SOFTWORKS INC, S-1, 1999-05-03

SOFTWORKS INC
S-1, 1999-05-03
PREPACKAGED SOFTWARE

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<PAGE>

As filed with the Securities and Exchange Commission on May 3, 1999
Registration No. 333-
================================================================================

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
SOFTWORKS, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
Delaware 7372 52-1092916
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification Number)
incorporation or organization) Classification Code Number)
5845 Richmond Highway, Suite 400
Alexandria, Virginia 22303
(703) 317-2424
</TABLE>
(Address, including zip code, and telephone number, including area code of
Registrant's principal executive offices)
Judy G. Carter
Chief Executive Officer
SOFTWORKS, Inc.
5845 Richmond Highway, Suite 400
Alexandria, Virginia 22303
(703) 317-2424

(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
Copies to:

<TABLE>
<S> <C>
David H. Lieberman, Esq. Ira A. Greenstein, Esq.
Blau, Kramer, Wactlar & Lieberman, P.C. Morrison & Foerster LLP
100 Jericho Quadrangle, Suite 225 1290 Avenue of the Americas
Jericho, New York 11753 New York, New York 10104
Telephone: (516) 822-4820 Telephone: (212) 468-8000
Facsimile: (516) 822-4824 Facsimile: (212) 468-7900
</TABLE>

Approximate date of commencement of proposed sale to the public: as soon
as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, please check the following box. [_]

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==================================================================================================================
Title of Each Class of Proposed Maximum
Securities to be Registered Aggregate Offering
Price Amount of
(1) Registration Fee
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.001 par value........................ $54,337,500 $15,106
==================================================================================================================
</TABLE>

(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933, as amended.

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>

SUBJECT TO COMPLETION DATED MAY __, 1999

3,500,000 shares

[SOFTWORKS logo]

Common Stock

We are selling 1,000,000 shares of common stock and the selling stockholders are
selling 2,500,000 shares of common stock. We will not receive any of
the proceeds from the sale of the shares being sold by the selling stockholders.

The underwriters have an option to purchase a maximum of 525,000 additional
shares to cover over-allotments of shares.

Investing in the common stock involves risks. See "Risk Factors" on page 5.

<TABLE>
<CAPTION>
Per
Share Total
<S> <C> <C>
Public Offering Price................................................... $ $
Underwriting Discounts.................................................. $ $
Proceeds, before expenses, to SOFTWORKS, Inc............................ $ $
Proceeds to Selling Stockholders........................................ $ $
</TABLE>

Delivery of the shares of common stock will be made on or about __________,
1999, against payment in immediately available funds.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or
determined if this prospectus is truthful
or complete. Any representation to the contrary is a criminal offense.

SoundView Technology Group
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
Raymond James & Associates, Inc.

Prospectus dated May , 1999.
<PAGE>

[Artwork]
<PAGE>

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page Page
---- --------
<S> <C> <C>
Prospectus Summary............................ 1 Business...................................... 25
Risk Factors.................................. 5 Management.................................... 33
Special Note Regarding Forward- Certain Transactions.......................... 38
Looking Statements........................... 9 Principal and Selling Stockholders.............. 40
Use of Proceeds............................... 10 Description of Capital Stock.................... 42
Dividend Policy............................... 10 Shares Eligible For Future Sale................. 44
Price Range of Common Stock................... 11 Underwriting.................................... 45
Capitalization................................ 12 Legal Matters................................... 46
Selected Consolidated Financial Data.......... 13 Experts......................................... 46
Management's Discussion and Analysis Available Information........................... 46
of Financial Condition and Results of Index to Consolidated Financial
Operations................................... 14 Statements...................................... F-1
</TABLE>

You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.

SOFTWORKS and Catalog Solution are our registered trademarks. This
prospectus also includes other registered and unregistered trademarks and
service marks which belong to us and other companies. All trademarks and service
marks which appear in this prospectus that do not relate to our products and
services are the property of their respective holders.

<PAGE>

PROSPECTUS SUMMARY

This summary is not complete and may not contain all of the information
that you should consider before you invest in our common stock. To understand
this offering fully, you should read the entire prospectus carefully, including
the risk factors and financial statements. Unless we indicate otherwise, the
information in this prospectus assumes no exercise of the underwriters' over-
allotment option or any other options or warrants.

SOFTWORKS, INC.

Market Trends

Our products serve primarily the storage resource management market, which
GartnerGroup, an information technology research and consulting firm, estimates
will grow at a compound annual rate of approximately 44% through 2002. The
overall complexity of information technology infrastructures has increased
because mainframes, UNIX and NT platforms must co-exist to satisfy a variety of
business application requirements across multiple platforms. In addition to the
increasing complexity of the multi-platform information technology environment,
the need to store increasing amounts of data, caused in part by the expanding
use of the Internet, is driving the need for software solutions such as ours
that provide platform-independent, enterprise-wide storage and performance
management.

Our Products

Our products integrate a proprietary combination of core technologies and
a unique design strategy and development methodology which enable our software
products to provide immediate performance improvements and cost savings. We call
this combination "SOFTWORKS SavanTechnology" or "SST." We believe that SST
differs from conventional monitoring and reporting systems management by
providing proactive alerts, programmed responses and automated corrective
actions. Products employing SST are designed to address the weaknesses and
exploit the strengths of operating systems, such as OS/390, UNIX or NT, and
access methods found in multiple processing environments.

Our Strategy

We are capitalizing on our established market position in the mainframe
environment in order to become a leading provider of storage management and
performance management products for multi-platform environments. We also plan
to offer additional systems management products and services for both the
mainframe and multi-platform environments. Our strategy is to:

. capitalize on increased demand for storage;
. enhance and expand our current product offerings;
. expand domestic and international sales channels;
. sell additional products to our customers; and
. pursue strategic partnerships, alliances and acquisitions.

Before 1998, our products addressed only the storage and performance
management requirements of mainframe operating systems. In 1998, we extended our
product family by introducing UNIX and NT-based storage management products. In
1999, we plan to introduce additional storage management products for Oracle,
EMC Symmetrix, IBM RAMAC, and StorageTek Tape Silo. We have granted over 6,400
licenses for use of our

1
<PAGE>

products at over 2,000 installations worldwide, including installations at 87%
of the Fortune 100 and 52% of the Fortune 500 companies. In addition to selling
additional products to our existing customers, during 1998 we added 50 new
customers. Our customers operate in a variety of industries, such as financial
services, healthcare, manufacturing and telecommunications, and include
Citicorp, GTE Data Services, NationsBank, PaineWebber, Prudential Service
Company, Sprint, State Farm Mutual Auto Insurance and Wal-Mart. We sell our
products through a global direct sales force and a network of international
distributors and resellers.

About Us

We incorporated in Maryland in July 1977 and reincorporated in Delaware in May
1998. Our principal offices are located at 5845 Richmond Highway, Alexandria,
Virginia 22303 and our telephone number is (703) 317-2424.

2
<PAGE>

The Offering

<TABLE>
<CAPTION>
<S> <C>
Common stock offered by us 1,000,000 shares
Common stock offered by the selling stockholders 2,500,000 shares
Total common stock offered 3,500,000 shares
Common stock to be outstanding after the offering 17,132,734 shares
Use of proceeds For working capital and general
corporate purposes.
Nasdaq National Market symbol SWRX
</TABLE>

3
<PAGE>

Summary Financial Information

We present the following consolidated financial data for the fiscal years
ended December 31, 1998, 1997 and 1996 from our audited financial statements.
Investors should read "Management's Discussion and Analysis of Operations,"
beginning on page 14 to obtain a more complete picture, as well as our
consolidated financial statements and related notes beginning on page F-1. Other
financial information appears elsewhere in this prospectus. All numbers are in
thousands, with the exception of per share amounts. The "As Adjusted" column
reflects our sale of 1,000,000 shares of common stock at an assumed offering
price of $14.00 per share, after deducting the underwriting discount and our
offering expenses.

<TABLE>
<CAPTION>
Year Ended December 31,
1996 1997 1998
-------- -------- -------
(In thousands)
<S> <C> <C> <C>
Statement of Operations Data:
Total revenue........................................................... $16,525 $26,770 $43,749
Gross margin............................................................ 15,381 25,135 39,499
Net income.............................................................. 792 786 2,957
-------- -------- -------
Basic and diluted net income per share.................................. $0.06 $ 0.06 $0.20
-------- -------- -------
Basic and diluted weighted average shares outstanding................... 14,083 14,083 14,860
-------- -------- -------

At December 31, 1998
Actual As Adjusted
-------- -----------
Consolidated Balance Sheet Data:
Cash and cash equivalents............................................... $ 6,003 $18,233
Working capital......................................................... 11,879 24,109
Total assets............................................................ 58,352 70,582
Long term debt, net of current portion.................................. 1,401 1,401
Total stockholders' equity.............................................. 18,685 30,915
</TABLE>

4
<PAGE>

RISK FACTORS

You should carefully consider the following risks, as well as the other
information in this prospectus, before deciding to invest in our common stock.

Our operating results may fluctuate significantly on a quarterly basis.

In the past, our operating results have fluctuated significantly from
quarter to quarter, and we expect this trend to continue. Our operating results
may also fluctuate on an annual basis. Factors which affect our operating
results include:

. the size and timing of customer orders;
. the timing of renewals or the failure of existing customers to renew their
maintenance agreements with us when their current agreements expire;
. changes in our sales cycle;
. the timing of new product announcements and introductions of new products
by us and our competitors;
. our ability to develop, introduce and market new products and product
enhancements;
. market acceptance of our products;
. deferrals of customer orders in anticipation of new products or product
enhancements or service offerings;
. changes in contract terms (including terms affecting the timing of
recognition of license and maintenance revenue) and the rate at which such
changes are made;
. our ability to control costs, including the hiring of new employees;
. changes in our management team; and
. fluctuating economic conditions.

Many of these factors are beyond our control. In the past we have
recognized a substantial portion of our revenues in the last month of the
quarter. If this trend continues, any failure or delay to fill orders by the end
of a particular quarter will have an adverse effect on our results of
operations.

Our recent growth has caused a strain on our management and other resources.

In recent periods, we have grown rapidly. The speed of this growth has
placed a significant strain on our resources, and we expect this trend to
continue. To accommodate this growth, we have implemented a variety of new or
upgraded operational and financial systems, procedures, and controls, and we
have improved our accounting and other internal management systems. We added 79
employees in 1998 and hired an additional 24 employees in the first quarter of
1999. This adds to management responsibilities. We also plan to increase our
sales, marketing and software development personnel. This may require
substantial management effort and may not be successful. If we fail to improve
our operational, financial and management information systems, or to hire,
train, motivate or manage our employees, our business, financial condition and
results of operations could suffer.

Our planned expansion of international operations may adversely affect our
financial results.

In order to further increase sales, we will continue to expand our
marketing, direct and third party sales and support channels outside the United
States, particularly in Europe and the Asia-Pacific region. We have limited
experience in marketing our products outside the United States and we may not be
able to increase sales in Europe or elsewhere. International business activities
could be limited or disrupted by any of the following:

. the imposition of governmental controls;
. restrictions on the export of technology;
. currency exchange fluctuations;

5
<PAGE>

. political instability;
. trade restrictions;
. changes in tariffs;
. variations in the protection of intellectual property rights; and
. additional expenses and risks associated with conducting operations in
geographically diverse locations, and in dealing with customers who speak
different languages and have diverse cultural approaches to the conduct of
business.

In addition, as we expand our international operations, we must recruit,
train and manage qualified personnel, including sales agents. Our failure to
attract and retain qualified personnel could have a material adverse effect on
our business, operating results or financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
page 14 and "Business--Sales, Distribution and Marketing" on page 29.

Changes in technology may adversely affect our financial results.

The markets for our products change rapidly because of technological
innovation, changes in customer requirements, declining prices, and evolving
industry standards, among other factors. New products and new technology often
render existing information services or technology infrastructure obsolete,
excessively costly, or otherwise unmarketable. As a result, our success depends
on our ability to timely innovate and integrate new technologies into our
current products and to develop new products. We cannot guarantee that we will
successfully integrate new technologies into our products or develop new
products in a timely manner.

Advances in technology also require us to commit substantial resources to
acquiring and applying new technologies for use in our operations. We must
continually commit resources to train our personnel to use these new
technologies and maintain the compatibility of existing software systems with
these new technologies. We cannot be sure that we will be able to continue to
commit the resources necessary to refresh our technology infrastructure at the
rate demanded by our markets.

In addition, corporate computing environments have increasingly
transitioned from the use of mainframe systems to open, complex networks of
diverse systems. Prior to 1998, our products addressed only the storage and
performance management requirements of mainframe operating systems. In 1998, we
introduced UNIX and NT-based storage and performance products for open systems.
We cannot be sure that the products we develop will achieve market acceptance.

Conflicts may exist in our relationship with Computer Concepts Corporation.

After the sale of the common stock in this offering, Computer Concepts
will beneficially own 42.1% of our outstanding common stock. As the holder of a
large block of stock, Computer Concepts may have the ability to control or
influence certain fundamental matters affecting us. Under certain circumstances,
Computer Concepts' financial condition may influence our decisions, since they
own a large block of our stock. Our ongoing relationship with Computer Concepts
may result in conflicts of interest, even though they are not engaged in
competing businesses.

We depend on certain key personnel.

Our future success depends in part on our ability to retain qualified
management, technical, sales and support personnel for our operations.
Competition for these personnel is intense. Specifically, the success of our
business is dependent in substantial part upon the abilities of James A.
Cannavino, our Chairman of the Board, Judy G. Carter, our President and Chief
Executive Officer and Claude R. Kinsey, III, our Vice President and Chief
Technology Officer. Although we have an employment agreement with each of these
officers, we cannot be sure that they will stay on as employees or continue to
provide services to us. The loss of services of any of these officers could
likely have a material adverse effect on us. We maintain key person life
insurance in the amount of $5 million for both Mr. Cannavino and Ms. Carter, for
which we receive the proceeds.

6
<PAGE>

Our stock price may be volatile.

The stock market in general, and the market for shares of technology
companies in particular, have experienced extreme price fluctuations, often
unrelated to the operating performance of the affected companies. Many
technology companies, including us, have experienced dramatic volatility in the
market prices of their common stock. If our future operating results are below
the expectations of stock market analysts and investors, our stock price may
decline. We cannot be certain that the market price of our common stock will
remain stable in the future. Our stock price may undergo fluctuations that are
material, adverse and unrelated to our performance.

Our success depends upon protecting our intellectual property.

Our success depends upon our confidential and proprietary software
technology and other intellectual property rights. We do not currently have any
patents or pending patent applications, and we rely principally on a combination
of:

. trade secret, copyright and trademark laws;
. nondisclosure, use restriction and other contractual restrictions and
agreements; and
. certain technical measures to ensure the protection of our technology.

Trade secret, copyright and trademark laws provide limited protection.
These laws, in combination with the steps we take to protect our proprietary
rights, may not adequately prevent misappropriation of those rights. Also, such
protections do not preclude our competitors from independently developing
products similar or superior to our products and technologies. In addition,
effective protection of copyrights, trade secrets, trademarks, and other
proprietary rights may be unavailable or limited in certain foreign countries in
which we do business. In furtherance of the development of our services or
products, we may need to acquire licenses for intellectual property to avoid
infringement of a third party's product. Such a license may not be available on
commercially reasonable terms, if at all. Our failure or inability to protect
our proprietary technology or to obtain appropriate licenses could have a
material adverse effect on our business, operating results or financial
condition.

Our dependence on proprietary technology creates the potential for risk of
errors or failures in our software products.

Our products are very complicated and may contain errors, failures or
bugs. In particular, the wide variety of standard and non-standard computer
configurations and the occurrence of errors, failures and bugs in third party
platforms and applications make pre-release testing for programming or
compatibility errors very difficult, time-consuming and expensive. Furthermore,
no amount of testing can guarantee that products which we ship commercially will
not contain errors, failures or bugs. Errors, failures or bugs in our products
could result in adverse publicity, product returns, loss of or delay in market
acceptance of our products or claims by the customer or others against us.
Alleviating those problems, if they occur, could require us to make significant
expenditures of capital and resources and could cause interruptions, delays or
cessation of service to our customers. Errors, failures or bugs in our products
could have a material adverse effect on our business, operating results or
financial condition.

Possible acquisitions may disrupt our business.

In the normal course of our business, we evaluate potential acquisitions
of businesses, products and technologies that could complement or expand our
business. In connection with any acquisition we do not know whether:

. we will be able to successfully negotiate the terms of the
acquisition;
. we will be able to successfully finance the acquisition;
. we will be able to successfully integrate an acquired business,
product, or technology into our existing business or products in order
to fully benefit from an acquisition; or

7
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. we will be able to retain key personnel previously associated with the
acquired businesses.

Negotiating potential acquisitions and integrating acquired businesses
could divert management's time and resources. We may use proceeds from the
offering to consummate a potential acquisition. In addition, completing future
mergers or acquisitions may require us to issue a significant number of shares
of common stock or incur significant additional indebtedness, which could dilute
our earnings or the book value per share of our common stock.

Year 2000 issues may adversely affect our business.

The Year 2000 issue is the result of computer programs using two digits
rather than four digits to define the applicable year. Any software or hardware
using date-sensitive programs or embedded chips may recognize a date using "00"
as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities. Year 2000 issues may also affect
our customers' purchasing plans since they may need to expend significant
resources to correct their existing systems. As a result, our customers may have
reduced funds available to purchase our products.

We cannot ascertain with complete certainty that all Year 2000 problems
affecting our software products have been identified or corrected due to the
complexity of these products and the normal interface with a wide range of third
party vendor products and computer systems which are not under our control. If
any of our products malfunction due to the onset of Year 2000, customers could
bring claims against us, which could have a material adverse effect on our
business, results of operations or financial condition. Moreover, our customers
could choose to convert to other Year 2000-compliant products in order to avoid
such malfunctions, which could have a material adverse effect on our business,
results of operations or financial condition.

Further, we believe that certain companies have purchased additional
storage capacity in order to address their Year 2000 problems, which has
required them to also purchase storage management products such as ours.
Accordingly, once these companies have satisfactorily addressed their Year 2000
problems, they may not be required to purchase additional storage capacity or
storage management products.

Our failure to timely address Year 2000 problems in our internal systems
would result in disruptions of operations which would adversely impact our
business operations.

We are currently developing contingency plans, but have not yet determined
the extent of our exposure with respect to the Year 2000 issue. We cannot be
certain that our contingency plans, if implemented, will be adequate to minimize
disruptions to our business.

SOFTWORKS charter provisions and statutory law may inhibit changes in control of
our company.

Our certificate of incorporation and bylaws contain provisions which may
discourage takeover attempts and hinder a merger, tender offer or proxy contest
targeting us, including transactions in which stockholders might receive a
premium for their shares. This may limit your ability as a stockholder to
approve a transaction that you may think is in your best interest.

These provisions could reduce the price that certain investors might be
willing to pay in the future for shares of common stock or preferred stock.
Moreover, although our ability to issue preferred stock may provide flexibility
in connection with possible acquisitions and other corporate purposes, such
issuance may make it more difficult for a third party to acquire, or may
discourage a third party from acquiring, a majority of our voting stock.

Furthermore, we may in the future adopt other measures that may delay,
defer or prevent a change in control of SOFTWORKS. We may adopt some of these
measures without any further vote or action by stockholders.

8
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements and information relating
to SOFTWORKS. We generally identify forward-looking statements in this
prospectus using words like "believes," "intends," "expects," "may," "will,"
"should," "plan," "projected," "contemplates," "anticipates," or similar
statements. These statements are based on our beliefs as well as assumptions we
made using information currently available to us. Because these statements
reflect our current views concerning future events, these statements involve
risks, uncertainties and assumptions. Our actual future results may differ
significantly from the results we discuss in these forward-looking statements.

9
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USE OF PROCEEDS

We expect to receive approximately $12,230,000 of the net proceeds from
the sale of the 1,000,000 shares of common stock offered with this prospectus
(after deducting underwriting discounts and estimated offering expenses). We
will not receive any proceeds from the sale of shares by the selling
stockholders.

We intend to use the net proceeds of this offering primarily for
additional working capital, general corporate purposes, including hiring of
additional personnel and international expansion. In addition, we may make one
or more acquisitions of complementary technologies, products or businesses which
broaden or enhance our current product offerings.

Management will retain broad discretion in the allocation of the net
proceeds from this offering. Pending the uses described above, the net proceeds
will be invested in interest-bearing, investment-grade securities, U.S.
Government securities, money market investments and short-term, interest-bearing
deposits in major banks. See "Risk Factors--Possible acquisitions may disrupt
our business" on page 7.

