TANNING TECHNOLOGY CORP, S-1, 1999-05-17

TANNING TECHNOLOGY CORP
S-1, 1999-05-17

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<PAGE>

As filed with the Securities and Exchange Commission on May 17, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

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FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

Tanning Technology Corporation
(Exact name of registrant as specified in its charter)

Delaware 7379 84-1381662
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)

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4600 South Ulster Street, Suite 380
Denver, Colorado 80237
(303) 220-9944
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

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Henry F. Skelsey
Chief Financial Officer
Tanning Technology Corporation
4600 South Ulster Street, Suite 380
Denver, Colorado 80237
(303) 220-9944
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

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Copies to:
Frederick H. Fogel, Esq. William J. Whelan, III, Esq.
Fried, Frank, Harris, Shriver & Cravath, Swaine & Moore
Jacobson 825 Eighth Avenue
One New York Plaza New York, New York 10019
New York, New York 10004 (212) 474-1000
(212) 859-8000

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

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

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

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

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

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

CALCULATION OF REGISTRATION FEE

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<TABLE>
<CAPTION>
Proposed Maximum
Title of Each Class of Securities Aggregate Offering Amount of
to be Registered Price(1) Registration Fee
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<S> <C> <C>
Common Stock, $0.01 par value per share.................. $57,500,000 $15,985.00
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act of 1933.

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

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 1999

[TANNING LOGO]

Tanning Technology Corporation

Common Stock

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Prior to this offering, there has been no public market for our common stock.
The initial public offering price of our common stock is expected to be between
$ and $ per share. We will apply to list our common stock on The Nasdaq
Stock Market's National Market under the symbol "TANN."

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

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

<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Tanning
-------- ------------- -----------
<S> <C> <C> <C>
Per Share ................................. $ $ $
Total...................................... $ $ $
</TABLE>

Delivery of the shares of common stock will be made on or about , 1999.

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.

Credit Suisse First Boston

Salomon Smith Barney

CIBC World Markets

ING Baring Furman Selz LLC

Adams, Harkness & Hill, Inc.

Prospectus dated , 1999.
<PAGE>

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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 5
Cautionary Notice Regarding Forward-Looking Statements................... 14
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Financial Data.................................................. 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 24
Management............................................................... 36
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Certain Transactions....................................................... 48
Principal Stockholders..................................................... 49
Description of Capital Stock............................................... 51
Shares Eligible for Future Sale............................................ 54
United States Tax Consequences to Non-United States Holders................ 56
Underwriting............................................................... 59
Notice to Canadian Residents............................................... 61
Legal Matters.............................................................. 62
Experts.................................................................... 62
Where You Can Find More Information........................................ 63
Index to Consolidated Financial Statements................................. F-1
</TABLE>
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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 prospectus.

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Unless otherwise indicated, all references to "Tanning" and "we" refer to
Tanning Technology Corporation and its subsidiaries and to their predecessor
entities.

Unless otherwise indicated, all references in this prospectus to the number
of outstanding shares of our common stock:

. give effect to the conversion of our existing Class A, Class B and Class
C common stock into one class of common stock in accordance with the
terms of our certificate of incorporation on the basis of a 1 for 3.05
reverse stock split in the case of the Class A and Class C common stock,
and a 1 for 2.67 reverse stock split in the case of the Class B common
stock, in each case immediately prior to this offering; and

. do not include the number of shares that we will issue if the
underwriters exercise their over-allotment option.

In addition, the information in this prospectus assumes that the initial public
offering price will be $ per share, the midpoint of the range disclosed on
the cover of this prospectus.

Tanning Technology Corporation and the Tanning logo are our trademark. We
have filed for registration of this trademark.

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Dealer Prospectus Delivery Obligation

Until , 1999, all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to their unsold
allotments or subscriptions.
<PAGE>

PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all of the information you
should consider before investing in our common stock. You should read this
entire prospectus carefully.

Tanning

We are a leading information technology services provider that architects,
builds and deploys enterprise solutions for companies throughout the world. We
specialize in large, complex, integrated solutions that incorporate online
transaction processing and very large databases. Internet technologies are a
central part of our solutions, enabling direct interaction among customers and
business partners on the World Wide Web, and among employees within
organizations on their private intranets. Our clients include Ameritech,
Blockbuster, BSkyB, E*Trade, Federal Express, Maersk Line, MCI WorldCom, R.R.
Donnelley Financial and U S WEST.

We focus on the most challenging and critical assignments in the information
technology industry. Our solutions typically involve:

. ultra-high transaction rates (up to millions per hour);

. very large databases (terabytes of information); and

. business-critical operational requirements for reliability, scalability,
flexibility and availability.

Our key solutions are:

. Electronic commerce solutions, which enable businesses to interact with
customers, suppliers and other business partners directly and sell
products and services through the Internet. For example, we designed
international extensions to E*Trade's domestic trading system to enable
it to expand its trading services into foreign countries.

. Enterprise customer relationship management solutions, which enhance a
business' ability to identify, attract, retain and support customers
using emerging and established channels such as the World Wide Web,
direct sales, telemarketing and call centers, direct mail and retail
facilities. For example, we redesigned Blockbuster's existing enterprise
architecture to effectively manage customer data and account activity
information for over 40 million customers and more than 6,000 stores.

. Core operations solutions, which improve business processes such as
billing system integration and order, claim, trade, credit card
transaction and operation transaction processing. For example, we
created an online transaction processing system for Federal Express
capable of handling 1,000 transactions per second on a one-plus terabyte
database, enabling Federal Express operators to determine the service
level status on packages in significantly shorter time frames (hours vs.
days).

With advances in the Internet and technology, new business models and
innovative information technology solutions are emerging that can transform the
way companies run their businesses. As part of this evolution of business
models, companies are seeking value from electronic commerce, customer
relationship management and core operations solutions. We believe that we are
differentiated by our focus on, and expertise in, the architecture, complex
integration, high volume online transaction processing capabilities and very
large databases required to successfully deploy these advanced solutions. For
many clients, the systems we build are at the core of their efforts to
capitalize on information technology and the Internet.

Our company traces its history back to 1993 and is currently incorporated in
Delaware. Our principal executive office is located at 4600 South Ulster
Street, Suite 380, Denver, Colorado 80237, and our telephone number is (303)
220-9944. We maintain a site on the World Wide Web at http://www.tanning.com;
however, the information found on our website is not part of this prospectus.

3
<PAGE>

The Offering

Common stock offered by Tanning..... shares.

Common stock to be outstanding
after this offering.................
shares or shares if the
underwriters exercise their over-
allotment option in full. These shares do
not include options reserved for
issuance or shares subject to
outstanding options, in each case
pursuant to our stock option plans, as of
, 1999.

Use of proceeds..................... For general corporate purposes, including
capital expenditures and working capital.

Proposed Nasdaq symbol.............. TANN

Summary Financial Information

The following table presents our summary condensed consolidated financial
information and has been derived from our audited financial statements for the
three-year period ended December 31, 1998 and from our unaudited interim
financial statements for the three months ended March 31, 1998 and 1999, all of
which are included in another section of this prospectus, and from our
unaudited financial statements for the year ended December 31, 1995. The
information below should be read in conjunction with "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and the notes to our
consolidated financial statements, each of which is included in another section
of this prospectus.

<TABLE>
<CAPTION>
Three months ended
Year ended December 31, March 31,
---------------------------------------------- ----------------------
1995 1996 1997 1998 1998 1999
----------- ----------- ---------- ---------- ---------- ----------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net revenues............ $4,815 $12,809 $26,107 $33,289 $5,183 $11,305
Gross profit............ 2,798 6,240 11,385 18,348 2,295 5,813
Income (loss) from
operations............. 954 2,852 (269) 3,384 (846) 1,134
Net income (loss)....... 954 2,823 73 2,303 (471) 819
Basic and diluted
earnings (loss) per
share.................. $ 0.01 $ 0.15 $ (0.03) $ 0.05
Diluted weighted average
shares outstanding..... 13,718,710 15,232,236 14,647,552 16,323,342
</TABLE>

<TABLE>
<CAPTION>
March 31, 1999
-------------------
Actual As adjusted
------- -----------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................... $ 7,183
Working capital............................................. 15,587
Total assets................................................ 25,117
Long-term debt, net of current portion...................... 429
Total stockholders' equity.................................. 18,596
</TABLE>

4
<PAGE>

RISK FACTORS

This offering involves a high degree of risk. You should carefully consider
the risks described below and the other information in this prospectus,
including our consolidated financial statements and the related notes, before
you purchase any shares of our common stock. Additional risks and
uncertainties, including those generally affecting the industry in which we
operate or that we currently deem immaterial, may also impair our business or
the value of your investment.

The information in this prospectus includes forward-looking statements which
involve risks and uncertainties. Our actual results could differ materially
from those anticipated in these forward-looking statements as a result of
factors including those set forth below, under the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business"
sections, and elsewhere in this prospectus.

Risks Related to Our Business

Inability to manage our growth could have a material adverse effect on the
quality of our services, our ability to retain key personnel and our business

Our growth has placed significant demands on our management and other
resources. Our revenues increased approximately 28% from 1997 to 1998. Our
staff increased from 120 full-time employees at December 31, 1997 to 148 at
December 31, 1998, and to 177 at March 31, 1999. Our future success will depend
on our ability to manage our growth effectively, including:

. continuing to train, motivate, manage and retain our existing employees
and attract and integrate new employees;

. improving our business development capabilities;

. maintaining high rates of employee utilization;

. accurately estimating time and resources for engagements;

. developing and improving our operational, financial, accounting and
other internal systems and controls; and

. maintaining project quality.

Our management has limited experience managing a business of Tanning's size.
If we are unable to manage our growth and projects effectively, it could have a
material adverse effect on the quality of our services, our ability to retain
key personnel, and our business, financial condition and results of operations.

We must attract and retain professional staff in order to complete our projects
and obtain new projects

Our business is labor intensive, and our success depends on identifying,
hiring, training and retaining experienced, knowledgeable professionals. If a
significant number of our current employees or any of our project managers or
senior technical personnel leave, we may be unable to complete or retain
existing projects or bid for new projects of similar scope and revenue. In
addition, former employees may compete with us in the future.

Even if we retain our current employees, our management must continually
recruit talented professionals in order for our business to grow. There is
currently a shortage of qualified project managers and senior technical
personnel in the information technology services field, and this shortage is
likely to continue. Furthermore, there is significant competition for employees
with the skills required to perform the services we offer. We cannot give any
assurances that we will be able to attract a sufficient number of qualified
employees

5
<PAGE>

in the future, or that we will be successful in motivating and retaining the
employees we are able to attract. If we cannot attract, motivate and retain
qualified professionals, our business, financial condition and results of
operations will suffer.

We depend heavily on our principal clients

We derive a large portion of our revenues from a limited number of clients.
In 1997, our five largest clients accounted for approximately 81% of our
services revenue, with Ameritech accounting for approximately 41% of our
services revenue and Oxford Health Plans accounting for approximately 23% of
our services revenue. In 1998, our five largest clients accounted for
approximately 70% of our services revenue, with Maersk Line accounting for
approximately 31% of our services revenue, U S WEST accounting for
approximately 12% of our services revenue and E*Trade and CSX Technology each
accounting for approximately 10% of our services revenue. In the first three
months of 1999, our five largest clients accounted for approximately 74% of our
services revenue, with Maersk Line accounting for approximately 31% of our
services revenue and U S WEST, E*Trade, and Ameritech each accounting for
approximately 12% of our services revenue. The volume of work performed for our
principal clients may not be sustained from year to year, and there is a risk
that these principal clients may not retain us in the future. Any cancellation,
deferral or significant reduction in work performed for these principal clients
or a significant number of smaller clients could have a material adverse effect
on our business, financial condition and results of operations. See "Business--
Clients" for more information relating to our clients.

Our clients may terminate projects before completion

In general, our clients may terminate project engagements upon limited
notice and without significant penalty. Our clients' termination of our project
engagements could have a material adverse effect on our business, financial
condition and results of operations.

We may have difficulty in managing our international operations and expansion,
which could adversely affect our business

An element of our strategy is to expand our business internationally.
Revenues from our existing international operations represented 35% of services
revenue in 1998 and in the first three months of 1999. We may incur significant
costs in connection with our international expansion.

There are also risks inherent in doing business in foreign countries,
including:

. changes in legal and regulatory requirements;

. enactment of export and import restrictions, tariffs and other trade
barriers;

. currency fluctuations and the on-going conversion to the euro in several
member states of the European Union;

. difficulties in staffing and managing foreign offices as a result of,
among other things, distance and language and cultural differences;

. political and economic instability;

. seasonal reductions in business activity;

. longer payment cycles and problems in collecting accounts receivable;
and

. potentially adverse tax consequences.

Any of these factors could have a material adverse effect on our business,
financial condition and results of operations.

We may fail to accurately estimate the time and resources necessary for the
performance of our services, which could adversely affect our business

To date, we have generally provided services to our clients on a time and
materials basis, although we sometimes work on a fixed-fee basis. In the
future, we anticipate that an increasing percentage of our client

6
<PAGE>

engagements will be subject to fixed-fee or other arrangements that are not
solely based on time and materials. Because we work with complex technologies
in compressed timeframes and because we have limited experience in pricing
engagements on these terms, it can be difficult to judge the time and resources
necessary to complete a project. Our failure to accurately estimate the time
and resources required for a project, or our failure to complete our
obligations in a manner consistent with the project plan upon which our fixed-
fee or other arrangements are based, could seriously harm our results of
operations and our reputation.

Our revenues and results of operations may fluctuate from quarter to quarter

Our revenues and operating results may vary from quarter to quarter as a
result of a number of factors, including:

. number, size and scope of client engagements commenced or completed
during a quarter;

. employee utilization rates;

. unanticipated project terminations, delays or deferrals;

. the accuracy of estimates of resources required to complete ongoing
projects;

. the contractual terms and degree of completion of projects in which we
are engaged; and

. general economic conditions.

A high percentage of our expenses, particularly compensation and rent, are
fixed in advance of any particular quarter. As a result, unanticipated
variations in the number, or progress toward completion, of our projects or in
employee utilization rates may cause significant variations in revenues and
operating results in a particular quarter. An unanticipated termination of a
major project, a client's decision not to proceed to the stage of a project we
anticipated or the completion during a quarter of several major client projects
could require us to maintain underutilized employees and could therefore have a
material adverse effect on our business, financial condition and results of
operations. In addition, we expect that our planned increases in expenses and
capital expenditures to support our growth will negatively impact profitability
in the near term.

We compete in a rapidly evolving and highly competitive industry that has low
barriers to entry

The business areas in which we compete are intensely competitive and subject
to rapid technological change. We expect competition to continue and intensify
in the foreseeable future. Our competitors fall into four major categories:

. large information technology consulting services providers, such as
Andersen Consulting, KPMG, PricewaterhouseCoopers, IBM, EDS and CSC;

. mid-tier information technology services providers, such as Cambridge
Technology Partners and Sapient;

. Internet professional service providers, such as Modem Media . Poppe
Tyson, US Interactive, Proxicom, Viant and Scient; and

. internal information technology departments of current and potential
clients.

Many of our competitors have longer operating histories and client
relationships, greater financial, technical, marketing and public relations
resources, larger client bases and greater brand or name recognition than we
have. Our competitors may be able to respond more quickly to technological
developments and changes in clients' needs.

Further, there are low barriers to entry into our business. We do not own
any technologies that preclude or inhibit competitors from entering our
industry. Existing or future competitors may independently develop and patent
or copyright technologies that are superior or substantially similar to our
technologies. The costs to develop and provide information technology
consulting services are relatively low. Therefore, we expect to continue to
face additional competition from new entrants into our industry. See
"Business--Competition" for a further discussion of competition within our
industry.

7
<PAGE>

Year 2000 issues could seriously harm our business

The Year 2000 problem is the potential for system and processing failures of
date-related data arising from the use of two digits by computer-controlled
systems, rather than four digits, to define the applicable year. Clients' and
potential clients' purchasing patterns may be affected by Year 2000 issues as
companies expend significant resources to correct or replace their current
systems for Year 2000 compliance. These clients and potential clients may have
fewer funds available to purchase our services, which could adversely affect
our business, financial condition and results of operations. We may experience
operations difficulties because of undetected errors or defects in the
technology we use in our internal systems. In addition, we have made
representations to clients regarding Year 2000 compliance and may become
involved in disputes regarding Year 2000 problems involving solutions that we
have developed or implemented. Any failure on the part of our principal
internal systems or the systems that we create for our clients as a result of
the Year 2000 problem could seriously harm our business, financial condition
and results of operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000."

Lack of appropriate contracts could impair our ability to collect fees, protect
our intellectual property and protect ourselves from liability to others

While we try to protect ourselves by entering into appropriate contracts
with those companies and individuals with whom we do business, in some cases
relationships are begun with no contract in place at all, and in other
situations, work is performed for customers on the basis of a more limited
statement of work. In such cases, our ability to collect fees, protect our
intellectual property and protect ourselves from liability to others may be
impaired.

Expansion of our solutions and service offerings may not be successful

An element of our strategy is to expand our solutions in the area of supply
chain management and our service offerings in areas such as business
consulting, process innovation and creative design. Successful expansion in
these areas will require:

. attracting, integrating and retaining talented personnel;

. successfully marketing and delivering these services; and

. successfully establishing relationships with vendors and technology
providers.

Failure to develop additional solutions and service offerings on a timely
basis could cause us to lose opportunities for business with both existing and
potential clients. We cannot assure you that this expansion will be successful.

We may have difficulty responding to changing technology, industry standards
and client preferences

Our success will depend in part on our ability to develop information
technology solutions that keep pace with continuing changes in technology,
evolving industry standards and changing client preferences. We cannot give any
assurances that we will be successful in addressing these developments on a
timely basis or at all. Our failure to respond quickly and cost-effectively to
new developments could have a material adverse effect on our business,
financial condition and results of operations.

In particular, we have derived a significant portion of our revenues from
projects based primarily on (1) open system technologies, which are standards-
based, non-proprietary technologies, (2) multi-tier software architecture, in
which the key layers of an application system are separated and optimized
independently to improve performance, scalability and reliability, (3) web-
based architectures and (4) electronic commerce, generally. These areas are
continuing to develop and are subject to rapid change. Any factors negatively
affecting the acceptance of information processing systems using client/server
and web-based architectures could have a material adverse effect on our
business, especially if we are unable to develop skills and replacement
technologies for these types of information processing systems.

8
<PAGE>

Our revenues may decrease if growth in the use of the Internet declines

Our business depends upon continued growth in the use of the Internet by our
clients, prospective clients and their customers and suppliers. Capacity
constraints caused by growth in Internet usage may, unless resolved, impede
further growth in Internet use. If the number of users on the Internet does not
increase and commerce over the Internet does not become more accepted and
widespread, demand for our services may decrease and our business, financial
condition and results of operations could suffer. Factors which may affect
Internet usage or electronic commerce adoption include:

. actual or perceived lack of security of information;

. lack of access and ease of use;

. congestion of Internet traffic or other usage delays;

. inconsistent quality of service;

. increases in access costs to the Internet;

. excessive government regulation;

. uncertainty regarding intellectual property ownership;

. reluctance to adopt new business methods;

. costs associated with the obsolescence of existing infrastructure; and

. economic viability of the Internet commerce model.

Misappropriation of our intellectual property could harm our reputation, affect
our competitive position and cost us money

We believe our intellectual property, including our proprietary
methodologies, is important to our success and competitive position. If we are
unable to protect our intellectual property against unauthorized use by others,
our reputation among existing and potential clients could be damaged and our
competitive position adversely affected.

Our strategies to deter misappropriation could be inadequate in light of the
following risks:

. non-recognition of the proprietary nature of or inadequate protection of
our methodologies in the United States or foreign countries;

. undetected misappropriation of our proprietary methodologies;

. development of similar software or applications by our competitors; and

. unenforceability of the non-competition and confidentiality agreements
entered into by our key employees.

If any of these risks materialize, we could be required to spend significant
amounts to defend our rights and our managerial resources could be diverted. In
addition, our proprietary methodologies may decline in value or our rights to
them may not be enforceable. See "Business--Intellectual property rights" for
more information concerning our intellectual property.

Others could claim that we infringe on their intellectual property rights

Although we believe that our services do not infringe on the intellectual
property rights of others, we cannot give any assurances that an infringement
claim will be successfully defended. A successful claim against us could
materially and adversely affect our business and financial condition. Even if
not meritorious, an infringement claim could result in substantial costs,
diversion of resources and management attention, and harm to our reputation.

9
<PAGE>

Disputes may arise over the right to resell or reuse applications, processes
and other intellectual property developed for specific clients

A portion of our business involves the development of software applications
for specific client engagements. Ownership of client-specific software is
generally retained by the client, although we retain rights to some of the
applications, processes and other intellectual property developed in connection
with client engagements. Issues relating to the rights to intellectual property
can be complicated. We cannot give any assurances that disputes will not arise
that affect our ability to resell or reuse such applications, processes and
other intellectual property, or that such disputes will not have a material
adverse effect on our business, financial condition and results of operations.

Potential acquisitions may result in, among other things, increased expenses,
difficulties in integrating target companies and diversion of management's
attention

. expenses and difficulties in identifying potential targets and the costs
associated with incomplete acquisitions;

. expenses, delays and difficulties of integrating the acquired company
into our existing organization;

. diversion of management's attention during the acquisition process;

. diversion of management's attention following the acquisition process
where management has options or other equity incentive rights in the
acquired company;

. expenses of amortizing the acquired company's intangible assets;

. impact on our financial condition due to the timing of the acquisition;
and

. expenses of any undisclosed or potential legal liabilities of the
acquired company.

If realized, any of these risks could have a material adverse effect on our
business, financial condition and results of operations.

We must maintain our reputation and expand our name recognition to remain
competitive

We believe that establishing and maintaining a good reputation and name
recognition are critical for attracting and expanding our client base. We also
believe that the importance of reputation and name recognition will increase
due to the growing number of information technology service providers. If our
reputation is damaged or if potential clients are not familiar with us or the
services we provide, we may become less competitive or lose our market
position. Promotion and enhancement of our name will depend largely on our
success in continuing to provide large, complex, integrated information
technology solutions. If clients do not perceive our solutions to be effective
or of high quality, our brand name and reputation will suffer.

The conversion to the euro may adversely affect our business in Europe

Due to our operations in Europe, we may be exposed to risks as a result of
the conversion by some European Union member states of their currencies to the
euro. The conversion process commenced on January 1, 1999. The conversion rates
between the member states' currencies and the euro are fixed by the Council of
the European Union. We are unsure as to whether the conversion to the euro will
have an adverse impact on our business, but potential risks include (1) the
costs of modifying our software and information systems and (2) changes in the
conduct of business and in the demand for our products and services.

10
<PAGE>

Concentration of ownership of our common stock may limit your ability to
influence corporate matters

Immediately following this offering, our executive officers and directors
together with Stephen Brobst and entities controlled by AEA Tanning Investors
Inc. will beneficially own approximately % of the outstanding shares of our
common stock.

A number of our large stockholders are parties to an agreement under which
they have agreed to vote in favor of their nominees to our board of directors.
Because they own approximately % of the outstanding shares of our common
stock, they have the voting power to cause their nominees to be elected. If our
significant stockholders choose to act or vote together on other matters, they
will have the power to control the approval of any other action requiring the
approval of our stockholders, including any amendments to our certificate of
incorporation and mergers, acquisitions or sales of all of our assets. In
addition, without the consent of these stockholders, we could be prevented from
entering into transactions that could be beneficial to us. Also, third parties
could be discouraged from making a tender offer or bid to acquire our company
at a price per share that is above the then-prevailing market price. See
"Principal Stockholders" for more information regarding the stock ownership of
our officers, directors and significant stockholders.

We may need additional capital in the future, which may not be available to us;
the raising of capital through the sale of equity securities may dilute your
ownership

We may need to raise additional funds through public or private debt or
equity financings in order to:

. take advantage of acquisition opportunities;

. finance internal expansion; or

. cover operating or other expenses if we do not generate sufficient
revenue.

We cannot assure you that any additional financing we may need will be
available on terms favorable to us, or at all. Furthermore, any additional
capital raised through the sale of equity securities may dilute your ownership
percentage in our company.

Our business is subject to U.S. and foreign government regulation of the
Internet

Both the United States, at the state, local and federal government levels,
and the European Union have recently passed legislation relating to the
Internet. Because these laws are still being implemented, we are not certain
how our business will be impacted by them. We may be indirectly affected by
this new legislation to the extent it impacts our clients and potential
clients. In addition, U.S. and foreign governmental bodies are considering, and
may consider in the future, other legislative proposals that would regulate the
Internet. We cannot predict if or how any future legislation would impact our
business. See "Business--U.S. and foreign government regulation" for a more
complete description of the regulations that govern our industry.

