CLARUS CORP, POS AM, 1998-12-10

CLARUS CORP
POS AM, 1998-12-10
PREPACKAGED SOFTWARE

Previous: MACERICH CO, 424B5, 1998-12-10

Next: GUNTHER INTERNATIONAL LTD, SC 13D/A, 1998-12-10

<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 10, 1998
REGISTRATION NO. 333-46685
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

CLARUS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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

<TABLE>
<S> <C> <C>
DELAWARE 7372 58-1972600
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OFINCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>

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

CLARUS CORPORATION
3950 JOHNS CREEK COURT, SUITE 100
SUWANEE, GEORGIA 30024
(770) 291-3900
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

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

THE CORPORATION TRUST COMPANY
CORPORATION TRUST CENTER
1209 ORANGE STREET
WILMINGTON, DELAWARE 19801
(302) 658-7581
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)

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

COPIES TO:
G. DONALD JOHNSON, ESQ.
SHARON L. MCBRAYER, ESQ.
ELIZABETH O. DERRICK, ESQ.
WOMBLE CARLYLE SANDRIDGE & RICE, PLLC
1275 PEACHTREE STREET, N.E., SUITE 700
ATLANTA, GEORGIA 30309
(404) 872-7000

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.

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

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 number of the earlier effective registration statement for the
same offering. [_]

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

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

RESALE
PROSPECTUS

[LOGO]

CLARUS CORPORATION

ISSUER

629,625 SHARES OF COMMON STOCK

<TABLE>
<C> <S>
Clarus Corporation We develop, market and support
3950 Johns Creek Court client/server financial, human resource
Suite 100 and corporate service software
applications.
Suwanee, Georgia 30024 This is a resale Prospectus. The 629,625
(770) 291-3900 shares of our common stock offered by this
Prospectus are being sold by certain of
our stockholders. We will not receive any
proceeds from the sale of these shares.
</TABLE>

THE OFFERING

<TABLE>
<CAPTION>
PER
SHARE TOTAL
----- -----
<S> <C> <C>
Offering Price.............................................. $ $
</TABLE>

The offering price is based on recent prices of our common stock as quoted on
the NASDAQ National Market. There are no underwriters involved in this
offering.

Trading Symbol:

NASDAQ National Market-CLRS

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

SEE "RISK FACTORS" COMMENCING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT YOU SHOULD CONSIDER BEFORE PURCHASING OUR COMMON STOCK.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

December , 1998
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY................................................................... 1
RISK FACTORS.............................................................. 6
USE OF PROCEEDS........................................................... 20
SELLING STOCKHOLDERS...................................................... 20
DIVIDEND POLICY........................................................... 23
DILUTION.................................................................. 23
SELECTED HISTORICAL AND FINANCIAL DATA.................................... 24
UNAUDITED PRO FORMA FINANCIAL DATA........................................ 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 33
BUSINESS.................................................................. 47
MANAGEMENT................................................................ 60
PRINCIPAL STOCKHOLDERS.................................................... 69
CERTAIN TRANSACTIONS...................................................... 71
SHARES ELIGIBLE FOR FUTURE SALE........................................... 75
PLAN OF DISTRIBUTION...................................................... 77
EXPERTS................................................................... 78
LEGAL MATTERS............................................................. 78
INDEX TO FINANCIAL STATEMENTS............................................. F-1
</TABLE>
<PAGE>

SUMMARY

Because this is a summary it does not contain all the information that may be
important to you. You should read the entire Prospectus carefully before you
decide to purchase our common stock.

CLARUS CORPORATION

We develop, market and support client/server financial, human resource and
corporate service software applications. Our software applications reduce the
total cost of ownership by minimizing the time, costs and risks associated with
implementing, changing and upgrading applications. Our Clarus(TM) line of
products is based on a flexible, open architecture called Active
Architecture(R) which allows for seamless, rapid changes and upgrades without
modifying the source code. Our software provides organizations with the broad
functionality of custom-designed applications without the high total cost of
ownership traditionally associated with such applications. By providing broad
functionality, a flexible open architecture, and minimized implementation and
modification time, we address the needs of a wide range of organizations while
giving end users more control of their work environment.

Our Clarus(TM) product line includes a full suite of financial and human
resource applications and a growing suite of corporate service applications.
These applications cover the full range of financial and accounting functions,
including general accounting, expense accounting, revenue accounting and human
resources. We license a series of modules, our Graphical Architects(R), that
are designed to extend, enhance, integrate and change the look and feel of our
core applications. Through a visual point-and-click interface, the Graphical
Architects(R) modules allow users to personalize and configure our applications
without any source code programming.

We have recently introduced our growing suite of Corporate Service
Applications, including Clarus(TM) HRPoint(TM), Clarus(TM) Budget, Clarus(TM)
OLAP and Clarus(TM) E-Procurement. In addition, we provide dedicated
implementation services as an integral part of our solution, and believe that
these services result in a high level of customer satisfaction, strong customer
references and long relationships. We provide ongoing support services to
assist customers in maintaining and updating their systems, training their
employees and adding functionality as the customers' businesses grow and their
requirements change.

Our objective is to become a leading provider of financial, human resource and
corporate service applications to non-industrial organizations. The key
elements of our strategy are:

.to extend our technology leadership;

. to leverage our expertise in financial and human resource applications;

. to capitalize on middle market opportunities;

. to leverage our installed customer base; and

. to expand our sales and marketing channels.

We license our products and services primarily through a direct sales force in
the United States and Canada. We focus our sales and marketing efforts on value
buyers in mid-sized non-industrial organizations, including divisions of larger
companies, which represent the fastest
<PAGE>

growing segment of the financial applications market. Since we started our
business we have had more than 250 customers, including leading organizations
such as National Railroad Passenger Corporation, Blue Cross and Blue Shield of
Alabama, Chartwell Re Holdings Corporation, First Data Corporation, Land's End,
Inc., T. Rowe Price Associates, Inc., Shaw Industries, Inc., and Toronto-
Dominion Bank.

We were incorporated in Delaware in 1991. On May 26, 1998, we completed an
initial public offering of our common stock and sold 2.5 million shares which
resulted in net proceeds of approximately $22.0 million. On November 6, 1998,
we acquired Elekom Corporation in a merger. Elekom's business is now operated
in our subsidiary, Clarus CSA, Inc. Unless the context otherwise requires,
references in this Prospectus to "us or we" refer to Clarus Corporation and our
wholly-owned consolidated subsidiaries: Clarus Professional Services, L.L.C.,
SQL Financials Europe, Inc. and Clarus CSA, Inc. Clarus Professional Services,
L.L.C. includes the operations through which we provide dedicated
implementation services. We plan to merge these operations into Clarus
Corporation effective January 1, 1999. SQL Financials Europe, Inc. has no
operations.

THE OFFERING

Certain of our stockholders are offering a total of 629,625 shares of our
common stock for sale. We will not receive any of the proceeds from the sale of
these shares of common stock. You should read the Risk Factors section,
beginning on page 5, as well as the other cautionary statements throughout the
entire Prospectus to ensure you understand the risks associated with an
investment in our common stock before purchasing any shares.

2
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

We are providing the following financial information to aid you in your
analysis of our financial condition. We derived this information from audited
financial statements for 1993 through 1997 and unaudited financial statements
for the nine months ended September 30, 1997 and 1998.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------- ----------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Total revenues.......... $ 1,054 $ 3,821 $ 8,190 $13,056 $25,988 $17,534 $30,694
Operating income (loss). (2,156) (5,157) (7,987) (7,658) (3,358) (3,821) 907
Net income (loss)....... (2,170) (5,140) (8,049) (7,879) (4,110) (4,366) 1,101
Income (loss) per common
share:
Basic................. (2.23) (5.65) (6.19) (5.74) (2.97) (3.15) 0.22
Diluted............... (2.23) (5.65) (6.19) (5.74) (2.97) (3.15) 0.13
Weighted average common
shares outstanding:
Basic................. 975 910 1,300 1,373 1,386 1,384 5,080
Diluted............... 975 910 1,300 1,373 1,386 1,384 8,767
</TABLE>

<TABLE>
<CAPTION>
AT
SEPTEMBER 30,
1998
-------------
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................................... $23,984
Working capital................................................... 20,882
Total assets...................................................... 43,594
Long-term debt, net of current portion............................ 310
Total stockholders' equity........................................ 25,187
</TABLE>

3
<PAGE>

SELECTED PRO FORMA FINANCIAL DATA

The following unaudited pro forma condensed combined financial data is
presented assuming that our merger with Elekom Corporation occurred on the
dates indicated. The pro forma condensed combined balance sheet data has been
prepared as if the merger had been consummated on September 30, 1998. The pro
forma condensed combined statements of operations data have been prepared as if
the merger had been consummated at the beginning of the periods presented. The
following financial statements do not reflect any anticipated cost savings
which we may realize after consummation of the merger. The pro forma
information does not represent what our results of operations actually would
have been if the merger had occurred on or for the periods presented.

The pro forma condensed financial data should be read in conjunction with our
historical financial statements appearing in other places in this Prospectus.

<TABLE>
<CAPTION>
AT OR FOR THE
FOR THE YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
PRO FORMA STATEMENT OF OPERATIONS DATA:
Total revenues................................. $ 26,005 $30,999
Operating loss................................. (8,374) (2,478)
Net loss....................................... (10,408) (2,482)
Basic and diluted net loss per share(1)........ (3.75) (0.38)
Weighted average common shares outstanding..... 2,776 6,470
PRO FORMA BALANCE SHEET DATA:
Working capital (deficit)...................... 10,648
Total assets................................... 38,565
Redeemable convertible preferred stock......... 0
Stockholders' equity (deficit)................. 18,829
</TABLE>
- --------
(1) Our allocation of the purchase price in the merger resulted in the
allocation of $14.0 million of in-process acquired research and development
which, under generally accepted accounting principles, which was expensed
immediately upon completion of the merger on November 6, 1998. This charge
has been excluded from the calculation of pro forma loss per share for the
presentations due to its nonrecurring nature.

4
<PAGE>

FORWARD-LOOKING STATEMENT

This Prospectus contains certain forward-looking statements, as defined in the
Private Securities Litigation Reform Act of 1995, including or related to our
future results (including certain projections and business trends).

These and other statements, which are not historical facts, are based largely
on current expectations and assumptions of management and are subject to a
number of risks and uncertainties that could cause actual results to differ
materially from those contemplated by such forward-looking statements. These
risks and uncertainties include, among others, the risks and uncertainties
described in "Risk Factors" beginning on page herein. Assumptions related to
forward-looking statements include that we will continue to price and market
our products competitively; that competitive conditions within our markets will
not change materially or adversely; that the demand for our products will
remain strong; and that we will retain key personnel.

Assumptions relating to forward-looking statements involve judgments with
respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond our control. When
used in this Prospectus, the words "estimate," "project," "intend," and
"expect" and similar expressions are intended to identify forward-looking
statements. Although we believe that assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate and,
therefore, there can be no assurance that the results contemplated in the
forward-looking information will be realized. Management decisions are
subjective in many respects and susceptible to interpretations and periodic
revisions based on actual experience and business developments, the impact of
which may cause us to alter our business strategy or capital expenditure plans
which may, in turn, affect our results of operations. In light of the
significant uncertainties inherent in the forward-looking information included
herein, the inclusion of such information should not be regarded as our
representation that any strategy, objectives or other plans will be achieved.
The forward-looking statements contained in this Prospectus speak only as of
the date of this Prospectus as stated on the front cover, and we do not have
any obligation to publicly update or revise any of these forward-looking
statements.

TRADEMARKS

Active Architecture(R), Graphical Architects(R), World Class Applications . . .
Breakthrough in Time(R) and ELEKOM(R) are our trademarks registered with the
U.S. Patent and Trademark Office. Data Exchange/Graphical Architect(TM),
Solution/Graphical Architect(TM), Workload/Graphical Architect(TM),
Workflow/Graphical Architect(TM), Business Controls/Graphical Architect(TM),
and Clarus(TM) are our trademarks. All other trademarks and registered
trademarks used in this Prospectus are the property of their respective owners.

5
<PAGE>

RISK FACTORS

In addition to the other information in this Prospectus, you should consider
carefully the following risk factors.

HISTORIES OF OPERATING LOSSES

We have incurred significant net losses in each year since our formation. As of
September 30, 1998, we had an accumulated deficit of approximately $26.9
million. These losses have occurred, in part, because of the substantial costs
we incurred to develop our products, expand our product research and hire and
train our direct sales force. Although we have achieved revenue growth and
recent profitability for the quarters ended September 30, 1997, December 31,
1997, June 30, 1998 and September 30, 1998, we may not be able to generate the
substantial additional growth in revenues that will be necessary to sustain
profitability. We plan to continue to increase our operating expenses in order
to fund higher levels of research and development, increase our sales and
marketing efforts, broaden our customer support capabilities and expand our
administrative resources in anticipation of future growth. To the extent that
increases in such expenses precede or are not offset by increased revenues, our
business, results of operations and financial condition would be materially
adversely affected. See "Management's Discussion and Analysis of Financial
Conditions and Results of Operations."

UNCERTAINTY OF FUTURE OPERATING RESULTS

Future spending for software applications in general and for our applications
is uncertain due to the approach of the Year 2000. Some industry experts have
predicted that software sales may decline in the final months of 1999. If these
predictions are correct, our operations may be adversely affected.

On November 6, 1998, we acquired Elekom Corporation ("Elekom") in a merger.
Elekom was merged into Clarus CSA, Inc., our wholly-owned subsidiary. Elekom
was a development stage enterprise that was incorporated in August, 1995, as a
subsidiary of Egghead, Inc. and had operated on a stand-alone basis since
November 1997. Accordingly, Elekom has a limited operating history upon which
an evaluation of its business and prospects could be based. Prior to the
merger, Elekom had generated minimal operating revenues, had incurred
significant losses and had experienced substantial negative cash flow from
operations.

Our prospects must be considered in light of the considerable risks, expenses,
and difficulties frequently encountered by companies in their early stage of
development, particularly technology-based companies operating in unproven
markets with unproven products. We expect to incur substantial additional costs
in efforts to complete the development of the Clarus E-Procurement product and
to integrate the Elekom Procurement software in its existing stage of
development with our Clarus Purchasing Control module and to market and support
this product. Our investments in Elekom's products and technologies may not
achieve the desired returns.

LIMITED PERIOD OF PUBLIC TRADING; VOLATILITY OF STOCK PRICE

Prior to May 1998, there was no public market for the shares of our common
stock. An active public market for the shares of our common stock may not be
sustained. The market price of the shares of

6
<PAGE>

common stock has been and may continue to be highly volatile. The market price
could be subject to wide fluctuations in response to variations in results of
operations, announcements of technological innovations or our new products or
new products of our competitors, changes in financial estimates by securities
analysts or other events or factors. In addition, the financial markets have
experienced significant price and volume fluctuations that have particularly
affected the market prices of equity securities of many high technology
companies and that often have been unrelated to the operating performance of
such companies or have resulted from the failure of the operating results of
such companies to meet market expectations in a particular quarter. Broad
market fluctuations or any failure of our operating results in a particular
quarter to meet market expectations may adversely affect the market price of
the shares of our common stock. In the past, following periods of volatility in
the market price of a company's securities, securities class action litigation
has often been instituted against such a company. Any securities litigation
involving us could result in substantial costs and a diversion of management's
attention and resources. The market price of our common stock has been highly
volatile since our initial public offering in May, 1998.

FINANCIAL IMPACT OF MERGER

We recently completed a merger with Elekom. As a result of the accounting
treatment for the merger, our results of operations were negatively impacted.
We recognized a write-off of acquired in-process research and development of
approximately $14.0 million and will amortize the remainder of approximately
$3.4 million over a period ranging from three months to 10 years. Such
amortization will adversely affect our results of operations through 2008. The
consummation of additional acquisitions may significantly increase amortization
costs and result in significant write-offs of acquired in-process research and
development. The amounts allocated under purchase accounting to developed
technology and in-process research and development in the merger involve
valuations utilizing estimations of future revenues, expenses, operating profit
and cash flows. The actual revenues, expenses, operating profit and cash flows
from the acquired technology recognized in the future may vary materially from
such estimates. If the in-process research and development product is not
successfully developed, our sales and profitability may be adversely affected
in future periods. Additionally, the value of other intangible assets acquired
may become impaired. We expect to begin to benefit from the purchased in-
process technology in the second quarter of 1999.

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

We have experienced, and expect to continue to experience, significant
fluctuations in quarterly operating results caused by many factors, including,
but not limited to:

. changes in the demand for our products;

. the timing, composition and size of orders from our customers

. lengthy sales cycles;

. spending patterns and budgetary resources of our customers;

. our success in generating new customers;

. introductions or enhancements of our products

. changes in our pricing policies or those of our competitors;

7
<PAGE>

. our ability to anticipate and effectively adapt to developing markets
and rapidly changing technologies;

. our ability to attract, retain and motivate qualified personnel;

. changes in the mix of products sold;

. the publication of opinions about us and our products, or our
competitors and their products, by industry analysts or others;

. a general economic downturn caused by the Year 2000 impact; and

. changes in general economic conditions.

The loss of a large sale, or the deferral of a large sale to a subsequent
quarter, could have a material adverse effect on current quarter operating
results and could cause significant fluctuations in revenues and earnings from
quarter to quarter. Additionally, because we derive a smaller percentage of our
revenues from maintenance contracts than many financial and human resource
software companies with a longer history of operations, we do not have a
significant ongoing revenue stream that may tend to mitigate quarterly
fluctuations in operating results.

We also have experienced, and expect to experience, a high degree of
seasonality, and in recent years have recognized proportionately greater
percentage of our total revenues in the fourth quarter than in any other
quarter during such year. Fourth quarter revenues in 1995, 1996 and 1997 were
39.1%, 33.6% and 32.5%, respectively, of total revenues for those years. As a
result of this seasonality, we may experience reduced net income, or even net
losses, in the first, second or third fiscal quarters in any year.

Consistent with software industry practice, we typically ship our software
promptly following receipt of a firm order. We operate with minimal backlog. As
a result, quarterly sales and operating results depend generally on the volume
and timing of orders within the quarter, the tendency of sales to occur late in
fiscal quarters and our ability to fill orders received within the quarter, all
of which are difficult to forecast and manage. Our expense levels are based in
part on our expectations of future orders and sales. A substantial portion of
our operating expenses are related to personnel, facilities and sales and
marketing programs. This level of spending for such expenses cannot be adjusted
quickly and is, therefore, relatively fixed in the near term. Accordingly, any
significant shortfall in demand for our products in relation to our
expectations would have an immediate and material adverse financial effect on
us.

Due to all of these factors, we believe that our quarterly operating results
are likely to vary significantly in the future. Therefore, in some future
quarter our results of operations are likely to fall below the expectations of
securities analysts and investors. In such event, or in the event that such
result is perceived by market analysts to have occurred, the trading price of
our common stock would likely be materially adversely affected.

TRANSACTION EXPENSES; RISK OF INABILITY TO INTEGRATE OPERATIONS

We incurred an aggregate of direct transaction costs of approximately $950,000
for the acquisition of Elekom. We will also incur additional charges to
operations, which are not currently reasonably

8
<PAGE>

estimable, to reflect costs associated with integrating the two companies.
There can be no assurance that we will not incur additional material charges in
subsequent quarters to reflect additional costs associated with the merger. We
have never before acquired a significant business. We may not be able to
successfully integrate Elekom's business into our operations.

Risks associated with the integration of Elekom's business into our business
include, among other things, potential disruption of our ongoing business;
inability to successfully integrate Elekom's systems into our operations;
maintenance of uniform standards, controls and procedures; and possible
impairment of relationships with Elekom employees as a result of the merger and
changes in management. Further, the acquisition may involve a number of
additional risks, including diversion of management's attention, failure to
retain key personnel, unanticipated events or circumstances and legal
liabilities. Some or all of these could have a material adverse effect on our
business, results of operations and financial condition.

DEPENDENCE ON DIRECT SALES MODEL

To date, we have sold our products exclusively through our direct sales force.
We intend to continue to differentiate ourselves from many of our competitors
by relying principally on our direct sales model. As a consequence of this
strategy, our ability to achieve significant revenue growth in the future will
depend in large part on our success in recruiting, training and retaining
additional direct sales and consulting personnel and on the continuing success
of the direct sales force. Our financial success will depend in large part on
the ability of our direct sales force to increase sales to levels necessary to
sustain profitability. In order to increase sales, we must hire, train and
deploy a continually increasing staff of competent sales personnel. We believe
that there is a shortage of, and significant competition for, direct sales
personnel with the advanced sales skills and technological knowledge necessary
to sell our products. Our inability to hire, or failure to retain, competent
sales persons would have a material adverse effect on our business, results of
operations and financial condition.

In addition, by relying primarily on a direct sales force model, we may fail to
leverage the additional sales capabilities that might be available through
other sales distribution channels. This may place us at a disadvantage with
respect to our competition. In the future, we intend to develop indirect
distribution channels through third-party distribution arrangements. We may not
be successful in establishing third-party distribution arrangements. Any
expansion of our indirect distribution channels may not result in increased
revenues.

COMPETITION

The market for financial and human resource applications is intensely
competitive. Our applications are designed for use in client/server
environments utilizing Windows NT and Unix servers. Principal competitors that
offer products that run on Windows NT or Unix servers in client/server
environment include PeopleSoft, Inc. ("PeopleSoft"), Oracle Corporation
("Oracle"), and Lawson Software, Inc. ("Lawson"). In 1997, J.D. Edwards &
Company introduced financial applications for use on Windows NT or Unix servers
in competition with us. We also face indirect competition from companies that
sell financial software applications for use mainly on proprietary mid-range
computing systems, from suppliers of custom-developed financial applications
software systems,

9
<PAGE>

from the consulting groups of major accounting firms and from the information
technology ("IT") departments of potential customers that choose to develop
systems internally.

Similarly, the market for Internet procurement applications, such as Clarus E
Procurement and electronic commerce technology generally, is rapidly evolving
and intensely competitive. Clarus E Procurement is designed to compete with
prepackaged electronic commerce software, software tools for developing
electronic commerce applications, system integrators and business application
software. In addition, potential customers may elect to develop their own
electronic commerce solutions.

We will face competition from other electronic procurement providers such as
ARIBA, Commerce One, TRADE'ex, Intelisys and Trilogy. We will also face
competition from larger corporations, such as Netscape and Harbinger, who have
entered the electronic procurement market. In addition, we believe we will
experience increased competition from travel and expense software companies,
such as Extensity, Captura and Concur (formerly Portable Software),which
recently acquired 7Software, a direct competitor. We anticipate that some of
the larger enterprise resource planning software vendors, such as SAP, which
recently announced SAP Business-to-Business Procurement solution with expected
availability in the fourth quarter of 1998 will also enter this market. Other
potential competitors in this category include Oracle, PeopleSoft, and Baan.
Other companies who have a stated interest in electronic procurement include
Microsoft Corporation, IBM, Aspect Development and Requisite Technologies.

The majority of our principal current and potential competitors have
significantly greater financial, technical and marketing resources and name
recognition than we do. In addition, because of relatively low barriers to
entry and relatively high availability of capital in today's markets, we
believe that new competitors will emerge in our markets. We anticipate that we
may face pricing pressures and that one or more companies in our markets may
face financial failure. In the past, a number of software markets have become
dominated by one or a small number of suppliers, and a small number of
suppliers or even a single supplier may dominate our markets. If we do not
offer products that continue to achieve success in their respective markets in
the short term, we could suffer a loss in market share and brand name
acceptance. Moreover, any material reduction in the price of our products would
negatively affect margins as a percentage of net revenues and would require us
to increase sales or reduce costs to maintain or increase net income. The
occurrence of any of the foregoing would result in a material adverse effect on
our business, results of operations and financial condition. We may not compete
effectively with current and future competitors.

RAPID TECHNOLOGICAL CHANGE; RISKS ASSOCIATED WITH NEW PRODUCTS AND PRODUCT
ENHANCEMENTS

The market for financial, human resource and corporate service applications is
characterized by rapid technological change, frequent introductions of new and
enhanced products, changes in customer demands and evolving industry and
financial accounting standards and practices. The introduction of products
embodying new technologies and functionality can render existing products
obsolete and unmarketable. As a result, our future success will depend, in
part, upon our ability to continue to enhance our existing products and develop
and introduce new products that keep pace with technological developments,
satisfy customer requirements and preferences, while remaining price
competitive and achieving market acceptance. We may not identify new product
opportunities and

10
<PAGE>

develop and bring new products to the market in a timely and cost-effective
manner. Products, capabilities or technologies developed by others may render
our products or technologies obsolete or noncompetitive or shorten life cycles
of our products. In particular, Clarus E Procurement has a limited product
implementation history. Clarus E Procurement may not be successfully and
efficiently developed and marketed. In addition to the potential acquisition of
other applications or technologies in the future, we intend to continue to
address product development and enhancement initiatives through our internal
research and development staff and through the licensing of third-party
technologies.

RISK OF LIMITED LIFE CYCLE OF VERSIONS OF PRODUCTS

Because of these potentially rapid changes in the financial, human resource and
corporate service applications market, the life cycle of versions of our
technology is difficult to estimate. Our future success will depend upon our
ability to address the increasingly sophisticated needs of our customers by
developing and introducing enhancements to our products and technologies on a
timely basis that keep pace with technological developments, emerging industry
standards and customer requirements. We have recently released 32-bit versions
of our financial applications products. We believe that these products offer
the advanced functionality and technological capabilities necessary to compete
with generally available competitive products. We may not be successful in
developing and marketing enhancements to existing products or in developing new
products that respond to technological changes, evolving industry or accounting
standards or practices or customer requirements. Our failure to successfully
develop and bring new or enhanced products to market that offer advanced
technology and functionality adequate to compete with other available products
could have a material adverse effect on our business, results of operations and
financial condition.

RISK OF PERFORMANCE DEGRADATION OF CLARUS E PROCUREMENT IN HIGH VOLUME
ENVIRONMENTS

Clarus E Procurement was designed for use in environments that include, without
limitation, a large number of users, large amounts of catalog and other data
and potentially high peak transaction volumes. The final product, however, may
not operate as designed when deployed. Therefore, when deployed, Clarus E
Procurement and the third party computer software and hardware on which Clarus
E Procurement is dependent may not operate as designed. Any failure by Clarus E
Procurement to adequately perform in a high volume environment could have a
material adverse effect on the market for Clarus E Procurement and on our
business, results of operations and financial condition.

LIMITED EXPERIENCE, AND RISKS ASSOCIATED, WITH INTERNET COMMERCE

The success of our Internet-based computer software systems and technologies
depends upon the development and expansion of the market for Internet-based
packaged software applications, in particular electronic commerce applications.
This market is new and rapidly evolving. The acceptance of electronic commerce
generally, and the Internet specifically, as a forum for corporate procurement
is highly uncertain and subject to a number of risks. Many significant issues
relating to such use of the Internet (including security, reliability, cost,
ease of use, quality of service and government regulation) remain unresolved
and may delay or prevent the necessary growth of the Internet. If widespread
use of the Internet for commercial transactions does not develop or if the

11
<PAGE>

Internet otherwise does not develop as an effective forum for corporate
procurement, the success of Clarus E Procurement would be materially adversely
affected, as well as, potentially, our overall business, operating results and
financial condition.

The adoption of the Internet for corporate procurement and other commercial
transactions requires acceptance of new ways of transacting business. In
particular, enterprises with established patterns of purchasing goods and
services that have already invested substantial resources in other means of
conducting business and exchanging information may be particularly reluctant to
adopt a new strategy that may make some of their existing personnel and
infrastructure obsolete. Also, the security and privacy concerns of existing
and potential users of Internet-based products and services may impede the
growth of online business generally and the market's acceptance of our products
and services in particular. A functioning market for such products may not
emerge or be sustainable. If the market for Internet-based packaged procurement
applications fails to develop or develops more slowly than we anticipate, or if
Clarus E Procurement and any other Internet-based products developed by us do
not achieve market acceptance, our business, operating results and financial
condition could be materially adversely affected.

RISK OF INABILITY TO MANAGE GROWTH

We recently have experienced significant growth in our sales and operations and
in the complexity of our products and product distribution channels. We
increased our sales by approximately 217% from approximately $8.2 million in
1995 to approximately $26.0 million in 1997 and generated revenues of
approximately $30.7 million during the first nine months of fiscal 1998. We
increased the number of our employees from 105 on December 31, 1995 to 340
persons on November 30, 1998, and we intend to further increase the size of our
sales force and development staff to address anticipated growth in sales. Our
growth, coupled with the rapid evolution of our markets, has placed, and is
likely to continue to place, significant strains on our administrative,
operational and financial resources and increase demands on our internal
systems, procedures and controls. If we are unable to manage future growth
effectively, our business, results of operations and financial condition could
be materially adversely affected.

DEPENDENCE ON KEY PERSONNEL

Our performance is substantially dependent on the performance of our key
management, sales, support and technical personnel, all of whom are employed at
will and are not bound by employment agreements to continue in our employ. The
loss of the services of any of such personnel could have a material adverse
effect on our business, results of operations and financial condition. We do
not maintain key person life insurance policies on any of our employees or
consultants.