We expect the net proceeds we receive from this offering to be adequate to
fund our working capital needs for at least the next twelve months. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" on page 22.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our common stock and
currently do not intend to pay cash dividends in the foreseeable future. We
intend to retain earnings, if any, to finance the development and expansion of
our business. In addition, we are a party to a voting trust agreement which
limits the payment of dividends. See "Certain Transactions--Voting Trust
Agreement" on page 38. Payment of future dividends on our common stock will be
subject to the discretion of our board of directors and will be contingent upon
future earnings, our financial condition, capital requirements, general business
conditions and other factors. Therefore, dividends on our common stock may never
be paid.

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PRICE RANGE OF COMMON STOCK

Our common stock has traded on The Nasdaq National Market under the symbol
"SWRX" since our initial public offering on August 4, 1998. Prior to that date,
there was no public market for our common stock. The following table sets forth,
for the periods indicated, the high and low sale prices per share of our common
stock, as reported by The Nasdaq National Market.

High Low
------ ------
Fiscal Year 1998

Third Quarter 1998 (from August 4, 1998) $ 7.13 $ 3.13
Fourth Quarter 1998 $ 7.63 $ 3.38

Fiscal Year 1999

First Quarter 1999 $14.88 $ 5.38
Second Quarter 1999 (through April 27,1999) $16.88 $10.75

On April 27, 1999 the reported last sale price of our common stock on The
Nasdaq National Market was $15.13 per share. As of April 16, 1999 there were
approximately 28 stockholders of record, and approximately 2,028 beneficial
owners, of our common stock.

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CAPITALIZATION

The following table sets forth our capitalization as of December 31, 1998:
(1) on an actual basis, and (2) as adjusted to reflect our sale of the 1,000,000
shares of common stock offered by this prospectus at an assumed price of $14.00
per share. You should note that some of the information in this table is
unaudited.

<TABLE>
<CAPTION>
December 31, 1998
-----------------------------------
Actual As Adjusted
------------ --------------
(In thousands)
<S> <C> <C>
Long-term debt, net of current portion................................ $ 1,401 $ 1,401
Preferred stock, $0.001 par value, 2,000,000 shares authorized; none -- --
issued or outstanding................................................
Common stock, $0.001 par value, 150,000,000 shares authorized; 16 17
15,973,000 shares issued and outstanding (actual); 16,973,000 shares
issued and outstanding (as adjusted).................................
Additional paid-in capital............................................ 15,201 27,430
Retained earnings..................................................... 3,535 3,535
Accumulated other comprehensive loss.................................. (67) (67)
---------- ---------
Total stockholders' equity....................................... $18,685 $30,915
---------- ---------
Total capitalization............................................. $20,086 $32,316
========== =========
</TABLE>

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SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data for the four fiscal years
ended December 31, 1998, 1997, 1996 and 1995 are derived from our audited
financial statements. The data for the fiscal year ended December 31, 1994 are
derived from our unaudited consolidated financial statements. This data should
be read in conjunction with our consolidated financial statements, related
notes, and other financial information included elsewhere in this prospectus.
See "Index to Consolidated Financial Statements" on page F-1. All numbers are
in thousands, except per share amounts.

Year Ended December 31,
----------------------------------------------------
1994 1995 1996 1997 1998
----------- ------- ------- -------- --------
(unaudited) (In thousands)

<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenue:
Software licenses................................. $ 4,438 $ 5,718 $ 8,611 $16,633 $31,725
Services.......................................... 5,011 5,908 7,914 10,137 12,024
-------- ------- ------- ------- -------
Total revenue.................................... 9,449 11,626 16,525 26,770 43,749
Cost of revenue (exclusive of amortization and
depreciation shown separately below except for
amortization of software development costs):
Software licenses................................. 223 432 424 580 1,843
Services.......................................... 360 660 720 1,055 2,407
-------- ------- ------- ------- -------
Total cost of revenue............................ 583 1,092 1,144 1,635 4,250
-------- ------- ------- ------- -------

Gross margin....................................... 8,866 10,534 15,381 25,135 39,499

Operating expenses:
Sales and marketing............................... 2,898 4,262 6,161 12,463 19,666
General and administrative........................ 1,970 1,619 2,217 2,791 4,575
Amortization and depreciation..................... 861 2,088 1,596 1,972 2,169
Research and development.......................... 2,395 3,935 3,911 6,093 7,800
Impairment on goodwill............................ -- 1,320 -- -- --
-------- ------- ------- ------- -------
Total operating expenses......................... 8,124 13,224 13,885 23,319 34,210

Operating income (loss)............................ 742 (2,690) 1,496 1,816 5,289
Other expenses..................................... -- -- -- -- 252
-------- ------- ------- ------- -------

Income (loss) from operations before income taxes.. 742 (2,690) 1,496 1,816 5,037
Provision for (benefit from) income tax............ 260 (979) 704 1,030 2,080
-------- ------- ------- ------- -------
Net income (loss)................................ $ 482 $(1,711) $ 792 $ 786 $ 2,957
-------- ------- ------- ------- -------
Basic and diluted net income (loss) per share...... $ 0.03 $ (0.12) $ 0.06 $ 0.06 $ 0.20
======== ======== ======= ======= =======
Basic and diluted weighted average shares
outstanding....................................... 14,083 14,083 14,083 14,083 14,860
======== ======== ======= ======= =======

At December 31,
----------------------------------------------------
1994 1995 1996 1997 1998
-------- ----------- --------- --------- -----------
(unaudited)
Consolidated Balance Sheet Data:
Cash and cash equivalents.......................... $ 246 $ 167 $ 1,735 $ 360 $ 6,003
Working capital.................................... (2,098) (3,516) (824) (775) 11,879
Total assets....................................... 12,633 12,766 22,543 35,683 58,352
Long-term debt, net of current portion............. 135 465 351 1,294 1,401
Total stockholders' equity......................... 6,214 4,563 5,355 6,087 18,685
</TABLE>

13
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We develop, market, license and support storage and performance management
software products. Our products are designed to optimize system and application
performance and the management of multi-platform storage resources in order to
maximize the value of purchased hardware and software. Our products address
these issues for organizations that employ enterprise-scale servers, OS/390,
UNIX, and Microsoft(R) Windows NT(R) computing environments. We have over 6,400
licenses of our products in use at over 2,000 installations worldwide. Our
products are installed at 87% of the Fortune 100 and 52% of the Fortune 500
companies. During 1998, we sold additional products to our existing customers
and added 50 new customers.

Our revenue consists of revenue from licensing our software products,
revenue from the maintenance and support of our software products and
professional services relating to information technology ("IT") consulting.
Generally, we are required by our license agreement to provide maintenance and
enhancements during a stated maintenance period. "Maintenance" includes
diagnosis and correction of errors in the current version of the product and
telephone consultation to discuss general support questions. "Enhancements"
include upgrades to the products as they become available and new releases of
products, except for those which are sold as charged options to our general
customer base. Substantially all of our license agreements are perpetual.
Maintenance agreements are typically for a term of one year and renew
automatically upon the payment by the customer of an annual maintenance fee.

We recognize revenue from software licenses in accordance with the
American Institute of Certified Public Accountants Statement of Position 97-2,
"Software Revenue Recognition," Statement of Position 98-4, "Deferral of the
Effective Date of a Provision of SOP 97-2" and Statement of Position 98-9,
"Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain
Transactions." Revenue from the sale of perpetual and term software licenses is
recognized, net of provisions for returns, at the time of delivery and
acceptance of software products by the customer. We provide creditworthy
customers with the option to pay for license fees in one lump sum or in equal
annual installments over extended periods of time, generally one to five years.
In such instances, we have not considered sales contracts with amounts due for
periods greater than one year from delivery fixed and determinable, and
accordingly recognized such amounts as revenue when they become due. Beginning
January 1, 1999, for contracts with payment terms of three years or less, we
will recognize the entire amount of the license revenue at the time of delivery
and acceptance by the customer. This change is being made since we have
established a history which demonstrates that we do not provide any concessions
to customers with whom we have these extended payment arrangements. Maintenance
revenue that is bundled with an initial license fee is deferred and recognized
ratably over the maintenance period. Amounts deferred for maintenance are based
on the fair value of equivalent maintenance services sold separately. Revenue
from professional services is recognized as the services are performed. Deferred
license revenue resulting from extended payment agreements beyond one year is
included in installment receivables and deferred installment revenue. Related
sales commissions are also deferred and recognized over the period of the
installment payment plan.

Maintenance and support services revenue represents the ratable
recognition of fees to enroll licensed products in our software maintenance and
support program. Enrollment entitles the customer to product enhancements,
technical support services, and ongoing compatibility with third party operating
systems. Maintenance revenue also includes the ratable recognition of the
bundled fees included in any extended term payment agreement. Once a product
license is acquired and paid for, maintenance fees are generally incurred
annually and equal 15% to 20% of the current list price of the product at the
time of renewal, less any applicable discounts. In 1998, approximately 24% of
our revenue was generated from maintenance service agreements. Additional
revenue is generated when product licenses are transferred to different or
larger central processing units ("CPUs").

Historically, we have not experienced any significant bad debts associated
with these long-term installment arrangements which were introduced by us in
1996. We introduced extended payment terms to all of our

14
<PAGE>

customers in an effort to increase sales of our products, achieve a stream of
revenue, remain competitive, raise total contract value and establish long-term
customer relationships. No single customer accounted for greater than 5% of our
total revenue in 1998.

During 1998, approximately 59% of our license revenue was derived from
storage management products and approximately 32% of our license revenue was
derived from performance management products. Our cost of license revenue
consists primarily of royalties paid to in-house and third party software
developers and amortization of capitalized software costs. Beginning in 1997,
and continuing for four years, we are obligated to pay a minimum annual royalty
associated with certain Year 2000 and other products.

We derive significant recurring revenue from maintenance service
agreements. Maintenance fee revenue was $10.5 million, $10.0 million and $7.9
million, or 23.9%, 37.2% and 47.9% of total revenue in 1998, 1997 and 1996,
respectively.

We market and sell our products and services through a direct sales force
in the United States and directly and through distributors in South America,
Europe and Asia. International revenue transactions are denominated in U.S.
dollars and local currencies. Revenue generated by our international
distributors is translated into U.S. dollars at the time the transaction occurs.
We have not sustained material foreign currency exchange losses and presently do
not attempt to hedge our exposure to fluctuations in international currency
exchange rates. Our international revenue contributed approximately 20.1% to our
total revenue during 1998, 17.7% to our total revenue during 1997, and 29.5% to
our total revenue during 1996. Should our revenue from international sales
increase as intended, and should such sales be denominated in international
currencies, we intend to adopt an adequate hedging strategy to guard against
international currency fluctuations.

Historically, we have experienced fluctuations in quarterly sales with
greater revenues and net earnings in the latter half of the calendar year. As a
result, our operating results have fluctuated in the past and in the future are
expected to fluctuate significantly from quarter to quarter and may fluctuate on
an annual basis as a result of a number of factors. Revenue in any quarter is
dependent to a significant degree on orders booked and renewals of agreements
for maintenance in that quarter and is not predictable with any degree of
certainty. Since our expense levels are based in part on management's
expectations regarding future revenue, if revenue is below expectations in any
quarter, the adverse effect may be magnified by our inability to adjust spending
in a timely manner to compensate for any revenue shortfall.

15
<PAGE>

Results of Operations

The following table sets forth for the periods indicated certain
consolidated statement of operations data expressed in thousands of dollars
(except for per share data).

<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1996 1997 1998
----------- -------------- ---------
(In thousands)
<S> <C> <C> <C>
Revenue:
Software licenses..................................... $ 8,611 $16,633 $31,725
Services.............................................. 7,914 10,137 12,024
----------- --------- ---------
Total revenue....................................... 16,525 26,770 43,749

Cost of revenue (exclusive of amortization and
depreciation shown separately below except for
amortization of software development costs):
Software licenses..................................... 424 580 1,843
Services.............................................. 720 1,055 2,407
----------- --------- ---------

Total cost of revenue............................... 1,144 1,635 4,250
----------- --------- ---------

Gross margin........................................... 15,381 25,135 39,499

Operating expenses:
Sales and marketing................................... 6,161 12,463 19,666
General and administrative............................ 2,217 2,791 4,575
Amortization and depreciation......................... 1,596 1,972 2,169
Research and development.............................. 3,911 6,093 7,800
----------- --------- ---------

Total operating expenses............................ 13,885 23,319 34,210
----------- --------- ---------

Operating income....................................... 1,496 1,816 5,289

Other expenses......................................... -- -- 252
----------- --------- ---------
Income from operations before provision for income
taxes................................................. 1,496 1,816 5,037

Provision for income taxes............................. 704 1,030 2,080
----------- --------- ---------

Net income............................................. $ 792 $ 786 $ 2,957
=========== ========= =========

Basic and diluted net income per share................. $0.06 $0.06 $0.20
=========== ========= =========
Basic and diluted weighted average shares outstanding.. 14,083 14,083 14,860
=========== ========= =========
</TABLE>

16
<PAGE>

The following table sets forth for the periods indicated certain
consolidated statement of operations data expressed as a percentage of total
revenue.

<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1997 1998
-------- ------- -------
<S> <C> <C> <C>
Revenue:
Software licenses................................ 52.1% 62.1% 72.5%
Services......................................... 47.9 37.9 27.5
------- ------ ------

Total revenue.............................. 100.0 100.0 100.0

Cost of revenue (exclusive of amortization and
depreciation shown separately below except for
amortization of software development costs):

Software licenses................................ 2.6 2.2 4.2
Services......................................... 4.3 3.9 5.5
------- ------ ------

Total cost of revenue...................... 6.9 6.1 9.7
------- ------ ------

Gross margin...................................... 93.1 93.9 90.3

Operating expenses:
Sales and marketing.............................. 37.3 46.6 44.9
General and administrative....................... 13.4 10.4 10.5
Amortization and depreciation.................... 9.6 7.4 5.0
Research and development......................... 23.7 22.7 17.8
------- ------ ------

Total operating expenses................... 84.0 87.1 78.2
------- ------ ------

Operating income.................................. 9.1 6.8 12.1

Other expenses.................................... -- -- 0.6
------- ------ ------

Income from operations before provision for
income taxes..................................... 9.1 6.8 11.5

Provision for income taxes........................ 4.3 3.9 4.7
------- ------ ------

Net income........................................ 4.8% 2.9% 6.8%
======= ====== ======
</TABLE>

17
<PAGE>

Years Ended December 31, 1998 and 1997

Revenue. Total revenue increased 63.4% to $43.7 million in 1998 from $26.8
million in 1997. License revenue increased 90.7% to $31.7 million in 1998 from
$16.6 million in 1997. The increase was primarily due to the increased sales of
our products resulting from continued expansion of our worldwide sales force,
the conversion from CPU-based pricing to millions of instructions processed per
second ("MIPS")-based pricing and the introduction of Resource Availability into
the storage management segment. During 1998, MIPS-based licenses accounted for
74% of new sales. Sales in the storage management segment accounted for 59% of
total license revenue in 1998 and 1997. License revenue from the performance
management segment accounted for 32% of total license revenue in 1998 and 1997.
License revenue from the Year 2000 segment accounted for 5.3% of total license
revenue in 1998 and 3.5% in 1997. International revenue increased as a
percentage of total revenue to 20.1% in 1998 from 17.7% for the period ending
December 31, 1997. In terms of absolute dollars, international revenues
increased 85.9% to $8.8 million in 1998 from $4.7 million in 1997. This
increase is attributable to our continuing international expansion.

Services revenue, comprised of maintenance revenue and, to a lesser
extent, revenue from professional services, increased 18.6% to $12.0 million in
1998 from $10.1 million in 1997. This increase is attributable to overall growth
in license revenue, renewals of maintenance contracts by the installed customer
base and customer acceptance of the SKILLPACKS and Extended SKILLPACKS services.

Cost of Revenue. Cost of software license revenue includes royalties paid
to company developers and to a third party under a licensing agreement,
amortization of capitalized software development costs and costs of shipping and
fulfillment. Cost of software license revenue increased 217.8% to $1.8 million,
or 4.2% of total revenue in 1998 from $580,000, or 2.2% of software license
revenue in 1997. This increase was primarily attributable to the royalties paid
as a result of a third party licensing agreement that commenced in July 1997, as
well as an increase in royalty payments to company developers resulting from
increased software license revenue. Costs of services revenue is comprised of
costs of maintenance and to a lesser extent, costs of professional services.
Cost of services revenue increased 128.2% to $2.4 million, or 5.5% of total
revenue in 1998 from $1.1 million, or 3.9% of total revenue in 1997. This
increase is primarily attributable to the staffing of maintenance personnel to
support the growth of the international customer base and to a lesser extent,
the commencement of professional services operations in the third quarter of
1997.

Sales and Marketing Expense. Sales and marketing expenses include salaries
and related costs, commissions, travel, facilities, communications costs and
promotional expenses for our direct sales organization and marketing staff.
Sales and marketing expenses increased 57.8% to $19.7 million in 1998 from $12.5
million in 1997. This increase was attributable primarily to increased
commission expenses resulting from increased sales, and increased personnel
costs resulting from growth in our sales organization. In addition, the opening
of international sales offices in Germany, Australia and Spain and one domestic
sales office contributed to an increase in certain fixed costs over 1997. Sales
and marketing expenses decreased to 44.9% of revenue in 1998 from 46.6% in 1997.

General and Administrative Expense. General and administrative expenses
include administrative salaries and related benefits, management fees,
recruiting and relocation expenses, as well as legal, accounting and other
professional fees. General and administrative expenses increased 63.9% to $4.6
million in 1998 from $2.8 million in 1997. The increase in general and
administrative expenses was principally due to an increase in finance and
administrative personnel necessary to support our growth and the costs
associated with operating as a public company.

Research and Development Expense. Research and development expenses
include salaries and related costs for software developers, quality assurance
and documentation personnel involved in our research and development efforts as
well as support for the research and development effort including our data
center operations. Research and development increased 28.0% to $7.8 million or
17.8% of 1998 revenue from $6.1 million or 22.7% of 1997 revenue. The increase
is primarily attributable to an increase in personnel necessary to support our
research and development efforts.

18
<PAGE>

Provision for Income Taxes. The provision for income taxes increased to
$2.1 million in 1998 from $1.0 million in 1997. For the period ending December
31, 1997, we reported our financial results on a consolidated basis with
Computer Concepts and did not file separate tax returns. On a stand-alone basis,
if we had filed a separate Federal tax return, our effective rate for 1997 would
have been 56.7%. For 1998 the effective tax rate was 41.3%. The decrease in
effective rates is due to the reduction in previously non-deductible operating
losses incurred by our international subsidiary corporations. A valuation
reserve has been established for the deferred tax asset generated from the
remaining international net operating losses as it is uncertain when, and if,
these losses will be utilized against future international income.

Years Ended December 31, 1997 and 1996

Total Revenue. Total revenue increased 62.0% to $26.8 million in 1997 from
$16.5 million in 1996. License revenue increased 93.2% to $16.6 million in 1997
from $8.6 million in 1996. The increase was primarily due to an increase in the
number of licenses of our products in the performance management segment and
storage management segment, the conversion from CPU-based pricing to MIPS-based
pricing, the availability of extended payment terms to customers for a full
fiscal year, as well as the introduction of our Year 2000 products. New products
in the Year 2000 segment introduced during 1997 accounted for approximately 3.5%
of software license revenue. During 1997, we entered into approximately 107
MIPS-based licenses which accounted for $6.2 million in revenue. Sales in the
storage management segment accounted for approximately 59% of license revenue in
1997, compared to approximately 60% of license revenue in 1996. Sales in the
performance management segment accounted for approximately 32% of license
revenue in 1997, compared to approximately 36% of license revenue in 1996.
Services revenue is comprised of maintenance revenue and to a lesser extent,
revenue from professional services. Services revenue increased 28.1% to $10.1
million in 1997 from $7.9 million in 1996. This increase is attributable to
overall growth in license revenue and renewals of maintenance contracts by the
installed customer base and to a lesser extent, the commencement of professional
services operations in the third quarter of 1997. International revenue
decreased as a percentage of total revenue to 17.7% for the period ending
December 31, 1997 from 29.5% for the period ending December 31, 1996. In terms
of absolute dollars, international revenue decreased slightly to $4.7 million
for the period ending December 31, 1997 from $4.9 million for the period ending
December 31, 1996.

Cost of Revenue. Cost of software license revenue increased 36.8% to
$580,000, or 2.2% of total revenue, in 1997, from $424,000, or 2.6% of total
revenue, in 1996. Cost of services revenue is comprised of costs of maintenance
and to a lesser extent, costs of professional services. Cost of services
increased 46.5% to $1.0 million in 1997 from $720,000 in 1996. As a percentage
of services revenue, cost of services increased to 10.4% in 1997 from 9.1% in
1996. This increase is primarily attributable to the staffing of maintenance
personnel to support international sales in lieu of reliance upon distributors
and to a lesser extent, the commencement of professional services operations in
the third quarter of 1997.

