Stock could adversely affect the voting powers of holders of Common
Stock and the likelihood that such holders would receive dividend payments and
payments on liquidation. The Company has no current plans to issue any
Preferred Stock. In addition, Section 203 of the Delaware General Corporation
Law ("Section 203") restricts certain business combinations with any
"interested stockholder" as defined by such statute. The issuance of Preferred
Stock as well as the provisions of Section 203 could also make it more
difficult for a third party to acquire control of the outstanding voting stock
of the Company and thereby have the effect of delaying or preventing a change
in control of the Company. See "Description of Capital Stock--Delaware Anti-
Takeover Law."

IMMEDIATE AND SUBSTANTIAL DILUTION

The initial public offering price is substantially higher than the net
tangible book value per share of Common Stock. Investors purchasing shares of
Common Stock in this offering will therefore incur immediate and substantial
dilution of $6.42 in the net tangible book value per share of the Common Stock
(after deducting the underwriting discount and estimated offering expenses).
To the extent that options or Warrants to purchase the Company's Common Stock
are exercised, there will be further dilution. See "Dilution."

UNCERTAINTY AS TO USE OF PROCEEDS

Except for the repayment of amounts outstanding under its credit line, the
Company has no specific plans as to the use of a significant portion of the
net proceeds from this offering, other than general working capital purposes.
Accordingly, the Company's management will retain broad discretion to allocate
the net proceeds from this offering to uses that the stockholders may not deem
desirable and there can be no assurance that the proceeds can or will yield a
significant return. See "Use of Proceeds."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of large amounts of the Company's Common Stock in the public market
could adversely affect the market price of the Common Stock and could impair
the Company's future ability to raise capital through offerings of its equity
securities. A substantial number of outstanding shares of Common Stock and
shares of Common Stock issuable upon the exercise of outstanding stock options
and Warrants will become available for resale in the public market at
prescribed times. Upon completion of this offering, there will be 9,056,542
shares of Common Stock of the Company outstanding. The 4,000,000 shares
offered hereby will be eligible for immediate sale in the public market
without restriction. Taking into account certain shares subject to lock-up
agreements and notwithstanding possible earlier eligibility for sale under the
provisions of Rules 144, 144(k) and 701, the number of shares that will be
available for sale in the public market will be as follows: (i) approximately
81,000 shares will be eligible for immediate sale on the effective date, (ii)
approximately 3,555 shares will become eligible for sale 90 days after the
effective date pursuant to the provisions of Rule 144 or

15
<PAGE>

Rule 701, (iii) approximately 48,000 shares will be eligible for sale in
December 1997 subject to certain volume and other resale restrictions under
Rule 144, (iv) approximately 4,773,987 shares will become eligible for sale
180 days after the effective date upon the expiration of certain lock-up
agreements and, as of that date, approximately 4,087,406 of such shares will
be subject to certain volume and other resale restrictions pursuant to Rule
144, and (v) approximately 150,000 shares will become eligible for sale in May
1998, subject to certain volume and other resale restrictions pursuant to Rule
144. Within 90 days after this offering, the Company intends to register
approximately 3,586,521 shares of the Company's Common Stock reserved for
issuance upon exercise of outstanding options or for future grants or
purchases under its stock option plans and stock purchase plan.

In addition, upon completion of this offering, there will remain outstanding
Warrants to purchase 711,771 shares of Common Stock at an exercise price of
$2.00 per share. These Warrants are exercisable at any time on a net exercise
basis. Accordingly, any shares of Common Stock issuable upon such net exercise
would be available for resale in the public market, subject to public
information, volume limitation or notice provisions of Rule 144, in the case
of affiliates.

Following this offering, the holders of 2,577,769 shares of the Company's
Common Stock and holders of Warrants to purchase 711,771 shares of Common
Stock will have certain rights to register those shares of Common Stock under
the Securities Act. See "Shares Eligible for Future Sale."

16
<PAGE>

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$24.4 million after deducting the underwriting discount and commissions and
estimated offering expenses. The Company will not receive any proceeds from
the sale of Common Stock by the Selling Stockholders.

The Company expects to use a portion of such proceeds for the repayment of
approximately $2.6 million of indebtedness under the Company's bank credit
line. A portion of this indebtedness bears interest at the rate of the bank's
prime lending rate plus 1.0% and the remainder bears interest at the rate of
the applicable LIBOR rate plus 3.0% (for a weighted average interest rate of
approximately 8.92% at March 31, 1997). The Company has no current specific
plans for the remainder of the net proceeds of this offering, but the Company
expects to use such net proceeds for general corporate purposes, including
working capital. A portion of the proceeds may also be used to acquire or
invest in complementary businesses or products or to obtain the right to use
complementary technologies. The Company presently has no commitments or
understandings for any such acquisitions or investments, and is not presently
engaged in any discussions or negotiations for any such acquisitions or
investments. Pending use of the net proceeds for the above purposes, the
Company intends to invest such funds in short-term, interest-bearing,
investment-grade obligations.

DIVIDEND POLICY

The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently anticipates that it will retain all future
earnings for use in its business and does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future. The payment of any
future dividends will be at the discretion of the Company's Board of Directors
and will depend upon, among other things, future earnings, operations, capital
requirements, the general financial condition of the Company, general business
conditions and contractual restrictions on payment of dividends, if any. The
Company's credit agreement with its bank prohibits the payment of dividends
without the bank's written consent.

17
<PAGE>

CAPITALIZATION

The following table sets forth, as of March 31, 1997, (i) the actual
capitalization of the Company, (ii) the capitalization of the Company on a pro
forma basis to give retroactive effect to the items referred to in footnote
(1) below and (iii) such pro forma capitalization as adjusted to give effect
to the sale of the 3,000,000 shares of Common Stock offered by the Company
hereby and the application of the net proceeds therefrom.

<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED
----------- ------------- ------------
(In thousands, except share data)
<S> <C> <C> <C>
Long-term debt:
Notes payable--bank....... 3,590 2,590 --
Equipment obligations..... 43 43 43
----------- ----------- -----------
Total long-term debt.... 3,633 2,633 43
=========== =========== ===========
Stockholders' equity
(deficiency)(2):
Preferred stock, $0.01 par
value per share;
1,638,166 shares
authorized, 860,969
shares issued and
outstanding, actual;
5,000,000 shares
authorized, no shares
issued or outstanding,
pro forma and pro forma
as adjusted.............. 9 -- --
Common stock, $0.01 par
value per share;
3,888,166 shares
authorized, 3,000,000
shares issued and
outstanding, actual;
20,000,000 shares
authorized, 6,056,542
shares issued and
outstanding, pro forma;
20,000,000 shares
authorized, 9,056,542
shares issued and
outstanding, pro forma as
adjusted(3).............. 30 60 90
Paid-in capital........... 7,888 8,867 33,247
Accumulated deficit....... (9,724) (9,724) (9,724)
Cumulative foreign
currency translation
adjustment............... (170) (170) (170)
Treasury stock at cost.... (65) (65) (65)
----------- ----------- -----------
Total stockholders'
equity (deficiency)..... (2,032) (1,032) 23,378
----------- ----------- -----------
Total capitalization.... 1,601 1,601 23,421
=========== =========== ===========
</TABLE>
- --------
(1) Gives effect to (i) the repayment of $1.0 million principal amount of
indebtedness with the proceeds of the sale of Preferred Stock on May 15,
1997, (ii) the automatic conversion of all outstanding shares of Preferred
Stock into an aggregate of 2,759,715 shares of Common Stock (including
150,000 shares of Common Stock issuable upon conversion of Preferred Stock
sold on May 15, 1997) upon the closing of this offering, and (iii) the
exercise of certain outstanding warrants, on a net exercise basis, into an
aggregate of 296,827 shares of Common Stock upon the closing of this
offering.
(2) See Note 6 of Notes to Financial Statements.
(3) Excludes (i) 1,293,757 shares of Common Stock issuable upon exercise of
stock options outstanding as of May 31, 1997 under the 1993 Plan and the
Directors Plan and (ii) 711,771 shares of Common Stock issuable upon
exercise of Warrants which will remain outstanding after the consummation
of this offering.

18
<PAGE>

DILUTION

The pro forma net tangible book value of the Company as of March 31, 1997,
was $(1.0 million) or approximately $(0.17) per share of Common Stock. Pro
forma net tangible book value per share represents total tangible assets of
the Company (taking into effect the sale by the Company of Preferred Stock on
May 15, 1997), less total liabilities (taking into effect the repayment of
$1.0 million of indebtedness with the proceeds from the sale of Preferred
Stock on May 15, 1997), divided by the number of shares of Common Stock
outstanding, assuming conversion of all outstanding shares of Preferred Stock
(including shares of Preferred Stock sold on May 15, 1997) into an aggregate
of 2,759,715 shares of Common Stock and the exercise of certain outstanding
warrants on a net exercise basis into an aggregate of 296,827 shares of Common
Stock upon completion of this offering. Pro forma net tangible book value
dilution per share represents the difference between the amount per share paid
by purchasers of shares of Common Stock in the offering made hereby and the
pro forma net tangible book value per share of Common Stock immediately after
the offering.

After giving effect to the sale of 3,000,000 shares of Common Stock offered
by the Company hereby (after deducting the underwriting discounts and
commissions and estimated offering expenses), the pro forma net tangible book
value of the Company as of March 31, 1997 would have been $23.4 million or
approximately $2.58 per share. This represents an immediate increase in pro
forma net tangible book value of $2.75 per share to existing stockholders and
an immediate dilution of $6.42 per share to purchasers of Common Stock in this
offering, as illustrated in the following table:

<TABLE>
<S> <C> <C>
Initial public offering price per share....................... $9.00
Pro forma net tangible book value per share at March 31,
1997....................................................... $(0.17)
Increase per share attributable to new investors............ 2.75
------
Pro forma net tangible book value per share after the
offering..................................................... 2.58
-----
Pro forma net tangible book value dilution per share to new
investors.................................................... $6.42
=====
</TABLE>

The following table sets forth on a pro forma basis as of March 31, 1997,
the difference between the existing stockholders and the purchasers of shares
in this offering with respect to the number of shares purchased from the
Company, the total consideration paid and the average price per share paid:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER(1) PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)(2)..... 6,056,542 66.9% $ 8,927,400 24.8% $1.48
New investors................... 3,000,000 33.1 27,000,000 75.2 9.00
--------- ----- ----------- -----
Totals........................ 9,056,542 100.0% $35,927,400 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) Sales by the Selling Stockholders in this offering will reduce the number
of shares of Common Stock held by existing stockholders to 5,056,542, or
55.8% (4,456,542, or 49.2% if the Underwriters' over-allotment option is
exercised in full) of the total shares of Common Stock outstanding
immediately after this offering, and will increase the number of shares of
Common Stock held by new investors to 4,000,000, or 44.2% (4,600,000, or
50.8% if the Underwriters' over-allotment option is exercised in full) of
the total number of shares of Common Stock outstanding immediately after
this offering. See "Principal and Selling Stockholders."
(2) Includes 2,759,715 shares of Common Stock issuable upon conversion of all
outstanding shares of Preferred Stock (including 150,000 shares of Common
Stock issuable upon conversion of Preferred Stock sold on May 15, 1997)
upon the closing of this offering and an aggregate of 296,827 shares of
Common Stock issuable upon the exercise of warrants on a net exercise
basis upon completion of this offering.

As of May 31, 1997, there were options outstanding to purchase a total of
1,293,757 shares of Common Stock at a weighted average exercise price of $1.44
per share and Warrants outstanding to purchase a total of 711,771 shares of
Common Stock at an exercise price of $2.00 per share, which Warrants will
remain outstanding after the consummation of this offering. To the extent that
any of these options or Warrants are exercised, there will be further dilution
to new investors. See "Capitalization," "Management -- Employee Benefit
Plans," "Description of Capital Stock" and Note 6 of Notes to Financial
Statements.

19
<PAGE>

SELECTED FINANCIAL DATA

The following selected financial data are qualified by reference to and
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements
and Notes thereto included elsewhere in this Prospectus. The statements of
operations data presented below for each of the years in the three year period
ended December 31, 1996 and the balance sheet data as of December 31, 1995 and
1996 are derived from the financial statements of the Company, which financial
statements have been audited by KPMG Peat Marwick LLP, independent certified
public accountants, and are included elsewhere herein. The statements of
operations data presented below for the year ended December 31, 1993, and the
balance sheet data as of December 31, 1992, 1993, and 1994 are derived from
audited financial statements not included in this Prospectus. The statements
of operations data for the year ended December 31, 1992 is unaudited. The
statements of operations data presented below for the three months ended March
31, 1996 and 1997 and the balance sheet data as of March 31, 1997 are derived
from unaudited financial statements included elsewhere herein. The unaudited
financial statements include all adjustments (consisting only of normal
recurring adjustments) that the Company considers necessary for a fair
presentation of its financial position and results of operations for these
periods. The results of operations for the three months ended March 31, 1997
are not necessarily indicative of the results that may be expected for the
year ending December 31, 1997 or any other future period.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------------------------- --------------
1992 1993 1994 1995 1996 1996 1997
----------- ------- ------- ------- ------- ------ ------
(unaudited) (unaudited)
STATEMENTS OF OPERATIONS
DATA: (In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licensing....... $ 4,292 $ 5,242 $ 6,275 $ 7,553 $ 9,310 $1,783 $2,731
Service, maintenance and
other................... 7,066 7,601 7,659 8,508 9,694 2,306 2,777
------- ------- ------- ------- ------- ------ ------
Total revenues.......... 11,358 12,843 13,934 16,061 19,004 4,089 5,508
------- ------- ------- ------- ------- ------ ------
Cost of revenues:
Software licensing....... 1,080 934 1,035 725 495 93 174
Service, maintenance and
other................... 2,418 2,276 2,522 2,200 2,006 432 548
------- ------- ------- ------- ------- ------ ------
Total cost of revenues.. 3,498 3,210 3,557 2,925 2,501 525 722
------- ------- ------- ------- ------- ------ ------
Gross profit.............. 7,860 9,633 10,377 13,136 16,503 3,564 4,786
------- ------- ------- ------- ------- ------ ------
Operating expenses:
Product development...... 3,807 2,498 2,231 3,068 3,452 779 1,073
Selling and marketing.... 6,598 6,218 6,124 7,160 8,715 1,894 2,584
General and
administrative.......... 2,249 1,919 1,927 2,001 2,922 729 777
------- ------- ------- ------- ------- ------ ------
Total operating
expenses............... 12,654 10,635 10,282 12,229 15,089 3,402 4,434
------- ------- ------- ------- ------- ------ ------
Operating income (loss)... (4,794) (1,002) 95 907 1,414 162 352
Other income (expense),
net...................... (70) (226) (208) (84) (186) (41) (39)
------- ------- ------- ------- ------- ------ ------
Net income (loss)......... $(4,864) $(1,228) $ (113) $ 823 $ 1,228 $ 121 $ 313
======= ======= ======= ======= ======= ====== ======
Net income (loss) per
share(1)................. $ 0.14 $ 0.20 $ 0.02 $ 0.05
======= ======= ====== ======
Weighted average number of
common and common
equivalent shares
outstanding(1)........... 5,687 6,018 5,728 6,459
======= ======= ====== ======
<CAPTION>
SUPPLEMENTARY STATEMENT OF
OPERATIONS DATA (2):
<S> <C> <C> <C> <C> <C> <C> <C>
Supplementary net income.. $ 1,452 $ 360
======= ======
Supplementary net income
per share................ $ .23 $ .05
======= ======
Supplementary shares used
to compute supplementary
net income per share..... 6,306 6,747
======= ======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------- MARCH 31,
1992 1993 1994 1995 1996 1997
------ ------ ------ ------ ------- -----------
(unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash................................................................... $ 39 $ 178 $ 450 $ 143 $ 41 $ 79
Working capital........................................................ (1,664) (2,195) (2,630) (2,128) (1,220) (158)
Total assets........................................................... 8,869 7,218 6,387 6,237 7,521 8,721
Total stockholders' (deficiency)....................................... (3,679) (4,306) (4,393) (3,570) (2,294) (2,032)
</TABLE>
- -------
(1) For an explanation of the determination of the number of shares used in
computing per share amounts, see Note 1 of Notes to Financial Statements.
(2) Supplementary net income per share includes the number of shares used in
computing net income per share as well as the number of shares that would
be needed to repay certain indebtedness to be repaid with the net proceeds
from the sale of the shares of the Common Stock offered by the Company
hereby. Supplementary net income also includes interest applicable to such
borrowings. See "Use of Proceeds" and Note 1 of Notes to Financial
Statements.

20
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors" and elsewhere
in this Prospectus. The following discussion should be read in conjunction
with the Financial Statements and Notes thereto included elsewhere in this
Prospectus.

OVERVIEW

The Company was incorporated in Connecticut in 1985 and reincorporated in
Delaware in September 1993. In June 1991, the Company began developing its
Mercator product and in December 1993 released Version 1.0 of Mercator. The
Company released the latest version of Mercator in May 1996 and released its
Mercator for R/3 product in June 1996.

Historically, the Company has derived a majority of its revenues from
products other than Mercator, primarily its Trading Partner family of products
and its KEY/MASTER product. However, revenue related to Mercator has grown
significantly in each of the last three years and has increased as a
percentage of total revenues. The Company believes that future growth in
revenues, if any, will be mainly attributable to its Mercator product line. In
view of the relatively recent introduction of Mercator, the Company believes
it cannot accurately predict the amount of revenues that will be attributable
to such products or the life of such products. To the extent the Company's
Mercator products do not achieve market acceptance, the Company's business,
operating results and financial condition will be materially and adversely
affected.

The Company's revenues are derived principally from two sources: (i) license
fees for the use of the Company's software products and (ii) service fees for
maintenance, consulting services and training related to the Company's
software products. The Company generally recognizes revenue from software
license fees upon shipment, unless the Company has significant post-delivery
obligations, in which case revenues are recognized when such obligations are
satisfied. The Company's KEY/MASTER product is licensed under term-use
contracts rather than for a one-time license fee, and the Company recognizes
revenue from such arrangements on a present-value basis at the inception of
the contract. Revenues from consulting and training are recognized as services
are performed, and maintenance revenues are recognized ratably over the
maintenance period, typically one year. The Company does not actively market
new term-use contracts for KEY/MASTER but continues to receive KEY/MASTER
revenues, principally maintenance revenues. As a result, KEY/MASTER accounts
for a larger proportion of maintenance revenue than license revenues and
increases the percentage of the Company's total revenues represented by
services, maintenance and other revenues. The Company intends to increase the
scope of its service offerings with the goal of increasing license revenues
from sales of its products. The Company does not believe that the mix of
software licensing and service, maintenance and other revenues will change
substantially in the future.

Mercator can be used by IT professionals as well as VARs, ISVs, SIs or other
third parties who resell, embed or otherwise bundle Mercator with their
products. To date, license fee revenues have been derived principally from
direct sales of software products through the Company's direct sales force.
Although the Company believes that such direct sales will continue to account
for a significant portion of software licensing revenues, the Company intends
to increase its use of distributors and resellers. Furthermore, the Company's
planned expansion of its sales organization is expected to cause sales and
marketing expenses to increase.

The Company markets its products in North America primarily through its
direct sales and telesales organizations. Throughout the rest of the world,
the Company markets its products through distributors, resellers and direct
sales. International revenue accounted for 10.4% and 9.4% of total revenues
for 1996 and the first three months of 1997, respectively. The Company
maintains an international sales and support office

21
<PAGE>

in the United Kingdom. The Company intends to increase its international
direct sales force and focus on establishing additional international
distributor and reseller relationships. See "Risk Factors -- Risks Associated
with International Expansion."

The size of the Company's orders can range from a few thousand dollars to
over $100,000 per order. The loss or delay of large individual orders,
therefore, can have a significant impact on the revenues and other quarterly
results of the Company. In addition, the Company has generally recognized a
substantial portion of its quarterly software licensing revenues in the last
month of each quarter, and as a result, revenue for any particular quarter may
be difficult to predict in advance. Because the Company's operating expenses
are relatively fixed, a delay in the recognitions of revenue from a limited
number of license transactions could cause significant variations in operating
results from quarter to quarter and could result in significant losses. To the
extent such expenses precede, or are not subsequently followed by, increased
revenue, the Company's operating results would be materially and adversely
affected. As a result of these and other factors, operating results for any
quarter are subject to variation, and the Company believes that period-to-
period comparisons of its results of operations are not necessarily meaningful
and should not be relied upon as indications of future performance.