ABILITY TO HIRE AND RETAIN PERSONNEL

In completing the development of Clarus E Procurement, we anticipate that we
will rely heavily on the efforts of a number of former employees of Elekom, who
are now employees of Clarus CSA. While these certain key employees have entered
into employment agreements with a term of employment, these employees are
employed at will and will be able to terminate their services to Clarus CSA at
any time. The failure to employ and retain the necessary personnel from Elekom

12
<PAGE>

could have a material adverse effect upon the development of Clarus E
Procurement and, potentially, upon our overall business, financial condition
and results of operations.

Our success also is highly dependent on our continuing ability to identify,
hire, train, motivate and retain highly qualified management, technical, and
sales and marketing personnel. Competition for such personnel is intense. We
believe that there is a shortage of qualified personnel with the skills
required to manage, develop, sell and market financial, human resource and
corporate service applications and enhancements in today's highly competitive
environment. Accordingly, there can be no assurance that we will be able to
attract, assimilate or retain highly qualified personnel. Our inability to
attract and retain the necessary personnel would have a material adverse effect
on our business, results of operations and financial condition.

PRODUCT CONCENTRATION

We expect that revenues from our financial and human resource applications will
continue to account for a substantial portion of our product revenues for the
foreseeable future. During 1997, we released 32-bit versions of our financial
applications with enhanced functionality. Increased market acceptance of this
enhanced product family is critical to our ability to increase sales and
therefore to sustain profitability. Any factor adversely affecting sales or
pricing levels of these applications will have a material adverse effect on our
business, results of operations and financial condition. Factors that may
affect market acceptance include the availability and price of competing
products and technologies and the success of our sales efforts. Moreover, we
anticipate that our competitors will introduce additional competitive products,
particularly if demand for financial and human resource applications increases,
which may reduce future market acceptance of our products. Our future
performance will also depend in part on the successful development,
introduction and market acceptance of new and enhanced products. Our new or
enhanced products may not be successfully developed, introduced or marketed.
The failure to do so would have a material adverse effect on our business,
results of operations and financial condition.

MARKET ACCEPTANCE OF CLARUS E PROCUREMENT

We expect that substantially all of our revenues from Clarus CSA for the
foreseeable future will be derived from sales of Clarus E Procurement. Market
acceptance of Clarus E Procurement is critical to our ability to maintain
profitability. The electronic procurement industry is a rapidly changing
industry based on new technologies which, although they have grown in
acceptance in the last few years, are still not substantially relied on. The
market may not accept intranet-based electronic procurement processes focused
on non-production goods and services. Furthermore, there is fluid and intense
competition in this market, which may affect our sales efforts. We may not
overcome these risks, and failure to do so would materially adversely affect
our business, results of operations and financial condition.

LENGTHY SALES CYCLES

A customer's decision to license and implement our financial, human resource
and corporate service applications presents significant enterprise-wide
implications and involves a substantial commitment of the customer's management
attention and resources. We believe that the period between initial

13
<PAGE>

customer contact and the customer's purchase commitment typically ranges from
four to seven months for our applications. Recently, the demand for solutions
to the Year 2000 problem generally has resulted in a temporary reduction in the
sales cycle for many companies that have chosen to implement client/server
based financial applications to resolve impending systems failure caused by the
Year 2000. However, as more companies achieve Year 2000 compliance in their
financial and human resource applications, and as a result of the increased
complexity of our products and an increase in the number and sophistication of
competing products, sales cycles are likely to increase in the future.
Accordingly, our future sales cycle could extend beyond current levels as a
result of lengthy evaluation and approval processes that typically accompany
major initiatives or capital expenditures, including delays over which we have
little or no control. The loss of individual orders due to increased sales and
evaluation cycles, or delays in the sale of even a limited number of systems,
could have a material adverse effect on our business, results of operations and
financial condition and, in particular, could contribute to significant
fluctuations in our operating results on a quarterly basis.

PROPRIETARY RIGHTS AND LICENSING

Our success depends significantly upon our internally developed proprietary
intellectual property and intellectual property licensed from others. We rely
on a combination of copyright, trademark and trade secret laws as well as on
confidentiality procedures and licensing arrangements, to establish and protect
our proprietary rights in our products. We currently have no patents or patent
applications pending, and existing trade secret and copyright laws provide only
limited protection of our proprietary rights. We have registered or applied for
registration for certain copyrights and trademarks. We will continue to
evaluate the registration of additional copyrights and trademarks. Despite our
efforts to protect our products' respective proprietary rights, unauthorized
parties may attempt to copy aspects of our products or to obtain and use
information that we regard as proprietary. Third parties may also independently
develop products similar to our products. In addition, the laws of some foreign
countries do not protect proprietary rights to the same extent as the laws of
the United States.

We enter into license agreements with our respective customers. These license
agreements provide for the customer's non-exclusive right to use the object
code version of our products. The license agreements prohibit the customer from
disclosing to third parties or reverse engineering our products and disclosing
our confidential information. In certain rare circumstances, typically for the
earliest releases of our products, we have granted our customers a source code
license, solely for the customer's internal use.

We have in the past licensed and may in the future license on a non-exclusive
basis third-party software for use and distribution with our respective
applications. Because these third-party software licenses are non-exclusive, no
assurance can be given that these licensors will not grant similar licenses to
our competitors. Expiration or termination of our third-party licenses or the
inability of our licensors to adequately maintain or update software would
adversely affect their ability to ship certain products. While it may be
necessary or desirable in the future for us to obtain third-party software
licenses from alternative sources, there can be no assurance that we will be
able to do so on commercially reasonable terms, if at all.

14
<PAGE>

Although we do not believe that we are infringing the intellectual property
rights of others, claims of infringement are becoming increasingly common as
the software industry matures and expanded legal protections are applied to
software products. Third parties may assert infringement claims against us with
respect to our proprietary technology and intellectual property licensed from
others. Generally, our third-party software licensors indemnify us from claims
of infringement. However, if we were to receive a claim of infringement
relating to third-party software distributed by us there would be no assurance
that our licensors will be able to fully indemnify us for such claim, if at
all. Infringement claims against us could cause product release delays, require
us to redesign our products or require us to enter into royalty or license
agreements, which agreements may not be available on terms acceptable to us or
at all. Furthermore, litigation, regardless of the outcome, could result in
substantial cost to us, divert management attention and delay or reduce
customer purchases. Any infringement claim against us could have a material
adverse effect on our business, results of operations and financial condition.

THIRD PARTY PATENT AND OTHER INTELLECTUAL PROPERTY RIGHTS

One or more of our products may, in the future, be found to infringe the patent
rights of one or more third parties. Because knowledge of a third party's
patent rights is not required for a determination of patent infringement and
because new patents are being issued by the U.S. Patent and Trademark Office on
an ongoing basis, this is an ongoing risk for us.

In addition to the risk of infringing a third party's patent rights, there is a
risk that our products may infringe upon other intellectual property rights of
third parties (e.g. copyrights, trademarks and trade secrets). We have taken
steps to ensure that our employees and contractors have assigned to us all of
third parties' rights in and to any of the computer software, inventions and
other work product created by third parties for or on behalf of us. In
addition, we have taken steps to ensure that they have the proper licenses in
place for the use and distribution of all third party company software included
in or with our products.

If it is later determined that a third party's patent or other intellectual
property rights apply to a product of ours, there is a material risk that the
revenue from the sale of such product will be significantly reduced or
eliminated as we may have to

. pay licensing fees or royalties to such third party in order to continue
selling the product;

. incur substantial expense in the modification of the product so that the
third party's patent or other intellectual property rights no longer
apply to such product; or

. stop selling the product.

In addition, if a product is adjudged to be infringing a third party's patent
or other intellectual property rights, then we may be liable to such third
party for actual damages and attorneys' fees. If the infringement of a third
party's patent were found to be wilful on our part, then the third party might
be able to recover treble damages plus attorneys' fees and costs.

15
<PAGE>

RISK OF PRODUCT DEFECTS; PRODUCT LIABILITY

As a result of their complexity, software products may contain undetected
errors or failures when first introduced or as new versions are released.
Despite our testing and use by current and potential customers, errors may be
found in new applications after commencement of commercial shipments or, if
discovered, that we will successfully correct such errors in a timely manner or
at all. We could, in the future, lose revenues as a result of software errors
or other product defects. Our products and future products are intended for use
in applications that may be critical to a customer's business. As a result, our
customers and potential customers might have a greater sensitivity to product
defects than the market for software generally. The occurrence of errors and
failures in our products could result in the loss of or delay in market
acceptance of our applications, and alleviating such errors and failures could
require us to expend significant capital and other resources. The consequences
of such errors and failures could have a material adverse effect on our
business, results of operations and financial condition.

Since our financial applications are used by our customers for financial
reporting and analysis and payroll processing, any design defects, software
errors, misuse of our products, incorrect data from network elements or other
potential problems within or out of our control that may arise from the use of
our products could result in financial or other damages to our customers. Since
Clarus E Procurement is used by our customers for procurement processing and
analysis, any design defects, software errors, misuse of this product,
incorrect data from network elements or other potential problems within or out
of our control that may arise from the use of this product could result in
financial or other damages to our customers. Although our license agreements
with our customers typically contain provisions designed to limit our exposure
to potential claims as well as any liabilities arising from such claims, such
provisions may not effectively protect us against such claims and the liability
and costs associated therewith. We do not maintain product liability insurance.
Accordingly, any such claim could have a material adverse effect upon our
business, results of operations and financial condition. We provide warranties
for our products after the software is purchased for the period in which the
customer maintains our support of the product. We generally support only
current releases and the immediately prior releases of our products. Our
license agreements generally do not permit product returns by the customer, and
product returns and warranty expense for 1995, 1996, 1997 and the first nine
months of 1998 represented less than 8.3%, 4.9%, 1.2% and 1.0% of total
revenues during each respective period. However, product returns may increase
as a percentage of total revenues in future periods.

RELIANCE ON THIRD-PARTY SOFTWARE

We maintain nonexclusive license agreements with Microsoft Corporation, Oracle
Corporation and Sybase, Inc. that allow us to integrate our products with
relational database management systems provided by these companies. If our
customers experience significant problems with these database management
systems and such problems are not corrected by the database system provider,
there can be no assurance that our customers will be able to continue to use
our products. Additionally, our inability to maintain upward compatibility with
a new database management system release could impact the ability of our
customers to use our products. The customer's inability to use our products
would affect customer's renewal of software maintenance for such products,
which would have a material adverse effect on our business, results of
operations and financial condition.

16
<PAGE>

We rely on non-exclusive license agreements with Hyperion Solutions
Corporation, Centura Corporation and FRx Software Corporation, and others for
third-party software that we distribute. The loss of, or inability to maintain,
any of these software licenses would result in delays or reductions in product
shipments until equivalent software could be identified, licensed or developed.
Any such delays could have a material adverse effect on our business, operating
results and financial condition. Further, in some instances we only receive
object code from our licensors, causing us to be reliant on software support
services from third parties. If these third parties fail to satisfy their
maintenance obligations to us, then we would likely fail to satisfy our
software support obligations to our customers. Any such failure would have a
material adverse effect on our business, results of operations and financial
condition.

We have also entered into agreements with Seagate Software, Inc., Intuitive
Data Solutions and other third party licensors with customary warranty,
software maintenance and infringement indemnification terms for third party
software that we distribute. The loss or inability to maintain any of these
software licenses could result in delays or reductions in product shipments
until equivalent software could be identified, licensed or developed. Any such
delays could have a material adverse effect on our business, operating results
and financial condition.

The termination of any such licenses or the failure of any of these third-party
licensors to adequately maintain or update their products could delay the
shipment of certain of our products while we seek to implement software offered
by alternative sources, and any required replacement licenses could prove
costly. While it may be necessary or desirable in the future to obtain other
licenses relating to one or more of our products or relating to current or
future technologies, there can be no assurance that we will be able to do so on
commercially reasonable terms or at all.

YEAR 2000 COMPLIANCE

Our applications are designed to be Year 2000 compliant. However, we are in the
process of determining the extent to which third-party licensed software
distributed by and used in our products is Year 2000 compliant, as well as the
impact of any non-compliance on us and our customers. If the relational
database management systems used with our software is not Year 2000 compliant,
our customers will not be able to continue to use our products. We do not
currently believe that the effects of any Year 2000 non-compliance in our
installed base of software will result in a material adverse impact on our
business or financial condition. However, our investigation with respect to
third-party software is in its preliminary stages. We may be exposed to
potential claims resulting from system problems associated with the century
change.

RELIANCE ON MICROSOFT TECHNOLOGIES

We have entered into partnership and marketing arrangements with Microsoft. Our
products operate with or are based on Microsoft's proprietary products such as:
Windows NT, Visual C++, Foundation Classes, Active X, OLE/COM, SQL Server and
Visual Basic. We have designed our products and technology to be compatible
with new developments in Microsoft technology. Although we believe that
Microsoft technologies are currently widely utilized by businesses of all
sizes, businesses may not continue to adopt such technologies as anticipated,
may migrate from older Microsoft technologies to newer Microsoft technologies
or may adopt alternative technologies that we do not support.

17
<PAGE>

RISKS ASSOCIATED WITH GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES

We are not currently subject to direct regulation by any government agency,
other than regulations applicable to businesses generally, and there are
currently few laws or regulations specifically addressing commerce on the
Internet. Due to the increasing use and growth of the Internet; however, it is
possible that such laws and regulations may be adopted covering issues such as
user privacy, pricing and characteristics and quality of products and services.
The Telecommunications Act of 1996, which was enacted in January 1996,
prohibits the transmission over the Internet of certain types of information
and content. The scope and applicability of this statute are currently
unsettled, but the imposition upon us of potential liability for information
carried on or disseminated through our application systems by this or other
laws could require us to reduce our exposure to such liability. This could
require us to make significant expenditures, or to discontinue certain
services. The adoption of any such laws or regulations also could slow the
growth of the Internet, which could in turn adversely affect our business,
operating results or financial condition. Moreover, the applicability to the
Internet of existing laws governing issues such as property ownership, libel
and personal privacy is uncertain.

As a result of customer demand, it is possible that Clarus E Procurement will
be required to incorporate encryption technology, the export of which is
regulated by the United States government. Export regulations, either in their
current form or as they may be subsequently enacted, may limit our ability to
distribute our software outside the United States. Moreover, legislation or
regulation may further limit levels of encryption or authentication technology
that we are able to utilize in our software. Any revocation or modification of
our export authority, unlawful exportation of our software, or adoption of new
legislation or regulation relating to exportation of software and encryption
technology could have a material adverse effect on the prospects for Clarus E
Procurement and, potentially, on our business, financial condition, and
operating results as a whole.

RISKS ASSOCIATED WITH ENCRYPTION TECHNOLOGY

A significant barrier to commerce involving the Internet is the secure exchange
of valued and confidential information over public networks. It is anticipated
that Clarus E Procurement will rely on encryption and authentication technology
to provide the security and authentication necessary to render secure the
exchange of valued and confidential information. Advances in computer
capabilities, discoveries in the field of cryptography or other events or
developments may result in a compromise of any encryption methods employed in
Clarus E Procurement to protect transaction data. If any compromise of security
were to occur, it could have a material adverse effect on our business,
financial condition, and operating results.

CONTROL BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS

Our executive officers and directors, and their affiliates, as a group, own
approximately 31.8% of our outstanding common stock. As a result, these
stockholders are able to influence matters requiring approval by our
stockholders, including the election of directors and approval of significant
corporate transactions.

18
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

The market price for our common stock could drop as a result of sales of a
large number of shares of our common stock in the market or the perception that
such sales could occur. The holders of the stock options granted during the
period of January 1, 1998 through March 31, 1998 whose options have been fully
vested have entered into lock-up agreements restricting the sale or transfer of
such shares for a four-year period following the date of the initial public
offering, with 25% of such shares being released from such restriction on each
anniversary of May 26, 1998. We have filed a Registration Statement on Form S-8
that has made eligible for sale an additional 2,581,496 shares issuable upon
the exercise of stock options. Of these 2,581,496 shares, 283,597 shares are
subject to the four year lock-up described above.

The former holders of Series A Preferred Stock and Series B Preferred Stock of
Elekom and Norman N. Behar have agreed with us not to sell any shares of our
common stock received by them in connection with the merger until August 6,
1999. After that date, such shares will be freely tradable, subject to the
rules of the Securities and Exchange Commission. We have granted piggy-back
registration rights to the holders of the Series A Preferred Stock, Series B
Preferred Stock and Norman N. Behar which will enable these stockholders to
trade their shares of our common stock received in the merger if we file a
registration statement before August 6, 1999.

POTENTIAL ISSUANCE OF PREFERRED STOCK; ANTITAKEOVER PROVISIONS

Our Certificate of Incorporation permits us to issue up to 5,000,000 shares of
preferred stock and permits the Board of Directors to fix the rights,
preferences, privileges and restrictions of such shares without any further
vote or action by our stockholders. Although we have no current plans to issue
new shares of preferred stock, the potential issuance of preferred stock may
have the effect of delaying, deferring or preventing a change in our control.
The potential issuance may also discourage bids for the common stock at a
premium over the market price of the common stock and may adversely affect the
market price of, and the voting and other rights of the holders of, common
stock. Our Board of Directors is divided into three classes, each of which
serves for a staggered three-year term. Such staggered board may make it more
difficult for a third party to gain control of our Board of Directors. In
addition, certain provisions of our corporate charter and by-laws and of
Delaware corporate law may have an anti-takeover effect and may discourage
takeover attempts not first approved by the Board of Directors including
takeovers which stockholders may deem to be in their best interest.

19
<PAGE>

USE OF PROCEEDS

We will not receive any proceeds from the sale of the shares of common stock
offered by the selling stockholders.

SELLING STOCKHOLDERS

The following table sets forth, as of November 30, 1998, certain information
regarding the beneficial ownership of our common stock by each selling
stockholder.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(L) AFTER OFFERING(L)
--------------------------- ---------------------------
PERCENT OF PERCENT OF
NUMBER OF SHARES COMMON SHARES TO BE NUMBER OF SHARES COMMON
NAME AND ADDRESS OF COMMON STOCK STOCK SOLD OF COMMON STOCK STOCK
---------------- ---------------- ---------- ------------ ---------------- ----------
<S> <C> <C> <C> <C> <C>
Roy Armitage............ 1,005 * 1,005 -- --%
1377 Lake James Drive
Virginia Beach, VA
2364
Judith Bassoul.......... 600 * 600 -- --
5265 Linnadine Way
Norcross, Georgia
30092
M. Alan Bond............ 6,000 * 6,000 -- --
980 Walther Boulevard
Apt. #1317
Lawrenceville, Georgia
30043
Scott J. Brady.......... 104,350 * 89,100 15,250 *
6154 Poplar Bluff
Circle
Norcross, Georgia
30092
Michael P. Caffyn....... 1,005 * 1,005 -- --
2201 Bierce Drive
Virginia Beach, VA
23454
Gerald E. Cassidy....... 1,740 * 1,740 -- --
4940 Evergreen Valley
Way
Alpharetta, Georgia
30202
Gregory M. Corley....... 390 * 390 -- --
83 Waddell Street.,
N.E.
Atlanta, Georgia 30307
Mary B. Flock........... 75 * 75 -- --
1511 S.W. Park Avenue,
#1303
Portland, OR 97201
Jeffrey A. Fourman...... 1,680 * 1,680 -- --
1212 N. Grove
Oak Park, IL 60302
Robert J. Fousch, Jr ... 45 * 45 -- --
4617 Howell Farms
Drive
Acworth, Georgia 30101
Wesley C. Hewatt........ 45 * 45 -- --
5694 Kilrush Court
Mableton, Georgia
30126
</TABLE>

20
<PAGE>

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(1) AFTER OFFERING(1)
--------------------------- ---------------------------
PERCENT OF PERCENT OF
NUMBER OF SHARES COMMON SHARES TO BE NUMBER OF SHARES COMMON
NAME AND ADDRESS OF COMMON STOCK STOCK SOLD OF COMMON STOCK STOCK
---------------- ---------------- ---------- ------------ ---------------- ----------
<S> <C> <C> <C> <C> <C>
Laurie Maceyko Hood..... 150 * 150 -- --
110 Huntington Road,
N.E.
Atlanta, Georgia 30309
Tracey D. Jackson....... 900 * 900 -- --
510 Shale Court
Alpharetta, Georgia
30202
Jeffrey M. Kirby........ 600 * 600 -- --
21 Beacon Street
Apt. 5-S
Boston, MA 02108
John M. McCall.......... 7,500 * 7,500 -- --
3019 Blandwood Drive
Valdosta, Georgia
31601
Rudolph Russell McCall.. 7,500 * 7,500 -- --
3019 Blandwood Drive
Valdosta, Georgia
31601
James Patrick McVey..... 300 * 300 -- --
4037 Dream Catcher
Drive
Woodstock, Georgia
30189
Denise L. Miles......... 615 * 615 -- --
3346 Muscadine Trail
Kennesaw, Georgia
30144
Nader Oteifa............ 1,230 * 1,230 -- --
1789 Chestwood Drive
Virginia Beach, VA
23456
Ronnie D. Philpot....... 342 * 342 -- --
212 Melrah Hill
Peachtree City, GA
30269
Gary J. Rogers.......... 8,400 * 8,400 -- --
17534 Charity Lane
Germantown, MD 20874
Janet V. Smith.......... 390 * 390 -- --
7315 Chattahoochee
Bluff Drive
Atlanta, Georgia 30350
Noreen M. Snellman...... 1,800 * 1,800 -- --
100 Oakhavern Drive
Roswell, Georgia 30075
Nancy W. Swager......... 33 * 33 -- --
5345 Myras Court
Cumming, Georgia 30040
</TABLE>

21
<PAGE>

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options held by that person that are
currently exercisable or that are or may become exercisable within 60 days
of November 30, 1998, are deemed outstanding. Such shares, however, are not
deemed outstanding for the purposes of computing the percentage ownership
of any other person. Each Selling Stockholder named in the table has sole
voting and investment power with respect to the shares set forth opposite
such selling stockholder's name.

Technology Ventures, L.L.C. ("Tech Ventures") is controlled by Joseph S.
McCall, a member of our board of directors. The common stock was issued to Tech
Ventures on February 5, 1998, in connection with our purchase of Tech Ventures'
20% ownership interest in Clarus Professional Services, L.L.C. (formerly, SQL
Financials Services L.L.C.) (the "Services Subsidiary"). Mr. McCall founded
Clarus Corporation in November 1991 and has previously served as its Chairman,
President, and Chief Executive Officer and has been a member of the Board of
Directors since 1991. Mr. McCall founded McCall Consulting Group, Inc. in 1986
and he currently serves as its President.

Alan Bond served as Vice President of Finance from May 1996 to December 1997.
Gary Rogers served as Vice President of Sales from February 1996 to October
1997.

All the shares of common stock beneficially owned by the selling stockholders
may be offered and sold in accordance with this Prospectus.

22
<PAGE>

DIVIDEND POLICY

We currently anticipate that we will retain all future earnings for use in our
business and do not anticipate that we will pay any cash dividends in the
foreseeable future. The payment of any future dividends will be at the
discretion of our Board of Directors and will depend upon, among other things,
our results of operations, capital requirements, general business conditions,
contractual restrictions on payment of dividends, if any, legal and regulatory
restrictions on the payment of dividends, and other factors our Board of
Directors deems relevant. In addition, our line of credit prohibits the payment
of dividends without prior lender approval.

DILUTION

As of September 30, 1998, our net tangible book value was approximately $19.3
million or $2.10 per share. The pro forma net tangible book value after giving
effect to the Elekom merger as of September 30, 1998 was approximately $9.6
million or $0.91 per share.

After giving effect to the sale of the 629,625 shares of common stock offered
hereby our pro forma net tangible book value as of September 30, 1998, would
have been approximately $9.5 million, or $0.89 per share. The following table
illustrates this net tangible book value.

<TABLE>
<S> <C>
Net tangible book value per share at September 30, 1998............... $2.10
Decrease attributable to pro forma adjustments........................ $1.19
-----
Pro forma net tangible book value per share at September 30, 1998..... $0.91
Decrease in pro forma net tangible book value per share due to the
sale of common stock by stockholders................................. $0.02
-----
Pro forma net tangible book value per share at September 30, 1998..... $0.89
=====
</TABLE>

We have outstanding options to acquire a total of 2,123,061 shares of common
stock at exercise prices ranging from $0.67 to $10.00 per share and a weighted
average exercise price of $4.75 per share. The exercise of a material number of
these options would have the effect of increasing the pro forma net tangible
book value dilution per share to new investors. See "Principal Stockholders."

23
<PAGE>

SELECTED HISTORICAL AND FINANCIAL DATA

Our selected combined financial data set forth below should be read in
conjunction with our Consolidated Financial Statements, including the Notes
thereto, and "Management's Discussion and Analysis of Financial Conditions and
Results of Operations." The statement of operations data for the years ended
December 31, 1993, 1994, 1995, 1996 and 1997 and the balance sheet data as of
December 31, 1993, 1994, 1995, 1996 and 1997 have been derived from, and are
qualified by reference to, our financial statements audited by Arthur Andersen
LLP, independent public accountants. The statement of operations data for the
nine months ended September 30, 1997 and 1998 and the balance sheet data as of
September 30, 1998, have been derived from our unaudited financial statements,
but include all adjustments (consisting only of normal recurring adjustments)
which we consider necessary for a fair presentation of the results of
operations and financial position for the periods presented. The results of
operations for the nine months ended September 30, 1998, may not be indicative
of the operating results that may be expected our fiscal year ended
December 31, 1998.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------- ----------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
License fees.......... $ 715 $ 2,568 $ 5,232 $ 6,425 $13,506 $ 9,026 $14,066
Services fees......... 245 836 1,737 3,984 7,786 5,340 11,277
Maintenance fees...... 94 417 1,221 2,647 4,696 3,168 $ 5,351
------- ------- ------- ------- ------- ------- -------
Total revenues...... 1,054 3,821 8,190 13,056 25,988 17,534 30,694
Cost of revenues:
License fees.......... 12 98 291 416 1,205 856 1,525
Services fees......... 225 860 1,421 2,904 5,338 3,688 7,223
Maintenance fees...... 189 277 655 1,350 1,973 1,360 2,442
------- ------- ------- ------- ------- ------- -------
Total cost of
revenues........... 426 1,235 2,367 4,670 8,516 5,904 11,190
Operating expense:
Research and
development.......... 1,364 2,130 3,882 5,360 6,690 5,305 4,157
Sales and marketing... 541 2,718 6,636 7,191 9,515 6,958 8,419
General and
administrative....... 866 2,733 2,923 2,368 3,161 2,103 3,723
Depreciation and
amortization......... 13 162 369 1,125 1,406 1,049 1,456
Non-cash compensation. 0 0 0 0 58 36 842
------- ------- ------- ------- ------- ------- -------
Total operating
expenses........... 2,784 7,743 13,810 16,044 20,830 15,451 18,597
Operating income (loss). (2,156) (5,157) (7,987) (7,658) (3,358) (3,821) 907
Interest expense
(income), net.......... 14 (17) 2 6 274 223 (230)
Minority interest....... 0 0 (60) (215) (478) (322) (36)
------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $(2,170) $(5,140) $(8,049) $(7,879) $(4,110) $(4,366) $ 1,101
======= ======= ======= ======= ======= ======= =======
Income (loss) per common
share:
Basic................. $ (2.23) $ (5.65) $ (6.19) $ (5.74) $ (2.97) $ (3.15) $ 0.22
======= ======= ======= ======= ======= ======= =======
Diluted............... $ (2.23) $ (5.65) $ (6.19) $ (5.74) $ (2.97) $ (3.15) $ 0.13
======= ======= ======= ======= ======= ======= =======
Weighted average common
shares outstanding:
Basic................. 975 910 1,300 1,373 1,386 1,384 5,080
======= ======= ======= ======= ======= ======= =======
Diluted............... 975 910 1,300 1,373 1,386 1,384 8,767
======= ======= ======= ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AT
---------------------------------------------- SEPTEMBER 30,
1993 1994 1995 1996 1997 1998
------- ------- -------- -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 1,488 $ 492 $ 3,333 $ 3,279 $ 7,213 $23,984
Working capital
(deficit).............. 1,178 (1,424) (2,555) (3,422) (453) 20,882
Total assets............ 1,981 1,506 5,865 8,525 14,681 43,594
Long-term debt, net of
current portion........ 190 143 93 1,093 497 310
Total stockholders'
(deficit) equity....... (2,961) (8,732) (15,927) (23,837) (27,910) 25,187
</TABLE>

24
<PAGE>

UNAUDITED PRO FORMA FINANCIAL DATA

The following unaudited pro forma condensed combined balance sheet as of
September 30, 1998, was prepared as if the merger occurred on such date. The
following unaudited condensed combined statements of operations give effect to
the merger as of the beginning of the periods presented. The unaudited pro
forma condensed combined statements of operations do not purport to represent
what our results of operations actually would have been if the merger had
occurred as of such date or what such results will be for any future periods.

