SOFTWORKS INC, 424B1, 1999-06-07

SOFTWORKS INC
424B1, 1999-06-07
PREPACKAGED SOFTWARE

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<PAGE> 1
As Filed Pursuant to Rule 424(b)(1)
Registration No. 333-77565

3,500,000 SHARES

[SOFTWORKS LOGO]
SOFTWORKS

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. Our common stock is traded on the Nasdaq National Market under the
symbol SWRX. On June 3, 1999, the last reported sales price for our common stock
on the Nasdaq National Market was $11.

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 4.

<TABLE>
<CAPTION>
PER
SHARE TOTAL
------ -----------
<S> <C> <C>
Public offering price....................................... $10.50 $36,750,000

Underwriting discounts...................................... $ 0.63 $ 2,205,000

Proceeds, before expenses, to SOFTWORKS, Inc................ $ 9.87 $ 9,870,000

Proceeds to selling stockholders............................ $ 9.87 $24,675,000
</TABLE>

Delivery of the shares of common stock will be made on or about June 9,
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 June 3, 1999.
<PAGE> 2

[ARTWORK]
<PAGE> 3

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 4
Special Note Regarding Forward-Looking
Statements.......................... 8
Use of Proceeds....................... 8
Dividend Policy....................... 8
Price Range of Common Stock........... 9
Capitalization........................ 9
Selected Consolidated Financial
Data................................ 10
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 11
Business.............................. 23
Management............................ 31
</TABLE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Certain Transactions.................. 36
Principal and Selling Stockholders.... 38
Description of Capital Stock.......... 40
Shares Eligible For Future Sale....... 42
Underwriting.......................... 43
Legal Matters......................... 44
Experts............................... 44
Available Information................. 44
Index to Consolidated Financial
Statements.......................... F-1
Report of Independent Public
Accountants......................... F-2
Notes to Consolidated Financial
Statements.......................... F-7
</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.

i
<PAGE> 4

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
1
<PAGE> 5

6,400 licenses for use of our products at over 2,000 installations worldwide,
including installations at 87% of the Fortune 100 and 60% 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.

THE OFFERING

<TABLE>
<S> <C>
Common stock offered by us................... 1,000,000 shares

Common stock offered by the selling 2,500,000 shares
stockholders...............................

Total common stock offered................... 3,500,000 shares

Common stock to be outstanding after the 17,132,984 shares
offering...................................

Use of proceeds.............................. For working capital and general corporate
purposes.

Nasdaq National Market symbol................ SWRX
</TABLE>

2
<PAGE> 6

SUMMARY FINANCIAL INFORMATION

We present the following consolidated financial data for the fiscal years
ended December 31, 1996, 1997 and 1998 from our audited financial statements.
The consolidated financial data for the three months ended March 31, 1998 and
1999 is derived from our unaudited financial statements. Investors should read
"Management's Discussion and Analysis of Operations," beginning on page 12 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 offering price of $10.50 per share, after deducting
the underwriting discount and our offering expenses.

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue.......................... $16,525 $26,770 $43,749 $ 6,596 $10,258
Gross margin........................... 15,381 25,135 39,499 5,632 9,493
Net income (loss)...................... 792 786 2,957 (767) 93
======= ======= ======= ======= =======
Basic and diluted net income (loss) per
share............................... $ 0.06 $ 0.06 $ 0.20 $ (0.05) $ 0.01
======= ======= ======= ======= =======
Basic weighted average shares
outstanding......................... 14,083 14,083 14,860 14,083 15,973
======= ======= ======= ======= =======
Diluted weighted average shares
outstanding......................... 14,083 14,083 14,860 14,083 16,380
======= ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
AT MARCH 31, 1999
----------------------
ACTUAL AS ADJUSTED
------- -----------
(UNAUDITED)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 6,759 $16,129
Working capital........................................... 13,508 22,878
Total assets.............................................. 54,492 63,862
Long term debt, net of current portion.................... 2,401 2,401
Total stockholders' equity................................ 18,781 28,151
</TABLE>

3
<PAGE> 7

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. In 1998, the
number of our employees increased by 43 and in the first quarter of 1999 it
increased by 24. 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

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<PAGE> 8

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;

- 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 12 and "Business -- Sales, Distribution and Marketing" on page 27.

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.

5
<PAGE> 9

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.

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

6
<PAGE> 10

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

- 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.

7
<PAGE> 11

OUR 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.

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.

USE OF PROCEEDS

We expect to receive approximately $9,370,000 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 and 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."

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."

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." 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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<PAGE> 12

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.

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
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 June 3, 1999)................ $16.88 $ 9.50
</TABLE>

On June 3, 1999 the reported last sale price of our common stock on the
Nasdaq National Market was $11.00 per share. As of June 1, 1999 there were
approximately 37 stockholders of record of our common stock.

CAPITALIZATION

The following table sets forth our capitalization as of March 31, 1999: (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 a price of $10.50 per
share. You should note that the information in this table is unaudited.

<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, net of current portion...................... $ 2,401 $ 2,401
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; 15,973,000 shares issued and outstanding
(actual); 16,973,000 shares issued and outstanding (as
adjusted)................................................. 16 17
Additional paid-in capital.................................. 15,201 24,570
Retained earnings........................................... 3,628 3,628
Accumulated other comprehensive loss........................ (64) (64)
------- -------
Total stockholders' equity........................ $18,781 $28,151
------- -------
Total capitalization.............................. $21,182 $30,552
======= =======
</TABLE>

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<PAGE> 13

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data for the four fiscal
years ended December 31, 1995, 1996, 1997 and 1998 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. The financial
information as of March 31, 1999 and for the three months ended March 31, 1998
and 1999 has been derived from our unaudited financial information, which in
management's opinion, includes all normal recurring adjustments necessary for a
fair presentation of that financial information. 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.