In accordance with Statement of Financial Accounting Standards No. 86,
Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed, software development costs are expensed as incurred until
technological feasibility has been established, at which time such costs are
capitalized until the product is available for general release to customers.
To date, the establishment of technological feasibility of the Company's
products and general release of such software have substantially coincided. As
a result, software development costs qualifying for capitalization have been
insignificant, and therefore, the Company has not capitalized any software
development costs.

22
<PAGE>

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage of
total revenues represented by certain items from the Company's Statements of
Operations.

<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------- ----------------
1994 1995 1996 1996 1997
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues:
Software licensing.......... 45.0% 47.0% 49.0% 43.6% 49.6%
Service, maintenance and
other...................... 55.0 53.0 51.0 56.4 50.4
-------- -------- -------- ------- -------
Total revenues............ 100.0 100.0 100.0 100.0 100.0
-------- -------- -------- ------- -------
Cost of revenues:
Software licensing.......... 7.4 4.5 2.6 2.3 3.2
Service, maintenance and
other...................... 18.1 13.7 10.6 10.5 9.9
-------- -------- -------- ------- -------
Total cost of revenues.... 25.5 18.2 13.2 12.8 13.1
-------- -------- -------- ------- -------
Gross profit.................. 74.5 81.8 86.8 87.2 86.9
-------- -------- -------- ------- -------
Operating expenses:
Product development......... 16.0 19.1 18.2 19.1 19.5
Selling and marketing....... 44.0 44.6 45.9 46.3 46.9
General and administrative.. 13.8 12.5 15.3 17.8 14.1
-------- -------- -------- ------- -------
Total operating expenses.. 73.8 76.2 79.4 83.2 80.5
-------- -------- -------- ------- -------
Operating income (loss)....... 0.7 5.6 7.4 4.0 6.4
Other income (expense), net... (1.5) (0.5) (0.9) (1.0) (0.7)
-------- -------- -------- ------- -------
Net income (loss)............. (0.8)% 5.1% 6.5% 3.0% 5.7%
======== ======== ======== ======= =======
Gross profit:
Software licensing.......... 83.5% 90.4% 94.7% 94.8% 93.6%
Service, maintenance and
other...................... 67.1 74.1 79.3 81.3 80.3
</TABLE>

THREE MONTHS ENDED MARCH 31, 1997 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1996

Revenues

Total Revenues. The Company's total revenues increased 35% from $4.1 million
in the first three months of 1996 to $5.5 million in the comparable period of
1997.

Software Licensing. Software licensing revenues increased 53% from $1.8
million in the first three months of 1996 to $2.7 million in the comparable
period of 1997, primarily as a result of a 96% increase in Mercator license
revenues.

Service, Maintenance and Other. Service, maintenance and other revenues
increased 20% from $2.3 million in the first three months of 1996 to $2.8
million in the comparable period of 1997, primarily as a result of a 136%
increase in professional services revenues primarily associated with sales of
Mercator and, to a lesser extent, an increase in Mercator maintenance revenue,
partially offset by a slight decrease in KEY/MASTER maintenance revenues.
Maintenance revenues attributable to KEY/MASTER were $1.2 million and $1.1
million for the first three months of 1996 and 1997, respectively.

Cost of Revenues

Cost of software licensing revenues consists primarily of media, manuals,
distribution costs and the cost of third party software that the Company
resells. Cost of service, maintenance and other revenues consists primarily of
personnel-related costs in providing maintenance, technical support,
consulting and training to customers. Gross margin on software licensing
revenues is higher than gross margin on service, maintenance and other
revenues, reflecting the low materials, packaging and other costs of software
products compared

23
<PAGE>

with the relatively high personnel costs associated with providing
maintenance, technical support, consulting and training services. Cost of
service, maintenance and other revenues also varies based upon the mix of
maintenance, technical support, consulting and training services.

Cost of Software Licensing. Cost of software licensing revenues increased
87% from $93,000 in the first three months of 1996 to $174,000 in the
comparable period of 1997, primarily due to increased sales of software
licenses. Software licensing gross margin remained relatively constant at 95%
and 94% in the first three months of 1996 and 1997, respectively.

Cost of Service, Maintenance and Other. Cost of service, maintenance and
other revenues increased 27% from $432,000 in the first three months of 1996
to $548,000 in the comparable period of 1997, primarily due to increased
professional services rendered, particularly Mercator-related services.
Service, maintenance and other gross margin remained relatively constant at
81% and 80% in the first three months of 1996 and 1997, respectively.

Operating Expenses

Product Development. Product development expenses include expenses
associated with the development of new products and enhancements to existing
products and consist primarily of salaries, recruiting and other personnel-
related expenses, depreciation of development equipment, supplies, travel and
allocated facilities and communications costs. Product development expenses
increased 38% from $779,000 in the first three months of 1996 to $1.1 million
in the comparable period of 1997, primarily due to increased product
development activities relating to the Company's Mercator product line.
Product development expenses as a percentage of total revenue did not change
significantly in the first three months of 1997 as compared to the first three
months of 1996. The Company believes that a significant level of research and
development expenditures is required to remain competitive. Accordingly, the
Company anticipates that it will continue to devote substantial resources to
research and development. The Company expects that the dollar amount of
research and development expenses will increase through at least the remainder
of 1997. To date, all research and development expenditures have been expensed
as incurred.

Selling and Marketing. Selling and marketing expenses consist of sales and
marketing personnel costs, including sales commissions, recruiting, travel,
advertising, public relations, seminars, trade shows, product descriptive
literature and allocated facilities and communications costs. Selling and
marketing expenses increased 36% from $1.9 million in the first three months
of 1996 to $2.6 million in the comparable period of 1997, primarily due to the
increased number of sales and marketing personnel to address Mercator
marketing opportunities and increased expenditures for Mercator-related
marketing programs. Selling and marketing expenses as a percentage of total
revenues did not change significantly in the first three months of 1997 as
compared to the first three months of 1996. The Company expects to continue
hiring additional sales and marketing personnel and to increase promotional
expenses through at least the remainder of 1997 to address Mercator marketing
opportunities and anticipates that sales and marketing expenses will increase
in absolute dollar amount.

General and Administrative. General and administrative expenses consist
primarily of salaries, recruiting and other personnel-related expenses for the
Company's administrative, executive and finance personnel as well as outside
legal and audit costs. General and administrative expenses increased 7% from
$729,000 in the first three months of 1996 to $777,000 in the comparable
period of 1997, primarily due to increased administrative expenses to support
the Company's growth. General and administrative expenses as a percentage of
total revenue decreased to 14% in the first three months of 1997 from 18% for
the comparable period of 1996, primarily due to increased revenues during the
first three months of 1997. The Company believes that the dollar amount of its
general and administrative expenses will increase as the Company expands its
administrative staff and incurs additional costs (including directors' and
officers' liability insurance, investor relations programs and increased
professional fees) related to being a public company.

24
<PAGE>

Other Income (Expense), Net

Other income represents interest income earned on the Company's term-use
contracts and was negligible in the first three months of 1996 and 1997. Other
expense represents the Company's borrowing expenses and its provision for
income taxes. Borrowing expenses were $63,000 in the first three months of
1997 as compared to $79,000 for the first three months of 1996. Due to the
utilization of net operating loss carryforwards, the provisions for income
taxes for the quarters ended March 31, 1997 and 1996 were not significant.

YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995

Revenues

Total Revenues. Total revenues increased 18% from $16.1 million in 1995 to
$19.0 million in 1996.

Software Licensing. Software licensing revenues increased 23% from $7.6
million in 1995 to $9.3 million in 1996, primarily due to a 74% increase in
Mercator license revenues, partially offset by a decrease in licenses of the
Company's mainframe-based Trading Partner and KEY/MASTER products.

Service, Maintenance and Other. Service, maintenance and other revenues
increased 14% from $8.5 million in 1995 to $9.7 million in 1996, primarily due
to a 53% increase in professional services revenues, particularly professional
services associated with Mercator and, to a lesser extent, an increase in
Mercator maintenance revenue, offset by a slight decrease in maintenance
revenue related to the Company's mainframe-based Trading Partner and
KEY/MASTER products. Maintenance revenues attributable to KEY/MASTER were $4.9
million and $4.6 million for 1995 and 1996, respectively.

Cost of Revenues

Cost of Software Licensing. Cost of software licensing revenues decreased
32% from $725,000 in 1995 to $495,000 in 1996, primarily due to termination of
amortization relating to the Company's acquisition of Foretell Corp. Software
licensing gross margin increased from 90% in 1995 to 95% in 1996, primarily
due to termination of such amortization.

Cost of Service, Maintenance and Other. Cost of service, maintenance and
other revenues decreased 9% from $2.2 million in 1995 to $2.0 million in 1996.
The decrease was primarily due to a decrease in the number of support
personnel related to the Company's mainframe-based Trading Partner and
KEY/MASTER products. Service, maintenance and other gross margin increased
from 74% in 1995 to 79% in 1996, primarily due to the decrease in such support
personnel.

Operating Expenses

Product Development. Product development expenses increased 13% from $3.1
million in 1995 to $3.5 million in 1996, primarily due to increased headcount
associated with the development of Mercator. Product development expenses
represented 19% and 18% of total revenues for 1995 and 1996, respectively.

Selling and Marketing. Selling and marketing expenses increased 22% from
$7.2 million in 1995 to $8.7 million in 1996. This increase was primarily due
to the increased number of sales and marketing personnel required to address
Mercator marketing opportunities and increased spending on Mercator-related
marketing programs. Selling and marketing expenses represented 44% and 46% of
total revenues for 1995 and 1996, respectively.

General and Administrative. General and administrative expenses increased
46% from $2.0 million in 1995 to $2.9 million in 1996. The increase was
primarily due to increased management and MIS staff, increased provision for
bad debts and increased depreciation. General and administrative expenses
represented 13% and 15% of total revenues for 1995 and 1996, respectively.

25
<PAGE>

Other Income (Expense), Net

Other income decreased from $370,000 in 1995 to $135,000 in 1996 due to a
one-time benefit in 1995 of $177,000 from the settlement of a lawsuit in the
Company's favor and a decrease in the amount of interest earned on term
license contracts. Borrowing expenses decreased from $420,000 in 1995 to
$286,000 in 1996 due to reduced borrowing levels. Due to the utilization of
net operating loss carryforwards, the provisions for income taxes for 1996 and
1995 were not significant.

Taxes

At December 31, 1996, the Company had federal net operating loss
carryforwards of $8.6 million, all of which expire through 2009. Due to the
"change in ownership" provisions of the Internal Revenue Code of 1986, the
availability of net operating loss carryforwards and research tax credits to
offset federal taxable income in future periods could be subject to an annual
limitation if a change in ownership for income tax purposes should occur. See
Note 8 of Notes to Financial Statements.

YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994

Revenues

Total Revenues. Total revenues increased 15% from $13.9 million in 1994 to
$16.1 million in 1995.

Software Licensing. Software licensing revenues increased 20% from $6.3
million in 1994 to $7.6 million in 1995. The increase in software licensing
revenues was primarily due to a 125% increase in Mercator license revenues,
partially offset by a decrease in licenses of the Company's mainframe-based
Trading Partner and KEY/MASTER products.

Service, Maintenance and Other. Service, maintenance and other revenues
increased 11% from $7.7 million in 1994 to $8.5 million in 1995. The increase
in service, maintenance and other revenues was primarily due to increases in
revenues for annual maintenance and professional services relating to the
Company's Mercator and Trading Partner products.

Cost of Revenues

Cost of Software Licensing. Cost of software licensing revenues decreased
30% from $1.0 million in 1994 to $725,000 in 1995. The decrease was primarily
due to lower costs related to the roll-out of the Company's OnCall*EDI product
that occurred in 1994, for which the Company accrued $400,000 in 1994.
Software licensing gross margin increased from 84% in 1994 to 90% in 1995,
primarily due to lower costs related to the roll-out of the Company's
OnCall*EDI product.

Cost of Service, Maintenance and Other. Cost of service, maintenance and
other revenues decreased 13% from $2.5 million in 1994 to $2.2 million in
1995. The decrease was primarily due to a reduction of staff supporting the
Company's mainframe-based Trading Partner and KEY/MASTER products. Service,
maintenance and other gross margin increased from 67% in 1994 to 74% in 1995,
primarily due to such staff reduction.

Operating Expenses

Product Development. Product development expenses increased 38% from $2.2
million in 1994 to $3.1 million in 1995, primarily due to expenses related to
the development of Mercator, particularly increased headcount devoted to
product development activities. Product development expenses represented 16%
and 19% of total revenues in 1994 and 1995, respectively.

Selling and Marketing. Selling and marketing expenses increased 17% from
$6.1 million in 1994 to $7.2 million in 1995. This increase was primarily due
to an increase in sales commissions associated with increased revenues,
increased marketing activities and the establishment of a dedicated business
development group. Selling and marketing expenses represented 44% and 45% of
total revenues for 1994 and 1995, respectively.

26
<PAGE>

General and Administrative. General and administrative expenses increased 4%
from $1.9 million in 1994 to $2.0 million in 1995. This increase was primarily
due to increased personnel and expenses relating to the Company's internal
systems. General and administrative expenses represented 14% and 13% of total
revenues for 1994 and 1995, respectively.

Other Income (Expense), Net

Other income increased from $268,000 in 1994 to $370,000 in 1995 due to a
one-time benefit in 1995 of $177,000 from the settlement of a lawsuit in the
Company's favor offset by a decrease in the amount of interest earned on term-
use contracts. Borrowing expenses decreased from $467,000 in 1994 to $420,000
in 1995 due to lower borrowing levels and lower interest rates due to its new
credit agreement. Due to the utilization of net operating loss carryforwards,
the provisions for income taxes for 1996 and 1995 were not significant.

SELECTED QUARTERLY RESULTS OF OPERATIONS

The following tables set forth certain unaudited quarterly statement of
operations data for each of the nine quarters in the period ended March 31,
1997, as well as such data expressed as a percentage of the Company's total
revenues for the periods indicated. This data has been derived from unaudited
financial statements that have been prepared on the same basis as the audited
financial statements and, in the opinion of management, include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of the information. The Company's quarterly results have in the
past been and may in the future be subject to significant fluctuations. As a
result, the Company believes that results of operations for interim periods
should not be relied upon as any indication of the results to be expected in
any future period. See "Risk Factors -- Potential Fluctuations in Operating
Results; Seasonality."

<TABLE>
<CAPTION>
QUARTERS ENDED
----------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1995 1995 1995 1995 1996 1996 1996 1996 1997
-------- -------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licensing..... $1,733 $1,961 $1,921 $1,938 $1,783 $1,878 $2,597 $3,052 $2,731
Service, maintenance
and other............. 2,164 2,066 2,149 2,129 2,306 2,358 2,449 2,581 2,777
------ ------ ------ ------ ------ ------ ------ ------ ------
Total revenues......... 3,897 4,027 4,070 4,067 4,089 4,236 5,046 5,633 5,508
------ ------ ------ ------ ------ ------ ------ ------ ------
Cost of revenues:
Software licensing..... 197 201 143 184 93 88 128 186 174
Service, maintenance
and other............. 707 665 389 439 432 467 505 602 548
------ ------ ------ ------ ------ ------ ------ ------ ------
Total cost of revenues. 904 866 532 623 525 555 633 788 722
------ ------ ------ ------ ------ ------ ------ ------ ------
Gross profit............ 2,993 3,161 3,538 3,444 3,564 3,681 4,413 4,845 4,786
------ ------ ------ ------ ------ ------ ------ ------ ------
Operating expenses:
Product development.... 680 852 788 748 779 831 882 960 1,073
Selling and marketing.. 1,681 2,033 1,611 1,835 1,894 2,001 2,194 2,626 2,584
General and administra-
tive.................. 481 402 514 604 729 628 761 804 777
------ ------ ------ ------ ------ ------ ------ ------ ------
Total operating ex-
penses................ 2,842 3,287 2,913 3,187 3,402 3,460 3,837 4,390 4,434
------ ------ ------ ------ ------ ------ ------ ------ ------
Operating income (loss). 151 (126) 625 257 162 221 576 455 352
Other income (expense),
net.................... (59) 129 (57) (97) (41) (35) (58) (52) (39)
------ ------ ------ ------ ------ ------ ------ ------ ------
Net income (loss)....... $ 92 $ 3 $ 568 $ 160 $ 121 $ 186 $ 518 $ 403 $ 313
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>

27
<PAGE>

<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
----------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1995 1995 1995 1995 1996 1996 1996 1996 1997
-------- -------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licensing..... 44.5% 48.7% 47.2% 47.7% 43.6% 44.3% 51.5% 54.2% 49.6%
Service, maintenance
and other............. 55.5 51.3 52.8 52.3 56.4 55.7 48.5 45.8 50.4
----- ----- ----- ----- ----- ----- ----- ----- -----
Total revenues......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Cost of revenues:
Software licensing..... 5.1 5.0 3.5 4.5 2.3 2.1 2.5 3.3 3.2
Service, maintenance
and other............. 18.1 16.5 9.6 10.8 10.5 11.0 10.0 10.7 9.9
----- ----- ----- ----- ----- ----- ----- ----- -----
Total cost of revenues. 23.2 21.5 13.1 15.3 12.8 13.1 12.5 14.0 13.1
----- ----- ----- ----- ----- ----- ----- ----- -----
Gross profit............ 76.8 78.5 86.9 84.7 87.2 86.9 87.5 86.0 86.9
----- ----- ----- ----- ----- ----- ----- ----- -----
Operating expenses:
Product development.... 17.4 21.2 19.4 18.4 19.1 19.6 17.5 17.0 19.5
Selling and marketing.. 43.1 50.5 39.6 45.1 46.3 47.2 43.5 46.6 46.9
General and administra-
tive.................. 12.4 9.9 12.5 14.9 17.8 14.9 15.1 14.3 14.1
----- ----- ----- ----- ----- ----- ----- ----- -----
Total operating ex-
penses................ 72.9 81.6 71.5 78.4 83.2 81.7 76.1 77.9 80.5
----- ----- ----- ----- ----- ----- ----- ----- -----
Operating income (loss). 3.9 (3.1) 15.4 6.3 4.0 5.2 11.4 8.1 6.4
Other income (expense),
net.................... (1.3) 3.2 (1.4) (2.4) (1.0) (0.8) (1.1) (0.9) (0.7)
----- ----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)....... 2.4% 0.1% 14.0% 3.9% 3.0% 4.4% 10.3% 7.2% 5.7%
===== ===== ===== ===== ===== ===== ===== ===== =====
Gross profit:
Software licensing..... 88.6% 89.8% 92.6% 90.5% 94.8% 95.3% 95.1% 93.9% 93.6%
Service, maintenance
and other............. 67.3 67.8 81.9 79.4 81.3 80.2 79.4 76.7 80.3
</TABLE>

The Company's revenues and operating expenses increased sequentially in each
quarter of 1996 and software licensing revenues decreased in the first quarter
of 1997. The Company believes the decrease in software licensing revenues was
primarily due to the buying patterns and budgeting cycles of its customers.
The increases in revenues and operating expenses during 1996 were primarily
attributable to the increase in Mercator-related revenues as well as Mercator-
related product development and sales and marketing expenses. While the
Company has not historically experienced any significant seasonal fluctuations
in its revenues or results of operations, it is not uncommon for software
companies to experience strong fourth quarters followed by weaker first
quarters, in some cases with sequential declines in revenues or operating
profit. The Company believes that many software companies exhibit this pattern
in their sales cycles primarily due to customers' buying patterns and budget
cycles. There can be no assurance that the Company will not display this
pattern in future years.

28
<PAGE>

the success of the Company in penetrating international markets; the buying
patterns and budgeting cycles of customers; personnel changes, difficulty in
attracting and retaining qualified sales, professional services and research
and development personnel and the rate at which such personnel become
productive; and general economic conditions. In particular, the ability of the
Company to achieve growth in the future will depend on its success in adding a
substantial number of sales, professional services and research and
development personnel. Competition for such personnel is intense and there can
be no assurance the Company will be able to attract and retain these
personnel.