Risks Related to this Offering

External factors could adversely affect the market price of our common stock

There is currently no public market for our common stock, and we cannot
assure you that an active trading market will develop or be sustained after
this offering. The initial public offering price will be determined through
negotiation between us and representatives of the underwriters and may not be
indicative of the market price for our common stock after this offering.

The market price of our common stock could fluctuate significantly as a
result of:

. variations in our operating results, which may cause us to fail to meet
analysts' or investors' expectations;

11
<PAGE>

. general economic and stock market conditions;

. changes in financial estimates by securities analysts;

. earnings and other announcements by, and changes in market evaluations
of, providers of information technology services;

. changes in business or regulatory conditions affecting us;

. announcements or implementation by us or our competitors of
technological innovations or new products or services; and

. trading of our common stock.

The securities of many companies have experienced extreme price and volume
fluctuations in recent years, often unrelated to the companies' operating
performance. Specifically, market prices for securities of Internet-related and
technology companies have frequently reached elevated levels, often following
their initial public offerings. These levels may not be sustainable and may not
bear any relationship to these companies' operating performances. If the market
price of our common stock reaches an elevated level following this offering, it
may materially decline. In the past, following periods of volatility in the
market price of a company's securities, stockholders have often instituted
securities class action litigation against the company. If we were involved in
a class action suit, it could have material adverse effect on our business and
financial condition.

The sale or availability for sale of substantial amounts of our common stock
could adversely affect its market price

Sales of substantial amounts of our common stock in the public market after
the completion of this offering, or the perception that these sales could
occur, could adversely affect the market price of our common stock and could
materially impair our future ability to raise capital through offerings of our
common stock.

In connection with this offering, we, our officers and directors and some of
our stockholders have agreed, except in limited circumstances, not to sell any
shares of common stock for 180 days after completion of this offering without
the underwriters' consent; however, the underwriters may release these shares
from these restrictions at any time. We cannot predict what effect, if any,
market sales of shares held by principal stockholders or any other stockholder
or the availability of these shares for future sale will have on the market
price of our common stock. See "Shares Eligible for Future Sale" for a more
detailed description of the restrictions on selling shares of our common stock
after this offering.

Our management has broad discretion over the use of proceeds from this offering

Our management has significant flexibility in applying the proceeds we
receive in this offering. Because the proceeds are not required to be allocated
to any specific investment or transaction, you cannot determine the value or
propriety of our management's application of the proceeds on our behalf. See
"Use of Proceeds" for a more detailed description of how management intends to
apply the proceeds of this offering.

Investors in this offering will experience immediate and substantial dilution

If you purchase common stock in this offering, you will pay more for your
shares than the amounts paid by existing stockholders for their shares. As a
result, you will experience immediate and substantial dilution of approximately
$ per share, representing the difference between our net tangible book
value per share as of March 31, 1999, after giving effect to this offering and
the public offering price of $ per share. In addition, you may experience
further dilution to the extent that shares of our common stock are issued upon
the exercise of stock options. These shares will be issued at a purchase price
less than the public offering price per share in this offering. See "Dilution"
for a more complete description of how the value of your investment in our
common stock will be diluted upon the completion of this offering.

12
<PAGE>

Anti-takeover provisions of Delaware's General Corporation Law and our
certificate of incorporation could delay or deter a change in control

Amendments we intend to make to our certificate of incorporation and our
bylaws, as well as various provisions of the Delaware General Corporation Law,
may make it more difficult to effect a change in control of our company. The
existence of these provisions may adversely affect the price of our common
stock, discourage third parties from making a bid for our company or reduce any
premiums paid to our stockholders for their common stock. For example, we
intend to amend our certificate of incorporation to authorize our board of
directors to issue up to shares of "blank check" preferred stock and to
attach special rights and preferences to this preferred stock. The issuance of
this preferred stock may make it more difficult for a third party to acquire
control of us. We also intend to amend our certificate of incorporation to
provide for the division of the board of directors into three classes as nearly
equal in size as possible with staggered three-year terms. This classification
of the board of directors could have the effect of making us more difficult for
a third party to acquire, or of discouraging a third party from acquiring
control of us. See "Description of Capital Stock--Preferred stock," and
"Description of Capital Stock--Anti-takeover effects of our certificate of
incorporation and bylaws and provisions of Delaware law" for a more complete
description of our capital stock, our certificate of incorporation and the
effects of the Delaware General Corporation Law that could hinder a third
party's attempts to acquire control of us.

13
<PAGE>

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus includes "forward-looking statements" for purposes of the
Securities Act of 1933 and the Securities Exchange Act of 1934. All statements
other than statements of historical fact in this prospectus, including
statements regarding our competitive strengths, business strategy, future
financial position, budgets, projected costs and plans and objectives of
management are forward-looking statements. In addition, forward-looking
statements generally can be identified by the use of forward-looking
terminology such as "may," "will," "expect," "should," "intend," "estimate,"
"anticipate," "believe," "continue" or similar terminology. We can give no
assurance that the expectations reflected in forward-looking statements will
prove to have been correct. Important factors that could cause actual results
to differ materially from our expectations are disclosed under "Risk Factors"
and in other sections of this prospectus. All written and oral forward-looking
statements attributable to us are expressly qualified in their entirety by the
factors we disclose that could cause our actual results to differ materially
from our expectations. We undertake no obligation to update publicly or revise
any forward-looking statements.

USE OF PROCEEDS

We estimate that we will receive net proceeds of approximately $
million, or approximately $ million if the underwriters' over-allotment
option is exercised in full, from the sale of the shares of common stock
offered by us, at an assumed initial public offering price of $ per share,
after deducting the estimated underwriting discounts and commissions and
offering expenses payable by us.

We expect to use the net proceeds of the offering for general corporate
purposes, including:

. capital expenditures;

. working capital;

. additional personnel;

. increased facilities; and

. computers and network equipment.

An element of our strategy includes expanding our solutions and service
offerings and gaining access to new technologies through strategic acquisitions
and investments when attractive opportunities arise. At the present time, we
have no understanding, commitment or agreement with respect to any acquisition
or investment. Pending these uses, we intend to invest the net proceeds from
this offering in U.S. government securities and other investment-grade,
interest-bearing instruments.

The foregoing represents our present intentions with respect to the
allocation of the net proceeds of this offering based upon our present plans
and business conditions. The occurrence of unforeseen events or changed
business conditions could result in the application of the proceeds of this
offering in a manner other than as described in this prospectus. See "Risk
Factors--Our management has broad discretion over the use of proceeds from this
offering" for a discussion of this risk.

DIVIDEND POLICY

Our board of directors has never declared or paid any cash dividends on our
common stock and does not expect to do so in the foreseeable future. We
currently intend to retain any earnings to finance the expansion and
development of our business. Our board of directors will make any future
determination of the payment of dividends based on conditions then existing,
including our earnings, financial condition and capital requirements, as well
as such economic and other conditions as the board of directors may deem
relevant. In addition, the payment of dividends may be limited by financing
agreements that we may enter into in the future.

14
<PAGE>

CAPITALIZATION

The following table sets forth our capitalization (1) on an actual basis as
of March 31, 1999 and (2) as adjusted to give effect to the sale of shares
of common stock offered hereby.

This table should be read in conjunction with "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and the notes to our
consolidated financial statements, each of which is included in this
prospectus.

<TABLE>
<CAPTION>
As of March 31, 1999
-------------------------
Actual As adjusted
----------- ------------
(in thousands)
<S> <C> <C>
Cash and cash equivalents............................. $ 7,183 $
=========== ========
Long-term debt, net of current portion................ $ 429 $
Stockholders' equity:
Common stock, $0.01 par value: 23,753,631 shares
authorized, 15,498,618 shares issued and
outstanding, actual ( shares authorized,
shares issued and outstanding, as adjusted)(1)..... 451
Additional paid-in capital.......................... 15,226
Retained earnings................................... 2,979
Accumulated comprehensive income (loss)............. (60)
----------- --------
Total stockholders' equity........................ 18,596
----------- --------
Total capitalization............................ $ 19,025 $
=========== ========
</TABLE>
- --------
(1) Excludes, as of March 31, 1999, 2,852,603 options reserved for issuance and
5,402,410 options granted and not exercised pursuant to our stock option
plans.

15
<PAGE>

DILUTION

Our net tangible book value as of March 31, 1999 was approximately $18.6
million, or $1.20 per share. Net tangible book value per share is equal to our
total tangible assets minus our total liabilities divided by the number of
shares of our common stock outstanding. Assuming we had sold the shares of
common stock offered hereby at an initial public offering price of $ , and
after deducting underwriting discounts and commissions and estimated offering
expenses payable by us, our net tangible book value at March 31, 1999 would
have been approximately $ million, or $ per share. This represents an
immediate increase in net tangible book value of $ per share to existing
stockholders and an immediate dilution of $ per share to new investors.
Dilution is determined by subtracting net tangible book value per share after
this offering from the amount of cash paid by a new investor for a share of
common stock. The following table illustrates the substantial and immediate per
share dilution to new investors:

<TABLE>
<CAPTION>
Per share
---------
<S> <C> <C>
Assumed initial public offering price............................. $
Net tangible book value as of March 31, 1999.................... $
Increase attributable to new investors..........................
----
Net tangible book value after this offering.......................
----
Dilution to new investors......................................... $
====
</TABLE>

The following table summarizes as of March 31, 1999 the number of shares of
common stock purchased from us, the total consideration paid to us and the
average price per share paid by existing stockholders and by new investors at
an assumed offering price of $ per share and without giving effect to the
underwriting discount and assumed offering expenses:

<TABLE>
<CAPTION>
Shares purchased Total consideration
------------------ ---------------------- Average price
Number Percent Amount Percent per share
-------- -------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.. % $ % $
New investors..........
-------- ------- ---------- --------
Total................ % $ %
======== ======= ========== ========
</TABLE>

If the underwriters exercise their over-allotment option in full, the net
tangible book value per share of common stock as of March 31, 1999 would have
been $ per share, which would result in dilution to the new investors of
$ per share, and the number of shares held by the new investors will
increase to , or % of the total number of shares to be outstanding after
this offering, and the number of shares held by the existing stockholders will
be shares, or % of the total number of shares to be outstanding after
this offering.

The foregoing tables assume no exercise of any outstanding stock options to
purchase common stock. As of March 31, 1999, there were outstanding options to
purchase an aggregate of shares of common stock at a weighted average
exercise price of $ per share under our stock option plans. If all of these
options had been exercised on March 31, 1999, our net tangible book value on
March 31, 1999 would have been $ , or $ per share, the increase in net
tangible book value attributable to new investors would have been $ per
share and the dilution in net tangible book value to new investors would have
been $ per share.

16
<PAGE>

SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with,
and are qualified by reference to, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and the notes to our consolidated financial statements, each of
which is included in this prospectus. The statement of operations data for the
three-year period ended December 31, 1998 and the balance sheet information as
of December 31, 1997 and 1998 are derived from our financial statements, which
have been audited by Ernst & Young LLP, independent auditors, and are included
elsewhere in this prospectus. The balance sheet data as of December 31, 1996
are derived from our audited financial statements, which are not included in
this prospectus. The statement of operations data for the year ended December
31, 1995 and the balance sheet data as of December 31, 1995 are derived from
our unaudited financial statements, which are not included in this prospectus.
The statement of operations data for each of the three-month periods ended
March 31, 1998 and 1999, and the balance sheet information at March 31, 1999
are derived from our unaudited financial statements, which are included in this
prospectus.

<TABLE>
<CAPTION>
Three months ended
Year ended December 31, March 31,
-------------------------------------- ----------------------
1995 1996 1997 1998 1998 1999
------ ------- ---------- ---------- ---------- ----------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Services revenue........ $4,815 $12,763 $25,235 $30,313 $4,613 $11,305
Product sales........... -- 46 872 2,976 570 --
------ ------- ---------- ---------- ---------- ----------
Net revenues.......... 4,815 12,809 26,107 33,289 5,183 11,305
Project personnel
costs.................. 2,017 6,569 14,722 14,941 2,888 5,492
------ ------- ---------- ---------- ---------- ----------
Gross profit.......... 2,798 6,240 11,385 18,348 2,295 5,813
Selling, marketing and
administrative......... 574 2,055 7,856 12,178 2,321 4,679
Product development
costs.................. -- 431 1,608 2,786 820 --
Sign-on bonus related to
stock purchase
agreement.............. -- -- 2,117 -- -- --
Other................... 1,270 902 73 -- -- --
------ ------- ---------- ---------- ---------- ----------
Income (loss) from
operations............. 954 2,852 (269) 3,384 (846) 1,134
Interest income
(expense) and other,
net.................... -- (29) 130 285 96 163
------ ------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes........... 954 2,823 (139) 3,669 (750) 1,297
Income tax provision
(benefit).............. -- -- (212) 1,366 (279) 478
------ ------- ---------- ---------- ---------- ----------
Net income (loss)....... $ 954 $ 2,823 $ 73 $ 2,303 $ (471) $ 819
====== ======= ========== ========== ========== ==========
Basic and diluted
earnings (loss) per
share.................. $ 0.01 $ 0.15 $ (0.03) $ 0.05
========== ========== ========== ==========
Basic weighted average
shares outstanding..... 13,718,710 14,968,974 14,647,552 15,345,327
========== ========== ========== ==========
Diluted weighted average
shares outstanding..... 13,718,710 15,232,236 14,647,552 16,323,342
========== ========== ========== ==========
Gross profit from
services............... $2,798 $ 6,194 $10,513 $15,372 $1,725 $ 5,813
Operating income (loss)
from services.......... $ 954 $ 3,238 $ 467 $ 3,194 $ (596) $ 1,134
</TABLE>

<TABLE>
<CAPTION>
December 31, March 31,
------------------------------ ---------------
1995 1996 1997 1998 1998 1999
------ ------ ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents...... $ 47 $1,612 $ 7,769 $10,446 $ 6,361 $ 7,183
Working capital................ 840 (82) 10,204 14,005 10,002 15,587
Total assets................... 2,118 3,233 16,846 23,923 16,464 25,117
Long-term debt, net of current
portion....................... 203 1,000 -- 460 544 429
Total stockholders' equity..... 1,100 83 12,737 16,772 12,265 18,596
</TABLE>

17
<PAGE>

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

The following discussion and analysis should be read in conjunction with our
consolidated financial statements and the notes to our consolidated financial
statements, each of which is included in this prospectus. This prospectus
contains forward-looking statements relating to future events and our future
financial performance. Actual results could be significantly different from
those discussed in this prospectus. Factors that could cause or contribute to
such differences include those summarized in the section entitled "Risk
Factors," as well as those discussed in other sections of this prospectus.

Overview

Our revenue is comprised primarily of fees generated for professional
services. To date, we have generally provided services to our clients on a time
and materials basis, although we sometimes work on a fixed-fee basis. Under
time and materials contracts, we recognize revenue as services are provided.
Under fixed-fee contracts, we recognize revenue on a percentage of completion
basis. In the future, we anticipate that an increasing percentage of our client
engagements will be subject to fixed-fee or other arrangements that are not
solely based on time and materials. We are generally reimbursed for reasonable
expenses under our contracts. Our revenue from foreign operations represents
revenue for professional services performed for clients outside the United
States. Revenue from foreign operations has made an increasing contribution to
our total services revenue and we anticipate continued growth in revenue from
foreign operations.

In addition, revenue from a limited number of clients has comprised a very
substantial portion of our revenues and is expected to represent a very
substantial portion of our revenues in the foreseeable future. In 1997, our
five largest clients accounted for approximately 81% of our services revenue.
In 1998, our five largest clients accounted for approximately 70% of our
services revenue. In the first three months of 1999, our five largest clients
accounted for approximately 74% of our services revenue. Any cancellation,
deferral or significant reduction in work performed for these principal clients
or a significant number of smaller clients could have a material adverse effect
on our business, financial condition and results of operations. See "Business--
Clients."

In 1998, we had revenue from both services and, to a lesser extent, product
sales. We completed the sale of the rights to one of our software products in
the third quarter of 1998. We have shifted our business focus to concentrate
solely on generating revenues from services.

Project personnel costs represent our most significant expense and consist
primarily of salaries, bonuses and employee benefits for company personnel
dedicated to client assignments, and fees paid to subcontractors for work
performed on our projects. Subcontractors generally cost us more than our own
project personnel; consequently, we usually generate lower gross profit margins
by using subcontractors. Non-billable time incurred by our project personnel
resulting from start-up time for new hires and training time incurred to
upgrade the skills of existing staff may cause gross profit margins to
decrease. We plan to increase the number of our project personnel in order to
support our planned revenue growth.

Selling, marketing and administrative expenses consist primarily of
salaries, bonuses and employee benefits for non-project personnel, occupancy
costs, staff recruiting costs, travel expenses, depreciation expenses and
promotional costs. Our sales and marketing costs are expected to increase as a
percentage of revenue in the future as we enhance our selling effort. We also
expect to expand geographically by opening new offices in 1999 and 2000. This
will require us to purchase office equipment and computer and networking
equipment, both of which will increase our depreciation expenses.

In anticipation of business growth, we expect to incur costs and expend
capital. We can give no assurances that we will continue to grow, or that we
will grow at a pace that will support these costs and expenditures. To the
extent revenues do not increase at a rate commensurate with these additional
costs and expenditures, our results of operations and liquidity could be
materially and adversely affected. In particular, we expect that our planned
increases in expenses and capital expenditures to support our growth will
negatively impact profitability in the near term.

18
<PAGE>

Results of operations

The following table presents the relative composition of revenue and
selected statements of operations data as a percentage of revenue, as well as
certain other revenue and profitability statistics.

<TABLE>
<CAPTION>
Three months ended
Year ended December 31, March 31,
------------------------ -------------------
1996 1997 1998 1998 1999
------- -------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Services revenue.................. 100% 97 % 91% 89 % 100%
Product sales..................... 0% 3 % 9% 11 % 0%
------- -------- ------- --------- --------
Net revenues..................... 100% 100 % 100% 100 % 100%
Project personnel costs........... 51% 56 % 45% 56 % 49%
------- -------- ------- --------- --------
Gross profit margin.............. 49% 44 % 55% 44 % 51%
Selling, marketing and
administrative................... 16% 30 % 37% 45 % 41%
Product development costs......... 3% 6 % 8% 16 % 0%
Sign-on bonus related to stock
purchase agreement............... 0% 8 % 0% 0 % 0%
Other............................. 7% 0 % 0% 0 % 0%
------- -------- ------- --------- --------
Income (loss) from operations..... 22% (1)% 10% (16)% 10%
Interest income (expense) and
other, net....................... 0% 0 % 1% 2 % 1%
------- -------- ------- --------- --------
Income (loss) before income
taxes............................ 22% (1)% 11% (14)% 11%
Income tax provision (benefit).... 0% (1)% 4% (5)% 4%
------- -------- ------- --------- --------
Net income (loss)................. 22% 0 % 7% (9)% 7%
======= ======== ======= ========= ========
Growth in net revenues............ 104 % 28% 118%
Growth in services revenue........ 98 % 20% 145%
Gross profit margin from
services......................... 49% 42 % 51% 37 % 51%
Operating income (loss) from
services......................... 25% 2 % 11% (13)% 10%
</TABLE>

Comparison of three months ended March 31, 1998 and 1999

Net revenues

Our net revenues increased $6.1 million, or 118%, to $11.3 million for the
first quarter of 1999 from $5.2 million for the first quarter of 1998. Included
in the first quarter of 1998 net revenue is $0.6 million of revenue from
product sales; there was no revenue from product sales in the first quarter of
1999. The increase in services revenue of 145% reflects increases in both the
size and number of client projects as well as higher average billing rates. The
increase in services revenue from our foreign operations also significantly
contributed to this increase in revenue. The revenue from foreign operations
increased $2.9 million, or 264%, to $4.0 million for the first quarter of 1999
from $1.1 million for the first quarter of 1998. Revenues from our five largest
clients as a percentage of total net revenues were 74% for the first quarter of
1999 and 77% for the same period in 1998.

Project personnel costs

Our project personnel costs increased $2.6 million, or 90%, to $5.5 million
for the first quarter of 1999 from $2.9 million for the first quarter of 1998.
The increase in project personnel costs for the first three months of 1999 was
primarily due to an increase in project personnel from 79 at March 31, 1998 to
127 at March 31, 1999, as well as higher salaries. Our gross profit margin from
services has increased from 37% for the first quarter of 1998 to 51% for the
same period in 1999, principally as a result of higher average billing rates,
increased utilization of project personnel, and a shift in staffing mix to
using fewer subcontractors and more internal project personnel.

19
<PAGE>

Selling, marketing and administrative

Our selling, marketing and administrative expenses increased $2.4 million,
or 102%, to $4.7 million for the first quarter of 1999 from $2.3 million for
the first quarter of 1998. The increase in selling, marketing and
administrative expenses was primarily the result of our decision to expand our
marketing effort to support revenue growth. Our sales, marketing and
administrative staff grew from 31 employees at March 31, 1998 to 50 employees
at March 31, 1999. Selling, marketing and administrative expenses decreased as
a percentage of net revenues from 45% in the first quarter of 1998 to 41% for
the same period in 1999 due to increases in revenues without a proportional
increase in costs.

Provision for (benefit from) income taxes

Income tax expense represents combined federal, state, and foreign taxes.
Our income tax provision increased to $0.5 million on pre-tax profits of $1.3
million at the end of the first quarter of 1999 compared to a tax benefit of
$0.3 million on pre-tax losses of $0.8 million at the end of the first quarter
of 1998. The tax benefit was recorded in the first quarter of 1998 on the pre-
tax losses in anticipation of applying the tax benefit to future tax provisions
as we generate future profits. Our effective tax rate was 37% for the first
quarter of 1999 and for the same period in 1998.

Comparison of years ended December 31, 1997 and 1998

Net revenues

Our net revenues increased $7.2 million, or 28%, to $33.3 million in 1998
from $26.1 million in 1997. The increase in services revenue of 20% in 1998
reflects increases in both the size and number of client projects. Utilization
and revenues were adversely affected for the first half of 1998, principally as
a result of a significant project termination in the fourth quarter of 1997
following a change in the client's strategic plans due in part to regulatory
changes. Utilization and revenues improved in the second half of 1998 as new
projects commenced, including additional work for the same client. Our net
revenues from foreign operations increased $7.5 million, or 250%, from $3.0
million in 1997 to $10.5 million in 1998. In 1997, we earned revenues of $0.9
million from the sale of software products compared to $3.0 million earned in
1998. The software sales in 1998 included the sale of the rights to certain
software products. Revenues derived from our five largest clients as a
percentage of total net revenues were 65% in 1998 and 78% in 1997.

Project personnel costs

Project personnel costs increased $0.2 million, or 1%, to $14.9 million in
1998 from $14.7 million in 1997. The increase in project personnel costs in
1998 was due to an increase in project personnel from 81 at the end of 1997 to
107 at the end of 1998, which was nearly offset by a decrease in fees paid to
subcontractors. The gross profit margin from services increased from 42% in
1997 to 51% in 1998 as a result of improved utilization and a shift in staffing
mix to using fewer subcontractors and more internal project personnel.

Selling, marketing and administrative

Selling, marketing and administrative expenses increased $4.3 million, or
55%, to $12.2 million in 1998 from $7.9 million in 1997. Selling, marketing and
administrative expenses increased as a percentage of revenues from 30% in 1997
to 37% in 1998. These increases were primarily a result of our decision to
expand our selling and marketing group and the administrative staff to support
revenue growth. Also contributing to the increase in these expenses are
increases in occupancy costs and depreciation expense associated with fixed
asset additions during 1998. Our sales, marketing and administrative staff grew
from 28 employees at the end of 1997 to 37 employees at the end of 1998 in
these areas.

20
<PAGE>

Sign-on bonus related to stock purchase agreement

In conjunction with the stock purchase agreement entered into in early 1997,
we paid sign-on bonuses aggregating $2.1 million to some of our stockholders
and employees. This expense was a single occurrence in 1997 and was not
incurred in any other periods reported.

Provision for (benefit from) income taxes

Our income taxes increased to approximately $1.4 million on pre-tax profits
of $3.7 million for 1998 compared to a tax benefit of approximately $0.2
million on pre-tax losses of $0.1 million in 1997. Our effective tax rate in
1998 was 37%. The 1997 tax benefit is the result of 11 months of net (loss)
from operations before taxes of $0.4 million and the implications of a change
in that status after the merger of Tanning Technology Group, LLC into Tanning
Technology Corporation on January 31, 1997. No income taxes were paid by
Tanning Technology Group since members included their distributive shares of
revenue and deductions of the limited liability company in their personal
capacities, pursuant to Subchapter K of the Internal Revenue Code.

Comparison of years ended December 31, 1996 and 1997

Net revenues

Our net revenues in 1997 increased $13.3 million, or 104%, to $26.1 million
from $12.8 million in 1996. The increase in services revenue of 98% in 1997
reflects increases in both the size and number of client projects. Our revenues
from foreign operations increased $2.5 million, or 500%, from $0.5 million in
1996 to $3.0 million in 1997. In 1997, we earned revenues of $0.9 million from
the sale of software products compared to $46,000 earned in 1996. Revenues
derived from our five largest clients as a percentage of total net revenues
were 78% in 1997 and 80% in 1996.