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
----------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
Software licenses............................ $ 4,438 $ 5,718 $ 8,611 $16,633 $31,725 $ 3,736 $ 6,730
Services..................................... 5,011 5,908 7,914 10,137 12,024 2,860 3,528
------- ------- ------- ------- ------- ------- -------
Total revenue......................... 9,449 11,626 16,525 26,770 43,749 6,596 10,258
Cost of revenue (exclusive of amortization and
depreciation shown separately below except
for amortization of software development
costs):
Software licenses............................ 223 432 424 580 1,843 439 216
Services..................................... 360 660 720 1,055 2,407 525 549
------- ------- ------- ------- ------- ------- -------
Total cost of revenue................. 583 1,092 1,144 1,635 4,250 964 765
------- ------- ------- ------- ------- ------- -------
Gross margin................................... 8,866 10,534 15,381 25,135 39,499 5,632 9,493
Operating expenses:
Sales and marketing.......................... 2,898 4,262 6,161 12,463 19,666 3,395 5,012
General and administrative................... 1,970 1,619 2,217 2,791 4,575 1,102 1,072
Amortization and depreciation................ 861 2,088 1,596 1,972 2,169 490 710
Research and development..................... 2,395 3,935 3,911 6,093 7,800 1,618 2,500
Impairment on goodwill....................... -- 1,320 -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Total operating expenses.............. 8,124 13,224 13,885 23,319 34,210 6,605 9,294
------- ------- ------- ------- ------- ------- -------
Operating income (loss)........................ 742 (2,690) 1,496 1,816 5,289 (973) 199
Other expenses................................. -- -- -- -- 252 -- 46
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations before income
taxes........................................ 742 (2,690) 1,496 1,816 5,037 (973) 153
Provision for (benefit from) income tax........ 260 (979) 704 1,030 2,080 (206) 60
------- ------- ------- ------- ------- ------- -------
Net income (loss)..................... $ 482 $(1,711) $ 792 $ 786 $ 2,957 $ (767) $ 93
======= ======= ======= ======= ======= ======= =======
Basic and diluted net income (loss) per
share........................................ $ 0.03 $ (0.12) $ 0.06 $ 0.06 $ 0.20 $ (0.05) $ 0.01
======= ======= ======= ======= ======= ======= =======
Basic weighted average shares outstanding...... 14,083 14,083 14,083 14,083 14,860 14,083 15,973
======= ======= ======= ======= ======= ======= =======
Diluted weighted average shares outstanding.... 14,083 14,083 14,083 14,083 14,860 14,083 16,380
======= ======= ======= ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------- MARCH 31,
1994 1995 1996 1997 1998 1999
----------- ------- ------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.......................... $ 246 $ 167 $ 1,735 $ 360 $ 6,003 $ 6,759
Working capital.................................... (2,098) (3,516) (824) (775) 11,879 13,508
Total assets....................................... 12,633 12,766 22,543 35,683 58,352 54,492
Long-term debt, net of current portion............. 135 465 351 1,294 1,401 2,401
Total stockholders' equity......................... 6,214 4,563 5,355 6,087 18,685 18,781
</TABLE>

10
<PAGE> 14

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 60% 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.
Through 1998, we did not consider 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 became 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. For contracts with amounts due for
periods greater than three years, we do not consider such sales fixed and
determinable, and accordingly, recognize 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. 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").

11
<PAGE> 15

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

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).

12
<PAGE> 16

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- --------------------------
1996 1997 1998 1998 1999
------- ------- ------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cost of revenue (exclusive of
amortization and depreciation shown
separately below except for
amortization of software development
costs):
Software licenses................... 424 580 1,843 439 216
Services............................ 720 1,055 2,407 525 549
------- ------- ------- ------- -------
Total cost of revenue....... 1,144 1,635 4,250 964 765
------- ------- ------- ------- -------
Gross margin.......................... 15,381 25,135 39,499 5,632 9,493
Operating expenses:
Sales and marketing................. 6,161 12,463 19,666 3,395 5,012
General and administrative.......... 2,217 2,791 4,575 1,102 1,072
Amortization and depreciation....... 1,596 1,972 2,169 490 710
Research and development............ 3,911 6,093 7,800 1,618 2,500
------- ------- ------- ------- -------
Total operating expenses.... 13,885 23,319 34,210 6,605 9,294
------- ------- ------- ------- -------
Operating income (loss)............... 1,496 1,816 5,289 (973) 199
Other expenses........................ -- -- 252 -- 46
------- ------- ------- ------- -------
Income (loss) from operations before
income taxes........................ 1,496 1,816 5,037 (973) 153
Provision for (benefit from) income
taxes............................... 704 1,030 2,080 (206) 60
------- ------- ------- ------- -------
Net income (loss)..................... $ 792 $ 786 $ 2,957 $ (767) $ 93
======= ======= ======= ======= =======
Basic and diluted net income (loss)
per share........................... $ 0.06 $ 0.06 $ 0.20 $ (0.05) $ 0.01
======= ======= ======= ======= =======
Basic weighted average shares
outstanding......................... 14,083 14,083 14,860 14,083 15,973
======= ======= ======= ======= =======
Diluted weighted average shares
outstanding......................... 14,083 14,083 14,860 14,083 16,380
======= ======= ======= ======= =======
</TABLE>

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

<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
----------------------- --------------------------
1996 1997 1998 1998 1999
----- ----- ----- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Software licenses......................... 52.1% 62.1% 72.5% 56.6% 65.6%
Services.................................. 47.9 37.9 27.5 43.4 34.4
----- ----- ----- ----- -----
Total revenue..................... 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 software
development costs):
Software licenses......................... 2.6 2.2 4.2 6.7 2.1
Services.................................. 4.3 3.9 5.5 7.9 5.4
----- ----- ----- ----- -----
Total cost of revenue............. 6.9 6.1 9.7 14.6 7.5
----- ----- ----- ----- -----
Gross margin................................ 93.1 93.9 90.3 85.4 92.5
</TABLE>

13
<PAGE> 17

<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
----------------------- --------------------------
1996 1997 1998 1998 1999
----- ----- ----- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating expenses:
Sales and marketing....................... 37.3 46.6 44.9 51.5 48.9
General and administrative................ 13.4 10.4 10.5 16.7 10.4
Amortization and depreciation............. 9.6 7.4 5.0 7.4 6.9
Research and development.................. 23.7 22.7 17.8 24.5 24.4
----- ----- ----- ----- -----
Total operating expenses.......... 84.0 87.1 78.2 100.1 90.6
----- ----- ----- ----- -----
Operating income (loss)..................... 9.1 6.8 12.1 (14.7) 1.9
Other expenses.............................. -- -- 0.6 -- 0.4
----- ----- ----- ----- -----
Income (loss) from operations before income
taxes..................................... 9.1 6.8 11.5 (14.7) 1.5
Provision for (benefit from) income taxes... 4.3 3.9 4.7 (3.1) 0.6
----- ----- ----- ----- -----
Net income (loss)........................... 4.8% 2.9% 6.8% (11.6)% 0.9%
===== ===== ===== ===== =====
</TABLE>