Sales and Marketing Expense. Sales and marketing expense increased 102.3%
to $12.5 million in 1997 from $6.2 million in 1996. The increase was primarily
attributable to the expansion of the direct sales force both domestically and
internationally. Sales and marketing expense was 46.6% of total revenue in 1997
and 37.3% of total revenue in 1996.

General and Administrative Expense. General and administrative expense
increased 25.9% to $2.8 million in 1997 from $2.2 million in 1996. As a
percentage of total revenue, general and administrative expense declined to
10.4% in 1997 from 13.4% in 1996. General and administrative expenses grew in
absolute dollars as we added personnel to all administrative areas, but declined
as a percentage of total revenue principally due to economies of scale
associated with increased revenue.

Research and Development Expense. Research and development expense increased
55.8% to $6.1 million in 1997 from $3.9 million in 1996. The increase was
primarily attributable to our accelerated development of our multi-platform and
Year 2000 products.

Provision for Income Taxes. The provision for income taxes increased 46.3%
to $1.0 million in 1997 from $704,000 in 1996. During these years, we were
reported on a consolidated basis for Federal income tax purpose

19
<PAGE>

with Computer Concepts and did not file a separate Federal tax return. On a
stand-alone basis, if we had filed a separate Federal tax return, our effective
rates for 1997 and 1996 would have been 56.7% and 47.1%, respectively. These
rates differ from the Federal statutory income tax rate primarily because of the
non- deductibility of operating losses incurred by the international subsidiary
corporations. A valuation reserve has been established for the deferred tax
asset generated from international net operating losses as it is uncertain when,
and if, these losses will be utilized against future international income.

Quarterly Results of Operations

The following tables present certain unaudited quarterly statements of
operations data for each of our last eight quarters, including the period ended
December 31, 1998, as well as the percentage of our total revenue represented by
each item. The information has been derived from our audited financial
statements. The unaudited quarterly financial statements have been prepared on
substantially the same basis as the audited financial statements contained
herein. In the opinion of management, the unaudited quarterly financial
statements include all adjustments, consisting only of normal recurring
adjustments, that we consider to be necessary to present fairly this information
when read in conjunction with our financial statements and notes thereto
appearing elsewhere in this prospectus. The results of the operations for any
quarter are not necessarily indicative of the results to be expected for any
future period.

<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
--------- --------- --------- -------- -------- ---------- ----------- ----------
1997 1997 1997 1997 1998 1998 1998 1998
(In thousands)
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Software licenses........................ $2,295 $3,809 $4,281 $6,248 $3,736 $6,026 $ 8,172 $13,791
Services................................. 2,371 2,458 2,623 2,685 2,860 3,028 3,075 3,061
------ ------ ------ ------ ------ ------ ------- -------

Total revenue.......................... 4,666 6,267 6,904 8,933 6,596 9,054 11,247 16,852
Cost of revenue (exclusive of
amortization and depreciation shown
separately below except for amortization
of software development costs):
Software licenses........................ 101 114 161 204 439 194 426 784
Services................................. 180 210 278 387 525 526 604 752
------ ------ ------ ------ ------ ------ ------- -------

Total cost of revenue.................. 281 324 439 591 964 720 1,030 1,536
------ ------ ------ ------ ------ ------ ------- -------

Gross margin.............................. 4,385 5,943 6,465 8,342 5,632 8,334 10,217 15,316

Operating expenses:
Sales and marketing....................... 2,305 3,300 3,247 3,611 3,395 4,516 5,181 6,574
General and administrative................ 884 594 586 727 1,102 1,254 1,087 1,132
Amortization and depreciation............. 436 445 500 591 490 525 616 538
Research and development.................. 1,256 1,540 1,798 1,499 1,618 1,703 2,165 2,314
------ ------ ------ ------ ------ ------ ------- -------

Total operating expenses............... 4,881 5,879 6,131 6,428 6,605 7,998 9,049 10,558
------ ------ ------ ------ ------ ------ ------- -------

Operating (loss) income................... (496) 64 334 1,914 (973) 336 1,168 4,758
Other (expense) income.................... -- -- -- -- -- (169) (84) 1
------ ------ ------ ------ ------ ------ ------- -------

(Loss) income from operations before (496) 64 334 1,914 (973) 167 1,084 4,759
income taxes.............................
(Benefit from) provision for income taxes. (163) 84 207 902 (206) 180 547 1,559
------ ------ ------ ------ ------ ------ ------- -------
Net (loss) income......................... $ (333) $ (20) $ 127 $1,012 $ (767) $ (13) $ 537 $ 3,200
====== ====== ====== ====== ====== ====== ======= =======
</TABLE>

20
<PAGE>
Quarterly Results of Operations as a Percentage of Total Revenue:

<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1997 1997 1997 1997 1998 1998 1998 1998
---------- --------- --------- -------- -------- -------- --------- --------
(as a percentage of total revenue)
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Software licenses............................ 49.2% 60.8% 62.0% 69.9% 56.6% 66.6% 72.7% 81.8%
Services..................................... 50.8 39.2 38.0 30.1 43.4 33.4 27.3 18.2
------ ------ ------ ------ ------ ------ ------ ------
Total revenue.............................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Cost of revenue (exclusive of amortization
and depreciation shown separately below
except for amortization of capitalized
software development costs):
Software licenses............................ 2.2 1.8 2.3 2.3 6.6 2.1 3.8 4.7
Services..................................... 3.9 3.4 4.1 4.3 8.0 5.8 5.4 4.5
------ ------ ------ ------ ------ ------ ------ ------

Total cost of revenue...................... 6.1 5.2 6.4 6.6 14.6 8.0 9.2 9.2
====== ====== ====== ====== ====== ====== ====== ======

Gross margin.................................. 93.9 94.8 93.6 93.4 85.4 92.0 90.8 90.8

Operating expenses:
Sales and marketing.......................... 49.4 52.7 47.0 40.4 51.5 49.9 46.1 39.0
General and administrative................... 18.9 9.5 8.5 8.1 16.7 13.9 9.6 6.7
Amortization and depreciation................ 9.3 7.1 7.3 6.6 7.4 5.8 5.5 3.2
Research and development..................... 26.9 24.5 26.0 16.8 24.5 18.7 19.3 13.7
------ ------ ------ ------ ------ ------ ------ ------

Total operating expenses................... 104.5 93.8 88.8 72.0 100.1 88.3 80.5 62.6
====== ====== ====== ====== ====== ====== ====== ======

Operating (loss) income....................... (10.6) 1.0 4.8 21.4 (14.7) 3.7 10.3 28.2
Other (expenses) income....................... 0.0 0.0 0.0 0.0 0.0 (1.9) (0.7) 0.0
------ ------ ------ ------ ------ ------ ------ ------

(Loss) income from operations before income
taxes........................................ (10.6) 1.0 4.8 21.4 (14.7) 1.8 9.6 28.2
(Benefit from) provision for income taxes..... (3.5) 1.3 3.0 10.1 (3.1) 2.0 4.8 9.2
------ ------ ------ ------ ------ ------ ------ ------

Net (loss) income............................. (7.1)% (0.3)% 1.8% 11.3% (11.6)% (0.2)% 4.8% 19.0%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>

21
<PAGE>

Demand for our products has been generally higher during the fourth
quarter, primarily due to the capital spending trends of our customers, which
has resulted in higher license revenue in that period and lower license revenue
in the first quarter. We anticipate that our business will continue to be
subject to such seasonal variations.

Our operating results for any quarter are not necessarily indicative of
results that will be obtained for any future period. Due to the relatively fixed
nature of certain of our costs, including personnel and facilities costs, a
decline in revenue, failure to achieve expected revenue in any fiscal quarter or
unanticipated variations in billing and utilization rates of service personnel
would result in lower profitability in that quarter. Our quarterly results may
fluctuate as a result of a variety of factors, many of which are beyond our
control, including the timing and levels of software purchases by customers, the
timing, size and state of new product development projects, new product
introductions by us or our competitors, levels of market acceptance for our
products, or the hiring of additional personnel. In addition, historically we
have recognized a large portion of our revenue from sales in the last month of a
quarter so the magnitude of quarterly fluctuations may not become evident until
late in, or at the end of, a particular quarter. Due to the above, we believe
that past operating results and period-on-period comparisons should not be
relied upon as an indication of future performance.

Liquidity and Capital Resources

We have funded our operations through cash generated from operations and
proceeds from our recent initial public offering. We had cash and cash
equivalents of $6.0 million at December 31, 1998 and $360,000 at December 31,
1997.

We have not sustained material foreign currency exchange losses and
presently do not attempt to hedge our exposure to fluctuations in foreign
currency exchange rates. Should our revenue from international sales increase,
and should such sales be denominated in foreign currencies, we intend to adopt
an adequate hedging strategy to guard against foreign currency fluctuations.

For the twelve months ended December 31, 1998 and December 31, 1997, net
cash provided by operating activities was $1.3 million and $213,000,
respectively. This increase is primarily a result of an increase in net income
adjusted for significant non-cash expenses, such as depreciation and
amortization.

Our investing activities primarily include expenditures for fixed assets
in support of our product development activities and infrastructure, software
development and technology purchases and additional contingent consideration
paid to two former stockholders in connection with our acquisition by Computer
Concepts. Net cash used in investing activities increased 29.6% from $2.6
million in 1997 to $3.3 million in 1998. The increase was primarily a result of
an increase in purchases related to fixed assets in support of our product
development infrastructure.

For the twelve months ended December 31, 1998 and December 31, 1997, net
cash provided by financing activities was $7.7 million and $1.0 million,
respectively. The increase in cash provided by financing activities was
primarily a result of cash generated from our initial public offering offset by
repayments made to Computer Concepts to repay for federal income taxes and
borrowings.

Our principal commitments as of December 31, 1998 consisted primarily of
(1) leases on our corporate headquarters facilities, various sales offices and
operating equipment, (2) employment agreements and (3) a software licensing and
distribution agreement. We believe that our current cash and cash equivalent
balances, cash flow from operations, and the proceeds of this offering, will be
sufficient to meet our working capital and capital expenditure needs for at
least the next 12 months. However, we cannot assure you that we will have
sufficient capital to finance potential acquisitions or other growth-oriented
activities, which could require us to incur additional debt or obtain other
financing.

22
<PAGE>

Recent Developments

New Sales Offices

In February, 1999, we established branch sales offices in Tokyo, Japan and
Singapore which will serve customers of OS/390, MVS, and Fujitsu operating
systems.

Year 2000 Issues

Background. Some computers, software, and other equipment include
programming code in which calendar year data is abbreviated to only two digits.
As a result of this design decision, some of these systems could fail to operate
or fail to produce correct results if "00" is interpreted to mean 1900, rather
than 2000. These problems are widely expected to increase in frequency and
severity as the year 2000 approaches, and are commonly referred to as the
"Millennium Bug" or "Year 2000 problem."

Assessment. The Year 2000 problem could affect computers, software, and
other equipment which we use, operate, or maintain. Accordingly, we are
reviewing our internal computer programs and systems to ensure that the programs
and systems will be Year 2000 compliant. We presently believe that our computer
systems will be Year 2000 compliant in a timely manner. However, while the
estimated cost of these efforts is not expected to be material to our overall
financial position, or any year's results of operations, there can be no
assurance to this effect.

We have obtained certification of our processes to assess Year 2000
problems from the Information Technology Association of America (ITAA). Because
our business involves software development, we have not sought further
verification or validation by independent third parties of our corrections of
Year 2000 problems. However, our Year 2000 project team is reviewing our project
plans and monitoring progress against those plans.

Software Sold to Consumers. We believe that we have substantially
identified and resolved all potential Year 2000 problems with the software
products we develop and market. However, we also believe that it is not possible
to determine with complete certainty that all Year 2000 problems affecting our
software products have been identified or corrected due to the complexity of
these products and the fact that these products interact with other third party
vendor products and operate on computer systems which are not under our control.

Internal Information Technology Infrastructure. We believe that we have
identified substantially all of the major computers, software applications, and
related equipment used in connection with our internal operations that must be
modified, upgraded, or replaced to minimize the possibility of a material
disruption to our business. We have commenced the process of modifying,
upgrading, and replacing major systems that have been identified as adversely
affected, and expect to complete this process before the end of June, 1999.

Systems Other than Information Technology Systems. In addition to
computers and related systems, the operation of office and facilities equipment,
such as fax machines, photocopiers, telephone switches, security systems,
elevators, and other common devices may be affected by the Year 2000 problem. We
are currently assessing the potential effect of, and costs of remediating, the
Year 2000 problem on our office and facilities equipment and expect to complete
such assessment by June, 1999. We estimate that the total cost of completing any
required modifications, upgrades, or replacements of these internal systems will
not have a material adverse effect on our business or results of operations.
This estimate is being monitored and will be revised as additional information
becomes available.

Suppliers. We have initiated communications, including surveys, with third
party suppliers of the major computers, software, and other equipment which we
use, operate, or maintain to identify and, to the extent possible, to resolve
issues involving the Year 2000 problem. However, we have limited or no control
over responses to our inquiries and the actions of these third party suppliers.
Thus, while we do not anticipate any significant Year 2000 problems with these
systems, we cannot assure you that these suppliers will resolve any or all of
their Year 2000 problems with these systems before the occurrence of a material
disruption to our business or that of our customers. Any failure of these third
parties to resolve Year 2000 problems with their systems in a timely manner
could have a material adverse effect on our business, financial condition, and
results of operation.

23
<PAGE>

Most Likely Consequences of Year 2000 Problems. We expect to identify and
resolve all Year 2000 problems that could materially adversely affect our
business operations. However, we do not believe that it is possible to determine
with complete certainty that all Year 2000 problems which affect us have been
identified or corrected. The number of devices that could be affected and the
interactions among these devices are simply too numerous. In addition, one
cannot accurately predict how many Year 2000 problem-related failures will occur
or the severity, duration, or financial consequences of these perhaps inevitable
failures. In addition, we are unable to determine with any degree of certainty
the changes in buying habits of our current and potential customers due to their
concerns over Year 2000 issues. As a result, we expect that we could likely
experience a significant number of operational inconveniences and inefficiencies
for us and our customers that may divert management's time and attention and our
financial and human resources from our ordinary business activities. In
addition, we may experience a lesser number of serious system failures that may
require significant efforts by us or our customers to prevent or alleviate
material business disruptions.

Contingency Plans. We are currently developing contingency plans to be
implemented as part of our efforts to identify and correct Year 2000 problems
affecting our internal systems. We expect to complete our contingency plans by
the end of June, 1999. Depending on the systems affected, these plans could
include accelerated replacement of affected equipment or software, short to
medium-term use of backup equipment and software, increased work hours for our
personnel or use of contract personnel to correct on an accelerated schedule any
Year 2000 problems that arise or to provide manual workarounds for information
systems, and similar approaches. If we are required to implement any of these
contingency plans, it could have a material adverse effect on our financial
condition and results of operations.

Disclaimer. The discussion of our efforts, and management's expectations,
relating to Year 2000 compliance are forward-looking statements. Our ability to
achieve Year 2000 compliance and the level of incremental costs associated with
such compliance, could be adversely affected by, among other things, the
availability and cost of programming and testing resources, vendors' ability to
modify proprietary software, and unanticipated problems identified in our
ongoing compliance review.

24
<PAGE>

BUSINESS

Overview

Prior to 1998, our products addressed only the storage and performance
management requirements of mainframe operating systems. In 1998, we extended our
product family by introducing UNIX and NT-based storage products. In 1999, we
plan to introduce additional storage management products for Oracle, EMC
Symmetrix, IBM RAMAC, and StorageTek Tape Silo. We have granted over 6,400
licenses for use of our products at over 2,000 installations worldwide. Our
products are installed at 87% of the Fortune 100 and 52% of the Fortune 500
companies. In addition to selling additional products to our existing customers,
during 1998 we added 50 new customers. Our customers operate in a variety of
industries, such as financial services, healthcare, manufacturing and
telecommunications, and include Citicorp, GTE Data Services, NationsBank,
PaineWebber, Prudential Service Company, Sprint, State Farm Mutual Auto
Insurance and Wal-Mart. We sell our products through a global direct sales force
and a network of international distributors and resellers.

Industry Background

The worldwide IT infrastructure is growing rapidly and becoming
increasingly complex. Corporate computing environments have transitioned from
the use of closed, proprietary systems to open, complex networks of diverse
systems. Although mainframe environments remain the preferred platform for
high-volume, transaction-oriented applications, as well as applications that
require the storage and rapid retrieval of large amounts of data, there has also
been widespread adoption of distributed platforms such as UNIX and NT. As a
result, mainframes, UNIX and NT platforms now co-exist to satisfy a variety of
business application requirements across an organization, and this increases the
overall complexity of the IT infrastructure.

The increased number of NT and UNIX application servers also makes it more
complicated for organizations to effectively manage their IT assets due to the
disparate nature of decentralized, multi-platform systems. Additionally, the
need to store increasing amounts of data, caused in part by the expanding use of
the Internet for communications (e-mail) and business (e-commerce, e-marketing
and customer service) applications, is driving the need for software solutions
that address enterprise-wide storage and performance management requirements.

According to GartnerGroup, net new license revenue for the network and
systems management and storage management markets in 1997 totaled approximately
$8.2 billion. GartnerGroup also estimates that the storage management market is
expected to grow at a compound annual rate of approximately 20% through the year
2002. We primarily operate in the storage resource management market, a subset
of the storage management market. GartnerGroup expects that revenues of the
storage resource management market will grow at a 44% compound annual growth
rate, from $201 million in 1997 to $1.2 billion in 2002.

As a result of the increased complexity of the IT infrastructure, many
corporations can no longer guarantee compliance with their "best practices."
"Best practices" are a set of standard practices and policies which started

25
<PAGE>

in mainframe environments and are designed to ensure the data integrity and
availability required by mission-critical computing systems. Corporate IT
organizations need solutions that enable them to extend these "best practices"
across their multi-platform computing environments.

Software vendors have responded to the need for UNIX and NT systems
management by developing tools tailored to address the unique storage and
performance management requirements of each platform. These tools are designed
to monitor and provide reports on system performance. Systems management
personnel with platform-specific expertise are needed to interpret these reports
and identify and correct problems. The result has been a significant increase in
the number of technical personnel required to effectively manage enterprise
systems, and such personnel are in increasingly short supply.

Many IT organizations are now demanding next generation tools that move
beyond simple monitoring and reporting. They are seeking solutions that
incorporate platform-specific intelligence and enable automatic management of
storage and performance across heterogeneous environments. Comprehensive storage
and performance management solutions should include proactive alerts, programmed
responses and automated corrective actions which result in effective management
of the increasing volume and complexity of computing environments with fewer
specialized technicians. These solutions should also provide an effective
vehicle for instituting "best practices" across the enterprise.

The SOFTWORKS Solution

We provide automated storage and performance management solutions to help
organizations more efficiently and effectively manage their IT infrastructures.
Our products possess the following key features:

. Integrated Storage Management. We believe that many organizations want
an integrated suite of products to address their multi-platform
storage management needs. Our solutions provide a single point of
control and management of storage in OS/390, UNIX and NT computing
environments. In addition to providing conventional storage management
functions, our solutions are designed to enhance and ensure data and
system availability.

. Automated Storage and Performance Management. In contrast to
conventional storage and performance management solutions which merely
provide reporting and monitoring capabilities, our products provide
automated proactive alerts, programmed responses and corrective
actions, which enable IT personnel to focus more of their time on
complex mission-critical systems management tasks. "Proactive alerts"
detect system events and abnormalities and alert the user to potential
system, application or data availability issues. Our products probe
system resources to determine if key storage and performance
indicators fall within acceptable ranges. If an "out of reasonable
range" condition is detected, our products offer three alternative,
but not mutually exclusive, responses. Our products can:

-- notify the management console or appropriate network or system
monitoring software;

-- automatically correct the condition using "pre-programmed
responses" which enable the user to program the product to
respond appropriately to a particular condition; or

-- guide the user through "automated corrective actions" which
present the user with one or more alternative responses to the
condition and guide the user through the corrective action.

. Intelligent Agent Technology. Our software incorporates intelligent
agent technology to perform analysis and management tasks across
multi-platform environments. This technology permits systems
information to be shared across platforms, as well as with a central
point of control. This technology also reduces the need for
platform-specific expertise and enhances our customers' ability to
effectively manage their systems.

26
<PAGE>

. Application of "Best Practices" to a Multi-Platform Environment. Our
solutions are designed to enable the centralized control of disparate
applications and platforms, thereby facilitating the implementation of
an organization's "best practices" across multi-platform environments
and allowing them to tailor responses to specific requirements. Our
solutions operate efficiently in multi-platform environments by using
embedded intelligent agents which recognize and respond to the
particular requirements of each specific operating system.