Project personnel costs

Project personnel costs in 1997 increased $8.2 million, or 124%, to $14.7
million from $6.5 million in 1996. The increase in project personnel costs in
1997 was primarily due to an increase in project personnel from 40 at the end
of 1996 to 81 at the end of 1997. In addition, more fees were paid to
subcontractors during 1997. The gross profit margin from services revenue
decreased from 49% in 1996 to 42% in 1997 as a result of the shift in staffing
mix to using more subcontractors.

Selling, marketing and administrative

Selling, marketing and administrative expenses in 1997 increased $5.8
million, or 282%, to $7.9 million from $2.1 million in 1996. Selling, marketing
and administrative expenses increased as a percentage of net revenues from 16%
in 1996 to 30% in 1997. These increases were primarily a result of our decision
to expand our selling and marketing group and the administrative staff to
support revenue growth. Our sales, marketing and administrative staff grew from
9 employees at the end of 1996 to 28 employees at the end of 1997 in these
areas. In addition to the increase in staff, our facilities and depreciation
expense also increased.

Sign-on bonus related to stock purchase agreement

Provision for (benefit from) income taxes

Our income taxes benefit realized in 1997 was $0.2 million on pre-tax losses
of $0.1 million in 1997. No income taxes were paid by our predecessor, Tanning
Technology Group, LLC in 1996.

21
<PAGE>

Quarterly results

The following table presents our unaudited quarterly results of operations
for 1998 and the first quarter of 1999. We derived these data from unaudited
consolidated financial statements, and, in the opinion of management, they
include all necessary adjustments, which consist only of normal recurring
adjustments necessary to present fairly the financial results for the periods.
Results of operations for any previous fiscal quarter do not necessarily
indicate what results may be for any future period.

<TABLE>
<CAPTION>
Three months ended
-------------------------------------------------------
March 31, June 30, September 30, December 31, March 31,
1998 1998 1998 1998 1999
--------- -------- ------------- ------------ ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Services revenue........ $4,613 $5,574 $9,185 $10,941 $11,305
Product sales........... 570 58 2,309 39 --
------ ------ ------ ------- -------
Net revenues.......... 5,183 5,632 11,494 10,980 11,305
Project personnel
costs.................. 2,888 2,873 4,004 5,176 5,492
------ ------ ------ ------- -------
Gross profit.......... 2,295 2,759 7,490 5,804 5,813
Selling, marketing and
administrative......... 2,321 2,649 3,212 3,996 4,679
Product development
costs.................. 820 703 1,181 82 --
------ ------ ------ ------- -------
Income (loss) from
operations............. (846) (593) 3,097 1,726 1,134
Interest income
(expense) and other,
net.................... 96 31 105 53 163
------ ------ ------ ------- -------
Income (loss) before
income taxes........... (750) (562) 3,202 1,779 1,297
Income tax provision
(benefit).............. (279) (209) 1,192 662 478
------ ------ ------ ------- -------
Net income (loss)....... $ (471) $ (353) $2,010 $ 1,117 $ 819
====== ====== ====== ======= =======
Gross profit from
services............... $1,725 $2,701 $5,181 $ 5,765 $ 5,813
Operating income (loss)
from services.......... $ (596) $ 52 $1,969 $ 1,769 $ 1,134
</TABLE>

Stock-based compensation

We have elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations in
accounting for its employee stock options. Under Accounting Principles Board
Opinion No. 25, because the exercise price of our employee stock options equals
the market price of the underlying stock on the date of grant, no compensation
expense is recorded. We have adopted the disclosure-only provisions of the
Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 123.

Liquidity and capital resources

Prior to January 1997, we financed our operations and investments in
property and equipment primarily through cash generated from operations,
unsecured and secured borrowings and capital lease financing. During 1997, we
issued common stock resulting in net proceeds to us of approximately $12.7
million. The proceeds were used to fund operations, purchase property and
equipment as well as to pay down $700,000 of outstanding debt during 1997.

During 1998, we financed our operations and investments in property and
equipment primarily through cash generated from operations, the sale of common
stock and, to a lesser extent, borrowings. Outstanding debt of $1.1 million was
paid off in 1998 with the net proceeds from the sale of common stock of $1.9
million. At March 31, 1999, we had a bank note outstanding of approximately
$550,000, the proceeds of which were used to acquire office furniture and
fixtures. The note bears interest at 8.71% and principal and interest payments
are payable over a 60-month term.

22
<PAGE>

Cash and cash equivalents increased to $7.2 million at March 31, 1999 from
$1.6 million at December 31, 1996. The increase was primarily due to cash
provided as a result of the completion of our stock transactions and cash
provided by operations. We invest available cash in short-term liquid
investments.

We anticipate that we will expend capital to develop the infrastructure
needed to support our future growth. As a result, we expect to use cash from
operations and the net proceeds from this offering to meet capital expenditures
and working capital necessary to support our growth. We believe that the cash
provided from operations, cash on hand and our net proceeds from this offering
will be sufficient to meet our working capital and capital expenditure
requirements for the foreseeable future.

Year 2000

Until recently, computer programs were written to store only two digits of
date-related information in order to more efficiently handle and store data.
These programs were unable to distinguish properly between the year 1900 and
the year 2000, and as such, risk failure with the changing of the century. This
circumstance is frequently referred to as the "Year 2000 issue."

We rely on information technology systems, applications and devices in
several aspects of our business, including service delivery, time reporting,
and financial accounting. In this regard, we have conducted an assessment of
our information technology systems and believe that significant changes will
not be necessary in order to achieve a Year 2000 date conversion with no effect
on customers or disruption of business operations. We have obtained written
and/or verbal confirmation, either directly or through published materials,
from our major third-party software providers that those applications currently
being used are Year 2000 compliant or that revised versions that are compliant
will become available. Internally-generated applications have been largely
tested and deemed compliant as well. Our computer hardware platforms,
principally servers, have been confirmed as Year 2000 compliant by the server
manufacturers, or have been appropriately upgraded in order to achieve
compliance. Based on currently available information, we believe that the total
expense related to these efforts will not have a material impact on our results
of operations.

In addition to our internal systems, we also rely, directly and indirectly,
on the external systems of business enterprises such as clients, suppliers,
utilities, creditors and financial institutions, both domestic and
international. We plan to obtain assurances from those material third-party
vendors with which we transact business that there will be no interruption of
service as a result of the Year 2000 issue. To the extent that assurances are
not given, we intend to devise contingency plans to mitigate the negative
effects on our company in the event the Year 2000 issue results in the
unavailability of services. In addition, the failure of the accounting systems
of our clients due to the Year 2000 issue could result in a delay in the
payment of invoices we have issued for services rendered. A delay in payment of
invoices could have a material negative effect on us. We intend to inquire of,
and obtain assurances from, our major customers regarding the compliance of
their accounting systems. We expect to complete our comprehensive risk
assessment and related contingency plan by June 30, 1999.

Although our principal service offerings generally do not include Year 2000
remediation services, former, present and future clients could assert that
various services performed by us are related to the Year 2000 issue. To the
extent that we design, develop, recommend and deploy information systems to our
customers, there can be no assurance that all systems will be Year 2000
compliant. Due to the potential significance of the Year 2000 issue upon client
operations, any failure of critical client systems deployed or recommended by
us could result in claims being asserted against us, regardless whether the
failure is related to the services provided by us. If asserted, the resolution
of these claims could have a material adverse effect on us.

23
<PAGE>

BUSINESS

Overview

Our key solutions are:

. electronic commerce solutions;

. enterprise customer relationship management solutions; and

. core operations solutions.

Industry background

The explosive growth in demand for information technology service providers
in the 1990s has been driven by corporate recognition that information
technology can be used to achieve competitive advantage. GartnerGroup's
Dataquest, an information technology market research firm, estimates that the
worldwide information technology services market will grow from approximately
$325 billion in 1997 to approximately $625 billion by 2002.

Within the overall information technology services market, some segments are
experiencing particularly rapid growth. For example, according to International
Data Corp., an information technology market research firm, the market for
Internet and electronic commerce services will grow from $4.5 billion in 1997
to $43.6 billion in 2002, representing a compound annual growth rate of 57%. In
addition, AMR Research, Inc., an information technology market research firm,
predicts that the market for customer relationship management services will
grow from $404 million in 1997 to $4.0 billion in 2002, representing a compound
annual growth rate of 58%.

With advances in the Internet and information technology, companies are
transforming the way they run their businesses and manage information. New
business models and innovative information technology solutions are emerging
that create business value by:

. compiling and coordinating customer information and contacts across the
enterprise and all customer channels;

. profiling and scoring customers and performing predictive selling in
real-time, which involves understanding each customer's needs and
preferences so that the most appropriate products and services can be
offered during a particular online interaction;

. integrating the business operations and content of business partners;

. coordinating the complex business transactions of the supply chain;

. providing dynamic personalized content to web page users; and

. enabling complex transaction processing systems that support core
business operations.

As part of this evolution of business models, today's electronic commerce,
customer relationship management and core operations solutions must be
architected and deployed to function reliably in an environment of rapidly
growing website traffic, numbers of customers, order volumes, customer service
inquiries and other business transactions. Advanced information technology
solutions must also be built with the flexibility required to rapidly add
features and functions, accommodate new content and business partners and
support modified business processes as the business environment becomes more
competitive. These advanced business solutions must address the following
technology challenges:

24
<PAGE>

. dramatic increases in the volume of data and transactions processed;

. the emergence of rich data types, including text, images, video and
sound;

. the evolution of batch to online processing to support real-time
customer interactions;

. improved performance and response times to support real-time customer
access from a variety of technology environments;

. improved reliability, accuracy and security of transactions;

. integration of legacy systems and databases across the enterprise; and

. high degrees of integration among applications, networks and platforms
within a company as well as among diverse business enterprises.

Many information technology service providers focus on the less technically
demanding areas of creative web design and simple transaction systems.
Moreover, they do not have the skills to design a solution with the required
scalability, flexibility and performance characteristics, or to deploy it in an
environment that may combine many generations of computing platforms and
technologies, all while facing the demands of real-time business operations.
Their solutions are often cobbled together from software packages, custom
software components and legacy systems, and fail to provide for the enormous
growth in transaction and data volumes that are experienced after going to
market. Forrester Research, an information technology research firm, cites
recent high-visibility web site outages at a number of electronic commerce
leaders in support of its conclusion that many of today's electronic commerce
solutions are unreliable, unscalable and deliver service levels that are not
adequate for online commerce.

We believe that we are differentiated by our focus on, and expertise in, the
architecture, complex integration, high volume online transaction processing
capabilities and very large databases required to successfully deploy advanced
electronic commerce, customer relationship management and core operations
solutions. As a result, we believe that we are particularly well positioned to
benefit from the growing demand for these skills.

The Tanning Difference

We believe that the following capabilities and characteristics differentiate
us from other information technology service providers.

Large, complex solutions

We specialize in architecting, developing and deploying large and complex
business-critical solutions that require high degrees of integration across
diverse portfolios of applications and technologies. Clients that seek to
transform their businesses with advanced electronic commerce, customer
relationship management and core operations solutions rely on the systems we
build to run their businesses without failure. Our solutions typically involve
ultra-high transaction rates (up to millions per hour) in online transaction
processing environments and very large databases (terabytes of information). We
believe that we are able to address our clients' greatest information
technology challenges because we are able to extend the accepted performance
and feasibility limits of leading-edge technologies. For many clients, the
systems we build are at the core of their efforts to capitalize on information
technology and the Internet.

Business-value driven

We focus on delivering demonstrable business value for our clients, not
simply on technology. We align technology deployment with business objectives
and processes and plan deployments in phases to deliver business benefits
rapidly. Through extensive business analysis and work with clients to define
and articulate

25
<PAGE>

their business goals and constraints, we are able to discern a project's
critical business requirements before proceeding to technology considerations.

Architecture-based solutions

Our architecture-based approach enables us to provide large and complex
integrated solutions that accommodate our clients' goals in a rapidly changing
business environment. Our overall architecture identifies the component and
technology frameworks required for the successful construction and deployment
of our solutions. Through rigorous systems analysis, we design solutions that
address requirements for:

. reliability, to ensure accurate processing and robust backup and
recovery;

. scalability, to accommodate the rapid growth associated with electronic
commerce, customer relationship management and core operations solutions
under changing business conditions;

. full time availability (24 hours a day and 7 days a week);

. performance, to deliver the required end-user response times and
transaction rates;

. flexibility, to accommodate new functions and interfaces;

. complex interfaces to, and coexistence with, legacy systems, software
packages and departmental solutions in a heterogeneous technology
environment;

. transaction and data integration, both within a company's business and
among the company and its trading partners; and

. the ability to dynamically change features, services or product
offerings based on real-time Internet customer interaction.

Deployment-focused

We deliver high-value business solutions that are deployment-focused, rather
than development-focused. Our deployment focus allows us to architect and
design solutions for successful roll-out to, and use by, the hundreds,
thousands and potentially millions of users of that system. We focus on
deployment to ensure that our solution is constructed for scalable performance,
reliable and consistent service levels, and high levels of flexibility and
longevity. We identify performance and service level requirements in the early
stages of the solution process, architect and design the system so that it will
meet these requirements and benchmark and develop proofs of concept to ensure
that our solution will work before construction of the application begins.
Benchmarking is a process of evaluating the performance of alternative system
configurations and components in order to determine which approach would best
meet the client's goals. We develop proofs of concept in order to demonstrate
the feasibility of our innovative architectures and combinations of components
as well as emerging technologies.

The project lifecycles of many information technology service providers and
companies do not adequately address the constraints of interfaces or the
challenges of operating the system in the intended environment. Consequently,
clients often engage us to "rescue" systems that were unsuccessfully developed
or deployed. We believe our focus on deployment allows us to deliver successful
projects and business value for our clients and constitutes a significant
competitive advantage. As a result, since 1993, we have established a strong
track record of repeat business from large corporations throughout the world,
including Ameritech, Maersk Line, R.R. Donnelley Financial and BSkyB.

Experienced and talented staff

Today's complex, data-intensive business solutions require broad, as well as
deep, technology skills to successfully tackle the technological challenges and
integration complexities typically encountered. We staff our projects based on
our philosophy that there is no substitute for experience, in contrast to the
common

26
<PAGE>

approach of relying on primarily inexperienced staff and building a heavily
"leveraged" staffing model. Our information technology professionals have an
average of more than twelve years of industry experience. Our breadth of skills
comes from the experience our staff has with four generations of technology--
mainframe and parallel processing environments, minicomputers, client/server
architectures and web technology architectures. Our depth of skills began with
our early work in benchmarking large applications and databases that required
multi-tier software architecture, in which the key layers of an application
system are separated and optimized independently to improve performance,
scalability and reliability.

Our employees have expertise in a broad range of competencies, including
project management, business analysis, object modeling, architecture, software
development, database modeling and administration, quality assurance,
integration and testing, architecture and performance tuning, and system and
network management. Our staff is recognized in the industry for its rich
capabilities in building applications that deal with high transaction volumes
and very large database requirements.

Flexible pricing

We offer clients a choice of the most appropriate pricing model for a
particular engagement. Many of our engagements are based on time and materials
pricing, particularly in situations where the parameters of a project or
particular phase of a project cannot yet be specified. In other situations,
clients may prefer fixed price/fixed time contracts because we share the risk
through deployment. We offer flexible pricing options to accommodate our
clients' goals as well as to provide the most appropriate pricing model for the
project.

Strategy

Our strategy for growth centers around scaling our capabilities in
architecting, developing and deploying large, complex, business-critical
enterprise solutions. We will continue to identify areas of growing demand for
these types of solutions and differentiate ourselves based upon our experience,
capabilities and references. These areas may take the form of geographic
regions, industries or solution areas.

To achieve our objectives, we plan to:

. Maintain our leading edge capabilities

We believe that our clients choose to work with us because of our
reputation for successfully handling information technology's most
challenging assignments. A key source for new and advanced capabilities
is our experience in developing solutions that are innovative, and of
industry-leading scale and complexity. For example, we deployed a
solution for Blockbuster that assembled customer data and account
activity information for over 40 million customers and 6,000 stores.
The solution involved terabytes of information and difficult
integration issues, including hardware design and configuration,
database architecture, fault tolerance and operations support. We plan
to continue to actively manage our portfolio of client engagements to
ensure that we work on complex assignments that will allow us to refine
and advance our capabilities on an ongoing basis. We also believe that
our reputation for working on the industry's most difficult assignments
will assist us in continuing to recruit professionals who further add
to our skills and knowledge base. In addition, we intend to continue
and expand our practice of coordinating with our business and
technology partners to share expertise and innovations.

. Expand our solutions and service offerings

We intend to increase our focus on rapidly growing solution areas in
which we believe our expertise is relevant. For example, building off
of our successful engagements with Federal Express

27
<PAGE>

and Blockbuster, we intend to develop an enhanced presence in the area
of supply chain management. We also intend to expand our service
offerings in areas such as business consulting, process innovation and
creative design. In addition, our strategy includes expanding our
solutions and service offerings and gaining access to new technologies
through strategic acquisitions and investments when attractive
opportunities arise. Although we believe that the areas in which we
currently specialize are among the fastest growing and critical in the
information technology industry, we believe that our ability to provide
expanded integrated service offerings will allow us to establish
relationships with a greater range of clients who have a need for our
expertise and to engage them earlier in the determination of their
business needs.

. Expand our vertical industry focus

We intend to organize our sales and marketing efforts in the
industries in which there is significant potential demand for our
services and expertise. We intend to organize industry practice groups
in sales and marketing because we believe that businesses seek out
service providers who are familiar with the types of issues faced by
their industry and who are conversant with the language of the
industry. Currently, we are formally organized in telecommunications,
an industry in which we have a significant amount of experience. We
plan to organize industry practice groups in other high growth
industries such as media and entertainment, financial services,
healthcare, and logistics and transportation as our business in these
industries grows.

. Expand our relationships with existing clients and develop new clients

We intend to base our growth on long-term client relationships,
rather than on a project-by-project approach. Our client relationship
philosophy is that clients will choose to do business with us based on
the quality of our work, the value of our advice and solutions, and the
level of trust and respect that develops over time. Expanding our
existing client relationships will allow us to jointly plan future
projects and, in particular, develop large, multiyear engagements. This
will improve our ability to forecast projects, thereby helping us to
manage growth. We will continue to assign each of our clients a
relationship manager who will be responsible for ensuring that the
client is satisfied with the services we are providing. Relationship
managers work with their clients in an advisory capacity to clarify and
prioritize their business needs and secure additional high value
projects, based upon their in-depth knowledge of each client's business
and information technology needs.

We also intend to develop new clients through multiple channels
including our sales force, strategic partners, relationships with
industry analysts, marketing events and public relations. Our dedicated
sales and marketing team will allow us to focus on solutions common
across industries and will seek out opportunities for entry-level
service offerings such as assessments and "rescue missions." We will
also expand alliances with strategic partners such as IBM, Sun
Microsystems, Hewlett Packard, BEA Systems and others to identify
project opportunities consistent with our capabilities and to provide
us with client leads.

. Continue to attract and retain experienced, knowledgeable professionals

We have consistently attracted and retained leading information
technology talent interested in solving our industry's toughest
challenges. We plan to continue to recruit experienced staff from
consulting companies, corporate information technology organizations
and the benchmarking and product development centers of the industry's
leading hardware and software product companies. We expect that our
talented staff will also continue to provide us with employee
referrals, which have accounted for over 50% of our new recruits in the
last three years. We intend to continue to promote a company culture
that has allowed us to maintain an annual retention rate in excess of
92% over the last three years, which we believe is a key competitive
advantage in an industry beset by a talent shortage.

28
<PAGE>

. Serve clients globally

We plan to expand our services and solution capabilities to client
locations around the world. Our expansion will be revenue-based--we
intend to open additional offices only if we have existing clients in
the geographic region. We believe this will enable us to develop closer
relationships with and provide more convenience to our clients who are
increasingly seeking service providers with global presence and
experience deploying solutions that address issues of multiple
currencies and languages, infrastructure diversity and around-the-clock
operations. We also expect that global expansion will allow us to
capitalize on high growth geographic regions and diversify our revenue
base.

. Expand our infrastructure for growth

We plan to continue our commitment to growth by making investments
in recruitment and retention, staff development, sales and marketing,
management information systems and other areas of infrastructure. We
have created a "Knowledge Net" on our internal computer network in
order to accumulate and make readily available to our employees (1)
expertise we have derived from our engagements, (2) best practices and
(3) a repository of information that can be used in sales, marketing
and service delivery. We intend to expand our formal employee
orientation program and to assist our technical staff in managing their
career paths. We also intend to improve our scalable global information
systems, in order to more effectively manage client lead generation and
tracking, sales forecasting, project profitability and employee
utilization. We believe that these investments will provide a
foundation for the continued expansion of our client and revenue base.

The Tanning Approach

The Tanning Approach flows directly from the Tanning Difference--we are
business-value driven, architecture-based and deployment-focused. We emphasize
rigorous business alignment during our assessment and architecture phases, and
address critical performance and operational requirements during our
architecture and development phases to ensure successful system deployment and
operation.

The Tanning Approach is composed of distinct phases, and each phase can be
adapted to the unique needs and requirements of an individual project. Each
phase also builds upon the deliverables of the previous phase. Our approach is
designed to deliver business value rapidly, by delivering the results in
several successive installments, rather than committing to extended projects
where business deliverables are produced only at the end of a protracted period
of time. This approach is also flexible, because not all phases are required by
every project. The following diagram illustrates the Tanning Approach.

[THE FOLLOWING IS REPRESENTED BY A GRAPHIC]

System
Development
Enterprise /
Assessment System Deployment Operational
Architecture Package Support
Component
Integration

Our clients typically engage us in one of two alternative project scenarios.
The first is a strategic initiative in which we are engaged to help architect,
develop and deploy a new high-value business solution. Strategic initiatives
begin with an assessment and continue sequentially through the phases of the
Tanning Approach. The second is a "rescue mission," where the client engages us
to turn around a troubled or failed project.

29
<PAGE>

Typically, in this type of situation, the system has been or is being
constructed but is not meeting the client's expectations. Rescue missions begin
with an assessment, but proceed through a modified version of the Tanning
Approach that builds on the useful work completed by the prior project effort,
and proceeds to emphasize those elements of the Tanning Approach that will
successfully deploy an improved solution. In a rescue mission, we will leverage
the existing information about the system, perform design reviews, and provide
deployment and operational support services to get the system into production.

Assessment

Every project begins with an assessment. Each assessment results in a clear
definition of the client's business problem, a set of recommendations and an
outline of the next steps as well as a statement of the project's contemplated
business benefits. The assessment and the presentation of its results to our
client is a key entry level service offering that enables us to demonstrate our
capabilities and serves as a platform for establishing a more extensive project
engagement and a continuing client relationship.

Assessments typically address one or more of the following:

. business case and business requirements;

. enterprise architecture;

. systems architecture;

. application design;

. development processes;

. integration testing processes;

. application migration considerations;

. deployment considerations; and

. operational readiness considerations.

Enterprise/system architecture

A well-defined architecture provides a critical foundation for the
successful definition, development, deployment and operation of information
technology systems. Enterprise architectures address the entire portfolio of
applications and technologies across the enterprise, while system architectures
address the more focused scope of a specific application or system. The
architecture is particularly critical when an iterative, phased approach for
development and deployment is used because it provides a rational framework for
each of the components and subsystems, as they are developed and deployed. A
well-defined architecture and technical framework greatly reduces the effort
and risk associated with the integration of components and subsystems because
each of the subsystems are integrated using proven interfaces and methods. We
deliver the architecture phase of the Tanning Approach to our clients either as
part of a specific application or solution project, or alternatively, as a
stand-alone engagement that addresses the entire enterprise architecture or
specific components of it.

An architecture is also more than just an inventory of vendors and
standards. It specifies all of the subsystems and components required to deploy
an effective information technology system. Further, this architecture defines
the dependencies and interfaces between the components and the functional,
operational and performance requirements of each subsystem and component.

30
<PAGE>

The architecture phase of the Tanning Approach also focuses on identifying
and mitigating the major risks involved in the project. It can include building
proofs of concept for high-risk system components and new technologies.
Benchmarking may be performed to identify and resolve major system bottlenecks
for performance. Prototypes may also be developed to visualize key user
scenarios, functions or processes to make sure that there is consensus in their
definition and that the project is resolving the key business issues and
delivering the expected business value. Prototypes are also used to validate
and test critical components of the architecture. This phase also involves
detailing aspects of the architecture that need further definition before
beginning component development.

Phased development and product integration

This stage of the Tanning Approach is characterized by phased design,
development and testing of various individual components (including user and
system interfaces) of the final business solution. If software packages or
technology components will be integrated into the solution, then this phase
also includes their integration. The phased system components are typically
organized into releases that deliver meaningful business value in rapid time
frames. We use standard methodologies and tools to conduct and document the
design and development of system releases. Each system release goes through
integration testing, as part of our quality assurance, to ensure that the
components function properly as a complete system.