Three Months Ended March 31, 1999 and 1998

Revenue. Total revenue increased 55.5% to $10.3 million for the three
months ended March 31, 1999 from $6.6 million for the same period in the prior
year. License revenue increased 80.1% to $6.7 million for the three months ended
March 31, 1999 from $3.7 million for the three months ended March 31, 1998. 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 the three months ended March 31, 1999, MIPS-based licenses
accounted for 80% of new sales. Sales in the storage management segment
accounted for 72.5% and 54.1% of total license revenue for the three months
ended March 31, 1999 and 1998, respectively. License revenue from the
performance management segment accounted for 24.9% and 32.6% of total license
revenue for the three months ended March 31, 1999 and 1998, respectively.
License revenue from the Year 2000 segment accounted for 0.9% of total license
revenue for the three months ended March 31, 1999 and 9.3% for the same period
in 1998. International revenue increased as a percentage of total revenue to
31.4% from 19.8% for the three months ended March 31, 1999 and 1998,
respectively. In terms of absolute dollars, international revenues increased
146.9% to $3.2 million for the three months ended March 31, 1999 from $1.3
million for the same period in the prior year. This increase is primarily
attributable to the opening of our sales office in Germany.

Services revenue, comprised of maintenance revenue and to a lesser extent,
revenue from professional services, increased 23.4% to $3.5 million for the
three months ended March 31, 1999 from $2.9 million for the same period in the
prior year. This increase is attributable to overall growth in license revenue
and renewals of maintenance contracts by the installed customer base.

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 decreased 50.8% to $216,000, or
2.1% of total revenue for the three months ended March 31, 1999 from $439,000,
or 6.7% for the same period in 1998. This decrease was primarily attributable to
the termination of certain royalty agreements. Cost of services revenue is
comprised of costs of maintenance and to a lesser extent, costs of professional
services. Cost of services revenue increased 4.6% to $549,000, or 5.4% of total
revenue for the three months ended March 31, 1999 from $525,000, or 7.9% of
total revenue for the same period in the prior year. This increase is primarily
attributable to the staffing of maintenance personnel to support the growth of
the international customer base.

14
<PAGE> 18

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 47.6% to $5.0 million for the three
months ended March 31, 1999 from $3.4 million for the three months ended March
31, 1998. This increase was attributable primarily to increased commission
expenses resulting from increased sales, and increased personnel costs resulting
from growth in our sales organization. Sales and marketing expenses decreased as
a percentage of revenue to 48.9% for the three months ended March 31, 1999 from
51.5% for the same period in the prior year.

General and Administrative Expense. General and administrative expenses
include administrative salaries and related benefits, recruiting and relocation
expenses, as well as legal, accounting and other professional fees. General and
administrative expenses were $1.1 million for the three months ending March 31,
1999 and 1998. General and administrative expenses decreased as a percentage of
revenue to 10.4% for the three months ending March 31, 1999 from 16.7% for the
same period in the prior year.

Amortization and Depreciation Expense. Amortization and depreciation
expenses increased 44.9% to $710,000 for the three months ended March 31, 1999
from $490,000 for the three months ended March 31, 1998, due to our purchase of
new hardware for our data center and the upgrade of our communications
infrastructure.

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 expenses increased 54.5% to $2.5
million or 24.4% of revenue for the three months ended March 31, 1999 from $1.6
million or 24.5% of revenue for the same period in the prior year. The increase
is primarily attributable to an increase in personnel necessary to support our
research and development efforts.

Provision for Income Taxes. The provision for income taxes increased to
$60,000 for the three months ended March 31, 1999 from a benefit of $206,000 for
the three months ended March 31, 1998, representing 39.2% and 21.2% of income
(loss) before taxes, respectively.

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 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.

15
<PAGE> 19

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.

Amortization and Depreciation. Amortization and depreciation expenses
increased 10.0% to $2.2 million in 1998 from $2.0 million in 1997, primarily due
to the purchase of new hardware for our data center and the upgrade of our
communications infrastructure.

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.

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
16
<PAGE> 20

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 $1.1 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 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.

17
<PAGE> 21

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
March 31, 1999, as well as the percentage of our total revenue represented by
each item. The information has been derived from our 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
---------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1997 1997 1998 1998 1998 1998 1999
-------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Software licenses............... $3,809 $4,281 $6,248 $3,736 $6,026 $8,172 $13,791 $ 6,730
Services........................ 2,458 2,623 2,685 2,860 3,028 3,075 3,061 3,528
------ ------ ------ ------ ------ ------ ------- -------
Total revenue............ 6,267 6,904 8,933 6,596 9,054 11,247 16,852 10,258
Cost of revenue (exclusive of
amortization and depreciation
shown separately below except
for amortization of software
development costs):
Software licenses............... 114 161 204 439 194 426 784 216
Services........................ 210 278 387 525 526 604 752 549
------ ------ ------ ------ ------ ------ ------- -------
Total cost of revenue.... 324 439 591 964 720 1,030 1,536 765
------ ------ ------ ------ ------ ------ ------- -------
Gross margin...................... 5,943 6,465 8,342 5,632 8,334 10,217 15,316 9,493
Operating expenses:
Sales and marketing............. 3,300 3,247 3,611 3,395 4,516 5,181 6,574 5,012
General and administrative...... 594 586 727 1,102 1,254 1,087 1,132 1,072
Amortization and depreciation... 445 500 591 490 525 616 538 710
Research and development........ 1,540 1,798 1,499 1,618 1,703 2,165 2,314 2,500
------ ------ ------ ------ ------ ------ ------- -------
Total operating
expenses............... 5,879 6,131 6,428 6,605 7,998 9,049 10,558 9,294
------ ------ ------ ------ ------ ------ ------- -------
Operating income (loss)........... 64 334 1,914 (973) 336 1,168 4,758 199
Other (expense) income............ -- -- -- -- (169) (84) 1 (46)
------ ------ ------ ------ ------ ------ ------- -------
Income (loss) from operations
before income taxes............. 64 334 1,914 (973) 167 1,084 4,759 153
Provision for (benefit from)
income taxes.................... 84 207 902 (206) 180 547 1,559 60
------ ------ ------ ------ ------ ------ ------- -------
Net (loss) income................. $ (20) $ 127 $1,012 $ (767) $ (13) $ 537 $ 3,200 $ 93
====== ====== ====== ====== ====== ====== ======= =======
</TABLE>