The unaudited pro forma condensed combined financial statements are derived
from our historical financial statements, those of Elekom and the assumption
and adjustments described in the accompanying notes. We believe that all
adjustments necessary to present fairly such unaudited financial information
have been made. The unaudited pro forma financial data should be read in
conjunction with our consolidated financial statements and the accompanying
notes thereto appearing elsewhere in this Prospectus. The unaudited pro forma
condensed consolidated financial statements do not reflect any cost savings or
other economic efficiencies resulting from the merger.

25
<PAGE>

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1998
(IN THOUSANDS)

<TABLE>
<CAPTION>
PRO FORMA
COMPANY ELEKOM ADJUSTMENTS PRO FORMA
-------- -------- ----------- ---------
ASSETS
------
<S> <C> <C> <C> <C>
Current assets:
Cash............................. $ 23,984 $ 181 $ 9,450 (a) $ 14,715
Accounts receivable, net......... 10,918 201 11,119
Prepaid and other current assets. 407 130 537
-------- -------- -------- --------
Total current assets........... 35,309 512 26,371
Property and equipment, net........ 2,227 491 2,718
Other assets:
Intangible assets, net........... 5,843 0 3,378 (b) 9,221
Acquired in process research and
development..................... 0 0 14,000 (b)
(14,000)(b)
Deposits and other long-terms
assets.......................... 215 40 255
-------- -------- -------- --------
Total assets................... $ 43,594 $ 1,043 $ (6,072) $ 38,565
======== ======== ======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS'
EQUITY
-----------------------------
<S> <C> <C> <C> <C>
Current liabilities:
Note payable..................... $ 990 $ 0 $ 990
Accounts payable and accrued
liabilities..................... 6,778 778 7,556
Deferred revenue................. 6,415 249 6,664
Current maturities of long-term
debt and capital lease
obligations..................... 244 269 513
Noncurrent liabilities:
Deferred revenue................. 3,600 0 3,600
Long-term debt and capital lease
obligations, net of current
maturities...................... 310 33 343
Other non-current liabilities.... 70 0 70
-------- -------- -------- --------
Total liabilities.............. 18,407 1,329 19,736
Stockholders' equity:
Convertible preferred stock...... 0 52 (52)(c) 0
Common stock..................... 1 10 1 (d) 2
(10)(c)
Additional paid in capital....... 51,306 11,128 7,641 (d) 58,947
(11,128)(c)
(14,000)(b)
Accumulated deficit.............. (26,918) (11,476) 11,476 (c) (40,918)
Warrants......................... 1,440 0 1,440
Less treasury stock, at cost..... (2) 0 (2)
Deferred compensation............ (640) 0 (640)
-------- -------- -------- --------
Total stockholders' equity..... 25,187 (286) (6,072) 18,829
-------- -------- -------- --------
Total liabilities and
stockholders' equity.......... $ 43,594 $ 1,043 $ (6,072) $ 38,565
======== ======== ======== ========
</TABLE>

See notes to unaudited pro forma condensed combined financial statements.

26
<PAGE>

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA PRO
COMPANY ELEKOM ADJUSTMENTS FORMA
------- --------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
License fees.................... $13,506 $ 0 $ 13,506
Services fees................... 7,786 17 7,803
Maintenance fees................ 4,696 0 4,696
------- --------- ------- --------
Total revenues................ 25,988 17 26,005
Cost of revenues:
License fees.................... 1,205 0 1,205
Services fees................... 5,339 13 5,352
Maintenance fees................ 1,973 0 1,973
------- --------- ------- --------
Total cost of revenues........ 8,517 13 8,530
Operating expense:
Research and development........ 6,691 1,051 7,742
Sales and marketing............. 9,515 1,388 10,903
General and administrative...... 3,159 1,955 5,114
Depreciation.................... 844 204 1,048
Amortization.................... 562 0 422 (e) 984
Non-cash compensation........... 58 0 58
------- --------- ------- --------
Total operating expenses ..... 20,829 4,598 422 25,849
------- --------- ------- --------
Operating loss.................... (3,358) (4,594) (422) (8,374)
Interest income................... 35 16 (51)(f) 0
Interest expense.................. 309 617 630 (g) 1,556
Minority expense.................. $ 478 0 478
------- --------- ------- --------
Net loss.......................... $(4,110) $ (5,195) $(1,103) $(10,408)
======= ========= ======= ========
Income (loss) per common shares:
Basic........................... $ (2.97) $(103,892) $ (3.75)
======= ========= ========
Diluted......................... $ (2.97) $(103,892) $ (3.75)
======= ========= ========
Weighted average common shares
outstanding:
Basic........................... 1,386 50 1,390 (d) 2,776
======= ========= ======= ========
Diluted......................... 1,386 50 1,390 (d) 2,776
======= ========= ======= ========
</TABLE>

27
<PAGE>

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA
COMPANY ELEKOM ADJUSTMENTS PRO FORMA
------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues:
License fees........................ $14,066 $ 351 $(125)(h) $14,292
Services fees....................... 11,277 20 11,297
Maintenance fees.................... 5,351 59 5,410
------- ------- ----- -------
Total revenues.................... 30,694 430 (125) 30,999
Cost of revenues:
License fees........................ 1,525 1 (125)(h) 1,401
Services fees....................... 7,223 71 7,294
Maintenance fees.................... 2,442 148 2,590
------- ------- ----- -------
Total cost of revenues............ 11,190 220 (125) 11,285
Operating expense:
Research and development............ 4,157 1,551 5,708
Sales and marketing................. 8,419 867 9,286
General and administrative.......... 3,723 752 4,475
Depreciation and amortization....... 1,456 101 324 (e) 1,881
Non-cash compensation............... 842 0 842
------- ------- ----- -------
Total operating expenses.......... 18,597 3,271 324 22,192
------- ------- ----- -------
Operating income (loss)............... 907 (3,061) 324 (2,478)
Interest income....................... 402 42 (150)(f) 294
Interest expense...................... 172 0 90 (g) 262
Minority expense...................... $ 36 0 36
------- ------- ----- -------
Net income (loss)..................... $ 1,101 $(3,019) $(564) $(2,482)
======= ======= ===== =======
Income (loss) per common share:
Basic............................... $ 0.22 $ (4.11) $ (0.38)
======= ======= =======
Diluted............................. $ 0.13 $ (4.11) $ (0.38)
======= ======= =======
Weighted average common shares
outstanding:
Basic............................... 5,080 735 1,390 (d) 6,470
======= ======= ===== =======
Diluted............................. 8,767 735 1,390 (d) 6,470
======= ======= ===== =======
</TABLE>

See notes to unaudited pro forma condensed combined financial statements.

28
<PAGE>

NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

The pro forma condensed combined balance sheet assumes that the merger took
place September 30, 1998, and combines Elekom's unaudited September 30, 1998
condensed balance sheet and our unaudited September 30, 1998 consolidated
condensed balance sheet.

The pro forma combined statements of operations assume the merger took place as
of the beginning of the periods presented and combined Elekom's unaudited
statements of operations for the year and nine month period ended December 31,
1997 and September, 30, 1998, respectively, and our consolidated statement of
operations for the year and nine month period ended December 31, 1997 and
September 30, 1998, respectively.

All material transactions between us and Elekom during the periods presented
have been eliminated as a pro forma adjustment.

There are no material differences between our accounting policies and those of
Elekom.

The pro forma combined provision for income taxes may not represent the amounts
that would have resulted had we and Elekom filed consolidated income tax
returns during the periods presented.

NOTE 2. PRO FORMA ADJUSTMENTS

The pro forma adjustments are based on our estimates of the value of the
tangible and identifiable intangible assets acquired. A valuation of the
tangible and identifiable intangible assets acquired has been conducted by an
independent third-party appraisal company.

As a part of the merger, we committed to fund the operations of Elekom for each
two week period beginning October 1, 1998. Bi-weekly funding of $250,000 was
provided until November 6, 1998. The bi-weekly funding was considered
additional purchase consideration. Furthermore, Elekom's working capital may be
substantially less at Closing compared to Elekom's historical working capital
included in the accompanying unaudited pro forma condensed combined balance
sheet as of September 30, 1998. A decrease in the working capital would result
in a reallocation of the purchase price and would result in increases in values
assigned to identifiable intangible assets compared to those presented in the
accompanying pro forma condensed combined financial statements as of September
30, 1998.

Under purchase accounting, the total acquisition cost was allocated to Elekom's
assets and liabilities based on their relative fair values. The final
allocations may be different from the results reflected herein. Our analysis,
based on an independent appraisal, resulted in an allocation of $14.0 million
in in-process acquired research and development which, under generally accepted
accounting principles, was expensed immediately after the merger was completed.
The accompanying pro forma condensed combined statements of operations exclude
the effects of the charge due in its nonrecurring nature.

(a) Represents the cash consideration of $8.0 million; the estimated
acquisition expenses of approximately $950,000 related to the merger; and
the $500,000 funded by us to Elekom from October 1, 1998 to November 6,
1998.

29
<PAGE>

(b) Represents estimated valuation of tangible and intangible assets,
including purchased in-process technology, resulting from the preliminary
allocation of the purchase price. Valuation of the intangible assets
acquired was conducted by an independent third-party appraisal company and
consists of purchased in-process research and development, trademarks and
trade-names, skilled workforce and favorable lease terms. In the
accompanying unaudited pro forma condensed combined financial statements,
the purchase price exceeded amounts allocated to tangible and intangible
assets acquired less liabilities assumed by approximately $2.8 million.

The table below is a summary of the estimated amounts allocated to the long-
lived assets acquired (dollars in thousands):

<TABLE>
<CAPTION>
VALUE ASSIGNED
BALANCE SHEET CATEGORY TO ASSETS ACQUIRED
---------------------- ------------------
<S> <C>
Property and equipment.................................. $ 491
Purchased in-process research and development........... 14,000
Intangible assets:
Market presence and recognition....................... 2,773
Skilled workforce..................................... 520
Favorable lease terms................................. 55
Trademarks and trade-names............................ 30
</TABLE>

The merger was accounted for as a purchase in accordance with Accounting
Principles Board Opinion No. 16, "Business Combinations." The intangible assets
of approximately $3.4 million noted above will be amortized over periods
ranging from 3 months to 10 years. Based on the independent third-party
appraisal, approximately $14.0 million of the purchase price represents
purchased in-process technology that has not yet reached technological
feasibility and has no alternative future use. This amount will be expensed as
a non-recurring, non-tax deductible charge upon consummation of the
acquisition. This amount has been reflected as a reduction to stockholders'
equity and has not been included in the pro forma combined statements of
operations due to its non-recurring nature.

The existence of purchased research and development was determined by a third-
party independent appraisal identifying computer software code under
development by Elekom since 1995. The value was determined by estimating the
remaining costs to develop the purchased in-process technology into a
commercially viable product, estimating the resulting net cash flows from the
project and discounting the net cash flows back to its present value.

The nature of the efforts to develop the purchased research and development
into a commercially viable product principally relates to the completion of all
planning, programming and testing activities that are necessary to establish
that the product can be produced to meet its design specifications including
functions, features and technical performance requirements. The efforts to
develop the purchased in-process technology also include determining the
compatibility and interoperability with other applications. The estimated
remaining costs to be incurred to develop the purchased in-process research and
development into a commercially viable product is approximately $2.0 million.

30
<PAGE>

The resulting net cash flows from the project is based on management's
estimates of revenues, cost of sales, research and development costs, selling,
general and administrative costs, and income taxes from the project. These
estimates are based on the following assumptions:

. The estimated revenues project a compounded annual revenue growth rate
of approximately 48% from 1999-2002. Estimated revenue for 1999 is
projected to be $5.3 million, compared to virtually no revenue in 1998.
Estimated total revenues from the purchased research and development
peaks in the year 2002 and declines rapidly in 2003-2005 as other new
products are expected to enter the market. These projections are based
on management's estimates of market size and growth, expected trends in
technology and the nature and expected timing of new product
introductions by Elekom and its competitors. These estimates also
include growth related to our utilizing certain Elekom technologies in
conjunction with our products, marketing and distributing the resulting
products through our direct sales force enhancing the market's response
to Elekom's products by providing incremental financial support and
stability.

. The estimated cost of sales as a percentage of revenues is expected to
be 5%. This percentage is somewhat lower than the annual cost of license
fees percentage for us due to the lower royalty rates on certain third-
party software used by Elekom compared to our third-party software.

. The estimated research and development expenses were based on the
estimated time associated with the remaining cost to develop the in-
process research and development. Research and development expenses
represent 33% of revenue in 1999 due to the anticipated release of the
product in 1999.

. Sales and marketing and general administrative expenses in the early
years are expected to more closely approximate 1998 expense structure.
Sales and marketing expenses are expected to benefit from the savings as
a result of the distribution of the Elekom product through our direct
sales force as well as through consolidated marketing and advertising
campaigns.

. Income tax expense is estimated using a 38% tax rate, consistent with
our anticipated tax rate.

Discounting the net cash flows back to their present values is based on the
present value discount rate. The present value discount rate used in the
analysis represents the weighted average cost of capital (WACC) for Elekom plus
2%. The WACC calculation produces the average required rate of return of an
investment in an operating enterprise, based on various required rates of
return from investment in various areas of that enterprise. The WACC assumed
for Elekom, as a corporate business enterprise, is approximately 25%.
Therefore, the discount rate is higher than the WACC due to the inherent
uncertainties in the estimates described above including the uncertainty
surrounding the successful development of the purchased in-process technology,
the useful life of such technology, the profitability levels of such technology
and the uncertainty of technological advances that are unknown at this time.

If this project is not successfully developed, the sales and profitability of
the combined company may be adversely affected in future periods. Additionally,
the value of other intangible assets acquired

31
<PAGE>

may become impaired. We expect to begin to benefit from the purchased in-
process technology in the second quarter of 1999.

Intangible assets of $3.4 million are comprised of market presence and
recognition of approximately $2.8 million, skilled workforce of $520,000,
favorable lease terms of $55,000, and trademarks and trade-names of $30,000,
which have estimated useful lives of 10 years, 6 years, 2 years and three
months, respectively.

The estimated annual amortization charge to operations related to intangible
assets approximates $422,000. This charge is reflected in the pro forma
combined statement of operations.

(c) Represents adjustments to reflect the elimination of convertible preferred
stock, common stock, additional paid in capital and accumulated deficit account
balances of Elekom.

(d) Represents the issuance of 1,384,517 shares of our common stock valued at
$5.50, the minimum Closing Price of our common stock for which 1,384,517 shares
of common stock were issued pursuant to the Agreement, as consideration for the
merger.

(e) Adjustment to reflect the amortization expense of identifiable intangible
assets acquired as a result of the merger. The acquired identifiable intangible
assets will be amortized over periods ranging from 3 months to 10 years.

(f) Adjustment to eliminate certain interest income as available cash balances
would have provided funding for the cash portion of the purchase consideration.

(g) Adjustment to interest expense for incremental debt required to fund the
cash portion of the purchase consideration in excess of the average cash
balances available for the periods presented.

(h) Adjustment to eliminate revenue recognized by Elekom and royalty expense
recognized by us for business transacted between us and Elekom.

32
<PAGE>

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

OVERVIEW

We were formed in November 1991 to develop, market, license and support
financial applications. During 1998 and 1997, we introduced a series of
additional modules and product enhancements. In 1997, we introduced a series of
additional modules and product enhancements. Specifically, in the third quarter
of 1998, we introduced our corporate service applications, which include Clarus
E Procurement, a business-to-business buy side web-based solution designed for
the acquisition of non-industrial goods and services; and budgeting. In the
first quarter of 1997, we introduced our human resource applications, which
include the Personnel, Benefits and Payroll modules. In 1997, we introduced our
Financial Statement Accelerator module, a distributed management reporting
solution, and a 32-bit version of our financial applications (the "Denver
Release"), which included two new modules, Purchasing Control and
Solution/Graphical Architect. We intend to release a 32-bit version of our
human resources applications by the end of 1998. We currently market our
products in the United States and Canada through our direct sales force and
have licensed our client/server applications to more than 250 customers in a
variety of industry segments, including insurance, financial services,
communications, retail, printing and publishing, transportation and
manufacturing. We also offer fee-based implementation, training and upgrade
services and ongoing maintenance and support of our products for a 12-month
renewable term.

On November 6, 1998, we completed our acquisition of Elekom for approximately
$15.6 million, consisting of $8.0 million in cash and approximately 1.39
million shares of our common stock. Elekom was merged with and into Clarus CSA,
Inc., our wholly owned subsidiary and the separate existence of Elekom ceased.
Immediately following consummation of the merger, the former holders of Elekom
common and preferred stock (the "Elekom Shareholders") owned approximately 13%
of the outstanding shares of our common stock. The former Elekom Shareholders
have agreed not to sell any of their shares of our common stock for a period
ending on August 6, 1999. We, as additional purchase price, recorded (i)
payments of $500,000 made to fund the operations of Elekom from October 1,
1998, through the closing date, and (ii) expenses of approximately $950,000 to
complete the merger. Approximately $14.0 million of the purchase price was
recorded as purchased in-process research and development.

On May 26, 1998, we completed an initial public offering of our common stock in
which it sold 2.5 million shares for approximately $22.0 million after
deducting offering expenses including underwriting discounts.

Through 1997 we recognized revenue in compliance with Statement of Position
("SOP") 91-1 "Software Revenue Recognition." Effective January 1,1998, we
adopted SOP 97-2 "Software Revenue Recognition." The adoption of this SOP did
have a significant impact on our consolidated financial statements. Revenues
from software licenses have been recognized upon delivery of the product if
there are no significant obligations on our part following delivery and
collection of the related receivable, if any, is deemed probable by management.
Revenues from service fees relate to implementation, training and upgrade
services performed by us and have been recognized as the services are
performed. Maintenance fees relate to customer maintenance and support and have
been

33
<PAGE>

recognized ratably over the term of the software support agreement, which is
typically 12 months. A majority of our customers renew the maintenance and
support agreements after the initial term. Revenues that have been prepaid or
invoiced, but that do not yet qualify for recognition under our policies are
reflected as deferred revenue.

Cost of license fees include royalties and software duplication and
distribution costs. These costs are recognized by us as the applications are
shipped. Cost of services fees include personnel and related costs incurred to
provide implementation, training and upgrade services to customers. These costs
are recognized as the services are performed. Cost of maintenance fees include
personnel and related costs incurred to provide the ongoing support and
maintenance of our products. These costs are recognized as incurred.

Research and development expenses consist primarily of personnel costs and
subcontractor fees and amortization of acquired software. We account for
software development costs under Statement of Financial Accounting Standards
("SFAS") No. 86 "Accounting For the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed." Research and development expenses are charged to
expense as incurred until technological feasibility is established, after which
remaining costs are capitalized. We define technological feasibility as the
point in time at which we have a working model of the related product.
Historically, the costs incurred during the period between the achievement of
technological feasibility and the point at which the product is available for
general release to customers have not been material. Therefore, we have charged
all internal software development costs to expense as incurred.

Sales and marketing expenses consist primarily of salaries, commissions and
benefits to sales and marketing personnel, travel, trade show participation,
public relations and other promotional expenses. General and administrative
expenses consist primarily of salaries for financial, administrative and
management personnel and related travel expenses, as well as occupancy,
equipment and other administrative costs.

We had net NOLs of approximately $24.5 million at September 30, 1998, which
begin expiring in 2007. We established a valuation allowance equal to the NOLs
and all other deferred tax assets. The benefits from these deferred tax assets
will be recorded when realized which will reduce our effective tax rate for
future taxable income, if any. Due to changes in our ownership structure, our
use of our NOLs as of May 26, 1998, of approximately $26.0 million will be
limited to approximately $3.8 million in any given year to offset future taxes.
If we do not realize taxable income in excess of the limitation in future
years, certain NOLs will be unrealizable.

AFFILIATE RELATIONSHIPS

In March 1995, we along with Tech Ventures, which is controlled by Joseph S.
McCall, formed the Services Subsidiary to provide implementation, training and
upgrade services exclusively for our customers. On February 5, 1998, Tech
Ventures sold its 20.0% interest in the Services Subsidiary to us in exchange
for 225,000 shares of our common stock, a warrant to purchase an additional
300,000 shares of common stock at a price of $3.67 per share, and a non-
interest bearing promissory note in the principal amount of $1.1 million. The
purchase of the 20.0% of the Services Subsidiary was accounted for as a
purchase and will result in goodwill in the amount of $4.2 million that is
being amortized over 15 years.

34
<PAGE>

In the second quarter of 1998, we accelerated the vesting of certain employee
stock options issued in the first quarter of 1998, for 283,000 shares of common
stock, at an exercise price of between $3.67 per share and $8.00 per share. As
a result of this accelerated vesting, we recognized in the second quarter of
1998 a noncash, nonrecurring charge of approximately $705,000 representing the
remaining unamortized deferred compensation previously recorded on these
options.

SUMMARY OF THE EFFECTS OF THE MERGER

We anticipate the integration and consolidation of Elekom will require
substantial management, financial and other resources. The acquisition of
Elekom involved a number of significant risks including potential difficulties
in assimilating the technologies, services and products of Elekom or in
achieving the expected synergies and cost reductions, as well as other
unanticipated risks and uncertainties. As a result, there can be no assurance
as to the extent to which the anticipated benefit with respect to the merger
will be realized, or the timing of any such realization.

The merger is expected to lower our net earnings through 1998 as a result of a
substantial increase in amortization of intangible and other long-lived assets
and various other adjustments resulting from purchase accounting. The 1997
unaudited pro forma condensed combined net loss before nonrecurring charges
would have been approximately $10.4 million, a net loss which is approximately
153% greater than our actual historical results for 1997. See "Unaudited Pro
Forma Financial Statements." We believe that earnings beyond 1998 should
improve as a result of the web-based, electronic procurement market presence
and recognition afforded us as a result of the completion of the merger. No
assurances can be given as to the amount or timing of such benefit that may
actually be realized or that any such growth may occur.

The merger was accounted for as a purchase. Under purchase accounting, the
total purchase cost and fair value of liabilities assumed was allocated to the
tangible and intangible assets of Elekom based upon the irrespective fair
values as of the Closing. On a pro forma basis as of September 30,1998,
intangible assets of $3.4 million are comprised of market presence and
recognition of approximately $2.8 million, skilled workforce of $520,000,
favorable lease terms of $55,000 and trademarks and tradenames of $30,000. On a
pro forma basis as of September 30, 1998, we allocated $14.0 million to in-
process research and development which we recorded as a nonrecurring charge in
the fourth quarter of 1998.

RESULTS OF OPERATIONS

The following table sets forth certain statement of operations data as a
percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -------------- ---------------
1994 1995 1996 1997 1997 1998 1997 1998
----- ----- ----- ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
License fees.......... 67.2 % 63.9 % 49.2 % 52.0 % 56.5% 47.1 % 51.4 % 45.8%
Services fees......... 21.9 21.2 30.5 30.0 27.1 36.7 30.5 36.8
Maintenance fees...... 10.9 14.9 20.3 18.0 16.4 16.2 18.1 17.4
----- ----- ----- ----- ------ ------ ------ ------
Total revenues...... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ------ ------ ------ ------
</TABLE>

35
<PAGE>

<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30,
------------------------------ -------------- ----------------
1994 1995 1996 1997 1997 1998 1997 1998
------ ----- ----- ----- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cost of revenues:
License fees.......... 2.6 3.6 3.2 4.6 6.3 8.1 4.9 5.0
Services fees......... 22.5 17.3 22.3 20.5 17.9 22.7 21.0 23.5
Maintenance fees...... 7.2 8.0 10.3 7.6 6.7 7.7 7.8 7.9
------ ----- ----- ----- ------ ------ ------- ------
Total cost of
revenues........... 32.3 28.9 35.8 32.7 30.9 38.5 33.7 36.4
------ ----- ----- ----- ------ ------ ------- ------
Operating expenses:
Research and
development.......... 55.7 47.4 41.1 25.7 19.5 13.7 30.3 13.5
Sales and marketing... 71.1 81.0 55.1 36.6 30.9 25.4 39.7 27.4
General and
administrative....... 71.5 35.7 18.1 12.3 9.9 9.8 12.0 12.1
Depreciation and
amortization......... 4.3 4.5 8.6 5.4 4.6 4.4 6.0 4.8
Non-cash
compensation......... 0.0 0.0 0.0 0.2 0.2 0.3 0.2 2.8
------ ----- ----- ----- ------ ------ ------- ------
Total operating
expenses........... 202.6 168.6 122.9 80.2 65.1 53.6 88.2 60.6
------ ----- ----- ----- ------ ------ ------- ------
Operating income (loss). (134.9) (97.5) (58.7) (12.9) 4.0 7.9 (21.9) 3.0
Interest (income)
expense, net........... (0.4) 0.0 0.0 1.1 1.7 (1.6) 1.2 0.7
Minority interest....... 0.0 (0.8) (1.6) (1.8) 1.8 0 1.8 0.1
------ ----- ----- ----- ------ ------ ------- ------
Net income (loss)....... (134.5)% (98.3)% (60.3)% (15.8)% 0.5% 9.5 % (24.9)% 3.6%
====== ===== ===== ===== ====== ====== ======= ======
Gross margin on license
fees................... 96.2 % 94.4 % 93.5 % 91.1 88.9 82.9 90.5 89.2
Gross margin on services
fees................... (2.9) 18.2 27.1 31.4 33.8 38.1 30.9 36.0
Gross margin on
maintenance fees....... 33.6 46.4 49.0 58.0 59.2 52.3 57.1 54.4
</TABLE>

QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1998, COMPARED TO QUARTER AND NINE
MONTHS ENDED SEPTEMBER 30, 1997

REVENUES

Total Revenues. For the quarter ended September 30, 1998, total revenues
increased 56.9% to $11.9 million from $7.6 million in the comparable period in
1997. For the nine months ended September 30, 1998, total revenues increased
75.1% to $30.7 million from $17.5 million in the comparable period in 1997.
These increases are attributable to substantial increases in license fees,
services fees and maintenance fees.

License Fees. License fees increased 30.8% to $5.6 million, or 47.1% of total
revenues, in the quarter ended September 30, 1998, from $4.3 million, or 56.5%
of total revenues, in the comparable period in 1997. License fees increased
55.8% to $14.1 million, or 45.8% of total revenues, in the nine months ended
September 30, 1998, from $9.0 million, or 51.4%, in the comparable period in
1997. These increases in license fees resulted primarily from increases in the
number of licenses sold, reflecting a continuing increase in the demand for our
existing and new applications, and to a lesser extent, to an increase in the
average customer transaction size.

Services Fees. Services fees increased 112.5% to $4.4 million, or 36.7% of
total revenues, in the quarter ended September 30, 1998, from $2.1 million, or
27.1% of total revenues, in the comparable period in 1997. Services fees
increased 111.2% to $11.3 million, or 36.8% of total revenues, in the nine
months ended September 30, 1998, from $5.3 million, or 30.5% of total revenues,
in the

36
<PAGE>

comparable period in 1997. These increases in services fees are primarily due
to increased demand for professional services associated with the increase in
number of licenses sold.

Maintenance Fees. Maintenance fees increased 55.0% to $1.9 million, or 16.2% of
total revenues, in the quarter ended September 30, 1998, from $1.3 million, or
16.4% of total revenues, in the comparable period in 1997. Maintenance fees
increased 68.9% to $5.4 million, or 17.4% of total revenues, in the nine months
ended September 30, 1998, from $3.2 million, or 18.1% of total revenues, in the
comparable period in 1997. These increases in maintenance fees were primarily
due to the signing of license agreements with new customers and the renewal of
maintenance with existing customers during the respective periods.

COST OF REVENUES

Total Cost of Revenues. Cost of revenues increased 95.5% to $4.6 million, or
38.5% of total revenues, in the quarter ended September 30, 1998, from $2.4
million, or 30.9% of total revenues, in the comparable period in 1997. Cost of
revenues increased 89.5% to $11.2 million, or 36.4% of total revenues, in the
nine months ended September 30, 1998, from $5.9 million, or 33.7% of total
revenues, in the comparable period in 1997. The increases in cost of revenues
were primarily due to an increase in personnel and related expenses and
increased royalty expenses for the respective periods.

Cost of License Fees. Cost of license fees increased 100.8% to $960,000, or
17.1% of total license fees, in the quarter ended September 30, 1998, compared
to $478,000, or 11.1% of total license fees, in the comparable period in 1997.
Cost of license fees increased 78.2% to $1.5 million, or 10.8% of total license
fees, in the nine months ended September 30, 1998, compared to $856,000, or
9.5% of total license fees, in the comparable period in 1997. The increases in
the cost of license fees, and the increase as a percentage of total license
fees, were primarily attributable to increases in the sale of third-party
software products distributed by us.