Deployment services

The deployment phase of the Tanning Approach is designed to ensure the
successful deployment of the completed software into the client's computing
environment where it will support real-world business activities. Deployment
addresses issues related to systems management, data center operations and
performance testing to ensure that the system will provide the performance
demanded by business users and defined in the system service level agreements.
Our deployment phase typically includes a period where any systems or
components being replaced are run in parallel with the new system to ensure
proper operation before converting to the exclusive use of the new system.

Operational support services

The operational support phase of the Tanning Approach gives clients the
opportunity to engage us for ongoing maintenance and support of applications
and systems. We can also provide both remote and local system administration to
ensure proper operation, maintenance and enhancement of systems.

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<PAGE>

Client solutions

The following chart illustrates some of the solutions that we have created
for our clients.

Federal Express--a global overnight delivery service provider

<TABLE>
<S> <C> <C> <C>
Challenge: Enable Federal Express to more Solution: We worked with Federal Express to
efficiently manage the flow of develop a comprehensive intranet
millions of packages globally system for reporting service
levels for its global package
delivery operations in a timely
manner. We created an online
transaction processing system
capable of handling 1,000
transactions per second on a one-
plus terabyte database. As a
result, Federal Express operators
will be able to determine the
service level status on packages
in significantly shorter
timeframes (hours vs. days).
</TABLE>

Blockbuster--the world's leading retail chain of video rental stores

<TABLE>
<S> <C> <C> <C>
Challenge: Help Blockbuster understand its Solution: We redesigned Blockbuster's
customer demographics and existing enterprise architecture
purchase patterns in order to and created a new system that
stock movies according to allows Blockbuster to assemble
regional tastes and to customer data and account
more accurately target customer activity information for over 40
promotions million customers and more than
6,000 stores. The system supports
the ability of Blockbuster to
advertise "In Stock Or It's
Free."
</TABLE>

E*Trade--a leading online brokerage firm

<TABLE>
<S> <C> <C> <C>
Challenge: Assist E*Trade in building a Solution: We designed international
global brand by creating a extensions to E*Trade's domestic
standardized platform for its trading system, enabling support
international expansion for multiple languages and the
ability to handle diverse
character sets and content types.
We deployed this system in Sweden
as the first stage of E*Trade's
international expansion. The new
system can accommodate rapid
business growth and is
standardized to facilitate global
brand recognition.
</TABLE>

32
<PAGE>

<TABLE>
<S> <C>
</TABLE>
Maersk Line--a leading worldwide ocean container transportation corporation

<TABLE>
<S> <C> <C> <C>
Challenge: Help Maersk Line improve customer Solution: We developed a solution for
service across over 400 offices Maersk Line that enabled them to
in exploit best practices in
nearly every country around the customer service globally. The
world solution was deployed to function
with their then-existing global
infrastructure. The first version
of this system was developed and
deployed within six months in
Asia, Africa, Europe and North
and South America.
</TABLE>

33
<PAGE>

Clients

The following is a representative list of our clients for 1998 and the
current year.

<TABLE>
<S> <C>
Ameritech Janus Capital
Ameritrade Maersk Line
Blockbuster MCI WorldCom
BSkyB MelDisco Footstar
CableTel Oxford Health Plans
CSX Technology The Polk Company
E*Trade Qwest
Energis R.R. Donnelley Financial
Federal Express TeleDanmark
The Hartford U S WEST
</TABLE>

In 1997, our five largest clients accounted for approximately 81% of our
services revenue, with Ameritech accounting for approximately 41% of our
services revenue and Oxford Health Plans accounting for approximately 23% of
our services revenue. In 1998, our five largest clients accounted for
approximately 70% of our services revenue, with Maersk Line accounting for
approximately 31% of our services revenue, U S WEST accounting for
approximately 12% of our services revenue and E*Trade and CSX Technology each
accounting for approximately 10% of our services revenue. In the first three
months of 1999, our five largest clients accounted for approximately 74% of our
services revenue, with Maersk Line accounting for approximately 31% of our
services revenue and U S WEST, E*Trade, and Ameritech each accounting for
approximately 12% of our services revenue. We believe that we will continue to
derive a significant portion of our revenue from a limited number of clients.
Any cancellation, deferral or significant reduction in work performed for these
principal clients or a significant number of smaller clients could have a
material adverse effect on our business, financial condition and results of
operations.

Marketing and sales

We market and sell our services through multiple channels including our
sales force, long-term client relationships, relationships with industry
analysts, marketing events and public relations. We also cultivate alliances
with partners such as IBM, Sun Microsystems, Hewlett Packard, BEA Systems and
others to identify project opportunities consistent with our capabilities and
to provide us with client leads. For example, some of our partners maintain
sales forces in the hundreds and thousands with a significant presence at large
companies around the world. These strategic partners also introduce us to
clients and assist in our efforts to secure business opportunities. In return,
we provide our strategic partners with solution capabilities, which are of high
importance to their clients.

While our marketing channels and relationships with strategic alliance
partners are used to generate business with new accounts, we also have an
organization of relationship managers who are responsible for managing
relationships with existing clients. Relationship managers seek to ensure
client satisfaction, the successful delivery of projects and are able to
identify additional opportunities for our services at a client site.

Competition

The information technology services business is intensely competitive and
subject to rapid technological change. We expect the competition to intensify
in the foreseeable future. Our competitors fall into four major categories:

. large information technology consulting services providers, such as
Andersen Consulting, KPMG, PricewaterhouseCoopers, IBM, EDS and CSC;

. mid-tier information technology services providers, such as Cambridge
Technology Partners and Sapient;

. Internet professional service providers, such as Modem Media . Poppe
Tyson, US Interactive, Proxicom, Viant and Scient; and

34
<PAGE>

. internal information technology departments of current and potential
clients.

In addition, there are low barriers to entry into our business. We do not
own any technologies that preclude or inhibit competitors from entering our
industry. Existing or future competitors may independently develop and patent
or copyright technologies that are superior or substantially similar to our
technologies. The costs to develop and to provide information technology
services are relatively low. Therefore, we expect to continue to face
additional competition from new entrants into our industry.

We believe that the principal competitive factors in our business, in
relative importance, are:

. client value and service;

. the reputation and experience of professionals delivering solutions;

. the success and reliability of the delivered solution;

. technical knowledge and creative skills; and

. the ability to attract and retain professionals.

We believe that we presently compete favorably with respect to each of these
factors. The market for our services is evolving, however, and we cannot be
certain that we will compete successfully in the future.

Employees

As of March 31, 1999, we had 177 employees. We believe our relationship with
our employees is good. None of our employees is represented by a union.
Generally, our employees are retained on an at-will basis.

Intellectual property rights

Our success is dependent, in part, upon our proprietary processes,
components, and other intellectual property rights. We do not have any patents
or patent applications pending. We rely on a combination of trade secret,
nondisclosure and other contractual agreements, and copyright and trademark
laws, to protect our proprietary rights. Existing trade secret and copyright
laws afford us only limited protection. We enter into confidentiality
agreements with our employees, generally require that our consultants and
clients enter into similar agreements, and limit access to and distribution of
our proprietary information. In addition, we have entered into non-competition
agreements with certain of our key employees. There can be no assurance that
the steps we have taken in this regard will be adequate to deter
misappropriation of our proprietary information or that we will be able to
detect unauthorized use and take appropriate steps to enforce our intellectual
property rights.

Facilities

Our principal headquarters are located in Denver, Colorado and comprise
23,598 square feet. The lease for our headquarters expires in April 2000 and we
have the option to extend the term to April 2005. We are constructing a new
approximately 50,000 square-foot headquarters in Denver, Colorado. We also
lease office space in Stamford, Connecticut, London, England and Hyderabad,
India. We do not own any real estate. We do not consider any specific leased
location to be material to our operations, and we believe that equally suitable
alternative locations are available in all areas where we currently do
business.

Legal proceedings

We are not a party to any pending material legal proceedings.

35
<PAGE>

MANAGEMENT

Directors and executive officers

The following table contains information regarding our executive officers
and directors.

<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Larry G. Tanning........ 51 Chairman of the Board, President and Chief Executive Officer
Bipin Agarwal........... 38 Director and Senior Vice President of Consulting
Operations--North America
Henry F. Skelsey........ 40 Director, Executive Vice President and Chief Financial Officer
P. Tracy Currie......... 37 Vice President--International
Louis A. D'Alessandro... 44 Vice President--Technical Services
Mark W. Tanning......... 46 Vice President--Human Resources and Administration
John N. Piccone......... 38 Vice President--Sales and Marketing
Philip A. Purver........ 40 Vice President--European Operations
Katherine L. Scherping.. 39 Treasurer and Director of Finance
Mark S. Whitfield....... 40 Corporate Controller
Mark W. Reinhardt....... 46 Assistant Secretary
Debra J. Chrapaty....... 38 Director designee
Toni S. Hippeli......... 51 Director
Christopher P. Mahan.... 32 Director
Joseph P. Roebuck....... 63 Director
Michael E. Shanahan..... 46 Director designee
</TABLE>

Larry G. Tanning, a co-founder of Tanning, has been our Chairman of the
Board, President and Chief Executive Officer since January 1997 and served as
the President of our predecessor entities from July 1993. Mr. Tanning has a
B.S. degree in marketing from the University of Minnesota and a M.S. equivalent
degree in business management with the American Management Association in New
York, New York. Larry Tanning and Mark Tanning are brothers.

Bipin Agarwal, a co-founder of Tanning, has been our Senior Vice President
of North American Consulting Operations since July 1998. He has been a director
since our incorporation in January 1997. From August 1997 until June 1998 he
was our Senior Vice President of Business Development and Architecture
Practice. Mr. Agarwal was responsible for our consulting services and those of
our predecessors from July 1993 until August 1997. Mr. Agarwal has a M.S.
degree in computer science from Roorkee University, India.

Henry F. Skelsey has been our Executive Vice President and Chief Financial
Officer since September 1998. He has been a director since our incorporation in
January 1997. From March 1988 until August 1998, Mr. Skelsey was a Managing
Director of AEA Investors Inc., the parent of the managing member of TTC
Investors I LLC, TTC Investors II LLC, TTC Investors IA LLC and TTC Investors
IIA LLC (collectively, the "TTC Investors Group"), which are beneficial owners
of our common stock. Since August 1998, Mr. Skelsey has acted as a consultant
to AEA Investors Inc. Mr. Skelsey is also a director of Dal-Tile International
Inc. and Rand McNally & Company. Mr. Skelsey has a M.B.A. from the Darden
School at the University of Virginia and a B.S. degree in economics and finance
from George Mason University.

P. Tracy Currie has been our Vice President--International since October
1998. Mr. Currie was our Vice President--Service Delivery from May 1996 until
October 1998. Mr. Currie was the Director of UNIX Computing at McKesson
Corporation, a healthcare company, from March 1995 until April 1996 and he was
McKesson's Manager of Client Network Computing from August 1993 until March
1995. Mr. Currie has a B.S. degree in computer science engineering from Montana
State University.

36
<PAGE>

Louis A. D'Alessandro has been our Vice President--Technical Services since
October 1997. Mr. D'Alessandro served as Vice President of Technology
Implementation at Fidelity Investments, a mutual fund company, from September
1996 until October 1997. He was the Eastern Region Consulting Manager at
Informix Software, a relational database manufacturing service company, from
February 1996 until August 1996. He was the National Director of Systems
Engineering at Pyramid Technology Corporation, a computer hardware
manufacturer, from October 1988 until January 1996. Mr. D'Alessandro has a B.S.
degree and a M.S. degree in computer science from the City University of New
York.

Mark W. Tanning has been our Vice President--Human Resources and
Administration since January 1997. He was the Director of Human Resources at HB
Fuller Company, a multinational specialty chemicals company, from July 1988
until December 1996 and the Director of International Human Resources at HB
Fuller from June 1986 until July 1988. Mr. Tanning has B.A. and M.A. degrees in
economics and business administration from the University of Minnesota. Mr.
Tanning also has a professional certification degree from the Wharton School
and has done post-graduate studies in industrial relations. Mark Tanning and
Larry Tanning are brothers.

John N. Piccone joined Tanning as our Vice President--Strategy and Marketing
in April 1999 and is now serving as our Vice President--Sales and Marketing.
From November 1993 until January 1999, Mr. Piccone served as a Senior Vice
President at Cambridge Technology Partners, an information technology
consulting services company. He was a member of Cambridge Technology Partners's
executive committee from October 1997 until January 1999. Mr. Piccone has a
B.S. degree in chemical engineering from the Massachusetts Institute of
Technology.

Philip A. Purver has been our Vice President--European Operations since
March 1999. Mr. Purver served as Commercial Vice President--Europe at Cambridge
Technology Partners from December 1998 until March 1999 and Director of Sales--
Europe from December 1997 until December 1998. He was Cambridge Technology
Partners' Western European Director of Sales from October 1995 until December
1997. Mr. Purver was the Sales Director for Easel UK Limited, a software
development company, from August 1994 until October 1995. From 1993 until
August 1994, he was in charge of international business development at Legent
P.L.C., a software development company. Mr. Purver has a BSc. in mathematics
and geography from Exeter University, England.

Katherine L. Scherping has been our Treasurer and Director of Finance since
April 1999. Prior to that, she served as Director of Internal Reporting and
Technical Accounting at AT&T Broadband & Internet Services (formerly Tele-
Communications, Inc.), a television cable services provider, from April 1998
until April 1999. Ms. Scherping was the Corporate Controller at ADT Security
Services, Inc. (formerly Alert Centre Inc.), a security alarm monitoring
company, from January 1996 until September 1997. She was ADT's Treasurer from
July 1993 until January 1996. Ms. Scherping has a B.S. degree in accounting
from Northern Illinois University.

Mark S. Whitfield has been our Corporate Controller since May 1997. Mr.
Whitfield served as Director, Corporate Controller at St. Ives Laboratories
Inc., a manufacturer and distributor of personal care products, from June 1988
until November 1996. Mr. Whitfield has a B.A. degree in economics and public
relations from Syracuse University and a M.B.A. from California State
University.

Mark W. Reinhardt has been an Assistant Secretary since February 1999 and
has been a staff attorney with us since July 1998. Prior to joining Tanning, he
was a sole practitioner from November 1996 until July 1998. Mr. Reinhardt was a
Senior Attorney at Philips Electronics North America Corporation, an
electronics manufacturer, from 1991 until November 1996 and was General Counsel
to Philips Laser Magnetic Storage, a manufacturer of computer storage devices,
from 1988 to November 1996. Mr. Reinhardt has a J.D. from the University of
Chicago, a B.S.E. from Duke University and a S.M. degree in engineering and
applied physics from Harvard University.

37
<PAGE>

Debra J. Chrapaty will be joining our board of directors upon the completion
of this offering. Ms. Chrapaty has been President and Chief Operating Officer
of E*TRADE Technologies, an online investing firm, since July 1997. She also
has served E*TRADE Group, Inc. as Senior Vice President--Technologies and Chief
Information Officer since July 1997. Ms. Chrapaty served as Chief Information
Officer and Chief Technology Officer at the National Basketball Association
from 1994 until 1997. Ms. Chrapaty also served as Director of Internal Systems
Consulting at Bertelsmann A.G., a media and entertainment company, and as
Acting Director of Information Systems at Bantam Doubleday Dell Publishing
Group Inc., a publishing company, from 1992 until 1994. Ms. Chrapaty has a
B.B.A. degree in economics from Temple University and a M.B.A. in information
systems from New York University.

Toni S. Hippeli, a co-founder of Tanning, has been with us since November
1994. She has been a Director since our incorporation in January 1997 and had
been a managing partner of our predecessor since January 1995. Ms. Hippeli has
been the owner of Hippeli Enterprises, a business and financial consulting firm
and a beneficial owner of our common stock, since December 1991. From October
1982 until selling the company to BMC Software in July 1991, Ms. Hippeli was
the co-founder and President of Integrity Solutions, a mainframe computer
software company. Ms. Hippeli has a B.A. degree in psychology from the
University of Colorado.

Christopher P. Mahan has been a Director since our incorporation in January
1997. Mr. Mahan has been a Principal at AEA Investors Inc. since December 1997
and has been associated with AEA Investors Inc. since August 1991. AEA
Investors Inc. is the parent of the managing member of the entities
constituting the TTC Investors Group, which are beneficial owners of our common
stock. From August 1989 to August 1991, Mr. Mahan was a consultant with Bain &
Company, a management consulting company. Mr. Mahan is also a Director of Rand
McNally & Company. Mr. Mahan has a B.A. degree in economics and history from
Amherst College.

Joseph P. Roebuck has been a Director since April 1999. Mr. Roebuck has been
a Vice President of Sun Microsystems Inc., a computer hardware company, since
November 1998. He was Vice President of Worldwide Sales at Sun Microsystems
from June 1995 until November 1998. Mr. Roebuck joined Sun Microsystems in 1983
as the Vice President of Sales. Mr. Roebuck has a B.A. in business
administration from Cornell University.

Michael E. Shanahan will be joining our board of directors upon the
completion of this offering, and currently serves as a consultant to us.
Mr. Shanahan has been the Vice President of Football Operations for the Denver
Broncos, a National Football League franchise, since April 1999. He has been
the coach and general manager of the Broncos since January 1995. Mr. Shanahan
has a B.A. degree and a M.A. degree from Eastern Illinois University.

Stephen Brobst, a co-founder of Tanning, is a Tanning Fellow. Mr. Brobst
works with our clients on the development of technology strategies and systems
architectures. Mr. Brobst has taught graduate courses at Boston University and
the Massachusetts Institute of Technology in database design and parallel
computer architecture. He performed his Masters and Ph.D research at the
Massachusetts Institute of Technology in the area of load-balancing and
resource allocation for parallel computing architectures. He also holds a
M.B.A. with joint course and thesis work at the Harvard Business School and the
M.I.T. Sloan School of Management. He received a B.S. in electrical engineering
and computer science from the University of California at Berkeley and was
bestowed the Bechtel Engineering Award for academic excellence upon graduation.
Mr. Brobst is not currently an employee or an officer of our company.

Board of directors

Our board of directors is currently composed of six directors. We intend to
expand the board of directors to eight directors upon completion of this
offering. The new directors will be Debra J. Chrapaty and Michael E. Shanahan.

38
<PAGE>

We intend to amend our certificate of incorporation to divide the board of
directors into three classes: Class I, whose terms will expire at the annual
meeting of stockholders to be held in 2000, Class II, whose terms will expire
at the annual meeting of stockholders to be held in 2001, and Class III, whose
terms will expire at the annual meeting of stockholders to be held in 2002. The
initial Class I directors are and . The initial Class II directors are
and . The initial Class III directors are and . At each annual meeting
of stockholders beginning in 2000, the successors to directors whose terms will
then expire will be elected to serve from the time of election and
qualification until the third annual meeting following election.

In addition, our certificate of incorporation will provide that the
authorized number of directors may be changed only by resolution of the board
of directors. Any additional directorships resulting from an increase in the
number of directors will be distributed among the three classes so that, as
nearly as possible, each class will consist of one-third of the total number of
directors.

Committees of the board of directors

Our committees consist of an audit committee and a compensation committee.
The audit committee recommends the annual appointment of our auditors with whom
the audit committee reviews the scope of audit and non-audit assignments and
related fees, accounting principles we use in financial reporting, internal
auditing procedures and the adequacy of our internal control procedures. During
1998, the audit committee was composed of Bipin Agarwal, Toni S. Hippeli and
Christopher P. Mahan. Following this offering, the audit committee will consist
of . The compensation committee reviews and approves the compensation and
benefits for our key executive officers, administers our employee benefit plans
and makes recommendations to the board of directors regarding grants of stock
options and other incentive compensation arrangements. During 1998, our
compensation committee was composed of Larry G. Tanning, Bipin Agarwal and
Henry F. Skelsey, all of whom are employees of Tanning. Following this
offering, the compensation committee will consist of .

Compensation of directors

Directors who are also our employees receive no additional compensation for
their services as directors. Directors who are not our employees will not
receive a fee for attendance in person at meetings of our board of directors or
committees of our board of directors, but they will be reimbursed for travel
expenses and other out-of-pocket costs incurred in connection with the
attendance of meetings. Directors who are not our employees or employees of AEA
Investors Inc. will be eligible to receive options to purchase our common stock
in connection with their appointment to our board of directors.

In connection with his election to the board of directors, we granted Mr.
Roebuck options to purchase 49,108 shares of our common stock at an exercise
price of $5.35 per share. Options to purchase 16,369 shares were immediately
exercisable and were exercised; the remaining options will vest over the next
four years.

In connection with his engagement as a consultant, we granted Mr. Shanahan
options to purchase 49,108 shares of our common stock at an exercise price of
$5.35 per share. Options to purchase 16,369 shares were immediately exercisable
and were exercised; the remaining options will vest over the next four years

In connection with her agreement to be a director upon completion of this
offering, we granted Ms. Chrapaty options to purchase 49,108 shares of our
common stock at an exercise price of $5.35 per share. Options to purchase
16,369 shares were immediately exercisable and were exercised; the remaining
options will vest over the next four years following Ms. Chrapaty joining our
board of directors.

Executive officers

Our board of directors appoints our executive officers. Our executive
officers serve at the discretion of our board of directors.

39
<PAGE>

Employment and non-competition agreements

We have entered into an employment agreement with Larry G. Tanning,
effective upon completion of this offering, providing for his employment as our
President and Chief Executive Officer. Pursuant to the agreement, Mr. Tanning
is entitled to an annual salary of $295,000, and is eligible to receive an
annual performance-based bonus determined by the compensation committee of the
board of directors. For fiscal 1999, if the Company attains its target
performance goals, Mr. Tanning's bonus will equal approximately 55 percent of
his base salary.

If we terminate Mr. Tanning's employment without cause (as defined in the
employment agreement), we are required to pay Mr. Tanning (1) any unpaid
portion of his annual salary earned through the date of termination, (2) the
annual bonus for the fiscal year immediately preceding the fiscal year of
termination to the extent not already paid, and (3) during a period of twelve
months following termination, an amount equal to his annual salary at the time
of termination. Mr. Tanning is also subject to customary non-competition, non-
solicitation and non-disclosure covenants.

We have entered into an employment agreement with Bipin Agarwal effective
upon completion of this offering. Pursuant to the agreement, Mr. Agarwal is
entitled to an annual salary of $275,000, and is eligible to receive an annual
performance-based bonus determined by the compensation committee of the board
of directors. For fiscal 1999, if the Company attains its target performance
goals, Mr. Agarwal's bonus will equal approximately 55 percent of his base
salary. Mr. Agarwal is also subject to customary non-competition, non-
solicitation and non-disclosure covenants.

If we terminate Mr. Agarwal's employment without cause (as defined in the
employment agreement), we are required to pay to Mr. Agarwal (1) any unpaid
portion of his annual salary earned through the date of termination, (2) the
annual bonus for the fiscal year immediately preceding the fiscal year of
termination to the extent not already paid, and (3) during a period of twelve
months following termination, an amount equal to his annual salary at the time
of termination. Mr. Agarwal is also subject to customary non-competition, non-
solicitation and non-disclosure covenants.

We have entered into an employment agreement with P. Tracy Currie dated
January 1, 1997. Pursuant to the agreement, Mr. Currie is entitled to an annual
salary of $250,000, and is eligible to receive an annual bonus of between 13%
and 80% of his annual salary upon attainment of performance goals. Pursuant to
the agreement, Mr. Currie was granted an option to acquire 70,389 shares of
common stock at a purchase price of $2.90 per share. One-fourth of the shares
subject to the option vested on each of June 1, 1997, February 1, 1998, and
February 1, 1999. The remaining one-fourth is scheduled to vest on February 1,
2000.

If we constructively terminate (as defined in the employment agreement) Mr.
Currie's employment after he completes one year of continuous service, we are
required to provide to Mr. Currie six months of annual base salary and benefits
coverage continuation. If we constructively terminate Mr. Currie's employment
after three years of continuous service or after a change in control of our
company, we are required to provide to Mr. Currie one year of base salary and
benefits coverage continuation. The employment agreement also contains
customary non-competition, non-solicitation and non-disclosure covenants.

We have entered into an employment agreement with Louis A. D'Alessandro
dated February 1, 1999. Pursuant to the agreement, Mr. D'Alessandro is entitled
to an annual salary of $175,000, and for fiscal 1999 is eligible to receive an
annual bonus of between 16% and 87% of his annual salary upon attainment of
performance goals. Mr. D'Alessandro is guaranteed a minimum annual bonus of
$48,125 for 1999.