The Company's future revenues will also be difficult to predict and the
Company has, in the past, failed to achieve its revenue expectations for
certain periods. The Company's expense levels are based, in part, on its
expectation of future revenues, and expense levels are, to a large extent,
fixed in the short term. The Company may be unable to adjust spending in a
timely manner to compensate for any unexpected revenue shortfall. If revenue
levels are below expectations for any reason, operating results are likely to
be materially and adversely affected. Net income may be disproportionately
affected by a reduction in revenues because a large portion of the Company's
expenses is related to headcount that cannot be easily reduced without
adversely affecting the Company's business. In addition, the Company currently
intends to increase its operating expenses by expanding its research and
product development staff, particularly research and development personnel to
be devoted to the Company's Mercator product line, increasing its professional
services and sales and marketing operations, expanding distribution channels
and hiring personnel in other operating areas. The Company expects to
experience a significant time lag between the date professional services,
sales and technical personnel are hired and the date such personnel become
fully productive. The timing of such expansion and the rate at which new
technical, professional services and sales personnel become productive as well
as the timing of the introduction and success of new distribution channels
could cause material fluctuations in quarterly results of operations.
Furthermore, to the extent such increased operating expenses precede or are
not subsequently followed by increased revenues, the Company's business,
operating results and financial condition could be materially and adversely
affected.

LIQUIDITY AND CAPITAL RESOURCES

The Company has funded its operations to date primarily through private
sales of equity securities, totaling approximately $7.9 million (as of March
31, 1997), and its $4.0 million bank line of credit and cash generated from
operations. On May 15, 1997, the Company raised an additional $1.0 million
through the sale of Preferred Stock to Mitsui & Co., Ltd. and two other
foreign investors. Operating activities provided (used) net cash of $1.3
million, $1.3 million, $730,000 and $(546,000) during 1994, 1995, 1996 and the
first quarter of 1997, respectively. The Company generated net cash from 1994
through 1996 primarily as a result of its improved profitability during these
periods.

Investing activities (used) net cash of $(237,000), $(354,000), $(828,000)
and $(198,000) during 1994, 1995, 1996 and the first quarter of 1997,
respectively, primarily to fund capital expenditures needed to support
expansion of the Company's business. Financing activities generated (used) net
cash of $(818,000), $(1.3 million), $(102,000) and $787,000, for 1994, 1995,
1996 and the first quarter of 1997, respectively, from (repayments) borrowings
of debt. Since December 31, 1996, the Company has experienced an increase in
accounts receivable. In March 1997, additional borrowings were required to
fund higher levels of receivables. As of March 31, 1997, the Company had
outstanding borrowings of $3.6 million under its $4.0 million bank line of
credit. See "Risk Factors--Management of Growth."

As of March 31, 1997, the Company had debt obligations consisting of $3.6
million in borrowings outstanding under its bank line of credit and $115,000
of capital lease obligations. The Company repaid $1.0 million of outstanding
indebtedness under its bank line of credit in May 1997 with the proceeds from
the sale of Preferred Stock in May 1997. At December 31, 1996, the Company
also had commitments under operating lease agreements totalling $4.8 million
through 2012, including $787,000 for 1997. See Note 10 of Notes to Financial
Statements.

29
<PAGE>

Capital expenditures have been, and future capital expenditures are
anticipated to be, primarily for facilities, equipment and computer software
to support expansion of the Company's operations. As of March 31, 1997, the
Company had no material commitments for capital expenditures. The Company's
bank line of credit generally limits capital expenditures to $400,000 per
quarter.

At March 31, 1997, the Company had $79,000 in cash. The Company typically
operates with a relatively small amount of cash at the end of any quarter and
meets any of its additional cash needs with its bank line of credit that
expires in November 1998. The maximum amount that can be borrowed under the
bank line of credit is $4.0 million, with borrowings limited to a percentage
of eligible accounts receivable and term contracts, plus the amount of the
bank line of credit guaranteed by the Connecticut Development Authority
($600,000 as of March 31, 1997). Borrowings may take the form of prime rate
loans (which bear interest at the bank's prime rate plus 1.0%) or LIBOR rate
loans (which bear interest at the applicable LIBOR rate plus 3.0%) and, at
March 31, 1997, the weighted average interest rate on amounts outstanding
under this credit line was 8.92%. The Company's obligations under this credit
line are secured by substantially all of the Company's assets. The bank line
of credit contains certain financial covenants and also prohibits cash
dividends, mergers and acquisitions. The Company is currently in compliance
with these covenants. See Note 5 of Notes to Financial Statements.

The Company believes that the net proceeds from this offering, together with
its current cash and cash equivalent balances, its line of credit and net cash
generated by operations, will be sufficient to meet its anticipated cash needs
for working capital, capital expenditures and business expansion for at least
the next 12 months. Thereafter, if cash generated by operations is
insufficient to satisfy the Company's operating requirements, the Company may
seek additional debt or equity financing. There can be no assurance that such
financing will be available on terms acceptable to the Company. The sale of
additional equity or debt securities could result in dilution to the Company's
stockholders.

30
<PAGE>

BUSINESS

INTRODUCTION

The Company is a leading provider of software and related services that
enable organizations to integrate their business applications both internally
and with external business partners. The Company's flagship product, Mercator,
is a data transformation engine which permits enterprises to exchange
information between internal systems, implement and integrate advanced
client/server applications such as SAP's R/3 ERP system and to integrate EDI
data and Web-based applications with their core business systems. To date, the
Company has directly licensed its products to over 6,000 customers worldwide,
representing a broad range of industries. The Company's customers include
Allegiance Corporation, American Express Travel Related Services, Inc., CIGNA
Corporation, Citibank, N.A., Federal Express Corporation, Hewlett-Packard
Company, Hoechst AG, International Business Machines Corporation, Lucent
Technologies, Inc., NYNEX Corporation and Prudential Insurance Company of
America.

INDUSTRY BACKGROUND

As enterprise computing has evolved, corporations have deployed systems and
software in an effort to improve business processes, reduce costs and increase
organizational effectiveness. Organizations are now faced with a proliferation
of software applications and an increasingly heterogeneous and disparate
computing environment across the enterprise. At the same time, organizations
are increasingly seeking to integrate their various business processes and the
applications that support them through such initiatives as business process
reengineering, supply chain management projects and Web-based electronic
commerce. For many organizations, these factors have made it increasingly
critical yet substantially more difficult to provide application-to-
application interoperability and to share information within and beyond the
enterprise.

The number of applications deployed throughout the enterprise has increased
dramatically, now including both enterprise-wide systems such as SAP's R/3 and
function-specific applications such as sales force automation or customer
support. In addition to purchasing applications from independent software
vendors, most organizations continue to run customized, internally developed
solutions for specific applications. The proliferation of both internally
developed and third party applications has both increased the need to
integrate applications and has greatly complicated the integration process.

As the number of applications has increased, the number and variety of the
computing platforms and systems on which they run has also grown
significantly. The evolution of computing from mainframes to client/server and
then to the Internet and corporate intranets has not led to the emergence of a
single preferred platform, but rather has resulted in a coexistence among new
and legacy architectures. The number of technology architectures being
supported is, in fact, increasing. According to Sentry Market Research, the
typical large organization has an average of 13 different operating systems
and 10 different Database Management Systems ("DBMSs") today, as compared with
6 different operating systems and 5 different DBMSs in 1993. This diversity
compounds the difficulty faced by organizations in providing application-to-
application integration.

In addition to these technological trends within the enterprise, the number
of externally linked business partners is increasing. Many corporations,
seeking to improve their market responsiveness, competitive position and
internal efficiency are creating extended "virtual" organizations among
suppliers and customers using electronic commerce technology. Electronic
commerce, which combines standards for exchanging data such as EDI with low-
cost methods for data transport such as the Internet, now accounts for a wide
variety of business transactions including, among others, electronic payments,
purchase orders, invoices, health claims and mortgage applications. The
proliferation of partners, each with its own internal systems and
applications, and the increased demand for creating electronic information
flows across both the supply and demand chains, have exacerbated the
difficulty in integrating applications between business partners.

Historical approaches to integrating applications have been expensive,
difficult to implement and maintain, and limited in their effectiveness. For
example, the costs of integrating R/3 with existing systems

31
<PAGE>

often equals or exceeds the cost of the R/3 application software itself.
Similarly, the cost of integrating EDI with an organization's business
applications often can be the largest single cost component of implementing
EDI solutions. Traditionally, organizations have approached the integration
problem on a case-specific basis, writing individual programs to allow
applications to share information for a specific task or use. Such custom
coding is time consuming, prone to error, inflexible and difficult to maintain
over time. In addition, an individual solution coded for one specific
application generally cannot be used for other integration needs. As the
number of potential interfaces grows with each new application, the inability
to leverage these home-grown solutions becomes increasingly problematic.
Although some software tools are available to assist developers with the
integration task, most are "point" solutions designed for specific platforms,
applications, DBMSs or data formats and typically require custom coding to
create complete solutions.

As a result, organizations require a new approach to integrating business
applications, both within the enterprise and with external business partners.
A comprehensive, off-the-shelf solution is needed that can be rapidly
implemented and easily maintained, does not require custom interface programs,
and supports a heterogenous mix of platforms, architectures, databases and
third-party applications.

TSI INTERNATIONAL'S SOLUTION

TSI International develops and markets software products and related
services that allow organizations to facilitate the exchange of information
between enterprise applications as well as with external business partners.
Key benefits of the TSI International solution include:

Comprehensive Internal and External Solution. TSI International delivers
comprehensive solutions for integrating business applications both within the
enterprise and between business partners. Mercator achieves this by
transforming the business data from any application so that it can be used by
other applications without modifying the applications, without regard to the
number of applications involved, and despite differing data structures, syntax
or business rules. In addition, Mercator is scaleable to support mission-
critical enterprise integration requirements. The Company's EDI solutions
permit its customers to exchange information with business partners and to
integrate EDI data with back office applications. The Company provides
external integration solutions which leverage the Internet as a transport
mechanism for EDI and allow enterprises to integrate Web-based applications
and transactions with existing enterprise systems.

Broad Application, Platform and Data Type Support. To satisfy the wide-
ranging needs of large organizations, TSI International's solutions provide
comprehensive application, platform and data type support. Mercator can be
used to integrate internally developed as well as third party systems
regardless of the vendor of an application, the tools or programming language
in which the application is written or the standards on which the application
is based. Mercator links applications running on a wide variety of operating
systems running on popular PC and UNIX systems, such as HP, Sun Solaris and
RS/6000, as well as IBM mainframes and Digital, AS/400 and Stratus hardware.
Mercator transforms data in any format, including user defined, proprietary
formats, industry standard formats such as EDI, IDocs (SAP applications) and
HL7 (healthcare standard for clinical information), and the Company's EDI
solutions support the full range of EDI standards, both national and
international.

Pre-Packaged R/3 Solution. The Company's Mercator for R/3 product is an off-
the-shelf solution enabling customers of SAP's R/3 to more easily integrate
R/3 modules with legacy and third-party applications. Mercator for R/3 was the
first product to be certified by SAP for use with its ALE architecture, the
standard SAP has developed for interfacing with R/3. Mercator for R/3 extends
the Company's core Mercator product by providing tools to automatically
capture R/3 data definitions and adapters for integrating with R/3's inter-
application messaging system. Mercator for R/3 allows enterprises to preserve
the value of legacy data, utilize best-of-breed software applications and
reduce the cost of implementing R/3 in distributed computing environments.

32
<PAGE>

Ease of Implementation. The Company's Mercator and Trading Partner products
are off-the-shelf products which install easily and are designed to provide a
rapid return on investment. With Mercator, information technology ("IT")
professionals use a graphical user environment to create complete data
transformation solutions without the need to write custom interfaces or tailor
individual modules of code. Mercator provides a set of pre-built "plug-ins,"
including adapters for specific applications, transactions, DBMSs, and
messaging systems, in order to simplify development of business application
integration solutions. The Company's EDI products enable users to be
"commerce-ready" with little or no customization required.

STRATEGY

The Company's strategy is to be the leading supplier of software solutions
and related services for integrating business applications within the
enterprise and between business partners. Key elements of the Company's
strategy include:

Leverage and Extend Technology Leadership. The Company intends to continue
to extend its leading application integration technologies. Mercator for R/3
was the first product certified by SAP for ALE. The Company continually seeks
to leverage its core Mercator technology by developing pre-packaged solutions
for additional third party applications, data formats, DBMSs, messaging
systems and computing platforms. The Company is the leading provider of
Windows-based EDI software and has recently introduced Trading Partner PC/32,
the first EDI product designed for Windows 95 and Windows NT.

Target the Enterprise Application Market. The Company believes that
significant opportunity exists for software solutions which enable enterprise
wide ERP systems to be integrated with other applications throughout the
organization. In addition to its core Mercator products, the Company currently
markets Mercator for R/3 for users of SAP's R/3 and intends to develop and
market additional pre-packaged versions of Mercator with functionality
targeted specifically at other popular enterprise application suites.

Expand Distribution Channels. In addition to its direct sales force, the
Company is creating marketing programs to focus on third-party vendors of
application software, connectivity tools, systems integration services and
other products and services which complement the Company's core capabilities.
The Company believes that such relationships can provide market visibility for
the Company's products, additional sales opportunities, and an additional
source of services and technical support for the Company's customers. The
Company intends to expand these third-party channels in both domestic and
international markets in addition to continuing to expand its direct sales
force.

Leverage Customer Base. The Company intends to market its products and
services in order to expand their use within existing customer accounts. The
Company believes significant opportunity exists to increase the number of
Mercator licenses sold to its existing Mercator and Trading Partner customers.
In addition, the Company believes that its customers are increasingly pursuing
emerging applications such as Web-based electronic commerce and data
warehousing initiatives and that this provides an opportunity to use Mercator
to integrate these new applications with existing enterprise systems.

Expand Professional Services Capability. As the Company's solutions have
become more central to mission critical applications, there has been an
increased demand for comprehensive service offerings to complement the
Company's products. The Company intends to increase the number of its service
professionals and the scope of its service offerings with the goal of
maximizing license revenues from sales of its products. The Company expects
its service offerings to be focused on opportunities and projects which the
Company believes can lead to widespread deployments of Mercator within an
enterprise. The Company intends to augment its own service offerings by
seeking strategic relationships with major system integrators and other
service providers.

33
<PAGE>

PRODUCTS AND SERVICES

The Company's business application integration products include two software
product lines, the Mercator family and the Trading Partner family. The
following table depicts the Company's current business application integration
product offerings and suggested list prices:

<TABLE>
<CAPTION>
ORIGINAL MOST
PRODUCT NAME RELEASE DATE RECENT RELEASE US SUGGESTED LIST PRICE (1)
------------------------------------- ------------ -------------- ---------------------------
<C> <C> <C> <S>
MERCATOR PRODUCTS:
Mercator:
Authoring System.................. 12/93 5/96 $3,000/seat
Execution Engines................. 12/93 5/96 from $600 Windows/DOS to
$50,000 mainframe
Mercator for R/3..................... 6/96 6/96 from $37,500/system
TRADING PARTNER PRODUCTS:
Trading Partner PC................... 6/88 2/97 $1,495
Trading Partner PC/32................ 10/96 10/96 $1,995
Trading Partner Kits................. 10/92 various from $295
Trading Partner EC................... 11/90 10/95 $75,000
</TABLE>
- --------
(1) The terms and conditions, including sales prices and discounts from list
prices, of individual license transactions may be negotiated based on
volumes and commitments and may vary considerably from customer to
customer.

Mercator Products

The Company's flagship Mercator family of products is an integrated set of
tools used by IT professionals to integrate data between different business
applications. Mercator was initially released in December 1993 and, as of
March 31, 1997, had been licensed to more than 870 customers worldwide.

Mercator. Mercator enables application integration by transforming or
mapping data between and among the unique data formats of business
applications. It provides a Windows-based Authoring System which is used to
define data formats and mapping solutions, and separate run-time Execution
Engines for map execution. Complete data transformations can be created
without writing custom interface programs. Mercator requires no pre-processing
of data prior to mapping, can transform data between multiple sources and
destinations in a single process, and supports map execution on a wide range
of platforms. Customers who deploy a map to run on multiple platforms also
license an Execution Engine for each platform. The Company currently offers
Execution Engines for Window 3.1, Windows 95, Windows NT, PC DOS, SCO UNIX,
HP-UX, Sun Solaris/OS, AIX, Alpha NT, Digital UNIX, VAX VMS, Open VMS, OS/400,
Stratus FTX, VOS and Continuum, MVS, and MVS/CICS.

Mercator for R/3. Initially released in June 1996, Mercator for R/3 is a
version of Mercator that includes specific extensions to meet the needs of R/3
integration. Mercator for R/3 was the first software product to be certified
by SAP for use with its ALE architecture. Mercator for R/3 extends the core
Mercator product by providing tools to automatically capture R/3 data
definitions, and adapters for integrating with R/3's inter-application
messaging system. In addition, Mercator for R/3 provides data transformation
support for other R/3 data conversion and interfacing requirements including
the initial conversion of data to R/3 from existing systems and interfaces
with data warehouses.

Trading Partner Products

The Company's Trading Partner products consist of a set of EDI management
software products and include Trading Partner PC, a Windows-based product, and
Trading Partner EC, a mainframe-based product.

34
<PAGE>

The Trading Partner products can be sold as stand-alone EDI products, but are
often sold in conjunction with Mercator products to enable businesses to both
manage their EDI relationships and to integrate their EDI data into enterprise
applications. Trading Partner products allow customers to communicate with
their partners through direct connections, VANs or the Internet.

Trading Partner PC. Introduced in 1989, Trading Partner PC was the first
Windows-based EDI translator in the United States and has been licensed to
more than 5,000 businesses worldwide. In October 1996, the Company introduced
Trading Partner PC/32, the first Windows 95 desktop solution in the market.
The Company has developed more than 100 "kits" which support a particular
trading partner's EDI specifications and provide "plug and play" solutions for
EDI trading. The Company markets kits for many major EDI trading partners
including Compaq Computer Corporation, International Business Machines
Corporation, J.C. Penney Company, Inc., Sears, Roebuck and Company, Target
Stores and Wal-Mart Stores, Inc. The Company's OnCall*EDI products are a
series of EDI kits for electronic purchasing for the health care provider
market and has been licensed to more than 1,100 hospitals.

Trading Partner EC. Trading Partner EC is a mainframe-based EDI translation
product which provides EDI management capability for companies with large EDI
programs. It includes Mercator as its core data transformation engine and
offers the user the means to integrate EDI data directly into applications
without the need to write custom interface programs commonly required by other
translator products. Using Mercator, customers who plan to migrate their EDI
program from the mainframe can do so without incurring additional cost and
effort for recreating their EDI interfaces. Trading Partner EC and its
predecessor product have been licensed to more than 200 businesses worldwide.

KEY/MASTER

In addition to the Company's applications integration products described
above, the Company licenses and supports KEY/MASTER, a legacy data entry
product which is used on mainframe terminals or PCs on local area networks,
and is the leading software product for automating the key entry of high
volume, repetitive data from business documents. KEY/MASTER has been licensed
to more than 900 customers worldwide. Because KEY/MASTER is a mature product,
revenues derived from KEY/MASTER are primarily maintenance-related and the
Company expects in the future to make only minor investments in KEY/MASTER to
meet the needs of its current installed base.

Services

Professional Services. The Company offers consulting and professional
services to customers who wish to have the Company's professionals plan,
design or implement their application integration projects. The Company
intends to expand the number of service professionals and the scope of the
services offered as it continues to address the enterprise application
integration needs of large organizations. The Company believes that
enterprises implementing the R/3 system in particular represent a significant
opportunity for the Company to market its professional services in support of
Mercator for R/3.

Training. In order to assure that its customers are successful in using its
products, the Company provides training in its four training centers or at
customer locations. The Company offers a number of courses ranging from two to
five days in length with educational content including basic product
functionality and hands-on use of the product. The Company recommends that its
Mercator customers attend a basic three-day training course and believes that
a majority of its Mercator customers elect to participate in such training.

CUSTOMERS

As of March 31, 1997, the Company had directly licensed its software to more
than 6,000 customers worldwide. Numerous others have licensed the Company's
products through VARs, ISVs, SIs or other third parties who distribute its
products to business partners to facilitate the integration of their
respective business applications.