18
<PAGE> 22

QUARTERLY RESULTS OF OPERATIONS AS A PERCENTAGE OF TOTAL REVENUE:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1997 1997 1997 1998 1998 1998 1998 1999
-------- --------- -------- -------- -------- --------- -------- --------
(AS A PERCENTAGE OF TOTAL REVENUE)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Software licenses..................... 60.8% 62.0% 69.9% 56.6% 66.6% 72.7% 81.8% 65.6%
Services.............................. 39.2 38.0 30.1 43.4 33.4 27.3 18.2 34.4
----- ----- ----- ----- ----- ----- ----- -----
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..................... 1.8 2.3 2.3 6.7 2.1 3.8 4.7 2.1
Services.............................. 3.4 4.1 4.3 7.9 5.9 5.4 4.5 5.4
----- ----- ----- ----- ----- ----- ----- -----
Total cost of revenue.......... 5.2 6.4 6.6 14.6 8.0 9.2 9.2 7.5
----- ----- ----- ----- ----- ----- ----- -----
Gross margin............................ 94.8 93.6 93.4 85.4 92.0 90.8 90.8 92.5
Operating expenses:
Sales and marketing................... 52.7 47.0 40.4 51.5 49.9 46.1 39.0 48.9
General and administrative............ 9.5 8.5 8.2 16.7 13.9 9.6 6.7 10.4
Amortization and depreciation......... 7.1 7.3 6.6 7.4 5.8 5.5 3.2 6.9
Research and development.............. 24.5 26.0 16.8 24.5 18.7 19.3 13.7 24.4
----- ----- ----- ----- ----- ----- ----- -----
Total operating expenses....... 93.8 88.8 72.0 100.1 88.3 80.5 62.6 90.6
----- ----- ----- ----- ----- ----- ----- -----
Operating income (loss)................. 1.0 4.8 21.4 (14.7) 3.7 10.3 28.2 1.9
Other expenses.......................... 0.0 0.0 0.0 0.0 1.9 0.7 0.0 0.4
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from operations before
income taxes.......................... 1.0 4.8 21.4 (14.7) 1.8 9.6 28.2 1.5
Provision for (benefit from) income
taxes................................. 1.3 3.0 10.1 (3.1) 2.0 4.8 9.2 0.6
----- ----- ----- ----- ----- ----- ----- -----
Net (loss) income....................... (0.3)% 1.8% 11.3% (11.6)% (0.2)% 4.8% 19.0% 0.9%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>

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.

19
<PAGE> 23

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 $6.8 million at March 31, 1999 and $6.0 million at December 31,
1998.

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 three months ended March 31, 1999 and 1998, net cash provided by
operating activities was $75,000 and $1.7 million, respectively. This decrease
is primarily as a result of changes in operating assets and liabilities,
primarily due to an increase in our income tax liability as a result of our
being taxed as an independent entity.

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, for the twelve months ended December
31, 1998 and 1997, additional contingent consideration paid to two former
stockholders in connection with our acquisition by Computer Concepts. Net cash
used in investing activities decreased 43.1% to $452,000 for the three months
ended March 31, 1999 from $795,000 for the same period in the prior year. The
decrease was primarily a result of costs incurred in the three month period
ended March 31, 1998 for software development and technology purchases and
additional contingent consideration paid to two former stockholders in
connection with our acquisition by Computer Concepts, offset by increased
purchases of property and equipment during the three month period ended March
31, 1999. 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 three months ended March 31, 1999 and 1998, net cash provided by
(used in) financing activities was $1.1 million and ($405,000), respectively.
The increase in cash provided by financing activities was primarily a result of
borrowings under a line of credit agreement.

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 March 31, 1999 consisted primarily of (1)
leases on our corporate headquarters facilities, various sales offices and
operating equipment, (2) employment agreements, (3) a software licensing and
distribution agreement and (4) long-term debt under a line of credit.

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.

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

20
<PAGE> 24

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.

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

21
<PAGE> 25

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.

22
<PAGE> 26

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 60% 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.

23
<PAGE> 27

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 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.

- 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
24
<PAGE> 28

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 145 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 of this strategy, during 1998,
we initiated strategic partnerships with EMC and VERITAS, as well as with
IBM for its SystemPac distribution program. These supplement our existing
partnerships with HP, Sun, IBM, and Tivoli.

25
<PAGE> 29

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
<S> <C> <C> <C>
STORAGE PRODUCTS ENTERPRISE-WIDE TOOLS DESIGNED TO FACILITATE STORAGE
MANAGEMENT AND SYSTEM AND DATA AVAILABILITY

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 data resources distributed across multiple operating
A suite of independent and system platforms
integratable products for - Reduces the cost, complexity and skill requirements for
OS/390-MVS, AIX, HP-UX, capacity planning, disaster recovery, and storage resource
Solaris, DB2 and management
OpenEdition - 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 1984 - Designed to optimize and improve system and processing
Plus 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
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.

26
<PAGE> 30

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 60% 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 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,

27
<PAGE> 31

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
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 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

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<PAGE> 32

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, for the year ended December 31, 1996, they
were $3.9 million and for the three months ended March 31, 1999, they were $2.5
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.

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
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<PAGE> 33

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 $505,000. 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 $404,000 in 10 locations throughout the United
States 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> 34

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 December
1997, Mr. Feld has also served as operating Chief Information Officer of Delta
Air Lines,

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<PAGE> 35

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

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 TO BASE PRICE EXPIRATION
NAME GRANTED (#) EMPLOYEES(1) PER SHARE DATE 5% 10%
- ---- --------------- ------------- ---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Judy G. Carter(3)........ 150,000 Type I 6-30-01 $126,758 $ 296,720
200,000 Type II 12-31-02 288,146 671,595
-------- -------- ----------
350,000 9.7% $7.00 414,904 968,315
C.R. Kinsey, III(3)...... 200,000 Type I 6-30-01 169,011 395,626
250,000 Type II 12-31-02 360,183 839,494
-------- -------- ----------
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

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<PAGE> 36

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 $8.17 per share and with 10% appreciation would be
$9.40 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 125,000 shares to Judy G. Carter and 40,000 shares to
C.R. Kinsey III in February 1999 and 50,000 shares to Judy G. Carter in May
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 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 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). After an employee has
been with us for two years we match 25% of all employee contributions up to
$2,500 per year per employee, and all company contributions are fully vested.
For the fiscal year ended December 31, 1998, 161 employees participated in the
401(k) Savings Plan. For the fiscal year ended December 31, 1998, our
contribution on behalf of 76 eligible participants was an aggregate
approximately $78,000 to the 401(k) Savings Plan, of which an aggregate $4,700
was a contribution for Judy G. Carter and C.R. Kinsey, III.