Under the agreement, Mr. D'Alessandro was granted an option to acquire
16,369 shares of our common stock at a per share purchase price of $3.82, which
vest over four years based on continuous employment. Mr. D'Alessandro was also
granted an option to acquire 91,669 shares of common stock at a per share
purchase price of $3.82, which vest (up to a maximum of 19,643 shares in each
of 1999 and 2000 and 52,382 shares in 2001) based upon Mr. D'Alessandro's
attainment of the performance goals on which his cash bonus is based. The
employment agreement also contains customary non-competition, non-solicitation,
and non-disclosure covenants.

40
<PAGE>

We have entered into a separation agreement and release with Mr. Tom Stack
dated May 14, 1999, providing for his resignation from our company. Pursuant to
the agreement, Mr. Stack will continue to receive his 1999 base salary and
commission draw, and will receive benefits continuation, in each case, through
January 31, 2000, and a one-time lump-sum payment of $10,000. Mr. Stack will
continue to vest in certain stock options held by him through November 17, 2001
(at which time he may have completed the vesting requirements for 57,293
shares), on the condition that he complies with various non-competition, non-
solicitation and related covenants during such time. If the options so vest,
Mr. Stack will be eligible to exercise his vested stock options through
November 17, 2002.

Executive compensation

The table below summarizes information concerning the compensation paid by
Tanning during 1998 to Tanning's Chief Executive Officer and Tanning's four
other most highly paid executive officers, who are collectively defined as the
"Named Executive Officers":

Summary compensation table

<TABLE>
<CAPTION>
Long-term
Annual compensation compensation awards
----------------------- ----------------------------- All other
Name and principal position Salary Bonus Securities underlying options compensation
- --------------------------- ---------- --------- ----------------------------- ------------
<S> <C> <C> <C> <C>
Larry G. Tanning......... $ 480,000(1) $ 28,720 -- --
Chairman of the Board,
President and
Chief Executive Officer
Bipin Agarwal ........... $ 450,000(1) -- -- --
Director and Senior Vice
President of
Consulting Operations--
North America
P. Tracy Currie.......... $ 250,000 $ 24,000 384,682 --
Vice President--Business
Development
and European Operations
Louis A. D'Alessandro.... $ 160,000 $ 57,000 157,147 $23,000(2)
Vice President--
Technical Services
Thomas J. Stack(3)....... $ 283,239(4) $ 35,000 91,669(5) --
Vice President--Western
Regional Sales
</TABLE>
- --------
(1) Mr. Tanning and Mr. Agarwal have agreed to reduce their annual salary to
$295,000 and $275,000, respectively, effective upon completion of this
offering. See "--Employment and non-competition agreements."
(2) In connection with sales of homes in Denver, Colorado and Boston,
Massachusetts.
(3) Mr. Stack is no longer employed by us. See "--Employment and non-
competition agreements."
(4) Includes $123,239 in sales commissions.
(5) In connection with Mr. Stack's resignation, 58,930 of these options have
been canceled.

41
<PAGE>

Option grants in fiscal 1998

The following table sets forth information regarding stock options granted
during 1998 to each of the Named Executive Officers.
<TABLE>
<CAPTION>
Individual grants
--------------------------------------------------
Potential realized value
at assumed annual
Number of Percent of rates of stock
securities total options price appreciation
underlying granted to Exercise or for option term
options employees base price Expiration -------------------------
Name granted in fiscal 1998 (per share) date 5% 10%
- ---- ---------- -------------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Larry G. Tanning........ -- -- -- -- -- --
Bipin Agarwal........... -- -- -- -- -- --
P. Tracy Currie......... 57,293(1) 1.5% $3.82 06/08/08 $ 137,639 $ 348,805
327,389(2) 8.5% 3.82 07/23/08 786,512 1,993,176
Louis A. D'Alessandro... 49,108(3) 1.3% 3.82 06/08/08 117,976 298,974
108,038(4) 2.8% 3.82 12/01/08 259,548 657,746
Thomas J. Stack......... 32,739(5) 0.9% 3.82 06/08/08 78,651 199,318
58,930(6) 1.5% 3.82 N/A -- --
</TABLE>
- --------
(1) One-fourth of the shares subject to the option vested on the date of grant.
One-fourth of the shares subject to the option are scheduled to vest on
June 9, 1999, 2000 and 2001, respectively.
(2) One-fourth of the shares subject to the option vested on the date of grant.
One-fourth of the shares subject to the option are scheduled to vest on
July 24, 1999, 2000 and 2001, respectively.
(3) One-fourth of the shares subject to the option vested on the date of grant.
One-fourth of the shares subject to the option are scheduled to vest on
June 9, 1999, 2000 and 2001, respectively
(4) Sixteen thousand three hundred sixty-nine of the shares subject to the
option vest solely on the basis of employment with our company (4,092 on
December 1, 1999, 2000, 2001 and 2002, respectively). Up to 19,643 of the
shares subject to the option vest based upon the attainment of performance
goals in 1999. Of those shares that become performance-vested, one-fourth
become time-vested on December 1, 1999, 2000, 2001 and 2002, respectively.
Up to 19,643 of the shares subject to the option vest based upon the
attainment of performance goals in 2000. Of those shares that become
performance vested, one-fourth become time-vested on December 1, 2000,
2001, 2002 and 2003, respectively. Up to 52,382 of the shares subject to
the option vest based upon the attainment of performance goals in 2001. Of
those shares that become performance-vested, one-fourth become time-vested
on December 1, 2001, 2002, 2003 and 2004, respectively. Whether or not
vested based on the attainment of performance goals, all of the
performance-based options will become exercisable based on continued
employment on December 1, 2004.
(5) In connection with Mr. Stack's resignation, Mr. Stack will continue to vest
in these options through November 17, 2001, on the condition that he
complies with various non-competition, non-solicitation and related
covenants during the vesting period.
(6) In connection with Mr. Stack's resignation, these options have been
canceled.

42
<PAGE>

Aggregate option exercises in fiscal 1998 and fiscal year-end option values

The following table sets forth information concerning the value of
unexercised in-the-money options held by the Named Executive Officers as of
December 31, 1998.

There was no public trading market for our common stock at December 31,
1998. Accordingly, these values of exercisable and unexercisable in-the-money
options have been calculated on the basis of the fair market value of our
common stock at December 31, 1998 ($3.82 per share) as determined by our board
of directors, less the applicable exercise price per share multiplied by the
number of shares underlying the options.

<TABLE>
<CAPTION>
Value of unexercised
Number of securities in-the-money
underlying unexercised options at
Shares options at fiscal year-end fiscal year-end
acquired on Value --------------------------------- -------------------------
Name exercise realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Larry G. Tanning........ -- -- -- -- -- --
Bipin Agarwal........... -- -- -- -- -- --
P. Tracy Currie......... -- -- 131,365(1) 323,706(2) $32,378 $32,378
Louis A. D'Alessandro... -- -- 36,831(3) 169,424(4) 22,590 22,590
Thomas J. Stack......... -- -- 14,324(5) 101,900(6) 5,647 16,943
</TABLE>
- --------
(1) At fiscal year-end, the per share exercise price of these options was $2.90
for options to acquire 35,194 shares of common stock, and $3.82 for options
to acquire 96,170 shares of common stock.
(2) At fiscal year-end, the per share exercise price of these options was $2.90
for options to acquire 35,194 shares of common stock, and $3.82 for options
to acquire 288,511 shares of common stock.
(3) At fiscal year-end, the per share exercise price of these options was $2.90
for options to acquire 24,554 shares of common stock, and $3.82 for options
to acquire 12,277 shares of common stock.
(4) At fiscal year-end, the per share exercise price of these options was $2.90
for options to acquire 24,554 shares of common stock, and $3.82 for options
to acquire 144,870 shares of common stock.
(5) At fiscal year-end, the per share exercise price of these options was $2.90
for options to acquire 6,138 shares of common stock, and $3.82 for options
to acquire 8,185 shares of common stock.
(6) At fiscal year-end, the per share exercise price of these options was $2.90
for options to acquire 18,416 shares of common stock, and $3.82 for options
to acquire 83,484 shares of common stock. In connection with Mr. Stack's
resignation, 58,930 of these options with an exercise price of $3.82 per
share have been canceled.

Tanning Technology Corporation Amended 1999 Employee Stock Purchase Plan

On , 1999, our board of directors adopted and our stockholders approved
the Tanning Technology Corporation Amended 1999 Qualified Stock Purchase Plan,
which will become effective upon completion of this offering. We intend to
administer the plan so that it qualifies as an employee stock purchase plan
under Section 423 of the Internal Revenue Code. The maximum number of shares of
Common Stock available for awards under the 1999 Stock Purchase Plan is .

The purpose of the plan is to strengthen our company by providing our
employees and our subsidiaries' employees the opportunity to acquire a
proprietary interest in our company through the purchase of shares of our
common stock at a discount. These purchases will be funded through regular
payroll deductions of up to 15% of a participant's gross cash wages for each
pay period during an offering period. Each full-time employee may participate
in the plan. An offering period to purchase shares of our common stock will
begin on the date on which Tanning and the underwriters agree on the price per
share in this offering and end on December 31, 1999. Thereafter, offering
periods will commence on each January 1 and July 1.

On the first day of each offering period, each participant is deemed to have
been granted an option to purchase a number of shares of common stock which
will have an aggregate purchase price equal to a

43
<PAGE>

percentage designated by the participant (between 1 and 15 percent) of his
gross cash wages during such offering period. The purchase price for such
shares will be the lower of 85% of the fair market value of the shares on the
first day and the last day of the offering period. The maximum number of shares
of common stock that a participant may purchase during an offering period is
. Each participant will automatically purchases shares on the last day of
the offering period.

A participant may reduce the percentage of payroll deductions once during an
offering period. A participant may discontinue payroll deductions at any time
during an offering period. If a participant discontinues payroll deductions, he
may request that amounts previously withheld be returned without interest.

The plan will be administered by the compensation committee of the board of
directors. Its determinations will be conclusive and binding. The board of
directors may amend or terminate the plan at any time; however, no such
amendment or termination may adversely effect outstanding options. Termination
of the plan will cause the termination of the then current offering period.

Tanning Technology Corporation 1999 Stock Option Plan

On , the board of directors adopted and our stockholders approved our
1999 Stock Option Plan, which will become effective upon completion of this
offering.

The 1999 Stock Option Plan provides for the granting of incentive stock
options to our employees and nonqualified stock options to our employees,
consultants and directors. The maximum number of shares of common stock
available for awards under the 1999 Stock Option Plan is .

The following is a summary description of the 1999 Stock Option Plan.

Overview

The 1999 Stock Option Plan provides our employees, consultants and directors
with an opportunity to purchase our shares. The purpose of the plan is to
retain the services of the optionees and to incentivize them to devote maximum
efforts to our success and to align their interests with those of our
stockholders.

Administration

The 1999 Stock Option Plan will be administered by a committee of the board
of directors that consists of at least two non-employee members. The
compensation committee of the board of directors is expected to serve as the
committee.

Generally, the committee (1) will select those persons to whom options will
be granted, and (2) will determine the terms and conditions of options,
including the purchase price per share and the vesting provisions. The
committee will interpret the plan and its determinations will be final. The
committee will have the authority to make amendments or modifications to
outstanding options consistent with the plan's terms.

Eligible individuals

Any of our current or future employees, consultants or directors will be
eligible to participate in the 1999 Stock Option Plan. There are approximately
individuals eligible to participate in the plan.

Shares subject to the 1999 Stock Option Plan

The maximum number of shares available for the granting of options under the
1999 Stock Option Plan is . The maximum number of shares that an eligible
individual may receive in respect of options granted in any calendar year is
. If any option is exercised by tendering shares, either actually or by
attestation as full or partial payment of the exercise price, the maximum
number of shares available under the plan will be increased by the number of
shares so tendered. Whenever any outstanding option expires, is canceled, is
settled in cash or is otherwise terminated without having been exercised, the
shares allocable to the expired, canceled, settled or otherwise terminated
portion of the option may again be the subject of an option grant.

44
<PAGE>

Options will be designated as either incentive stock options, or ISOs, which
are intended to qualify for special tax treatment, or nonqualified stock
options. No employee may receive ISOs in respect of more than 1,000,000 shares
of common stock. The per share exercise price of any option will be fixed by
the committee at the time the option is granted. The per share exercise price
of any ISO may not be less than 100% of the fair market value on the date the
option is granted or 110% in the case of an ISO granted to a 10% stockholder.
Each option is exercisable at such dates and in such installments as determined
by the committee. Each option will be for a term will be determined by the
committee.

Except as otherwise determined by the committee, options will not be
transferable except by will or the laws of descent and distribution.

The purchase price for shares acquired pursuant to the exercise of an option
must be paid in full concurrently with the exercise of the option. The purchase
price may be paid in cash, or as otherwise determined by the committee.

In the event of a merger of Tanning with or into another corporation, or the
sale of substantially all of our assets, each outstanding option shall be
assumed or an equivalent option substituted by the successor corporation or a
parent or subsidiary of the successor corporation; provided, however, that the
options shall remain subject to all of the conditions, restrictions and
performance criteria which were applicable to such options prior to such
assumption or substitution. In the event that the successor corporation refuses
to assume the option or substitute an equivalent option, the optionee shall
have the right to exercise the option as to all of the shares subject to the
option, including shares as to which it would not otherwise be exercisable. If
an option is exercisable in lieu of assumption or substitution in the event of
a merger or sale of assets, the secretary shall notify the optionee that the
option shall be fully exercisable for a period of fifteen (15) days from the
date of such notice, and the option shall terminate upon the expiration of such
period. For the purposes of this paragraph, the option shall be considered
assumed if, following the merger or sale of assets, the option confers the
right to purchase or receive, for each share subject to the option immediately
prior to the merger or sale of assets, the consideration (whether stock, cash,
or other securities or property) received in the merger or sale of assets for
each share held on the effective date of the transaction (and if holders were
offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding shares).

Termination of employment

Each option agreement will set forth the terms and conditions applicable to
the option upon a termination of employment of the optionee.

No additional rights

An optionee will not have any rights to the underlying shares until the
option is properly exercised. The 1999 Stock Option Plan does not give any
person any rights with respect to shares except as provided in the plan. The
plan does not limit in any way our right to terminate anyone's employment. It
is also not evidence of any agreement or understanding that we will employ any
person at any particular rate of compensation or for any particular period of
time.

Income tax withholding

When an optionee recognizes taxable income in connection with the receipt of
shares under the 1999 Stock Option Plan, the optionee must pay us an amount
equal to the federal, state and local income taxes and other amounts as may be
required by law to be withheld by us prior to the issuance, or release from
escrow, of such shares. We may deduct from any payment an amount equal to the
withholding taxes in satisfaction of an optionee's obligation to pay
withholding taxes. If permitted by the committee, in satisfaction of the
obligation to pay withholding taxes, the optionee may elect to have withheld a
portion of the shares then issuable to him or her having an aggregate fair
market value equal to the withholding taxes.

45
<PAGE>

Adjustments upon change in capitalization

In the event of a change in capitalization, the committee will adjust the
maximum number and class of shares or other stock or securities with respect to
which options may be granted under the 1999 Stock Option Plan or to any
eligible individual in any calendar year and the number and class of shares or
other stock or securities which are subject to outstanding options and the
purchase price therefor.

Effect of liquidation

In the event of our liquidation, the 1999 Stock Option Plan and the related
options issued will continue in effect in accordance with their respective
terms. Following such a liquidation, each optionee will be entitled to receive
in respect of each share subject to any outstanding option, upon the exercise
of the option, the same number and kind of stock, securities or other
consideration that each holder of a share was entitled to receive in the
liquidation in respect of a share; provided that such stock, securities or
other consideration will remain subject to all of the provisions which were
applicable to the option prior to such liquidation.

Pooling transactions

In the event of a transaction which is intended to constitute a pooling
transaction, we may take such actions as are specifically recommended by an
independent accounting firm to the extent reasonably necessary to assure that
the transaction will qualify as a pooling transaction. These actions may affect
the terms and conditions of awards under the 1999 Stock Option Plan.

Multiple agreements

The terms of any option under the 1999 Stock Option Plan will be set forth
in an agreement between us and the optionee.

Amendment and termination

The 1999 Stock Option Plan terminates on the day preceding the tenth
anniversary of its adoption. The board of directors or the committee may at any
time and from time to time amend, modify, suspend or terminate the 1999 Stock
Option Plan. However, no such amendment, modification, suspension or
termination may adversely alter any outstanding options without the consent of
the optionee. In addition, amendments may require stockholder approval.

Federal income tax consequences

In general, an optionee will not recognize taxable income upon the grant or
exercise of an ISO and we will not be entitled to any business expense
deduction. However, upon the exercise of an ISO, the excess of the fair market
value on the date of exercise of the shares received over the exercise price of
the option will be treated as an adjustment to alternative minimum taxable
income (unless the shares are sold in the same taxable year as exercise). In
order for the exercise of an ISO to qualify as an ISO, an optionee generally
must be an employee of Tanning or a subsidiary from the date the ISO is granted
through the date three months before the date of exercise or one year preceding
the date of exercise in the case of an optionee whose employment is terminated
due to disability. The employment requirement does not apply where an
optionee's employment is terminated upon death.

If an optionee held the shares acquired upon exercise of an ISO for more
than two years after the date of grant and for more than one year after the
date of exercise, when the optionee disposes of the shares, the difference, if
any, between the sales price of the shares and the exercise price of the option
will be treated as long-term capital gain. If an optionee disposes of the
shares prior to satisfying these holding period

46
<PAGE>

requirements, the optionee will recognize ordinary income at the time of the
sale, generally in an amount equal to the excess of the fair market value of
the shares at the time of exercise over the exercise price of the option. The
balance of any gain realized will be short-term or long-term capital gain. If
the optionee sells the shares prior to satisfying the holding period
requirements at a price below fair market value at the time the option was
exercised, the amount of ordinary income will be limited to the amount realized
on the sale over the exercise price of the option. In general, if we comply
with applicable income reporting requirements, we will be allowed a business
expense deduction to the extent an optionee recognizes ordinary income.

In general, an optionee who receives a nonqualified stock option will not
recognize income at the time of the grant of the option. Upon exercise of a
nonqualified stock option, an optionee will recognize ordinary income in an
amount equal to the excess of the fair market value of the shares on the date
of exercise over the exercise price of the option. The basis in the shares
acquired upon exercise of a nonqualified stock option will equal fair market
value of such shares at the time of exercise. The holding period of the shares
for capital gain purposes will begin on the date of exercise. In general, if we
comply with applicable income reporting requirements, we will be entitled to a
business expense deduction in the same amount as the optionee recognizes
ordinary income. In the event of a sale of the shares received upon the
exercise of a nonqualified stock option, any appreciation or depreciation after
the exercise date generally is taxed as capital gain or loss. However, any gain
will be subject to reduced tax rates if the shares were held for more than
twelve months.

This discussion assumes that at the time of exercise, the sale of the shares
would not subject an optionee to liability under Section 16(b) of the Exchange
Act. Special rules may apply with respect to persons who may be subject to
Section 16(b). Optionees who are or may become subject to Section 16(b) should
consult with their own advisors.

Excise taxes

Under certain circumstances, the accelerated vesting or exercise of options
in connection with a change in control of Tanning may be deemed an "excess
parachute payment" for purposes of the golden parachute tax provisions of
Section 280G of the Internal Revenue Code. To the extent it is so considered,
an optionee may be subject to a 20% excise tax and we may be denied a tax
deduction.

47
<PAGE>

CERTAIN TRANSACTIONS

Transactions with TTC Investors Group

In a series of transactions in the first six months of 1997, the TTC
Investors Group purchased an aggregate of 5,127,259 shares of common stock from
us for an aggregate consideration of $12,725,000. On June 9, 1998, the TTC
Investors Group purchased an additional 569,511 shares of our common stock for
$1,900,000. The entities constituting TTC Investors Group share a common
managing member, AEA Tanning Investors Inc., which is a wholly owned subsidiary
of AEA Investors Inc.

Transactions with Officers

On September 1, 1998, Mr. Skelsey, a director, joined Tanning as Executive
Vice President and Chief Financial Officer. In connection with his employment,
we granted Mr. Skelsey options to purchase 1,628,760 shares of our common stock
at an exercise price of $3.82. Options to purchase 407,190 shares were
immediately exercisable and the remaining options will vest over the next three
years. Mr. Skelsey exercised 261,911 of these options in February 1999.

Upon completion of this offering, we will lend on a recourse basis to each
of Messrs. Larry G. Tanning and Bipin Agarwal $250,000. The loans will bear
interest at the lowest rate permitted by the IRS to avoid the imputation of
interest income. The principal and all accrued interest on the loans will be
repayable after two years.

48
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table presents information regarding the beneficial ownership
of our common stock as of May 17, 1999 and as adjusted to reflect the sale of
our common stock offered hereby by (1) each person (or group within the meaning
of Section 13(d)(3) of the Exchange Act) known by us to own beneficially 5% or
more of our common stock, (2) our directors and Named Executive Officers and
(3) all of our directors and executive officers as a group.

As used in this table, "beneficial ownership" means the sole or shared power
to vote or direct the voting or to dispose or direct the disposition of any
security. A person is deemed to be the beneficial owner of securities that can
be acquired within 60 days from the date of this prospectus through the
exercise of any option, warrant or right. Shares of common stock subject to
options, warrants or rights that are currently exercisable or exercisable
within 60 days are deemed outstanding for computing the ownership percentage of
the person holding such options, warrants or rights, but are not deemed
outstanding for computing the ownership percentage of any other person. The
amounts and percentages are based upon 15,619,427 shares of common stock
outstanding as of May 14, 1999, and shares of common stock outstanding as of
the completion of this offering, respectively.

<TABLE>
<CAPTION>
Number of shares
of common stock
beneficially owned Percentage owned
prior to and --------------------------------
Name(1) after offering Prior to offering After offering
- ------- ------------------ ----------------- --------------
<S> <C> <C> <C>
TTC Investors I LLC(2)..... 984,237 6.3%
TTC Investors II LLC(2).... 4,143,022 26.5%
AEA Tanning Investors
Inc.(2)................... 5,696,770 36.5%
Courtney Rose Corporation.. 3,715,240 23.7%
Larry G. Tanning(3)........ 3,715,240 23.7%
WinSoft Corporation........ 2,322,021 14.9%
Bipin Agarwal(4)........... 2,322,021 14.9%
Stephen Brobst............. 2,322,021 14.9%
Hippeli Enterprises, Inc... 1,161,010 7.4%
Toni S. Hippeli(5)......... 1,161,010 7.4%
Henry F. Skelsey(6)........ 407,190 2.6%
P. Tracy Currie(7)......... 163,285 1.0%
Louis A. D'Alessandro(8)... 54,183 *
Thomas J. Stack(9)......... 22,508 *
Debra J. Chrapaty(10)...... 16,369 *
Christopher P. Mahan(11)... -- *
Joseph P. Roebuck(12)...... 16,369 *
Michael E. Shanahan(13).... 16,369 *
All directors and executive
officers as a group
(16 persons)(14).......... 7,997,753 51.2%
</TABLE>
- --------
* Represents beneficial ownership of less than one percent.
(1)Unless otherwise noted, the addresses of our significant stockholders is
c/o our company.
(2) AEA Tanning Investors Inc. is the managing member of TTC Investors I, TTC
Investors II, TTC Investors IA, which holds 108,986 shares of our common
stock, and TTC Investors IIA, which holds 460,525 shares of our common
stock, and accordingly may be deemed to beneficially own the shares held
by these entities. AEA Tanning Investors Inc. is a wholly owned subsidiary
of AEA Investors Inc. The address for TTC Investors I, TTC Investors II,
TTC Investors IA, TTC Investors IIA and AEA Tanning Investors Inc. is c/o
AEA Investors Inc., Park Avenue Tower, 65 East 55th Street, New York, New
York 10022.
(3) Includes 3,715,240 shares that Mr. Tanning is deemed to beneficially own
as the controlling investor of Courtney Rose Corporation.