Our solutions are designed to reduce an organization's overall cost to
manage its IT infrastructure through a combination of advanced products and
technology with comprehensive service and support. Our SST technology is
specifically designed to enable our customers to minimize the amount of
intervention by IT personnel and to facilitate system availability 24 hours per
day, seven days per week. Our solutions often reduce hardware expenditures by
permitting organizations to defer purchases of CPU and storage upgrades.
Organizations using our automated products can achieve a higher level of system
performance, respond more easily to the rapid introduction of new technologies
and require fewer specialized technicians to manage the increasing size and
complexity of their computing environments.

Strategy

Our objective is to become a leading provider of storage management
products, performance management products, and related systems management
software products and services on both mainframe and multi-platform
environments. The primary elements of our strategy to achieve this objective
include the following:

Capitalize on Increased Demand for Storage. There is an increasing demand
for data storage, in part due to the need to store the large amounts of data
transmitted over the Internet. In response to this demand, we expect to focus
a majority of our marketing activities on the storage management market and
intend to continue to enhance and extend our enterprise-wide storage
management products. As part of this expansion, we plan to develop storage
management agents for specific vendor hardware, such as EMC, StorageTek and
IBM, and specific vendor software such as VERITAS and Legato. We then intend
to initiate joint marketing activities with those specific vendors.

Enhance and Extend Current Product Offerings. We intend to use our technical
expertise to expand our core product functionality, as well as add products
to our existing product line. These products will enhance customers' ability
to derive superior performance in mission-critical systems and applications,
facilitate the management of enterprise storage devices and data and help
ensure system and data availability. We are currently developing the next
generation of SST to permit further integration and web-enablement of our
products, as well as to allow integration and deployment of third party
systems management tools.

Expand Domestic and International Sales Channels. We intend to continue to
focus on expanding our sales efforts. As of March 31, 1999, we have
increased our direct sales force to 89 from 11 in January 1996. During 1998,
we opened new direct sales offices in Germany, Australia, and Spain and,
during the first quarter of 1999, we opened offices in Japan and Singapore.
We are continuing to expand our domestic and international distribution
channels by adding sales agents and opening additional direct sales offices.

Sell Additional Products to Our Customers. We have over 1,850 customers who
use our products in over 2,000 installations worldwide. On average our
customers use three of our products, and we believe there is a significant
opportunity to sell additional SOFTWORKS products to them.

Pursue Strategic Partnerships, Alliances and Acquisitions. In addition to
our internal development efforts, we intend to acquire new products and
technologies or the distribution rights to third party products that address
complementary systems management market segments. We also intend to pursue
relationships through which third parties could distribute some of our
products. As evidence

27
<PAGE>
of this strategy, during 1998, we initiated strategic partnerships with
EMC, VERITAS, and IBM SystemPac, in addition to our existing partnerships
with HP, Sun, IBM, and Tivoli.

Products and Services

Using our proprietary SST development methodologies and core technologies,
we have developed offerings primarily grouped into two market segments: storage
management products and performance management products.

Products

The following table describes the functionality of our principal products:

<TABLE>
<CAPTION>
INITIAL
RELEASE
PRODUCT DATE DESCRIPTION

Storage Products Enterprise-Wide Tools Designed to Facilitate Storage
Management and System and Data Availability
<S> <C> <C>
Catalog Solution 1986 . Provides comprehensive OS/390 catalog maintenance,
diagnostics, reporting, backup, repair and recovery
. Reduces disaster recovery time
. Improves the integrity and availability of the catalog
environment and mission-critical data resources distributed
across multiple operating system platforms

CenterStage 1995 . Provides centralized control and monitoring of storage and
A suite of independent and data resources distributed across multiple operating system
integratable products for platforms
OS/390-MVS, AIX, HP-UX, . Reduces the cost, complexity and skill requirements for
Solaris, DB2 and OpenEdition capacity planning, disaster recovery, and storage resource
management
. Reports storage subsystem information and provides an
assessment of storage problems. Provides customer- controlled
automation to correct designated storage problems and minimize
the need for storage administrators to develop
platform-specific solutions

Resource Availability 1998 . Integrates storage management functionality while adding
24x7 proactive catalog monitoring, event-based alerts for
catalog events, and automated corrective actions.

Performance Products Create Superior Performance for Mission-Critical Systems and
Applications

Performance Essential I/O Plus 1984 . Designed to optimize and improve system and processing
for VSAM performance

I/O Plus for xSAM 1993 . Reduces the requirement for manual tuning efforts

HiperLoad for VSAM 1992 . May defer or eliminate costly processor upgrades while
helping to ensure that service level requirements are met
</TABLE>

28
<PAGE>

<TABLE>
<S> <C> <C>
TeraSAM 1995 . Provides transparent file segmentation to overcome VSAM's
4GB file size restriction
. Splits large VSAM files into separate physical data sets
that can be managed and processed more efficiently
. Enables parallel backup, restore and reorganization of
segments to reduce batch processing time

VSAM Assist 1978 . Provides VSAM backup, recovery, and migration capabilities
to simplify and improve VSAM file and data maintenance
. Reduces batch processing time while safeguarding data

VSAM Quick Index 1981 . Reduces batch processing time and processor utilization by
building alternate indices quickly
. Improves data availability by providing faster access to
data
</TABLE>

In addition, we also have Year 2000 products including HotDate 2000,
products which facilitate Year 2000 assessment, remediation and testing on
OS/390 and MVS platforms and HotDate 2000/MP, products which perform Year 2000
assessment and remediation for C and COBOL on UNIX (HP-UX, Solaris, AIX) and
assessment for Powerbuilder on NT.

We provide our customers with both product maintenance and enhancement
releases under their existing maintenance agreements. Enhancement releases
typically occur once a year and are developed primarily to respond to market
demand and to ensure that the product is competitive in the market. Maintenance
releases occur at a minimum of one maintenance release per product per year. We
typically introduce annual upgrades to our existing products.

Our Product SKILLPACKS are strategic IT services offerings that provide
our customers with expertise and assistance in installing and implementing our
software products. Product SKILLPACKS are intended to expedite the
implementation of our products, accelerate the customer's staff productivity and
expose the customer to the full capabilities of our products. Extended
SKILLPACKS provide implementation of third party products, assistance with
product conversions, training in specific areas related to systems management
and address short-term, critical project requirements. SKILLPACKS prices are
dependent upon the complexity of each customer's environment, the expertise
level of each customer's staff, and each customer's goal and time frame.

Customer Service and Technical Support

We maintain an experienced staff of customer service personnel to provide
technical support to our customers. Each member of our customer service staff is
certified through an ongoing in-house training and testing program to provide
support for each individual product. Our customer service staff provides product
support via telephone and e-mail 24 hours per day, seven days per week. We
generally provide software and documentation updates, including maintenance
releases, operating system upgrades and major functional upgrades, as part of
our customer support services.

Customers

As of March 31, 1999, our products were licensed for use by approximately
1,850 customers at over 2,000 installations, including 87% of the Fortune 100
companies and 52% of the Fortune 500. Our target customers are large
organizations with complex computing environments that rely on mainframe, UNIX
and NT-based systems.

Sales, Distribution and Marketing

We market our products and services through our worldwide distribution
channels which include direct sales personnel, agents, and distributors. We have
approximately 145 sales and sales support employees who promote

29
<PAGE>

the licensing of our products and services. In the United States, we operate 10
sales offices. Internationally, we have sales offices in Australia, Brazil,
Canada, France, Germany, Japan, Singapore, Spain and the United Kingdom. Our
U.K. office also covers the Scandinavian and Benelux countries. Our
international distributors currently are located in Argentina, Chile, Israel,
Italy, Mexico, Peru, South Africa, Thailand, Turkey, Uruguay and Venezuela. All
offices are responsible for specific geographic territories that may extend
beyond the state, province, or country in which the office is located.

Our direct sales force consists of account managers and sales engineers
who, in addition to the sale of our products, are responsible for technical
demonstrations, product installation and product implementation. A separate
Federal Accounts group specifically targets United States government customers,
including end-users and system integrators. In addition, we have established a
web-based interface to allow the purchase and download of our UNIX-based
products.

We maintain vendor relationships with leading organizations such as IBM,
EMC, Hewlett-Packard, Sun, Oracle, Tivoli, StorageTek and VERITAS. These
relationships provide us access to pre-release versions of software to help
ensure that our products utilize the latest technology and continue to be
competitive with new operating systems and database releases. These
relationships also provide us with insight for strategic planning and product
direction.

We maintain marketing programs to support the sales and distribution of
our products and services, and communicate corporate direction. Our marketing
department is responsible for collateral development, lead generation and brand
awareness of SOFTWORKS and its products. Marketing programs include public
relations, seminars, industry conferences and trade shows, advertising and
direct mail. Our marketing organization also contributes to both the product
direction and strategic planning processes by providing market research and
conducting surveys and focus groups.

Intellectual Property and Licensing

We consider certain features of our software, our internal operations and
development process, and our SST methodology and technology to be proprietary.
We rely on a combination of trade secret, copyright and trademark laws,
contractual provisions and certain technology and security measures to protect
our proprietary intellectual property. We do not currently have any patents or
pending patent applications. Notwithstanding our efforts to protect our
proprietary rights, existing trade secret, copyright, and trademark laws afford
only limited protection. In addition, effective protection of copyrights, trade
secrets, trademarks and other proprietary rights may be unavailable or limited
in certain international countries. We believe that, because of the rapid rate
of technological change in the computer software industry, factors such as the
knowledge, ability and experience of our employees, product and service offering
development, and quality of customer support services are more important than
any available trade secret or copyright protection.

License fees are generated from the initial licensing of a product and the
subsequent licenses purchased under our CPU-based licensing program or our
millions of instructions processed per second ("MIPS")-based licensing program.
Included in license revenues are capacity-based license upgrade fees which are
charged when a customer acquires the right to run an already licensed product on
additional processing capacity measured in MIPS for all CPUs for which our
products are licensed. These license upgrade fees include fees associated with
a customer's purchase of the right to operate a product with currently installed
additional processing capacity and/or with anticipated future processing
capacity. We do not sell or transfer title of our products to our customers,
but rather a perpetual right to use the product is granted to customers pursuant
to a licensing agreement. Under the CPU option, the license fee is based
principally upon the number and size of the central processing units. Under the
MIPS option, which we are now emphasizing, the license fee is based upon the
amount of the customer's computing power as measured in MIPS. In 1998, 74% of
our new licenses were priced on a MIPS basis. Our client-server products are
licensed to end users on a per-server or length of service basis.

We generate revenue through perpetual product licenses and maintenance
service agreements that are renewed annually on the anniversary of the original
purchase date. In 1998, approximately 24% of our revenue was

30
<PAGE>

generated from maintenance service agreements. Additional revenue is generated
when product licenses are transferred to different or larger CPUs. No single
customer accounted for greater than 5% of our total revenue in 1998. Sales of
storage management products accounted for 59% of total license revenue in 1998
while license revenue from performance management products accounted for 32% of
total license revenue.

We generally offer our customers extended payment terms of one to five years.
In the case of extended payment term agreements, a customer is typically
required to make equal annual fixed payments. The first year of maintenance is
bundled with standard licensing agreements. In the case of extended payment
term agreements, maintenance is bundled for the length of the payment term.
After the initial term, in both instances, the customer may purchase maintenance
annually. Revenue, with respect to payment terms of three years or less, is
recognized upon contract acceptance and delivery of product. Revenue, with
respect to extended payment terms of greater than three years is deferred and
recognized as payments become due.

Historically, we have experienced fluctuations in quarterly sales with greater
revenue and net earnings in the latter half of the calendar year. As a result,
our operating results have fluctuated and are expected to fluctuate
significantly from quarter to quarter and may fluctuate on an annual basis as a
result of a number of factors. Revenue in any quarter is dependent to a
significant degree on orders booked and renewals of agreements for maintenance
in that quarter, as well as the buying habits of our customers, and is not
predictable with any degree of certainty.

Currently, we license, on a perpetual basis, certain technology from third
parties which is incorporated in some of our products. In the future, we may
license additional technology from third parties for incorporation in some of
our products on a perpetual or term basis.

Research and Development

The computer software industry is characterized by rapid technological change
which requires ongoing development and maintenance of software products. It is
customary for modifications to be made to a software product as experience with
its use grows or changes in manufacturers' hardware and software so require.

We use a design strategy and development methodology, SST, that facilitates
product development, adherence to market requirements, quality testing
practices, product consistency and ease of integration, and long-term
supportability and maintainability. This methodology has evolved to address the
changing requirements of product-for-market development that have come about as
a result of client-server technology advances. We are currently expanding the
scope of our CenterStage suite of products to address Oracle, NT and third party
hardware devices and to enhance and extend the SST knowledge base.

We believe that our research and development staff, many with extensive
experience in our industry, represents a significant competitive advantage. As
of March 31, 1999, our research and development group consisted of 66 employees.
We seek to recruit highly qualified employees, and our ability to attract and
retain such employees will be a principal factor in our success in maintaining a
leading technological position. For the year ended December 31, 1998, our
research and development expenses were $7.8 million, for the year ended December
31, 1997, they were $6.1 million and for the year ended December 31, 1996, they
were $3.9 million. We believe that significant investments in research and
development are required in order for us to remain competitive.

Competition

The market in which we operate is highly competitive, rapidly evolving and
subject to continuous technological change. Our products have traditionally
addressed niches within the performance and storage management segments. In
conjunction with our SST strategy, we group our existing products into bundles
to compete more effectively and better address our customers' strategic issues.
This approach enables us to market our products to systems and applications
personnel, as well as to a higher level of management within our customer and
prospect base.

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<PAGE>

Although we believe that we maintain a competitive advantage by bundling our
software products to minimize point product competition and by offering products
which we believe are unavailable from our competitors, we cannot assure you that
we can maintain or enhance our competitive position against current and future
competitors. Our competitive position may be affected by factors such as the
emergence of new products, fundamental changes in computing technology and data
storage and manipulation platforms and applications, and aggressive pricing and
marketing strategies by our competitors.

In the storage management market, our primary competitors are Sterling
Software, Inc. and BMC Software, Inc. In the performance management market, our
primary competitors are BMC Software, Inc. and Computer Associates
International, Inc. In the Year 2000 market, our primary competitors are
Compuware, Inc. and Viasoft Inc. We believe that our products compete
effectively on the basis of quality, functionality, technical support and
service, and embedded intelligence and proactive automation.

Employees

As of March 31, 1999, we employed 264 full-time employees, including 151 in
marketing, sales and support services, 66 in research and development, 20 in
customer support and maintenance, and 27 in finance and administration. We
employ 201 people in the United States and 63 in other countries. Our future
success will depend in large part upon our continued ability to attract and
retain highly skilled and qualified personnel in a highly competitive
environment. We believe our relationships with our employees are good.

Properties

Our executive offices, customer support and marketing operations are currently
located in facilities occupying approximately 31,000 sq. ft. in Alexandria,
Virginia pursuant to a lease expiring in September 2001. The annual rent and
maintenance for the facility is approximately $411,000. The lease provides for
a renewal option for five years at the then current market rate of rent. We
also lease an aggregate of approximately 20,000 sq. ft. at an aggregate annual
rental of approximately $350,000 in 11 locations throughout North America which
are used for sales activities. We also maintain international sales offices in
Australia, Brazil, Canada, France, Germany, Japan, Singapore, Spain and the
United Kingdom.

Legal Proceedings

We are not a party to any litigation that we believe could have a material
adverse effect on our business, financial condition or results of operations.

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<PAGE>

MANAGEMENT

Directors and Executive Officers

Our directors and executive officers, and their ages, are as follows:

<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
James A. Cannavino(1)(2) 54 Chairman of the Board of Directors
Judy G. Carter 46 President, Chief Executive Officer and Director
C.R. Kinsey, III 53 Vice President, Secretary and Chief Technology Officer
Robert C. McLaughlin 53 Treasurer and Chief Financial Officer
Robert Devine(1)(2) 59 Director
Charles Feld(1)(2) 56 Director
</TABLE>

(1) Member, audit committee.
(2) Member, compensation committee.

Directors and Executive Officers

James A. Cannavino has been our Chairman of the Board since April, 1998. Mr.
Cannavino is President and Chief Executive Officer of CyberSafe, Inc., a
corporation specializing in network security. He was the President and Chief
Executive Officer of Perot Systems Corporation through July, 1997, and before
that was a Senior Vice President at IBM, responsible for strategy and
development. He also served on the IBM Corporate Executive Committee and
Worldwide Management Council, and on the board of IBM's integrated services and
solutions company. Mr. Cannavino currently is a consultant to Computer Concepts
and serves on the boards of the National Center for Missing and Exploited
Children, 7th Level, Inc. and Marist College.

Judy G. Carter has been our President and Chief Executive Officer and a
director since October, 1993. Prior thereto, Ms. Carter was our Chief Operating
Officer from 1991. Ms. Carter started with us as a system software developer
and progressed to a number of supervisory and managerial roles, leading to her
appointment as Vice President of technical services in 1990. Ms. Carter is a
director of Fairfax Opportunities Unlimited, a non-profit organization.

C.R. Kinsey, III, one of our co-founders, has been our Vice President since
May, 1998 and has been Secretary and Chief Technology Officer since 1977. From
1977 until May, 1998, Mr. Kinsey was also our Treasurer. In addition, Mr. Kinsey
is a primary technical advisor to our technology division for new product
research and development, product enhancements and service and support.

Robert C. McLaughlin has been our Treasurer and Chief Financial Officer since
March, 1998. Prior thereto, Mr. McLaughlin was a Department Director with
global responsibilities at Perot Systems Corporation in Dallas, Texas from
November, 1996 through December, 1997. Mr. McLaughlin also served as Senior
Vice President for a real estate investment venture in West Palm Beach, Florida
from 1993 to 1996, as a Vice President of First Union National Bank of Florida,
N.A. in Fort Lauderdale from 1991 to 1993 and as a Vice President of Southeast
Bank, N.A. in Miami from 1987 to 1991.

Robert Devine has been a director since May, 1998. Mr. Devine has been a
director and the Chief Executive Officer of Chemtainer Industries, Inc. for more
than twenty years. Chemtainer Industries manufactures and distributes a diverse
array of commercial and consumer products nationally and internationally with
eleven plants located in nine states throughout the United States. Mr. Devine
is also a director of Rototron Corp. and Tracey International, and has been a
director and Vice President of the non-profit New York City Mental Health
Association for more than ten years.

Charles Feld has been a director since July, 1998. Mr. Feld has been
President of the Feld Group, Inc., a provider of temporary chief information
officer consulting services, for more than the past five years. Since

33
<PAGE>

December 1997, Mr. Feld has also served as operating Chief Information Officer
of Delta Air Lines, an international airline. Prior thereto, from June, 1992
until August, 1997, Mr. Feld served as operating Chief Information Officer for
Burlington Northern Santa Fe Corp.

Executive Compensation

The following table sets forth the annual and long-term compensation with
respect to our Chief Executive Officer and our other most highly compensated
executive officer other than the Chief Executive Officer ("named executive
officers") whose total annual salary and bonus equaled or exceeded $100,000 for
services rendered for the fiscal year ended December 31, 1998.

Summary Compensation Table

<TABLE>
<CAPTION>
Annual Compensation
-------------------------------------------------
Other Annual All Other
Compensation Compensation
Name and Principal Position Year Salary($) Bonus($) ($)(1) ($)(2)
- --------------------------- ------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>

Judy G. Carter 1997 $155,000 (3) $165,000 (4) -- $ 1,000
President and
Chief Executive Officer
1998 $170,833 -- -- --

C.R. Kinsey, III 1997 $155,000 (3) $165,000 (4) -- $189,000
Vice President, Secretary and
Chief Technology Officer
1998 $170,833 -- -- $114,611
</TABLE>

(1) No Other Annual Compensation is shown because the amounts of perquisites
and other non-cash benefits provided by us do not exceed the lesser of
$50,000 or 10% of the total annual base salary and bonus disclosed in this
table for the respective officer.

(2) All Other Compensation includes royalties paid in respect of software
products developed by such officers.

(3) Includes $5,000 deferred from 1996.

(4) Includes $77,500 deferred from 1996.

34
<PAGE>

Stock Option Grants in Last Fiscal Year

The following table sets forth details regarding the options granted during
our last fiscal year to Judy G. Carter and C.R. Kinsey, III, the persons listed
in the Summary Compensation Table.