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<PAGE> 37

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. We have outstanding options to
purchase 3,727,000 shares of common stock under the 1998 Incentive Plan. Of the
3,727,000 options, 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 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. We have outstanding options to purchase 1,250,000 shares of
common stock under the 1999 Plan. Of the 1,250,000 options, Judy Carter has been
granted 175,000 options, C.R. Kinsey has been granted 40,000 options and Robert
McLaughlin has been granted 15,000 options.

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

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<PAGE> 38

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 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.

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<PAGE> 39

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 Trustee and was
replaced as a Trustee by Charles Feld, one of our other directors. 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 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;

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<PAGE> 40

- 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.

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<PAGE> 41

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth the beneficial ownership of our common stock
as of June 1, 1999 of (1) each person we know to beneficially own 5% or more of
our outstanding common stock, (2) each of our executive officers, directors and
director nominees, and (3) 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
-------------------------- ------------------------
BEFORE AFTER BEFORE AFTER
NAME OF BENEFICIAL OWNER OFFERING OFFERING(1) OFFERING OFFERING(1)
- ------------------------ ---------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Computer Concepts Corp.(2)...................... 8,017,700 7,160,767 49.7% 41.8%
Spinneret Financial Systems, Ltd.(3)............ 1,000,000 333,333 6.2% 2.0%
Tech Connect Consulting Inc. ................... 141,600 0 * 0
Joseph Dekama................................... 12,000 0 * 0
Bo-Tel, Inc. ................................... 244,000 144,000 1.5% *
Dan Kinsey...................................... 136,000 36,000 * *
Joseph Markus................................... 605,300(4) 352,500 3.7% 2.0%
Linda Neely..................................... 25,000 0 * 0
Dynasoft Inc. .................................. 25,000 10,000 * *
Anthony Coppola................................. 30,000 0 * 0
Dan DelGiorno Sr. .............................. 328,000 128,000 2.0% *
Global Access Technology, Inc. ................. 133,000 33,000 * *
James A. Cannavino.............................. 707,469(5) 707,469 4.3% 4.0%
Judy G. Carter.................................. 208,334(6) 208,334 1.3% 1.2%
C.R. Kinsey, III................................ 281,666(7) 281,666 1.7% 1.6%
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 (6
persons)...................................... 1,329,802 1,329,802 7.7% 7.3%
</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
131,235 shares of common stock.

(5) 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.

38
<PAGE> 42

(6) Represents options currently exercisable or exercisable within 60 days to
purchase 208,334 shares of common stock. Does not include options not yet
exercisable nor exercisable within 60 days to purchase 316,666 shares of
common stock.

(7) Represents options currently exercisable or exercisable within 60 days to
purchase 281,666 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.

39
<PAGE> 43

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, 16,132,984
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."

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.

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

40
<PAGE> 44

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.

41
<PAGE> 45

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, we will have 17,132,984 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. 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 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 have registered the 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.

42
<PAGE> 46

UNDERWRITING

Upon the terms and subject to the conditions set forth in an underwriting
agreement (the "Underwriting Agreement"), the underwriters named below 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 its name below:

<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ------------ ---------
<S> <C>
SoundView Technology Group, Inc............................. 1,166,668
Dain Rauscher Wessels....................................... 1,166,666
Raymond James & Associates, Inc............................. 1,166,666
---------
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 $.37 per share. The underwriters may
allow, and such dealers may reallow, a concession not to exceed $.10 per share
to any other underwriter and certain other dealers. 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.

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.

43
<PAGE> 47

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, 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 below.

We are subject to the informational requirements of the Securities Exchange
Act of 1934 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 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.

44
<PAGE> 48

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
and As of March 31, 1999 (unaudited)...................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1997 and 1998 and For the Three Months
Ended March 31, 1998 (unaudited) and March 31, 1999
(unaudited)............................................... F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1996, 1997 and 1998 and For the
Three Months Ended March 31, 1999 (unaudited)............. F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998 and For the Three Months
Ended March 31, 1998 (unaudited) and March 31, 1999
(unaudited)............................................... F-6
Notes to the Consolidated Financial Statements as of
December 31, 1997 and 1998 and As of March 31, 1999
(unaudited)............................................... F-7
</TABLE>

F-1
<PAGE> 49

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, 1997 and 1998, 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, 1997 and 1998, 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> 50

SOFTWORKS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------- -----------
1997 1998 1999
----------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 360 $ 6,003 $ 6,759
Accounts receivable, net of allowance for doubtful accounts
of $206, $289 and $244 in 1997, 1998 and 1999,
respectively.............................................. 10,652 14,316 7,743
Installment receivables..................................... 6,148 16,406 18,440
Prepaid expenses and other current assets................... 984 1,349 2,379
Deferred tax assets......................................... 138 306 --
------- ------- -------
Total current assets.............................. 18,282 38,380 35,321
------- ------- -------
Installment receivables, noncurrent......................... 6,480 7,908 7,759
Property and equipment, net................................. 1,523 2,498 2,698
Software development costs, net............................. 3,357 3,039 2,732
Goodwill, net of accumulated amortization of $2,477, $3,346
and $3,568 in 1997, 1998 and 1999, respectively........... 4,611 4,143 3,921
Other assets................................................ 734 1,900 1,561
Deferred tax assets, noncurrent............................. 696 484 500
------- ------- -------
Total assets...................................... $35,683 $58,352 $54,492
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses....................... $ 4,689 $ 6,136 $ 4,349
Current portion of long-term debt........................... 1,083 1,930 2,060
Deferred maintenance revenue................................ 6,225 9,064 7,973
Deferred installment revenue................................ 5,506 7,314 7,317
Income taxes payable........................................ -- 2,057 114
Due to Principal Shareholder................................ 1,554 -- --
------- ------- -------
Total current liabilities......................... 19,057 26,501 21,813
Deferred maintenance revenue, noncurrent.................... 740 3,882 4,585
Deferred installment revenue, noncurrent.................... 7,122 7,883 6,912
Long-term debt, noncurrent.................................. 1,294 1,401 2,401
Payable to Principal Shareholder for federal income taxes... 1,383 -- --
------- ------- -------
Total liabilities................................. 29,596 39,667 35,711
------- ------- -------
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;
14,083,000, 15,973,000 and 15,973,000 shares issued and
outstanding in 1997, 1998 and 1999, respectively.......... 14 16 16
Additional paid-in capital.................................. 5,549 15,201 15,201
Retained earnings........................................... 578 3,535 3,628
Accumulated other comprehensive loss........................ (54) (67) (64)
------- ------- -------
Total stockholders' equity........................ 6,087 18,685 18,781
------- ------- -------
Total liabilities and stockholders' equity........ $35,683 $58,352 $54,492
======= ======= =======
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 51