49
<PAGE>

(4) Includes 2,322,021 shares that Mr. Agarwal is deemed to beneficially own
as the controlling investor of WinSoft Corporation.
(5) Includes 1,161,010 shares that Ms. Hippeli is deemed to beneficially own
as a controlling investor of Hippeli Enterprises. Ms. Hippeli and her
husband, Jerome Nickerson, each own 50% of the outstanding shares of
common stock of Hippeli Enterprises. Mr. Nickerson disclaims beneficial
ownership of the shares of our common stock owned by Hippeli Enterprises.
(6) Includes 145,279 shares of our common stock issuable upon exercise of
options that are currently exercisable. Excludes 1,221,570 shares of our
common stock issuable upon exercise of options that will not be
exercisable within 60 days of May 17, 1999. Mr. Skelsey is a member of two
of the limited liability companies constituting the TTC Investors Group.
Because he does not have voting or investment power over the shares of
common stock owned by the TTC Investors Group, he is not deemed to have
beneficial ownership of the shares. His indirect ownership interest in our
company through his membership in the limited liability companies
constituting the TTC Investors Group is less than one percent.
(7) Includes 163,285 shares of our common stock issuable upon exercise of
options that are currently exercisable. Excludes 291,785 shares of our
common stock issuable upon exercise of options that will not be
exercisable within 60 days of May 17, 1999.
(8) Includes 53,201 shares of our common stock issuable upon exercise of
options that are currently exercisable. Excludes 153,054 shares of our
common stock issuable upon exercise of options that will not be
exercisable within 60 days of May 17, 1999.
(9) Mr. Stack is no longer employed by us. See "Management--Employment and
non-competition agreements." Includes 22,508 shares of our common stock
issuable upon exercise of options that are currently exercisable. Excludes
34,785 shares of our common stock issuable upon exercise of options that
will not be exercisable within 60 days of May 17, 1999.
(10) Ms. Chrapaty will be appointed to our board of directors upon completion
of this offering. Excludes 32,739 shares of our common stock issuable upon
exercise of options that will not be exercisable within 60 days of May 17,
1999.
(11) Mr. Mahan is a member of two of the limited liability companies
constituting the TTC Investors Group. Because he does not have voting or
investment power over the shares of common stock owned by the TTC
Investors Group, he is not deemed to have beneficial ownership of the
shares. His indirect ownership interest in our company through his
membership in the limited liability companies constituting the TTC
Investors Group is less than one percent.
(12) Excludes 32,739 shares of our common stock issuable upon exercise of
options that will not be exercisable within 60 days of May 17, 1999.
(13) Mr. Shanahan will be appointed to our board of directors upon completion
of this offering. Excludes 32,739 shares of our common stock issuable upon
exercise of options that will not be exercisable within 60 days of May 17,
1999.
(14) See footnotes 3 through 5 above. Includes 484,536 shares of our common
stock issuable upon exercise of options that are currently exercisable.
Excludes 2,288,448 shares of our common stock issuable upon exercise of
options that will not be exercisable within 60 days of May 17, 1999.

50
<PAGE>

DESCRIPTION OF CAPITAL STOCK

We intend to amend our certificate of incorporation and bylaws prior to the
completion of this offering. The forms of our certificate of incorporation and
bylaws will be filed as exhibits to the registration statement of which this
prospectus is a part. The following summarizes the terms and provisions of our
capital stock upon the closing of this offering. The summary is not complete,
and you should read the forms of our certificate of incorporation and bylaws.

Upon the closing of this offering, our authorized capital stock will consist
of shares, $0.01 par value per share, of common stock and shares, par
value $0.01 per share, of preferred stock.

Common stock

Each share of our common stock will be identical in all respects and will
entitle its holder to the same rights and privileges enjoyed by all other
holders of shares of common stock and will subject them to the same
qualifications, limitations and restrictions to which all other holders of
common stock will be subject.

Voting rights

Holders of our common stock will be entitled to one vote per share on all
matters to be voted on by our stockholders. Holders of common stock will not
have cumulative rights, so that holders of a plurality of the shares of common
stock present at a meeting at which a quorum is present will be able to elect
all of our directors eligible for election in a given year. The holders of a
majority of the voting power of the issued and outstanding common stock will
constitute a quorum.

Dividends

Holders of our common stock will be entitled to receive ratably such
dividends, if any, as are declared by our board of directors out of funds
legally available for the declaration of dividends, subject to the preferential
rights of any holder of preferred stock that may from time to time be
outstanding.

Liquidation

Upon our liquidation, dissolution or winding up, the holders of our common
stock will be entitled to share pro rata in the distribution of all of our
assets available for distribution after satisfaction of all of our liabilities
and the payment of the liquidation preference of any preferred stock that may
be outstanding.

Other provisions

The holders of our common stock will have no preemptive or other
subscription rights to purchase common stock, and there will be no redemptive
rights or sinking fund provisions.

Preferred stock

Our board of directors will be authorized to issue preferred stock in one or
more series and to establish the number of shares to be included in each series
and to fix the designations, powers, preferences and rights of the shares of
each series and any qualifications, limitations or restrictions of each series.
Because the board of directors will have the power to establish the preferences
and rights of the shares of any series of preferred stock, it may afford the
holders of any series of preferred stock preferences, powers and rights,
including voting rights, senior to the rights of the holders of common stock.
The issuance of preferred stock may have the effect of delaying, deferring or
preventing a change in control of Tanning.

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<PAGE>

Limitation on directors' liabilities

Our certificate of incorporation will limit the liability of our directors
to us and our stockholders to the fullest extent permitted by Delaware law.
Specifically, our directors will not be personally liable for money damages for
breach of fiduciary duty as a director, except for liability

. for any breach of the director's duty of loyalty to us or our
stockholders;

. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;

. under Section 174 of the Delaware General Corporation Law, which
concerns unlawful payments of dividends, stock purchases or redemptions;
and

. for any transaction from which the director derived an improper personal
benefit.

Anti-takeover effects of our certificate of incorporation and bylaws and
provisions of Delaware law

Our certificate of incorporation, bylaws and Section 203 of the Delaware
General Corporation Law contain provisions that may make the acquisition of
control of Tanning by means of a tender offer, open market purchase, proxy
fight or otherwise, more difficult.

Section 203 of the Delaware General Corporation Law

We must comply with the provisions of Section 203 of the Delaware General
Corporation Law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner.

A "business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns,
or, in some cases, within three years prior, did own, 15% or more of the
corporation's voting stock. Under Section 203, a business combination between
Tanning and an interested stockholder is prohibited unless it satisfies one of
the following three conditions:

. our board of directors must have previously approved either the business
combination or the transaction that resulted in the stockholder becoming
an interested stockholder;

. upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of our voting stock outstanding at the time the transaction
commenced, excluding, for purposes of determining the number of shares
outstanding, shares owned by (1) persons who are directors and also
officers and (2) employee stock plans, in some instances; and

. the business combination is approved by our board of directors and
authorized at an annual or special meeting of the stockholders by the
affirmative vote of the holders of at least 66 2/3% of the outstanding
voting stock that is not owned by the interested stockholder.

Staggered board

Our certificate of incorporation will provide that the number of directors
shall be fixed from time to time by a resolution of a majority of our board of
directors. Our certificate of incorporation will also provide that the board of
directors shall be divided into three classes. The members of each class of
directors will serve for staggered three-year terms. In accordance with the
Delaware General Corporation Law, directors serving on classified boards of
directors may only be removed from office for cause. Vacancies on the board of
directors may be filled by a majority of the remaining directors, or by the
sole remaining director or by the stockholders. This provision could operate to
delay, defer or prevent a change in control of Tanning.

52
<PAGE>

Advance notice provision

Our bylaws will provide that stockholders must follow an advance
notification procedure for specified stockholder nominations of candidates for
the board of directors and for specified other stockholder business to be
conducted at an annual meeting. This provision could operate to delay, defer or
prevent a change in control of Tanning.

Special meetings of stockholders

Our bylaws will provide that special meetings of our stockholders may be
called only by our board of directors. This provision may render it more
difficult for stockholders to take action opposed by the board of directors.

Written consent provision

Our certificate of incorporation will place limits on our stockholders'
ability to act by written consent. Specifically, any action to be taken at a
stockholders' meeting may be taken without a meeting only if consented to
generally by stockholders having voting power of at least % of the voting
power of all shares of each class or series entitled to vote on the action.

Transfer agent and registrar

The Transfer Agent and Registrar for our common stock is .

53
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, shares of common stock will be
outstanding or shares if the underwriters exercise their over-allotment
option in full. Of these shares, the shares of common stock, assuming the
underwriters exercise their over-allotment option in full, sold in this
offering will be freely tradable without restriction or further registration
under the Securities Act, unless held by an "affiliate" of Tanning as that term
is defined in Rule 144 under the Securities Act. All of the shares of common
stock outstanding prior to this offering are "restricted securities," as such
term is defined under Rule 144. These shares are restricted securities because
they were issued in private transactions not involving a public offering and
may not be sold in the absence of registration other than in accordance with
Rule 144 or Rule 701 under the Securities Act or another exemption from
registration. This prospectus may not be used in connection with any resale of
shares of common stock acquired in this offering by Tanning Affiliates.

We, our officers and directors and our existing stockholders have agreed not
to offer, sell, contract to sell, announce their intention to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the SEC a
registration statement under the Securities Act relating to, any additional
shares of our common stock or securities convertible into or exchangeable or
exercisable for any shares of our common stock without the prior written
consent of Credit Suisse First Boston Corporation for a period of 180 days
after the date of this prospectus, except in our case for grants of employee
stock options pursuant to the terms of any stock option plans in effect on the
date of this prospectus, issuances of securities pursuant to the exercise of
employee stock options outstanding on the date of this prospectus, employee
stock purchases pursuant to the terms of a plan in effect on the date of this
prospectus or the issuance of shares pursuant to the exercise of any other
stock options outstanding on the date of this prospectus.

In general, under Rule 144 as currently in effect, if a minimum of one year
has elapsed since the later of the date of acquisition of the restricted
securities from the issuer or from an affiliate of the issuer, a person (or
persons whose shares of common stock are aggregated), including persons who may
be deemed Tanning Affiliates, would be entitled to sell within any three-month
period a number of shares of common stock that does not exceed the greater of

(1) one percent of the then-outstanding shares of common stock, which
equals approximately shares immediately after this offering, and

(2) the average weekly trading volume during the four calendar weeks
preceding the date on which notice of the sale is filed with the SEC.

Sales under Rule 144 are also subject to certain restrictions as to the
manner of sale, notice requirements and the availability of current public
information about us. In addition, under Rule 144(k), if a period of at least
two years has elapsed since the later of the date restricted securities were
acquired from us or the date they were acquired from a Tanning Affiliate, a
stockholder who is not a Tanning Affiliate at the time of sale and who has not
been a Tanning Affiliate for at least three months prior to the sale would be
entitled to sell shares of common stock in the public market immediately
without compliance with the foregoing requirements under Rule 144. Rule 144
does not require the same person to have held the securities for the applicable
periods. The foregoing summary of Rule 144 is not intended to be a complete
description.

In addition, any employee, director or officer of, or consultant to Tanning
who acquired shares pursuant to a written compensatory plan or contract may be
entitled to rely on the resale provisions of Rule 701, which permits non-
affiliates to sell their Rule 701 shares without having to comply with the
public information, holding period, volume limitation or notice provisions of
Rule 144, and permits Tanning Affiliates to sell their Rule 701 shares without
having to comply with the holding period restrictions of Rule 144, in each
case, commencing 90 days after the date of this prospectus.

Immediately following this offering, none of the "restricted securities"
will be available for immediate sale in the public market pursuant to Rule
144(k). Beginning 90 days after the date of this prospectus, and without
consideration of the contractual restrictions described above, shares
acquired

54
<PAGE>

upon exercise of options issued under our stock option plans will be
outstanding and eligible for sale in reliance upon Rule 701. Additional shares
may be available if options are exercised in the 180-day period following the
date of this prospectus. Shares of our common stock issued in reliance on Rule
701 may be resold by holders who are not Tanning Affiliates under Rule 144
without compliance with the holding period, amount and notice limitations and
by holders who are Tanning Affiliates under Rule 144 without compliance with
the holding period limitation. Following this offering, we intend to file a
registration statement on Form S-8 under the Securities Act to register
shares of common stock reserved or to be available for issuance pursuant to our
stock option plans. Shares of common stock acquired upon exercise of options
issued under our stock option plans generally will be available for sale in the
open market by holders who are not Tanning Affiliates and, subject to the
volume and other applicable limitations of Rule 144, by holders who are Tanning
Affiliates, unless such shares are subject to the contractual restrictions
described above.

Prior to this offering, there has been no public market for our common
stock. No information is currently available and we cannot predict the timing
or amount of future sales of shares, or the effect, if any, that future sales
of shares, or the availability of shares for future sale, will have on the
market price of our common stock prevailing from time to time. Sales of
substantial amounts of our common stock (including shares issuable upon the
exercise of stock options) in the public market after the lapse of the
restrictions described above, or the perception that such sales may occur,
could materially adversely affect the prevailing market prices for our common
stock and our ability to raise equity capital in the future. See "Risk
Factors--Risks Related to this Offering--The sale or availability for sale of
substantial amounts of our common stock could adversely affect its market
price."

55
<PAGE>

UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS

The following is a general discussion of the principal U.S. federal income
and estate tax consequences of the ownership and disposition of our common
stock by a Non-U.S. Holder. As used in this prospectus, the term "Non-U.S.
Holder" is a person other than:

. a citizen or individual resident of the United States,

. a corporation or partnership created or organized in or under the laws
of the United States or of any political subdivision of the United
States, other than a partnership treated as foreign under U.S. Treasury
regulations,

. an estate whose income is includible in gross income for U.S. federal
income tax purposes regardless of its source, or

. a trust, in general, if it is subject to the primary supervision of a
court within the United States and the control of one or more U.S.
persons.

An individual may, subject to certain exceptions, be treated as a resident
of the United States for U.S. federal income tax purposes, instead of a
nonresident, by, among other things, being present in the United States for at
least 31 days in the calendar year and for an aggregate of at least 183 days
during a three-year period ending in the current calendar year--counting for
these purposes all of the days present in the current year, one-third of the
days present in the immediately preceding year and one-sixth of the days
present in the second preceding year. Residents are subject to U.S. federal tax
as if they were U.S. citizens.

This discussion does not consider:

. U.S. state and local or non-U.S. tax consequences,

. specific facts and circumstances that may be relevant to a particular
Non-U.S. Holder's tax position, including, if the Non-U.S. Holder is a
partnership, that the U.S. tax consequences of holding and disposing of
our common stock may be affected by certain determinations made at the
partner level,

. the tax consequences for the shareholders, partners or beneficiaries of
a Non-U.S. Holder,

. special tax rules that may apply to certain Non-U.S. Holders, including
without limitation, banks, insurance companies, dealers in securities
and traders in securities, or

. special tax rules that may apply to a Non-U.S. Holder that holds our
common stock as part of a "straddle," "hedge" or "conversion
transaction."

The following discussion is based on provisions of the U.S. Internal Revenue
Code of 1986, applicable Treasury regulations, and administrative and judicial
interpretations, all as of the date of this prospectus, and all of which may
change, retroactively or prospectively. The following summary is for general
information. Accordingly, each Non-U.S. Holder should consult a tax advisor
regarding the U.S. federal, state, local and non-U.S. income and other tax
consequences of acquiring, holding and disposing of shares of our common stock.

Dividends

We do not anticipate paying cash dividends on our common stock in the
foreseeable future. See "Dividend Policy." In the event, however, that
dividends are paid on shares of common stock, dividends paid to a Non-U.S.
Holder of common stock generally will be subject to withholding of U.S. federal
income tax at a 30% rate, or such lower rate as may be provided by an
applicable income tax treaty. Non-U.S. Holders should consult their tax
advisors regarding their entitlement to benefits under a relevant income tax
treaty.

56
<PAGE>

Dividends that are effectively connected with a Non-U.S. Holder's conduct of
a trade or business in the United States or, if an income tax treaty applies,
attributable to a permanent establishment, or in the case of an individual, a
"fixed base," in the United States, as provided in that treaty ("U.S. trade or
business income"), are generally subject to U.S. federal income tax on a net
income basis at regular graduated rates, but are not generally subject to the
30% withholding tax if the Non-U.S. Holder files the appropriate U.S. Internal
Revenue Service form with the payor. Any U.S. trade or business income received
by a Non-U.S. Holder that is a corporation may also, under certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate
or such lower rate as specified by an applicable income tax treaty.

Dividends paid prior to 2001 to an address in a foreign country are
presumed, absent actual knowledge to the contrary, to be paid to a resident of
such country for purposes of the withholding discussed above and for purposes
of determining the applicability of a tax treaty rate. For dividends paid after
2000:

. a Non-U.S. Holder of common stock who claims the benefit of an
applicable income tax treaty rate generally will be required to satisfy
applicable certification and other requirements;

. in the case of common stock held by a foreign partnership, the
certification requirement will generally be applied to the partners of
the partnership and the partnership will be required to provide certain
information, including a U.S. taxpayer identification number; and

. look-through rules will apply for tiered partnerships.

A Non-U.S. Holder of common stock that is eligible for a reduced rate of
U.S. withholding tax under an income tax treaty may obtain a refund or credit
of any excess amounts withheld by filing an appropriate claim for a refund with
the IRS.

Gain on disposition of common stock

A Non-U.S. Holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of common stock unless:

. the gain is U.S. trade or business income, in which case, the branch
profits tax described above may also apply to a corporate Non-U.S.
Holder;

. the Non-U.S. Holder is an individual who holds the common stock as a
capital asset within the meaning of Section 1221 of the Internal Revenue
Code, is present in the United States for more than 182 days in the
taxable year of the disposition and meets certain other requirements;

. the Non-U.S. Holder is subject to tax pursuant to the provisions of the
U.S. tax law applicable to certain U.S. expatriates; or

. we are or have been a "U.S. real property holding corporation" for
federal income tax purposes at any time during the shorter of the five-
year period ending on the date of disposition or the period that the
Non-U.S. Holder held our common stock.

Generally, a corporation is a "U.S. real property holding corporation" if
the fair market value of its "U.S. real property interests" equals or exceeds
50% of the sum of the fair market value of its worldwide real property
interests plus its other assets used or held for use in a trade or business.
Tanning believes that it has not been, is not currently, and does not
anticipate becoming, a "U.S. real property holding corporation" for U.S.
federal income tax purposes. The tax relating to stock in a "U.S. real property
holding corporation" will not apply to a Non-U.S. Holder whose holdings, direct
and indirect, at all times during the applicable period, constituted 5% or less
of the common stock, provided that the common stock was regularly traded on an
established securities market.

Federal estate tax

Common stock owned or treated as owned by an individual who is a Non-U.S.
Holder at the time of death will be included in the individual's gross estate
for U.S. federal estate tax purposes, unless an applicable estate tax or other
treaty provides otherwise and, therefore, may be subject to U.S. federal estate
tax.

57
<PAGE>

Information reporting and backup withholding tax

We must report annually to the IRS and to each Non-U.S. Holder the amount of
dividends paid to that holder and the tax withheld with respect to those
dividends. Copies of the information returns reporting those dividends and
withholding may also be made available to the tax authorities in the country in
which the Non-U.S. Holder is a resident under the provisions of an applicable
income tax treaty or agreement.

Under certain circumstances, U.S. Treasury Regulations require information
reporting and backup withholding at a rate of 31% on certain payments on common
stock. Under currently applicable law, Non-U.S. Holders of common stock
generally will be exempt from these information reporting requirements and from
backup withholding on dividends paid prior to 2001 to an address outside the
United States. For dividends paid after 2000, however, a Non-U.S. Holder of
common stock that fails to certify its Non-U.S. Holder status in accordance
with applicable U.S. Treasury Regulations may be subject to backup withholding
at a rate of 31% on payments of dividends.

The payment of the proceeds of the disposition of common stock by a holder
to or through the U.S. office of a broker or through a non-U.S. branch of a
U.S. broker generally will be subject to information reporting and backup
withholding at a rate of 31% unless the holder either certifies its status as a
Non-U.S. Holder under penalties of perjury or otherwise establishes an
exemption. The payment of the proceeds of the disposition by a Non-U.S. Holder
of common stock to or through a non-U.S. office of a non-U.S. broker will not
be subject to backup withholding or information reporting unless the non-U.S.
broker is a "U.S. related person." In the case of the payment of proceeds from
the disposition of common stock by or through a non-U.S. office of a broker
that is a U.S. person or a "U.S. related person," information reporting, but
currently not backup withholding, on the payment applies unless the broker
receives a statement from the owner, signed under penalty of perjury,
certifying its non-U.S. status or the broker has documentary evidence in its
files that the holder is a Non-U.S. Holder and the broker has no actual
knowledge to the contrary. For this purpose, a "U.S. related person" is:

. a "controlled foreign corporation" for U.S. federal income tax purposes;

. a foreign person 50% or more of whose gross income from all sources for
the three-year period ending with the close of its taxable year
preceding the payment, or for such part of the period that the broker
has been in existence, is derived from activities that are effectively
connected with the conduct of a U.S. trade or business; or

. effective after 2000, a foreign partnership if, at any time during the
taxable year, (A) at least 50% of the capital or profits interest in the
partnership is owned by U.S. persons, or (B) the partnership is engaged
in a U.S. trade or business.

Effective after 2000, backup withholding may apply to the payment of
disposition proceeds by or through a non-U.S. office of a broker that is a U.S.
person or a "U.S. related person" unless certain certification requirements are
satisfied or an exemption is otherwise established and the broker has no actual
knowledge that the holder is a U.S. person. Non-U.S. Holders should consult
their own tax advisors regarding the application of the information reporting
and backup withholding rules to them, including changes to these rules that
will become effective after 2000.

Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be refunded, or credited against the holder's U.S. federal
income tax liability, if any, provided that the required information is
furnished to the IRS.

58
<PAGE>

UNDERWRITING

Under the terms and subject to the conditions contained in an underwriting
agreement, dated , 1999, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, Salomon Smith Barney
Inc., CIBC World Markets Corp., ING Baring Furman Selz LLC, and Adams,
Harkness & Hill, Inc., are acting as representatives, the following respective
numbers of shares of common stock:
<TABLE>
<CAPTION>
Number of
Underwriters shares
------------ ---------
<S> <C>
Credit Suisse First Boston Corporation................................
Salomon Smith Barney Inc. ............................................
CIBC World Markets Corp. .............................................
ING Baring Furman Selz LLC............................................
Adams, Harkness & Hill, Inc. .........................................
Total...............................................................
-----
=====
</TABLE>

The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in this offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or this
offering of common stock may be terminated.

We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares of common stock at the initial public
offering price less the underwriting discounts and commissions. This option
may be exercised only to cover any over-allotments of common stock.

The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and the selling group members may allow a discount of $ per
share on sales to other broker/dealers. After the initial public offering, the
public offering price and concession and discount to dealers may be changed by
the representatives.

The following table summarizes the discounts and commissions and estimated
expenses that we will pay.

<TABLE>
<CAPTION>
Total
-----------------------------
Without With
Per share over-allotment over-allotment
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions
paid by us........................... $ $ $
Expenses payable by us................ $ $ $
</TABLE>

The underwriters have informed us that they do not expect sales to accounts
over which they exercise discretionary authority to exceed 5% of the common
stock being offered.

We, our officers and directors and our existing stockholders have agreed
not to offer, sell, contract to sell, announce their intention to sell, pledge
or otherwise dispose of, directly or indirectly, or file with the SEC a
registration statement under the Securities Act relating to, any additional
shares of our common stock or securities convertible into to exchangeable or
exercisable for any shares of our common stock without the prior written
consent of Credit Suisse First Boston Corporation for a period of 180 days
after the date of this prospectus, except in our case for grants of employee
stock options pursuant to the terms of any plan in effect on the date of this
prospectus, issuances of securities pursuant to the exercise of employee stock
options

59
<PAGE>

outstanding on the date of this prospectus, employee stock purchases pursuant
to the terms of a plan in effect on the date of this prospectus or the issuance
of shares pursuant to the exercise of any other stock options outstanding on
the date of this prospectus.

The underwriters have reserved for sale, at the initial public offering
price, up to shares of common stock for employees and certain other persons
associated with Tanning who have expressed an interest in purchasing common
stock in this offering. The number of shares available for sale to the general
public in this offering will be reduced to the extent these persons purchase
the reserved shares. Any reserved shares not so purchased will be offered by
the underwriters to the general public on the same terms as the other shares.

We have agreed to indemnify the underwriters against liabilities under the
Securities Act or contribute to payments which the underwriters may be required
to make in that respect.

We will apply to list the shares of common stock on The Nasdaq National
Market under the symbol "TANN."

Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiation
between us and the representatives, and does not reflect the market price for
the common stock following the offering. Among the principal factors considered
in determining the initial public offering price will be:

. the information in this prospectus and otherwise available to the
representatives;

. market conditions for initial public offerings;

. the history of and prospects for the industry in which we will compete;

. our past and present operations;

. our past and present earnings and current financial position;

. the ability of our management;

. our prospects for future earnings;

. the present state of our development and our current financial
condition;

. the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies;

. the general condition of the securities markets at the time of this
offering; and

. other relevant factors.

We can offer no assurance that the initial public offering price will
correspond to the price at which the common stock will trade in the public
market subsequent to this offering or that an active trading market for the
common stock will develop and continue after this offering.

The representatives may engage in over-allotment, stabilizing
transactions, syndicate covering transactions and penalty bids in accordance
with Regulation M under the Exchange Act.

. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position. Stabilizing transactions
permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum.

. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.

. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by that
syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of our common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on The Nasdaq Stock Market's National Market or otherwise and, if
commenced, may be discontinued at any time.

60
<PAGE>

NOTICE TO CANADIAN RESIDENTS

Resale restrictions

The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.

Representations of purchasers

Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to Tanning and the dealer from whom
such purchase confirmation is received that: (1) such purchaser is entitled
under applicable provincial securities laws to purchase such common stock
without the benefit of a prospectus qualified under such securities laws, (2)
where required by law, that such purchaser is purchasing as principal and not
as agent, and (3) such purchaser has reviewed the text above under "Resale
restrictions."