<TABLE>
<CAPTION>
Potential Realizable Value at Assumed
Annual Rates of Stock Price Appreciation
Individual Grants for Option Term (2)
------------------------------------------------- ---------------------------------------------
Percent of Exercise
Total Options Price or
Options Granted Granted to Base Price Expiration
Name (#) Employees (1) Per Share Date 5% 10%
- ---- ---------------- ------------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
150,000 Type I 6-30-01 $126,758 $ 296,720
200,000 Type II 12-31-02 288,146 671,595
------- -------- ----------
Judy G. Carter (3) 350,000 9.7% $7.00 414,904 968,315

200,000 Type I 6-30-01 169,011 395,626
250,000 Type II 12-31-02 360,183 839,494
------- -------- ----------
C.R. Kinsey, III (3) 450,000 12.4% $7.00 $529,194 $1,235,120
</TABLE>

(1) We granted options for 3,613,850 shares to employees during our fiscal year
ended December 31, 1998.
(2) Potential realizable value assumes that our stock price increases from the
date the options were granted until the end of the option term at the
annual rate specified. Annual compounding results in total appreciation of
15.2% (at 5% per year) for the Type I options with a term of 2.9 years and
total appreciation (at 5% per year) of 24.0% for the Type II options with a
term of 4.4 years; and 31.8% total appreciation (at 10% per year) for Type
I options with a term of 2.9 years and total appreciation (at 10% per year)
of 52.1% for the Type II Options with a term of 4.4 years. If the price of
our common stock increased at such rates from the price at the end of our
1998 fiscal year ($7.06 per share) over the next three years, our stock
price with 5% appreciation would be $8.23 per share and with 10%
appreciation would be $9.46 per share. These assumed rates of appreciation
are specified in the Commission's rules and are not our estimate or
projection of our future stock price growth.
(3) We granted options for 25,000 shares each to Judy G. Carter and C. R.
Kinsey III in February 1999, which amounts are not included in this table.

Employment Agreements

We have entered into an agreement with Mr. James A. Cannavino pursuant to
which he has agreed to serve as Chairman of our board of directors. As
compensation for his services, Mr. Cannavino was granted options to purchase
1,200,000 shares of common stock, 600,000 of which are Type I options and
600,000 of which are Type II options. "Type I" options vested one-half on the
earlier of (i) the closing date of our initial public offering (August 7, 1998),
or (ii) December 31, 1998 and one-half on December 31, 1998. "Type II" options
vest on December 31, 2002, subject to earlier vesting based upon the company
reaching certain defined levels of net income. The agreement with Mr. Cannavino
further provides for the issuance of a $500,000 full recourse loan to him for
relocation or other purposes upon the effective date of our initial public
offering. The money was lent to Mr. Cannavino and the loan is due on December
1, 2000. Mr. Cannavino also receives a monthly salary of $2,000 and is
reimbursed for certain expenses.

We have entered into employment agreements with each of Judy G. Carter, C.R.
Kinsey, III and Robert C. McLaughlin, which started on the effective date of our
initial public offering. The employment agreements with Ms. Carter and Mr.
Kinsey terminate December 31, 2002 and the employment agreement for Mr.
McLaughlin is for a three year term. The agreements automatically renew for
additional one year periods unless we or the employee notifies the other party
at least ninety days prior to the end of any renewal term that we or they desire
to terminate such agreement. Pursuant to the agreements, Ms. Carter, Mr.
Kinsey, Mr. McLaughlin, receive annual compensation of $200,000, $200,000, and
$120,000, respectively and an incentive bonus based on meeting or

35
<PAGE>

exceeding annual or quarterly net income targets to be established by the board
of directors. The incentive payments to Ms. Carter and Mr. Kinsey were up to
$150,000 for 1998 and are up to $200,000 for each of the years 1999 through
2002. Each employment agreement also provides for certain payments following
death or disability and further provides, in the event of a change in control of
SOFTWORKS, as defined therein, the right, at the employee's election, to
terminate the agreement and receive a lump sum payment of approximately three
times his or her annual salary.

401(k) Savings Plan

We sponsor a retirement plan (the "401(k) Savings Plan") intended to be
qualified under section 401(k) of the Internal Revenue Code of 1986, as amended.
All employees over age 21 who have completed at least 1,000 hours in their first
year of employment by us are eligible to participate in the 401(k) Savings Plan.
Employees may contribute to the 401(k) Savings Plan on a tax deferred basis up
to 20% of their total annual salary, but in no event more than the maximum
permitted by the Code ($10,000 in calendar 1998). We match all employee
contributions up to $2,375 per year per employee, and all company contributions
are fully vested. As of December 31, 1998, 115 employees had elected to
participate in the 401(k) Savings Plan. For the fiscal year ended December 31,
1998, our contribution is an aggregate approximately $77,000 to the 401(k)
Savings Plan, of which an aggregate $18,800 was a contribution for Judy G.
Carter and C.R. Kinsey, III.

1998 Long Term Incentive Plan

In May 1998, we adopted the SOFTWORKS, Inc. 1998 Long Term Incentive Plan (the
"1998 Incentive Plan") in order to motivate our qualified employees, to help us
attract employees and to align the interests of those employees with our
stockholders' interests.

The 1998 Incentive Plan provides for the grant of "incentive stock options"
within the meaning of the Section 422 of the Internal Revenue Code of 1986, as
amended, "non-qualified stock options," restricted stock, performance grants and
other types of awards to our and our affiliates' officers, key employees,
consultants and independent contractors.

The 1998 Incentive Plan, which is administered by the Long Term Incentive Plan
Administrative Committee of our board of directors, authorizes the issuance of a
maximum of 3,727,000 shares of common stock, which may be either newly issued
shares, treasury shares, reacquired shares, shares purchased in the open market
or any combination thereof. If any award under the 1998 Incentive Plan
terminates, expires unexercised, or is cancelled, the shares of common stock
that would otherwise have been issuable pursuant thereto will be available for
issuance pursuant to the grant of new awards. To date, we have granted options
to purchase 3,718,850 shares of common stock under the 1998 Incentive Plan. Of
the 3,718,850 options granted to date, James A. Cannavino has been granted
600,000 Type I options and 600,000 Type II options, Judy Carter has been granted
150,000 Type I options and 200,000 Type II options, C.R. Kinsey has been granted
200,000 Type I options and 250,000 Type II options and Robert McLaughlin has
been granted 20,000 Type I options and 80,000 Type II options. Mr. Cannavino
has exercised 200,000 Type I options.

1999 Stock Option Plan

In January, 1999 we adopted the 1999 Stock Option Plan (the "1999 Plan") in
order to motivate our employees, and to help us attract employees and to align
the interests of those employees with our stockholders' interests.

The 1999 Plan provides for the grant of non-qualified stock options to our
officers, key employees, consultants and independent contractors.

The 1999 Plan, which will be administered by our board of directors or a
committee of our board, authorizes the issuance of a maximum of 1,250,000 shares
of common stock, which may be either newly issued shares, treasury shares,
reacquired shares, shares purchased in the open market or any combination
thereof. If any award

36
<PAGE>

under the 1999 Plan terminates, expires unexercised, or is cancelled, the shares
of the common stock that would otherwise have been issuable pursuant thereto
will be available for issuance pursuant to the grant of new awards. To date, we
have granted options to purchase 1,001,440 shares of common stock under the 1999
Plan.

Compensation Committee Interlocks and Insider Participation

During our last fiscal year, our Compensation Committee consisted of James A.
Cannavino, Charles Feld and Robert Devine. Neither Mr. Feld nor Mr. Devine is
our employee.

Personal Liability and Indemnification of Directors

Our Certificate of Incorporation and By-laws contain provisions which reduce
the potential personal liability of our directors for certain monetary damages
and provide for indemnity of directors and other persons. We do not know of any
pending or threatened litigation against us or our directors that would result
in any liability for which any of our directors would seek indemnification or
similar protection.

These indemnification provisions are intended to increase the protection
provided directors and, thus, increase our ability to attract and retain
qualified persons to serve as directors. We believe that the substantial
increase in the number of lawsuits being threatened or filed against
corporations and their directors has resulted in a growing reluctance on the
part of capable persons to serve as members of boards of directors of companies,
particularly of companies which intend to become public companies. We also
believe that the increased risk of personal liability without adequate insurance
or other indemnity protection for our directors could result in their less
effective management. Consequently, we have agreed to indemnify our directors
and officers and have obtained directors and officers liability insurance.

The provisions which affect personal liability do not void a director's
fiduciary duty to us and our stockholders; instead, they eliminate personal
liability for monetary damages for breach of that duty. The provisions do not,
however, eliminate or limit the liability of a director for the following:

. failing to act in good faith;
. engaging in intentional misconduct or knowingly violating a law;
. authorizing the illegal payment of a dividend or repurchase of stock;
. obtaining an improper personal benefit;
. breaching a director's duty of loyalty (which is generally described as the
duty not to engage in any transaction which involves a conflict between our
interests and those of the director); or
. violating the federal securities laws.

The provisions also limit or indemnify against liability resulting from
grossly negligent decisions including grossly negligent business decisions
relating to attempts to change in our control.

Basically, the provisions regarding indemnification provide that we will
indemnify our directors against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred in
connection with any action, suit or proceeding arising out of the director's
status as a director of the company, including actions brought by us or on our
behalf (shareholder derivative actions). The provisions do not require that a
director show good faith. The provisions also do not provide indemnification
for liability arising out of willful misconduct, fraud, or dishonesty, for
"short-swing" profit violations under the federal securities laws, or for the
receipt of illegal remuneration. The provisions also do not provide
indemnification for any liability to the extent such liability is covered by
insurance. One purpose of the provisions is to supplement the coverage provided
by such insurance.

These provisions reduce the potential rights of action which might otherwise
be available to you and other stockholders by limiting the liability of officers
and directors to the maximum extent allowable under Delaware law and by
providing indemnification against most damages and settlement amounts paid by a
director in connection with any stockholders derivative action. However, the
provisions do not limit the right of a

37
<PAGE>

stockholder to enjoin a director from taking actions in breach of his fiduciary
duty, or cause us to rescind actions already taken, although as a practical
matter courts may be unwilling to grant such equitable remedies in circumstances
in which such actions have already been taken.

We have entered into Indemnification Agreements with certain of our officers
and directors. The Indemnification Agreements provide for reimbursement for all
direct and indirect costs of any type or nature whatsoever (including attorneys'
fees and related disbursements) actually and reasonably incurred in connection
with either the investigation, defense or appeal of certain legal proceedings,
including amounts paid in settlement by or on behalf of an indemnitee
thereunder.

CERTAIN TRANSACTIONS

In prior fiscal years, Computer Concepts provided certain corporate and
administrative services to us, including executive management and professional
services (accounting, auditing and legal). These services were performed for
$500,000 in each of 1997 and 1996. Prior to 1996, we effectively operated
independently of Computer Concepts and were responsible for our own expenses.
As a result, prior to 1996, Computer Concepts performed no material services nor
incurred any material expenses on our behalf. We and Computer Concepts also
jointly participated in certain employee benefit plans (defined contribution and
employee health) and we were allocated our applicable share of these costs.
Additionally, in prior fiscal years, certain of our employees received part of
their compensation in the form of Computer Concepts common stock or options. In
1998, there were no net administrative fees paid to Computer Concepts.

Mr. Cannavino, our Chairman of the Board, remains a consultant to Computer
Concepts and received from Computer Concepts prior to our initial public
offering 100,000 shares of our common stock. The 100,000 shares of common stock
were transferred in consideration for services rendered to Computer Concepts.
It is not anticipated that Mr. Cannavino will receive significant additional
compensation from Computer Concepts for future consulting services.

The employment agreement between us and Mr. Cannavino provides for the
issuance of a $500,000 full recourse loan to him for relocation or other
purposes upon the effective date of our initial public offering. The money was
lent to Mr. Cannavino and the loan is due on December 1, 2000.

We pay, on behalf of Computer Concepts, the salaries of two of their employees
located in the United Kingdom. These two salaries total approximately $160,000
per year. Computer Concepts reimburses us quarterly for the amount of those
salaries plus a portion of our overhead.

Voting Trust Agreement

In connection with our initial public offering, we, Computer Concepts, James
Cannavino, Daniel DelGiorno, Jr. and Robert Devine, each of whom were then
members of our board of directors, entered into a Voting Trust Agreement. On
April 22, 1999 Mr. DelGiorno resigned as a director and was replaced as a
Trustee by Charles Feld. Pursuant to the Voting Trust Agreement, as amended,
Computer Concepts has deposited the shares of our common stock which it owns in
a voting trust, together with certain shares of common stock that may be
acquired by our affiliates. The Voting Trust Agreement provides, among other
things, that the Trustees, who are currently Messrs. Cannavino, Devine and Feld,
will have the right to vote the deposited shares in connection with certain
specified major transactions (the "Approval Actions") and that Computer Concepts
and its affiliates will have the right to vote for the election of directors and
on other actions other than Approval Actions, except that if an "independent"
Trustee (as defined below) ceases to be a director for any reason or is required
to resign as a director of we for failure to remain independent, the remaining
independent Trustee(s) will have the right to vote for a successor independent
director, which Trustee(s) will take direction from the holders of a majority of
the shares of common stock not held by Computer Concepts and its affiliates.
The Voting Trust Agreement requires that each Trustee must be a director, that
two of the three Trustees must be "independent" and that a Trustee required to
be independent who ceases to be so will resign as Trustee and as our director.
The Voting Trust Agreement does not prevent the pledge of any of the deposited
shares. As used in the Voting Trust

38
<PAGE>

Agreement, the term "independent" means any of our directors who does not derive
in excess of $60,000 of compensation from Computer Concepts or its affiliates
(other than us) in any fiscal year (other than Mr. Cannavino's receipt of
100,000 shares of our common stock referred to above).

Pursuant to the Voting Trust Agreement, we agree that the following Approval
Actions will not be taken without the approval of the Trustees:

. the sale, lease, encumbrance, assignment, transfer or conveyance of all or
substantially all (i.e., 51% or more) of our assets or capital stock to an
acquiring party, or our merger or consolidation into or with another
corporation, if Computer Concepts or one of its affiliates is a party to
such transaction;
. any filing by us or a subsidiary for relief as a debtor under any
bankruptcy or similar law, any application by us or a subsidiary for the
appointment of a receiver, trustee, custodian or similar fiduciary for a
substantial portion of the consolidated assets of us and our subsidiaries,
or the consent by us or a subsidiary to any petition or application seeking
similar relief which is filed against us or the subsidiary, or our
voluntary liquidation, dissolution or winding up;
. the declaration or payment of any dividends on any of our capital stock;
. the incurrence of any liens upon any of our property or properties which,
individually or in the aggregate, are material to our operations;
. the acquisition of any equity security, or any right to acquire any equity
security, of any other corporation, other than our formation of one or more
wholly-owned subsidiaries (or subsidiaries in which a de minimis number of
shares are held by a third party in order to comply with local law), if
such other corporation is Computer Concepts or one of its affiliates;
. the acquisition of assets outside the ordinary course of business from
Computer Concepts or one of its affiliates;
. any transaction or proposed transaction between us and any "person," as
such term is used in Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") (other than a Trustee, us, any
trustee or other fiduciary holding securities under an employee benefit
plan of ours, or any corporation owned directly or indirectly by our
stockholders in substantially the same proportion as their ownership of our
stock), pursuant to which such person becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities representing 50% or more of the combined voting power of our
then outstanding securities;
. any transaction or proposed transaction between us and an affiliate or any
transaction or proposed transaction between us and Computer Concepts for an
aggregate consideration in excess of $1 million unless a fairness opinion
is obtained from SoundView Technology Group, Inc. or any other independent
investment banking institution of national standing which we appoint; or
. any other transaction which requires stockholder approval under Delaware
law to the extent that any of the parties to the Voting Trust Agreement
have been advised in writing by counsel that the transaction presents an
actual conflict of interest between Computer Concepts and its affiliates
and the other holders of common stock.

The Voting Trust Agreement will remain in effect until the earliest of: (i)
Computer Concepts and its affiliates collectively ceasing to own 25% or more of
our common stock, (ii) the acquisition by a person other than Computer Concepts
and its affiliates of a greater percentage of our common stock than that then
owned by Computer Concepts and its affiliates or (iii) 10 years from the date of
the Voting Trust Agreement.

39
<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth the beneficial ownership of our common stock as
of April 27, 1999 of (i) each person we know to beneficially own 5% or more of
our outstanding common stock, (ii) each of our executive officers, directors and
director nominees, and (iii) all of our executive officers and directors as a
group. Except as otherwise indicated, all shares of common stock are
beneficially owned, and investment and voting power is held, by the persons
named as owners. Percentage ownership for all officers and directors as a group
includes options currently exercisable or exercisable within 60 days to purchase
1,106,999 shares of common stock before and after the offering.

<TABLE>
<CAPTION>
Shares Beneficially Owned Percentage Ownership
----------------------------------- -------------------------------
After Before After
Name of Beneficial Owner Before Offering Offering (1) Offering Offering (1)
- ------------------------ --------------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Computer Concepts Corp. (2)............ 8,017,700 7,217,700 49.7% 42.1%
Spinneret Financial Systems, Inc. (3).. 1,000,000 333,333 6.2% 2.0%
Tech Connect Consulting Inc............ 94,600 0 * 0
Joseph Dekama.......................... 12,000 0 * 0
Bo-Tel, Inc............................ 244,000 144,000 1.5% *
Dan Kinsey............................. 136,000 36,000 * *
DataComp Connections Group, Inc........ 125,000 75,000 * *
Joseph Markus.......................... 477,565 (4) 280,832 2.9% 1.6%
Linda Neely............................ 25,000 0 * 0
Dynasoft Inc........................... 25,000 10,000 * *
B R Inc................................ 25,000 15,000 * *
Anthony Coppola........................ 30,000 0 * 0
Internet BiDesign Marketing Inc........ 100,000 0 * 0
Dan DelGiorno Sr....................... 328,000 128,000 2.0% *
Global Access Technology, Inc.......... 133,000 33,000 * *
James A. Cannavino..................... 607,469 (5) 607,469 3.7% 3.5%
Judy G. Carter......................... 208,000 (6) 208,000 1.3% 1.2%
C.R. Kinsey, III....................... 266,666 (7) 266,666 1.6% 1.5%
Robert C. McLaughlin................... 48,333 (8) 48,333 * *
Robert Devine.......................... 42,000 (9) 42,000 * *
Charles Feld........................... 42,000 (9) 42,000 * *
All officers and directors as a group 1,214,468 1,214,468 7.0% 6.7%
(6 persons)...........................
</TABLE>

* Less than one percent (1%) unless otherwise indicated.
(1) Assumes no exercise of the underwriters' over-allotment option.
(2) The address is 80 Orville Drive, Bohemia, New York 11716. Includes an
aggregate 280,000 shares subject to options granted to third parties which
are currently exercisable or exercisable within 60 days.
(3) The address is 578 Post Road East, Westport, Connecticut 06880.
(4) Includes 17,300 shares and 34,000 options currently exercisable or
exercisable within 60 days owned by Mr. Markus' wife, 15,000 shares and
200,000 options currently exercisable or exercisable within 60 days owned
by S/J & Associates, Inc. of which Mr. Markus is the principal stockholder
and options currently exercisable or exercisable within 60 days to purchase
16,735 shares of common stock.
(5) The address is SOFTWORKS, Inc., 5845 Richmond Highway, Alexandria,
Virginia 22303. Includes options currently exercisable or exercisable
within 60 days to purchase 500,000 shares of common stock. Does not include
options not yet exercisable nor exercisable within 60 days to purchase
400,000 shares of common stock.

40
<PAGE>

(6) Represents options currently exercisable or exercisable within 60 days to
purchase 208,000 shares of common stock. Does not include options not yet
exercisable nor exercisable within 60 days to purchase 167,000 shares of
common stock.
(7) Represents options currently exercisable or exercisable within 60 days to
purchase 266,666 shares of common stock. Does not include options not yet
exercisable nor exercisable within 60 days to purchase 208,334 shares of
common stock.
(8) Represents options currently exercisable or exercisable within 60 days to
purchase 48,333 shares of common stock. Does not include options not yet
exercisable nor exercisable within 60 days to purchase 66,667 shares of
common stock.
(9) Represents options currently exercisable or exercisable within 60 days to
purchase 42,000 shares of common stock. Does not include options not yet
exercisable within 60 days to purchase 42,000 shares of common stock.

41
<PAGE>

DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 150,000,000 shares of common stock,
$.001 par value per share and 2,000,000 shares of preferred stock, $.001 par
value per share. At the 1999 annual meeting of our stockholders, presently
scheduled for June 1999, we intend to propose to amend our certificate of
incorporation to decrease our authorized common stock to 50,000,000 shares of
common stock.

Common Stock

General. We have 150,000,000 authorized shares of common stock, 16,080,438 of
which were issued and outstanding prior to the closing of this offering. All
shares of common stock currently outstanding are validly issued, fully paid and
non-assessable. All shares which are the subject of this prospectus, when
issued and paid for pursuant to this offering, will be validly issued, fully
paid and non-assessable.