35
<PAGE>

The Company's customer base includes businesses from many industries,
including finance, banking, healthcare, technology, government, retail,
manufacturing, automotive, oil and gas, utilities, communications, insurance
and transportation. The following is a partial list of the Company's end user
and third party Mercator customers:

END USER CUSTOMERS VARS, ISVS AND SIS
_________________________________ _________________________________
<S> <C>
Blue Cross Blue Shield of Massachusetts Actra Business Systems LLC
Canadian National Railway Company Allegiance Corporation
CIGNA Corporation American Express Travel Related Services, Inc.
Deere & Company American Software, Inc.
Dun & Bradstreet ARI Services Network, Inc.
Eastman Kodak Company Axolotl Corp.
First Chicago NBD Corporation CEBRA Inc.
General Mills, Inc. Citibank, N.A.
Georgia-Pacific Corporation Compaq Computer Corporation
Hoechst AG Connect, Inc.
Home Savings of America Federal Express Corporation
LitleNet, Inc. GTE Data Services Incorporated
Lucent Technologies Inc. HBO & Company
Nestle Canada, Inc. Hewlett-Packard Company
NYNEX Corporation International Business Machines Corporation
Petroleos de Venezuela, S.A. Pivotpoint, Inc.
Prudential Insurance Company of America RS Information Systems, Inc.
Royal Canadian Mounted Police S2 Systems, Inc.
Sara Lee Hosiery, Inc. Software Consulting Partners, Inc.
The Toronto Dominion Bank
</TABLE>

SALES AND MARKETING

Sales

The Company markets its products and services through both direct and third
party channels. The Company's goal is to achieve broad market penetration by
pursuing multiple channels of distribution.

As of March 31, 1997, the Company's sales organization consisted of 49
employees. The Company's direct field sales force focuses on sales of Mercator
and Trading Partner products to Fortune 1000 companies. The Company also
maintains a telesales organization as part of its direct sales force which
generally targets smaller businesses. The field sales force also includes
alternate channel managers who are responsible for sales through third
parties. The sales organization includes systems engineers who assist with
both pre- and post-sales activities.

An important part of the Company's sales strategy is to continue to develop
its indirect distribution channels such as VARs, ISVs, SIs and distributors.
As of March 31, 1997, approximately 45 third parties had agreements with the
Company to resell, embed or otherwise bundle the Company's products with their
offerings in the United States. See "Risk Factors -- Dependence Upon
Development of Distribution Channels."

The Company markets its products and services outside of North America
through a sales office located in the United Kingdom and through indirect
channels. Although revenues from international customers were approximately
10% of the Company's total revenues during 1996 and the first quarter of 1997,
the international market is important to the Company, and it intends to expand
its sales and marketing efforts

36
<PAGE>

outside North America by adding distributors and additional sales staff. See
"Risk Factors--Risks Associated with International Expansion."

Marketing

The Company utilizes a wide variety of marketing programs which are intended
to attract potential customers and to promote the Company and its brand names.
The Company uses a mix of market research, analyst updates, seminars, direct
mail, print advertising, tradeshows, speaking engagements, public relations,
customer newsletters, and Web site marketing in order to achieve these goals.
The marketing department also produces collateral material for distribution to
prospects including demonstrations, presentation materials, white papers,
brochures, fact sheets, and materials that are specific to the area of
interest. The Company also hosts an annual user conference for its customers
and maintains an Alliance Program designed to support its channel partners
with a variety of programs, incentives, support plans and an annual
conference. As of March 31, 1997, there were 10 employees in the Company's
marketing organization.

TECHNOLOGY

The Company's core Mercator technology provides a platform for creating data
transformation solutions which satisfy application integration requirements
across a variety of computing environments. The architecture of the Mercator
platform is based on object concepts, providing reusability, interoperability
and scaleability during the design process and in the resulting solutions. The
Mercator platform permits the Company to efficiently construct and deliver
integration solutions for specific markets and also allows ISVs and SIs to
embed Mercator functionality within their own offerings.

The central components of the Mercator platform are a Windows-based
Authoring System for creating data transformation "maps" and one or more run-
time Execution Engines for map execution. A map is an executable module that
describes the required transformation and re-ordering of data between source
and destination objects such as files, databases, applications and messages.
The Authoring System provides an intuitive drag-and-drop environment for
defining the source and destination data objects, defining the rules for
mapping the sources to the destinations, and building the resulting map
object. Map objects built using Mercator can be ported automatically to any of
19 different execution environments.

37
<PAGE>

[Set forth on this page is an oval shaped graphic. Within the oval are two
rectangular boxes each with a caption heading, top to bottom, "Authoring System"
and "Execution Engine." Also within the oval is an oval with a caption "Map
Object" with a line from each of the boxes. The oval has an additional oval,
labeled "Transaction Workflow Management *" surrounding it and three additional
ovals below the oval, connected by lines, labeled "Adapters," "Importers" and
"Application Solutions," from left to right, respectively.]

[FLOWCHART OF THE MERCATOR PLATFORM APPEARS HERE]

* Available in the second half of 1997

Descriptions of source and destination objects are entered by the user
through Mercator's graphical interface. To simplify data definition, the
Company provides pre-packaged objects for a number of commonly used data
standards and the Company also provides importers for creating objects from
higher level (meta) data definitions. Data object definitions within Mercator
include information regarding their format, structure and business rules,
which eliminates the need to explicitly identify the context of a data object
during map construction and maintains the logical integrity of the resulting
mapping solution.

Once the source and destination objects have been defined, the user creates
maps by specifying the rules for transforming data from the sources to the
destinations. For many mapping tasks, the user need only "drag" a source
object and "drop" it on the destination object. Multiple data sources can be
transformed to multiple destinations in a single mapping operation. The user
has point-and-click access to a variety of pre-built functions to enhance the
mapping rules including support for selection, extraction, computation,
logical operations, parsing, substitution, re-ordering, validation and
conversion.

Using Mercator's Authoring System, map objects are built and tested in the
Windows environment. The resulting Mercator map can be implemented using a
Mercator Execution Engine appropriate to the target platform. Target platforms
currently supported include Windows 3.1, Windows 95, Windows NT, PC DOS, SCO
UNIX, HP-UX, Sun Solaris/OS, AIX, Alpha NT, Digital UNIX, VAX VMS, Open VMS,
OS/400, Stratus FTX and VOS, MVS, and MVS/CICS.

The Company provides adapters and importers which interface to and from
specific databases, messaging systems, and applications enabling connectivity
to a specific source or destination that can be defined directly within a
mapping operation. Adapters are currently available for ODBC-compliant
databases, Oracle7 databases, and SAP's ALE. The Company is developing
adapters for additional databases and messaging systems including MQSeries,
IBM's enterprise messaging software. Importers are currently available for
COBOL copybooks, database tables for ODBC-compliant and Oracle7 databases, and
R/3 IDocs. In addition, the Company provides pre-packaged data objects for
national and international standards for EDI and data definitions for specific
industries such as healthcare and transportation.

38
<PAGE>

Mercator was architected so that adapters and importers can be added without
modifying the core Mercator technology. Mercator for R/3, for example, is a
packaged offering which leverages the core Mercator Authoring System and
Execution Engines by providing adapters for communicating with SAP's ALE
architecture and importers for R/3 data definitions ("IDocs"). The Company's
other products also leverage Mercator's core technology. The underlying EDI
translation support for OnCall*EDI is provided by Mercator and Trading Partner
EC incorporates Mercator as the data integration component for integrating EDI
data with existing applications. In addition, the Company's customers can use
Mercator to create their own applications where embedded data transformation
is a requirement.

PRODUCT DEVELOPMENT

Since inception, the Company has made substantial investments in research
and development through both internal development and technology acquisition.
The Company expects that most of its enhancements to existing products and new
products will be developed internally. However, the Company will evaluate on
an ongoing basis externally developed technologies for integration into its
product lines.

The Company expects that a substantial majority of its research and
development activities will be related to developing enhancements and
extensions to its Mercator and Trading Partner product lines. Following
Mercator's introduction, product development was initially driven by demand
for additional mapping functionality and support for additional execution
platforms. Later, development focus shifted to automating Mercator support for
specific sources and destinations through an expanded set of adapters and
importers, and development of additional pre-packaged integration solutions
for specific markets.

During the second half of 1997, the Company intends to add a graphical
transaction workflow management tool to the core set of Mercator capabilities.
This tool is designed to support graphical design and specification of
transaction workflows, sources and destinations for maps, triggering events,
and options for map execution. In addition, the Company is currently beta
testing a scaleable client/server offering for electronic commerce which is
based on Mercator technology. The Company intends to release this product in
the second half of 1997. Shipment of the product for selected hardware and
software platforms is expected to occur during the fourth quarter of 1997.

As of March 31, 1997, there were 40 employees in the Company's research and
development organization, more than half of which was dedicated to Mercator.
The Company's product development expenditures for 1994, 1995, 1996 and the
first quarter of 1997 were $2.2 million, $3.1 million, $3.4 million and $1.1
million, respectively. The Company expects that it will continue to commit
significant resources to product development in the future. To date, all
product development expenses have been expensed as incurred.

The market for the Company's products and services is characterized by
extremely rapid technological change, frequent new product introductions and
enhancements, evolving industry standards, and rapidly changing customer
requirements. The introduction of products incorporating new technologies and
the emergence of new industry standards could render existing products
obsolete and unmarketable. The Company's future success will depend in part
upon its ability to anticipate changes and enhance its current products and
develop and introduce new products that keep pace with technological
advancements and address the increasingly sophisticated needs of its
customers. See "Risk Factors -- Risks Associated with Technological Change,
Product Enhancements and New Product Development."

CUSTOMER SUPPORT

The Company believes that a high level of customer service and support is
important to its success, and the Company provides a range of support services
to its customers. The Company maintains product and technology experts on call
at all times and has support call centers located at its offices in Wilton,
Connecticut; Bannockburn, Illinois; and Boca Raton, Florida in the United
States and in its United Kingdom office. The Company is currently installing
an automated Company-wide help desk system to augment its customer support
efforts. This system is currently expected to be implemented during the third
quarter of 1997.

39
<PAGE>

COMPETITION

In the business application integration market, the Company's Mercator
products and related services compete primarily against solutions developed
internally by individual businesses to meet their specific business
application integration needs. As a result, the Company must educate
prospective customers as to the advantages of the Company's products and
services as opposed to internally developed solutions and there can be no
assurance that the Company will be able to adequately educate potential
customers to the benefits provided by the Company's products and services. In
the EDI market, the Company's Trading Partner products compete with products
offered by companies offering proprietary VAN services as part of their EDI
solution and the Company's PC-based Trading Partner products also compete with
PC-based products offered by a number of other EDI software vendors.

PROPRIETARY TECHNOLOGY

40
<PAGE>

can be no assurance that the steps taken by the Company will prevent
misappropriation of its technology, and such protections do not preclude
competitors from developing products with functionality or features similar to
the Company's products. Furthermore, there can be no assurance that third
parties will not independently develop competing technologies that are
substantially equivalent or superior to the Company's technologies. In
addition, effective copyright and trade secret protection may be unavailable
or limited in certain foreign countries. Any failure by or inability of the
Company to protect its proprietary technology could have a material adverse
effect on the Company's business, operating results and financial condition.

Although the Company does not believe its products infringe the proprietary
rights of any third parties, there can be no assurance that infringement
claims will not be asserted against the Company or its customers in the
future. Furthermore, the Company may initiate claims or litigation against
third parties for infringement of the Company's proprietary rights or to
establish the validity of the Company's proprietary rights. Litigation, either
as plaintiff or defendant, would cause the Company to incur substantial costs
and divert management resources from productive tasks whether or not such
litigation is resolved in the Company's favor, which could have a material
adverse effect on the Company's business, operating results and financial
condition. Parties making claims against the Company could secure substantial
damages, as well as injunctive or other equitable relief which could
effectively block the Company's ability to license its products in the United
States or abroad. Such a judgment could have a material adverse effect on the
Company's business, operating results and financial condition. If it appears
necessary or desirable, the Company may seek licenses to intellectual property
that it is allegedly infringing. There can be no assurance, however, that
licenses could be obtained on commercially reasonable terms, if at all, or
that the terms of any offered licensed will be acceptable to the Company. The
failure to obtain the necessary licenses or other rights could have a material
adverse effect on the Company's business, operating results and financial
condition. As the number of software products in the industry increases and
the functionality of these products further overlaps, the Company believes
that software developers may become increasingly subject to infringement
claims. Any such claims, with or without merit, can be time consuming and
expensive to defend and could adversely affect the Company's business,
operating results and financial condition. There are currently no pending
claims that the Company's products, trademarks or other proprietary rights
infringe upon the proprietary rights of third parties. See "Risk Factors --
Dependence on Proprietary Technology."

EMPLOYEES

As of March 31, 1997, the Company had 151 full-time employees, including 40
in research and development, 34 in professional services and customer support,
59 in sales and marketing and 18 in finance and administration. The Company's
employees are not represented by any union and the Company believes that its
relations with employees are good. See "Risk Factors -- Dependence on Key
Personnel; Need to Attract and Retain Sales, Professional Services and
Technical Personnel."

FACILITIES

The Company's principal executive offices are located in Wilton, Connecticut
and consist of approximately 19,000 square feet under a lease expiring in
2001. The Company also leases approximately 12,000 square feet of office space
in Bannockburn, Illinois which is used primarily for its telesales operations,
approximately 8,500 square feet of office space in Boca Raton, Florida, which
is used primarily for research and development activities and approximately
3,200 square feet of office space in the United Kingdom. All of the Company's
offices have fully-equipped training centers. The Company believes that its
existing facilities are adequate to support its current needs and that, if
needed, suitable additional facilities will be available on commercially
reasonable terms.

41
<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS

The executive officers, key employees and directors of the Company are as
follows:

<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
-------------------------------- --- ----------------------------------------
<S> <C> <C>
Constance F. Galley(1).......... 55 President and Chief Executive Officer
and Director
Eric A. Amster.................. 43 Vice President, Sales
Robert Bouton................... 56 Vice President, Marketing
Ira A. Gerard................... 49 Vice President, Finance and
Administration, Chief Financial Officer
and Secretary
Paul Lemme...................... 62 Vice President, Professional Services
James Monks..................... 41 Vice President, International Operations
David Raye...................... 36 Vice President, Operations
Edward J. Watson................ 59 Executive Vice President, Business
Development
Saydean Zeldin.................. 56 Vice President, Research and Development
Stewart K.P. Gross(1)(2)........ 37 Director
Ernest E. Keet(1)(2)............ 56 Director
John J. Pendray(1)(2)........... 57 Director
Dennis G. Sisco(1)(2)........... 50 Director
</TABLE>
- --------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee

Constance F. Galley has been President, Chief Executive Officer and a
director of the Company since 1985, when the Company commenced operating as an
independent entity. Prior to 1985, Ms. Galley directed the Company's Marketing
and Development Operations when the Company was part of the Dun & Bradstreet
Corporation. Ms. Galley is a member of the Board of Directors of the software
division of ITAA and is the Chairperson of SACIA, the Business Council of
Southwestern Connecticut. Ms. Galley holds a Bachelor of Arts degree in
Chemistry from Duke University.

Eric A. Amster has been Vice President, Sales since joining the Company in
December 1995. From February 1992 until December 1995, Mr. Amster was employed
by General DataComm Industries, Inc., a data communications company, where he
served most recently as Vice President of U.S. Federal and Commercial Sales.
Mr. Amster holds a Bachelor of Science degree in Computer Science from the
University of Maryland.

Robert Bouton has been Vice President, Marketing since joining the Company
in March 1992. Prior to March 1992, Mr. Bouton served in various sales and
marketing capacities in the software industry, including Vice President,
Marketing for CGI Systems. Mr. Bouton holds a Bachelor of Science degree in
Electrical Engineering from Cornell University.

Ira A. Gerard has been Vice President, Finance and Administration, Chief
Financial Officer and Secretary since joining the Company in October 1995.
From March 1994 to October 1995, Mr. Gerard served as Vice President and Chief
Financial Officer of Adage Systems International, Inc., an ERP software
company. From July 1993 to March 1994, Mr. Gerard was an independent
consultant. From December 1989 until July 1993, Mr. Gerard was employed by
Gestetner PLC, a photocopier and photographic equipment company, where he
served most recently as Vice President, Finance and Operations. Mr. Gerard
holds a Bachelor of Arts degree in Economics from Union College and a Master
of Business Administration from Harvard University.

42
<PAGE>

Paul Lemme has been the Vice President, Professional Services since joining
the Company in April 1990. Prior to 1990, Mr. Lemme was President of P. Lemme
& Associates, an EDI implementation consulting company. Mr. Lemme is the
author of the book "EDI Success." Mr. Lemme attended The State University of
Iowa.

James Monks has been Vice President, International Operations of the Company
since May 1997 and was Director, International Operations of the Company from
May 1992 until May 1997. From May 1989 until May 1992, Mr. Monks served as the
Company's Director of European Operations and from April 1985 until May 1989,
Mr. Monks served as the Company's U.K. Manager. Prior to April 1985, Mr. Monks
held various technical support and management positions with the Company when
the Company was a part of the Dun & Bradstreet Corporation. Mr. Monks holds an
Honours Degree in Sports Science and Geography from the University of
Loughborough, U.K.

David Raye has been the Vice President, Operations of the Company since June
1994. From August 1992 until May 1994, Mr. Raye served as Vice President,
KEY/MASTER Operations. From August 1991 until July 1992, Mr. Raye served as
the Company's Director of Operations. Prior to August 1991, Mr. Raye served in
various management capacities in the software industry including Director of
Marketing for Information Sciences and Senior Product Marketing Manager for
On-Line Software, International. Mr. Raye holds a Bachelor of Science degree
in Marketing from Rutgers University and a Master of Business Administration
from St. John's University, New York.

Edward J. Watson has been Executive Vice President, Business Development of
the Company since June 1994. From January 1994 until June 1994, Mr. Watson
managed the Company's PC Division. From November 1990 until January 1994, Mr.
Watson was a consultant to the Company and a General Partner of DownEast
Partners, a consulting company. Prior to 1990, Mr. Watson served in various
management capacities in the software industry, including President of TSI
International (the predecessor of the Company) and Higher Order Software. Mr.
Watson is married to Ms. Saydean Zeldin, the Vice President, Research and
Development of the Company. Mr. Watson attended Oxford University.

Saydean Zeldin has been Vice President, Research and Development of the
Company since October 1994. From November 1990 to October 1994, Ms. Zeldin was
a consultant to the Company and a general partner at DownEast Partners, a
consulting company. Prior to 1990, Ms. Zeldin served in several senior
engineering positions in the software industry, including serving as Founder
and President of Touchstone Engineering, a software company that developed a
management planning system using artificial intelligence technology, and
Founder and Executive Vice President of Higher Order Software. Ms. Zeldin was
also responsible for the re-entry guidance development of the Apollo flight
software at the Instrumentation Laboratory, a laboratory of MIT. Ms. Zeldin is
married to Mr. Watson, the Executive Vice President, Business Development of
the Company. Ms. Zeldin holds a Bachelor of Arts degree in Physics from Temple
University.

Stewart K.P. Gross has served as a director of the Company since April 1993.
Mr. Gross is a Managing Director of E.M. Warburg Pincus & Co., LLC and has
been employed by E.M. Warburg Pincus & Co., LLC since 1987. Prior to 1987, Mr.
Gross was employed at Morgan Stanley & Co. Mr. Gross is a director of Vanstar
Corporation, BEA Systems and several privately-held companies.

Ernest E. Keet has served as a director of the Company since April 1985. Mr.
Keet is the Chief Executive Officer and a director of Axolotl Corp. and from
May 1995 until December 1996, was the President of Axolotl Corp. Mr. Keet has
been the President and a member of the Board of Directors of Vanguard Atlantic
Ltd. since April 1984. Mr. Keet also served as the Chairman and Chief
Executive Officer of ECsoft Ltd. from November 1989 to April 1994.

John J. Pendray has served as a director of the Company since April 1985.
Mr. Pendray has been an Executive in Residence at George Mason University
since November 1996. Prior to joining George Mason University, Mr. Pendray was
the President of the International Group at Cincinnati Bell Information
Systems from March 1993 to August 1996. From July 1992 to March 1993, Mr.
Pendray was an independent consultant. From 1985 until July 1992, Mr. Pendray
was a senior partner at Vanguard Atlantic, Ltd.