Cost of Services Fees. Cost of services fees increased 98.9% to $2.7 million,
or 61.9% of total services fees, in the quarter ended September 30, 1998,
compared to $1.4 million, or 66.2% of total services fees, in the comparable
period in 1997. Cost of services fees increased 95.9% to $7.2 million, or 64.0%
of total services fees, in the nine months ended September 30, 1998, compared
to $3.7 million, or 69.1% of total services fees, in the comparable period in
1997. These increases in the cost of service fees are primarily attributable to
an increase in the personnel and related costs to provide implementation,
training and upgrade services.

The decreases in cost of services fees as a percentage of revenue for the
quarter and nine months ended September 30, 1998, are primarily due to
increased hourly rates charged combined with increased utilization of services
personnel.

Cost of Maintenance Fees. Cost of maintenance fees increased 81.4% to $925,000,
or 47.7% of total maintenance fees, in the quarter ended September 30, 1998,
compared to $510,000, or 40.8% of total maintenance fees, in the comparable
period in 1997. Cost of maintenance fees increased 80.0% to $2.4 million, or
45.6% of total maintenance fees, in the nine months ended September 30, 1998,
compared to $1.4 million, or 42.9% of total maintenance fees, in the comparable
period in 1997.

37
<PAGE>

These increases in the cost of maintenance fees were primarily attributable to
an increase in the personnel and related costs required to provide support and
maintenance. Cost of maintenance fees as a percentage of total maintenance fees
increased during the respective periods primarily due to increased investment
in personnel to support the maintenance customer base.

RESEARCH AND DEVELOPMENT

Research and development expenses increased 10.1% to $1.6 million, or 13.7% of
total revenues, in the quarter ended September 30, 1998, from $1.5 million, or
19.5% of total revenues, in the comparable period in 1997. Research and
development expenses decreased 21.6% to $4.2 million, or 13.5% of total
revenues, in the nine months ended September 30, 1998, from $5.3 million, or
30.3% of total revenues, in the comparable period in 1997. Research and
development expenses increased during the quarter ended September 30, 1998,
primarily due to increased personnel costs related to continued development of
our products. Research and development expenses decreased during the nine
months ended September 30, 1998, primarily due to decreased personnel and
contractor fees related to the effort required in 1997 to develop the Denver
Release, which was substantially completed by September 1997. The decreases in
research and development as a percentage of revenue for the periods ended
September 30, 1998, compared to the periods ended September 30, 1997, are
primarily due to the completion of the Denver Release, coupled with the
economies of scale realized through the growth in our revenue. We intend to
continue to devote substantial resources toward research and development
efforts.

SALES AND MARKETING

Sales and marketing expenses increased 28.7% to $3.0 million, or 25.4% of total
revenues, in the quarter ended September 30, 1998, from $2.4 million, or 30.9%
of total revenues, in the comparable period in 1997. Sales and marketing
expenses increased 21.0% to $8.4 million, or 27.4% of total revenues, in the
nine months ended September 30, 1998, from $7.0 million, or 39.7% of total
revenues, in the comparable period in 1997. The increases in sales and
marketing expenses were primarily attributable to the costs associated with
additional sales and marketing personnel and promotional activities. The
decreases in sales and marketing expense, as a percentage of revenues for the
respective periods, reflects the higher productivity derived from our sales
force and marketing efforts.

GENERAL AND ADMINISTRATIVE

General and administrative expenses increased 55.8% to $1.2 million, or 9.8% of
total revenues, in the quarter ended September 30, 1998, from $754,000, or 9.9%
of total revenues, in the comparable period in 1997. General and administrative
expenses increased 77.0% to $3.7 million, or 12.1% of total revenues, in the
nine months ended September 30, 1998, from $2.1 million, or 12.0% of total
revenues, in the comparable period in 1997. The increases in general and
administrative expenses were primarily attributable to increases in personnel
and related costs. We believe that our general and administrative expenses will
continue to increase in future periods to accommodate anticipated growth and
expenses associated with our responsibilities as a public company.

38
<PAGE>

DEPRECIATION AND AMORTIZATION

Depreciation of tangible equipment and amortization of intangible assets
increased 49.4% to $526,000, or 4.4% of total revenues, in the quarter ended
September 30, 1998, from $352,000, or 4.6% of total revenues, in the comparable
period in 1997. Depreciation of tangible equipment and amortization of
intangible assets increased 38.8% to $1.5 million, or 4.8% of total revenues,
in the nine months ended June 30, 1998, from $1.0 million, or 6.0% of total
revenues, in the comparable period in 1997. The increases in depreciation and
amortization expense are due to increases in capital expenditures resulting
from our significant growth combined with increased goodwill resulting from the
acquisition of the minority interest in the Services Subsidiary.

NON-CASH COMPENSATION

Non-cash compensation expense increased to $38,000, or 0.3% of total revenues,
in the quarter ended September 30, 1998, from $13,000, or 0.2% of total
revenues, in the comparable period in 1997. Non-cash compensation expense
increased to $842,000, or 2.8% of total revenues, in the nine months ended
September 30, 1998, from $36,000, or 0.2% of total revenues in the comparable
period in 1997. Increased levels of unamortized deferred non-cash compensation,
relative to certain stock options awarded in the first quarter of 1998,
provided for the increased non-cash compensation expense in the quarter ended
September 30, 1998. Additionally, in the second quarter of 1998, we accelerated
the vesting of certain employee stock options issued in the first quarter of
1998, for approximately 283,000 shares of Common Stock, at an exercise price of
between $3.67 per share and $8.00 per share. As a result of this accelerated
vesting, we recognized a non-cash, non-recurring charge of approximately
$705,000 during the quarter ended June 30, 1998, representing the previously
remaining unamortized deferred compensation recorded on these options. The
recognition of the non-cash, non-recurring charge provided for the increases in
the non-cash compensation expense in the nine months ended September 30, 1998,
when compared to the same period of the prior year.

OTHER INCOME

Interest income increased to $243,000 in the quarter ended September 30, 1998,
from $1,000, in the comparable period in 1997. Interest income increased to
$402,000 in the nine months ended September 30, 1998, from $28,000, in the
comparable period in 1997. On May 26, 1998, we completed an initial public
offering of our common stock in which we sold 2.5 million shares, which
resulted in net proceeds of approximately $22.1 million. The increases in
interest income were primarily due to the results of the investment of the
funds from the initial public offering.

INTEREST EXPENSE

Interest expense decreased 61.7% to $51,000 in the quarter ended September 30,
1998, from $133,000 in the comparable period in 1997. Interest expense also
decreased 31.5% to $172,000 in the nine months ended September 30, 1998, from
$251,000 in the comparable period in 1997. These decreases are primarily due to
lower average levels of debt in the periods ended September 30, 1998, as
compared to the periods ended September 30, 1997.

39
<PAGE>

MINORITY INTEREST

Minority interest decreased 100.0% in the quarter ended September 30, 1998,
from $133,000 in the comparable period in 1997. Minority interest decreased
88.8% to $36,000 in the nine months ended September 30, 1998, from $322,000 in
the comparable period in 1997. These decreases in minority interest are related
to the purchase of the remaining 20% of the Services Subsidiary on February 5,
1998, which eliminated the minority interest related to the Services
Subsidiary.

INCOME TAXES

As a result of the operating losses incurred since our inception, we have not
recorded any provision or benefit for income taxes in the quarter and nine
month periods ended June 30, 1998 and 1997, respectively.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

REVENUES

Total Revenues. Total revenues increased 99.1% to $26.0 million in 1997 from
$13.1 million in 1996. This increase was attributable to substantial increases
in license fees, services fees and maintenance fees.

License Fees. License fees increased 110.2% to $13.5 million, or 52.0% of total
revenues, in 1997 from $6.4 million, or 49.2% of total revenues, in 1996. These
increases in license fees resulted primarily from an increase in the number of
licenses sold, reflecting a continuing increase in the demand for our existing
and new applications, and to a lesser extent, to the increase in the average
customer transaction size.

Services Fees. Services fees increased 95.4% to $7.8 million, or 30.0% of total
revenues, in 1997 from $4.0 million, or 30.5% of total revenues, in 1996. The
increase in services fees was primarily due to increased demand for
professional services associated with an increase in the number of licenses
sold.

Maintenance Fees. Maintenance fees increased 77.4% to $4.7 million, or 18.0% of
total revenues in 1997 from $2.7 million or 20.3% of total revenues in 1996.
The increase in maintenance fees was primarily due to the signing of license
agreements with new customers and the renewal of maintenance with existing
customers.

COST OF REVENUES

Total Cost of Revenues. Cost of revenues increased 82.4% to $8.5 million, or
32.7% of total revenues, in 1997 from $4.7 million, or 35.8% of total revenues,
in 1996. The increase in the cost of revenues was primarily due to an increase
in personnel and related expenses and increased royalty expenses. The decrease
as a percentage of total revenues primarily reflects increased utilization of
personnel.

Cost of License Fees. Cost of license fees increased to $1.2 million, or 8.9%
of total license fees, in 1997 compared to $416,000, or 6.5% of total license
fees, in 1996. The increase as a percentage of

40
<PAGE>

total license fees is primarily attributable to increases in royalty expense on
new products introduced in 1997, components of which are licensed from third
parties.

Cost of Services Fees. Cost of services fees increased 83.8% to $5.3 million,
or 71.8% of total services fees, in 1997 compared to $2.9 million, or 72.9% of
total services fees, in 1996. The increase in the cost of services fees was
primarily attributable to an increase in the personnel and related costs to
provide implementation, training and upgraded services. Cost of services fees
as a percentage of total services fees decreased due to increased utilization
of personnel.

Cost of Maintenance Fees. Cost of maintenance fees increased 46.1% to $2.0
million, or 42.0% of total maintenance fees, in 1997 compared to $1.4 million,
or 51.0% of total maintenance fees, in 1996. The increase in the cost of
maintenance fees was primarily due to an increase in personnel and related
costs required to provide support and maintenance. Cost of maintenance fees as
a percentage of total maintenance fees decreased primarily due to more
productive use of personnel to support the maintenance customer base.

RESEARCH AND DEVELOPMENT

Research and development expenses increased 24.8% to $6.7 million, or 25.7% of
total revenues, in 1997 from $5.4 million, or 41.1 % of total revenues, in
1996. Research and development expenses increased primarily due to increased
personnel and contractor fees related to the effort required to develop the
Denver Release, which was released in September 1997. During the first half of
1997, we began to reduce development personnel and third-party consultant costs
as this project approached completion. The decrease in research and development
as a percentage of revenue from 1996 compared to 1997 is primarily due to the
completion of the Denver Release, coupled with the economies of scale realized
through the growth in our revenue. We intend to continue to devote substantial
resources toward research and development efforts.

SALES AND MARKETING

Sales and marketing expenses increased 32.3% to $9.5 million in 1997 from $7.2
million in 1996. As a percentage of total revenues, sales and marketing
expenses decreased to 36.6% in 1997 from 55.1% in 1996. The increase in
expenses was primarily attributable to the costs associated with additional
sales and marketing personnel and promotional activities. In January 1997, we
divided our U.S. and Canadian sales territory into east and west regions and
hired a second vice president of sales. In addition, we hired two regional
sales managers and several additional sales representatives in early 1997.
During 1997, we also incurred substantial marketing expenditures to design and
implement a promotional campaign, including marketing collateral, trade shows
and seminar presentations intended to promote our new market positioning. The
decrease in sales and marketing as a percentage of revenues from 1996 compared
to 1997 reflects the higher productivity of our sales force.

GENERAL AND ADMINISTRATIVE

General and administrative expenses increased 33.5% to $3.2 million in 1997
from $2.4 million in 1996. As a percentage of total revenues, general and
administrative expenses decreased to 12.3 % in 1997 from 18.1% in 1996. The
increase in general and administrative expenses was primarily

41
<PAGE>

attributable to increases in personnel and related costs. Also, we incurred
increased rent and equipment expense associated with the relocation of our
headquarters in August 1997. In 1997, we recorded $58,000 in compensation
expense related to stock options granted. We believe that our general and
administrative expenses will continue to increase in future periods to
accommodate anticipated growth and expenses associated with our
responsibilities as a public company.

DEPRECIATION AND AMORTIZATION

Depreciation of tangible equipment and amortization of intangible assets
increased 25.0% to $1.4 million, or 5.4% of total revenues, in the year ending
December 31, 1997, from $1.1 million or 8.6% of total revenues, in the
comparable period in 1996. This increase in depreciation and amortization
expense is due to increases in the purchases of intangible assets and increases
in capital expenditures resulting from our significant growth.

INCOME TAXES

As a result of the operating losses incurred since our inception, we have not
recorded any provision or benefit for income taxes in 1997 and in 1996. See
"Notes to Consolidated Financial Statements."

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

REVENUES

Total Revenues. Total revenues increased 59.4% to $13.1 million in 1996 from
$8.2 million in 1995. This increase was attributable to substantial increases
in license fees, services fees and maintenance fees.

License Fees. License fees increased 22.8% to approximately $6.4 million in
1996, from $5.2 million in 1995. The increase reflected an increase in the
number of product licenses sold during the period. As a percentage of total
revenues, license fees decreased to 49.2% in 1996 from 63.9% in 1995. This
decrease was primarily attributable to the deferral of revenues on contracts
signed in 1996 related to the Denver Release to 1997.

Services Fees. Services fees increased 129.4% to $4.0 million, or 30.5% of
total revenues, in 1996 from $1.7 million, or 21.2% of total revenues, in 1995.
These increases were attributable to increasing demand for services associated
with our increasing customer base coupled with the growth of the Services
Subsidiary that was created in March of 1995.

Maintenance Fees. Maintenance fees increased 116.8% to $2.7 million, or 20.3%
of total revenues, in 1996 from $1.2 million, or 14.9% of total revenues, in
1995. These increases resulted primarily from the signing of license agreements
with new customers and the renewal of maintenance with existing customers.

COST OF REVENUES

Total Cost of Revenues. Cost of revenues increased 97.3% to $4.7 million, or
35.8% of total revenues, in 1996 from $2.4 million, or 28.9% of total revenues,
in 1995. These increases were primarily due to an increase in personnel and
related expenses.

42
<PAGE>

Cost of License Fees. Cost of license fees increased 43.0% to $416,000 in 1996
from $291,000 in 1995. The increase was primarily attributable to an increase
in royalty expense. As a percentage of total license fees, cost of license fees
increased to 6.5% in 1996 from 5.6% in 1995.

Cost of Services Fees. Cost of services fees increased 104.4% to $2.9 million,
or 72.9% of total services fees, in 1996 from $1.4 million, or 81.8% of total
services fees, in 1995. The increase in absolute dollars was primarily
attributable to an increase in personnel and related costs required to provide
implementation, training and upgrade services. The cost of services fees as a
percentage of total services fees decreased due to increased utilization of
personnel coupled with our Services Subsidiary being operational for all of
1996.

Cost of Maintenance Fees. Cost of maintenance fees increased 106.1 % to $1.4
million, or 51.0% of total maintenance fees, in 1996 from $655,000, or 53.6% of
total maintenance fees, for 1995. The increase in absolute dollars was
primarily attributable to an increase in personnel and related costs to provide
support and maintenance services to our growing customer base. Cost of
maintenance fees as a percentage of total maintenance fees decreased primarily
due to more productive use of personnel supporting our maintenance customer
base.

RESEARCH AND DEVELOPMENT

Research and development expenses increased 38.1% to $5.4 million in 1996 from
$3.9 million in 1995. This increase reflects increased personnel and related
expenses and third-party contractor fees as we increased product development
personnel to develop new products, including the Denver Release and the prior
releases of our financial applications. As a percentage of total revenues,
research and development expenses decreased to 44.1% in 1996 from 47.4% in
1995. This decrease was attributable to the economies of scale realized through
substantial increases in total revenues.

SALES AND MARKETING

Sales and marketing expenses increased by 8.4% to $7.2 million in 1996 from
$6.6 million in 1995. Sales and marketing expenses increased primarily as a
result of increased sales and marketing personnel and related costs. As a
percentage of total revenues, sales and marketing expenses decreased to 55.1 %
in 1996 from 81.0% in 1995. This decrease primarily reflects the higher
productivity of our sales force.

GENERAL AND ADMINISTRATIVE

General and administrative expenses decreased 19.0% to $2.4 million, or 18.1%
of total revenues, in 1996 from $2.9 million, or 35.7% of total revenues, in
1995. The decrease reflects lower general and administrative costs associated
with the closing of the United Kingdom office and allocations of costs to the
Services Subsidiary for administrative services performed on our behalf

DEPRECIATION AND AMORTIZATION

Depreciation of tangible equipment and amortization of intangible assets
increased 204.9% to $1.1 million or 8.6% of total revenues, in the year ending
December 31, 1996, from $369,000 or 4.5% of total revenues, in the comparable
period in 1996. This increase in depreciation and

43
<PAGE>

amortization expense is primarily due to the purchase of a majority interest in
the Services Subsidiary.

INCOME TAXES

As a result of the operating losses incurred since our inception, we have not
recorded any provision or benefit for income taxes in 1996 or 1995.

LIQUIDITY AND CAPITAL RESOURCES

On May 26, 1998, we completed our initial public offering of 2.5 million shares
of our common stock at an offering price of $10.00 per share. The proceeds, net
of expenses, from this public offering of approximately $22.0 million were
placed in investment grade cash equivalents. Our working capital position
(deficit) was $20.9 million and $(453,000) at September 30, 1998 and December
31, 1997, respectively. Management believes that current cash balancing and
cash flows from operations will be adequate to provide for our capital
expenditures and working capital requirements for the foreseeable future.
Although operating activities may provide cash in certain periods, to the
extent we experience growth in the future our operating and investing
activities may use significant cash.

On November 6, 1998, we completed the acquisition of Elekom Corporation
("Elekom") for approximately $16.0 million, consisting of $8.0 million in cash
and approximately 1.39 million shares of our common stock. Elekom was merged
with and into Clarus CSA, Inc., one of our wholly owned subsidiaries and the
separate existence of Elekom ceased. Immediately following consummation of the
merger, the former holders of Elekom common and preferred stock (the "Elekom
Shareholders") owned approximately 13% of our outstanding common stock. Certain
former Elekom Shareholders have agreed not to sell any of their shares of the
Company's common stock for a period ending on August 6, 1999. We recorded as
additional purchase price (i) payments of $500,000 made to fund the operations
of Elekom from October 1, 1998, through the closing date, and (ii) expenses of
approximately $750,000 to complete the acquisition. Approximately $14.0 million
of the purchase price was recorded as purchased in-process research and
development.

Cash used in operating activities was approximately $1.5 million and $3.3
million during the nine months ended September 30, 1998 and 1997 respectively.
Cash used by operations during the nine months ended September 30, 1998, was
primarily attributable to an increase in accounts receivable, partially offset
by increases in accounts payable and accrued liabilities. Cash used by
operations during the nine months ended September 30, 1997, was primarily
attributable to an increase in accounts receivable, partially offset by
increases in deferred revenues and accounts payable and accrued liabilities.

Cash used in investing activities was approximately $2.6 million and $647,000
during the nine months ended September 30, 1998 and 1997, respectively. The
cash used in investing activities during the nine months ended September 30,
1998, was primarily attributable to purchases of computer equipment and
software and an increase in intangible assets and costs related to the
acquisition of Elekom. The cash used in investing activities during the nine
months ended September 30, 1997, was primarily attributable to purchases of
computer equipment and software.

44
<PAGE>

Cash provided by financing activities was approximately $20.8 million and $5.4
million during the nine months ended September 30, 1998 and 1997, respectively.
The cash provided by financing activities during the nine months ended
September 30, 1998, was primarily attributable to our initial public offering
effective May 26, 1998, for net proceeds of approximately $22.0 million. The
cash provided by financing activities during the six months ended September 30,
1997, was primarily attributable to proceeds from the issuance of preferred
stock of approximately $6.0 million, and notes payable and short term
borrowings of approximately $29.8 million offset by payments on notes payable
and short term borrowings of approximately $30.2 million.

In March 1997, we entered into a loan agreement and a master leasing agreement
for an equipment line of credit in the amount of $1.0 million (the "Equipment
Line") with a leasing company. The Equipment Line bears interest at rates
negotiated with each loan or lease schedule (generally 22.0% to 22.5%) and is
collateralized by all of the equipment purchased with the proceeds thereof. As
of September 30, 1998, the principal balance on the Equipment Line was
$515,000.

We have a revolving working capital line of credit and equipment facility with
Silicon Valley Bank. Borrowings outstanding under the line are limited to the
lesser of $3.0 million or 80% of accounts receivable. Interest on the revolving
credit facility is at prime rate and on the equipment facility at prime plus
0.5% and is collateralized by all of our assets. The line of credit and
equipment term facility with Silicon Valley Bank will expire on April 29, 1999.
As of September 30, 1998, we had no outstanding balance and had $3.5 million
available for future borrowings under this agreement.

We had available NOLs of approximately $24.5 million as of September 30, 1998
to reduce future income tax liabilities. These NOLs expire from 2007 through
2012 and are subject to review and possible adjustment by the appropriate
taxing authorities. Pursuant to the Tax Reform Act of 1986, the utilization of
NOLs for tax purposes may be subject to an annual limitation if a cumulative
change of ownership of more than 50% occurs over a three-year period. As a
result of this limitation, we will be limited to the use of our NOLs in any
given year. We had net deferred tax assets of approximately $9.4 million at
September 30, 1998 comprised primarily of "NOLs." We have fully reserved for
these deferred tax assets.

IMPACT OF YEAR 2000

We have designed and tested the most current versions of our products to be
Year 2000 compliant. There can be no assurances that our current products do
not contain undetected errors or defects associated with Year 2000 date
functions that may result in material costs to us. Some commentators have
stated that a significant amount of litigation will arise out of Year 2000
compliance issues, and we are aware of a growing number of lawsuits against
other software vendors. Because of the unprecedented nature of such litigation,
it is uncertain whether or to what extent we may be affected by it.

We are in the process of determining the extent to which third-party licensed
software distributed by us is Year 2000 compliant, as well as the impact of any
non-compliance on us and our customers.

Additionally, in the event relational database management systems used with our
software are not Year 2000 compliant, there can be no assurance that our
customers will be able to continue to use

45
<PAGE>

our products. We do not currently believe that the effects of any Year 2000
non-compliance in our installed base of software will result in a material
adverse impact on our business or financial condition. However, our
investigation with respect to third-party software is in its preliminary
stages, and no assurance can be given that we will not be exposed to potential
claims resulting from system problems associated with the century change or
that such claims would not have a material adverse effect on our business,
financial condition or results of operations.

With respect to our internal systems, we are taking steps to prepare our
systems for the Year 2000 date change. We expect to substantially complete
inventory efforts during the first quarter of calendar year 1999, with
remediation and testing to continue through the third quarter of 1999. Although
we do not believe that we will incur any material costs or experience material
disruptions in our business associated with preparing our internal systems for
the Year 2000, there can be no assurances that we will not experience
unanticipated negative consequences and/or material costs caused by undetected
errors or defects in the technology used in our internal systems. We are
currently unable to estimate the most reasonably likely worst case effects of
the Year 2000 and do not currently have a contingency plan in place for any
such unanticipated negative effects.

We are currently unable to estimate whether we are exposed to significant risk
of being adversely affected by Year 2000 noncompliance by third parties. We are
contacting third parties with which we have material relationships, including
our material customers, to attempt to determine their preparedness with respect
to Year 2000 issues and to analyze the risks to us in the event any such third
parties experience significant business interruptions as result of Year 2000
noncompliance. We expect to complete this review and analysis and to determine
the need for contingency planning in this regard by June 30, 1999.

46
<PAGE>

BUSINESS

GENERAL

We develop, market and support client/server financial, human resources and
corporate service software applications that reduce the total cost of ownership
by minimizing the time, costs and risks associated with implementing, changing
and upgrading applications. Almost all of our products are sold as application
suites. On occasion, we will sell individual applications to our existing
customers.

Our Clarus(TM) line of products are based on a flexible, open architecture
called Active Architecture(R) which allows for seamless, rapid changes and
upgrades without modifying the source code. Our software provides organizations
with the broad functionality of custom-designed applications without the high
total cost of ownership traditionally associated with such applications. By
providing broad functionality, a flexible open architecture, and minimized
implementation and modification time, we address the needs of a wide range of
organizations while giving end users more control of their work environment.

We license our products and services primarily through a direct sales force in
North America. On November 30, 1998, we had more than 250 customers including
organizations such as Amtrak, Blue Cross and Blue Shield of Alabama, Chartwell
Re Holdings Corporation, First Data Corporation, Land's End, Inc., T. Rowe
Price Associates, Inc., Shaw Industries, Inc., and Toronto-Dominion Bank.

Our software license revenues accounted for 45.8%, 52.0%, 49.2% and 63.9% of
gross revenues for the nine months ended September 30, 1998, and for 1997, 1996
and 1995, respectively. Services revenues accounted for 36.8%, 30.0%, 30.5% and
21.2% of gross revenues for the quarter ended September 30, 1998, and for 1997,
1996 and 1995, respectively. Maintenance revenues accounted for 17.4%, 18.0%,
20.3% and 14.9% of gross revenues for the quarter ended September 30, 1998, and
for 1997, 1996 and 1995, respectively.

On May 26, 1998, we completed an initial public offering of our common stock in
which we sold 2.5 million shares and which resulted in net proceeds to us of
approximately $22.0 million. On November 6, 1998, we acquired Elekom for
approximately $15.6 million, consisting of $8.0 million in cash and
approximately 1.38 million shares of our common stock.

INDUSTRY BACKGROUND

Financial and Human Resource Applications

Increasing global competition has driven organizations of all sizes to improve
operating efficiencies, reduce costs, speed time to market and improve customer
satisfaction. To achieve these objectives, organizations have utilized IT
systems to automate repetitive processes, to facilitate communications
throughout various departments and to process increasingly sophisticated and
detailed information. Organizations therefore face the challenge of providing
this critical information to a broad group of end users to give them better
control of their work environment and to increase productivity and performance.

47
<PAGE>

Recent advances in computing and communications, including the wide-spread
adoption of distributed computing, and the proliferation of third-party
enterprise software applications, have enabled organizations to provide
relevant information directly to the desktop. Organizations have deployed
enterprise client/server applications addressing the full range of functions
across the enterprise, including "front office" related functions such as sales
force automation, call center management and customer support and help desk
activities, and "back office" operations such as distribution, manufacturing,
production and supply chain planning and execution activities. At the core of
the enterprise software system are the organization's financial applications
that serve as a critical point of integration for all enterprise applications
and enable users to improve core business processes, monitor, analyze and
report business results, and make more informed decisions faster. According to
International Data Corporation, the market for enterprise-level accounting,
human resource and payroll client/server applications exceeded $ billion in
1997, and is projected to grow at a compound annual growth rate of 30% through
the year 2001 to over $12.0 billion.

Traditionally, organizations have had two alternatives when deploying
enterprise financial and human resource applications: either a highly complex
custom-designed application to meet the organization's specific requirements,
typically developed in a "legacy" environment; or an off-the-shelf application
designed to be implemented more rapidly in a distributed computing environment,
at a perceived lower cost of ownership, although often lacking the depth of
functionality of the custom-designed application.

While custom-designed applications have provided the desired degree of
functionality, their size and complexity generally require very lengthy design,
development and implementation efforts. Maintaining, updating and upgrading
these applications requires substantial internal resources and generally
requires the use of outside consultants. In addition, these applications have
limited flexibility to support diverse and changing operations or to respond
effectively to evolving business demands and technologies. The high total cost
of ownership and complexity associated with developing and maintaining custom-
designed applications have limited their utilization to organizations with
significant resources.

In recent years, organizations have increasingly deployed off-the-shelf
client/server financial and human resource applications to leverage their
investment in client/server technologies and provide end users with information
that gives them greater control over their work environment. However,
traditional off-the-shelf applications often require organizations to re-
engineer established business practices to accommodate application constraints
or to customize the applications with labor-intensive reprogramming to fit
their needs. These requirements significantly challenge resource-constrained
organizations and fail to provide the desired lower total cost of ownership.

Limitations of both custom-designed and off-the-shelf applications result in
higher total cost of ownership to the organization. The largest components of
such cost are the necessary labor and programming resources associated with
implementation and maintenance. According to the Gartner Group, at
labor-related services, including implementation and post-implementation
services, comprise approximately 71% of the five-year total cost of ownership
for client/server applications, with the acquisition cost of software
compromising only 17% of the total cost of ownership and hardware and
networking costs comprising the balance.

48
<PAGE>

Today, organizations acquiring or replacing their financial applications seek
broader functionality, better integration with existing systems and
applications, greater flexibility to change and upgrade, and a lower total cost
of ownership. Key to meeting these expectations are solutions that are
flexible, easy to implement, change and upgrade, provide information on demand
and, most importantly, put users in control.

Electronic Procurement

The electronic procurement industry is a relatively new and rapidly changing
industry that has developed as a result of the acceptance of new technologies
in recent years. Traditionally, the procurement process is handled through
client server and mainframe applications that support corporate buyers and
manual requisition routing and approval processes to support front line
employees. The current procurement process in many organizations consists of
the completion of a paper-based requisition form, routing of the request to a
supervisor for his or her approval and further routing of the paper through
other points of authorization within the organization, depending on the goods
and/or services requested. Once fully approved, a purchase order is created to
purchase the goods and/or services previously requisitioned.