Rights of action (Ontario purchasers)

The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.

Enforcement of legal rights

All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such persons
in Canada or to enforce a judgment obtained in Canadian courts against such
issuer or persons outside of Canada.

Notice to British Columbia residents

A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common stock acquired on the same date and under
the same prospectus exemption.

Taxation and eligibility for investment

Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.

61
<PAGE>

LEGAL MATTERS

Fried, Frank, Harris, Shriver & Jacobson (a partnership including
professional corporations), New York, New York will pass upon the validity of
the issuance of the shares of common stock offered hereby. The underwriters
have been represented by Cravath, Swaine & Moore, New York, New York.

EXPERTS

The consolidated financial statements of Tanning Technology Corporation at
December 31, 1998 and 1997, and for each of the three years in the period ended
December 31, 1998, appearing in this prospectus and registration statement have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report appearing elsewhere herein, and are included in reliance upon such
report given on the authority of such firm as experts in accounting and
auditing.

62
<PAGE>

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 with respect
to the common stock being offered by this prospectus. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedules to the registration statement. For further information
with respect to Tanning and the shares of common stock offered by this
prospectus, reference is made to the registration statement, including its
exhibits and schedules. Statements made in this prospectus to any contract or
other document are not necessarily complete and you should refer to the
exhibits attached to the registration statement for copies of the actual
contract or document. You may review a copy of the registration statement,
including its exhibits and schedules, at the SEC's public reference room,
located at 450 Fifth Street, N.W., Washington, D.C. 20549, or at the SEC's
regional offices located at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and Seven World Trade Center, 13th Floor, New York, New York
10048 or on the Internet at http://www.sec.gov. You may obtain a copy of this
registration statement from the SEC's public reference room upon payment of
prescribed fees. Please call the SEC at (800) SEC-0330 for further information
on the operation of the public reference room.

As a result of this offering, we will become subject to the information and
reporting requirements of the Exchange Act and, in accordance with the Exchange
Act, we will file periodic reports, proxy statements and other information with
the SEC.

63
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Auditors............................................ F-2
Consolidated Balance Sheets at December 31, 1998 and 1997 and at March 31,
1999 (unaudited)......................................................... F-3
Consolidated Statements of Income for the years ended December 31, 1998,
1997 and 1996 and for the periods ended March 31, 1999 and 1998
(unaudited).............................................................. F-5
Consolidated Statements of Stockholders'/Members' Equity for the years
ended December 31, 1998, 1997 and 1996 and for the period ended March 31,
1999 (unaudited)......................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996 and for the periods ended March 31, 1999 and 1998
(unaudited).............................................................. F-7
Notes to Consolidated Financial Statements................................ F-8
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholders
Tanning Technology Corporation

We have audited the accompanying consolidated balance sheets of Tanning
Technology Corporation as of December 31, 1998 and 1997, and the related
consolidated statements of income, stockholders'/members' 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 the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Tanning
Technology Corporation at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted
accounting principles.

Ernst & Young LLP

Denver, Colorado
February 26, 1999

F-2
<PAGE>

TANNING TECHNOLOGY CORPORATION

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 31,
------------------------ March 31,
1997 1998 1999
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents............. $ 7,768,636 $10,446,111 $ 7,183,218
Accounts receivable--trade, net of
allowance for doubtful accounts of
$300,464, $956,656 and $685,714 at
December 31, 1997, December 31, 1998
and March 31, 1999, respectively..... 5,357,057 9,225,153 13,181,568
Accounts receivable--other............ 106,306 152,743 253,228
Income taxes receivable............... 603,500 -- --
Deferred income taxes................. 314,152 417,315 558,209
Prepaid expenses and other assets..... 77,206 344,867 362,956
----------- ----------- -----------
Total current assets.................... 14,226,857 20,586,189 21,539,179
Property and equipment, at cost:
Computer equipment.................... 1,733,839 2,081,553 2,276,574
Office furniture and equipment........ 1,117,970 1,342,097 1,452,385
Computer software..................... 211,477 917,757 1,045,597
Leasehold improvements................ 179,215 258,484 379,074
----------- ----------- -----------
3,242,501 4,599,891 5,153,630
Less accumulated depreciation and
amortization......................... (636,184) (1,384,859) (1,668,807)
----------- ----------- -----------
2,606,317 3,215,032 3,484,823
Deposits and other long-term assets..... 12,948 121,854 93,437
----------- ----------- -----------
Total assets............................ $16,846,122 $23,923,075 $25,117,439
=========== =========== ===========
</TABLE>

F-3
<PAGE>

TANNING TECHNOLOGY CORPORATION

CONSOLIDATED BALANCE SHEETS--(Continued)

<TABLE>
<CAPTION>
December 31,
------------------------ March 31,
1997 1998 1999
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Liabilities and stockholders'/members'
equity
Current liabilities:
Accounts payable...................... $ 1,094,373 $ 1,554,871 $ 1,861,699
Accrued compensation.................. 1,410,116 2,280,842 1,599,651
Accrued distribution to former
members.............................. -- 165,257 165,257
Other accrued liabilities............. 457,863 629,190 317,856
Deferred revenue...................... 45,000 400,146 375,000
Income taxes payable.................. 15,223 1,432,518 1,511,205
Current portion of long-term debt..... 1,000,000 118,670 121,014
----------- ----------- -----------
Total current liabilities............... 4,022,575 6,581,494 5,951,682
Deferred income taxes................... 86,867 87,291 98,205
Long-term debt, net of current portion.. -- 460,183 428,766
Minority interest....................... -- 22,062 43,235
Commitments and contingencies...........
Stockholders'/members' equity:
Common stock:
Class A shares, $0.01 par value:
Authorized shares--9,520,293
Issued and outstanding shares--
9,520,293 at December 31, 1997,
December 31, 1998 and March 31,
1999............................... 58,159 290,795 290,795
Class B shares, $0.01 par value:
Authorized shares--5,696,770
Issued and outstanding shares--
5,127,259 at December 31, 1997;
5,696,770 at December 31, 1998 and
March 31, 1999..................... 26,700 151,376 151,376
Class C shares, $0.01 par value:
Authorized shares--8,536,568
Issued and outstanding shares--none
at December 31, 1997 and 1998;
281,555 at March 31, 1999.......... -- -- 8,600
Additional paid-in capital............ 12,800,772 14,178,203 15,226,603
Retained earnings (deficit)........... (143,543) 2,159,428 2,978,635
Accumulated comprehensive income
(loss)............................... (5,408) (7,757) (60,458)
----------- ----------- -----------
Total stockholders'/members' equity..... 12,736,680 16,772,045 18,595,551
----------- ----------- -----------
Total liabilities and
stockholders'/members' equity.......... $16,846,122 $23,923,075 $25,117,439
=========== =========== ===========
</TABLE>

See accompanying notes.

F-4
<PAGE>

TANNING TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
Three months ended
Years ended December 31, March 31,
------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Services revenue........ $12,762,915 $25,235,268 $30,313,139 $4,613,213 $11,305,049
Product sales........... 46,150 872,038 2,975,417 569,800 --
----------- ----------- ----------- ---------- -----------
Net revenues............ 12,809,065 26,107,306 33,288,556 5,183,013 11,305,049
Operating expenses:
Project personnel
costs................ 6,569,108 14,722,065 14,941,164 2,888,509 5,492,295
Selling, marketing and
administrative
expenses............. 2,054,581 7,855,759 12,177,973 2,320,677 4,678,763
Product development
costs................ 431,000 1,608,178 2,785,723 819,858 --
Management fees--
related parties...... 901,932 73,000 -- -- --
Sign-on bonus related
to stock purchase
agreement............ -- 2,117,664 -- -- --
----------- ----------- ----------- ---------- -----------
Total operating
expenses........... 9,956,621 26,376,666 29,904,860 6,029,044 10,171,058
----------- ----------- ----------- ---------- -----------
Income (loss) from
operations............. 2,852,444 (269,360) 3,383,696 (846,031) 1,133,991
Other income (expense):
Interest income....... 10,648 291,292 333,195 89,894 120,003
Interest expense...... (89,397) (69,765) (81,576) (16,387) (12,039)
Other................. 49,260 (90,589) 33,979 23,008 54,850
----------- ----------- ----------- ---------- -----------
Income (loss) before
provision for (benefit
from) income taxes..... 2,822,955 (138,422) 3,669,294 (749,516) 1,296,805
Provision for (benefit
from) income taxes..... -- (211,829) 1,366,323 (278,820) 477,598
----------- ----------- ----------- ---------- -----------
Net income (loss)....... $ 2,822,955 $ 73,407 $ 2,302,971 $ (470,696) $ 819,207
=========== =========== =========== ========== ===========
Basic earnings (loss)
per share.............. $ 0.01 $ 0.15 $ (0.03) $ 0.05
=========== =========== ========== ===========
Basic weighted average
shares outstanding..... 13,718,710 14,968,974 14,647,552 15,345,327
=========== =========== ========== ===========
Diluted earnings (loss)
per share.............. $ 0.01 $ 0.15 $ (0.03) $ 0.05
=========== =========== ========== ===========
Diluted weighted average
shares outstanding..... 13,718,710 15,232,236 14,647,552 16,323,342
=========== =========== ========== ===========
</TABLE>

See accompanying notes.

F-5
<PAGE>

TANNING TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS'/MEMBERS' EQUITY

<TABLE>
<CAPTION>
Class A Class B Class C
Member common stock common stock common stock Additional Retained
contributions Accumulated ------------------ ------------------ -------------- paid-in earnings
(distributions) earnings Shares Amount Shares Amount Shares Amount capital (deficit)
--------------- ----------- --------- -------- --------- -------- ------- ------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31,
1995............ $ 145,424 $ 954,176 -- $ -- -- $ -- -- $ -- $ -- $ --
Member
distributions... (3,852,063) -- -- -- -- -- -- -- -- --
Net income...... -- 2,822,955 -- -- -- -- -- -- -- --
Foreign currency
translation..... -- -- -- -- -- -- -- -- -- --
Comprehensive
income..........
----------- ---------- --------- -------- --------- -------- ------- ------ ----------- ----------
Balance,
December 31,
1996............ (3,706,639) 3,777,131 -- -- -- -- -- -- -- --
Member
distributions... (977,455) -- -- -- -- -- -- -- -- --
Member
contributions,
net............. 838,565 -- -- -- -- -- -- -- -- --
Net income and
comprehensive
income for month
ended January
31, 1997........ -- 216,950 -- -- -- -- -- -- -- --
Conversion to C
corporation and
sale of common
stock........... 3,845,529 (3,994,081) 9,520,293 2,763 3,657,342 927 -- -- 9,233,851 --
----------- ---------- --------- -------- --------- -------- ------- ------ ----------- ----------
Balance, January
31, 1997........ -- -- 9,520,293 2,763 3,657,342 927 -- -- 9,233,851 --
Stock split,
March 17, 1997.. -- -- -- 55,396 -- 17,927 -- -- (73,323) --
Sale of common
stock........... -- -- -- -- 1,469,917 7,846 -- -- 3,640,244 --
Net loss for the
11 months ended
December 31,
1997............ -- -- -- -- -- -- -- -- -- (143,543)
Foreign currency
translation..... -- -- -- -- -- -- -- -- -- --
Comprehensive
income (loss)...
----------- ---------- --------- -------- --------- -------- ------- ------ ----------- ----------
Balance,
December 31,
1997............ -- -- 9,520,293 58,159 5,127,259 26,700 -- -- 12,800,772 (143,543)
Stock split,
April 30, 1998.. -- -- -- 232,636 -- 109,476 -- -- (342,112) --
Sale of common
stock........... -- -- -- -- 569,511 15,200 -- -- 1,884,800 --
Distribution to
former members
of Tanning
Technology
Group, LLC...... -- -- -- -- -- -- -- -- (165,257) --
Net income...... -- -- -- -- -- -- -- -- -- 2,302,971
Foreign currency
translation..... -- -- -- -- -- -- -- -- -- --
Comprehensive
income..........
----------- ---------- --------- -------- --------- -------- ------- ------ ----------- ----------
Balance,
December 31,
1998............ -- -- 9,520,293 290,795 5,696,770 151,376 -- -- 14,178,203 2,159,428
Exercised stock
options
(unaudited)..... -- -- -- -- -- -- 281,555 8,600 1,048,400 --
Net income for
three months
ended March 31,
1999
(unaudited)..... -- -- -- -- -- -- -- -- -- 819,207
Foreign currency
translation
(unaudited)..... -- -- -- -- -- -- -- -- -- --
Comprehensive
income
(unaudited).....
----------- ---------- --------- -------- --------- -------- ------- ------ ----------- ----------
Balance, March
31, 1999
(unaudited)..... $ -- $ -- 9,520,293 $290,795 5,696,770 $151,376 281,555 $8,600 $15,226,603 $2,978,635
=========== ========== ========= ======== ========= ======== ======= ====== =========== ==========
<CAPTION>
Total
Accumulated stockholders'/
comprehensive members'
income (loss) equity
------------- --------------
<S> <C> <C>
Balance,
December 31,
1995............ $ -- $ 1,099,600
Member
distributions... -- (3,852,063)
Net income...... -- 2,822,955
Foreign currency
translation..... 12,079 12,079
--------------
Comprehensive
income.......... 2,835,034
------------- --------------
Balance,
December 31,
1996............ 12,079 82,571
Member
distributions... -- (977,455)
Member
contributions,
net............. -- 838,565
Net income and
comprehensive
income for month
ended January
31, 1997........ -- 216,950
Conversion to C
corporation and
sale of common
stock........... (12,079) 9,076,910
------------- --------------
Balance, January
31, 1997........ -- 9,237,541
Stock split,
March 17, 1997.. -- --
Sale of common
stock........... -- 3,648,090
Net loss for the
11 months ended
December 31,
1997............ -- (143,543)
Foreign currency
translation..... (5,408) (5,408)
--------------
Comprehensive
income (loss)... (148,951)
------------- --------------
Balance,
December 31,
1997............ (5,408) 12,736,680
Stock split,
April 30, 1998.. -- --
Sale of common
stock........... -- 1,900,000
Distribution to
former members
of Tanning
Technology
Group, LLC...... -- (165,257)
Net income...... -- 2,302,971
Foreign currency
translation..... (2,349) (2,349)
--------------
Comprehensive
income.......... 2,300,622
------------- --------------
Balance,
December 31,
1998............ (7,757) 16,772,045
Exercised stock
options
(unaudited)..... -- 1,057,000
Net income for
three months
ended March 31,
1999
(unaudited)..... -- 819,207
Foreign currency
translation
(unaudited)..... (52,701) (52,701)
--------------
Comprehensive
income
(unaudited)..... 766,506
------------- --------------
Balance, March
31, 1999
(unaudited)..... $(60,458) $18,595,551
============= ==============
</TABLE>

See accompanying notes.

F-6
<PAGE>

TANNING TECHNOLOGY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Three months ended
Year ended December 31, March 31,
------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net income (loss)....... $ 2,822,955 $ 73,407 $ 2,302,971 $ (470,696) $ 819,207
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Loss on disposal of
equipment............. -- -- 128,609 -- --
Depreciation and
amortization.......... 150,055 443,977 916,699 179,286 283,948
Deferred income
taxes................. -- (227,285) (102,739) (43,656) --
Minority interest...... -- -- 22,062 -- 21,173
Changes in operating
assets and
liabilities:
Accounts receivable--
trade............... (2,575,031) (5,036,989) (3,868,096) (321,469) (3,956,415)
Accounts receivable--
other............... -- (54,442) (46,437) 44,148 (100,485)
Income taxes
receivable.......... -- (603,500) 603,500 (433,770) --
Prepaid expenses and
other assets........ (124,649) 6,634 (267,661) (19,287) (18,089)
Deposits and other
long-term assets.... 6,901 744 (108,906) (516) 28,417
Accounts payable..... 265,540 746,104 460,498 (266,362) 306,828
Accrued
compensation........ 257,783 1,072,000 870,726 (539,592) (681,191)
Deferred revenue..... -- 45,000 355,146 63,750 (25,146)
Other accrued
liabilities......... 461,331 (265,892) 171,327 (8,578) (311,334)
Income taxes
payable............. -- 15,223 1,417,295 199,560 (51,293)
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) operating
activities............. 1,264,885 (3,785,019) 2,854,994 (1,617,182) (3,684,380)
Investing activities
Purchase of property and
equipment, net......... (858,702) (1,899,060) (1,654,023) (441,292) (553,739)
----------- ----------- ----------- ----------- -----------
Net cash used in
investing activities... (858,702) (1,899,060) (1,654,023) (441,292) (553,739)
Financing activities
Principal payments under
capital lease
obligations............ (189,364) (40,471) -- -- --
Principal payments on
long-term debt......... -- (700,000) (1,073,478) -- (29,073)
Principal payments on
notes payable--related
parties................ (363,455) -- -- -- --
Borrowings on long-term
debt................... 1,700,000 -- 652,331 652,331 --
Exercise of stock
options................ -- -- -- -- 1,057,000
Proceeds from issuance
of common stock........ -- 12,725,000 1,900,000 -- --
Distributions to
members, net........... -- (138,890) -- -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by
financing activities... 1,147,181 11,845,639 1,478,853 652,331 1,027,927
Effect of exchange rate
on cash................ 12,079 (5,408) (2,349) (1,110) (52,701)
----------- ----------- ----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents............ 1,565,443 6,156,152 2,677,475 (1,407,253) (3,262,893)
Cash and cash
equivalents at
beginning of period.... 47,041 1,612,484 7,768,636 7,768,636 10,446,111
----------- ----------- ----------- ----------- -----------
Cash and cash
equivalents at end of
period................. $ 1,612,484 $ 7,768,636 $10,446,111 $ 6,361,383 $ 7,183,218
=========== =========== =========== =========== ===========
Supplemental disclosures
of cash flow
information
Cash paid for interest.. $ 35,866 $ 40,026 $ 163,897 $ 16,387 $ 12,039
Cash paid for income
taxes.................. -- 603,723 30,686 -- 478,324
</TABLE>

Supplemental disclosures of noncash investing and financing transactions

During 1997 and 1996, the Company distributed $977,455 and $3,852,063,
respectively, of its accounts receivable to its members.

See accompanying notes.

F-7
<PAGE>

TANNING TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information for the three months ended March 31, 1998 and 1999 is unaudited)

1.BUSINESS AND ORGANIZATION

Tanning Technology Corporation (the "Company") is a leading information
technology services provider that architects, builds and deploys enterprise
solutions for corporations throughout the world. The Company specializes in
large, complex, integrated solutions that incorporate online transaction
processing and very large databases. Internet technologies are a central part
of the Company's solutions, enabling direct interaction among customers and
business partners on the World Wide Web and among employees within
organizations on their private intranets.

Tanning Technology Group, LLC ("TTG") was formed under the laws of the state
of Colorado on February 8, 1995, as a result of the combination of Courtney
Rose Corporation, WinSoft Corporation, Strategic Technologies and Systems, and
Hippeli Enterprises. The assets and liabilities contributed by the members were
recorded at historical cost as reflected on the accounts of the respective
entities prior to the formation of TTG.

On December 24, 1996, TTG entered into a Stock Purchase Agreement with AEA
Tanning Investors Inc. (AEA Tanning Investors Inc., together with certain
limited liability companies of which it is the managing member, the "TTC
Investors Group"). As a result of this agreement, in January 1997 TTG effected
a series of transactions whereby TTG was merged into Tanning Technology
Corporation, a Delaware corporation newly formed in conjunction with this
transaction. On January 31, 1997, the Tanning Investors Group purchased
3,657,342 shares of Class B common stock from the Company for $9,076,910 and
purchased directly from the former members of TTG $3,648,090 of accounts
receivable that had been distributed to the members of TTG (see Note 7). On
June 6, 1997, the Tanning Investors Group purchased an additional 1,469,917
shares of Class B common stock from the Company for $3,648,090, which was
comprised of $3,126,636 cash and accounts receivable with a value of $521,454.
On June 9, 1998, the Tanning Investors Group purchased an additional 569,511
shares of Class B common stock from the Company for $1,900,000.

The Company's wholly-owned subsidiaries include Nextek Software Corporation
and a European subsidiary, Tanning Technology Europe Limited. During 1998, the
Company established a 51% owned Indian subsidiary, Tanning Technology India Pvt
Ltd ("TTI"). The operating results of TTI are not material to the consolidated
results of operations. Nextek Software Corporation sold the rights to certain
developed software during 1998 and has no current plans for future product
sales.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation

The accompanying financial statements include the accounts of the Company
and all majority-owned subsidiaries. All significant intercompany transactions
have been eliminated.

Limited Liability Company ("LLC")

An LLC is an unincorporated association of two or more persons, whose
members have limited personal liability for the obligations or debts of the
entity. For federal income tax purposes, the Company was classified as an LLC
through January 31, 1997, at which time the Company converted from an LLC to a
C Corporation.

Revenue Recognition

Substantially all of the Company's contracts are billed on a time and
materials basis. Under time and materials contracts, the Company recognizes
revenue as services are provided. In addition, the Company is generally
reimbursed for reasonable expenses incurred under its contracts. The Company
recognizes revenue for fixed price contracts on a percentage of completion
basis. The Company recognizes revenue from its

F-8
<PAGE>

TANNING TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

software sales in accordance with the provisions of the American Institute of
Certified Public Accountants' Statement of Financial Position 97-2, Software
Revenue Recognition, which provides guidance on applying generally accepted
accounting principles in recognizing revenue on software transactions.

Cash and Cash Equivalents

The Company considers all highly liquid investments (including money market
accounts) with a maturity of three months or less when purchased to be cash
equivalents.

Property and Equipment

Property and equipment is stated at cost. Depreciation and amortization,
which includes amortization of assets under capital leases, is based on the
straight-line method over the following estimated useful lives:

<TABLE>
<S> <C>
Computer equipment.................................... 5 years
Office furniture and equipment........................ 7 years
Computer software..................................... 3 years
Leasehold improvements................................ Lesser of the life
of the improvement
or the related asset
</TABLE>

Income Taxes

The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standard ("SFAS") No. 109, Accounting for Income Taxes,
which requires that the Company account for income taxes using the liability
method. Under SFAS No. 109, deferred income taxes are provided for temporary
differences in recognizing certain income and expense items for financial
reporting and tax reporting purposes. Upon completion of the merger of TTG with
the Company (see Note 1), the LLC status was terminated and the Company began
providing for current and deferred income taxes as a C corporation.
Accordingly, the consolidated statement of income for the year ended December
31, 1997 includes a one-time credit (included in benefit from income taxes) of
approximately $70,000 to record the related deferred tax asset. Prior to the
conversion to a C corporation, no provision for income taxes was provided since
members included their distributive shares of revenue and deductions of the
limited liability company in their personal capacities, pursuant to election
under Subchapter K of the Internal Revenue Code.

Fair Value of Financial Instruments

The carrying amounts of the Company's cash and cash equivalents,
receivables, payables and accrued expenses approximate fair value due to the
short maturity of these instruments. The fair value of the Company's long-term
debt approximates carrying value and was estimated by discounting future cash
flows using rates currently available for debt with similar terms and remaining
maturities.

Sales to Significant Customers

The Company provides services to a small number of customers. Two customers
accounted for 31% each of total revenues in 1996. Two customers accounted for
40% and 22%, respectively, of total revenues in 1997. Two customers accounted
for 28% and 11%, respectively, of total revenues in 1998. Four customers
accounted for 31%, 12%, 12% and 12%, respectively, of total revenues for the
first three months of 1999. The Company performs periodic credit evaluations of
its customers' financial condition and collateral generally is not required.
Overall credit losses are within management's expectations.

F-9
<PAGE>

TANNING TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Accounting Estimates in the Preparation of Financial Statements

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

Stock-Based Compensation

The Company has elected to follow Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees ("APB 25"), and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recorded. The Company has adopted the disclosure-only provisions of
SFAS No. 123.

Earnings Per Share

The Company has adopted the provisions of SFAS No. 128, Earnings Per Share.
SFAS 128 requires entities to present both basic earnings per share ("EPS") and
diluted EPS. Basic EPS excludes dilution and is computed by dividing income
(loss) available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in the issuance
of common stock that then shared in the earnings of the entity. Potential
dilution of securities exercisable into common stock was computed using the
treasury stock method based on the average fair market value of the stock. EPS
for 1996 is not presented since there were no shares outstanding due to the
Company's status as an LLC. The following table reflects the basic and diluted
weighted average shares.

<TABLE>
<CAPTION>
Years ended December 31 Three months ended March 31
----------------------- ---------------------------
1997 1998 1998 1999
----------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Weighted-average shares
outstanding.............. 13,718,710 14,968,974 14,647,552 15,345,327
Dilutive impact of options
outstanding.............. -- 263,262 -- 978,015
----------- ----------- ------------- -------------
Weighted-average shares
and potential dilutive
shares outstanding....... 13,718,710 15,232,236 14,647,552 16,323,342
=========== =========== ============= =============
</TABLE>

Reclassifications

Certain of the prior year amounts have been reclassified to conform with the
1998 presentation.