Voting Rights. Each share of common stock entitles its holder to one vote,
either in person or by proxy, at meetings of stockholders. Our board of
directors consists of three classes each of which serves for a term of three
years. At each annual meeting of the stockholders, the directors in only one
class will be elected. The holders are not permitted to vote their shares
cumulatively. Accordingly, the holders of more than fifty percent (50%) of the
issued and outstanding shares of common stock can elect all of our directors.
See "Principal and Selling Stockholders" on page 40.

Dividend Policy. All shares of common stock are entitled to participate
ratably in dividends when and as declared by our board of directors out of the
funds legally available therefor. Any such dividends may be paid in cash,
property or additional shares of common stock. We have not paid any cash
dividends since our inception and presently expect that any earnings will be
used to develop our business and that no dividends on the shares of common stock
will be declared in the foreseeable future. Payment of future dividends will be
subject to the discretion of our board of directors and will depend upon, among
other things, future earnings, our operating and financial condition, our
capital requirements and general business conditions. Therefore dividends on
our common stock may not be paid in the future. In addition, pursuant to the
Voting Trust Agreement, we may not declare or pay dividends on our common stock
without the prior approval of the Trustees. See "Certain Transactions--Voting
Trust Agreement" and "Dividend Policy."

Miscellaneous Rights and Provisions. Holders of common stock have no
preemptive or other subscription rights, conversion rights, redemption or
sinking fund provisions. In the event of our liquidation or dissolution,
whether voluntary or involuntary, each share of common stock is entitled to
share ratably in any assets available for distribution to our holders of the
equity after satisfaction of all liabilities, subject to the rights of holders
of our preferred stock.

Preferred Stock

Our certificate of incorporation authorizes the issuance of up to 2,000,000
shares of preferred stock. Currently there are no shares of preferred stock
issued or outstanding.

The issuance of preferred stock by our board of directors could adversely
affect the rights of common stockholders by, among other things, establishing
preferential dividends, liquidation rights or voting power. The issuance of
preferred stock could be used to discourage or prevent another entity or person
from acquiring control of us through the acquisition of shares of common stock.

42
<PAGE>

Certain Provisions of Our Certificate of Incorporation and By-laws

Our certificate of incorporation contains certain provisions which may be
deemed to be "anti-takeover" in nature because they may deter, discourage or
make it more difficult for another entity or person to assume control of us. In
addition to the ability to issue preferred stock, these provisions are as
follows:

A vote of 66 2/3% of the stockholders is required by our certificate of
incorporation to approve certain transactions including mergers and sales or
transfers of all or substantially all of our assets.

Our by-laws provide for a classified board of directors and divides the
members of our board of directors into three classes: Class I (which consists
of Robert Devine) will serve until our 1999 Annual Meeting of Stockholders.
Class II (which consists of James A. Cannavino and Judy G. Carter) will serve
until our 2000 Annual Meeting of Stockholders. Class III (which consists of
Charles Feld) will serve until our 2001 Annual Meeting of Stockholders. After
their initial staggered terms, the term of each class will run for three
years and expire at successive annual meetings of stockholders. Accordingly,
we expect that it would take a minimum of two annual meetings of stockholders
to change a majority of our board of directors. Further, directors may only
be removed for cause prior to the expiration of their term of office.

Delaware General Corporation Law

The Delaware General Corporation Law further contains certain anti-takeover
provisions. Section 203 of the Delaware General Corporation Law provides, with
certain exceptions, that a Delaware corporation may not engage in any of a broad
range of business combinations with a person who owns 15% or more of the
corporation's outstanding voting stock (an "interested stockholder") for a
period of three years from the date that such person became an interested
stockholder unless: (i) the transaction resulting in a person's becoming an
interested stockholder, or the business combination, is approved by the board of
directors of the corporation before the person becomes an interested
stockholder, (ii) the interested stockholder acquires 85% or more of the
outstanding voting stock of the corporation (excluding shares owned by persons
who are both officers and directors of the corporation and shares held by
certain employee stock ownership plans), or (iii) the business combination is
approved by the corporation's board of directors and by the holders of at least
66 2/3% of the corporation's outstanding voting stock at an annual or special
meeting, excluding shares owned by the interested stockholder.

Transfer Agent, Registrar and Warrant Agent

The transfer agent and registrar for the common stock is Manhattan Transfer
Registrar Co., Lake Ronkonkoma, New York.

43
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, we will have 17,132,734 shares of common
stock outstanding. Of these shares, the 3,500,000 shares of common stock sold
in this offering (4,025,000 shares if the underwriters' over-allotment option is
exercised in full) will be freely tradable without restriction or further
registration under the Securities Act, except for any shares purchased by our
"affiliate" (in general, a person who has a control relationship with us), which
will be subject to the limitations of Rule 144 adopted under the Securities Act.
All of the remaining shares are deemed to be "restricted securities," as that
term is defined under Rule 144.

In general, under Rule 144 as currently in effect, subject to the satisfaction
of certain other conditions, a person, including our affiliate (or persons whose
shares are aggregated), who has owned restricted shares of common stock
beneficially for at least one year is entitled to sell, within any three-month
period, a number of shares that does not exceed the greater of 1% of the total
number of outstanding shares of the same class or the average weekly trading
volume of the common stock on all exchanges and/or reported through the
automated quotation system of a registered securities association during the
four calendar weeks preceding the date on which notice of the sale is filed with
the Securities and Exchange Commission (the "Commission"). Sales under Rule 144
are also subject to certain manner of sale provisions, notice requirements and
the availability of current public information about us. A person who has not
been an affiliate of ours for at least the three months immediately preceding
the sale and who has beneficially owned shares of common stock for at least two
years is entitled to sell such shares under Rule 144 without regard to any of
the limitations described above.

7,217,700 of the shares of restricted stock outstanding upon completion of
this offering (6,917,700 shares if the underwriters' over-allotment option is
exercised in full) have been held for more than one year. Computer Concepts,
which owns all of these shares, has agreed that for a period of 180 days
after the effective date of this prospectus, without the prior written consent
of SoundView Technology Group, Inc., it will not, with certain limited
exceptions, sell or otherwise dispose of any shares of common stock beneficially
owned by it. In addition, Computer Concepts has "piggy-back" registration rights
for 2,500,000 of such shares for one a one year period from the effective date
of this prospectus. Following expiration of the lock-up period (or earlier
consent of SoundView Technology Group, Inc.), these shares will be eligible for
sale subject to the restrictions of Rule 144. We intend to register
approximately 4,977,000 shares reserved for issuance under our stock option
plans. The sale of a substantial number of these shares in the public market
could adversely affect prevailing market prices following the offering.

44
<PAGE>

UNDERWRITING

Upon the terms and subject to the conditions set forth in an underwriting
agreement (the "Underwriting Agreement"), the underwriters named below, for whom
SoundView Technology Group, Inc., Dain Rauscher Wessels, a division of Dain
Rauscher Incorporated, and Raymond James & Associates, Inc. are acting as
representatives (the "Representatives"), have severally agreed to purchase from
us and the selling stockholders an aggregate of 3,500,000 shares of common
stock. The number of shares of common stock that each Underwriter has agreed to
purchase is set forth opposite our name below:

<TABLE>
<CAPTION>
Number
of
Underwriters Shares
- ------------ ----------
<S> <C>

SoundView Technology Group, Inc.

Dain Rauscher Wessels

Raymond James & Associates, Inc.

Total 3,500,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the several
underwriters to purchase shares of common stock are subject to the approval of
certain legal matters by counsel and to certain other conditions. If any of the
shares of common stock are purchased by the underwriters pursuant to the
Underwriting Agreement, all such shares of common stock (other than the shares
of common stock covered by the over-allotment option described below) must be so
purchased.

We and the selling stockholders have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act, and
to contribute to payments that the underwriters may be required to make in
respect thereof.

The underwriters propose to offer the shares of common stock directly to the
public at the public offering price set forth on the cover page of this
prospectus and to certain dealers (who may include the underwriters) at such
price less a concession not to exceed $ per share. The underwriters
may allow, and such dealers may reallow, a concession not to exceed $
per share to any other underwriter and certain other dealers. The
Representatives have advised us that the underwriters do not intend to confirm
any shares to any accounts over which they exercise discretionary control.

We and certain of the selling stockholders have granted to the underwriters an
option, exercisable for 30 days from the date of this prospectus, to purchase up
to an aggregate of 525,000 additional shares of common stock at the initial
public offering price less underwriting discounts and commissions. Such option
may be exercised solely for the purpose of covering over-allotments, if any, in
connection with the offering of the shares offered hereby. To the extent that
the underwriters exercise such option, each of the underwriters will be
committed, subject to certain conditions, to purchase a number of additional
shares proportionate to such underwriter's initial commitment as indicated in
the preceding table.

The offering of the shares offered hereby is made for delivery when, as and if
accepted by the underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offering without notice. The underwriters
reserve the right to reject an order for the purchase of shares in whole or in
part.

All of our directors and executive officers and Computer Concepts have agreed
that, for a period of 180 days after the date of this prospectus, without the
prior written consent of SoundView Technology Group, Inc., they will not, with
certain limited exceptions, directly or indirectly, offer, sell, 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 or, in any manner, transfer all or a portion of the economic
consequences associated with the ownership of the common stock, other than the
shares of common stock offered hereby.

45
<PAGE>

In connection with this offering, the underwriters and other persons
participating in this offering may engage in transactions that stabilize,
maintain or otherwise affect the price of the common stock. Specifically, the
underwriters may over-allot in connection with this offering, creating a short
position in common stock for their own account. To cover a short position or to
stabilize the price of the common stock, the underwriters may bid for, and
purchase, shares of common stock in the open market. The underwriters may also
impose a penalty bid whereby they may reclaim selling concessions allowed to an
underwriter or a dealer for distributing common stock in this offering, if the
underwriters repurchase previously distributed common stock in transactions to
cover their short position, in stabilization transactions or otherwise.
Finally, the underwriters may bid for, and purchase, shares of common stock in
market making transactions. These activities may stabilize or maintain the
market price of the common stock above market levels that may otherwise prevail.
The underwriters are not required to engage in these activities and may stop any
of these activities at any time without notice.

In connection with this offering, certain underwriters and other selling group
members or their affiliates may engage in passive market making transactions in
the common stock on the Nasdaq National Market in accordance with Rule 103 of
Regulation M under the Securities Exchange Act of 1934, as amended. Rule 103
permits passive market making during the period when Regulation M would
otherwise prohibit market making activity by the participants in this offering.
Passive market making consists of displaying bids on the Nasdaq National Market
limited by the bid prices of independent market makers and making purchases
limited by such prices and effected in response to order flow. Rule 103 limits
the net purchases by a passive market maker on each day to a specified
percentage of the passive market maker's average daily trading volume in the
common stock during a specified period. The passive market maker must stop its
passive market making transactions for the rest of that day when such limit is
reached.

LEGAL MATTERS

The validity of the issuance of the common stock offered hereby will be passed
upon for us by the law firm of Blau, Kramer, Wactlar & Lieberman, P.C., Jericho,
New York. Members of Blau, Kramer, Wactlar & Lieberman, P.C. own an aggregate
of 20,000 shares of our common stock. Certain matters will be passed upon for
the underwriters by Morrison & Foerster LLP, New York, New York.

EXPERTS

Our audited financial statements as of December 31, 1996, 1997, and 1998 and
for each of the three years in the period ended December 31, 1998, included in
this prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.

AVAILABLE INFORMATION

We have filed with the Commission a registration statement on Form S-1,
pursuant to the Securities Act, with respect to the common stock. This
prospectus does not contain all of the information set forth in the registration
statement, and its exhibits thereto. For further information with respect to us
and the common stock, reference is made to the registration statement and our
exhibits, which may be obtained at the locations described on the preceding
paragraph.

We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and, therefore, we file reports,
proxy statements, information statements and other information with the
Commission. You may inspect and copy this information (at prescribed rates) at
the Commission's public reference facilities at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, and at the regional offices of the Commission
located at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, IL
60661 and Seven World Trade Center, Suite 1300, New York, NY 10048. Please call
the Commission at 1-800-SEC-0330 for more information on its public reference
rooms. The Commission also maintains an Internet Website at http://www.sec.gov
------------------
that contains reports, proxy statements and information statements and other
information

46
<PAGE>

regarding issuers that file electronically with the Commission. In addition,
this information may also be inspected at the offices of the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.

47
<PAGE>

SOFTWORKS, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Public Accountants.............................................................. F-2
Consolidated Balance Sheets As of December 31, 1997 and 1998.......................................... F-3
Consolidated Statements of Operations for the Years Ended December 31, 1996, 1997 and 1998............ F-4
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1997 and 1998.. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1997 and 1998............ F-6
Notes to the Consolidated Financial Statements as of
December 31, 1997 and 1998............................................................................ F-7
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To SOFTWORKS, Inc.:

We have audited the accompanying consolidated balance sheets of SOFTWORKS,
Inc., a Delaware corporation, and subsidiaries (the "Company") as of December
31, 1998 and 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. 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 an 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 SOFTWORKS, Inc., and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Washington D.C.
February 9, 1999

F-2
<PAGE>

SOFTWORKS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)

<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
----------- ------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents..................................... $ 6,003 $ 360
Accounts receivable, net of allowance for doubtful accounts 14,316 10,652
of $289 and $206 in 1998 and 1997, respectively..............
Installment receivables....................................... 16,406 6,148
Prepaid expenses and other current assets..................... 1,349 984
Deferred tax assets........................................... 306 138
----------- ------------

Total current assets...................................... 38,380 18,282
----------- ------------

Installment receivables, noncurrent........................... 7,908 6,480
Property and equipment, net................................... 2,498 1,523
Software development costs, net............................... 3,039 3,357
Goodwill, net of accumulated amortization of $3,346 and 4,143 4,611
$2,477 in 1998 and 1997, respectively........................
Other assets.................................................. 1,900 734
Deferred tax assets, noncurrent............................... 484 696
----------- ------------

Total assets.............................................. $58,352 $35,683
=========== ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses......................... $ 6,136 $ 4,689
Current portion of long-term debt............................. 1,930 1,083
Deferred maintenance revenue.................................. 9,064 6,225
Deferred installment revenue.................................. 7,314 5,506
Income taxes payable.......................................... 2,057 --
Due to Principal Shareholder.................................. -- 1,554
----------- ------------

Total current liabilities................................. 26,501 19,057
Deferred maintenance revenue, noncurrent...................... 3,882 740
Deferred installment revenue, noncurrent...................... 7,883 7,122
Long-term debt, noncurrent.................................... 1,401 1,294
Payable to Principal Shareholder for federal income taxes..... -- 1,383
----------- ------------

Total liabilities......................................... 39,667 29,596
----------- ------------
Stockholders' Equity:
Preferred stock, $.001 par value; 2,000,000 shares -- --
authorized; none issued or outstanding.......................
Common stock, $.001 par value; 150,000,000 authorized; 16 14
15,973,000 and 14,083,000 shares issued and outstanding in
1998 and 1997, respectively..................................
Additional paid-in capital.................................... 15,201 5,549
Retained earnings............................................. 3,535 578
Accumulated other comprehensive loss.......................... (67) (54)
----------- ------------

Total stockholders' equity................................ 18,685 6,087
----------- ------------

Total liabilities and stockholders' equity............ $58,352 $35,683
=========== ============
</TABLE>

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

F-3
<PAGE>

SOFTWORKS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

<TABLE>
<CAPTION>
For Year Ended December 31,
-----------------------------------------
1998 1997 1996
----------- ------------- -----------
Revenue:
<S> <C> <C> <C>
Software licenses......................... $31,725 $16,633 $ 8,611
Services.................................. 12,024 10,137 7,914
----------- ------------- -----------

Total revenue........................... 43,749 26,770 16,525
----------- ------------- -----------

Cost of revenue (exclusive of amortization
and depreciation shown separately below
except for amortization of software
development costs):
Software licenses......................... 1,843 580 424
Services.................................. 2,407 1,055 720
----------- ------------- -----------

Total cost of revenue................... 4,250 1,635 1,144
----------- ------------- -----------

Gross margin............................... 39,499 25,135 15,381
----------- ------------- -----------

Operating expenses:
Sales and marketing....................... 19,666 12,463 6,161
General and administrative................ 4,575 2,791 2,217
Amortization and depreciation............. 2,169 1,972 1,596
Research and development.................. 7,800 6,093 3,911
----------- ------------- -----------

Total operating expenses................ 34,210 23,319 13,885
----------- ------------- -----------

Operating income........................... 5,289 1,816 1,496

Other expenses............................. 252 -- --
----------- ------------- -----------

Income from operations before provision
for income taxes.......................... 5,037 1,816 1,496

Provision for income taxes................. 2,080 1,030 704
----------- ------------- -----------

Net income................................. $ 2,957 $ 786 $ 792
----------- ------------- -----------

Basic and diluted net income per share..... $0.20 $0.06 $0.06
----------- ------------- -----------

Basic and diluted weighted average shares
outstanding............................... 14,860 14,083 14,083
----------- ------------- -----------
</TABLE>

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

F-4
<PAGE>

SOFTWORKS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)

<TABLE>
<CAPTION>
Common Stock
----------------------- Additional Retained
Paid-In Earnings
Shares Amount Capital (Deficit)
--------- -------- ----------- ----------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1995 14,083,000 $14 $ 5,489 $ 711
Contribution to Capital -- -- 60 --
Net loss and comprehensive loss -- -- -- (1,711)
--------- -------- ----------- ----------

BALANCE, December 31, 1995 14,083,000 14 5,549 (1,000)

Net income and comprehensive income -- -- -- 792
--------- -------- ----------- ----------

BALANCE, December 31, 1996 14,083,000 14 5,549 (208)

Foreign currency translation -- -- -- --
adjustment
Net income -- -- -- 786
--------- -------- ----------- ----------

Total comprehensive income

BALANCE, December 31, 1997 14,083,000 14 5,549 578

Foreign currency translation -- -- -- --
adjustment

Issuance of common stock to 190,000 -- -- --
consultant in connection with
initial public offering
Issuance of common stock pursuant to 1,700,000 2 9,652 --
the initial public offering, net
of offering costs

Net income -- -- -- 2,957
--------- -------- ----------- ----------

Total comprehensive income

BALANCE, December 31, 1998 15,973,000 $16 $15,201 $ 3,535
--------- -------- ----------- ----------
<CAPTION>

Accumulated Total
Other Comprehensive Stockholders' Comprehensive
Loss Equity Income (Loss)
------------------- ------------ --------------
<S> <C> <C> <C>
BALANCE, January 1, 1995 $ -- $ 6,214
Contribution to Capital -- 60
Net loss and comprehensive loss -- (1,711) $(1,711)
------------------- ------------ --------------

BALANCE, December 31, 1995 -- 4,563

Net income and comprehensive income -- 792 $ 792
------------------- ------------ --------------

BALANCE, December 31, 1996 -- 5,355

Foreign currency translation (54) (54) $ (54)
adjustment
Net income -- 786 786
------------------- ------------ --------------

Total comprehensive income $ 732
--------------

BALANCE, December 31, 1997 (54) 6,087

Foreign currency translation (13) (13) $ (13)
adjustment

Issuance of common stock to -- --
consultant in connection with
initial public offering
Issuance of common stock pursuant to -- 9,654
the initial public offering, net
of offering costs

Net income -- 2,957 2,957
------------------- ------------ --------------

Total comprehensive income $ 2,944
--------------

BALANCE, December 31, 1998 $(67) $18,685
------------------- ------------
</TABLE>

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

F-5
<PAGE>

SOFTWORKS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1998 1997 1996
------ -------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................................. $ 2,957 $ 786 $ 792
Adjustments to reconcile net income to net cash provided by operating
activities ---
Amortization and depreciation
Property and equipment.............................................. 774 697 505
Software development costs.......................................... 1,480 689 543
Goodwill............................................................ 869 749 659
Provision for doubtful accounts....................................... 317 75 50
Loss on disposal of property and equipment............................ -- -- 2
Deferred tax provision (benefit)...................................... 44 (33) 569
Changes in operating assets and liabilities---
Accounts receivable and installment receivables....................... (15,667) (11,002) (8,598)
Prepaid expenses and other current assets............................. (365) (561) (314)
Other assets.......................................................... (1,166) (377) (306)
Accounts payable and accrued expenses................................. 1,447 2,515 761
Income taxes payable.................................................. 2,057 -- --
Deferred revenue...................................................... 8,550 6,675 8,071
-------- -------- -------
Net cash provided by operating activities........................... 1,297 213 2,734
-------- -------- -------
Cash flows from investing activities:
Purchases of property and equipment.................................... (1,749) (990) (445)
Software development and technology purchases.......................... (1,162) (1,044) (359)
Additional consideration for SOFTWORKS, Inc. acquisition............... (401) (522) (478)
-------- -------- -------
Net cash used in investing activities............................... (3,312) (2,556) (1,282)
-------- -------- -------
Cash flows from financing activities:
Net (payments to) borrowings from Parent............................... (1,554) 407 145
Change in amount payable to Parent for federal income taxes............ (1,383) 858 --
Repayments of long-term debt........................................... -- (253) (190)
Proceeds from long-term debt........................................... 954 -- 161
Net proceeds from initial public offering.............................. 9,654 -- --
-------- -------- -------
Net cash provided by financing activities........................... 7,671 1,012 116
-------- -------- -------
Effect of exchange rate changes on cash and cash equivalents............ (13) (44) --
-------- -------- -------
Net increase (decrease) in cash and cash equivalents.................... 5,643 (1,375) 1,568
Cash and cash equivalents, beginning of period.......................... 360 1,735 167
-------- -------- -------
Cash and cash equivalents, end of period................................ $ 6,003 $ 360 $ 1,735
-------- -------- -------
Supplemental disclosure of cash flow information:
Interest paid.......................................................... $ 24 $ 44 $ 46
-------- -------- -------
Income taxes paid...................................................... $ 14 $ (96) $ 40
-------- -------- -------
Supplemental schedule of noncash investing and financing activities:
Assumption of long-term debt from capitalized software technology...... $ -- $ 2,160 $ --
-------- -------- -------
</TABLE>

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

F-6
<PAGE>

SOFTWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Nature of Operations:

The Company

SOFTWORKS, Inc. ("SOFTWORKS" or the "Company") designs, develops, markets,
and supports systems management software products for enterprise computing
environments primarily in the United States. SOFTWORKS wholly owns subsidiaries
in the United Kingdom, France, Brazil, Australia, Italy, Germany, and Spain
which operate primarily as sales offices. SOFTWORKS was incorporated in 1977
under the state laws of Maryland and reincorporated in 1998 under the state laws
of Delaware. In 1993, SOFTWORKS was acquired by Computer Concepts Corp. (the
"Principal Shareholder").