In addition to the inefficiency and expense associated with manual processes,
the traditional systems largely fail to connect requisitioners with supplier
information. With the growing popularity of business intranets and the
increased use of the Internet as a business tool, these limitations can be
addressed through new web-based applications. Electronic procurement systems
offer the potential for a rapid return on investment due to reduced process
costs and increased ordering through approved suppliers at a reduced price.

THE CLARUS SOLUTION

We offer applications that match the functionality of custom-designed
applications without the high total cost of ownership traditionally associated
with such applications. By providing broad functionality, a flexible open
architecture, minimized implementation, modification and ongoing support time,
and enhanced user control, we address the needs of a broad range of
organizations. Our applications offer the following key benefits:

Broad Functionality. Our highly integrated suite of financial applications
covers the full range of financial and accounting functions, including general
accounting, expense accounting, revenue accounting and human resources. Our
applications are particularly suited to address the financial, accounting and
reporting needs of non-industrial firms. Our Graphical Architects modules
provide additional capabilities, including enhanced interaction with external
software systems, user personalization, job scheduling, analysis capabilities
and Internet connectivity.

Flexible, Open Architecture. Our applications are based on a flexible, open
architecture to fit with the components of an organization's existing IT
infrastructure. These applications work with the popular Microsoft, Oracle and
Sybase databases and run on any operating system and hardware platforms
compatible with these databases, enabling customers to easily migrate to
alternative computing technologies. The flexibility of our applications,
together with the ability to modify the functionality without changing the
source code, results in seamless, rapid changes or upgrades. The

49
<PAGE>

openness of the architecture allows easy integration with third-party
technologies, including Microsoft BackOffice and Hyperion Essbase OLAP Server,
as well as products from third-party financial reporting software companies.

Minimized Implementation, Modification and Ongoing Support Time. The
implementation of our software can typically be achieved in less than six
months, depending on the number of modules being implemented, and
modifications can be made directly by the end user at the time of, or
subsequent to, implementation. In addition, the time, costs and risks
associated with changing and upgrading applications are minimized because
implementation of our applications is done without any modification to the
underlying source code. We believe that this results in implementation and
post-implementation services costs well below the industry average.

Enhanced End User Control. Our applications are designed to put users in
control by:

. providing the flexibility to quickly set up applications and personalize
user interfaces;

. providing end users the ability to directly tailor and change
applications during or subsequent to implementation;

. allowing users to upgrade in a minimal amount of time without software
development tools or significant IT personnel involvement;

. allowing integration with other native or external applications in the
users' work environment; and

. delivering information on demand and in the form desired.

STRATEGY

Our objective is to become the leading provider of financial, human resource
and procurement applications to non-industrial organizations. The key elements
of our strategy are as follows:

Extend Technology Leadership. We believe that extending technology leadership,
rapidly creating additional features and incorporating new technologies are
important competitive advantages in our marketplace. We believe our Active
Architecture technology is a key differentiation that provides a significant
advantage over competing products. In addition, we believe we were one of the
first software developers to utilize object wrappers in financial applications
to facilitate tailoring and integration with other applications. We intend to
continue to identify and develop new and emerging technologies for our
applications.

Leverage Expertise in Financial Applications. We intend to leverage our
expertise in financial applications to design, develop and offer other
financial and financially-related applications focused on meeting the needs of
non-industrial customers.

Capitalize on Middle Market Opportunities. We focus our sales and marketing
efforts on value buyers in mid-sized non-industrial organizations, including
divisions of larger companies, which represent the fastest growing segment of
the financial and human resource applications market. In our targeted
industries, financial and human resource applications typically represent the
organization's most critical systems. We believe that our flexible user-
controlled applications are well-suited for rapidly growing mid-sized
organizations and value buyers that demand highly functional and scalable
financial and human resource applications without the high total cost of
ownership traditionally associated with such applications.

50
<PAGE>

Leverage Installed Customer Base. We believe that our installed customer base
represents a significant potential market for future sales of our products. We
continually use our customer relationships:

. to sell new products and cross-sell products to multiple offices,
divisions and departments of a customer's organization;

. as a reference to gain new customers; and

. to focus our efforts on selected vertical markets as a means of
expanding our market share.

Expand Sales and Marketing Channels. We intend to expand our direct sales force
by hiring additional experienced sales personnel. We also intend to establish
indirect distribution channels and relationships with product vendors and
consulting companies, as well as increase our international market penetration
by establishing relationships with strategic partners with an international
presence. We believe that expanding our marketing relationships will provide
increased access to various geographic markets and potential customers.

Continue to Provide High Quality Customer Service. By providing superior
implementation, support and training services directly to our customers, rather
than through third-party resellers and system integrators, we can achieve a
high level of customer satisfaction, strong customer references and long-term
relationships. Direct customer service also allows for immediate feedback which
facilitates software improvements. We intend to continue to expand our customer
service and maintenance staff and to make additional investments in our support
infrastructure.

TECHNOLOGY

Our applications are based on an extensible, object-oriented, proprietary
architecture called "Active Architecture." The Active Architecture technology
is designed to achieve the following benefits:

. flexible, high-end functionality;

. the ability to modify the functionality without changing the source
code;

. the ability to easily integrate applications into a customer's IT
infrastructure;

. the ability to rapidly implement changes and upgrade applications;

. reduced total cost of ownership; and

. placing users in control.

Active Architecture is comprised of three elements: the Core Components, the
Graphical Architects modules and the System Manager module.

Core Components. The core functionality for our applications is defined through
a set of Core Components, the building blocks of the financial and human
resource applications. The Core Components perform financial and accounting
functions in the context of legal and regulatory requirements and generally
accepted accounting principles. Examples of these Core Components include
general ledger posting, accounts payable vouching, account structure management
and payroll processing. Our fundamental premise is that users should not need
to reprogram the Core

51
<PAGE>

Components. Contained within the overall architectural framework is the
ability to modify and seamlessly upgrade our applications while continuing to
maintain the process and data security, integrity and reliability of the Core
Components. End users can accommodate their business-specific requirements and
technology changes, such as integrating external software systems, user
personalization, job scheduling, analysis capabilities and application
management through the Graphical Architect modules which require no source
code programming.

Graphical Architects. We have developed Graphical Architects modules that
allow organizations to quickly and easily adapt to business-specific
requirements and changes in technology. We provide the Business
Controls/Graphical Architect as a standard component with all of our
applications and license other Graphical Architects modules with additional
functionality. Through Business Controls an organization can centrally
administer its business rules and policies and apply them across all financial
applications. This central control allows for consistency of management
policies and reduced set-up time in each of the application areas. Business
Controls also allows organizations to define and manage their chart of
accounts, analysis codes, default account segments and overrides, accounting
periods, inter-company transactions, tax management, accounting calendar,
cross-validation rules and multiple currencies.

System Manager. System Manager supports the Active Architecture technology by
integrating, synchronizing and managing all components of the application.
System Manager offers a visual point-and-click interface and is designed to
reduce systems and database administration efforts and the time required to
update external applications, as well as upgrades to our application itself.
Through System Manager, the user orchestrates software installation, database
initialization, and software and database upgrades. These tasks are simplified
by System Manager's automated process which does not require scripts or other
programming. In addition, System Manager provides a single point of control
for security across all of our applications. Security information is
automatically maintained and updated during the upgrades.

Our applications incorporate a multi-tiered, client/server architecture that
supports Microsoft Windows 95 and/or NT clients, including Netscape and
Microsoft Internet Explorer, and most popular UNIX (AIX, HP-UX, Solaris, VMS,
etc.) and Windows NT servers running Microsoft SQL Server, Oracle, and Sybase
database management systems over a variety of network topologies. For the year
ended December 31, 1997, we derived 79.2% and 20.8%, respectively, of our
license fees from sales of products to customers who use Windows NT based-
servers and UNIX servers. Integration of our applications with these databases
is achieved with a single version of the source code, allowing users to
replace or upgrade their hardware and database systems with minimal impact to
the customer's application. We currently offer 32-bit versions of our
financial applications and 16-bit versions of our human resource applications
for Windows 95 and Windows NT platforms. The various technologies upon which
the Active Architecture has been built include Microsoft Visual C++ and the
Microsoft Foundation Classes, ActiveX, OLE/COM and Centura.

Clarus Corporate Service Applications. We recently introduced our Clarus
Corporate Service Applications, including Clarus E Procurement, Clarus
HRPoint, Clarus Budget and Clarus OLAP.

52
<PAGE>

PRODUCTS

Our product family includes a full suite of financial and human resource
applications and a growing suite of corporate service applications designed to
meet the needs of a broad range of organizations.

APPLICATIONS

General Ledger, our flagship application, delivers a comprehensive solution
including ledger accounting, consolidation and allocations, multi-level segment
accounts, automatic entry balancing, multiple financial calendars within a
single organization, recurring entries, average daily balances and budgeting
and profit sharing.

Accounts Payable controls vendor information, invoicing procedures and payment
activities, while providing for an unlimited number of bank accounts,
processing foreign currency gains and losses, and automatically reconciling and
balancing inter-company accounts and multiple payment methods.

Purchasing Control streamlines purchasing processes with end user
requisitioning, quick access to contracts and price lists, automation of
receiving and matching processes and vendor management.

Accounts Receivable streamlines payment applications, provides management and
reporting of receivables activities, manages customer information and inter-
relationships, tracks the collection process, processes foreign currency gains
and losses and provides historical information.

Revenue Accounting combines invoice entry and billing applications, provides
user-defined rules for revenue recognition, automatically creates multi-line
tax distributions for multiple taxing authorities, calculates shipping charges
for specific lines of an invoice, supports a multi-catalog pricing structure as
well as user-defined pricing contracts and tracks customer deposits and down
payments.

Fixed Assets tracks and maintains asset investments and facilitates compliance
with tax and accounting regulations through user-defined depreciation
scheduling, which can be segmented by organization, asset or book.

Personnel manages employment, compensation, career/succession planning,
position control, health and safety, applicant management, recruiting,
training, government compliance and business event notification.

Benefits manages benefit and accrual planning and enables control of auto
enrollment, flexible benefits, flexible spending accounts, cafeteria, defined
contributions, beneficiaries, eligibility, COBRA administration and leave
accrual processing.

Payroll manages control of payment and tax processing functions, streamlines
payroll processing, manages on-demand checks, direct deposit and earnings and
deductions.

GRAPHICAL ARCHITECTS

We license a series of modules, our Graphical Architects, that are designed to
extend, enhance, integrate and change the look-and-feel of our core
applications. Through a visual point-and-click interface, the Graphical
Architects modules allow users to personalize and configure our applications

53
<PAGE>

without any source code programming. In addition to Business Controls, which is
a standard component of all applications, Graphical Architects modules include
the following:

Data Exchange/Graphical Architect defines sources of data for import and export
purposes through a metadata interface for logical mapping of data between our
applications and the customer's other internal systems which simplifies
implementation and streamlines changes to external datasources.

Workload/Graphical Architect enables users to manage and schedule tasks
effectively with job scheduling, resource allocation, process and report
distribution, and e-mail notification. Users can schedule tasks to run on
separate application servers at the most efficient processing time.

Solution/Graphical Architect allows users to personalize the look-and-feel and
the functions of their applications and facilitates the integration of our
applications with other applications without changing the source code.

Analysis/Graphical Architect provides a suite of applications that address an
organization's need for information on demand. Analysis/Graphical Architect
provides users with the following functions and benefits:

<TABLE>
<CAPTION>
FUNCTION BENEFIT
-------- -------
<C> <S>
Quick Find Online access with extensive selection
criteria to quickly locate information.
Quick Reports Report printing of online query results.
Quick Graphs Graphical representations of online query
results.
Standard Reports Templates to simplify users' report
definitions based upon the organization's
requirements.
Financial Statement Generator Flexible financial reporting system enabling
sophisticated financial statements without any
programming.
Drill Down Analysis Intra-application, inter-application, and open
drill down into all supporting detail and
information sources, including information
originated in third-party applications.
Financial Statement Accelerator Integration of Financial Statement Generator
with Arbor Software's Essbase for high
performance reporting.
FRx for Windows Flexible distributed management reporting
solution, utilizing FRx from FRx Software
Corporation, which delivers full drill down
analysis without being connected to the
network.
Clarus Library Centralized report repository to store reports
and make them available to other users in the
organization eliminating redundancy and
improving resource efficiency.
</TABLE>

Workflow/Graphical Architect allows users to define procedures and policies
(events) that trigger responses from the system. Workflow/Graphical Architect
allows users to extend the applications to conform to an organization's
business processes and policies, such as an accounting application
automatically generating approval requests for purchases over a certain dollar
amount.

54
<PAGE>

Internet/Graphical Architect allows organizations to quickly deploy their
entire suite of financial and human resource applications to the World Wide Web
and tailor it specifically to the unique needs of each Web user.
Internet/Graphical Architect provides native Internet implementation of
information access-oriented applications such as invoice or payment status,
drill down inquiries, report viewing, and account balances.

SALES AND MARKETING

We sell our software and services primarily through our direct sales force. As
of November 30, 1998, our direct sales force consisted of 42 sales
professionals and 18 marketing personnel, located in 11 domestic offices and
one office located in Canada. We expect to increasingly develop indirect
channels in order to enhance our market penetration and implementation
capabilities. The sales cycle for our software averages between four to seven
months.

Our marketing strategy is to position us as the leading provider of
applications to non-industrial organizations by providing applications with a
high level of functionality and flexibility with minimal implementation time.
In support of this strategy, we engage in a full range of marketing programs
focused on creating awareness and generating qualified leads. These programs
include developing and maintaining business partners and participating in joint
marketing programs, such as participating in the Microsoft Solution Provider
Program, as well as public relations, telemarketing, developing databases of
targeted customers, and conducting advertising and direct mail campaigns. In
addition, we participate in trade shows and seminars and maintain a World Wide
Web home page which is integrated with our sales, marketing, recruiting and
fulfillment operations.

IMPLEMENTATION SERVICES

We provide dedicated implementation services for our customers. We believe that
the provision of superior implementation services in conjunction with ease of
implementation is integral to our success in achieving a high level of customer
satisfaction. By providing these implementation services, we are able to
minimize implementation time by helping customers implement an application
module in an average of four months, generally at a cost approximately equal to
the cost of the licensed software. As of November 30, 1998, we employed 107
personnel providing implementation services, which are typically offered to our
customers on a time and materials basis.

We are also developing marketing relationships with companies sharing a
commitment to client/server implementations that deliver high functionality and
flexibility, while minimizing the time required to implement, change and
upgrade them.

CUSTOMER SERVICE AND MAINTENANCE

We believe that superior customer service and support, including product
support and maintenance, training and consulting services, are critical to
achieve and maintain customer satisfaction. Our customer service and support
functions include our call center, distribution services, production support
and account management, all of which are integrated in a single group. Our
customer service organization provides a single point of contact for customers
from execution of the license agreements through post-implementation. Each of
our customers has entered into an annual

55
<PAGE>

maintenance contract for the first year of use, renewable on an annual basis.
As of November 30, 1998, we employed 35 technical post-sales support personnel
providing software maintenance and support, and hotline access. In addition to
telephone support, we also offer support by electronic mail, electronic
bulletin board facsimile and over the Internet. We intend to continue to expand
our customer service and maintenance staff and to make additional investments
in our support infrastructure.

RESEARCH AND DEVELOPMENT

Our success is in part dependent on our ability to continue to meet customer
and market requirements with respect to functionality, performance, technology
and reliability. We invest, and intend to continue to invest, substantially in
our research and development efforts. As of November 30, 1998 our research and
development operation employed 84 individuals, located in Atlanta, Georgia and
19 individuals located in Bellevue, Washington. In addition, we have from time
to time supplemented, and plan to continue to supplement, our core resource
pool through outside contractors and consultants when necessary.

Our research effort is currently focused on identifying new and emerging
technologies and engineering processes, as well as possible technology
alliances. The primary area of focus within the research effort involves
distributed component computing and associated technologies and architectures,
especially with respect to both Internet and intranet transaction processing.

Our development effort is focused primarily on the product delivery cycle and
our associated technologies and software life-cycle processes. The development
operation consists of various functional and technological teams who are
responsible for bringing the various products that we deliver to market. These
teams consist of software engineering, documentation, and quality assurance
personnel. The specific responsibilities of the development operation include:

.enhancing the functionality and performance within the currently available
product line;

. developing new products and/or integrating with strategic third-party
products to strengthen the product line;

. porting the product line to remain current and compatible with new
operating systems, databases, and tools;

. enhancing the adaptability and extensibility of the product line through
the release of new and enhanced Graphical Architects; and

.managing and continuously improving the overall software development
process.

We continually utilize customer feedback in the product design process in order
to meet changing business requirements and are committed to developing
technologies which provide highly functional, integrated solutions in a rapid
and efficient manner.

Research and development expenditures were approximately $3.9 million, $5.4
million, $6.7 million and $4.2 million for 1995, 1996, 1997 and the nine months
ended September 30, 1998, respectively. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of
Operations."

56
<PAGE>

COMPETITION

The market for our products is highly competitive and subject to rapid
technological change. Although we have experienced limited competition to date
from products with comparable capabilities, we expect competition to increase
in the future. We currently compete principally based on ease of use and
reduced time of implementation, which are a result of:

. the breadth of our products' features;

. the automated, scalable and cost-effective nature of our products; and

. our knowledge, expertise and service ability gained from close
interaction with customers.

While we believe that we currently compete favorably overall with respect to
these factors, there can be no assurance that we will be able to continue to do
so.

In the financial and human resource applications market, we compete directly or
indirectly with a number of competitors that have significantly greater
financial, selling, marketing, technical and other resources than we have,
including the following companies: PeopleSoft, Lawson and Oracle. In 1997, J.D.
Edwards & Company introduced financial applications for use on Windows NT or
Unix servers, and additional competitors may enter this market, thereby further
intensifying competition. These competitors may be able to devote greater
resources to the development, promotion, sale and support of their products
than we will. Moreover, these companies may introduce additional products that
are competitive with or better than ours or may enter into strategic
relationships to offer better products than those currently offered by us.
There can be no assurance that our products would effectively compete with such
new products.

With the acquisition of Elekom, our competitors include other electronic
procurement providers such as ARIBA, Commerce One, TRADE'ex, Intelisys and
Trilogy. We also face competition from larger corporations, such as Netscape
and Harbinger, which have entered the electronic procurement market. In
addition, we believe we will experience increased competition from travel and
expense software companies, such as Extensity, Captura and Concur (formerly
Portable Software), which recently acquired 7Software, a direct competitor. In
addition, we anticipate competition from some of the large enterprise resource
planning software vendors, such as SAP, which recently announced SAP Business-
to-Business Procurement solution with expected availability in the fourth
quarter of 1998. Other potential competitors in this category include Oracle,
PeopleSoft, and Baan. Other companies who have a started interest in electronic
procurement include Microsoft Corporation, IBM, Aspect Development and
Requisite Technologies.

To remain competitive, we must continue to invest in research and development,
sales and marketing, and customer service and support. In addition, as we enter
new markets and utilize different distribution channels, the technical
requirements and levels and bases of competition may be different than those
experienced in our current market. There can be no assurance that we will be
able to successfully compete against either current or potential competitors in
the future.

PROPRIETARY RIGHTS AND LICENSING

Our success depends significantly on our internally developed intellectual
property and intellectual property licensed from others. We rely primarily on a
combination of copyright, trademark and trade

57
<PAGE>

secret laws, as well as confidentiality procedures and license arrangements to
establish and protect our proprietary rights in our software products.

We have no patents, and existing trade secret and copyright laws afford only
limited protection of our proprietary rights. We have registered or applied for
registration for certain copyrights and trademarks, and will continue to
evaluate the registration of additional copyrights and trademarks as
appropriate. We believe that, because of the rapid pace of technological change
in the software industry, the intellectual property protection of our products
is a less significant factor in our success than the knowledge, abilities and
experience of our employees, the frequency of our product enhancements, the
effectiveness of our marketing activities and the timeliness and quality of our
support services. See "Risk Factors--Proprietary Rights and Licensing."

We enter into license agreements with each of our customers. Our license
agreements provide for the customer's non-exclusive right to use the object
code version of our products. Our license agreements prohibit the customer from
disclosing to third parties or reverse engineering our products and disclosing
our other confidential information. In certain rare circumstances, typically
for the earliest releases of our products, we have granted our customers a
source code license, solely for the customer's internal use.

We have in the past licensed and may in the future license on a non-exclusive
basis third-party software from third parties for use and distribution with our
financial and human resource applications. We have entered into agreements with
our third party licensors with customary warranty, software maintenance and
infringement indemnification terms.

EMPLOYEES

As of November 30, 1998, we had a total of 340 employees, all except of
whom were based in the United States. Of the total, 107 were employed in
implementation services, 103 were in research and development, 42 were in
sales, 35 were in customer support, 35 were in finance, administration and
operations, and 18 were in marketing. We believe our future performance depends
in significant part upon the continued service of our key engineering,
technical support and sales personnel and on our ability to attract or retain
qualified employees. Competition for such personnel is intense, and there can
be no assurance that we will be successful in attracting or retaining such
personnel in the future. None of our employees are represented by a labor union
or are subject to a collective bargaining agreement. We have not experienced
any work stoppages and consider our relations with our employees to be good.

FACILITIES

Our corporate office and principal facility is located in Suwanee, Georgia,
where we lease approximately 41,000 square feet of space. This facility
accommodates research and development, sales, finance, administration and
operations, customer support marketing and implementation services. We also
lease a facility in Bellevue, Washington for 13,000 square feet of office space
and facilities, primarily for regional sales offices, elsewhere in the
United States and Canada.

We have entered into a lease agreement for new office space adjacent to our
current corporate office and principal facility. At the time we accept the new
office space, begin paying rent and vacate the

58
<PAGE>

existing office space, the lessor of the new office space will assume the
existing lease agreement. The new office in Suwanee, Georgia will consist of
approximately 87,000 square feet of space. The new lease requires annual
payments of $913,185 for the first 12-month period with an increase of 3% in
each 12-month period after the first year. The lease commences on January 1,
1999 and expires on March 31, 2006. We plan to move to our new office space in
January of 1999 to meet our needs as a result of significant growth in
personnel.

LEGAL PROCEEDINGS

We are subject to claims and litigation in the ordinary course of business, but
do not believe based on our current assessment of such claims and litigation
that any such claim or litigation will have a material adverse effect on our
consolidated financial position.

WHERE YOU CAN FIND MORE INFORMATION

At your request, we will provide you, without charge, a copy of any exhibits to
our registration statement. If you want an exhibit or more information, write
or call us at:

Clarus Corporation
3950 Johns Creek Court
Suite 100
Suwanee, Georgia 30024
Telephone: (770) 291-4956
Fax: (770) 291-4997

Our fiscal year ends on December 31. We file annual, quarterly, and special
reports, proxy statements and other information with the Securities and
Exchange Commission. You may read and copy any reports, statements or other
information we file at the SEC's public reference rooms in Washington, D.C.,
New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330
for further information on the public reference rooms. Our SEC filings are also
available to the public from commercial document retrieval services and at the
web site maintained by the SEC at http://www.sec.gov.

59
<PAGE>

MANAGEMENT

Our executive officers and directors as of November 30, 1998 are:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Chairman, Chief Executive Officer, President
Stephen P. Jeffery...... 43 and Director
William M. Curran, Jr. . 36 Vice President, Sales
William A. Fielder, III. 40 Chief Financial Officer and Treasurer
Sally M. Foster......... 44 Vice President, Customer Support
Robert C. Holler........ 34 Vice President, Research
Steven M. Hornyak....... 32 Vice President, Marketing
David A. Spicer......... 51 Vice President, Development
Arthur G. Walsh, Jr. ... 51 Vice President, Human Resources and Secretary
Joseph S. McCall........ 48 Director
Tench Coxe(1)(2)........ 40 Director
William S. Kaiser(1)(2). 42 Director
Donald L. House......... 57 Director
Said Mohammadioun....... 51 Director
Mark A. Johnson......... 45 Director
</TABLE>
- --------
(1) Member of the Compensation Committee.

(2) Member of the Audit Committee.

STEPHEN P. JEFFERY joined us in November 1994 as Vice President of Marketing
and was elected Vice President of Sales and Marketing in June 1995. He was
elected President in October 1995, to the Board of Directors in October 1997,
Chairman of the Board in December 1997 and Chief Executive Officer in February
1998. Prior to joining us, Mr. Jeffery was employed by Hewlett-Packard Company,
where he served as the manager of Hewlett-Packard's client/server solutions and
partner programs as well as in a variety of sales and marketing management
positions in the U.S. and Europe for 15 years. Mr. Jeffery also served in sales
with IBM prior to joining Hewlett-Packard.

WILLIAM M. CURRAN, JR. joined us in February 1996 as a Regional Sales Manager
for the Southern Region. In August 1997, Mr. Curran was elected Vice President
of Sales for the Eastern region and in July 1998 he was elected Vice President
of Sales. Prior to joining us, Mr. Curran was employed by Geac Computer Corp.
Ltd (formerly Dun & Bradstreet Software) ("Geac") from November 1989 until
February 1996 as a Senior Account Executive where he was the top sales
performer for a six-year period. From June 1984 until November, 1989, Mr.
Curran served in a variety of sales positions with Unisys Corporation.

WILLIAM A. FIELDER, III joined us in March 1998 as Chief Financial Officer and
Treasurer. Prior to joining us, Mr. Fielder served as Vice President and Chief
Financial Officer of Gray Communications Systems, Inc. from July 1993 to March
1998. From April 1991 to July 1993, Mr. Fielder served as Controller of Gray
Communications Systems, Inc. which was the chief financial officer position of
that company. From November 1984 to March 1991, Mr. Fielder was employed with
Ernst & Young LLP where he served a variety of roles in the Columbus, Georgia,
office, most recently as audit manager and computer auditor for a variety of
clients in the Atlanta and West Georgia area.

60
<PAGE>

SALLY M. FOSTER joined us in March 1997 as Vice President of Customer Service.
Prior to joining us, Ms. Foster served in several positions at Geac from August
1988 until March 1997, most recently as Vice President/Director of Global
Business Operations. From August 1985 until August 1988, Ms. Foster served as
the Division Operations Manager for the General Motors Corporation, Electronic
Data Systems Ltd. based in London, England.

ROBERT C. HOLLER joined us in June 1993 as the group leader for all technology
development. In January 1995, Mr. Holler was elected Vice President of
Development and in May 1996, he was elected Vice President of Research. In
April 1998, Mr. Holler was elected Vice President of Research and Development.
Currently, Mr. Holler serves as Vice President of Research. Before joining us,
he served from 1989 to 1993 as a consultant with McCall Consulting Group, where
he managed the initial implementations of our products. Prior to that time, he
was employed with Andersen Consulting as a consultant.

STEVEN M. HORNYAK joined us in December 1994 as an Account Executive and was
promoted to Regional Sales Manager for the Northeast region. In August 1997,
Mr. Hornyak was elected Vice President of Marketing. Prior to joining us, Mr.
Hornyak served in a variety of sales and consulting roles for Oracle
Corporation from June 1992 until December 1994. Prior to that, he was employed
by Price Waterhouse in its management consulting services group.

DAVID A. SPICER joined us in August 1998, as Vice President of Development.
Prior to joining us, Mr. Spicer served as Vice President of Development for
Arbor Software from February 1998 to July 1998. From April 1992 to February
1998, Mr. Spicer served as Vice President of Financial Application Development
at Oracle Corporation.

ARTHUR G. WALSH, JR. joined us in November 1992 as Chief Operating Officer and
Secretary. In October 1995, Mr. Walsh was elected Vice President of Customer
Service and Operations and Secretary/Treasurer. Currently, Mr. Walsh serves as
Vice President of Human Resources and Secretary. From September 1989 until
November 1992, he was Chief Operating Officer for Wilson & McIlvaine, a general
business Chicago law firm, where he was responsible for overall management of
the firm's business operations. Before that, Mr. Walsh was employed with
Andersen Consulting, from July 1974 until September 1989, where he served in a
variety of roles in Atlanta and Chicago, lastly as Director of Finance and
Administration for the Technical Services Organization in Chicago world
headquarters.

JOSEPH S. MCCALL co-founded us in November 1991 and has previously served as
our Chairman, President, and Chief Executive Officer and has been a member of
the Board of Directors since 1991. Mr. McCall currently serves as a Director
and consultant to us. Prior to founding us, Mr. McCall founded McCall
Consulting Group, Inc. in 1986, and he currently serves as its President. Mr.
McCall also formed Technology Ventures, LLC in 1994 and currently serves as its
sole manager. From 1975 to 1986, Mr. McCall managed major systems integration
and development projects and application software evaluations and
implementation engagements for Andersen Consulting. Mr. McCall currently serves
on the Board of Directors of Security First Technologies, Inc.