Interim Financial Information

The financial statements as of and for the three months ended March 31, 1998
and 1999, are unaudited; however, they include all adjustments (consisting of
normal recurring adjustments) considered necessary by management for a fair
presentation of the financial position and results of operations for these
periods. The results of operations for interim periods are not necessarily
indicative of the results that may be expected for the entire year.

F-10
<PAGE>

TANNING TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

3.LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
December 31,
-------------------- March 31,
1997 1998 1999
---------- -------- -----------
(unaudited)
<S> <C> <C> <C>
Note and security agreements with bank,
interest at 8.71%, principal and
interest payable over sixty equal
monthly installments.................... $ -- $578,853 $549,780
Unsecured loan, interest at 6%, principal
and accrued interest paid in full in
1998.................................... 1,000,000 -- --
Less current portion..................... (1,000,000) (118,670) (121,014)
---------- -------- --------
Long-term debt........................... $ -- $460,183 $428,766
========== ======== ========
</TABLE>

The proceeds from the note and security agreements (the "Notes") totaling
$652,331 were used by the Company to purchase office furniture and fixtures.
The Notes are collateralized by the purchased assets.

4.STOCKHOLDERS'/MEMBERS' EQUITY

During April 1999, the Board of Directors authorized the Company to file a
registration statement with the Securities and Exchange Commission for an
initial public offering of shares of its common stock. In connection with the
planned initial public offering, the Company intends to effect a 1 for 3.05
reverse stock split of its Class A and Class C common shares; and a 1 for 2.67
reverse stock split of its Class B common shares. All references to common
shares in the accompanying financial statements reflect the Company's
anticipated reverse stock splits, retroactively applied to all periods
presented.

On March 17, 1997, the Board of Directors declared a 21.053:1 stock split of
the Company's Class A and B common stock, effected in the form of a stock
dividend of 20.053 shares of Class A and B common stock for each one share
issued and outstanding. Class A and B common stock issued and additional paid-
in capital as of December 31, 1997 have been restated to reflect this split.
The number of shares issued at December 31, 1997, after giving effect to both
the purchases by the Tanning Technology Group and the stock splits, was
9,520,293, 5,127,259 and 0 of Class A, B and C common stock, respectively.

Effective April 30, 1998, the Board of Directors declared a 5:1 stock split
of the Company's Class A and B common stock, effected in the form of a stock
dividend of 4 shares of Class A and B common stock for each one share issued
and outstanding. The split was effected so that no change was made to the par
value of all outstanding shares. In conjunction with the stock split, each
outstanding stock option granted under the Stock Option Plan was also increased
while the exercise price of each stock option was decreased by the
corresponding 5:1 ratio.

In July 1998, the number of authorized shares of Class C nonvoting common
stock was increased to 8,536,568. The number of shares issued at December 31,
1998, after giving effect to both the stock splits and the purchases by the
Tanning Technology Group, was 9,520,293, 5,696,770 and 0 of Class A, B and C
common stock, respectively. As of March 31, 1999 there were 9,520,293,
5,696,770 and 281,555 shares issued and outstanding of Class A, B and C common
stock, respectively.

F-11
<PAGE>

TANNING TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

5.INCOME TAXES

The components of income tax expense (benefit) are as follows:

<TABLE>
<CAPTION>
December 31,
---------------------
1997 1998
--------- ----------
<S> <C> <C>
Provision for (benefit from) income taxes:
Current:
Federal........................................... $ -- $ 268,823
State............................................. 2,903 68,352
Foreign........................................... 12,553 1,131,887
--------- ----------
Total current....................................... 15,456 1,469,062
Deferred:
Federal........................................... (194,058) (86,379)
State............................................. (33,227) (16,360)
--------- ----------
Total deferred...................................... (227,285) (102,739)
--------- ----------
Provision (benefit) from income taxes................. $(211,829) $1,366,323
========= ==========
</TABLE>

The components of the deferred tax benefit, which arise from timing
differences between financial and tax reporting, are presented below:

<TABLE>
<CAPTION>
December 31,
----------------------
1997 1998
---------- ----------
<S> <C> <C>
Allowance for uncollectible accounts............... $ (121,328) $ (237,109)
Accrued bonuses.................................... (141,330) 141,330
Accrued vacation................................... (20,770) (10,462)
Deferred revenue................................... (18,171) 8,364
Foreign tax credit................................. (12,553) --
Net operating loss carryforward.................... (41,215) 41,215
Accelerated depreciation........................... 130,752 (43,461)
Deferred state income taxes........................ (2,670) 17,139
Organization costs................................. -- (19,755)
---------- ----------
$(227,285) $ (102,739)
========== ==========

Variation from the federal statutory rate is as follows:

<CAPTION>
December 31,
----------------------
1997 1998
---------- ----------
<S> <C> <C>
Expected provision for (benefit from) federal
income taxes at statutory rate of 34%............. $ (47,063) $1,247,561
Election of C corporation status................... (69,681) --
Tanning Technology Group, LLC income nontaxable due
to LLC status..................................... (86,780) --
Permanent differences.............................. -- 25,892
State tax benefit, net of federal benefit.......... (8,305) 34,315
Other.............................................. -- 58,555
---------- ----------
$(211,829) $1,366,323
========== ==========
</TABLE>

F-12
<PAGE>

TANNING TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The components of the net deferred income tax asset are as follows:

<TABLE>
<CAPTION>
December 31,
-----------------
1997 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for uncollectible accounts.................... $121,328 $358,436
Accrued bonuses......................................... 141,330 --
Accrued vacation........................................ 20,770 31,232
Deferred revenue........................................ 18,171 9,807
Foreign tax credit...................................... 12,553 12,553
Net operating loss carryforward......................... 41,215 --
Other................................................... 2,670 19,756
-------- --------
358,037 431,784
Deferred tax liabilities:
Deferred state income taxes............................. -- 14,469
Accelerated depreciation................................ 130,752 87,291
-------- --------
Deferred tax asset, net................................... $227,285 $330,024
======== ========
</TABLE>

For the year ended December 31, 1998, income before income taxes for
domestic and foreign operations was $521,137 and $3,148,157, respectively. For
the year ended December 31, 1997, income (loss) before income taxes for
domestic and foreign operations was $164,074 and $(302,496), respectively.

6.LEASES
The Company leases equipment and office space. Rental expense under
operating leases included in selling, marketing and administrative expenses was
$1,153,562, $601,341 and $250,593 for the years ended December 31, 1998, 1997,
and 1996, respectively.

The following represents the future minimum lease payments for all
noncancelable operating leases at December 31, 1998:

<TABLE>
<S> <C>
1999........................................................... $1,654,502
2000........................................................... 1,731,424
2001........................................................... 1,390,055
2002........................................................... 1,407,827
2003........................................................... 1,437,480
----------
Total minimum lease payments................................... $7,621,288
==========
</TABLE>

During 1997, all capital leases, which were substantially with members of
the Company, were paid in full.

7.RELATED PARTY TRANSACTIONS

In conjunction with the Stock Purchase Agreement with AEA (see Note 1), the
Company entered into employment agreements with certain stockholders of the
Company on January 31, 1997. These employment agreements are for three years
and consist of annual minimum salary payments of $950,000 (in the aggregate for
the employees who are party to these agreements) plus annual bonuses, as
defined. In connection with the initial public offering, the Company intends to
amend these agreements to change the annual salary payments to $570,000 (in the
aggregate for the employees who are party to these agreements) plus annual
bonuses. In addition, in February 1997 the Company paid sign-on bonuses
totaling $1,573,212 to certain stockholders of the Company and $544,452 to
certain employees of the Company.

F-13
<PAGE>

TANNING TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

On January 24, 1997, the Company distributed $977,455 of accounts receivable
balances which were generated from January 1997 sales in the United States, to
its members. The amount distributed of $977,455 is included in member
distributions in the accompanying consolidated statement of
stockholders'/members' equity.

Effective December 31, 1998, the Company agreed to distribute $165,257 to
the former members of TTG. This distribution was for reimbursement of taxes
paid by the members resulting from the conversion of an LLC to a C Corporation
on January 31, 1997.

The Company incurred management fees of $0, $73,000, and $901,932 to certain
of its members for the years ended December 31, 1998, 1997, and 1996,
respectively.

Receivable balances, owed to the Company by employees, totaled $66,024,
$60,753 and $68,566 at December 31, 1998 and 1997, and March 31, 1999,
respectively.

8.COMMITMENTS AND CONTINGENCIES

During 1997, the Company entered into an agreement with two individuals
whereby these individuals would receive commissions and royalties earned on
sales made by Nextek Software Corporation as defined in the agreement. The
Company incurred royalty and commission expenses of $104,569 and $28,210
related to this agreement for the years ended December 31, 1998 and 1997,
respectively.

9.EMPLOYEE BENEFIT PLAN

The Company has a defined contribution plan under Section 401(k) of the
Internal Revenue Code. Employees age twenty-one or older are eligible to
participate in the plan upon employment with the Company and may elect to defer
up to 15 percent of their annual compensation up to the maximum amount as
determined by the Internal Revenue Service. Under the retirement plan
agreement, the Company, at its discretion, may make voluntary contributions to
the plan. Each employee must complete one year of service, as defined, in order
to receive any voluntary contributions made by the Company. Total employer
contributions to the plan for the two-month period ended March 31, 1999 were
$38,626. No employer contributions were made to the plan in either 1998 or
1997.

10.STOCK OPTIONS

Effective February 1, 1997, the Company adopted the Tanning Technology
Corporation Stock Option Plan (the "1997 Plan"). Under the provisions of the
1997 Plan, nonqualified stock options may be granted by a committee of the
Board of Directors at its discretion to key employees, officers or independent
contractors of the Company. The Company's 1997 Plan authorized the grant of
options for up to 3,289,094 shares of Class C nonvoting common stock. All
awards are for the right to purchase one share of Class C nonvoting common
stock at a price to be determined by the committee. Generally, all options vest
over a period of 3-4 years. All options, once vested, are exercisable until
February 1, 2007, at which time the 1997 Plan shall terminate.

Effective July 24, 1998, the Company adopted the Tanning Technology
Corporation 1998 Stock Option Plan (the "1998 Plan"). The 1998 plan, which
carries similar terms and conditions as the 1997 plan, authorizes the grant of
options for up to 5,247,474 shares of Class C nonvoting common stock. All
options granted under the 1998 Plan, once vested, are exercisable until July
24, 2008, at which time the 1998 Plan shall terminate.

Pro forma information regarding net income is required by SFAS No. 123, and
has been determined as if the Company had accounted for its employee stock
options under the fair value method of that Statement. The fair value of these
options was estimated at the date of grant using a Black-Scholes option-pricing
model with

F-14
<PAGE>

TANNING TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

the following weighted average assumptions for 1998 and 1997, respectively:
risk-free interest rates of 4.64%-5.36% and 5.77%; dividend yields of 0;
volatility factors of 0 and a weighted-average expected life of the option of 5
years.

The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The
Company's pro forma net income (loss) and earnings per share was as follows:

<TABLE>
<CAPTION>
Year ended December
31,
---------------------
1997 1998
--------- ----------
<S> <C> <C>
Net income (loss)................................... $(149,000) $2,047,000
========= ==========
Basic earnings (loss) per share..................... $ (0.01) $ 0.14
========= ==========
Diluted earnings (loss) per share................... $ (0.01) $ 0.13
========= ==========
</TABLE>

A summary of the Company's stock option activity, and related information,
for the year ended December 31, 1998, follows:

<TABLE>
<CAPTION>
Weighted-average
Options exercise price
--------- ----------------
<S> <C> <C>
Outstanding January 1, 1997...................... -- $ --
Granted.......................................... 1,934,869 2.90
Exercised........................................ -- --
Forfeited........................................ (130,956) 2.90
---------
Outstanding December 31, 1997.................... 1,803,913 2.90
Granted.......................................... 3,846,330 3.79
Exercised........................................ -- --
Forfeited........................................ (318,386) 2.90
---------
Outstanding December 31, 1998.................... 5,331,857 3.57
Granted.......................................... 352,108 4.25
Exercised........................................ (281,555) 3.76
Forfeited........................................ -- --
---------
Outstanding March 31, 1999....................... 5,402,410 3.60
=========
Exercisable at December 31, 1997................. 356,445 2.90
=========
Exercisable at December 31, 1998................. 1,106,780 3.36
=========
</TABLE>

The weighted-average fair value of options granted during the years ended
December 31, 1998 and 1997, was $0.86 and $0.73, respectively. The range of
exercise prices for options outstanding as of December 31, 1998, is $2.90-
$3.82. The weighted-average remaining contractual lives of outstanding options
is 9.3 years.

F-15
<PAGE>

TANNING TECHNOLOGY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

11.SEGMENT REPORTING

During 1998, the Company adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 requires a business enterprise, based upon a management
approach, to disclose financial and descriptive information about its operating
segments. Operating segments are components of an enterprise about which
separate financial information is available and regularly evaluated by the
chief operating decision maker(s) of an enterprise. Under this definition, the
Company operated as a single segment for all years and periods presented.

SFAS 131 also requires the disclosure of certain financial information
pertaining to geographic areas. Long-lived assets located outside of the United
States are not material. Information about the Company's revenues by geographic
area is as follows (in thousands):

<TABLE>
<CAPTION>
December 31, March 31,
----------------------- --------------
1996 1997 1998 1998 1999
------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Revenues from external customers:
United States....................... $12,352 $23,139 $22,811 $4,089 $ 7,319
Denmark............................. -- 1,532 9,595 845 3,476
UK and other Europe................. 457 1,436 883 249 510
------- ------- ------- ------ -------
Total............................... $12,809 $26,107 $33,289 $5,183 $11,305
======= ======= ======= ====== =======
</TABLE>

12.EMPLOYEE STOCK PURCHASE PLAN

In March 1999, the Company established the Tanning Technology Corporation
1999 Qualified Stock Purchase Plan (the "Plan"). The Company intends that the
Plan qualify as an employee stock purchase plan under Section 423 of the
Internal Revenue Code. Employees scheduled to work at least 20 hours per week
and who have completed at least three months of continuous full-time employment
in the service of the Company are eligible to participate in the Plan. Under
the Plan, eligible employees can purchase shares, subject to limitations, of
the Company's Class C nonvoting common stock at a discount not to exceed 15% of
the market price as defined. No purchases were made as of March 31, 1999. On
April 15, 1999, the Company issued 179,500 shares of Class C nonvoting common
stock in conjunction with this plan.

F-16
<PAGE>

[TANNING LOGO]
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution.

The following table sets forth expenses and costs payable by Tanning (other
than underwriting discounts and commissions) expected to be incurred in
connection with the issuance and distribution of the securities described in
this registration statement. All amounts are estimated except for the
Securities and Exchange Commission's registration fee and the National
Association of Securities Dealers' filing fee.

<TABLE>
<CAPTION>
Amount
-------
<S> <C>
Registration fee under Securities Act........................... $15,985
NASD filing fee................................................. 6,250
The Nasdaq National Market fees................................. *
Legal fees and expenses......................................... *
Accounting fees and expenses.................................... *
Printing and engraving expenses................................. *
Registrar and transfer agent fees............................... *
Miscellaneous expenses.......................................... *
-------
Total......................................................... $
=======
</TABLE>
- --------
* To be filed by amendment.

Item 14. Indemnification of Directors and Officers.

Section 145 of the Delaware General Corporation Law (the "DGCL") provides
that a corporation may indemnify directors and officers as well as other
employees and individuals against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement in connection with specified
actions, suits and proceedings, whether civil, criminal, administrative, or
investigative (other than action by or in the right of the corporation--a
"derivative action"), if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that indemnification only
extends to expenses (including attorneys' fees) incurred in connection with the
defense or settlement of such action, and the statute requires court approval
before there can be any indemnification where the person seeking
indemnification has been found liable to the corporation. The statute provides
that it is not exclusive of other indemnification that may be granted by a
corporation's charter, bylaws, disinterested director vote, stockholder vote,
agreement, or otherwise.

Article VI of Tanning's bylaws requires Tanning to indemnify to the full
extent authorized by law any person made or threatened to be made a party to an
action, suit or proceeding, whether criminal, civil, administrative or
investigative, by reason of the fact that he, his testator or intestate is or
was a director, officer, employee or agent of Tanning or is or was serving, at
the request of Tanning, as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise.

As permitted by Section 102(b)(7) of the DGCL, Tanning's certificate of
incorporation eliminates the liability of a director to the corporation or its
stockholders for monetary damages for such breach of fiduciary duty as a
director, except for liabilities arising (a) from any breach of the director's
duty of loyalty to the corporation or its stockholders; (b) from acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (c) under Section 174 of the DGCL; or (d) from any
transaction from which the director derived an improper personal benefit.

Tanning intends to obtain primary and excess insurance policies insuring its
directors and officers and those of its subsidiaries against certain
liabilities they may incur in their capacity as directors and officers. Under
these policies, the insurer, on behalf of Tanning, may also pay amounts for
which Tanning has granted indemnification to the directors or officers.

II-1
<PAGE>

Additionally, reference is made to the Underwriting Agreement that will be
filed as Exhibit 1.1 to this registration statement, which provides for
indemnification by the Underwriters of Tanning, its directors and officers who
sign the registration statement and persons who control Tanning, under certain
circumstances.

Item 15. Recent Sales of Unregistered Securities.

Since January 31, 1997 (inception), we have issued and sold the securities
listed below. All sales were made in reliance on Section 4(2) of the Securities
Act and/or Regulation D or Rule 701 promulgated under the Securities Act and
were made without general solicitation or advertising. All share numbers set
forth below reflect the stock splits described in Note 1 to the Financial
Statements, which are included in the prospectus.

1. On January 31, 1997, we issued and sold 3,657,342 shares of common
stock to the "TTC Investors Group," which consists of TTC Investors LLC
I, TTC Investors I A LLC, TTC Investors II LLC and TTC Investors II A
LLC for aggregate consideration of $9,076,910.

2. On June 6, 1997, we issued and sold 1,469,917 shares of common stock to
the TTC Investors Group for aggregate consideration of $3,648,090.

3. On June 9, 1998, we issued and sold 569,511 shares of common stock to
the TTC Investors Group for aggregate consideration of $1,900,000.

4. We have granted stock options to employees, consultants, directors and
other service providers pursuant to our 1997 stock option plan and our
1998 stock option plan.

5. We have issued and sold common stock to our employees, consultants and
other service providers pursuant to our 1999 stock purchase plan.

Item 16. Exhibits and Financial Statement Schedules.

(a) Exhibits

The following documents are filed as exhibits to this registration
statement:

<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation of Tanning, as amended and restated*
3.2 Bylaws of Tanning, as amended and restated*
4.1 Form of certificate of common stock*
5.1 Opinion of Fried, Frank, Harris, Shriver & Jacobson*
10.1 Stock Purchase Agreement, dated as of December 24, 1996, by and among
Tanning Technology Group, L.L.C., Courtney Rose Corporation, WinSoft
Corporation, Hippeli Enterprises, Inc., Stephen Brobst, Larry Tanning,
Bipin Agarwal, Toni Hippeli and AEA Tanning Investors Inc.*
10.2 Employment Agreement between Tanning and Larry G. Tanning, dated ,
1999*
10.3 Employment Agreement between Tanning and Bipin Agarwal, dated ,
1999*
10.4 Employment Agreement between Tanning and P. Tracy Currie, dated ,
1999*
10.5 Employment Agreement between Tanning and Louis A. D'Alessandro, dated
, 1999*
10.6 Separation Agreement and Release between Tanning and Thomas J. Stack,
dated May 14, 1999*
10.7 Tanning Technology Corporation 1999 Amended Qualified Stock Purchase
Plan*
10.8 Tanning Technology Corporation 1999 Stock Option Plan*
21.1 Subsidiaries of Tanning*
23.1 Consent of Ernst & Young LLP
23.2 Consent of Fried, Frank, Harris, Shriver & Jacobson (included in
Exhibit 5.1 above)*
24.1 Power of Attorney (included on signature page of this registration
statement)
27.1 Financial data schedule
</TABLE>
- --------
* To be filed by amendment.

II-2
<PAGE>

(b) Financial Statement Schedule

Schedule II -- Valuation and Qualifying Accounts

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

Item 17. Undertakings.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) To provide to the underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to each
purchaser.

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

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

II-3
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Denver, State of
Colorado, on May 17, 1999.

TANNING TECHNOLOGY CORPORATION

/s/ Larry G. Tanning
By: __________________________________
Larry G. Tanning
Chief Executive Officer

The undersigned directors and officers of Tanning Technology Corporation
hereby constitute and appoint Larry G. Tanning, Henry F. Skelsey and Bipin
Agarwal and each of them with full power to act without the other and with full
power of substitution and resubstitution, our true and lawful attorneys-in-fact
with full power to execute in our name and behalf in the capacities indicated
below this Registration Statement on Form S-1 and any and all amendments
thereto, including post-effective amendments to this Registration Statement and
to sign any and all additional registration statements relating to the same
offering of securities as this Registration Statement that are filed pursuant
to Rule 462(b) of the Securities Act of 1933, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission and hereby ratify and confirm that all such
attorneys-in-fact, or any of them, or their substitutes shall lawfully do or
cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.

Signature Title Date

/s/ Larry G. Tanning President, Chief Executive May 17,
- ------------------------------ Officer and Director 1999
Larry G. Tanning (Principal Executive
Officer)

/s/ Henry F. Skelsey Executive Vice President, May 17,
- ------------------------------ Chief Financial Officer and 1999
Henry F. Skelsey Director (Principal
Financial and Accounting
Officer)

/s/ Bipin Agarwal Director May 17,
- ------------------------------ 1999
Bipin Agarwal

/s/ Toni S. Hippeli Director May 17,
- ------------------------------ 1999
Toni S. Hippeli

/s/ Christopher P. Mahan Director May 17,
- ------------------------------ 1999
Christopher P. Mahan

/s/ Joseph P. Roebuck Director May 17,
- ------------------------------ 1999
Joseph P. Roebuck

II-4
<PAGE>

Report of Independent Auditors on Schedule

Board of Directors and Stockholders
Tanning Technology Corporation

We have audited the consolidated financial statements of Tanning Technology
Corporation as of December 31, 1998 and 1997, and for each of the three years
in the period ended December 31, 1998, and have issued our report thereon dated
February 26, 1999 (included elsewhere in this Registration Statement). Our
audits also included the financial statement schedule listed in Item 16(b) of
this Registration Statement. These schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

Ernst & Young LLP

Denver, Colorado
February 26, 1999

S-1
<PAGE>

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
Additions
--------------
Charged
Beginning to Ending
Balance Deductions Expense Other Balance
--------- ---------- -------- ----- --------
<S> <C> <C> <C> <C> <C>
Period Ending December 31, 1996
Allowance for Doubtful Accounts... $ -- $ -- $ -- -- $ --
Period Ending December 31, 1997
Allowance for Doubtful Accounts... $ -- $234,323 $534,787 -- $300,464
Period Ending December 31, 1998
Allowance for Doubtful Accounts... $300,464 $111,395 $767,587 -- $956,656
</TABLE>

S-2

<PAGE>

Exhibit 23.1

Consent of Independent Auditors

We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our reports dated February 26,
1999, in the Registration Statement and related Prospectus of Tanning
Technology Corporation dated May 17, 1999.

/s/ Ernst & Young LLP

Denver, Colorado
May 14, 1999

<PAGE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 MAR-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 10,446,111 7,183,218
<SECURITIES> 0 0
<RECEIVABLES> 10,181,809 13,867,282
<ALLOWANCES> 956,656 685,714
<INVENTORY> 0 0
<CURRENT-ASSETS> 20,586,189 21,539,179
<PP&E> 4,599,891 5,153,630
<DEPRECIATION> 1,384,859 1,668,807
<TOTAL-ASSETS> 23,923,075 25,117,439
<CURRENT-LIABILITIES> 6,581,494 5,951,682
<BONDS> 460,183 428,766
0 0
0 0
<COMMON> 442,171 450,771
<OTHER-SE> 16,329,874 18,144,780
<TOTAL-LIABILITY-AND-EQUITY> 23,923,075 25,117,439
<SALES> 33,288,556 11,305,049
<TOTAL-REVENUES> 33,288,556 11,305,049
<CGS> 0 0
<TOTAL-COSTS> 14,941,164 5,492,295
<OTHER-EXPENSES> 14,963,696 4,678,763
<LOSS-PROVISION> 767,587 22,641
<INTEREST-EXPENSE> 81,576 12,039
<INCOME-PRETAX> 3,669,294 1,296,805
<INCOME-TAX> 1,366,323 477,598
<INCOME-CONTINUING> 3,383,696 1,133,991
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,302,971 819,207
<EPS-PRIMARY> .15 .05
<EPS-DILUTED> .15 .05

</TABLE>