Increase in Authorized Shares and Stock Split

SOFTWORKS has restated its articles of incorporation to increase the number
of authorized shares to 2,000,000 of preferred shares and 150,000,000 of common
shares. Additionally, on May 28, 1998, the board of directors of SOFTWORKS
effected a 5,000-for-1 stock split. Further, on June 29, 1998, the board of
directors of SOFTWORKS declared and issued a stock dividend of 583,000 shares of
common stock to its sole stockholder, the Principal Shareholder. The effects of
the stock split, and stock dividend have been given retroactive application in
the consolidated financial statements for all periods presented.

Public Offering

On August 4, 1998, the Company completed an initial public offering ("IPO")
of 4,200,000 shares of the Company's common stock, par value $.001. 1,700,000 of
these shares were sold by the Company, resulting in net proceeds to the Company
of approximately $9.7 million, while the remaining 2,500,000 shares sold were
owned by the Principal Shareholder and another stockholder. In conjunction with
the IPO, the Company also issued 190,000 shares of common stock to a consultant.

Voting Trust Agreement

In conjunction with the IPO, shares owned by the Principal Shareholder were
deposited in a voting trust. The voting power of the shares deposited in the
trust is held by three trustees who are members of the board of directors of
SOFTWORKS. One trustee is the Chief Executive Officer of the Principal
Shareholder and the remaining two trustees are directors of the Company who do
not have a significant financial interest in the Principal Shareholder, one of
which is the Chairman of SOFTWORKS. The agreement provides that upon a change
in either of the remaining two trustees, the trustees not affiliated with the
Principal Shareholder shall have control of the selection of the successor
director/trustee. This agreement remains in effect until the Principal
Shareholder reduces its ownership to 25% of SOFTWORKS.

Principles of Consolidation

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

Risks and Other Factors

As a company that develops, markets, licenses and supports a family of
enterprise systems management software products for storage management and
performance management, SOFTWORKS faces certain risks. These include dependence
on proprietary technology, rapid technological change, errors or failures in its
products, dependence on key personnel, challenges in recruiting personnel and a
highly competitive marketplace.

F-7
<PAGE>

As of December 31, 1998, the Principal Shareholder owned more than 50% of
the outstanding shares of the Company. The Principal Shareholder received a
going concern opinion with respect to its audited financial statements for the
year ended December 31, 1997. A going concern opinion was not rendered for 1998.
Under certain circumstances, the Principal Shareholder's financial condition may
influence its decisions as the controlling stockholder of the Company. The
voting trust agreement noted above gives the majority of trustees control over
significant corporate actions, including certain dispositions or encumbrances of
assets and the payment of dividends.

2. Significant Accounting Policies

Revenue Recognition

Revenue from the sale of perpetual and term software licenses is recognized,
net of provisions for returns, at the time of delivery and acceptance of
software products by the customer, when collectibility is probable. The Company
provides customers with the option to pay for license fees in one lump sum or in
installments over extended periods of time, generally one to five years. In
such instances, the Company does not consider sales contracts with amounts due
for periods greater than one year from delivery fixed and determinable, and
accordingly, recognizes such amounts as revenue when they become due.
Maintenance revenue that is bundled with an initial license fee is deferred and
recognized ratably over the maintenance period. Amounts deferred for
maintenance are based on the fair value of equivalent maintenance services sold
separately. Revenue from professional services is recognized as the services
are performed. Maintenance and professional service revenue are classified as
services revenue on the accompanying statement of operations.

The American Institute of Certified Public Accountants (AICPA) issued
Statement of Position 97-2 "Software Revenue Recognition" ("SOP 97-2"), which
superceded Statement of Position 91-1 "Software Revenue Recognition." SOP 97-2
provides additional guidance with respect to multiple element arrangements;
returns, exchanges, and platform transfer rights; resellers; services; funded
software development arrangements; and contract accounting. The Company
implemented SOP 97-2 for the year ended December 31, 1997. In March 1998,
Statement of Position 98-4 ("SOP 98-4"), "Deferral of the Effective Date of a
Provision of SOP 97-2", amended a portion of SOP 97-2. Subsequent to the
issuance of SOP 98-4 the AICPA issued SOP 98-9, "Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions". SOP 97-2,
the amendment contained in SOP 98-4 and the modification contained in SOP 98-9
were adopted by the Company but did not have a material effect on the Company's
software revenue recognition policy.

Cash Equivalents

The Company considers all highly liquid instruments with an original maturity
of three months or less at the time of purchase to be cash equivalents.

Installment Receivables

The Company offers customers extended payment terms to purchase software. The
extended payment plans consist generally of plans with payment terms of one to
five years. The Company records an installment receivable for the payments not
yet billed by the Company. When the payment is billed by the Company, the
payment is classified as accounts receivable.

The Company imputes interest on the extended payment plans and recognizes
interest income as the related deferred license revenue is recognized.

Property and Equipment

Property and equipment are stated at cost and depreciated on a straight-line
basis over the estimated useful lives of the related assets. Leasehold
improvements are amortized over the shorter of the useful life of the asset or
the lease term. Capitalized lease assets are amortized over the shorter of the
lease term or the service life of the related assets.

F-8
<PAGE>

Software Development Costs

Costs associated with the development of software products are generally
capitalized once technological feasibility is established. Purchased software
technologies are recorded at cost and software technologies acquired in purchase
business transactions are recorded at their estimated fair value. Software
costs associated with technology development and purchased software technologies
are amortized using the greater of the ratio of current revenue to total
projected revenue for a product or the straight line method over a useful life
of 2 to 5 years. Amortization of software costs begins when products become
available for general customer release. Costs incurred prior to the
establishment of technological feasibility are expensed as incurred and
reflected as research and development costs in the accompanying consolidated
statements of operations.

Goodwill

In connection with its acquisition by the Principal Shareholder in 1993 under
which there was a change in 100 percent of the Company's equity interests, the
excess of the acquisition cost of the Company over the then fair value of its
tangible and intangible net assets (or goodwill) has been recorded on the books
of the Company, using "push-down" accounting. The goodwill is being amortized
over a ten year period.

Impairment of Long-Lived Assets

The Company reviews its long-lived assets, including goodwill resulting from
business acquisitions, capitalized software development costs, and property and
equipment, for impairment whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be fully recoverable. To
determine recoverability of its long-lived assets, the Company evaluates the
probability that future undiscounted net cash flows, without interest charges,
will be less than the carrying amount of the assets. The Company has determined
that as of December 31, 1998, there has been no impairment in the carrying value
of long-lived assets.

Income Taxes

The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). SFAS No. 109
requires the determination of deferred tax assets and liabilities based on the
differences between the financial statement and income tax bases of assets and
liabilities, using enacted tax rates. SFAS No. 109 requires that the net
deferred tax asset is to be adjusted by a valuation allowance, if, based on the
weight of available evidence, it is more likely than not that some portion or
all of the net deferred tax asset will not be realized.

Basic and Diluted Net Income (Loss) Per Share

In March 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, "Earnings Per Share" ("SFAS No. 128"). SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997 and has been implemented for all periods presented. SFAS No. 128 requires
dual presentation of basic and diluted earnings per share. Basic earnings per
share includes no dilution and is computed by dividing net income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share includes the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. As of December 31, 1998, the total
stock options outstanding were 3,604,225 of 3,727,000 authorized. Due to the
anti-dilutive nature of the options for all periods presented, there is no
effect on the calculation of weighted average shares for diluted earnings per
share. As a result, the basic and diluted earnings per share amounts are
identical.

Basic and diluted net earnings per share is also computed pursuant to SEC
Staff Accounting Bulletin No. 98 ("SAB 98"). SAB 98 requires that all equity
instruments issued at nominal prices, prior to the effective date of an initial
public offering, be included in the calculation of basic and diluted net income
per share as if they were outstanding for all periods presented. To date the
Company has not had any issuances or grants at nominal prices.

F-9
<PAGE>

Foreign Currency

The functional currency for all of the Company's international subsidiaries is
the subsidiary's local currency. Assets and liabilities of international
subsidiaries are translated into U.S. dollars at period-end exchange rates and
revenue and expense accounts and cash flows are translated at average exchange
rates during the period. Gains and losses resulting from translation are
recorded as accumulated other comprehensive income in stockholders' equity.
Transaction gains and losses are recognized in the consolidated statements of
operations as incurred. The Company does not engage in any hedging activities .
As a result, there is no guarantee that fluctuations in exchange rates might not
have a material adverse effect on the Company's financial results.

Included in cash and cash equivalents at December 31, 1998 and December 31,
1997 is approximately $464,000 and $278,000 of cash denominated in various
foreign currencies, respectively.

New Accounting Pronouncements

The Company has adopted SFAS No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes standards for reporting and display of comprehensive income
and its components in the financial statements. The adoption of SFAS No. 130
did not have a material impact on the Company's results of operations, financial
position, or cash flows.

The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires that those enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. The adoption
of SFAS No. 131 has had no significant impact on the Company's results of
operations, financial position or cash flows.

In March 1998, the AICPA issued Statement of Position 98-1 "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use", ("SOP 98-
1"). SOP 98-1 requires the Company to capitalize internal computer software
costs once certain capitalization criteria is met. SOP 98-1 is effective
January 1, 1999, and is applied to all projects in progress upon the initial
application of SOP 98-1. The Company has not yet determined the impact of the
adoption of SOP 98-1, however, a percentage of the Company's historical
development expenses may now be required to be capitalized under SOP 98-1.

During 1998, the Company adopted AICPA Statement of Position 98-5, "Reporting
on the Cost of Start-Up Activities." The adoption of this statement requires
the expensing of preopening costs as incurred. The adoption of SOP 98-5 did not
have a material impact on the Company's results of operations, financial
position, or cashflows.

Concentrations and Fair Value of Financial Instruments

Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of cash equivalents and trade accounts
receivables. At December 31, 1998, the Company's cash investments are held at
various financial institutions, which limits the amount of credit exposure to
any one financial institution. Concentrations of credit risk with respect to
trade accounts receivables are limited due to the large number of customers
comprising the Company's revenue base and their dispersion across different
industries and geographic areas. The Company performs ongoing credit
evaluations of its customers' financial condition but requires no collateral
from its customers. Unless otherwise disclosed, the fair value of financial
instruments approximates their recorded values.

Use of Estimates

In preparing consolidated financial statements in conformity with generally
accepted accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities and

F-10
<PAGE>

disclosures of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.

Reclassifications

Certain 1997 and 1996 amounts have been reclassified to conform to the 1998
presentation.

3. Installment Receivables and Deferred Installment Revenue:

Perpetual license agreements may be executed under installment payment
plans with payment terms of one to five years. The initial payment due is
classified as accounts receivable and the remaining payments are classified as
installment receivables. Revenue for payment terms beyond one year is classified
as deferred installment revenues and recognized when the payments become due.

Maintenance revenue that is bundled with the initial license fee is
deferred, classified as deferred installment revenue and recognized ratably over
the maintenance period. The maintenance revenue due within twelve months is
classified as accounts receivable and the amount due beyond twelve months is
classified as installment receivables.

The following identifies the payment schedules for the noncurrent
installment receivables at December 31, 1998 (in thousands):

Payment
Schedule
-----------

Due in 2000 $ 5,249
Due in 2001 1,852
Due in 2002 756
Due in 2003 51
------------
$ 7,908
============

Deferred installment revenue which relates to the installment receivables is
scheduled to be earned as follows (in thousands):

Software Software
Licenses Maintenance Total
------------- ------------- -------

Earned in 1999 $ 5,656 $ 1,658 $ 7,314
------------- ------------- -------

Earned in 2000 3,988 1,237 5,225
Earned in 2001 1,428 424 1,852
Earned in 2002 534 222 756
Earned in 2003 38 12 50
------------- ------------- -------
$ 5,988 $ 1,895 $ 7,883
============= ============= =======

The Company imputes interest on extended payment contracts based on a borrowing
rate of 6.1% (LIBOR plus one percent). Interest income is recognized when the
related deferred license revenue is recognized. Interest income included in
software license revenue is $433,000 in 1998, $136,000 in 1997 and $0 in 1996.

F-11
<PAGE>

4. Prepaid Expenses and Other Assets:

Included in prepaid expenses and other current assets are prepaid
commissions of $839,000 and $511,000 at December 31, 1998 and December 31, 1997,
respectively. Also included in other assets are noncurrent prepaid commissions
of $878,000 and $538,000 at December 31, 1998 and December 31, 1997,
respectively.

5. Property and Equipment:

Property and equipment consists of the following (in thousands):

December 31,
Useful Life ----------------------
in Years 1998 1997
------------- ---------- ----------

Computer equipment and software..... 3 to 5 $ 4,214 $ 2,565
Furniture and fixtures.............. 5 to 7 250 204
Leasehold improvements.............. 7 554 500
---------- ----------
5,018 3,269

Less: Accumulated depreciation..... (2,520) (1,746)
---------- ----------

Property and equipment, net....... $ 2,498 $ 1,523
========== ==========

6. Software Development Costs:

Software development costs consist of the following (in thousands):

December 31,
------------------
1998 1997
-------- --------

Capitalized software development costs............. $ 2,298 $ 1,242
Purchased and acquired software technologies
for resale....................................... 4,334 4,228
-------- --------
6,632 5,470

Less: Accumulated amortization.................... (3,593) (2,113)
-------- --------

Capitalized software development costs, net...... $ 3,039 $ 3,357
======== ========

In July 1997, the Company acquired from Cognizant Technology Solutions
Corporation ("CTS") the rights to certain technology (the "Technology") that
complement certain Year 2000 product solutions and the development of the
Company's application resource management tools. Pursuant to the software
distribution agreement, in exchange for the Technology rights, the Company is
required to pay CTS a royalty on sales of the Technology at defined rates
subject to minimum annual royalties as follows: $100,000 in 1997, $900,000 in
1998, $1,400,000 in 1999 and $400,000 in 2000. An asset equal to the present
value of the minimum annual royalties of $2,160,000 has been recorded as
purchased and acquired software technologies for resale and is being amortized
using the straight-line method over the five year term of the agreement. The
payment obligation is recorded as debt.

F-12
<PAGE>

7. Acquisition by the Principal Shareholder:

In September 1993, the Company was acquired by the Principal Shareholder
and the acquisition was accounted for using the purchase method of accounting.
Accordingly, assets and liabilities were recorded at their fair values as of the
effective date of the acquisition, and the operations of the Company have been
included in the Principal Shareholder's consolidated statements of operations
since that date. The purchase price approximated $5,700,000 (payable in cash and
restricted common stock of the Principal Shareholder) and originally resulted in
$5,484,000 of goodwill related to the excess of cost over the fair value of net
assets acquired. The acquisition agreement also required the Company to make
additional contingent purchase consideration payments to two of the Company's
former stockholders based upon certain product revenue for the four-year period
ending September 1998, up to a maximum of $1,000,000 each, for an aggregate
maximum of $2,000,000. As of December 31, 1998, the Company had paid the maximum
of $2,000,000 to the non-employee former stockholders, which has been treated as
additional consideration in connection with the acquisition and, accordingly,
added to the goodwill related to the acquisition.

8. Accounts Payable and Accrued Expenses:

Accounts payable and accrued expenses consist of the following (in
thousands):

December 31,
-------- ---------
1998 1997
-------- ---------

Trade accounts payable $ 1,069 $ 1,834
Accrued payroll and benefits 1,046 579
Commissions payable 2,463 1,368
Royalties Payable 538 75
Other accrued expenses 1,020 833
-------- ---------
$ 6,136 $ 4,689
-------- ---------

9. Stock Options and Stock-Based Compensation:

Principal Shareholder Common Stock and Options

Prior to the IPO, certain Company employees received part of their
compensation in the form of the Principal Shareholder's common stock or options.
Included in the Company's consolidated statements of operations are noncash
compensation charges related to the fair value of the Principal Shareholder's
common stock issued and noncash compensation charges related to the intrinsic
value of stock options granted pursuant to APB Opinion No. 25, "Accounting for
Stock Issued to Employees". Charges for both stock and options totaled $18,000
and $187,000 for the years ended December 31, 1997 and 1996, respectively.
During 1998, no such stock or options were issued. Accordingly, there were no
related charges. In addition, during 1998, certain outstanding options under the
existing plan were repriced; however, there were no related charges to the
Company associated with this repricing.

Stock Option Plan

In May 1998, the Company adopted the SOFTWORKS, Inc. 1998 Long-Term
Incentive Plan (the "1998 Incentive Plan") which authorizes the issuance of a
maximum of 3,727,000 shares of common stock. The 1998 Incentive Plan provides
for grants of options to officers, key employees, consultants and independent
contractors of the Company and its affiliates. The 1998 Incentive Plan provides
for the granting of incentive stock options, non-qualified stock options,
performance grants and other types of awards. This plan is administered by the
Long-Term Incentive Plan Administrative Committee of the board of directors,
which has sole discretion and

F-13
<PAGE>

authority, consistent with the provisions of the 1998 Incentive Plan, to
determine which eligible participants will receive options, the time when
options will be granted and the terms of options granted.

Prior to the implementation of the 1998 Incentive Plan, the Company did not
have a stock option plan in place. The following is a summary of the option
activity of the 1998 Incentive Plan:

Weighted-Average
Exercise
Options Price
------------ ----------------

Balance December 31, 1997 -- $ --
Stock options granted 3,613,850 7.00
Stock options exercised -- --
Stock options canceled (9,625) 7.00
------------ ----------------
Balance December 31, 1998 3,604,225 $ 7.00
------------ ----------------

As of December 31, 1998, options to purchase 1,599,660 shares of common
stock were exercisable with a weighted-average exercise price of $7.00. The
weighted-average remaining contractual life of options outstanding at December
31, 1998, was 3.3 years. The weighted average fair value of options issued in
1998 was $3.77.

In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 defines a "fair value based method" of accounting
for stock-based compensation. Under the fair value based method, compensation
cost is measured at the grant date based on the fair value of the award and is
recognized over the service period. Prior to the issuance of SFAS No. 123,
stock-based compensation was accounted for under the "intrinsic value method" as
defined by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for
Stock Issued to Employees." Under the intrinsic value method, compensation is
the excess, if any, of the market price of the stock at grant date or other
measurement date over the amount an employee must pay to acquire the stock.

SFAS No. 123 allows an entity to continue to use the intrinsic value
method. However, entities electing the accounting in APB Opinion No. 25 must
make pro forma disclosures as if the fair value based method of accounting had
been applied. The Company applies APB Opinion No. 25 and the related
interpretations in accounting for its stock-based compensation.