43
<PAGE>

Dennis G. Sisco has served as a director of the Company since January 1990.
From December 1988 until February 1997, Mr. Sisco was the President of D&B
Enterprises, Inc. (now Cognizant Enterprises, Inc.). From December 1988 until
February 1997, Mr. Sisco had also been employed by Cognizant Corporation and
its predecessor The Dun & Bradstreet Corporation, most recently as an
Executive Vice President. Mr. Sisco is also a director of the Gartner Group,
Inc., Oacis Healthcare Holdings Corporation and Aspect Development, Inc.

Directors are elected by the stockholders at each annual meeting of
stockholders to serve until the next annual meeting of stockholders or until
their successors are duly elected and qualified. Executive officers are chosen
by, and serve at the discretion of, the Board of Directors. The current
directors were elected pursuant to a stockholders' agreement pursuant to which
certain stockholders agreed to vote their shares to elect Messrs. Gross, Keet,
Pendray and Sisco and Ms. Galley to the Board of Directors. This agreement
will be terminated upon the closing of this offering. Except for Mr. Watson
and Ms. Zeldin, there are no family relationships among any of the Company's
directors or executive officers.

DIRECTOR COMPENSATION

The Company reimburses the members of its Board for expenses associated with
their attendance at Board meetings and at Board Committee meetings. None of
the members of the Board is entitled to receive fees for attendance at Board
meetings or at Board Committee meetings.

In May 1997, the Company adopted and the Company's stockholders approved the
1997 Directors Stock Option Plan (the "Directors Plan") and reserved a total
of 225,000 shares of the Company's Common Stock for issuance thereunder.
Members of the Board who are not employees of the Company, or any parent or
subsidiary of the Company are eligible to receive stock options under the
Directors Plan. Each eligible director who is or becomes a member of the Board
on or after May 10, 1997 will automatically be granted an option for 15,000
shares. Accordingly, each of Messrs. Gross, Keet, Pendray and Sisco received
options to purchase 15,000 shares of Common Stock in May 1997. Upon each one-
year anniversary of the date such director is granted the 15,000 share option,
he or she will receive an additional option grant for 3,750 shares, provided
such director has served continuously as a member of the Board. Each 15,000
share option granted under the Directors Plan will vest over four years as to
25% of the shares on the last day of each twelve-month period following the
date such 15,000 share option was granted. Each 3,750 share option granted
under the Directors Plan will vest as to 100% of the shares on the last day of
the twelve month period following the date such 3,750 share option was
granted. Each option granted under the Directors Plan prior to the effective
date of this offering will be granted at a per share exercise price equal to
the fair market value of a share of the Company's Common Stock as determined
by the Board. Each option granted after the effective date of this offering
will be granted at a per share exercise price equal to the closing price of a
share of the Company's Common Stock on the Nasdaq National Market on the date
of grant. Options granted under the 1997 Plan generally expire three months
after the termination of the optionee's service to the Company or a parent or
subsidiary of the Company, except in the case of death or disability, in which
case the options may be exercised up to 12 months following the date of death
or termination of service. In the event of a merger, consolidation or certain
other change of control transactions, the vesting of all outstanding options
granted pursuant to the Directors Plan will accelerate and become exercisable
in full prior to the close of such corporate transaction. The Directors Plan
will terminate in May 2007, unless terminated earlier in accordance with the
provisions of the Directors Plan.

44
<PAGE>

EXECUTIVE COMPENSATION

The following table sets forth all compensation awarded to, earned by, or
paid for services rendered to the Company in all capacities during 1996 by (i)
the Company's chief executive officer and (ii) the Company's four other most
highly compensated executive officers whose salary exceeded $100,000 and who
were serving as executive officers at the end of that year (together, the
"Named Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION SALARY(1) BONUS(2) COMPENSATION OPTIONS
- --------------------------- --------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Constance F. Galley
President, Chief Executive
Officer and Director............ $165,000 $50,000 $ 5,031(3) --
Edward J. Watson
Executive Vice President,
Business Development............ $150,000 $20,000 $ 2,922(3) --
Ira A. Gerard
Vice President, Finance and
Administration, Chief Financial
Officer and Secretary........... $146,000 $20,000 $ 6,516(3) --
Saydean Zeldin
Vice President, Research and
Development..................... $130,000 $20,000 $ 2,922(3) 36,000
Eric A. Amster
Vice President, Sales........... $125,000 -- $85,951(4) 36,000
</TABLE>
- --------
(1) See "-- Compensation Agreements."
(2) Bonus amounts are reported in the year paid.
(3) Represents the portion of health, life and disability insurance premiums
paid by the Company.
(4) Includes sales commissions paid to Mr. Amster by the Company in the amount
of $80,982 in 1996 and $4,918 for the portion of health, life and
disability insurance premiums paid by the Company.

The following table sets forth information regarding option grants pursuant
to the 1993 Plan during 1996 to each of the Named Officers.

OPTION GRANTS IN 1996

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENTAGE OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM(4)
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION ---------------------
NAME GRANTED(1) 1996(2) PER SHARE(3) DATE 5% 10%
- ---- ---------- ------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Constance F. Galley(5).. -- -- -- -- -- --
Edward J. Watson........ -- -- -- -- -- --
Ira A. Gerard........... -- -- -- -- -- --
Saydean Zeldin.......... 36,000 24% $1.67 11/25/06 $467,762 $780,373
Eric A. Amster.......... 36,000 24% $1.67 11/25/06 467,762 780,373
</TABLE>
- --------
(1) Options granted in 1996 vest as to twenty-five percent (25%) of the shares
covered by such option each year following the date of grant, subject to
acceleration under certain circumstances. Under the 1993 Plan, the Board
or a committee of the Board retains discretion, subject to 1993 Plan
limits, to modify the terms of outstanding options. The options have a
term of ten years if the grantee is based in the United States and a term
of seven years if the grantee is based in the United Kingdom subject to
earlier termination in certain situations related to termination of
employment. See "-- Employee Benefit Plans."

45
<PAGE>

(2) Based on a total of 150,000 options granted to all employees during 1996.
(3) All options were granted at an exercise price equal to the fair market
value of the Company's Common Stock as determined by the Board on the date
of the grant. The Company's Common Stock was not publicly traded at the
time of the option grants.
(4) Potential realizable values are calculated based on the fair market value
of the Common Stock at the date of grant (which is assumed to be the
initial public offering price of $9.00 per share) and minus the exercise
price. The 5% and 10% assumed annual rates of compounded stock
appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of
future Common Stock price. There can be no assurance provided to any
executive officer or any other holder of the Company's securities that the
actual stock price appreciation over the option term will be at the
assumed 5% and 10% levels or at any other defined level. Unless the market
price of the Common Stock appreciates over the option term, no value will
be realized from the option grants made to the executive officers.
(5) On May 8, 1997, Ms. Galley was granted an option under the 1993 Plan to
purchase 112,500 shares of Common Stock at an exercise price of $6.67 per
share. This option expires on May 8, 2007.

The following table sets forth information concerning unexercised options
held at December 31, 1996 with respect to each of the Named Officers. No
options were exercised by the Named Officers during 1996.

AGGREGATE OPTION EXERCISES IN 1996 AND YEAR-END VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR- IN-THE-MONEY OPTIONS
END AT FISCAL YEAR-END ($)(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Constance F. Galley...... 142,461 28,500 $189,948 $ 38,000
Edward J. Watson......... 120,000 36,000 $160,000 $ 48,000
Ira A. Gerard............ 36,000 108,000 $ 48,000 $144,000
Saydean Zeldin........... 45,375 79,125 $ 60,500 $ 57,500
Eric A. Amster........... 18,000 90,000 $ 24,000 $ 72,000
</TABLE>
- --------
(1) Based on the fair market value of the option shares at December 31, 1996
($1.67 as determined by the Board of Directors) less the exercise price.

COMPENSATION AGREEMENTS

The Company has entered into agreements with the following executive
officers of the Company: Constance Galley, the Company's President and Chief
Executive Officer; Ira Gerard, the Company's Vice President, Finance and
Administration and Chief Financial Officer; Eric Amster, the Company's Vice
President, Sales; Edward Watson, the Company's Executive Vice President, New
Business Development; and Saydean Zeldin, the Company's Vice President,
Research and Development.

Ms. Galley's agreement provides for an annual base salary of $225,000. Ms.
Galley is also eligible to receive an annual bonus based upon the Company
achieving certain financial objectives for such year. This agreement may be
terminated by the Company at any time for any reason. If Ms. Galley is
terminated without cause, she will continue to receive her base salary for a
one-year period following such termination. In the event that the Company is
acquired by a company that does not continue to employ Ms. Galley, she will
continue to receive her base salary for a one-year period following such
termination.

Mr. Gerard's agreement provides for an initial annual base salary of
$146,000 and a grant of an option to purchase an aggregate of 144,000 shares
of Common Stock. Mr. Gerard currently receives a base salary of $160,000. Mr.
Gerard is eligible to receive a bonus of up to $25,000 per year for meeting
corporate objectives for such year. This agreement may be terminated by the
Company at any time for any reason. If Mr. Gerard is terminated without cause,
he will continue to receive his base salary for a six-month period following
such termination. In the event that the Company is acquired by a company that
does not continue to employ Mr. Gerard, he will continue to receive his base
salary for a six-month period following such termination.

Mr. Amster's agreement provides for an annual base salary of $125,000 and a
grant of an option to purchase an aggregate of 72,000 shares of Common Stock.
Mr. Amster is eligible to receive a bonus and

46
<PAGE>

commissions of up to $145,000 per year upon meeting revenue related goals for
such year. This agreement may be terminated by the Company at any time for any
reason. If Mr. Amster is terminated without cause, he will continue to receive
his base salary for a six-month period following such termination.

Mr. Watson's agreement provides for an initial annual base salary of
$150,000. Mr. Watson currently receives a base salary of $160,000. This
agreement may be terminated by the Company at any time for any reason. If Mr.
Watson is terminated without cause, he will continue to receive his base
salary for a six-month period following such termination. In the event that
the Company is acquired by a company that does not continue to employ Mr.
Watson, he will continue to receive his base salary for a one-year period
following such termination.

Ms. Zeldin's agreement provides for an initial annual base salary of
$130,000. Ms. Zeldin currently receives a base salary of $155,000. This
agreement may be terminated by the Company at any time for any reason. If Ms.
Zeldin is terminated without cause, she will continue to receive her base
salary for a six-month period following such termination. In the event that
the Company is acquired by a company that does not continue to employ Ms.
Zeldin, she will continue to receive her base salary for a one-year period
following such termination.

EMPLOYEE BENEFIT PLANS

1997 Equity Incentive Plan. In May 1997, the Board adopted and the Company's
stockholders approved the 1997 Equity Incentive Plan (the "1997 Plan"), under
which 1,125,000 shares of the Company's Common Stock are reserved for
issuance. In addition to the 1,125,000 shares reserved for issuance
thereunder, shares that are reserved for issuance but that are not subject to
options under the 1993 Plan and shares that are subject to outstanding options
which either terminate without being exercised or that are repurchased by the
Company at the original issue price will be available for issuance under the
1997 Plan. No options have been issued under the 1997 Plan. The 1997 Plan will
become effective on the effective date of the Registration Statement of which
this Prospectus is a part and will terminate in May 2007, unless terminated
earlier in accordance with the provisions of the 1997 Plan. The 1997 Plan
authorizes the award of options, opportunities to purchase restricted stock
and stock bonuses (an "Award"). The 1997 Plan is administered by a committee
appointed by the Board, currently the Compensation Committee, consisting of
Messrs. Keet, Sisco, Pendray and Gross, all of whom are non-employee directors
under applicable federal securities laws and "outside directors" as defined
under Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"). The Compensation Committee has the authority to construe and
interpret the 1997 Plan and any agreement made thereunder, grant Awards and
make all other determinations necessary or advisable for the administration of
the 1997 Plan.

The 1997 Plan provides for the grant of both incentive stock options
("ISOs") that qualify under Section 422 of the Code and nonqualified stock
options ("NQSOs"). ISOs may be granted only to employees of the Company or of
a parent or subsidiary of the Company. NQSOs may be granted to employees,
officers, directors, consultants, independent contractors and advisors of the
Company or any parent or subsidiary of the Company, provided such consultants,
independent contractors, and advisors render bona fide services not in
connection with the offer and sale of securities in a capital-raising
transaction ("Eligible Service Providers"). The per share exercise price of
ISOs must be at least equal to the fair market value of a share of the
Company's Common Stock on the date of grant unless the option is an ISO
granted to a stockholder owning 10% or more of the Company's capital stock in
which case the exercise price must be at least 110% of the fair market value
of the Company's Common Stock. The per share exercise price of NQSOs must be
at least 85% of the fair market value of the Company's Common Stock. The
maximum term of options granted under the 1997 Plan is ten years if the
grantee is based in the United States and a maximum term of seven years if the
grantee is based in the United Kingdom, unless the option is an ISO granted to
a stockholder owning 10% or more of the Company's stock in which case the
maximum term is five years. Options granted under the 1997 Plan may not be
transferred in any manner other than by will or by the laws of descent and
distribution and may be exercised during the lifetime of the optionee only by
the optionee. Options granted under the 1997

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<PAGE>

Plan generally expire three months after the termination of the optionee's
service to the Company or a parent or subsidiary of the Company, except in the
case of death or disability, in which case the options may be exercised up to
12 months following the date of death or termination of service. No person may
receive more than 300,000 shares in any calendar year pursuant to the grant of
Awards under the 1997 Plan. New employees, however, are eligible to receive
Awards up to a total of 450,000 shares in the calendar year in which they are
hired.

Opportunities to purchase shares of the Company's Common Stock ("Restricted
Stock Awards"), and awards of shares of the Company's Common Stock ("Stock
Bonuses"), either of which may be subject to a right of repurchase in favor of
the Company or other restrictions on ownership or transfer, may be given to
Eligible Service Providers. The Compensation Committee which is the
administrator of the 1997 Plan has the authority to determine the restrictions
applicable to the stock. The purchase price of Common Stock sold pursuant to a
Restricted Stock Award must be at least 85% of the fair market value of the
shares on the date of grant. Awards that are granted below 100% of fair market
value are limited under the 1997 Plan. No Eligible Service Provider may
receive more than 150,000 shares pursuant to such Awards under the 1997 Plan
and no more than 300,000 shares may be issued pursuant to such Awards for the
term of the 1997 Plan.

In the event of a merger, consolidation or certain other changes of control
transactions, any outstanding Awards will accelerate by one-year's vesting or
such additional acceleration of vesting as the Compensation Committee in its
discretion may decide, and may be assumed or replaced by the successor
corporation. In lieu of such assumption or replacement, but in addition to the
one-year's additional vesting or such additional acceleration of vesting, the
successor corporation may substitute equivalent Awards or provide
substantially similar consideration to Eligible Service Providers as is
provided to stockholders.

1993 Stock Option Plan. Under the 1993 Plan, 1,558,431 shares of Common
Stock are or have been reserved for issuance under currently outstanding
options. In May 1997 when the 1997 Plan was adopted, the Board resolved that
no further options shall be granted under the 1993 Plan following the closing
of this offering. However, all outstanding options will remain outstanding
until exercised or until they terminate or expire in accordance with their
terms. The terms of options granted under the 1993 Plan and the administration
of the plan are substantially the same as those that pertain to the 1997 Plan.

Profit Participation Plan. The Board maintains the TSI International
Software Ltd. Profit Participation Plan (the "Profit Plan") which allows the
Board at the end of the Company's year-end audit to vote to contribute a
portion of the Company's profits to a profit participation pool which does not
include executive officers or directors of the Company. Distributions from the
pool are usually made to eligible employees in two equal installments, one
distribution upon completion of the fiscal year-end audit and the second
distribution at the end of the next fiscal year. All employees who are
employed by the Company at the end of the fiscal year and who are employed at
the time of the distributions are eligible to receive such a distribution.
Employees who are not employed by the Company for the full fiscal year are
eligible to receive pro-rated distributions based upon the number of months
worked in such fiscal year. Payments under the profit participation pool
amounted to $35,000, $100,000 and $150,000 in 1994, 1995 and 1996,
respectively.

1997 Employee Stock Purchase Plan. In May 1997, the Board adopted and the
Company's stockholders approved the 1997 Employee Stock Purchase Plan (the
"Purchase Plan") and reserved a total of 750,000 shares of the Company's
Common Stock for issuance thereunder. The Purchase Plan will become effective
upon the effective date of the Registration Statement of which this Prospectus
is a part and will permit eligible employees to acquire shares of the
Company's Common Stock through payroll deductions. Eligible employees may
select a rate of payroll deduction between 2% and 15% of their compensation
and are subject to certain maximum purchase limitations described in the
Purchase Plan. Each offering under the Purchase Plan will be for a period of
12 months (the "Offering Period") and will consist of two six-month purchase
periods (each a "Purchase Period"). The purchase price for the Company's
Common Stock purchased under the Purchase Plan is 85% of the lesser of the
closing price of the Company's Common Stock on the first day of the applicable
Offering Period and the last day of the applicable Purchase Period. For the
purposes of the first

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<PAGE>

Offering Period, eligible employees will be able to acquire shares at 85% of
the lesser of the price at which the shares are offered to the public in this
offering or the closing price of the shares on the last day of the applicable
purchase period in the first Offering Period. The first Offering Period is
expected to begin on the first business day following the effective date of
this Registration Statement and to end on July 31, 1998. The Board of
Directors has the power to set the beginning of any Offering Period and to
change the duration of Offering and Purchase Periods. The Purchase Plan is
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Code.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS

During 1996, the Company had no separate compensation or stock option
committee or other board committee performing equivalent functions, and these
functions were performed by the Company's Board of Directors of which
Constance F. Galley, President and Chief Executive Officer of the Company, was
and is a member. In May 1997, the Company's Board of Directors appointed a
Compensation Committee which currently consists of Stewart K.P. Gross, Ernest
E. Keet, John J. Pendray and Dennis G. Sisco, each a non-employee director of
the Company.

INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF
LIABILITY

As permitted by Section 145 of the Delaware General Corporation Law, the
Bylaws of the Company provide that (i) the Company is required to indemnify
its directors and executive officers to the fullest extent permitted by the
Delaware General Corporation Law, (ii) to the fullest extent permitted by the
Delaware General Corporation Law, the Company is required to advance all
expenses, as incurred, to its directors and executive officers in connection
with a legal proceeding (subject to certain exceptions), (iii) the rights
conferred in the Bylaws are not exclusive, (iv) the Company may, in its
discretion indemnify or advance expenses to persons whom the Company is not
obligated to indemnify or advance expenses; (v) the Company is authorized to
enter into indemnification agreements with its directors, officers, employees
and agents or any person serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, including employee benefit plans and (vi) the
Company may not retroactively amend the Bylaw provisions relating to
indemnification.

The Company intends to enter into Indemnification Agreements with each of
its current directors and executive officers to give such directors and
officers additional contractual assurances regarding the scope of the
indemnification set forth in the Company's Bylaws and to provide additional
procedural protections. At present, there is no pending litigation or
proceeding involving a director, officer or employee of the Company regarding
which indemnification is sought, nor is the Company aware of any threatened
litigation that may result in claims for indemnification.

As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation includes a provision that eliminates the personal
liability of its directors for monetary damages for breach of fiduciary duty
as a director to the fullest extent permitted by the Delaware General
Corporation Law.

As authorized by the Company's Bylaws, the Company, with approval of the
Board, is seeking, and expects to obtain, directors' and officers' liability
insurance.

In so far as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable.

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<PAGE>

CERTAIN TRANSACTIONS

Since January 1, 1994, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which the Company was or
is to be a party in which the amount involved exceeds $60,000 and in which any
director, executive officer or holder of more than 5% of any class of voting
securities of the Company or members of such person's immediate family had or
will have a direct or indirect material interest other than (i) the
compensation agreements which are described in "Management," and (ii) the
transactions described below.