TENCH COXE has served as a member of our Board of Directors since September
1993. Mr. Coxe has served as a managing director of Sutter Hill Ventures, a
venture capital company located in

61
<PAGE>

Palo Alto, California, since 1989. From 1984 to 1987, Mr. Coxe served as
Director of Marketing and in other management positions with Digital
Communications Associates. Mr. Coxe is currently on the Board of Directors of
Edify Corporation and several privately held companies.

WILLIAM S. KAISER has served on our Board of Directors since November 1992. Mr.
Kaiser joined Greylock Management Corporation, a venture capital company
located in Boston, in 1986 and became a general partner in 1988. From 1983 to
1986, Mr. Kaiser served in a variety of marketing management positions with
Apollo Computer, primarily working with Apollo's third-party suppliers. Mr.
Kaiser is also on the Board of Directors of Avid Technology, Inc. and Open
Market, Inc.

DONALD L. HOUSE served as our Chairman of the Board of Directors from January
1994 through December 1997, and as President and a Director from January 1993
through December 1993. From September 1991 until December 1992, Mr. House
served as President of Prentice Hall Professional Software, Inc., a subsidiary
of Simon and Schuster, Inc. From 1968 through 1987, Mr. House served in a
number of senior executive positions with Management Science America, Inc. Mr.
House is a director of Melita International Corporation, where he serves as
Chairman of the Audit Committee and a member of the Compensation Committee and
is a director of Carreker-Antinori, Inc., where he is a member of its Audit
Committee. Mr. House also serves as a member of the Board of Directors of BT
Squared Technologies, Inc., Intellimedia Commerce, Inc. and Telinet
Technologies, LLC which are privately held companies.

SAID MOHAMMADIOUN has served as a member of our Board of Directors since March
1998. Mr. Mohammadioun has served as Chairman and Chief Executive Officer of
Synchrologic, Inc. since October 1996. From March 1995 to September 1996, he
was a private investor in small technology companies. Mr. Mohammadioun was Vice
President of Lotus Development Corp. from December 1990 to February 1995. Mr.
Mohammadioun also serves on the Board of Directors of IQ Software Corporation
and FirstWave Technologies, Inc.

MARK A. JOHNSON has served as a member of our Board of Directors since July
1998. Mr. Johnson has served as the Vice Chairman of CheckFree Corporation, a
supplier of financial electronic commerce services, software and related
products since 1997. He also serves on the Board of Directors of CheckFree
Corporation. From 1982 to 1997 Mr. Johnson has served in various capacities
with CheckFree including as President in 1996 and as Executive Vice President
of Corporate Development of CheckFree Corporation from 1990 to 1996.

Our executive officers are elected by the Board of Directors and serve until
their successors are duly elected and qualified. There are no family
relationships among any of the executive officers or directors.

Our Board of Directors is divided into three classes, with the members of each
class of directors serving for staggered three-year terms. Messrs. McCall,
Kaiser and Johnson serve in the class the term of which expires in 1999;
Messrs. Coxe and House serve in the class the term of which expires in 2000;
and Messrs. Jeffery and Mohammadioun serve in the class the term of which
expires in 2001. Upon the expiration of the term of each class of directors,
directors comprising such class of directors will be elected for a three-year
term at the next succeeding annual meeting of stockholders. Our classified
Board of Directors could have the effect of increasing the length of time
necessary to change the composition of a majority of the Board of Directors.

62
<PAGE>

COMMITTEES OF THE BOARD OF DIRECTORS

The Audit Committee consists of Messrs. Coxe and Kaiser. The Audit Committee
reviews, with our independent auditors, the scope and timing of their audit
services and any other services they are asked to perform, the auditor's report
on our financial statements following completion of their audit and our
policies and procedures with respect to internal accounting and financial
controls. In addition, the Audit Committee makes annual recommendations to the
Board of Directors for the appointment of independent auditors for the ensuing
year. The Compensation Committee consists of Messrs. Coxe and Kaiser. The
Compensation Committee reviews and evaluates the compensation and benefits of
all our officers, reviews general policy matters relating to compensation and
benefits of our employees, and makes recommendations concerning these matters
to the Board of Directors. The Compensation Committee also administers our
stock option plans.

DIRECTOR COMPENSATION

Directors who are not our employees (also referred to as "Outside Directors")
currently include Messrs. McCall, Coxe, House, Kaiser, Mohammadioun and
Johnson. Outside Directors do not receive an annual retainer or any fees for
attending regular meetings of the Board of Directors. Directors are not
reimbursed for out-of-pocket expenses incurred in attending such meetings.
Outside Directors may participate in our 1998 Stock Incentive Plan. Effective
March 9, 1998, we granted to Mr. Mohammadioun an option to acquire 11,250
shares of Common Stock at an exercise price of $8.00 per share. On June 2,
1998, each of the Outside Directors at that time were granted options to
purchase 7,500 shares of Company Common Stock at an exercise price of $7.63 per
share. On July 1, 1998, we granted Mark A. Johnson options to purchase 18,750
shares of Common Stock at an exercise price of $9.13 per share.

EXECUTIVE COMPENSATION

The following table sets forth certain information regarding compensation
earned by Joseph S. McCall, our Chief Executive Officer at December 31, 1997,
and our four other most highly compensated executive officers who were serving
as executive officers at the end of 1997 (collectively, the "Named Executive
Officers") for services rendered in all capacities in 1997.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION(1) COMPENSATION
-------------------- ------------
NUMBER OF
SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION SALARY BONUS COMPENSATION OPTION(2) COMPENSATION
- ------------------ -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Joseph S. McCall....... $151,350 $150,000 -- -- --
Chief Executive
Officer(3)
William M. Curran,
Jr. .................. $111,748 $197,910 -- 45,000 --
Vice President, Sales
Steven M. Hornyak...... $111,760 $130,822 -- 51,000 $53,394(4)
Vice President,
Marketing
Stephen P. Jeffery..... $175,000(6) $ 92,621 -- 75,000 --
President(5)
Alain Livernoche....... $136,752 $ 91,599 -- 60,000 --
Vice President,
Sales(7)
</TABLE>

63
<PAGE>

- --------
(1) In accordance with the rules of the SEC, the compensation set forth in the
table does not include medical, group life insurance or other benefits
which are available to all salaried employees, and certain perquisites and
other benefits, securities or property that do not exceed the lesser of
$50,000 or 10% of the person's salary and bonus shown in the table.

(2) We did not make any restricted stock awards, grant any stock appreciation
rights or make any long-term incentive payments during fiscal 1997 to our
executive officers. Options granted to the Named Executive Officers were
granted at fair market value on the date of grant as determined by the
Board of Directors.

(3) Mr. McCall resigned as our Chief Executive Officer on February 5, 1998.

(4) One time payment for relocation expenses.

(5) Mr. Jeffery was elected as our Chief Executive Officer effective as of
February 5, 1998.

(6) Includes $14,583 in deferred compensation earned in 1997.

(7) Mr. Livernoche resigned as our Vice President of Sales and as an employee
on June 30, 1998.

The following table sets forth all individual grants of stock options during
fiscal year 1997 to each of the Named Executive Officers.

OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED(1) FISCAL YEAR PER SHARE DATE 5% 10%
---- ---------- ------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Joseph S. McCall........ -- -- -- -- -- --
Stephen P. Jeffery...... 75,000 9.3% $3.67 11/10/04 $ 112,054 $ 261,134
William M. Curran, Jr. . 15,000 1.9 2.00 07/24/04 12,213 28,462
30,000 3.7 3.67 11/10/04 44,822 104,454
Alain Livernoche........ 15,000 1.9 1.00 04/13/04 6,107 14,231
15,000 1.9 2.00 07/24/04 12,213 28,462
30,000 3.7 3.67 11/10/04 44,822 104,454
Steven M. Hornyak....... 6,000 0.7 1.00 01/01/04 2,443 5,692
15,000 1.9 1.00 05/23/04 6,107 14,231
30,000 3.7 3.67 11/10/04 44,822 104,454
</TABLE>
- --------
(1) All options were incentive stock options and were granted pursuant to our
1992 Stock Option Plan at an exercise price not less than fair market value
on the date of grant as determined by the Board of Directors. Options vest
in installments over a period of four years with 20% of the options vested
12 months from the date of grant, 40% vested 24 months after the date of
grant, 70% vested 36 months after the date of grant and 100% vested 48
months after the date of grant. The options expire seven years after the
date of grant.

(2) Amounts reported in this column represent hypothetical values that may be
realized upon exercise of the options immediately prior to the expiration
of their term, assuming that the stock price on the date of grant
appreciates at the specified annual rates of appreciation, compounded
annually over the term of the option. These numbers are calculated based on
rules promulgated by the SEC.

64
<PAGE>

The following table provides information regarding exercisable and
unexercisable stock options held as of December 31, 1997 by each of the Named
Executive Officers. There were no options exercised by the Named Executive
Officers in 1997.

YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERISABLE
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT YEAR-END AT YEAR-END(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Joseph S. McCall............ 61,762 -- $267,429 $ --
Stephen P. Jeffery.......... 37,500 225,000 159,900 714,600
William M. Curran, Jr. ..... 3,000 57,000 12,396 134,484
Alain Livernoche............ -- 60,000 -- 144,900
Steven M. Hornyak........... 2,340 57,660 9,914 151,867
</TABLE>
- --------
(1) There was no public trading market for the common stock as of December 31,
1997. Accordingly, these values have been calculated by determining the
difference between the estimated fair market value of our common stock
underlying the option as of December 31, 1997 ($5.00 per share) and the
exercise price per share payable upon exercise of such options. In
determining the fair market value of our common stock, the Board of
Directors considered various factors, including our financial condition and
business prospects, our operating results, the absence of a market for our
common stock and the risks normally associated with technology companies.

EMPLOYEE BENEFIT PLANS

1992 Stock Option Plan. We adopted our 1992 Stock Option Plan (the "1992 Stock
Option Plan") on November 22, 1992. The aggregate number of shares reserved for
issuance under the 1992 Stock Option Plan is 1,633,938 shares. As of November
30, 1998, options to purchase 1,323,961 shares of common stock were outstanding
under the 1992 Stock Option Plan at exercise prices ranging from $0.67 to
$10.00 per share and a weighted average exercise price of $2.88 per share.
Options granted under the 1992 Stock Option Plan generally vest in installments
over a period of four years with 20% of the options vested 12 months from the
date of grant, 40% vested 24 months from the date of grant, 70% vested 36
months from the date of grant and 100% vested 48 months after the date of
grant. We have accelerated the vesting of certain options granted from January
through March 1998 under the 1992 Stock Option Plan. As of November 30, 1998,
205,702 shares of common stock have been issued pursuant to the exercise of
options granted under the 1992 Stock Option Plan. The purpose of the 1992 Stock
Option Plan is to provide incentives for key employees, officers, consultants
and directors to promote our success, and to enhance our ability to attract and
retain the services of such persons. The majority of all options granted under
the 1992 Stock Option Plan are intended to qualify as "incentive stock options"
under Section 422 of the Internal Revenue Code of 1985 as amended (the "Code").

The 1992 Stock Option Plan is administered by the Compensation Committee of the
Board of Directors. The Compensation Committee has the authority to determine
exercise prices applicable to the options, the eligible officers, directors,
consultants or employees to whom options may be granted, the number of shares
of our common stock subject to each option and the extent to which options may
be exercisable.

65
<PAGE>

1998 Stock Incentive Plan. In February 1998, the Board of Directors adopted and
the stockholders approved the SQL 1998 Stock Incentive Plan (the "1998 Stock
Plan"). Under the 1998 Stock Plan, the Board of Directors, or the Compensation
Committee of the Board of Directors, has the flexibility to determine the type
and amount of awards to be granted to eligible participants. The 1998 Stock
Plan is intended to secure for us and our stockholders the benefits arising
from ownership of our Common Stock by individuals we employ or retain who will
be responsible for the future growth of the enterprise. The 1998 Stock Plan is
designed to help attract and retain superior personnel for positions of
substantial responsibility with us (including advisory relationships where
appropriate), and to provide individuals with an additional incentive to
contribute to our success.

The Board or the Compensation Committee may make the following types of grants
under the 1998 Stock Plan, each of which will be an "Award": (i) incentive
stock options ("ISOs"); (ii) nonqualified stock options ("NSOs"); (iii)
restricted stock awards ("Restricted Stock Awards"); (iv) stock appreciation
rights ("SARs"); and (v) restricted units ("Restricted Units"). Our officers,
key employees, employee directors, consultants and other independent
contractors or agents who are responsible for or contribute to the management
growth or profitability of our business will be eligible for selection by the
Board of Directors or the Compensation Committee to participate in the 1998
Stock Plan, provided, however, that ISOs may be granted only to a person we
employ.

We have authorized and reserved for issuance an aggregate of 1,000,000 shares
of our common stock under the 1998 Stock Plan. As of November 30, 1998 options
to purchase 799,100 shares of common stock were outstanding under the 1998
Stock Plan with exercise prices ranging from $3.81 to $10.00 per share and a
weighted average exercise price of $7.85 per share. We have accelerated the
vesting of certain options granted from January through March 1998 under the
1998 Stock Plan. The aggregate number of shares of common stock that may be
granted through Awards under the 1998 Stock Plan to any employee in any
calendar year may not exceed 200,000 shares. The shares of common stock
issuable under the 1998 Stock Plan are authorized but unissued shares. If any
of the Awards granted under the 1998 Stock Plan expire, terminate or are
forfeited for any reason before they have been exercised, vested or issued in
full, the unused shares subject to those expired, terminated or forfeited
Awards will again be available for purposes of the 1998 Stock Plan. The 1998
Stock Plan will continue in effect until February 2008 unless sooner terminated
under the general provisions of the 1998 Stock Plan.

The 1998 Stock Plan is administered by the Board of Directors or upon its
delegation to the Compensation Committee of the Board of Directors, by the
Compensation Committee, consisting of not less than two directors who are "non-
employee directors" (within the meaning of SEC Rule 16b-3 promulgated pursuant
to the Securities Exchange Act of 1934, as amended), so long as non-employee
director administration is required under Rule 16b-3, and who are "outside
directors" (as defined in Section 162(m) of the Code), so long as outside
directors are required by the Code. Subject to the foregoing limitations, as
applicable, the Board of Directors may from time to time remove members from
the Compensation Committee, fill all vacancies on the Compensation Committee,
however caused, and may select one of the members of the Compensation Committee
as its chairman. The Compensation Committee may hold meetings at such times and
places as they may determine, will keep minutes of their meetings, and may
adopt, amend and revoke rules and procedures in accordance with the terms of
the 1998 Stock Plan.

66
<PAGE>

401(k) Retirement Savings Plan. We maintain a Section 401(k) Retirement Savings
Plan (the "401(k) Plan"). The 401(k) Plan is intended to be a tax-qualified
defined contribution plan under Section 401(k) of the Code. In general, our
employees who have completed six consecutive months of service with us and are
over 21 years of age may elect to participate in the 401(k) Plan. Under the
401(k) Plan, participants may elect to defer a portion of their compensation,
subject to certain Code limitations. In addition, at the discretion of the
Board of Directors and subject to certain Code limitations, we may make profit
sharing contributions into the 401(k) Plan. We currently do not match
contributions. A separate account is maintained for each participant in the
401(k) Plan, which account is 100% vested. Distributions from the 401(k) Plan
may be in the form of a lump-sum payment in cash or property or in the form of
an annuity.

Elekom's 401(k) Retirement Savings Plan is also currently in existence. We
anticipate merging Elekom's 401(k) plan in the 401(k) Plan on January 1, 1999.

AGREEMENTS WITH EMPLOYEES

In February 1998, we entered into an agreement with Joseph S. McCall whereby
Mr. McCall resigned as our Chief Executive Officer and as Chairman, Chief
Executive Officer and Manager of the Services Subsidiary. Mr. McCall agreed to
remain an employee at his current salary, including incentive compensation,
until the completion of our initial public offering, at which time he became a
consultant to us for a period of one year pursuant to the terms of an
Independent Contractor Agreement. For his consulting services, we will pay
Mr. McCall the sum of $125,000 over the one year period, with the ability to
earn an additional $100,000 in incentive compensation if certain revenue
targets. Mr. McCall has agreed to continue to serve on our Board of Directors
until at least December 1, 1998. In recognition of his past services, Mr.
McCall's agreement to allow the termination of the common stock voting trust
agreement, and his resignation as CEO, we paid Mr. McCall a lump sum of
$225,000 and will pay Mr. McCall as severance an additional $75,000 payable in
semi-monthly installments over a one year period beginning on the Effective
Time of the termination of his employment with us.

We generally enter into confidentiality and nondisclosure agreements with our
employees. Pursuant to the terms of these agreements, employees agree to
confidentiality restrictions, employee and customer nonsolicitation covenants
and assignment of inventions.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Our Compensation Committee reviews and approves compensation and benefits for
our key executive officers, administers our stock option plans and makes
recommendations to the Board regarding such matters. No member of the
Compensation Committee serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of our Board or Compensation Committee.

LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS

Our By-Laws and our Amended and Restated Certificate of Incorporation (the
"Restated Certificate") provide that our directors and officers shall be
indemnified by us to the fullest extent

67
<PAGE>

authorized by Delaware law, as it now exists or may in the future be amended,
against all expenses and liabilities reasonably incurred in connection with
service for us or on our behalf. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers and
controlling persons pursuant to the Restated By-Laws, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. We
have obtained insurance which insures our directors and officers against
certain losses and which insures us against certain of our obligations to
indemnify such directors and officers. In addition, the Restated Certificate
provides that our directors will not be personally liable for monetary damages
to us for breaches of their fiduciary duty as directors, unless they violated
their duty of loyalty to us or our stockholders, acted in bad faith, knowingly
or intentionally violated the law, authorized illegal dividends or redemptions
or derived an improper personal benefit from their action as directors. Such
limitations of personal liability under the Delaware Business Corporation Law
do not apply to liabilities arising out of certain violations of the federal
securities laws. While non-monetary relief such as injunctive relief, specific
performance and other equitable remedies may be available to us, such relief
may be difficult to obtain or, if obtained, may not adequately compensate us
for our damages.

There is no pending litigation or proceeding involving any of our directors,
officers, employees or agents where our indemnification will be required or
permitted. We are not aware of any threatened litigation or proceeding that
might result in a claim for such indemnification.

68
<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of our common stock as of November 30, 1998, by: (i) each person
known by us to be the beneficial owner of more than 5% of our common stock;
(ii) each of our directors; (iii) each Named Executive Officer who is a
beneficial owner of our common stock (see "Management--Executive
Compensation"); and (iv) all executive officers and directors as a group.

<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF COMMON STOCK
SHARES PERCENTAGE OF OUTSTANDING
BENEFICIALLY COMMON STOCK AFTER
NAME OF BENEFICIARY OWNER OWNED(1) OUTSTANDING(2) OFFERING
------------------------- ------------ -------------- -------------
<S> <C> <C> <C>
Technology Crossover Management,
L.L.C.(3)........................... 1,690,930 15.5% 15.5%
Joseph S. McCall(4).................. 1,258,462 11.5 7.6
William S. Kaiser(5)................. 1,006,872 9.2 9.2
Greylock Limited Partnership(5)(6)... 1,003,122 9.2 8.9
Technology Ventures L.L.C.(7)........ 928,950 8.5 3.9
NationsBank Corporation(8)........... 925,201 8.5 8.2
HarbourVest Partners IV--Direct Fund
L.P.(9)............................. 870,155 7.9 7.9
Tench Coxe(10)....................... 745,555 6.8 6.8
Sutter Hill Ventures, a California
limited Partnership(10)............. 741,805 6.8 6.8
Highland Capital Partners II Limited
Partnership(11)..................... 594,684 5.5 5.5
Stephen P. Jeffery(12)............... 196,799 1.8 1.8
Donald L. House(13).................. 79,999 * *
Said Mohammadioun(14)................ 23,000 * *
Steven M. Hornyak(15)................ 15,810 * *
William M. Curran, Jr.(16)........... 15,000 * *
Mark A. Johnson(17).................. 3,750 * *
All executive officers and directors
as group (14 persons)............... 3,470,758 31.8% 27.2%
</TABLE>
- --------
(1) Beneficial ownership is determined in accordance with the rules of the
SEC. In computing the number of shares beneficially owned by a person and
the percentage ownership of that person, shares of common stock issuable
by us pursuant to options held by the respective person or group which may
be exercised within 60 days after November 30, 1998 ("Presently
Exercisable Options"). Except as otherwise indicated, each stockholder
named in the table has sole voting and investment power with respect to
the shares set forth opposite such stockholder's name.

(2) Presently Exercisable Options are deemed to be outstanding and to be
beneficially owned by the person or group holding such options for the
purpose of computing the percentage ownership of such person or group but
are not treated as outstanding for the purpose of computing the percentage
ownership of any other person or group.

(3) Includes (i) 70,082 shares of common stock owned by Technology Crossover
Ventures II, L.P.; (ii) 647,674 shares of common stock owned by Technology
Crossover Ventures I, L.P. ("TCVLP"); (iii) 51,291 shares of common stock
owned by Technology Crossover Ventures I, C.V. ("TCVCV"); (iv) 53,880
shares of common stock owned by Technology Crossover Ventures (Q), L.P.;
(v) 9,562 shares of common stock owned by Technology Crossover Ventures II
Strategic Partners, L.P.; (v) 10,700 shares of common stock owned by
Technology Crossover Ventures II, C.V.; (vi) 2,276 shares of common stock
owned by Technology Crossover Ventures II, V.O.F.; (vii) 146,500 shares of
common stock owned by Technology Crossover Management II, L.L.C. and
(viii) 698,965 shares of common stock owned by Technology Crossover
Management I, L.L.C. Technology Crossover Management, L.L.C. is the sole
general partner of TCVLP and the sole investment general partner of TCVCV.
The managing members of Technology Crossover Management, L.L.C. are Jay C.
Hoag and Richard H. Kimball. Technology Crossover Ventures' address is 575
High Street, Suite 400, Palo Alto, California

69
<PAGE>

94301. Information with respect to Technology Crossover Management, L.L.C.
("TCM") is provided in reliance upon information included in a Schedule
13G filed by TCM dated June 17, 1998.

(4) Includes 325,762 shares of common stock owned by Mr. McCall individually,
928,950 owned by Technology Ventures L.L.C., a Georgia limited liability
company controlled by Mr. McCall and 3,750 shares issuable to Mr. McCall
upon the exercise of Presently Exercisable Options.

(5) Mr. Kaiser, one of our directors, has voting control over our securities
held by Greylock Limited Partnership. Includes 3,750 shares of common
stock issuable upon the exercise of Presently Exercisable Options.

(6) The general partners of Greylock Limited Partnership are Howard E. Cox,
Roger Evans, William Helman, Robert Henderson, William Kaiser, Henry
McCance and Dave Strohm. Greylock Limited Partnership's address is One
Federal Street, Boston, Massachusetts 02110.

(7) Consists of 928,950 shares owned by Technology Ventures L.L.C. Technology
Ventures L.L.C.'s address is Two Ravinia Drive, 10th Floor, Suite 1090,
Atlanta, Georgia.

(8) Consists of 312,501 shares owned by MS Spitfire LLC, 312,501 shares owned
by Spitfire Capital Partners LP and 393,001 shares owned by NationsBanc
Montgomery Securities LLC. Information with respect to NationsBank
Corporation ("NationsBank") is provided in reliance upon information
included in a Schedule 13G filed by NationsBank dated September 10, 1998.

(9) Includes 43,507 shares of common stock owned by Falcon Ventures II, L.P.
("Falcon"). Falcon is an affiliate of HarbourVest Partners IV--Direct
Fund L.P. ("HarbourVest"). Both Falcon and HarbourVest are beneficially
owned by Edward W. Kane, D. Brooks Zug, George R. Anson, Kevin Delbridge,
William A. Johnston, Frederick C. Maynard, Ofer Nemirovsky and Robert M.
Wadsworth. HarbourVest's address is One Financial Center, Boston,
Massachusetts 02111.

(10) Includes (i) 491,693 shares of common stock owned by Sutter Hill
Ventures, a California Limited Partnership ("Sutter Hill"); (ii) 20,128
shares of common stock owned by Mr. Coxe, individually; (iii) 3,750
shares of common stock issuable upon the exercise of Presently
Exercisable Options; (iv) 225,822 shares of common stock held of record
for 14 other individuals or entities associated with Sutter Hill (the
"Sutter Hill Affiliates"); and (v) 4,162 shares of common stock owned by
the Sutter Hill Affiliates. Mr. Coxe, a member of our Board of Directors,
is a Managing Director of the General Partner of Sutter Hill and shares
voting and investment power with respect to the shares of common stock
held by Sutter Hill. Mr. Coxe disclaims beneficial ownership of the
shares held by Sutter Hill and Sutter Hill Affiliates, except as to the
shares held of record in his name and as to his partnership interest in
Sutter Hill. Sutter Hill's address is 755 Page Mill Road, Suite A-200,
Palo Alto, California 94304-1005.

(11) Includes 594,684 shares of common stock owned by Highland Capital
Partners II Limited Partnership ("Highland Capital"). The general partner
of Highland Capital is Highland Management Partners II. The general
partners of Highland Management Partners II are Robert F. Higgins, Paul
A. Maeder, Daniel J. Nova and Wycliff K. Grousbeck. Highland Capital's
address is One International Place, Boston, Massachusetts 02110.

(12) Includes 134,999 shares of common stock issuable upon the exercise of
Presently Exercisable Options.

(13) Includes 3,750 shares of common stock issuable upon the exercise of
Presently Exercisable Options.

(14) Includes 15,000 shares of common stock issuable upon the exercise of
Presently Exercisable Options.

(15) Consists of shares of common stock issuable upon the exercise of
Presently Exercisable Options.

(16) Consists of shares of common stock issuable upon the exercise of
Presently Exercisable Options.

(17) Consists of shares of common stock issuable upon the exercise of
Presently Exercisable Options.

70
<PAGE>

CERTAIN TRANSACTIONS

In March 1995, we issued 450,000 shares of common stock to Tech Ventures, an
entity controlled by Joseph S. McCall, our Chief Executive Officer at that time
and a member our Board of Directors, in exchange for certain intellectual
property rights, intangible assets and $10,000 cash. Following the acquisition,
we and Tech Ventures formed the Services Subsidiary. We contributed the
acquired intellectual property rights, intangible assets and $10,000 cash to
the Services Subsidiary in exchange for an 80% interest in the Services
Subsidiary. Tech Ventures acquired the remaining 20% interest in the Services
Subsidiary in exchange for a $75,000 promissory note bearing interest at 7.74%,
payable annually, with the principal due in a lump sum payment in March 2000
(the "Tech Ventures Note").

During 1996 and 1997, McCall Consulting Group, Inc. ("MCG"), an entity owned by
Tech Ventures, provided to us:

. temporary services by administrative employees;

. third-party consulting services in connection with several product
development projects;

. the lease of office equipment and office space in our prior headquarters
facility; and

. services in connection with our sales process.

We paid MCG approximately $1.6 million and $1.4 million, respectively, during
1997 and 1996 for these services. In February 1998, we entered into an
Independent Contractor Agreement with MCG providing for the performance of
services by MCG for us and the assignment to us of the intellectual property
rights associated with the performance of such services. In addition, in
February 1998, we granted to Tech Ventures and MCG a royalty-free license to
use our current products as well as certain of our to-be-adjusted future
products, and agreed to provide to MCG without charge ongoing support services
as long as Tech Ventures owns at least 100,000 shares of our common stock and
has not modified the software. We may terminate this license agreement if a
competitor acquires any interest in either MCG or Tech Ventures.

On February 5, 1998, Tech Ventures sold its 20% interest in the Services
Subsidiary to us in exchange for 225,000 shares of our common stock, a warrant
to purchase an additional 300,000 shares of common stock at an exercise price
of $3.67 per share and a non-interest bearing two-year promissory note in the
principal amount of $1.1 million, giving us 100% ownership of the Services
Subsidiary. We granted Tech Ventures certain registration rights and agreed to
register in initial public offering 497,700 shares of common stock owned by
Tech Ventures (comprised of 272,700 of the 450,000 shares originally issued to
Tech Ventures in March 1995 and 225,000 shares issued on February 5, 1998) and
to maintain the effectiveness of such registration for a period of two years.
In addition, immediately prior to the purchase and sale, the Services
Subsidiary distributed approximately $241,000 to Tech Ventures as their portion
of accumulated unpaid profits earned by the Services Subsidiary prior to
February 5, 1998. All of the material terms of the purchase were agreed upon by
Tech Ventures and us in January 1998, including the number of shares to be
issued to Tech Ventures. The transaction was approved by our Board of Directors
and consummated on February 5, 1998.