Had compensation expense been determined based on the fair value of the
options at the grant dates consistent with the method of accounting under SFAS
No. 123, the Company's net income and net income per share would have been
decreased to the pro forma amounts indicated below (in thousands, except per
share amounts):

Year Ended December 31,
--------------------------
1998 1997 1996
--------------------------

Net income (loss) attributable to common
stockholders:
As reported.......................... $2,957 $ 786 $ 792
Pro forma............................ $ (287) 598 672

Basic and diluted loss per share:
As reported.......................... $ 0.20 $0.06 $0.06
Pro forma............................ $(0.02) 0.04 0.05

The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used for
grants during the years ended December 31, 1998, 1997 and 1996: no dividend
yield, expected volatility from 72% to 130%, risk-free interest rates from 5.4%
to 6.3% and an expected terms ranging from 1.1 to 4.4 years.

F-14
<PAGE>

10. Transactions with the Principal Shareholder:

Prior to the initial public offering, the Principal Shareholder provided
certain corporate and administrative services to the Company, including
executive management and professional services (accounting, auditing, and
legal). These services were performed for $500,000 in the years ended December
31, 1997 and 1996. These costs were allocated to the Company based on a
proportional cost allocation method. During 1998, there were no net charges for
administrative services. The Company and its Principal Shareholder also jointly
participated in certain employee benefit plans (defined contribution and
employee health), and the Company was allocated a portion of these costs on an
incremental basis. As of December 31, 1998 the Company's foreign subsidiary,
SOFTWORKS International, Ltd. employed 2 individuals that performed services
primarily on behalf of the Principal Shareholder. These amounts, and other
associated costs are reimbursed to the Company periodically. As of December 31,
1998, the amount owed to the Company by the Principal Shareholder was
approximately $188,000, which has subsequently been repaid.

Management believes that the intercompany charges and cost allocations were
reasonable and approximate the expenses that the Company would have incurred had
it been operating as a stand-alone entity. Since its public offering, the
Company has performed the corporate and administrative functions directly, using
its own resources or purchased services, and will continue to be responsible for
the costs and expenses associated with the management of a public corporation.
As of December 31, 1998, other than as set forth above, the Company had no
amounts due from or owed to the Principal Shareholder.

11. Income Taxes:

The following table summarizes components of income (loss) before income
taxes and the (benefit from) provision for both current and deferred income
taxes.

Year Ended December 31,
--------------------------
1998 1997 1996
------- ------ -------

Income (loss) before (benefit from) provision for
income taxes:
United States.................................. $ 4,857 $ 2,579 $ 1,471
Foreign........................................ 180 (763) 25
------- ------- -------

Total..................................... $ 5,037 $ 1,816 $ 1,496
======= ======= =======

Provision for (benefit from) income taxes:
Current-
United States................................ $ 1,769 $ 858 $ --
Foreign...................................... 30 55 135
State and other.............................. 237 150 --
------- ------- -------

2,036 1,063 135
------- ------- -------
Deferred-
United States................................ 40 (27) 505
Foreign...................................... -- -- (16)
State and other.............................. 4 (6) 80
------- ------- -------

44 (33) 569
------- ------- -------

Total..................................... $ 2,080 $ 1,030 $ 704
------- ------- -------

F-15
<PAGE>

The following table summarizes the significant differences between the U.S.
Federal statutory tax rate and the Company's effective tax rate for financial
statement purposes:

Year Ended December 31,
--------------------------
1998 1997 1996
------ ------- ------

U.S. Federal statutory tax rate 34.0% 34.0% 4.0%
State and local taxes, net of U.S. federal tax
effect 4.7 3.5 6.8
Non-U.S. taxes 1.0 2.0 5.9
Foreign operating (loss) income (0.4) 14.3 (0.6)
Other 2.0 2.9 1.0
------ ------- ------

Effective tax rate 41.3% 56.7% 47.1%
------ ------- ------

The tax effects of temporary differences and carryforwards that give rise
to significant portions of deferred tax assets are summarized as follows:

1998 1997
-------- --------
Current:
Net operating loss carryforwards - U.S. $ -- $ --
Accurals and reserves 306 138
-------- --------

306 138
-------- --------

Long-Term:
Fixed and intangible assets 115 347
Capitalized software 369 349
Net operating loss carryforwards - foreign 200 229
Valuation allowance on foreign net operating
loss carryforwards (200) (229)
-------- --------

484 696
-------- --------

Net deferred tax assets $ 790 $ 834
-------- --------

In 1997, the Company utilized federal net operating losses generated in
1995 and 1996, aggregating $1,000,000. Included in the deferred tax assets as of
December 31, 1998 and 1997, is net operating income and loss from international
subsidiaries in the amount of $180,000 and $763,000, resulting in a deferred tax
benefit of $200,000 and $229,000, respectively. Most of the net operating loss
carryforwards have no expiration date. The Company has provided for full
valuation allowances of these international net operating losses.

12. Commitments and Contingencies:

Royalty Commitments

The Company has entered into royalty agreements with several employees of
the Company. These agreements call for royalties ranging from 1% to 7% of
various product revenue. These agreements range in term from three to five years
and contain no provisions for minimum royalties. One agreement is with an
officer of the Company and has resulted in royalty expense of $115,000, $188,000
and $98,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
The agreement with this officer was terminated in conjunction with the signing
of an employment agreement in 1998.

F-16
<PAGE>

Employment Agreements

The Company has entered into employment agreements with several key
employees of the Company. These agreements call for an annual aggregate base
compensation commitment of $800,000 through 2001.

Leases

The Company leases certain computer equipment under long-term
non-cancelable leases which are classified as capital leases and are included as
part of property and equipment. Operating leases are primarily for office space
and equipment.

At December 31, 1998, the future minimum lease payments under operating and
capital leases are summarized as follows (in thousands):

Year Ending December 31, Operating Leases Capital Leases Total
----------------------------- ------------------- ------------------ ------------

<S> <C> <C> <C>
1999 1,080 269 1,349
2000 1,013 269 1,282
2001 747 268 1,015
2002 153 - 153
2003 101 - 101
------------------- ------------------ ------------
Total 3,094 806 3,900

Amounts representing interest - (59) (59)
------------------- ------------------ ------------
Net 3,094 747 3,841
=================== ================== ============
</TABLE>

Rent expense approximated $1,097,000, $896,000 and $522,000 for the years
ended December 31, 1998, 1997 and 1996, respectively.

Employee 401(k) Savings Plan

The Company provides pension benefits to eligible employees through a
401(k) plan sponsored jointly by the Company and the Principal Shareholder. The
Company's allocable share of employer matching contributions to this 401(k) plan
approximated $77,000, $52,000 and $36,000 for the years ended December 31, 1998,
1997 and 1996, respectively.

Long Term Debt

The Company's long term debt commitments consist of future amounts due for
certain technology purchases (Note 6) and an obligation under a capital lease.

13. Segment Reporting

In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes standards for the way that public business enterprises report
information about operating segments in the annual financial statements and
requires selected information about operating segments in interim financial
reports. SFAS No. 131 also establishes standards for related disclosures about
products and services, geographic areas and major customers.

The Company is primarily engaged in a single line of business. The Company
aggregates and reports revenues from products which have similar economic
characteristics in their nature, production, and distribution process. The
Company's geographic locations vary between full operating offices and sales
offices. The Company has identified the reportable operating segments as North
America and International. These operating

F-17
<PAGE>

segments are representative of the Company's management approach to its
evaluation of the operations. The accounting policies of the reportable
operating segments are the same as those described in the summary of significant
accounting policies. The International segment includes an aggregation of
certain operations consisting primarily of sales operations through the
Company's international subsidiaries in the United Kingdom, France, Brazil,
Australia, Spain, Germany, and Italy, and sales generated through international
distributors primarily in Europe and Asia. The following information is
presented in accordance with SFAS No. 131 for all periods presented (in
thousands):

<TABLE>
<CAPTION>
1998
-----------------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec 31 Year
---------- ---------- ----------- ----------- --------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenue
North America........................ 5,290 7,022 8,827 13,812 34,951
International........................ 1,306 2,032 2,420 3,040 8,798
----------- ---------- ----------- ----------- --------
Total........................... 6,596 9,054 11,247 16,852 43,749
----------- ---------- ----------- ----------- --------

Operating Income (Loss)
North America........................ (384) 464 1,395 4,588 6,063
International........................ (589) (128) (227) 170 (774)
---------- ---------- ----------- ----------- --------
Total........................... (973) 336 1,168 4,758 5,289
---------- ---------- ----------- ----------- --------

Identifiable Assets
North America........................ 31,897 32,457 39,478 48,827 48,827
International........................ 3,465 4,235 6,517 9,525 9,525
---------- ---------- ----------- ----------- --------
Total........................... 35,362 36,692 45,995 58,352 58,352
---------- ---------- ----------- ----------- --------

<CAPTION>
1997
-----------------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec 31 Year
---------- ---------- ----------- ----------- --------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenue
North America........................ 3,647 5,161 5,709 7,521 22,038
International........................ 1,019 1,106 1,195 1,412 4,732
---------- ---------- ----------- ----------- --------
Total........................... 4,666 6,267 6,904 8,933 26,770
---------- ---------- ----------- ----------- --------

Operating Income (Loss)
North America........................ (263) 215 503 1,901 2,356
International........................ (233) (151) (169) 13 (540)
---------- ---------- ----------- ----------- --------
Total........................... (496) 64 334 1,914 1,816
---------- ---------- ----------- ----------- --------

Identifiable Assets
North America........................ 21,240 23,881 26,878 33,015 33,015
International........................ 1,152 1,307 1,820 2,668 2,668
---------- ---------- ----------- ----------- --------
Total........................... 22,392 25,188 28,698 35,683 35,683
---------- ---------- ----------- ----------- --------

<CAPTION>
1996
-----------------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec 31 Year
---------- ---------- ----------- ----------- --------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenue
North America........................ 2,236 2,051 3,188 4,168 11,643
International........................ 956 1,363 900 1,663 4,882
---------- ---------- ----------- ----------- --------
Total........................... 3,192 3,414 4,088 5,831 16,525
---------- ---------- ----------- ----------- --------

Operating Income (Loss)
North America........................ (267) (155) 441 571 590
International........................ 110 337 80 379 906
---------- ---------- ----------- ----------- --------
Total........................... (157) 182 521 950 1,496
---------- ---------- ----------- ----------- --------

Identifiable Assets
North America........................ 11,649 12,753 15,241 21,272 21,272
International........................ 435 770 851 1,271 1,271
---------- ---------- ----------- ----------- --------
Total........................... 12,084 13,523 16,092 22,543 22,543
---------- ---------- ----------- ----------- --------
</TABLE>

F-18
<PAGE>

Revenue from unaffiliated customers is based on the location of the
customer. Operating income (loss) consists of the related income (loss) of the
Company's subsidiaries based upon the location of their respective operations.
Identifiable assets are those assets used in the Company's operations in those
operating segments. No single customer represents greater than five percent of
revenues.

14. Interim Financial Data -- Unaudited

The following table of quarterly financial data has been prepared from the
financial records of the Company, without audit, and reflects all adjustments
that are, in the opinion of management, necessary for a fair presentation of the
results of operations for the interim periods presented:

<TABLE>
<CAPTION>
1998 Quarter Ended
------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
-------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Revenue 6,596 9,054 11,247 16,852
Gross margin 5,632 8,334 10,217 15,316
Income (loss) from operations (973) 336 1,168 4,758
Net income (loss) (767) (13) 537 3,200
Basic and diluted income (loss) per share (0.05) (0.00) 0.04 0.20

1997 Quarter Ended
------------------------------------------------
Mar. 31 June 30 Sept. 30 Dec. 31
-------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Revenue 4,666 6,267 6,904 8,933
Gross margin 4,385 5,943 6,465 8,342
Income (loss) from operations (496) 64 334 1,914
Net income (loss) (333) (20) 127 1,012
Basic and diluted income (loss) per share (0.02) (0.00) 0.01 0.07
</TABLE>

The sum of the per share amounts may not equal the annual amounts because of the
changes in the weighted-average number of shares outstanding during the year.

F-19
<PAGE>

[SOFTWORKS logo]
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

The estimated expenses of the distribution, all of which shall be borne by
Softworks, are as follows:

SEC Registration Fee...................................... $15,106
NASD Filing Fee........................................... 5,934
NASDAQ Application........................................ *
Blue Sky Fees and Expenses (including legal fees)......... *
Transfer Agent Fees....................................... *
Accounting Fees and Expenses.............................. *
Legal Fees and Expenses................................... *
Printing and Engraving.................................... *
Miscellaneous............................................. *

Total............................................ $ *
-------

- ------------
* To be filed by amendment

Item 14. Indemnification of Directors and Officers.

Softworks, a Delaware corporation, is empowered by Section 145 of the
Delaware General Corporation Law (the "Delaware Act"), subject to the procedures
and limitations stated therein, to indemnify certain parties. Section 145 of the
Delaware Act provides in part that a corporation shall have the power to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding (other than
an action by or in the right of the corporation) by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and with respect
to any criminal action or proceeding had no reasonable cause to believe his
conduct was unlawful. Similar indemnity is authorized for such persons against
expenses (including attorneys' fees) actually and reasonably incurred in defense
or settlement of any threatened, pending or completed action or suit by or in
the right of the corporation, if such person acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and provided further that (unless a court of competent jurisdiction
otherwise provides) such person shall not have been adjudged liable to the
corporation. Any such indemnification may be made only as authorized in each
specific case upon a determination by the stockholders or disinterested
directors that indemnification is proper because the indemnitee has met the
applicable standard of conduct. Where an officer or a director is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director actually or reasonably incurred. Section 145 provides further that
indemnification pursuant to its provisions is not exclusive of other rights of
indemnification to which a person may be entitled under any law, agreement, vote
of stockholders or disinterested directors or otherwise.

Softworks Certificate of Incorporation and By-laws contain provisions that
limit the potential personal liability of directors for certain monetary damages
and provide for indemnity of directors and other persons. Softworks also
maintains officers and directors liability insurance. The policy coverage is $10
million, which includes reimbursement for costs and fees, with a maximum
deductible for officers and directors of $200,000 for each securities-related
claim, and $75,000 for each non-securities related claim. Softworks is unaware
of any pending or threatened litigation against Softworks or its directors that
would result in any liability for which such director would seek indemnification
or similar protection.

II-1
<PAGE>

The provisions affecting personal liability do not abrogate a director's
fiduciary duty to Softworks and its stockholders, but eliminate personal
liability for monetary damages for breach of that duty. The provisions do not,
however, eliminate or limit the liability of a director for failing to act in
good faith, for engaging in intentional misconduct or knowingly violating a law,
for authorizing the illegal payment of a dividend or repurchase of stock, for
obtaining an improper personal benefit, for breaching a director's duty of
loyalty (which is generally described as the duty not to engage in any
transaction that involves a conflict between the interests of Softworks and
those of the director) or for violations of the federal securities laws. The
provisions also limit or indemnify against liability resulting from grossly
negligent decisions, including grossly negligent business decisions relating to
attempts to change control of Softworks.

The provisions regarding indemnification provide, in essence, that
Softworks will indemnify its directors against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with any action, suit or proceeding arising out of the
director's status as a director of Softworks, including actions brought by or on
behalf of Softworks (shareholder derivative actions). The provisions do not
require a showing of good faith. Moreover, they do not provide indemnification
for liability arising out of willful misconduct, fraud, or dishonesty, for
"short-swing" profits violations under the federal securities laws, or for the
receipt of illegal remuneration. The provisions also do not provide
indemnification for any liability to the extent such liability is covered by
insurance. One purpose of the provisions is to supplement the coverage provided
by such insurance.

These provisions diminish the potential rights of action that might
otherwise be available to shareholders by limiting the liability of officers and
directors to the maximum extent allowable under Delaware law and by affording
indemnification against most damages and settlement amounts paid by a director
of Softworks in connection with any stockholders derivative action. However, the
provisions do not have the effect of limiting the right of a stockholder to
enjoin a director from taking actions in breach of the director's fiduciary
duty, or to cause Softworks to rescind actions already taken, although as a
practical matter courts may be unwilling to grant such equitable remedies in
circumstances in which such actions have already been taken.

Softworks has entered into indemnification agreements with certain of its
officers. The indemnification agreements provide for reimbursement for all
direct and indirect costs of any type or nature whatsoever (including attorneys'
fees and related disbursements) actually and reasonably incurred in connection
with either the investigation, defense or appeal of a legal proceeding,
including amounts paid in settlement by or on behalf of an indemnitee
thereunder.

Item 15. Recent Sales of Unregistered Securities.

None.

Item 16. Exhibits and Financial Statement Schedules.

Exhibits
- --------

1.1 Form of Underwriting Agreement**
1.2 Form of Agreement Among Underwriters**
1.3 Form of Selected Dealer Agreement**
3.1 Certificate of Incorporation of Softworks*
3.2 By-laws of Softworks*
4.1 Specimen Common Stock Certificate*
5.1 Form of Opinion and Consent of Blau, Kramer, Wactlar & Lieberman,
P.C. regarding the legality of the securities being registered**
9. Form of Voting Trust Agreement*
10.1 Lease Agreement dated June 14, 1994 between Softworks and WHT Real
Estate Limited Partnership*
10.2 First Amendment to Lease Agreement*
10.3 Second Amendment to Lease Agreement*

II-2
<PAGE>

Exhibits
- --------

10.4 1998 Long-Term Incentive Plan, as amended**
10.5 Consulting Agreement between Softworks and James Cannavino*
10.6 Employment Agreement between Softworks and C. R. Kinsey, III*
10.7 Employment Agreement between Softworks and Judy G. Carter, as
amended*
10.8 Employment Agreement between Softworks and Lisa Welch*
10.9 Employment Agreement between Softworks and Joseph Miksch*
10.10 Employment Agreement between Softworks and Robert McLaughlin*
10.11 Form of Indemnification Agreement between Softworks and its officers
and directors*
10.12 Distribution Agreement dated July 8, 1997 between Softworks and
Cognizant Technology Solutions Corporation*
10.13 1999 Stock Option Plan**
10.14 Non-Recourse Receivables Purchase Agreement dated March 30, 1999
between Softworks and Silicon Valley Financial Services**
11. Computation of Earnings Per Share* *
21. The following lists Softworks significant subsidiaries, all of which
are wholly-owned by Softworks. The names of certain subsidiaries
which do not, when considered in the aggregate, constitute a
significant subsidiary have been omitted.

Name of Subsidiary Jurisdiction of Incorporation
------------------ -----------------------------
SOFTWORKS International, Limited United Kingdom
SOFTWORKS SavanTechnology
International, S.A. Spain
SOFTWORKS International, LTD, Pty. Australia
SOFTWORKS SavanTechnology do Brazil Ltda Brazil
SOFTWORKS, S.A. France
SOFTWORKS Italia S.r.l. Italy
SOFTWORKS Services Corp. Texas
SOFTWORKS F.S.C. U.S. Virgin Islands
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Blau, Kramer, Wactlar & Lieberman, P.C. (included in
Exhibit 5)**
24. Power of Attorney (included in signature page)
27. Financial Data Schedule**
- ------------------------
* Incorporated by reference to Exhibits to Registration Statement No.
333-53939
** To be filed by amendment

Financial Statement Schedules
- -----------------------------
Not applicable.

Item 17. Undertakings.

The undersigned Registrant hereby undertakes:

For purposes of determining any liability under the Securities Act of 1933
(the "Act"), the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Company pursuant to Rule 424 (b) (1) and (4) and
Rule 497 (h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the issuer
pursuant to the foregoing provisions, or otherwise, the issuer has

II-3
<PAGE>

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. In the event that a claim for indemnification
against such liabilities (other than the payment by the issuer of expenses
incurred or paid by a director, officer or controlling person of the issuer in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the issuer will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

II-4
<PAGE>

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in Alexandria, Virginia
on the 3rd day of May, 1999.

SOFTWORKS, Inc.

By: /s/ Judy G. Carter
-----------------------------------
Judy G. Carter
President
(Chief Executive Officer)

Power of Attorney

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on May 3, 1999, by the following
persons in the capacities indicated. Each person whose signature appears below
also constitutes and appoints James Cannavino and Judy G. Carter, and each of
them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto and all other documents in connection therewith, with the
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or his substitute or substitutes may lawfully do or cause to be done by virtue
hereof.

<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
By: /s/ James A. Cannavino
-------------------------------- Chairman of the Board of Directors
James A. Cannavino

By: /s/ Judy G. Carter
-------------------------------- President, Chief Executive Officer and a Director
Judy G. Carter

By: /s/ C.R. Kinsey, III
-------------------------------- Vice President and Secretary
C.R. Kinsey, III

By: /s/ Robert C. McLaughlin
-------------------------------- Treasurer and Chief Financial Officer
Robert C. McLaughlin

By: /s/ Robert Devine
-------------------------------- Director
Robert Devine

By: /s/ Charles Feld
-------------------------------- Director
Charles Feld
</TABLE>

II-5

<PAGE>

Exhibit 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.

/s/ Arthur Andersen LLP
-----------------------
Arthur Andersen LLP

Washington, D.C.
April 28, 1999