From November 1990 until October 1994, Saydean Zeldin, the Company's Vice
President, Research and Development, was a consultant to the Company and a
General Partner at DownEast Partners, a consulting company. Payments to
DownEast Partners for the year ended December 31, 1994 were $122,000.
Edward Watson, the Company's Executive Vice President, Business Development,
was a General Partner of DownEast Partners until January 1994.

From August 1992 to April 1994, the Company subleased its Bannockburn,
Illinois office facility from a subsidiary of The Dun & Bradstreet Corporation
(predecessor to Cognizant Corporation), a holder of more than 5% of the
Company's outstanding capital stock. Payments under the sub-lease were $66,100
for the year ended December 31, 1994. The Company also subleased $130,000 of
furniture and fixtures from the same subsidiary of The Dun & Bradstreet
Corporation (predecessor to Cognizant Corporation). The transaction was
accounted for as a capital lease and bore interest at 9% and required monthly
payments of $4,100 through August 1995.

The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions between the Company and
its officers, directors and principal stockholders and their affiliates will
be approved by a majority of the Board, including a majority of the
independent and disinterested directors of the Board, and will be on terms no
less favorable to the Company than could be obtained from unaffiliated third
parties.

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<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information known to the Company
regarding beneficial ownership of the Company's Common Stock as of May 31,
1997, and as adjusted to reflect the sale of shares offered hereby, by (i)
each person known by the Company to be the beneficial owner of more than 5% of
the Company's Common Stock, (ii) each of the Company's directors, (iii) each
Named Officer (see "Management-- Executive Compensation"), (iv) all executive
officers and directors as a group and (v) each Selling Stockholder.

<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING(1) AFTER OFFERING(1) (2)
EXECUTIVE OFFICERS, DIRECTORS ----------------------- NUMBER OF -------------------------
AND 5% STOCKHOLDERS NUMBER PERCENT SHARES OFFERED NUMBER PERCENT
- ----------------------------- ------------ ---------- -------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Stewart K.P. Gross .............................. 2,284,905 35.5% -- 2,284,905 24.2%
Warburg, Pincus Capital Company, L.P. (3)
Ernest E. Keet .................................. 1,990,529 32.9 178,189 1,812,340 20.0
Vanguard Atlantic, Limited (4)
Cognizant Corporation (5)........................ 1,280,229 20.3 651,653 628,576 6.8
Constance F. Galley (6).......................... 411,207 6.6 -- 411,207 4.5
Ira A. Gerard (7)................................ 36,000 * -- 36,000 *
Eric A. Amster (8)............................... 18,000 * -- 18,000 *
Edward J. Watson (9)............................. 136,500 2.2 -- 136,500 1.5
Saydean Zeldin (10).............................. 56,625 * -- 56,625 *
John J. Pendray (11)............................. 198,057 3.3 46,875 151,182 1.7
Dennis G. Sisco.................................. -- * -- -- *
All executive officers and directors as a
group (9 persons) (12)......................... 5,131,823 72.4 225,064 4,906,759 48.7

OTHER SELLING STOCKHOLDERS
- --------------------------
Richard Bankosky (13)............................ 72,746 1.2 22,499 50,247 *
David Raye (14).................................. 46,776 * 407 46,369 *
Information Partners Capital Fund, L.P. (15)..... 167,616 2.8 100,377 67,239 *
</TABLE>
- --------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission that deem shares to be beneficially
owned by any person who has or shares voting or investment power with
respect to such shares. Unless otherwise indicated below, the persons and
entities named in the table have sole voting and sole investment power
with respect to all shares beneficially owned, subject to community
property laws where applicable. A person is deemed to be the beneficial
owner of securities that can be acquired by such person within 60 days of
May 31, 1997, upon exercise of options or warrants and such securities
are reflected in the above table. Shares of Common Stock subject to
options and warrants that are exercisable within 60 days of May 31, 1997
are deemed to be outstanding and to be beneficially owned by the person
holding such options for the purpose of computing the percentage
ownership of such person but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person.
(2) Assumes that the Underwriters' over-allotment option to purchase up to
600,000 shares from certain Selling Stockholders is not exercised. If the
Underwriters' over-allotment options is exercised in full, the Selling
Stockholders will sell an additional 600,000 shares.
(3) Includes 382,281 shares of Common Stock issuable to Warburg, Pincus
Capital Company, L.P. ("Warburg") upon exercise of Warrants. Warburg,
Pincus & Co. is the sole General Partner of Warburg and has a 20%
interest in the profits of Warburg. E.M. Warburg, Pincus & Co., LLC, a
New York limited liability company, manages Warburg. Lionel I. Pincus is
the managing partner of Warburg, Pincus & Co. and the managing member of
E. M. Warburg, Pincus & Co., LLC and may be deemed to

51
<PAGE>

control both such entities. The members of E.M. Warburg, Pincus & Co., LLC
are substantially the same as the partners of Warburg, Pincus & Co. Mr.
Gross, a director of the Company, is a Managing Director and member of
E.M. Warburg, Pincus & Co., LLC and a general partner of Warburg, Pincus &
Co. As such, Mr. Gross may be deemed to have an indirect pecuniary
interest (within the meaning of Rule 16a-1 under the Exchange Act) in an
indeterminate portion of the shares beneficially owned by Warburg. Mr.
Gross disclaims beneficial ownership of these shares within the meaning of
Rule 13d-3 under the Securities Exchange Act of 1934. The address of Mr.
Gross and Warburg is 466 Lexington Avenue, New York, N.Y. 10017.
(4) Includes 1,559,325 shares of Common Stock held of record by Vanguard
Atlantic, Ltd. ("Vanguard") and 135,543 shares of Common Stock held of
record by Mr. Keet. Also includes shares of Common Stock issuable to
Vanguard upon exercise of a warrant which will be exercised on a net
exercise basis into 295,661 shares of Common Stock. Mr. Keet, a director
of the Company, is the President of Vanguard and may be deemed to
beneficially own the shares owned by such entity. Mr. Keet disclaims
beneficial ownership of such shares except to the extent of his indirect
pecuniary interest therein. The address of Vanguard is 304 Main Avenue,
Suite 290, Norwalk, Connecticut 06851 and the address of Mr. Keet is 619
Marina Boulevard, San Francisco, CA 94123.
(5) Includes 237,585 shares of Common Stock issuable upon exercise of
Warrants. Cognizant Corporation's address is 200 Nyala Farms, Westport,
Connecticut 06880.
(6) Includes 146,961 shares of Common Stock subject to options and 25,005
shares of Common Stock issuable upon exercise of Warrants.
(7) Represents 36,000 shares of Common Stock subject to options.
(8) Represents 18,000 shares of Common Stock subject to options.
(9) Includes 124,500 shares of Common Stock subject to options and 6,000
shares of Common Stock issuable upon exercise of Warrants.
(10) Represents 56,625 shares of Common Stock subject to options.
(11) Includes 1,200 shares of Common Stock subject to options, 30,000 shares
of Common Stock held of record by his wife Linda L. Pendray, 6,000 shares
of Common Stock held of record by each of his children Michael D.
Pendray, Andrew S. Pendray and Stephen L. Pendray. Mr. Pendray disclaims
beneficial ownership of the shares held by his wife and children.
(12) Includes an aggregate of 380,286 shares of Common Stock subject to
options and 650,871 shares of Common Stock issuable upon exercise of
Warrants and 295,661 shares of Common Stock issuable upon the exercise of
a warrant on a net exercise basis.
(13) Includes shares of Common Stock issuable upon exercise of a warrant which
will be exercised, on a net exercise basis, into 1,166 shares of Common
Stock.
(14) Includes 46,125 shares of Common Stock subject to options.
(15) The address of Information Partners Capital Fund, L.P. is Two Copley
Place, Boston, Massachusetts 02116.

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<PAGE>

DESCRIPTION OF CAPITAL STOCK

Upon the closing of this offering, the authorized capital stock of the
Company will consist of 20,000,000 shares of Common Stock, par value $0.01 per
share, and 5,000,000 shares of Preferred Stock, par value $0.01 per share.
Upon the consummation of this offering, and assuming the conversion of each
outstanding share of Preferred Stock into Common Stock, there will be
outstanding 9,056,542 shares of Common Stock and Warrants to purchase 711,771
shares of Common Stock.

COMMON STOCK

Subject to preferences that may be applicable to any Preferred Stock
outstanding at the time, the holders of outstanding shares of Common Stock are
entitled to receive dividends out of assets legally available therefor at such
times and in such amounts as the Board may from time to time determine. Each
stockholder is entitled to one vote for each share of Common Stock held on all
matters submitted to a vote of stockholders. Cumulative voting for the
election of directors is not provided for in the Company's Certificate of
Incorporation, which means that the holders of a majority of the shares voted
can elect all of the directors then standing for election. The Common Stock is
not entitled to preemptive rights and is not subject to conversion or
redemption. Upon liquidation, dissolution or winding-up of the Company, the
assets legally available for distribution to stockholders are distributable
ratably among the holders of the Common Stock and any participating Preferred
Stock outstanding at that time after payment of liquidation preferences, if
any, on any outstanding Preferred Stock and payment of other claims of
creditors. Each outstanding share of Common Stock is, and all shares of Common
Stock to be outstanding upon completion of this offering will be, fully paid
and nonassessable.

PREFERRED STOCK

Upon the closing of this offering, all outstanding shares of Preferred Stock
(the "Convertible Preferred"), will be converted into shares of Common Stock.
See Note 6 of Notes to Financial Statements for a description of the
Convertible Preferred. The Board is authorized, subject to any limitations
prescribed by Delaware law, to provide for the issuance of additional shares
of Preferred Stock in one or more series, to establish from time to time the
number of shares to be included in each such series, to fix the rights,
preferences and privileges of the shares of each wholly unissued series and
any qualifications, limitations or restrictions thereon, and to increase or
decrease the number of shares of any such series (but not below the number of
shares of such series then outstanding), without any further vote or action by
the stockholders. The Board may authorize the issuance of Preferred Stock with
voting or conversion rights that could adversely affect the voting power or
other rights of the holders of Common Stock. Thus, the issuance of Preferred
Stock may have the effect of delaying, deferring or preventing a change in
control of the Company. The Company has no current plan to issue any shares of
Preferred Stock.

WARRANTS

As of March 31, 1997, the Company had outstanding nine Warrants to purchase
shares of the Company's reserved, but unissued shares of Series D Convertible
Preferred Stock. These Warrants, seven of which will survive the closing of
this offering, will become exercisable into an aggregate of 711,771 shares of
Common Stock. These Warrants have an exercise price of $2.00 per share of
Common Stock and expire in June and August, 2002. These Warrants are also
exerciseable on a net exercise basis.

REGISTRATION RIGHTS

Certain investors holding an aggregate of 2,577,769 shares of Common Stock
and Warrants to purchase 711,771 shares of Common Stock of the Company have
certain "demand" rights to register the shares of Common Stock issuable upon
conversion of the Convertible Preferred and upon exercise of such Warrants to
the extent any of such shares are not included in this offering (the
"Registrable Securities") under the Securities Act. If requested by holders of
more than 50% of the Registrable Securities then outstanding, the Company must
file a registration statement under the Securities Act covering all
Registrable Securities requested to be registered. The Company is required to
effect two such "demand" registrations pursuant to these registration rights.
The "demand" rights of any particular holder of Registrable Securities will
expire three years after the consummation of the Company's initial public
offering.

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<PAGE>

In addition, holders of Registrable Securities have certain "piggyback"
registration rights. If the Company proposes to register any of its securities
under the Securities Act other than in connection with the Company's employee
benefit plans or a corporate reorganization, the holders of Registrable
Securities may require the Company to include all or a portion of their shares
in such registration, although the managing underwriter, if any, of any such
offering has certain rights to limit the number of Registrable Securities
proposed to be included in such registration.

Further, if requested by holders of more than 50% of the then outstanding
Registrable Securities (assuming there is a reasonably anticipated aggregate
offering price to the public of at least $500,000), the Company must file a
registration statement on Form S-3 with respect to the resale of such
Registrable Securities when such form becomes available to the Company,
subject to certain conditions.

All expenses incurred in connection with the above registrations (other than
the underwriters' and brokers' discounts and commissions) will be borne by the
Company.

The Company's obligation to register the Registrable Securities will
terminate when all such Registrable Securities have been registered and sold
or are no longer outstanding.

DELAWARE ANTI-TAKEOVER LAW

The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "Anti-Takeover Law") regulating corporate
takeovers. The Anti-Takeover Law prevents certain Delaware corporations,
including those whose securities are listed on the Nasdaq National Market,
from engaging, under certain circumstances, in a "business combination" (which
includes a merger or sale of more than 10% of the corporation's assets) with
any "interested stockholder" (a stockholder who owns 15% or more of the
corporation's outstanding voting stock) for three years following the date
that such stockholder became an "interested stockholder." A Delaware
corporation may "opt out" of the Anti-Takeover Law with an express provision
in its original certificate of incorporation or an express provision in its
certificate of incorporation or bylaws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares.
The Company has not "opted out" of the provisions of the Anti-Takeover Law.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Company's Common Stock is The Bank
of New York.

LISTING

The Common Stock has been approved for listing on the Nasdaq National Market
under the trading symbol "TSFW."

54
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect market prices prevailing from time to time.
Sales of substantial amounts of Common Stock of the Company in the public
market after the lapse of existing resale restrictions could adversely affect
the prevailing market price and the ability of the Company to raise equity
capital in the future.

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year (including
the holding period of any prior owner except an affiliate of the Company)
would be entitled to sell within any three-month period a number of shares
that does not exceed the greater of: (i) one percent of the number of shares
of Common Stock then outstanding (which will equal approximately 90,459 shares
immediately after this offering); or (ii) the average weekly trading volume of
the Common Stock during the four calendar weeks preceding the filing of a Form
144 with respect to such sale. Sales under Rule 144 are also subject to
certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. Under Rule
144(k), a person who is not deemed to have been an affiliate of the Company at
any time during the 90 days preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years (including the holding
period of any prior owner except an affiliate of the Company), is entitled to
sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Unless
otherwise restricted, "144(k) shares" may therefore be sold immediately upon
the completion of this offering.

Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with certain restrictions, including the holding period
requirement, of Rule 144. Any employee, officer or director of or consultant
to the Company who purchased his or her shares pursuant to a written
compensatory plan or contract may be entitled to rely on the resale provisions
of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirements of Rule 144.
Rule 701 further provides that non-affiliates may sell such shares in reliance
on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. In both
cases, a holder of Rule 701 shares is required to wait until 90 days after the
date of this Prospectus before selling such shares.

Upon completion of this offering, the Company will have outstanding
approximately 9,056,542 shares of Common Stock. In addition to the 4,000,000
shares of Common Stock offered hereby, as of the effective date of the
Registration Statement of which this Prospectus forms a part (the "Effective
Date"), there will be an additional 5,056,542 shares of Common Stock
outstanding, all of which are "restricted" shares (the "Restricted Shares")
under the Securities Act. Certain stockholders of the Company are subject to
lock-up agreements providing that they will not directly or indirectly offer,
sell, pledge, contract to sell, grant any option to purchase or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock for a period of 180 days after
the date of this Prospectus without the prior written consent of Robertson,
Stephens & Company LLC. Taking into account the lock-up agreements and
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144, 144(k) and 701, the numbers of shares that will be available for
sale in the public market will be as follows: (i) 81,000 Restricted Shares
will be eligible for sale as of the Effective Date, (ii) approximately 3,555
Restricted Shares will become eligible for sale 90 days after the Effective
Date pursuant to the provisions of Rule 144 or Rule 701, (iii) approximately
48,000 Restricted Shares will be eligible for sale in December 1997 subject to
certain volume and other resale restrictions under Rule 144, (iv)
approximately 4,773,987 Restricted Shares will become eligible for sale 180
days after the Effective Date upon expiration of certain lock-up agreements
and, as of that date, approximately 4,087,406 of such shares will be subject
to certain volume and other resale restrictions pursuant to Rule 144, and (v)
approximately 150,000 Restricted Shares will become eligible for sale in May
1998, subject to certain volume and other resale restrictions pursuant to Rule
144. In addition, upon completion of this offering, there will remain
outstanding Warrants to purchase 711,771 shares of

55
<PAGE>

Common Stock at an exercise price of $2.00 per share. These Warrants are
exercisable at any time on a net exercise basis. Accordingly, any shares of
Common Stock issuable upon such net exercise would be available for resale in
the public market, subject to public information, volume limitation or notice
provisions of Rule 144, in the case of affiliates.

At May 31, 1997, options to purchase 1,293,757 shares of Common Stock were
outstanding, of which options approximately 612,057 shares were then
exercisable. Immediately after this offering, the Company intends to file a
registration statement on Form S-8 under the Securities Act covering an
aggregate of 3,586,521 shares of Common Stock reserved for issuance pursuant
to outstanding options under the 1993 Plan, and outstanding options or shares
reserved for issuance under the 1997 Plan, Directors Plan and Purchase Plan.
As a result of such registration, shares of Common Stock issuable upon
exercise of options and pursuant to the Purchase Plan will be available for
sale in the public market, subject to Rule 144 volume limitations applicable
to affiliates and subject to lock-up agreements. Beginning 180 days after the
Effective Date, 708,882 shares issuable upon the exercise of vested options
will be eligible for sale in the public market, if such options are exercised.

56
<PAGE>

UNDERWRITING

The Underwriters named below, acting through their representatives,
Robertson, Stephens & Company LLC, SoundView Financial Group, Inc. and
Wessels, Arnold & Henderson, L.L.C. (the "Representatives"), have severally
agreed with the Company and the Selling Stockholders, subject to the terms and
conditions of the Underwriting Agreement, to purchase the number of shares of
Common Stock set forth opposite their respective names below. The Underwriters
are committed to purchase and pay for all such shares if any are purchased.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Robertson, Stephens & Company LLC........................................ 1,597,500
SoundView Financial Group, Inc........................................... 976,250
Wessels, Arnold & Henderson, L.L.C....................................... 976,250
First Albany Corporation................................................. 150,000
Furman Selz LLC.......................................................... 150,000
Nutmeg Securities, Ltd. ................................................. 150,000
---------
Total.................................................................. 4,000,000
=========
</TABLE>

The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the initial public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession of not in excess of $0.36 per share,
of which $0.10 may be reallowed to other dealers. After the initial public
offering, the public offering price, concession and reallowance to dealers may
be reduced by the Representatives. No such reduction shall change the amount
of proceeds to be received by the Company as set forth on the cover page of
this Prospectus.

Certain of the Selling Stockholders have granted to the Underwriters an
option, exercisable during the 30-day period after the date of this Prospectus
for this offering, to purchase up to 600,000 additional shares of Common
Stock, at the same price per share as the Company and the Selling Stockholders
will receive for the 4,000,000 shares that the Underwriters have agreed to
purchase. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the
same percentage of such additional shares that the number of shares of Common
Stock to be purchased by it shown in the above table represents as a
percentage of the 4,000,000 shares offered hereby. If purchased, such
additional shares will be sold by the Underwriters on the same terms as those
on which the 4,000,000 shares are being sold.

The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act.

Pursuant to the terms of lock-up agreements, all officers, directors and
certain security holders of the Company have agreed with the Representatives
for a period of 180 days after the effective date of this Prospectus that they
will not, subject to certain exceptions, directly or indirectly offer to sell,
contract to sell, or otherwise sell, dispose of, pledge, grant any rights with
respect to, any shares of Common Stock, any options or warrants to purchase
any shares of Common Stock, or any securities convertible into or exchangeable
for shares of Common Stock, now owned or hereafter acquired directly by such
holders or with respect to which they have the power of disposition, without
the prior written consent of Robertson, Stephens & Company, which may, in its
sole discretion and at any time without notice, release all or any portion of
the securities subject to lock-up agreements. See "Shares Eligible for Future
Sale." In addition, the Company also has agreed that during the 180 days
following the effective date of this Prospectus the Company will not, without
the prior written consent of Robertson, Stephens & Company, subject to certain
exceptions, offer, issue, sell, contract to sell, or otherwise dispose of any
shares of Common Stock, any options or warrants to purchase any shares of
Common Stock, or any securities convertible into, exercisable for or
exchangeable for shares of Common Stock other than the Company's sales of
shares in this offering, the issuance of Common Stock upon the exercise of
outstanding options and the Company's issuance of options under existing
employee and director stock option plans.