71
<PAGE>

In February 1998, the Services Subsidiary also paid Tech Ventures approximately
$33,000 as consideration for the termination of the Management Services
Agreement entered into between the parties in March 1995, and Tech Ventures
paid in full to the Services Subsidiary the remaining principal balance and
accrued interest of approximately $33,000 due under the Tech Ventures Note. In
February 1998, we entered into certain severance and related agreements with
Joseph S. McCall in connection with his resignation as our Chief Executive
Officer. In connection therewith, we paid Mr. McCall $225,000, severance in the
amount of $75,000 payable over a one year period beginning on May 26, 1998, and
entered into an Independent Contractor Agreement whereby Mr. McCall will serve
as a consultant to us for one year for $125,000 in compensation, with the
ability to earn an additional $100,000 in incentive compensation. See
"Management--Agreements with Employees." Tech Ventures provided recruiting
services to us from January 1996 through January 1997 in the amount of
$339,302. In addition, pursuant to a Management Services Agreement, Tech
Ventures received $25,000 for certain administrative services rendered to the
Services Subsidiary during each of 1997 and 1996.

On October 26, 1995, Tech Ventures received a warrant to purchase 87,500 shares
of our Series C Preferred Stock resulting from the conversion and simultaneous
cancellation of 87,500 shares of Series C Preferred Stock held by Tech Ventures
and the simultaneous amendment of a promissory note payable by Tech Ventures to
us which had been made by Tech Ventures as payment for its original shares of
Series C Preferred Stock. Tech Ventures exercised this warrant following the
closing of our initial public offering.

We believe that all transactions set forth above were made on terms no less
favorable to us than would have been obtained from unaffiliated third parties.

CAPITAL STOCK

Our authorized capital stock consists of 25,000,000 shares of common stock,
$.0001 par value per share, and 5,000,000 shares of preferred stock, $.0001 par
value per share.

COMMON STOCK

As of November 30, 1998, there were 10,899,059 shares of common stock issued
and outstanding and held of record by 154 stockholders. Holders of common stock
are entitled to one vote for each share held on all matters submitted to a vote
of stockholders and do not have cumulative voting rights. Accordingly, holders
of a majority of the shares of common stock entitled to vote in any election of
directors may elect all of the directors standing for election. Holders of
common stock are entitled to receive ratably such dividends, if any, as may be
declared by the Board of Directors out of funds legally available therefor,
subject to any preferential dividend rights of outstanding preferred stock.
Upon the liquidation, dissolution or winding up, the holders of common stock
are entitled to receive ratably our net assets available after the payment of
all debts and other liabilities and subject to the prior rights of any
outstanding preferred stock. Holders of the common stock have no preemptive,
subscription, redemption or conversion rights. The rights, preferences and
privileges of holders of common stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of preferred
stock which we may designate and issue in the future.

72
<PAGE>

PREFERRED STOCK

The Board of Directors is authorized, subject to certain limitations prescribed
by law, without further stockholder approval, to issue from time to time up to
an aggregate of 5,000,000 shares of preferred stock in one or more series and
to fix or alter the designations, preferences, rights and any qualifications,
limitations or restrictions of the shares of each such series thereof,
including the dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption (including sinking fund provisions), redemption
price or prices, liquidation preferences and the number of shares constituting
any series or designations of such series. The issuance of preferred stock may
have the effect of delaying, deferring or preventing our change of control. We
have no present plans to issue any shares of preferred stock. We believe that
the preferred stock will provide us with increased flexibility in structuring
possible future financings and acquisitions, and in meeting other corporate
needs that might arise. Having such authorized shares available for issuance
will allow us to issue shares of preferred stock without the expense and delay
of holding a special stockholders' meeting. The authorized shares of preferred
stock, as well as shares of common stock, will be available for issuance
without further action by stockholders, unless such action is required by
applicable law or the rules of any stock exchange or quotation system on which
our securities may be listed or quoted.

DELAWARE LAW AND CERTAIN PROVISIONS OF OUR RESTATED CERTIFICATE AND BY-LAWS

We are subject to Section 203 ("Section 203") of the Delaware General
Corporation Law (the "Delaware Code"), which, subject to certain exceptions,
prohibits a Delaware corporation from engaging in any business combination with
any interested stockholder for a period of three years following the date that
such stockholder became an interested stockholder, unless:

. prior to such date, the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder's becoming an interested stockholder;

. upon consummation of the transaction which resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned (a) by persons who are
directors and also officers and (b) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or

. on or subsequent to such date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.

Section 203 defines business combinations to include:

. any merger or consolidation involving the corporation and the interested
stockholder;

. any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation;

73
<PAGE>

. subject to certain exceptions, any transaction that results in the
issuance or transfer by the corporation of any stock of the corporation
to the interested stockholder;

. any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series
of the corporation beneficially owned by the interested stockholder; or

. the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation. In general, Section 203 defines an interested
stockholder as an entity or person beneficially owning 15% or more of
the outstanding voting stock of the corporation and any entity or person
affiliated with or controlling or controlled by such entity or person.

Our Amended and Restated Certificate of Incorporation (the "Certificate")
provides for the classification of our Board of Directors. These and other
provisions could have the effect of making it more difficult to acquire us by
means of a tender offer, proxy contest or otherwise or to remove our incumbent
officers and directors. These provisions may discourage certain types of
coercive takeover practices and encourage persons seeking to acquire control of
us to first negotiate with us. Our Certificate does not provide preemptive
rights to our stockholders.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is First Union National
Bank of North Carolina, N.A.

74
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

We have approximately 11,000,000 shares of common stock outstanding (assuming
no exercise of outstanding stock options). Of these shares, the
shares, including common stock sold in this offering, will be freely tradable
without restriction or further registration under the Securities Act, except
that any shares purchased by our "affiliates," as that term is defined in Rule
144 ("Rule 144") under the Securities Act ("Affiliates"), may generally only be
sold in compliance with the limitations of Rule 144 described below.

LOCK-UP AGREEMENTS

All preferred shareholders of Elekom and Norman Behar, who in the aggregate
hold shares of common stock following the merger have agreed, pursuant
to the Lock-up Agreements, that they will not, without our prior written
consent, offer, sell, contract to sell or otherwise dispose of, directly or
indirectly, any shares of common stock beneficially owned by them until August
6, 1999. In addition, the holders of stock options granted during the period
January 1, 1998 through April 1, 1998, whose options have been fully vested
have entered into Lock-up Agreements restricting the sale or transfer of
283,343 shares for a four year period following the date hereof, with 25% of
such shares being released from such restriction on each anniversary of May 26,
1998.

SALES OF RESTRICTED SHARES

Of our outstanding common stock, are deemed "Restricted Shares"
under Rule 144 promulgated under the Securities Act. Of the Restricted Shares,
are available for sale in accordance with Rule 144(k) under the
Securities Act and are not subject to the provisions of any of Lock-up
Agreements. Certain security holders have the right to have their Restricted
Shares registered by us under the Securities Act as described below.

In general, under Rule 144 as currently in effect, a person (or persons whose
shares are aggregated with those of others), including an Affiliate, who has
beneficially owned Restricted Shares for at least one year is entitled to sell,
within any three-month period, a number of such shares that does not exceed the
greater of (i) one percent of the then outstanding shares of common stock
(approximately shares) or (ii) the average weekly trading volume in
the common stock on the Nasdaq National Market during the four calendar weeks
preceding the date on which notice of such sale is filed. Sales under Rule 144
are also subject to certain limitations on manner of sale, notice requirements,
and availability of current public information about us. In addition, under
Rule 144(k), a person who is not an Affiliate and has not been an Affiliate for
at least three months prior to the sale and who has beneficially owned
Restricted Shares for at least two years may resell such shares without
compliance with the foregoing requirements. In meeting the one and two year
holding periods described above, a holder of Restricted Shares can include the
holding periods of a prior owner who was not an Affiliate.

Rule 701 under the Securities Act provides that the shares of common stock
acquired on the exercise of currently outstanding options may be resold by
persons, other than Affiliates, subject only to the manner of sale provisions
of Rule 144, and by Affiliates under Rule 144 without compliance with its one-
year minimum holding period, subject to certain limitations.

75
<PAGE>

STOCK OPTIONS

As of November 30, 1998, options to purchase a total of 2,123,061 shares of
common stock were outstanding and 1,579,119 of the shares issuable pursuant to
such options are not yet exercisable. An additional 104,275 shares of common
stock are available for future grants under our 1992 Stock Option Plan and
200,900 shares of common stock are currently available for future grants under
our 1998 Stock Plan. See "Management--Stock Option Plans and Warrants."

We have filed a registration statement on Form S-8 under the Securities Act to
register all shares of common stock issuable pursuant to our stock option
plans. Common stock covered by these registration statements will thereupon be
eligible for sale in the public markets, subject to the Lock-up Agreements.

REGISTRATION RIGHTS

The holders of approximately 5,800,000 shares of common stock (the "Registrable
Securities") or their transferees (the "Holders"), are entitled to certain
demand and/or piggy-back registration rights with respect to the Registrable
Securities. These rights are provided under agreements between us and the
holders of the Registrable Securities. Such agreements provide that certain of
the holders are entitled, upon the request of the Holders of 50% of the
Registrable Securities, to require us to use our best efforts to register their
Registrable Securities, under the Securities Act (the "Demand Registration
Rights"). In addition, all of the Holders are entitled, subject to certain
limitations, to require us to use our best efforts to include their shares of
common stock in future registration statements filed by us under the Securities
Act (the "Piggyback Registration Rights"). Certain of the Holders of
Registrable Securities are also entitled, to require us to use our best efforts
to register their shares of common stock on Form S-3 (the "S-3 Registration
Rights"). We are not required to effect more than two registrations under the
Demand Registration Rights. Registration of shares pursuant to the exercise of
Demand Registration Rights, S-3 Registration Rights or Piggyback Registration
Rights under the Securities Act would result in such shares becoming freely
tradeable without restriction under the Securities Act immediately upon the
effectiveness of such registration statement.

76
<PAGE>

PLAN OF DISTRIBUTION

The common stock may be sold by the selling stockholders, from time to time
while the Registration Statement to which this Prospectus relates is effective,
on the Nasdaq National Market or otherwise at prices and terms prevailing at
the time of sale, at prices and terms related to such prevailing prices and
terms, in negotiated transactions or at fixed prices. Although the selling
stockholders have advised us of the manner in which they currently intend to
sell the shares of common stock, the selling stockholders may choose to sell
all or a portion of such shares from time to time in any manner described
herein. The methods by which the shares may be sold by the selling stockholders
include, without limitation:

. ordinary brokerage transactions, which may include long or short sales,

. transactions which involve crosses or block trades or any other
transactions permitted by the Nasdaq National Market,

. purchases by a broker or dealer as principal and resale by such broker
or dealer for its account pursuant to this Prospectus,

. ""at the market" to or through market makers or into an existing market
for the common stock,

. in other ways not involving market makers or established trading
markets, including direct sales to purchasers or sales effected through
agents,

. through transactions in options or swaps or other derivatives (whether
exchange-listed or otherwise), or

. any combination of any such methods of sale. In effecting sales, brokers
and dealers

engaged by any of the selling stockholders may arrange for other brokers or
dealers to participate. Brokers or dealers may receive commissions or discounts
from the selling stockholders to sell a specified number of shares at a
stipulated price per share, and, to the extent such a broker or dealer is
unable to do so acting as agent for the selling stockholders, may purchase as
principal any unsold shares at the price required to fulfill such broker or
dealer commitment to the selling stockholders. Brokers or dealers who acquire
shares as principals may thereafter resell such shares from time to time in
transactions (which may involve crosses and block transactions and which may
involve sales to and through other brokers or dealers, including transactions
of the nature described above) in the over-the-counter market, in negotiated
transactions or otherwise, at market prices and terms prevailing at the time of
sale, at prices and terms related to such prevailing prices and terms, in
negotiated transactions or at fixed prices and in connection with the methods
as described above. The shares may be sold directly by the selling stockholders
or by pledgees, donees, transferees or other successors in interest.

We will maintain the effectiveness of the registration of the common stock
offered hereby until May 26, 2000, two years from the effective date of our
initial public offering or the date on which the shares offered hereby, in the
opinion of counsel, may be sold by the selling stockholders pursuant to Rule
144 of the Securities Act (without regard to volume limitations). Any shares
which qualify for sale pursuant to Rule 144 under the Securities Act may be
sold under that Rule rather than pursuant to this Prospectus. There can be no
assurance that the selling stockholders will sell any or all of the shares
offered hereby.

77
<PAGE>

We are bearing all of the costs relating to the registration of the shares
including fees of counsel. Any commissions, discounts or other fees payable to
a broker, dealer, underwriter, agent or market maker in connection with the
sale of any of the shares will be borne by the selling stockholders.

In the Acquisition Agreement dated February 5, 1998, we have agreed to
indemnify Tech Ventures, a selling stockholder, any person who controls Tech
Ventures, and any underwriters for Tech Ventures, against certain liabilities
and expenses arising out of or based upon the information set forth in this
Prospectus, and the Registration Statement of which this Prospectus is a part,
including liabilities under the Securities Act, and if such indemnification is
held by a court to be unavailable, to contribute to the amount of such
liabilities and expenses.

The selling stockholders and any brokers participating in such sales may be
deemed to be underwriters within the meaning of Section 2(11) of the Securities
Act. Any commissions paid or any discounts or concessions allowed to any
broker, dealer, underwriter, agent or market maker and, if any such broker,
dealer, underwriter, agent or market maker purchases any of the shares as
principal, any profits received on the resale of such shares, may be deemed to
be underwriting commissions or discounts under the Securities Act.

Because the selling stockholders may be deemed to be underwriters, the selling
stockholders will be subject to prospectus delivery requirements under the
Securities Act. Furthermore, in the event the selling stockholders are deemed
underwriters and a sale of shares is deemed to be a "distribution" or part of a
distribution of the shares, the selling stockholders, any selling broker or
dealer and any "affiliated purchasers" may be subject to Regulation M under the
Exchange Act, which prohibits, with certain exceptions, any such person from
bidding for or purchasing any security which is the subject of such
distribution until his participation in that distribution is completed. In
addition, Regulation M prohibits, with certain exceptions, any "stabilizing
bid" or "stabilizing purchase" for the purpose of pegging, fixing or
stabilizing the price of common stock in connection with this offering.

EXPERTS

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

The financial statements of ELEKOM Corporation as of December 31, 1997 and 1996
and for the years ended December 31, 1997 and 1996 and for the period from
August 7, 1995 (inception) through December 31, 1997 included in this Proxy
Statement/Prospectus have been so included in reliance on the report (which
includes an explanatory paragraph relating to the ability of ELEKOM Corporation
to continue as a going concern as described in Note 1 to the financial
statements) of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.

LEGAL MATTERS

Certain legal matters will be passed on by Womble Carlyle Sandridge & Rice,
PLLC, Atlanta, Georgia.

78
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
SQL FINANCIALS INTERNATIONAL, INC. (NOW INCORPORATED AS CLARUS
CORPORATION) FINANCIAL STATEMENTS:
</TABLE>

<TABLE>
<S> <C>
Report of Independent Public Accountants................................. F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997............. F-3
Consolidated Statements of Operations for the Years Ended December 31,
1995, 1996 and 1997..................................................... F-5
Consolidated Statements of Stockholders' Deficit for the Years Ended
December 31, 1995, 1996 and 1997........................................ F-6
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997..................................................... F-7
Notes to Consolidated Financial Statements for the Years Ended December
31, 1995, 1996 and 1997................................................. F-8
Unaudited Condensed Consolidated Balance Sheet as of September 30, 1998.. F-26
Unaudited Condensed Consolidated Statements of Operations for the Three
Months and Nine Months Ended September 30, 1997 and 1998................ F-28
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1997 and 1998................................ F-29
Notes to Unaudited Condensed Consolidated Financial Statements as of and
for the periods ended September 30, 1998 ............................... F-30
ELEKOM CORPORATION FINANCIAL STATEMENTS
Report of Independent Accountants........................................ F-32
Balance Sheet as of December 31, 1997 and 1996........................... F-33
Statements of Operations for the Years Ended December 31, 1997 and 1996.. F-34
Statements of Changes in Shareholders' Equity for the Years Ended
December 31, 1997 and 1996.............................................. F-35
Statements of Cash Flows for the Years Ended December 31, 1997 and 1996.. F-36
Notes to Financial Statements............................................ F-37
Unaudited Balance Sheets as of September 30, 1998........................ F-44
Unaudited Statements of Operations for the Nine Months Ended September
30, 1997 and 1998....................................................... F-45
Unaudited Statements of Cash Flows for the Nine Months Ended September
30, 1997 and 1998....................................................... F-46
Notes to Unaudited Interim Financial Statements as of and for the nine
months ended
September 30, 1998...................................................... F-47
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To SQL Financials International, Inc.
and Subsidiaries:

We have audited the accompanying consolidated balance sheets of SQL FINANCIALS
INTERNATIONAL, INC. (a Delaware corporation) AND SUBSIDIARIES as of December
31, 1996 and 1997 and the related consolidated statements of operations,
stockholders' deficit, and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SQL Financials International,
Inc. and subsidiaries as of December 31, 1996 and 1997 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.

Arthur Andersen LLP

Atlanta, Georgia
February 19, 1998 (except with respect to the matter discussed in Note 12 to
which the date is March 31, 1998)

F-2
<PAGE>

SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash....................................................... $ 3,279 $ 7,213
Accounts receivable, less allowance for doubtful accounts
and returns of $634 and $338 in 1996 and 1997,
respectively.............................................. 1,971 4,050
Accounts receivable--related party......................... 19 2
Prepaids and other current assets.......................... 90 492
------- -------
Total current assets..................................... 5,359 11,757
------- -------
PROPERTY AND EQUIPMENT:
Furniture and equipment.................................... 2,176 3,094
Leasehold improvements..................................... 215 280
------- -------
Total property and equipment............................. 2,391 3,374
Less accumulated depreciation.............................. (1,181) (1,867)
------- -------
Property and equipment, net.............................. 1,210 1,507
------- -------
OTHER ASSETS:
Intangible assets, net of accumulated amortization of $561
and $1,127 in 1996 and 1997, respectively................. 1,783 1,267
Deposits and other long-term assets........................ 173 150
------- -------
Total other assets....................................... 1,956 1,417
------- -------
Total assets............................................. $ 8,525 $14,681
======= =======
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.

F-3
<PAGE>

SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS--(CONTINUED)

DECEMBER 31, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued liabilities................. $ 2,003 $ 4,598
Accounts payable--related party.......................... 279 54
Short-term debt.......................................... 958 0
Deferred revenue......................................... 4,686 5,717
Current maturities of long-term debt..................... 855 1,841
-------- --------
Total current liabilities.............................. 8,781 12,210
NONCURRENT LIABILITIES:
Deferred revenue......................................... 3,333 4,480
Long-term debt, net of current maturities,............... 1,093 497
Other noncurrent liabilities............................. 63 49
-------- --------
Total liabilities...................................... 13,270 17,236
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 10)
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY............... 17 243
-------- --------
REDEEMABLE CONVERTIBLE PREFERRED STOCK:
Series A, 262,500 shares issued and outstanding in 1996
and 1997,............................................... 1,050 1,050
Series B, 454,888 shares issued and outstanding in 1996
and 1997,............................................... 3,025 3,025
Series C, 428,572 shares issued and outstanding in 1996
and 1997,............................................... 3,000 3,000
Series D, 701,755 shares issued and outstanding in 1996
and 1997,............................................... 6,000 6,000
Series E, 697,675 shares issued and outstanding in 1996
and 1997,............................................... 6,000 6,000
Series F, 0 and 628,809 shares issued and outstanding in
1996 and 1997,.......................................... 0 6,037
-------- --------
Total redeemable convertible preferred stock........... 19,075 25,112
-------- --------
STOCKHOLDERS' DEFICIT:
Preferred stock, $1 par value; 3,000,000 and 3,500,000
shares authorized in 1996 and 1997, respectively;
2,545,390 and 3,174,199 shares of redeemable convertible
preferred stock issued and outstanding in 1996 and 1997,
respectively............................................ 0 0
Common stock, $.0001 par value; 6,750,000 and 9,000,000
shares authorized in 1996 and 1997, respectively;
2,185,348 and 1,467,160 shares issued in 1996 and 1997,
respectively ........................................... 0 0
Additional paid in capital............................... 472 489
Accumulated deficit...................................... (23,859) (28,019)
Warrants................................................. 612 652
Less treasury stock, at cost............................. (302) (2)
Note from stockholder.................................... (612) (612)
Deferred compensation.................................... (148) (418)
-------- --------
Total stockholders' deficit............................ (23,837) (27,910)
-------- --------
Total liabilities and stockholders' deficit............ $ 8,525 $ 14,681
======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.

F-4
<PAGE>

SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
REVENUES:
License fees...................................... $ 5,232 $ 6,425 $13,506
Services fees..................................... 1,737 3,984 7,786
Maintenance fees.................................. 1,221 2,647 4,696
------- ------- -------
Total revenues.................................. 8,190 13,056 25,988
------- ------- -------
COST OF REVENUES:
License fees...................................... 291 416 1,205
Services fees..................................... 1,421 2,904 5,402
Maintenance fees.................................. 655 1,350 1,973
------- ------- -------
Total cost of revenues.......................... 2,367 4,670 8,580
------- ------- -------
OPERATING EXPENSES:
Research and development.......................... 3,882 5,777 7,190
Sales and marketing............................... 6,636 7,191 9,515
General and administrative........................ 3,292 3,076 4,061
------- ------- -------
Total operating expenses........................ 13,810 16,044 20,766
------- ------- -------
OPERATING LOSS...................................... (7,987) (7,658) (3,358)
INTEREST EXPENSE, net............................... 2 6 274
MINORITY INTEREST................................... (60) (215) (478)
------- ------- -------
NET LOSS............................................ $(8,049) $(7,879) $(4,110)
======= ======= =======
BASIC AND DILUTED NET LOSS PER SHARE................ $ (6.19) $ (5.74) $ (2.97)
======= ======= =======
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING.......... 1,300 1,373 1,386
======= ======= =======
</TABLE>

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

F-5
<PAGE>

SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS)

<TABLE>
<CAPTION>
ADDITIONAL TOTAL
PAID-IN ACCUMULATED TREASURY NOTE FROM DEFERRED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT WARRANTS STOCK AMOUNT STOCKHOLDER COMPENSATION DEFICIT
------ ------ ---------- ----------- -------- -------- ------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December
31, 1994......... 1,710 $ 0 $ 7 $ (7,825) $ 0 (810) $(302) $(612) $ 0 $ (8,732)
Issuance costs,
redeemable
convertible
preferred stock,
Series D........ 0 0 0 (72) 0 0 0 0 0 (72)
Issuance of
common stock.... 465 0 310 0 0 0 0 0 0 310
Exercise of stock
options......... 6 0 4 0 0 0 0 0 0 4
Conversion of
redeemable
convertible
preferred stock
into warrants... 0 0 0 0 612 0 0 0 0 612
Net loss......... 0 0 0 (8,049) 0 0 0 0 0 (8,049)
----- --- ---- -------- ---- ---- ----- ----- ----- --------
BALANCE, December
31, 1995......... 2,181 0 321 (15,946) 612 (810) (302) (612) 0 (15,927)
Issuance costs,
redeemable
convertible
preferred stock,
Series E........ 0 0 0 (34) 0 0 0 0 0 (34)
Issuance of stock
options......... 0 0 148 0 0 0 0 0 (148) 0
Exercise of stock
options......... 4 0 3 0 0 0 0 0 0 3
Net loss......... 0 0 0 (7,879) 0 0 0 0 0 (7,879)
----- --- ---- -------- ---- ---- ----- ----- ----- --------
BALANCE, December
31, 1996......... 2,185 0 472 (23,859) 612 (810) (302) (612) (148) (23,837)
Issuance costs,
redeemable
convertible
preferred stock,
Series F........ 0 0 0 (50) 0 0 0 0 0 (50)
Issuance of
warrants........ 0 0 0 0 40 0 0 0 0 40
Unamortized debt
discount........ 0 0 (22) 0 0 0 0 0 0 (22)
Issuance of stock
options......... 0 0 328 0 0 0 0 0 (328) 0
Amortization of
deferred
compensation.... 0 0 0 0 0 0 0 0 58 58
Retirement of
treasury stock.. (735) 0 (300) 0 0 735 300 0 0 0
Exercise of stock
options......... 17 0 11 0 0 0 0 0 0 11
Net loss......... 0 0 0 (4,110) 0 0 0 0 0 (4,110)
----- --- ---- -------- ---- ---- ----- ----- ----- --------
BALANCE, December
31, 1997......... 1,467 $ 0 $489 $(28,019) $652 (75) $ (2) $(612) $(418) $(27,910)
===== === ==== ======== ==== ==== ===== ===== ===== ========
</TABLE>

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

F-6
<PAGE>

SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.......................................... $(8,049) $(7,879) $(4,110)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization................... 428 1,125 1,406
Minority interest............................... 60 216 478
Amortization of debt discount................... 0 0 18
Deferred compensation........................... 0 0 58
Loss on sale of property and equipment.......... 0 0 46
Changes in operating assets and liabilities:
Accounts receivable........................... (1,510) (352) (2,062)
Prepaids and other current assets............. 107 (31) (402)
Deposits and other long-term assets........... (106) (22) 23
Accounts payable and accrued liabilities...... 1,676 3 2,370
Deferred revenue.............................. 2,644 4,180 2,178
Other noncurrent liabilities.................. 8 (53) (14)
------- ------- -------
Total adjustments........................... 3,307 5,066 4,099
------- ------- -------
Net cash used in operating activities....... (4,742) (2,813) (11)
------- ------- -------
INVESTING ACTIVITIES:
Purchases of property and equipment............... (598) (958) (1,193)
Proceeds from sale of property and equipment...... 0 0 10
Purchases of intangible assets.................... (316) (2,000) (50)
------- ------- -------
Net cash used in investing activities....... (914) (2,958) (1,233)
------- ------- -------
FINANCING ACTIVITIES:
Proceeds from issuance of redeemable convertible
preferred stock.................................. 5,927 5,966 5,987
Proceeds from issuance of common stock............ 314 3 11
Proceeds from notes payable and short-term
borrowings, net.................................. 556 2,472 859
Repayments of notes payable and short-term
borrowings....................................... (275) (490) (1,427)
Proceeds from preferred stock bridge financing.... 2,750 0 2,000
Repayment of preferred stock bridge financing..... (750) (2,000) (2,000)
Repayment of note receivable from holder of
minority interest................................ 0 0 38
Dividends paid to holder of minority interest..... (25) (234) (290)
------- ------- -------
Net cash provided by financing activities... 8,497 5,717 5,178
------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... 2,841 (54) 3,934
CASH AND CASH EQUIVALENTS, beginning of year........ 492 3,333 3,279
------- ------- -------
CASH AND CASH EQUIVALENTS, end of year.............. $ 3,333 $ 3,279 $ 7,213
======= ======= =======
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest............................ $ 126 $ 153 $ 330
======= ======= =======
</TABLE>

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

F-7
<PAGE>

SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1995, 1996, AND 1997

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

SQL Financials International, Inc. (the "Company") was incorporated in the
state of Delaware on November 20, 1991. The Company develops, markets, and
supports client/server financial software applications and markets its products
under the trade name SQL Financials throughout the United States and Canada.
The Company provides installation and implementation services through its
majority-owned subsidiary, SQL Financial Services, LLC (the "Services
Subsidiary") and is the sole owner of SQL Financials Europe, Inc.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

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

Minority Interest

Minority interest represents the 20% ownership interest in the Services
Subsidiary (Note 3).

Use of Estimates

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

History of Operating Losses

The Company has incurred significant net losses in each year since its
formation. As of December 31, 1997, the Company had an accumulated deficit of
approximately $28.0 million. These losses have occurred, in part, because of
the substantial costs incurred by the Company to develop its products, expand
its product research, and hire and train its direct sales force. Although the
Company has achieved recent revenue growth and profitability for the quarters
ended September 30, 1997 and December 31, 1997, there can be no assurance that
the Company will be able to generate the substantial additional growth in
revenues that will be necessary to sustain profitability. The Company plans to
continue to increase its operating expenses in order to fund higher levels of
research and development, increase its sales and marketing efforts, broaden its
customer support capabilities and expand its administrative resources in
anticipation of future growth. To the extent that increases in such expenses
precede or are not offset by increased revenues, the Company's business,
results of

F-8
<PAGE>

SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

operations and financial condition would be materially adversely affected. The
Company's financial prospects must be considered in light of the risks, costs
and difficulties frequently encountered by emerging companies, particularly
companies in the competitive financial software industry.

Reclassification

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

Fair Value of Financial Instruments

The book values of cash, trade accounts receivable, trade accounts payable, and
other financial instruments approximate their fair values principally because
of the short-term maturities of these instruments. The fair value of the
Company's long-term debt is estimated based on current rates offered to the
Company for debt with similar terms and maturities. Under this method, the
Company's fair value of financial instruments was not materially different from
the stated value at December 31, 1996 and 1997.

Credit and Concentrations of Product Risk

The Company's accounts receivable potentially subject the Company to credit
risk, as collateral is generally not required. The credit risk is mitigated by
the large number of customers comprising the customer base.