SOFTWORKS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- --------------------------
1996 1997 1998 1998 1999
------- ------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Software licenses................... $ 8,611 $16,633 $31,725 $ 3,736 $ 6,730
Services............................ 7,914 10,137 12,024 2,860 3,528
------- ------- ------- ------- -------
Total revenue............... 16,525 26,770 43,749 6,596 10,258
------- ------- ------- ------- -------
Cost of revenue (exclusive of
amortization and depreciation shown
separately below except for
amortization of software development
costs):
Software licenses................... 424 580 1,843 439 216
Services............................ 720 1,055 2,407 525 549
------- ------- ------- ------- -------
Total cost of revenue....... 1,144 1,635 4,250 964 765
------- ------- ------- ------- -------
Gross margin.......................... 15,381 25,135 39,499 5,632 9,493
OPERATING EXPENSES:
Sales and marketing................. 6,161 12,463 19,666 3,395 5,012
General and administrative.......... 2,217 2,791 4,575 1,102 1,072
Amortization and depreciation....... 1,596 1,972 2,169 490 710
Research and development............ 3,911 6,093 7,800 1,618 2,500
------- ------- ------- ------- -------
Total operating expenses.... 13,885 23,319 34,210 6,605 9,294
------- ------- ------- ------- -------
Operating income (loss)............... 1,496 1,816 5,289 (973) 199
Other expenses........................ -- -- 252 -- 46
------- ------- ------- ------- -------
Income (loss) from operations before
income taxes........................ 1,496 1,816 5,037 (973) 153
Provision for (benefit from) income
taxes............................... 704 1,030 2,080 (206) 60
------- ------- ------- ------- -------
Net income (loss)..................... $ 792 $ 786 $ 2,957 $ (767) $ 93
======= ======= ======= ======= =======
Basic and diluted net income (loss)
per share........................... $ 0.06 $ 0.06 $ 0.20 $ (0.05) $ 0.01
======= ======= ======= ======= =======
Basic weighted average shares
outstanding......................... 14,083 14,083 14,860 14,083 15,973
======= ======= ======= ======= =======
Diluted weighted average shares
outstanding......................... 14,083 14,083 14,860 14,083 16,380
======= ======= ======= ======= =======
</TABLE>

The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 52

SOFTWORKS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL RETAINED OTHER TOTAL
------------------- PAID-IN EARNINGS COMPREHENSIVE STOCKHOLDERS' COMPREHENSIVE
SHARES AMOUNT CAPITAL (DEFICIT) (LOSS) INCOME EQUITY INCOME (LOSS)
---------- ------ ---------- --------- ------------- ------------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1995........... 14,083,000 $14 $ 5,489 $ 711 $ -- $ 6,214
Contribution to Capital.......... -- -- 60 -- -- 60
Net loss and comprehensive
loss.......................... -- -- -- (1,711) -- (1,711) $(1,711)
---------- --- ------- ------- ---- ------- -------
BALANCE, December 31, 1995......... 14,083,000 14 5,549 (1,000) -- 4,563
Net income and comprehensive
income........................ -- -- -- 792 -- 792 $ 792
---------- --- ------- ------- ---- ------- -------
BALANCE, December 31, 1996......... 14,083,000 14 5,549 (208) -- 5,355
Foreign currency translation
adjustment.................... -- -- -- -- (54) (54) $ (54)
Net income....................... -- -- -- 786 -- 786 786
---------- --- ------- ------- ---- ------- -------
Total comprehensive income.... $ 732
=======
BALANCE, December 31, 1997......... 14,083,000 14 5,549 578 (54) 6,087
Foreign currency translation
adjustment.................... -- -- -- -- (13) (13) $ (13)
Issuance of common stock to
consultant in connection with
initial public offering....... 190,000 -- -- -- -- --
Issuance of common stock pursuant
to the initial public
offering, net of offering
costs......................... 1,700,000 2 9,652 -- -- 9,654
Net income....................... -- -- -- 2,957 -- 2,957 2,957
---------- --- ------- ------- ---- ------- -------
Total comprehensive income.... $ 2,944
=======
BALANCE, December 31, 1998......... 15,973,000 16 15,201 3,535 (67) 18,685
Foreign currency translation
adjustment (unaudited)........ -- -- -- -- 3 3 $ 3
Net income (unaudited)........... -- -- -- 93 -- 93 93
---------- --- ------- ------- ---- ------- -------
Total comprehensive income
(unaudited)................. $ 96
=======
BALANCE, March 31, 1999
(unaudited)...................... 15,973,000 $16 $15,201 $ 3,628 $(64) $18,781
========== === ======= ======= ==== =======
</TABLE>

The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 53

SOFTWORKS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------- -------------------------
1996 1997 1998 1998 1999
------- ------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................. $ 792 $ 786 $ 2,957 $ (767) $ 93
Adjustments to reconcile net income (loss) to net
cash provided by operating activities --
Amortization and depreciation
Property and equipment......................... 505 697 774 180 252
Software development costs..................... 543 689 1,480 170 307
Goodwill....................................... 659 749 869 207 222
Provision for doubtful accounts.................. 50 75 317 55 (45)
Loss on disposal of property and equipment....... 2 -- -- -- --
Deferred tax provision (benefit)................. 569 (33) 44 (231) 290
Changes in operating assets and liabilities --
Accounts receivable and installment
receivables.................................... (8,598) (11,002) (15,667) 1,480 4,733
Prepaid expenses and other current assets........ (314) (561) (365) (360) (1,030)
Other assets..................................... (306) (377) (1,166) 48 339
Accounts payable and accrued expenses............ 761 2,515 1,447 (936) (1,787)
Income taxes payable............................. -- -- 2,057 -- (1,943)
Deferred revenue................................. 8,071 6,675 8,550 1,895 (1,356)
------- ------- -------- -------- -------
Net cash provided by operating activities... 2,734 213 1,297 1,741 75
------- ------- -------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................ (445) (990) (1,749) (138) (452)
Software development and technology purchases...... (359) (1,044) (1,162) (388) --
Additional consideration for SOFTWORKS, Inc.
acquisition...................................... (478) (522) (401) (269) --
------- ------- -------- -------- -------
Net cash used in investing activities....... (1,282) (2,556) (3,312) (795) (452)
------- ------- -------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from (payments to) Principal
Shareholder...................................... 145 407 (1,554) (336) --
Change in amount payable to Principal Shareholder
for federal income taxes......................... -- 858 (1,383) -- --
Repayments of long-term debt....................... (190) (253) -- (69) (891)
Proceeds from long-term debt....................... 161 -- 954 -- 2,021
Net proceeds from initial public offering.......... -- -- 9,654 -- --
------- ------- -------- -------- -------
Net cash provided by (used in) financing
activities................................ 116 1,012 7,671 (405) 1,130
------- ------- -------- -------- -------
Effect of exchange rate changes on cash and cash
equivalents........................................ -- (44) (13) 8 3
------- ------- -------- -------- -------
Net increase (decrease) in cash and cash
equivalents........................................ 1,568 (1,375) 5,643 549 756
Cash and cash equivalents, beginning of period....... 167 1,735 360 360 6,003
------- ------- -------- -------- -------
Cash and cash equivalents, end of period............. $ 1,735 $ 360 $ 6,003 $ 909 $ 6,759
======= ======= ======== ======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid...................................... $ 46 $ 44 $ 24 $ 10 $ 292
------- ------- -------- -------- -------
Income taxes paid.................................. $ 40 $ (96) $ 14 $ 14 $ 1,713
======= ======= ======== ======== =======
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> 54