57
<PAGE>

Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock was determined through negotiations among the Company and the
Representatives. Among the factors considered in such negotiations were
prevailing market conditions, certain financial information of the Company,
market valuations of other companies that the Company and the Representatives
believe to be comparable to the Company, estimates of the business potential
of the Company, the present state of the Company's development and other
factors deemed relevant.

The Underwriters do not intend to confirm sales of the Common Stock offered
hereby to any accounts over which they exercise discretionary authority.

The Underwriters have reserved approximately 190,000 shares of Common Stock
for sale, at the initial public offering price, to directors, officers and
employees of the Company, their business affiliates and related parties, in
each case as such persons have expressed an interest in purchasing such shares
in the offering. The number of shares of Common Stock available for sale to
the general public will be reduced to the extent such persons purchase such
reserved shares of Common Stock. Any reserved shares of Common Stock not so
purchased will be offered by the Underwriters to the general public on the
same basis as the other shares of Common Stock offered pursuant to the
offering.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholders by Fenwick & West LLP, Palo
Alto, California. Certain legal matters will be passed upon for the
Underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.

EXPERTS

The financial statements and schedule of the Company as of December 31, 1995
and 1996, and for each of the years in the three year period ended December
31, 1996 included in this Prospectus and elsewhere in the registration
statement, have been included in reliance upon the reports of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.

58
<PAGE>

ADDITIONAL INFORMATION

The Company has filed with the Commission, a Registration Statement on Form
S-1 under the Securities Act with respect to the shares of Common Stock
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedule thereto. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement and the exhibits and
schedule thereto. Statements contained in this Prospectus regarding the
contents of any contract or any other document to which reference is made are
not necessarily complete, and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement and the exhibits and schedule
thereto may be inspected without charge at the offices of the Commission at
Judiciary Plaza, 450 Fifth Street, Washington, D.C. 20549, and copies of all
or any part of the Registration Statement may be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549 upon the payment
of the fees prescribed by the Commission.

59
<PAGE>

TSI INTERNATIONAL SOFTWARE LTD.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Balance Sheets as of December 31, 1995 and 1996 and (unaudited) March 31,
1997..................................................................... F-3
Statements of Operations for the years ended December 31, 1994, 1995 and
1996 and (unaudited) for the three months ended March 31, 1996 and 1997.. F-4
Statements of Stockholders' (Deficiency) as of December 31, 1994, 1995 and
1996 and (unaudited) as of March 31, 1997................................ F-5
Statements of Cash Flows for the years ended December 31, 1994, 1995 and
1996 and (unaudited) for the three months ended March 31, 1996 and 1997.. F-6
Notes to Financial Statements............................................. F-7
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
TSI International Software Ltd.:

We have audited the accompanying balance sheets of TSI International
Software Ltd. (the "Company") as of December 31, 1996 and 1995, and the
related statements of operations, stockholders' (deficiency) and cash flows
for each of the years in the three year period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TSI International Software
Ltd. as of December 31, 1996 and 1995, and the results of its operations and
its cash flows for each of the years in the three year period ended December
31, 1996 in conformity with generally accepted accounting principles.

KPMG Peat Marwick llp
Stamford, Connecticut
April 14, 1997,
except for note 6,
which is as of May 15, 1997

F-2
<PAGE>

TSI INTERNATIONAL SOFTWARE LTD.

BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
-------------------------- MARCH 31, MARCH 31,
1995 1996 1997 1997
------------ ------------ ----------- ------------
(UNAUDITED) (unaudited--
note 6)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.................... $ 142,500 $ 41,300 $ 79,400 $ 79,400
Accounts receivable,
less allowances of
$158,100, $319,900 and
(unaudited) $288,800... 2,932,400 4,380,900 5,296,500 5,296,500
Current portion of
investment in licensing
contracts receivable,
net of unearned finance
income of $126,100,
$84,200 and (unaudited)
$72,100 (note 3)....... 982,500 742,000 773,800 773,800
Prepaid expenses and
other current assets... 300,800 388,000 499,200 499,200
------------ ------------ ---------- -----------
Total current assets.. 4,358,200 5,552,200 6,648,900 6,648,900
Furniture, fixtures and
equipment, net (note 4).. 913,000 1,304,400 1,351,300 1,351,300
Investment in licensing
contracts receivable, net
of unearned finance
income of $91,900,
$50,100 and (unaudited)
$51,000, less current
portion (note 3)......... 896,400 551,600 600,200 600,200
Other assets.............. 69,600 113,100 120,500 120,500
------------ ------------ ---------- -----------
$ 6,237,200 $ 7,521,300 $8,720,900 $ 8,720,900
============ ============ ========== ===========

LIABILITIES AND STOCKHOLDERS' (DEFICIENCY)
Current liabilities:
Accounts payable........ $ 439,100 $ 694,800 $ 611,000 $ 611,000
Accrued expenses (note
9)..................... 1,266,500 1,486,500 1,610,200 1,610,200
Current portion of
deferred maintenance
revenue................ 4,780,200 4,591,200 4,585,400 4,585,400
------------ ------------ ---------- -----------
Total current
liabilities.......... 6,485,800 6,772,500 6,806,600 6,806,600
Long-term debt (note 5)... 2,840,100 2,790,100 3,590,100 2,590,100
Other long-term
liabilities.............. 79,300 27,400 42,600 42,600
Deferred maintenance
revenue, less current
portion.................. 401,600 225,000 313,400 313,400
------------ ------------ ---------- -----------
Total liabilities..... 9,806,800 9,815,000 10,752,700 9,752,700
------------ ------------ ---------- -----------
Stockholders' (deficiency)
(note 6):
Convertible preferred
stock ($8,219,000
aggregate liquidation
preference)............ 8,600 8,600 8,600 --
Common stock (3,888,166
shares authorized, par
value $.01)............ 30,000 30,000 30,000 60,600
Additional paid-in
capital................ 7,888,800 7,888,800 7,888,800 8,866,800
Accumulated deficit..... (11,264,500) (10,036,600) (9,723,900) (9,723,900)
Cumulative foreign
currency translation
adjustment............. (167,500) (119,500) (170,300) (170,300)
Treasury stock, at cost. (65,000) (65,000) (65,000) (65,000)
------------ ------------ ---------- -----------
Total stockholders'
(deficiency)......... (3,569,600) (2,293,700) (2,031,800) (1,031,800)
------------ ------------ ---------- -----------
$ 6,237,200 $ 7,521,300 $8,720,900 $ 8,720,900
============ ============ ========== ===========
</TABLE>

See accompanying notes to financial statements.

F-3
<PAGE>

TSI INTERNATIONAL SOFTWARE LTD.

STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------- ----------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Software licensing.... $ 6,275,500 $ 7,552,900 $ 9,309,500 $1,782,500 $2,731,100
Service, maintenance
and other............ 7,658,500 8,508,500 9,694,400 2,306,000 2,776,800
----------- ----------- ----------- ---------- ----------
Total revenues...... 13,934,000 16,061,400 19,003,900 4,088,500 5,507,900
----------- ----------- ----------- ---------- ----------
Cost of revenues:
Software licensing.... 1,034,700 724,900 494,800 93,300 173,500
Service, maintenance
and other............ 2,522,000 2,200,800 2,005,700 431,400 548,200
----------- ----------- ----------- ---------- ----------
Total cost of reve-
nues............... 3,556,700 2,925,700 2,500,500 524,700 721,700
----------- ----------- ----------- ---------- ----------
Gross profit............ 10,377,300 13,135,700 16,503,400 3,563,800 4,786,200
----------- ----------- ----------- ---------- ----------
Operating expenses:
Product development... 2,231,400 3,067,600 3,452,300 779,300 1,073,400
Selling and marketing. 6,123,800 7,159,800 8,715,200 1,893,800 2,583,700
General and adminis-
trative.............. 1,926,900 2,001,200 2,921,500 728,300 777,200
----------- ----------- ----------- ---------- ----------
Total operating ex-
penses............. 10,282,100 12,228,600 15,089,000 3,401,400 4,434,300
----------- ----------- ----------- ---------- ----------
Operating income.... 95,200 907,100 1,414,400 162,400 351,900
Borrowing expenses (note
5)..................... (467,200) (419,800) (285,500) (78,500) (63,100)
Interest income......... 268,100 193,200 135,200 40,200 30,500
Other income (note 11).. -- 176,900 -- -- --
----------- ----------- ----------- ---------- ----------
Income (loss) before
income taxes....... (103,900) 857,400 1,264,100 124,100 319,300
Provision for income
taxes (note 8)......... 8,800 34,600 36,200 3,000 6,600
----------- ----------- ----------- ---------- ----------
Net income (loss)... $ (112,700) $ 822,800 $ 1,227,900 $ 121,100 $ 312,700
=========== =========== =========== ========== ==========
Net income (loss) per
share.................. $ (.02) $ .14 $ .20 $ .02 $ .05
=========== =========== =========== ========== ==========
Weighted average number
of common and common
equivalent shares out-
standing............... 5,657,025 5,687,212 6,017,792 5,728,404 6,459,490
=========== =========== =========== ========== ==========
</TABLE>

See accompanying notes to financial statements.

F-4
<PAGE>

TSI INTERNATIONAL SOFTWARE LTD.

STATEMENTS OF STOCKHOLDERS' (DEFICIENCY)

<TABLE>
<CAPTION>
SERIES A, B, C
AND E
CONVERTIBLE CUMULATIVE
PREFERRED STOCK COMMON STOCK FOREIGN TREASURY STOCK
---------------- ----------------- ADDITIONAL CURRENCY -------------------
PAR PAR PAID-IN ACCUMULATED TRANSLATION
SHARES VALUE SHARES VALUE CAPITAL DEFICIT ADJUSTMENT SHARES VALUE TOTAL
-------- ------ --------- ------- ---------- ------------ ----------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1993........... 860,969 $8,600 3,000,000 $30,000 $8,025,500 $(11,974,600) $(169,300) (185,388) $(225,700) $(4,305,500)
Stock options
exercised...... -- -- -- -- (1,700) -- -- 750 2,000 300
Net loss........ -- -- -- -- -- (112,700) -- -- -- (112,700)
Change in
foreign
currency
adjustment..... -- -- -- -- -- -- 24,900 -- -- 24,900
-------- ------ --------- ------- ---------- ------------ --------- -------- --------- -----------
Balance at
December 31,
1994........... 860,969 8,600 3,000,000 30,000 8,023,800 (12,087,300) (144,400) (184,638) (223,700) (4,393,000)
Stock options
exercised...... -- -- -- -- (135,000) -- -- 71,160 158,700 23,700
Net income...... -- -- -- -- -- 822,800 -- -- -- 822,800
Change in
foreign
currency
adjustment..... -- -- -- -- -- -- (23,100) -- -- (23,100)
-------- ------ --------- ------- ---------- ------------ --------- -------- --------- -----------
Balance at
December 31,
1995........... 860,969 8,600 3,000,000 30,000 7,888,800 (11,264,500) (167,500) (113,478) (65,000) (3,569,600)
Net income...... -- -- -- -- -- 1,227,900 -- -- -- 1,227,900
Change in
foreign
currency
adjustment..... -- -- -- -- -- -- 48,000 -- -- 48,000
-------- ------ --------- ------- ---------- ------------ --------- -------- --------- -----------
Balance at
December 31,
1996........... 860,969 8,600 3,000,000 30,000 7,888,800 (10,036,600) (119,500) (113'478) (65,000) (2,293,700)
Net income
(unaudited).... -- -- -- -- -- 312,700 -- -- -- 312,700
Change in
foreign
currency
adjustment
(unaudited).... -- -- -- -- -- -- (50,800) -- -- (50,800)
-------- ------ --------- ------- ---------- ------------ --------- -------- --------- -----------
Balance at March
31, 1997
(unaudited).... 860,969 $8,600 3,000,000 $30,000 $7,888,800 $ (9,723,900) $(170,300) (113,478) $ (65,000) $(2,031,800)
Pro forma
adjustments:
Issuance of
Series E
Preferred Stock
(unaudited).... 50,000 500 -- -- 999,500 -- -- -- -- 1,000,000
Conversion of
Preferred Stock
(unaudited).... (910,969) (9,100) 2,759,715 $27,600 (18,500) -- -- -- -- --
Exercise of
Warrants on a
net exercise
basis
(unaudited).... -- -- 296,827 3,000 (3,000) -- -- -- -- --
-------- ------ --------- ------- ---------- ------------ --------- -------- --------- -----------
Pro forma
balance as of
March 31, 1997
(unaudited).... -- -- 6,056,542 $60,600 $8,866,800 $ (9,723,900) $(170,300) (113,478) $ (65,000) $(1,031,800)
======== ====== ========= ======= ========== ============ ========= ======== ========= ===========
</TABLE>

See accompanying notes to financial statements.

F-5
<PAGE>

TSI INTERNATIONAL SOFTWARE LTD.

STATEMENTS OF CASH FLOWS
REPRESENTING INCREASES (DECREASES) IN CASH

<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------ --------------------
1994 1995 1996 1996 1997
---------- ----------- ----------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operat-
ing activities:
Net income (loss)...... $ (112,700) $ 822,800 $ 1,227,900 $ 121,100 $ 312,700
Adjustments to recon-
cile net income (loss)
to net cash provided
by operating activi-
ties:
Depreciation and amor-
tization of fixed as-
sets.................. 309,900 351,000 436,100 86,500 150,900
Amortization of li-
censes and purchased
software (note 4)..... 291,000 291,300 -- -- --
Provision for losses
on accounts receiv-
able.................. 99,000 65,000 431,700 17,500 19,900
Changes in operating
assets and liabili-
ties:
Accounts receivable... (203,700) (977,200) (1,930,500) 303,300 (981,600)
Investment in licens-
ing contracts re-
ceivable............. 1,004,500 502,900 585,300 228,600 (80,400)
Prepaid expenses and
other current as-
sets................. (25,400) 69,800 (87,200) 40,200 (111,200)
Other assets.......... (21,600) (18,400) (43,500) (7,700) (7,400)
Accounts payable...... (79,600) 133,500 255,700 33,100 (83,800)
Accrued expenses...... (112,100) 155,000 220,000 39,600 123,700
Other long-term lia-
bilities............. (45,800) (57,400) -- -- 28,200
Deferred maintenance
revenue.............. 224,500 (16,100) (365,600) (232,400) 82,600
---------- ----------- ----------- --------- ---------
Net cash provided
(used) by operating
activities.......... 1,328,000 1,322,200 729,900 629,800 (546,400)
---------- ----------- ----------- --------- ---------
Cash used by investing
activities -- Purchase
of furniture, fixtures
and equipment.......... (237,300) (354,300) (827,500) (118,600) (197,800)
Cash flows from financ-
ing activities:
Net borrowings (repay-
ments) under revolving
line of credit........ (646,000) (1,150,000) (50,000) (550,000) 800,000
Payments under capital
leases................ (172,100) (143,500) (51,900) (18,300) (13,000)
Stock options exer-
cised................. 300 23,700 -- -- --
---------- ----------- ----------- --------- ---------
Net cash (used) pro-
vided by financing
activities.......... (817,800) (1,269,800) (101,900) (568,300) 787,000
---------- ----------- ----------- --------- ---------
Effect of exchange rate
changes on cash........ (500) (5,600) 98,300 (9,400) (4,700)
---------- ----------- ----------- --------- ---------
Net change in cash... 272,400 (307,500) (101,200) (66,500) 38,100
Cash at beginning of pe-
riod................... 177,600 450,000 142,500 142,500 41,300
---------- ----------- ----------- --------- ---------
Cash at end of period... $ 450,000 $ 142,500 $ 41,300 $ 76,000 $ 79,400
========== =========== =========== ========= =========
Supplemental informa-
tion:
Cash paid for:
Interest............... $ 291,000 $ 352,200 $ 278,900 $ 72,400 $ 65,400
Income taxes........... -- 21,000 27,100 20,000 20,000
Non-cash investing ac-
tivity --
Acquisition of equip-
ment under capital
leases................ $ 132,900 $ 104,600 $ -- $ -- $ 30,000
========== =========== =========== ========= =========
</TABLE>

See accompanying notes to financial statements.

F-6
<PAGE>

TSI INTERNATIONAL SOFTWARE LTD.

NOTES TO FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

TSI International Software Ltd. (the "Company") develops, markets, licenses,
and supports computer software and related services which allow organizations
to integrate their business applications within the enterprise and with
outside business partners. The Company's customers are located primarily
throughout the U.S. and Western Europe and represent a broad range of
industries.

(a) Revenue Recognition

Software licensing revenues are recognized upon shipment of the product if
there are no significant post-delivery obligations, or at a later date once
such obligations are satisfied. Maintenance contract revenue is recognized
ratably over the term of the contracts, which are generally for one year. The
unrecognized portion of maintenance revenue is classified as deferred
maintenance revenue in the accompanying balance sheets. Consulting and
training revenues are recognized as services are performed.

The Company licenses its KEY/MASTER product on a term-use basis for 15 to 60
month periods. The contracts provide for maintenance and generally do not have
renewal or purchase options. At contract inception, the present value of the
payments to be received under the contract is apportioned between software
licensing revenue and maintenance revenue and recognized as described above.
The present value of the payments to be received are recorded as the
investment in licensing contracts receivable. License interest revenue is
recognized over the term of the contract at a constant rate of return.

(b) Product Development Costs

Statement of Financial Accounting Standards (SFAS) No. 86, "Accounting for
the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed",
requires that software development costs: (i) be expensed as incurred until
technological feasibility (as defined therein) is achieved; and (ii)
capitalized subsequent to achieving technological feasibility and prior to the
product being available to customers. The establishment of technological
feasibility of the Company's products has essentially coincided with the
products' general release to customers. Accordingly, the Company expenses all
software development costs as incurred.

Purchased software with alternative future use is capitalized and amortized
over its expected useful life.

Furniture, fixtures and equipment are carried at cost less accumulated
depreciation computed using the straight-line method over their estimated
useful lives. Furniture, fixtures and equipment held under capital leases and
leasehold improvements are amortized on a straight-line basis over the lease
term.

(d) Income Taxes

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. Valuation allowances
are provided for any portion of the deferred tax assets which are not more
likely than not to be realized.

F-7
<PAGE>

TSI INTERNATIONAL SOFTWARE LTD.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

(e) Net Income (Loss) Per Share

Net income (loss) per share is usually calculated using the weighted average
number of common and common equivalent shares outstanding during each period,
after retroactive adjustment for stock splits (see note 6). In addition, the
Securities and Exchange Commission requires that shares issued or options and
warrants granted within one year of an Initial Public Offering ("IPO") at
prices below the IPO price be shown as outstanding (using the Treasury Stock
method) for all periods presented. Further, in connection with the IPO, all
outstanding preferred stock will be converted into common stock on the basis
described in note 6 and, accordingly, are shown as outstanding for all periods
presented. Following are the components of common stock used to calculate net
income (loss) per share:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------- -------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Weighted average common
shares outstanding....... 2,815,443 2,845,630 2,886,822 2,886,822 2,886,822
Increment for shares is-
sued within one year of
the IPO.................. 232,167 232,167 232,167 232,167 232,167
Common shares expected to
be issued for conversion
of preferred stock....... 2,609,415 2,609,415 2,609,415 2,609,415 2,609,415
Dilutive effect of stock
options.................. -- -- 289,388 -- 731,086
--------- --------- --------- --------- ---------
Weighted average common
and common equivalent
shares outstanding....... 5,657,025 5,687,212 6,017,792 5,728,404 6,459,490
========= ========= ========= ========= =========
</TABLE>

The proposed IPO contemplates that $2,590,100 of the proceeds will be used
to repay bank borrowings. Following is a calculation of supplementary net
income per share for the year ended December 31, 1996 and (unaudited) the
three months ended March 31, 1997 as if the IPO taken place on January 1, 1996
and these bank borrowings were repaid on that date.

<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED
1996 MARCH 31, 1997
------------- --------------
(unaudited)
<S> <C> <C>
Net income as reported.......................... $1,227,900 $ 312,700
Add interest expense related to borrowings ex-
pected to be repaid from IPO proceeds, net of
Federal tax.................................... 223,600 47,700
---------- ----------
Supplementary net income........................ $1,451,500 $ 360,400
========== ==========
Weighted average common and common equivalent
shares outstanding, as reported................ 6,017,792 6,459,490
Add shares required to be sold (at the IPO price
of $9.00) to repay $2,590,100 of bank
borrowings..................................... 287,789 287,789
---------- ----------
Supplementary shares used to compute supplemen-
tary net income per share...................... 6,305,581 6,747,279
========== ==========
Supplementary net income per share.............. $ .23 $ .05
========== ==========
</TABLE>

(f) Cash Equivalents

The Company considers securities with maturities of three months or less,
when purchased, to be cash equivalents.

F-8
<PAGE>

TSI INTERNATIONAL SOFTWARE LTD.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

(g) Use of Estimates

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

(h) Accounting Changes

During 1996, the Company adopted SFAS No. 121 -- "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
SFAS No. 121 requires companies to review assets for possible impairment and
provides guidelines for recognition of impairment losses related to long-lived
assets, certain intangibles and assets to be disposed of. The impact of the
adoption of SFAS No. 121 was not material.

Also during 1996, the Company adopted SFAS No. 123 -- "Accounting for Stock-
Based Compensation." In accordance with SFAS No. 123, the Company elected not
to record any compensation expense for stock options granted to employees at
fair value and will disclose in the notes to its financial statements the
impact on net income and net income per share as if the fair value based
compensation cost had been recognized (see note 6).

(2) FOREIGN OPERATIONS

The Company's balance sheets include foreign branch assets of $1,565,100,
$2,574,400, and $2,642,600 and liabilities of $258,800, $282,200, and $270,700
at December 31, 1995 and 1996, and (unaudited) March 31, 1997, respectively.
The foreign net income (loss) for the years ended December 31, 1994, 1995, and
1996, and (unaudited) the three months ended March 31, 1996 and 1997, after
allocation of corporate charges, was ($106,700), $133,700, $586,200, $129,600,
and $(115,600) respectively.

With the exception of direct sales activities in the United Kingdom and
Canada, the Company utilizes distributors and agents to market its products
outside the United States. Revenues generated through these third parties
amounted to $230,400, $147,100, $288,700, $91,500, and $35,700 for the years
ended December 31, 1994, 1995, and 1996, and (unaudited) for the three months
ended March 31, 1996 and 1997 respectively.

(3) INVESTMENT IN LICENSING CONTRACTS

The net investment in licensing contracts at December 31, 1996 is comprised
of future minimum contract payments receivable, net of unearned interest
income. The interest rate implicit in term-use licensing contracts was 9.5%
for contracts entered into during the years 1995 and 1996 and (unaudited) for
the first quarter of 1997. Total minimum contract payments receivable at
December 31, 1996 are as follows:

<TABLE>
<S> <C>
1997........................................................... $ 826,200
1998........................................................... 394,100
1999........................................................... 147,800
2000........................................................... 48,000
2001........................................................... 11,800
----------
1,427,900
Less unearned interest income.................................. (134,300)
----------
1,293,600
Less current portion........................................... (742,000)
----------
Non current portion............................................ $ 551,600
==========
</TABLE>

F-9
<PAGE>

TSI INTERNATIONAL SOFTWARE LTD.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

There were no transactions during the three months ended March 31, 1997
which would significantly alter these receivables.

(4) CAPITAL ASSETS

(a) Furniture, Fixtures, and Equipment

Furniture, fixtures and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ MARCH 31, USEFUL LIFE
1995 1996 1997 RANGE
----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Computer systems......... $ 1,778,700 $ 2,421,700 $ 2,610,000 3-7 years
Furniture and fixtures... 465,800 545,500 553,800 3-7 years
Office equipment......... 302,800 325,800 331,400 3-7 years
Leasehold improvements... 287,600 328,500 326,400 3-10 years
Automobiles.............. 59,000 99,900 97,600 5 years
----------- ----------- -----------
2,893,900 3,721,400 3,919,200
Less accumulated depreci-
ation and amortization.. (1,980,900) (2,417,000) (2,567,900)
----------- ----------- -----------
$ 913,000 $ 1,304,400 $ 1,351,300
=========== =========== ===========
</TABLE>

Computer systems and equipment under capital leases, included in the above
totals, net of accumulated depreciation, was $203,000, $56,200, and $64,300 as
of December 31, 1995 and 1996 and (unaudited) March 31, 1997, respectively.

(b) Purchased Software

In 1990, the Company acquired software from Foretell Corporation which was
available for sale to customers at the time of purchase. The cost of
$1,484,200 was amortized over a five year period which ended in 1995.
Amortization expense for years 1994 and 1995 was $291,000 and $272,100,
respectively.

(5) LONG-TERM DEBT

Since August 1994, the Company has had a line of credit facility with a
bank. The underlying loan agreement, as amended, which expires in November
1998 and is partially guaranteed by the Connecticut Development Authority
(CDA): (a) provides for Company borrowings equal to the lesser of $4,000,000
or the sum of: (i) 80% of eligible accounts receivable, (ii) lesser
percentages of certain other receivables; and (iii) the effective dollar
amount of the guarantee of the CDA (approximately $600,000); (b) requires
interest on borrowings at either the bank's prime rate plus 1.0% or the LIBOR
rate plus 3.0%; (c) collateralizes all assets of the Company as security for
the borrowings; (d) requires the Company to maintain several financial
covenants; and (e) imposes other restrictions, including (i) prohibition on
losses, cash dividends and key management changes and (ii) limitations on
additional debt, mergers and acquisitions, stock repurchases and sales of
assets (except in the normal course of business). The Company was in
compliance with all financial covenants at December 31, 1996 but (unaudited)
was not in compliance with the indebtedness to EBITDA ratio covenant at March
31, 1997. The Company has received a waiver for this non-compliance. This
waiver pertained only to such non-compliance as of March 31, 1997. The
covenant has been amended for subsequent periods and, because management
considers it probable that the Company will be in compliance with this amended
covenant for the twelve month period subsequent to March 31, 1997, the
indebtedness under this credit facility has been classified as long-term debt.
Had the amended covenant been in effect on March 31, 1997, the Company would
have been in compliance with such amended covenant.

All repayments are due at maturity. Borrowings based on prime can be prepaid
without penalty.

F-10
<PAGE>

TSI INTERNATIONAL SOFTWARE LTD.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

Borrowing costs and effective interest rates under this agreement were as
follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------- --------------------
1994 1995 1996 1996 1997
-------- -------- -------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Interest expense........ $395,400 $368,300 $250,200 $ 65,600 $ 60,000
Guarantee fees to CDA... 63,500 31,500 23,600 7,900 3,100
Commitment fees......... 8,300 20,000 11,700 5,000 --
-------- -------- -------- --------- ---------
$467,200 $419,800 $285,500 $ 78,500 $ 63,100
======== ======== ======== ========= =========
Effective interest rate. 10.13% 11.41% 9.51% 11.69% 8.41%
======== ======== ======== ========= =========
</TABLE>

(6) STOCKHOLDERS' (DEFICIENCY)

(a) Recent Developments

On May 8, 1997, the Board of Directors approved an IPO of the Company's
common stock and in connection therewith also approved at the closing of the
IPO: (i) an increase in the number of authorized shares of common stock and
preferred stock to 20,000,000 shares and 5,000,000 shares, respectively; and
(ii) a three-for-one common stock split. The accompanying financial statements
have been retroactively adjusted to reflect this common stock split.

Pursuant to the Company's Certificate of Incorporation, the closing of the
IPO will cause the conversion of all preferred shares into 2,759,715 shares of
common stock. In addition, on May 15, 1997, three new investors acquired a
total of 50,000 shares of Series E convertible preferred stock at $20 a share.
At the closing of the IPO, these shares will be converted into 150,000 shares
of common stock. The accompanying unaudited pro forma balance sheet at March
31, 1997 has also been retroactively adjusted for the new investment and the
conversion of all outstanding Preferred Stock.

The Board of Directors also approved the following stock-based plans:

<TABLE>
<CAPTION>
SHARES FORMS OF ISSUANCES
TYPE OF PLAN RESERVED OR GRANTS AWARDED
------------ --------- ------------------
<S> <C> <C>
Equity Incentive 1,125,000 Options, restricted shares and awards.
(replacing the 1993 Grants (under the 1993 Plan) of 112,500
Stock Option Plan) options at exercise prices from $5.00 to
$6.67 a share.
Directors Stock Option 225,000 Grants of 60,000 options at exercise price
of $6.67 a share.
Employee Stock Purchase 750,000 No grants made.
---------
2,100,000
=========
</TABLE>

(b) Preferred and Common Stock

The Company's Certificate of Incorporation authorizes 1,638,166 shares of
preferred stock, and 3,888,166 shares of common stock, each with a par value
of $.01 a share.

F-11
<PAGE>

TSI INTERNATIONAL SOFTWARE LTD.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

All of the classes of Preferred Stock (a) have the right to vote on an as-
converted basis; (b) convert into common stock; and (c) have certain anti-
dilution rights. The authorized shares of preferred stock have been designated
as follows:

<TABLE>
<S> <C>
Series A Convertible Preferred Stock ("Series A stock")............ 297,405
Series B Convertible Preferred Stock ("Series B stock")............ 115,761
Series C Convertible Preferred Stock ("Series C stock")............ 725,000
Series D Convertible Preferred Stock ("Series D stock")............ 364,469
Undesignated....................................................... 135,531
---------
1,638,166
=========
</TABLE>

Upon liquidation, dissolution or winding up of the Company, before any
distribution in respect of the Series A stock, Series B stock or common stock,
the holders of the Series C stock are entitled to receive an amount equal to
$6.00 a share plus any declared and unpaid dividends. In addition, the Series
C stock is entitled to receive preferential non-cumulative dividends, when
declared, at an annual per share amount of $0.48 through December 31, 1997 and
cumulative dividends at $0.72 a share thereafter. The Series C stock may be
redeemed at the Company's option after June 30, 1997 at $6.00 a share plus all
accumulated and unpaid dividends. Further, before any distribution in respect
of the common stock, the holders of shares of the Series B stock and
subsequently the Series A stock are entitled to receive an amount equal to
$13.39 a share plus any declared and unpaid dividends. In addition, the
holders of the Series B and A stock are entitled to receive preferential non-
cumulative dividends, when declared, at an annual per share amount of $1.07
through December 31, 1997 and cumulative dividends at $1.61 a share
thereafter. The Series B and A stock may be redeemed at the Company's option
after June 30, 1997 at $13.39 a share, plus all accumulated and unpaid
dividends. No dividends have been or are required to be declared on these
shares.

At December 31, 1996 the following shares of preferred stock were
outstanding:

<TABLE>
<S> <C>
Series A stock....................................................... 297,405
Series B stock....................................................... 115,761
Series C stock....................................................... 447,803
-------
Total outstanding.................................................. 860,969
Series B Stock issuable to prevent dilution.......................... 8,936
-------
869,905
=======
</TABLE>

Certain owners of preferred and common stock hold an aggregate of nine
warrants to purchase Series D stock at $2.00 a share. The warrants expire in
2002 and, seven of which are not expected to be exercised prior to the
proposed IPO. After the IPO, the remaining warrants are exercisable for
711,771 shares of common stock.

The Company maintains a 1993 Stock Option Plan ("Plan") which provides that
the Company may grant options for employees to purchase up to 1,558,431 shares
of the Company's common stock. Options issued to date have been granted at
fair market value, as determined by the Company's Board of Directors. No
options may be granted for a term greater than 10 years.

F-12
<PAGE>

TSI INTERNATIONAL SOFTWARE LTD.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

Transactions under the Plan are summarized below:

<TABLE>
<CAPTION>
1995 1996
-------- ---------
<S> <C> <C>
Shares under option at January 1........................ 739,767 919,857
Options exercised....................................... (71,160) --
Options granted......................................... 367,500 150,000
Options canceled........................................ (116,250) (6,000)
-------- ---------
Shares under option at December 31...................... 919,857 1,063,857
======== =========
Options exercisable at December 31...................... 409,107 576,357
======== =========
</TABLE>

Options were granted in 1995 and prior years at an exercise price of $0.33 a
share and options were granted during 1996 at exercise prices of $0.67 and
$1.67 a share. Substantially all options vest ratably over a four year period
from the date of grant.

There were 422,664 shares available for grant at December 31, 1996 and
(unaudited) 27,000 options were granted at $1.67 a share during the three
months ended March 31, 1997.

As discussed in Note 1, the Company adopted SFAS No. 123 during 1996 and
elected not to recognize compensation expense relating to employee stock
options where the exercise price of the option equaled the fair value (as
estimated by the Company) of the stock on the date of grant. As a non-public
entity, the Company utilized the minimum value method to determine
compensation based on the fair value of the options on the date of grant in
accordance with SFAS No. 123. Following are the resultant pro forma amounts of
net income and net income per share:

<TABLE>
<CAPTION>
1995 1996
-------- ----------
<S> <C> <C>
Net income -- as reported............................... $822,800 $1,227,900
Net income -- pro forma................................. $819,500 $1,216,600
Primary net income per share -- as reported............. $ .14 $ .20
Primary net income per share -- pro forma............... $ .14 $ .20
</TABLE>

The pro forma effect on net income for 1995 and 1996 is not representative
of the pro forma effect on net income in future years because it does not take
into consideration pro forma compensation expense related to grants made prior
to 1995.

The fair value of each option granted in 1995 and 1996 was $.21 and $.87,
respectively based on estimates on the date of grant using the modified Black-
Scholes option pricing model using the following weighted average assumptions:

<TABLE>
<S> <C>
Risk-free interest rate................................................ 6.27%
Expected life in years................................................. 6
Expected volatility.................................................... 0%
Expected dividend yield................................................ 0%
</TABLE>

(7) EMPLOYEE BONUS AND SAVINGS PLANS

The Company maintains a bonus plan for all non-executive officer employees.
The bonus plan is reviewed annually by the Board of Directors and provides for
payments based upon a percentage of pretax income, as defined. Bonus payments
of $40,000, $100,000, and $200,000 were authorized during 1994, 1995, and
1996, respectively.

F-13
<PAGE>

TSI INTERNATIONAL SOFTWARE LTD.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

On July 1, 1990, the Company established a defined contribution plan under
Section 401(k) of the Internal Revenue Code which provides for voluntary
employee salary deferrals but does not require Company matching funds. The
defined contribution plan covers substantially all employees. Employees are
eligible to contribute to the defined contribution plan upon completion of
three months of service with the Company. Contributions are subject to
established limitations as determined by the Internal Revenue Service. There
have been no Company contributions to the plan to date.

(8) INCOME TAXES

The provision for income taxes is composed solely of Federal Alternative
Minimum Taxes (AMT). The AMT for the Company's fiscal year ended April 30,
1995 of $13,200 was prorated to calendar 1994 ($8,800) and 1995 ($4,400). The
AMT for the period May 1 to December 31, 1995 was approximately $32,000. The
AMT for the year ended December 31, 1996 was approximately $36,200.

At December 31, 1996, the Company had: (a) federal tax net operating loss
carryforwards of $8,646,000 expiring between the years 2000 and 2009; (b)
research and experimentation credits of $590,000 expiring between 2003 and
2008; and (c) AMT credit carryforwards of $68,100 which have no expiration
date. Section 382 of the Internal Revenue Code imposes a limitation on the
amount of tax loss carryforwards which can be utilized in any year after there
has been a 50% or greater ownership change of the Company. The ownership
change is based on the number of shares of stock or the aggregate market value
of the stock within any consecutive three year period. Future years'
utilization of the Company's tax loss carryforwards could be subject to this
limitation.

At December 31, 1995 and 1996, the components of net deferred taxes
(utilizing a 41.4% combined tax rate) were:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Deferred tax liabilities.............................. $1,306,900 $1,024,900
Deferred tax assets, net of valuation allowances of
$5,798,200 and $5,294,900 in 1995 and 1996........... 1,306,900 $1,024,900
---------- ----------
Net deferred taxes.................................. $ -- --
========== ==========
</TABLE>

Significant temporary differences which give rise to deferred tax (a)
liabilities and (b) assets are: (a) investment in licensing contracts
receivable and depreciation; and (b) net operating loss carryforwards and
deferred maintenance revenues.

The decrease in the valuation allowance of $503,300 in 1996 is the result of
the utilization of net operating loss carryforwards.

(9) ACCRUED EXPENSES

Included in accrued expenses as of December 31, 1995 and 1996 and
(unaudited) March 31, 1997 are compensation costs (regular payroll, bonus and
profit sharing) of $336,500, $548,300 and $804,200, respectively.

F-14
<PAGE>

TSI INTERNATIONAL SOFTWARE LTD.

NOTES TO FINANCIAL STATEMENTS--CONTINUED

(10) COMMITMENTS AND CONTINGENCIES

The Company rents premises and furniture, fixtures and equipment under
operating leases which expire at various dates through 2010.

Future minimum payments, by year and in the aggregate, under operating and
capital leases at December 31, 1996 are:

<TABLE>
<CAPTION>
CAPITAL OPERATING
-------- ----------
<S> <C> <C>
1997................................................... $ 82,200 $ 787,300
1998................................................... 24,100 743,700
1999................................................... 9,000 705,900
2000................................................... -- 708,200
2001................................................... -- 453,900
Thereafter............................................. -- 1,404,300
-------- ----------
Total................................................ $115,300 $4,803,300
==========
Less amount representing interest...................... (10,200)
--------
Present value of minimum capital lease payments...... $105,100
========
</TABLE>

There were no significant modifications to the Company's portfolio of leases
during the three months ended March 31, 1997.

Certain of the aforementioned leases provide for additional payments
relating to taxes and other operating expenses. Rental expense for the years
ended December 31, 1994, 1995, and 1996 and (unaudited) the three months ended
March 31, 1996 and 1997 under all operating leases aggregated approximately
$770,900, $820,900, $717,300, $201,600, and $193,100, respectively.

(11) LITIGATION SETTLEMENT

In April 1995 the Company received cash in settlement of a lawsuit which,
after payment of legal expenses, resulted in a non-operating gain of $176,900.

F-15
<PAGE>

TSI INTERNATIONAL SOFTWARE LTD.

NOTES TO FINANCIAL STATEMENTS--CONCLUDED

(12) CONDENSED QUARTERLY INFORMATION (UNAUDITED)

The following condensed quarterly information has been prepared by
management on a basis consistent with the Company's audited financial
statements. Such quarterly information may not be indicative of future
results. Amounts are in thousands, except per share data.

<TABLE>
<CAPTION>
1995
-------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total revenues.............................. $3,897 $4,027 $4,070 $4,067
Gross profit................................ 2,993 3,161 3,538 3,444
Net income.................................. 92 3 568 160
Net income per share........................ $ .02 $ -- $ .10 $ .03
Weighted average number of common and common
equivalent shares outstanding.............. 5,657 5,658 5,705 5,728
<CAPTION>
1996
-------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Total revenues.............................. $4,089 $4,236 $5,046 $5,633
Gross profit................................ 3,564 3,681 4,413 4,845
Net income.................................. 121 186 518 403
Net income per share........................ $ .02 $ .03 $ .08 $ .06
Weighted average number of common and common
equivalent shares outstanding.............. 5,728 5,880 6,185 6,276
</TABLE>

The sum of the quarterly per share amounts do not agree to the respective
annual amounts due to rounding.

F-16
<PAGE>

The inside back cover contains a chart depicting data transformation. The left
side of the graphic contains pictures of 3 computers in a vertical row with a
cube, pyramid and sphere, respectively next to the computer. Each drawing has an
arrow emanating from it to an oval in the center of the graphic. The oval
contains a vertical row of a cube, pyramid and sphere (in a vertical column)
each with two arrows emanating from it and pointing to two other three
dimensional shapes on the right side of the oval. The right side of the oval has
two arrows emanating from it and pointing towards the right. The top arrow
points to a piece of computer equipment with a three dimensional shape next to
it and the bottom arrow points to a different piece of computer equipment with a
three dimensional "pie" shape next to it.

The TSI International Data Transformation Solution
for Integrating Applications

. Concurrent transformation between multiple application sources and
destinations

. Support for any application, message or file format

. Elimination of custom written interface programs

. No modification to the underlying applications

. Support for multiple protocols for data transport

. Scalability and portability across a broad range of computing platforms

. Execution in batch mode, real-time, stand-alone, or embedded within
applications

<PAGE>

[LOGO OF TSI SOFT APPEARS HERE]