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 was the Chief Executive Officer of the Principal
Shareholder, who resigned as trustee and director of the Company on April 22,
1999. The three trustees now serving are directors of the Company who do not
have a significant financial interest in the Principal Shareholder. This
agreement remains in effect until the earliest of: (i) Computer Concepts and its
affiliates collectively ceasing to own 25% or more of the common stock, (ii) the
acquisition by a person other than Computer Concepts and its affiliates of a
greater percentage of the common stock than that then owned by Computer Concepts
and its affiliates or (iii) 10 years from the date of the Voting Trust
Agreement.

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> 55
SOFTWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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:

Interim Financial Information

The unaudited consolidated balance sheet as of March 31, 1999, and the
unaudited consolidated statements of operations and cash flows for the three
months ended March 31, 1998 and 1999, have been prepared by the Company and in
the opinion of management include all adjustments, consisting only of normal
recurring accruals, which management considers necessary for fair presentation
of the financial statements for such periods. The Company's results of
operations for the three months ended March 31, 1999, are not necessarily
indicative of results that may be expected for any other future interim periods
or for the year ending December 31, 1999. Demand for the Company's products has
historically been higher during the fourth quarter, primarily due to the capital
spending trends of its customers, which has resulted in higher software license
revenue in that period and lower software license revenue in the first quarter.

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. Through 1998, the Company did not consider 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
became due. Beginning January 1, 1999, for contracts with payment terms of three
years or less, the Company 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 the Company has established a history which demonstrates that
concessions are not provided to customers with whom we have these extended
payment arrangements. For contracts with amounts due for periods greater than
three years, we do not consider such sales fixed and determinable, and
accordingly, recognize 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.
F-8
<PAGE> 56
SOFTWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

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.

F-9
<PAGE> 57
SOFTWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 and March 31,
1999 (unaudited), the total stock options outstanding were 3,604,225 and
4,672,500, respectively. Due to the anti-dilutive nature of the options for all
audited periods presented, there is no effect on the calculation of weighted
average shares for diluted earnings per share. As a result, the audited basic
and diluted earnings per share amounts are identical. For the unaudited three
months ended March 31, 1998 the outstanding options would have been
anti-dilutive in nature; however, for the three months ended March 31, 1999, the
effect of the treasury stock method resulted in the inclusion of 407,000 shares
in the diluted earnings per share calculation.

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.

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, 1997, December 31,
1998 and March 31, 1999 (unaudited) is approximately $278,000, $464,000 and
$1,000,000, respectively of cash denominated in various foreign currencies.

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

F-10
<PAGE> 58
SOFTWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 adoption of SOP 98-1 did not have a material impact on the
Company's results of operations, financial position, or cash flows.

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 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, which is not
considered fixed and determinable, is classified as deferred installment
revenues and recognized when the payments become due.
F-11
<PAGE> 59
SOFTWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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):

<TABLE>
<CAPTION>
PAYMENT
SCHEDULE
--------
<S> <C>
Due in 2000................................................. $5,249
Due in 2001................................................. 1,852
Due in 2002................................................. 756
Due in 2003................................................. 51
------
$7,908
======
</TABLE>

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

<TABLE>
<CAPTION>
SOFTWARE SOFTWARE
LICENSES MAINTENANCE TOTAL
-------- ----------- ------
<S> <C> <C> <C>
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
====== ====== ======
</TABLE>

The Company imputes interest on extended payment contracts for which recognition
of license revenue has been deferred based on a borrowing rate of 6.1% (LIBOR
plus one percent). Interest income is recognized when the related deferred
license revenue is recognized. Extended payment contracts for which license
revenue has been recognized at the time of delivery and acceptance, have been
discounted based on a borrowing rate of 6.1% (LIBOR plus one percent). The
discount is recognized as interest income on an effective yield basis. Interest
income included in software license revenue is $0 in 1996, $136,000 in 1997,
$433,000 in 1998, and $111,000 for the three months ended March 31, 1999
(unaudited).

4. PREPAID EXPENSES AND OTHER ASSETS:

Included in prepaid expenses and other current assets are prepaid
commissions of $511,000, $839,000 and $671,000 at December 31, 1997, December
31, 1998, and March 31, 1999 (unaudited), respectively. Also included in other
assets are noncurrent prepaid commissions of $538,000, $878,000 and $544,000 at
December 31, 1997, December 31, 1998 and March 31, 1999 (unaudited),
respectively.

F-12
<PAGE> 60
SOFTWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. PROPERTY AND EQUIPMENT:

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

<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL LIFE ------------------ MARCH 31,
IN YEARS 1997 1998 1999
----------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Computer equipment and software.......... 3 to 5 $ 2,565 $ 4,214 $ 4,652
Furniture and fixtures................... 5 to 7 204 250 263
Leasehold improvements................... 7 500 554 554
------- ------- -------
3,269 5,018 5,469
Less: Accumulated depreciation........... (1,746) (2,520) (2,771)
------- ------- -------
Property and equipment, net............ $ 1,523 $ 2,498 $ 2,698
======= ======= =======
</TABLE>

6. SOFTWARE DEVELOPMENT COSTS:

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

<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1997 1998 1999
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Capitalized software development costs................ $1,242 $2,298 $2,298
Purchased and acquired software technologies for
resale.............................................. 4,228 4,334 4,334
------ ------ ------
5,470 6,632 6,632
Less: Accumulated amortization........................ (2,113) (3,593) (3,900)
------ ------ ------
Capitalized software development costs, net......... $3,357 $3,039 $2,732
====== ====== ======
</TABLE>

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.

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

F-13
<PAGE> 61
SOFTWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1997 1998 1999
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Trade accounts payable................................ $1,834 $1,069 $1,654
Accrued payroll and benefits.......................... 579 1,046 857
Commissions payable................................... 1,368 2,463 567
Royalties payable..................................... 75 538 117
Other accrued expenses................................ 833 1,020 1,154
------ ------ ------
$4,689 $6,136 $4,349
====== ====== ======
</TABLE>

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 $187,000
and $18,000 for the years ended December 31, 1996 and 1997, 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 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.
In January 1999, the Company adopted the 1999 Stock Option Plan which authorizes
the issuance of up to 1,250,000 shares of common stock to officers, key
employees, consultants and independent contractors.

F-14
<PAGE> 62
SOFTWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 and the 1999 Stock Option Plan:

<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
OPTIONS EXERCISE PRICE
--------- --------------
<S> <C> <C>
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
Stock options granted (unaudited)........................... 1,121,250 7.00
Stock options exercised (unaudited)......................... -- --
Stock options canceled (unaudited).......................... (52,975) 7.00
--------- -----
Balance, March 31, 1999..................................... 4,672,500 $7.00
========= =====
</TABLE>

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):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1997 1998
----- ----- ------
<S> <C> <C> <C>
Net income (loss) attributable to common stockholders:
As reported.............................................. $ 792 $ 786 $2,957
Pro forma................................................ 672 598 (287)
Basic and diluted income (loss) per share:
As reported.............................................. $0.06 $0.06 $ 0.20
Pro forma................................................ 0.05 0.04 (0.02)
</TABLE>

F-15
<PAGE> 63
SOFTWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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, 1996, 1997 and 1998: 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.

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, 1996 and 1997. 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 provision for both current and deferred income taxes.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Income (loss) before provision for income taxes:
United States............................................. $1,471 $2,579 $4,857
Foreign................................................... 25 (763) 180
------ ------ ------
Total............................................. $1,496 $1,816 $5,037
====== ====== ======
Provision for income taxes:
Current --
United States.......................................... $ -- $ 858 $1,769
Foreign................................................ 135 55 30
State and other........................................ -- 150 237
------ ------ ------
135 1,063 2,036
------ ------ ------
Deferred --
United States.......................................... 505 (27) 40
Foreign................................................ (16) -- --
State and other........................................ 80 (6) 4
------ ------ ------
569 (33) 44
------ ------ ------
Total............................................. $ 704 $1,030 $2,080
====== ====== ======
</TABLE>

F-16
<PAGE> 64
SOFTWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
U.S. Federal statutory tax rate............................. 34.0% 34.0% 34.0%
State and local taxes, net of U.S. federal tax effect....... 6.8 3.5 4.7
Non-U.S. taxes.............................................. 5.9 2.0 1.0
Foreign operating (loss) income............................. (0.6) 14.3 (0.4)
Other....................................................... 1.0 2.9 2.0
---- ---- ----
Effective tax rate.......................................... 47.1% 56.7% 41.3%
==== ==== ====
</TABLE>

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

<TABLE>
<CAPTION>
1997 1998
----- -----
<S> <C> <C>
Current:
Accruals and reserves..................................... $ 138 $ 306
----- -----
138 306
----- -----
Long-Term:
Fixed and intangible assets............................... 347 115
Capitalized software...................................... 349 369
Net operating loss carryforwards -- foreign............... 229 200
Valuation allowance on foreign net operating loss
carryforwards.......................................... (229) (200)
----- -----
696 484
----- -----
Net deferred tax assets..................................... $ 834 $ 790
===== =====
</TABLE>

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, 1997 and 1998, is net operating loss of $763,000 and income of
$180,000 from international subsidiaries, resulting in a deferred tax benefit of
$229,000 and $200,000, 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 $98,000, $188,000
and $115,000 for the years ended December 31, 1996, 1997 and 1998, respectively.
The agreement with this officer was terminated in conjunction with the signing
of an employment agreement in 1998.

F-17
<PAGE> 65
SOFTWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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):

<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING DECEMBER 31, LEASES 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 $522,000, $896,000 and $1,097,000 for the years
ended December 31, 1996, 1997 and 1998, 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 $36,000, $52,000 and $77,000 for the years ended December 31, 1996,
1997 and 1998, 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

F-18
<PAGE> 66
SOFTWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

offices. The Company has identified the reportable operating segments as North
America and International. These operating 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>
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>

<TABLE>
<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
======= ======= ======= ======= =======
</TABLE>

F-19
<PAGE> 67
SOFTWORKS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
1998
------------------------------------------------------------------- 1999
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 YEAR MAR. 31
----------- ----------- ----------- ----------- ------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenue
North America........ $ 5,290 $ 7,022 $ 8,827 $13,812 $34,951 $ 7,033
International........ 1,306 2,032 2,420 3,040 8,798 3,225
------- ------- ------- ------- ------- -------
Total........ $ 6,596 $ 9,054 $11,247 $16,852 $43,749 $10,258
======= ======= ======= ======= ======= =======
Operating Income (Loss)
North America........ $ (384) $ 464 $ 1,395 $ 4,588 $ 6,063 $(1,000)
International........ (589) (128) (227) 170 (774) 1,199
------- ------- ------- ------- ------- -------
Total........ $ (973) $ 336 $ 1,168 $ 4,758 $ 5,289 $ 199
======= ======= ======= ======= ======= =======
Identifiable Assets
North America........ $31,897 $32,457 $39,478 $48,827 $48,827 $43,033
International........ 3,465 4,235 6,517 9,525 9,525 11,459
------- ------- ------- ------- ------- -------
Total........ $35,362 $36,692 $45,995 $58,352 $58,352 $54,492
======= ======= ======= ======= ======= =======
</TABLE>

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>
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
(Loss) income from operations................... (496) 64 334 1,914
Net (loss) income............................... (333) (20) 127 1,012
Basic and diluted (loss) income per share....... (0.02) (0.00) 0.01 0.07
</TABLE>

<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
(Loss) income from operations................. (973) 336 1,168 4,758
Net (loss) income............................. (767) (13) 537 3,200
Basic and diluted (loss) income per share..... (0.05) (0.00) 0.04 0.20
</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-20
<PAGE> 68

[SOFTWORKS LOGO]
SOFTWORKS