Substantially all of the Company's product revenues are derived from sales of
its financial applications. Increased market acceptance of the Company's
product family is critical to the Company's ability to increase sales and
thereby sustain profitability. Any factor adversely affecting sales or pricing
levels of these applications will have a material adverse effect on the
Company's business, results of operations, and financial condition.

Revenue Recognition

Revenues from license fees are recognized upon delivery of the product if there
are no significant post-delivery obligations. Revenues from services fees are
recognized as the services are performed. Maintenance fees relate to customer
maintenance and support and are recognized ratably over the term of the
software support services agreement, which is typically 12 months.

Revenues that have been prepaid or invoiced but that do not yet qualify for
recognition under the Company's policies are reflected as deferred revenues.

F-9
<PAGE>

SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Deferred Revenues

Deferred revenues at December 31, 1996 and 1997 were as follows (in thousands):

<TABLE>
<CAPTION>
1996 1997
------ -------
<S> <C> <C>
Deferred revenues:
Deferred license fees...................................... $1,662 $ 1,027
Deferred services fees..................................... 336 127
Deferred maintenance fees.................................. 6,021 9,043
------ -------
Total deferred revenues.................................. 8,019 10,197
Less current portion......................................... 4,686 5,717
------ -------
Noncurrent deferred revenues................................. $3,333 $ 4,480
====== =======
</TABLE>

The Company has in the past, and is expected in the future, to introduce
additional modules and product enhancements. As a result, deferred revenues
resulting from contracts executed in a prior period are recognized in the
quarter in which delivery of the new product occurs. This practice has, and
will in the future continue to cause fluctuations in revenues and operating
results from period to period.

Property and Equipment

Property and equipment consist of furniture, computers, other office equipment,
purchased software, and leasehold improvements. These assets are depreciated on
a straight-line basis over a two-, three-, or five-year life. Improvements are
amortized over the term of the lease. Depreciation expense for the years ended
December 31, 1995, 1996, and 1997 was $370,000, $640,000, and $840,000,
respectively.

Product Returns and Warranties

The Company provides warranties for its products after the software is
purchased for the period in which the customer maintains the Company's support
of the product. The Company generally supports only current releases and the
immediately prior releases of its products. The Company's license agreements
generally do not permit product returns by its customers. The Company provides
for the costs of product returns and warranties at the time of sale. The
Company recorded a provision for the cost of product returns in the allowance
for doubtful accounts in the accompanying balance sheets at December 31, 1997
and 1996. The Company has not experienced significant warranty claims to date,
and has therefore provided no reserve for warranty costs at December 31, 1997
and 1996.

Intangible Assets

Intangible assets include goodwill, and purchased software licensing rights.
Goodwill in the amount of approximately $290,000, resulting from the excess of
the purchase price over the value of the assets acquired and liabilities
assumed in the purchase of the 80% interest in the Services Subsidiary (Note 3)
in 1995, is being amortized on a straight-line basis over a period of 60
months.

F-10
<PAGE>

SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In 1996, the Company entered into a license and private label agreement to
purchase a nonexclusive and perpetual license for human resource, payroll, and
benefits software. The agreement allows the Company to modify and enhance the
software and to license these software products to its customers. The purchase
price of $2,000,000 is included in intangible assets and is being amortized on
a straight-line basis over the estimated useful life of 48 months. Amortization
expense related to the agreement for the years ended December 31, 1995, 1996,
and 1997 was approximately $0, $417,000, and $500,000, respectively. The
amortization expense related to the agreement is included in research and
development expense in the accompanying consolidated statements of operations.

Total amortization expense relating to all intangibles was $58,000, $485,000,
and $566,000 for the years ended December 31, 1995, 1996, and 1997,
respectively.

Capitalized Software Development Costs

Internal research and development expenses are charged to expense as incurred.
Computer software development costs are charged to research and development
expense until technological feasibility is established; after which, remaining
software production costs are capitalized in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 86, "Accounting for Costs of
Computer Software to Be Sold, Leased, or Otherwise Marketed." The Company has
defined technological feasibility as the point in time at which the Company has
a working model of the related product. Historically, the internal development
costs incurred during the period between the achievement of technological
feasibility and the point at which the product is available for general release
to customers have not been material. Accordingly, the Company has concluded
that the amount of internal development costs capitalizable under the
provisions of SFAS No. 86 was not material to the financial statements for the
years ended December 31, 1995, 1996, and 1997. Therefore, the Company has
charged all internal software development costs to expense as incurred for the
years ended December 31, 1995, 1996, and 1997.

The Company has in the past and may in the future purchase or license software
that may be modified and integrated with its products. If at the time of
purchase or license technological feasibility is met, the cost of the software
is capitalized and amortized over a period not to exceed its useful life.

Impairment of Long-Lived and Intangible Assets

The Company periodically reviews the values assigned to long-lived assets,
including property and other assets, to determine whether any impairments are
other than temporary. Management believes that the long-lived assets in the
accompanying balance sheets are appropriately valued.

The Company periodically reviews the value assigned to goodwill and intangible
assets to determine whether events and circumstances have occurred which
indicate that the remaining estimated useful life of goodwill may warrant
revision or that the remaining balance of goodwill may not be recoverable. The
Company uses an estimate of undiscounted cash flows over the remaining life of
the

F-11
<PAGE>

SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

goodwill and other intangible assets in measuring whether the goodwill and
other intangible assets are recoverable.

Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities include the following as of December
31, 1996 and 1997 (in thousands):

<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Accounts payable.............................................. $ 261 $ 973
Accrued taxes, other than income taxes........................ 204 396
Accrued compensation, benefits, and commissions............... 865 1,636
Accrued other................................................. 673 1,593
------ ------
$2,003 $4,598
====== ======
</TABLE>

Historical Net Loss Per Share

Historical basic and diluted net loss per share was computed in accordance with
SFAS No. 128, "Earnings per Share," using the weighted average number of common
shares outstanding. Historical basic and diluted net loss per share does not
include the impact of common stock equivalents, including redeemable
convertible preferred stock, as their effect would be antidilutive.

Net loss for basic and diluted earnings per share are the same for basic and
diluted earnings per share; therefore, no reconciliation of the numerator is
presented.

Stock Based Compensation Plan

The Company accounts for its stock-based compensation plan under Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." Effective in fiscal year 1996, the Company adopted the disclosure
option of SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123
requires that companies which do not choose to account for stock-based
compensation as prescribed by the statement shall disclose the pro forma
effects on earnings and earnings per share as if SFAS No. 123 had been adopted.

New Accounting Pronouncements

The American Institute of Certified Public Accountants has issued a Statement
of Position ("SOP") 97-2, "Software Revenue Recognition." SOP 97-2 supersedes
SOP 91-1 "Software Revenue Recognition," and is effective for the Company for
transactions entered into after December 31, 1997. The Company will adopt SOP
97-2 in the first quarter of 1998. The adoption of the standards in the
statement is not expected to have a significant impact on the Company's
consolidated financial statements.

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 is designed to improve the
reporting of changes in equity

F-12
<PAGE>

SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

from period to period. SFAS No. 130 is effective for the Company's fiscal year
ending December 31, 1998. The Company will adopt SFAS No. 130 for fiscal 1998.
Management does not expect SFAS No. 130 to have a significant impact on the
Company's financial statements.

In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." SFAS No.
131 requires that an enterprise disclose certain information about operating
segments. SFAS No. 131 is effective for financial statements for the Company's
fiscal year ending December 31, 1998. The Company does not expect that SFAS No.
131 will require revision of prior disclosures.

2. RELATED PARTY TRANSACTIONS

During the years ended December 31, 1995, 1996, and 1997, the Company engaged
in a number of transactions with McCall Consulting Group, Inc. ("McCall
Consulting Group") and Technology Ventures LLC ("Technology Ventures"),
entities controlled by Joseph S. McCall, an officer and director of the Company
(the "Officer"). In the opinion of management, the rates, terms and
considerations of the transactions with related parties approximate those with
nonrelated entities.

During the years ended December 31, 1995, 1996 and 1997, McCall Consulting
Group provided the following for the Company: temporary help by administrative
employees and third-party contract labor services, the lease of office
equipment and office space and services in connection with the Company's sales
process.

During the years ended December 31, 1996 and 1997, Technology Ventures provided
recruiting and administrative services to the Company.

Expenses relating to services provided by McCall Consulting Group were as
follows for the years ended December 31, 1995, 1996 and 1997 (in thousands):

<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Contract labor expense:
Implementation expense................................ $ 150 $ 0 $ 0
Research and development.............................. 386 1,250 1,450
Commissions expense..................................... 495 0 0
Administrative services................................. 25 22 38
Office rental expense................................... 0 96 71
Training................................................ 70 37 19
Software and equipment purchases and rental expense..... 0 24 33
------ ------ ------
Total............................................... $1,126 $1,429 $1,611
====== ====== ======
</TABLE>

F-13
<PAGE>

SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Amounts owed related to services provided by McCall Consulting Group were as
follows as of December 31, 1996 and 1997 (in thousands):

<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Accounts payable and accrued liabilities........................... $234 $52
==== ===
Accounts receivable................................................ $ 19 $ 2
==== ===
</TABLE>

Expenses relating to services provided by Technology Ventures were as follows
for the years ended December 31, 1995, 1996 and 1997 (in thousands):

<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Recruiting services........................................... $ 0 $339 $ 0
Administrative services....................................... 19 23 23
--- ---- ---
Total....................................................... $19 $362 $23
=== ==== ===
</TABLE>

Amounts owed related to services provided by Technology Ventures were as
follows as of December 31, 1996 and 1997 (in thousands):

<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Accounts payable and accrued liabilities........................... $45 $ 2
=== ===
</TABLE>

3. SQL FINANCIAL SERVICES, LLC

On March 9, 1995, the Company issued 450,000 shares of common stock to acquire
certain intellectual property rights and tangible assets valued at $300,000
from Technology Ventures, a related party controlled by the Officer. Subsequent
to the acquisition, the Company and Technology Ventures formed a subsidiary,
the Services Subsidiary, which is 80%-owned by the Company. The Company
contributed the acquired intellectual property rights and tangible assets to
the Services Subsidiary. Technology Ventures acquired the remaining 20%
interest in the Services Subsidiary in exchange for a $75,000 note bearing
interest at 7.74%, payable annually, with the principal due in a lump sum
payment in March 2000. As of December 31, 1996 and 1997, the note was reflected
as a reduction of minority interest in consolidated subsidiary. The Services
Subsidiary provides implementation services for the Company's software
applications. The Services Subsidiary had income of approximately $299,000,
$1,080,000 and $2,390,000 for the years ended December 31, 1995, 1996 and 1997,
respectively. The Services Subsidiary distributed dividends of approximately
$125,000, $1,169,000 and $1,448,000 during the years ended December 31, 1995,
1996 and 1997, respectively, to the Company and the related-party minority
interest holder. Subsequent to December 31, 1997, the minority interest in the
Services Subsidiary was purchased by the Company. See Note 11.

F-14
<PAGE>

SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

4. INCOME TAXES

The Company files a consolidated tax return with its majority owned
subsidiaries. The components of the income tax provision (benefit) for the
years ended December 31, 1995, 1996 and 1997 are as follows (in thousands):

<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Current:
Federal......................................... $ 0 $ 0 $ 0
State........................................... 0 0 0
------- ------- -------
0 0 0
------- ------- -------
Deferred:
Federal......................................... (2,542) (2,494) (1,287)
State........................................... (477) (468) (241)
------- ------- -------
(3,019) (2,962) (1,528)
------- ------- -------
Valuation allowance............................... 3,019 2,962 1,528
------- ------- -------
Total......................................... $ 0 $ 0 $ 0
======= ======= =======
</TABLE>

The following is a summary of the items which caused recorded income taxes to
differ from taxes computed using the statutory federal income tax rate for the
years ended December 31, 1995, 1996, and 1997:

<TABLE>
<CAPTION>
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Tax benefit at statutory
rate..................... (34.0)% (34.0)% (34.0)%
Effect of:
State income tax, net... (4.0) (4.0) (4.0)
Other................... 0.5 0.4 1.1
Valuation allowance..... 37.5 37.6 36.9
----- ----- -----
Provision (benefit) for
income taxes............. 0.0 % 0.0 % 0.0 %
===== ===== =====
</TABLE>

F-15
<PAGE>

SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Deferred tax assets and liabilities are determined based on the difference
between the financial accounting and tax bases of assets and liabilities.
Significant components of the Company's deferred tax assets and liabilities as
of December 31, 1996 and 1997 are as follows (in thousands):

<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................ $ 8,306 $ 10,047
Allowance for doubtful accounts......................... 241 128
Deferred revenue........................................ 151 0
Depreciation and amortization........................... 167 326
Accrued liabilities..................................... 38 110
Other................................................... 5 3
------- --------
8,908 10,614
------- --------
Deferred tax liabilities:
Services Subsidiary..................................... (3) (181)
Amortization of purchased software...................... (5) (5)
------- --------
(8) (186)
------- --------
Net deferred tax assets before valuation allowance........ 8,900 10,428
Valuation allowance....................................... (8,900) (10,428)
------- --------
Net deferred tax assets................................... $ 0 $ 0
======= ========
</TABLE>

A valuation allowance is provided when it is determined that some portion or
all of the deferred tax assets may not be realized. Accordingly, since it
currently is more likely than not that the net deferred tax assets resulting
from the net operating loss carryforwards ("NOLs") and other deferred tax items
will not be realized, a valuation allowance has been provided in the
accompanying consolidated financial statements as of December 31, 1996 and
1997. The Company established the valuation allowance for the entire amount of
the deferred tax assets attributable to the NOL carryforwards, as well as for
the net deferred tax assets created as a result of temporary differences
between book and tax. The Company will recognize such income tax benefits when
realized. The NOLs at December 31, 1997 were approximately $26,439,000 and
expire at various dates through 2012.

The Company's ability to benefit from certain NOL carryforwards is limited
under Section 382 of the Internal Revenue Code when ownership of the Company
changed by more than 50%, as defined. The Company is limited to using the NOL
carryforwards of $15,800,000 generated prior to February 16, 1996. The
limitation does not permit the Company to use in excess of $1,600,000 of
certain NOL carryforwards per year. If the Company does not realize taxable
income in excess of the limitation in future years, certain NOLs will be
unrealizable. NOLs generated from February 16, 1996 through December 31, 1996
of $6,500,000 and NOLs generated from January 1, 1997 through December 31, 1997
of $4,139,000 may also be further limited as a result of the proposed initial
public offering.

F-16
<PAGE>

SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

5. DEBT

The Company's short- and long-term debt consists of the following as of
December 31, 1996 and 1997 (in thousands):

<TABLE>
<CAPTION>
1996 1997
------ -----
<S> <C> <C>
Notes payable to a bank, due in installments through December
31, 1997, secured by certain equipment, bearing interest at a
rate of prime plus 1.75% to 2%................................ $ 323 $ 0
Working capital line of credit with a bank expiring April 7,
1997, payable on demand, repaid with proceeds from the new
line-of-credit agreement, secured by all company assets,
bearing interest at a rate of prime plus 1%................... 635 0
Payable for purchased software licensing rights, payable in
installments over a two-year period through March 1998 at the
rate at which the Company licenses human resource, payroll and
benefits software to its customers............................ 1,855 1,632
Equipment notes payable to a leasing company, payable in
monthly installments of $27,000, with final principal
installments of $169,000 due March 2000 and August 2000,
secured by certain company assets, bearing interest at a
weighted average rate of 22.1%................................ 0 655
Note payable to a financing company, payable in monthly
installments of $1,500 through November 2000, secured by
certain company assets, bearing interest at 8%................ 0 51
Note payable to a former shareholder, secured by treasury
shares of common stock, bearing interest at 8%................ 93 0
------ -----
2,906 2,338
Less short-term debt........................................... 958 0
Less current portion of long-term debt......................... 855 1,841
------ -----
$1,093 $ 497
====== =====
</TABLE>

During 1997, the Company entered into a new line-of-credit agreement with a
bank bearing interest at prime (8.5% at December 31, 1997) plus 2.75% or 3%,
depending on certain terms, as defined. The new line-of-credit agreement with
the bank provides for maximum borrowings not to exceed the lesser of $3,000,000
or 80% of eligible license and implementation services revenue accounts
receivable plus 65% of eligible maintenance revenue accounts receivable and is
collateralized by substantially all the Company's assets. The Company had $0
outstanding under the line of credit and availability of approximately
$1,950,000 under the line of credit at December 31, 1997.

Under the provisions of the line-of-credit agreement, the Company must comply
with certain restrictive covenants. These covenants, among other things,
require the Company to maintain specified levels of profitability.

During 1997, the Company entered into debt and lease agreements with a leasing
company. The debt and lease agreements provide total borrowing capability of up
to $1,000,000 for equipment purchases. As of December 31, 1997, the Company had
approximately $655,000 outstanding under these agreements and $345,000
available for future equipment purchases.

F-17
<PAGE>

SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

During 1997, the Company paid all amounts outstanding under the note payable to
a former shareholder. In accordance with the agreement, the Company retired the
treasury shares provided as collateral for the note.

The aggregate maturities of long-term debt at December 31, 1997 are as follows
(in thousands):

<TABLE>
<S> <C>
December 31:
1998................................................................ $1,841
1999................................................................ 256
2000................................................................ 241
------
$2,338
======
</TABLE>

6. ROYALTY AGREEMENTS

The Company is a party to royalty and other equipment manufacturer agreements
for certain of its applications. The Company incurred a total of $227,000,
$355,000 and $1,109,000 in royalty fees for the years ended December 31, 1995,
1996 and 1997, respectively, pursuant to these agreements. The royalties and
fees paid are included in cost of revenues--license fees in the accompanying
statements of operations.

During 1992, the Company entered into a royalty agreement with a former
stockholder. This agreement grants a 3.75% royalty on certain revenues of the
Company, less certain discounts or commissions, collected from any transfer,
sale, or licensing of specific modules of the software. The Company incurred
royalties of $135,000, $177,000 and $295,000 for the years ended December 31,
1995, 1996 and 1997, respectively, pursuant to this royalty agreement.

7. EMPLOYEE BENEFIT PLANS

The Company sponsors the SQL Financials 401(k) Plan (the "Plan"), a defined
contribution plan covering substantially all employees of the Company. Under
the Plan's deferred compensation arrangement, eligible employees who elect to
participate in the Plan may contribute between 2% and 20% of eligible
compensation, as defined, to the Plan. The Company, at its discretion, may
elect to provide for either a matching contribution or discretionary profit
sharing contribution or both. During the years ended December 31, 1995, 1996,
and 1997, the Company did not make matching or discretionary profit sharing
contributions to the Plan.

8. STOCK OPTION PLAN

The Company has a stock option plan for employees, consultants, and other
individual contributors to the Company which enables the Company to grant up to
1,633,938 qualified and nonqualified incentive stock options (the "1992 Plan").
The qualified options are to be granted at an exercise price not less than the
fair market value at the date of grant. The nonqualified options are to be
granted at an exercise price of not less than 85% of the fair market value at
the date of grant. Fair

F-18
<PAGE>

SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

market values are to be determined by the board of directors. The stock option
committee determines the period within which options may be exercised, but no
option may be exercised more than ten years from the date of grant. The stock
option committee also determines the period over which the options vest.
Options are generally exercisable for seven years from the grant date and
generally vest over a period of four years at a rate of 20% for years one and
two and 30% for years three and four. At December 31, 1997, the Company had
options outstanding to acquire 1,368,744 shares of common stock under the
stock option plan and 256,794 shares available for grant.

The stock option plan also provides for stock purchase authorizations and
stock bonus awards. As of December 31, 1997, no such awards have been granted
under the plan.

The Company adopted the 1998 Stock Incentive Plan (the "1998 Plan") in the
first quarter of 1998. Under the 1998 Plan, the board of directors have the
flexibility to determine the type and amount of awards to be granted to
eligible participants, who must be employees of the Company or its
subsidiaries. The 1998 Plan provides for grants of incentive stock options,
nonqualified stock options, restricted stock awards, stock appreciation rights
and restricted units. The Company has authorized and reserved for issuance an
aggregate of 200,000 shares of common stock under the 1998 Plan, to be
automatically increased to 1,000,000 shares of common stock upon completion of
the offering. See Note 11. The aggregate number of shares of common stock that
may be granted through awards under the 1998 Plan to any employee in any
calendar year may not exceed 200,000 shares. No options have been granted
under the 1998 Plan. The 1998 Plan will continue in effect until February 2008
unless sooner terminated.

The Company applies the principles of APB Opinion No. 25, "Accounting for
Stock Issued to Employees," in accounting for its plan. Accordingly, the
Company recognizes deferred compensation when the exercise price of the
options granted is less than the fair market value of the stock at the date of
grant, as determined by the board of directors. The deferred compensation is
presented as a component of equity in the accompanying balance sheets and is
amortized over the periods expected to be benefited, generally the vesting
period of the options.

During 1996 and 1997, the Company granted options with exercise prices below
the fair market value at the date of grant. These fair values are as follows:

<TABLE>
<CAPTION>
FAIR
PERIOD VALUE
------ -----
<S> <C>
August 28, 1996 through December 4, 1996.............................. $1.23
December 5, 1996 through July 23, 1997................................ 1.43
July 24, 1997 through November 9, 1997................................ 2.00
November 10, 1997..................................................... 4.10
December 10, 1997 through December 31, 1997........................... 5.00
</TABLE>

Accordingly, the Company recorded deferred compensation of $148,000 and
$328,000 for options granted during the years ended December 31, 1996 and
1997, respectively. The Company amortizes

F-19
<PAGE>

SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

deferred compensation over four years, the vesting period of the options. The
Company recognized $58,000 of compensation expense related to option grants for
the year ended December 31, 1997.

STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123

For SFAS No. 123 purposes, the fair value of each option grant has been
estimated as of the date of grant using the Black Scholes option pricing model
with the following assumptions:

<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Dividend yield.......................... 0% 0% 0%
Expected volatility..................... 70 70 65
Risk free interest rate at the date of
grant.................................. 5.39%-7.60% 5.27%-6.69% 5.78%-6.82%
Expected life........................... Five years Five years Four years
</TABLE>

Using these assumptions, the fair values of the stock options granted during
the years ended December 31, 1995, 1996, and 1997 are $76,000, $355,000, and
$699,000, respectively, which would be amortized over the vesting period of the
options. Had compensation cost been determined consistent with the provisions
of SFAS No. 123, the Company's pro forma net loss and net loss per share in
accordance with SFAS No. 123 for the years ended December 31, 1995, 1996, and
1997 would have been as follows (in thousands except per share amounts):

<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Net loss:
As reported.................................... $(8,049) $(7,879) $(4,110)
Pro forma in accordance with SFAS No. 123...... (8,059) (7,911) (4,269)
Basic and diluted net loss per share:
As reported.................................... (6.19) (5.74) (2.97)
Pro forma in accordance with SFAS No. 123...... (6.20) (5.76) (3.08)
</TABLE>

Because SFAS No. 123 has not been applied to options granted prior to January
1, 1995, the resulting pro forma compensation cost may not be representative of
that expected in future years.

F-20
<PAGE>

SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

A summary of changes in outstanding options during the years ended December 31,
1995, 1996, and 1997 is as follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES PRICE EXERCISE PRICE
--------- ----------- --------------
<S> <C> <C> <C>
December 31, 1994..................... 220,326 $0.67 $0.67
Granted............................. 220,875 $0.67 $0.67
Canceled............................ (140,661) $0.67 $0.67
Exercised........................... (6,000) $0.67 $0.67
---------
December 31, 1995..................... 294,540 $0.67 $0.67
Granted............................. 559,830 $0.67-$1.00 $0.87
Canceled............................ (63,579) $0.67 $0.67
Exercised........................... (4,350) $0.67 $0.67
---------
December 31, 1996..................... 786,441 $0.67-$1.00 $0.81
Granted............................. 802,845 $1.00-$3.67 $2.96
Canceled............................ (203,730) $0.67-$3.67 $0.95
Exercised........................... (16,812) $0.67-$1.00 $0.68
---------
December 31, 1997..................... 1,368,744 $0.67-$3.67 $2.05
=========
Vested and exercisable at December 31,
1997................................. 264,369 $0.67-$1.00 $0.73
=========
</TABLE>

The following table summarizes the exercise price range, weighted average
exercise price and remaining contractual lives by year of grant for the number
of options outstanding as of December 31, 1997:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE WEIGHTED REMAINING
NUMBER PRICE AVERAGE CONTRACTUAL
YEAR OF GRANT OF SHARES RANGE PRICE LIFE (YEARS)
------------- --------- ---------- -------- ------------
<S> <C> <C> <C> <C>
1995 and prior:
Options granted at fair value.. 222,765 $ 0.67 $0.67 4.01
1996:
Options granted at fair value.. 134,895 0.67 0.67 5.42
Options granted at less than
fair value.................... 249,489 1.00 1.00 5.93
1997:
Options granted at less than
fair value.................... 761,595 1.00-3.67 3.06 6.73
---------
Total........................ 1,368,744 0.67-3.67 2.05 6.01
=========
</TABLE>

The weighted average grant date fair value of options granted during the years
ended December 31, 1996 and 1997 was $1.14 and $3.04, respectively.

Subsequent to December 31, 1997, the Company granted options to acquire 182,250
shares of common stock under the 1992 Plan to certain employees at an average
exercise price equal to $4.45.

F-21
<PAGE>

SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

9. STOCKHOLDERS' EQUITY

STOCKHOLDERS' AGREEMENT

All owners of the Company's common stock are parties to the Company's
stockholders' agreement. This agreement provides, among other things, for a
right of first refusal to the Company and then to all other stockholders of the
Company to purchase any selling stockholders' shares at a price equal to that
agreed to by a third party. The stockholders' agreement terminates upon an
initial public offering, with the exception of the registration rights of the
shares covered by the agreement.

All the holders of common stock are party to a stockholders' voting agreement
dated September 1, 1995 whereby the Officer is named voting trustee and votes
all common shares. As of December 31, 1997, the Officer controlled the right to
vote 22.6% of the Company's outstanding voting stock, after dilution from the
preferred stockholders. The stockholders' agreement naming the Officer as
voting trustee terminates upon the consummation of an initial public offering
(Note 11).

PREFERRED STOCK

The Company is authorized to issue 3,500,000 shares of preferred stock. Of this
authorized amount, the Company has issued and outstanding 262,500 of Series A
Preferred Stock ("Series A"), 454,888 of Series B Preferred Stock ("Series B"),
428,572 of Series C Preferred Stock ("Series C"), 701,755 of Series D Preferred
Stock ("Series D"), 697,675 of Series E Preferred Stock ("Series E"), and
628,809 of Series F Preferred Stock ("Series F") at December 31, 1997.

Preferred stockholders are entitled to participate in any dividends paid to
common stockholders and have the voting rights and powers of the common
stockholders, as defined. Preferred stockholders receive preferential
distributions in the event of liquidation of the Company for $4 per share of
Series A, $6.65 per share of Series B, $7 per share of Series C, $8.55 per
share of Series D, $8.60 per share of Series E, and $9.60 per share of Series
F, plus any unpaid declared dividends.

Each share of preferred stock is convertible at the option of the holder at any
time into the number of common shares which results from the effective
conversion rate, as defined. The conversion values at December 31, 1997 are $4
for Series A, $6.65 for Series B, $7 for Series C, $8.55 for Series D, $8.60
for Series E, and $9.60 for Series F. The conversion prices at December 31,
1997 are $2.67 for Series A, $4.43 for Series B, $4.67 for Series C, $5.70 for
Series D, $5.73 for Series E, $6.40 for Series F. Further, in accordance with
the Company's certificate of incorporation, the preferred stock will
automatically convert at the defined conversion rate if the Company consummates
an initial public offering with a price per share and gross proceeds in excess
of defined thresholds. The Company is in the process of obtaining waivers in
regards to these thresholds and redemption rights. See Note 12.

Certain quantities of all series of preferred shares may be put to the Company
by the preferred stockholders within 30 days following the preferred redemption
dates for an amount per share equal

F-22
<PAGE>

SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

to the conversion value of the preferred stock plus any declared but unpaid
dividends. The preferred redemption dates and the applicable quantities of
shares eligible for redemption, as defined in the certificate of incorporation,
are as follows (dollars in thousands):

<TABLE>
<CAPTION>
PERCENTAGE OF
OUTSTANDING VALUE OF
REDEEMABLE STOCK
CONVERTIBLE ELIGIBLE FOR
PREFERRED STOCK REDEMPTION
--------------- ------------
<S> <C> <C>
Preferred redemption dates:
September 30, 1998........................... 33.3% $ 8,371
September 30, 1999........................... 50.0 12,556
September 30, 2000........................... 100.0 25,112
Date of termination of employment of the
Officer, as defined........................... 100.0 25,112
</TABLE>

SERIES A

On November 24, 1992, pursuant to a stock purchase agreement, the Company sold
250,000 shares of Series A to Greylock Limited Partnership ("Greylock") for an
aggregate sum of $1,000,000. Stock issuance costs of $62,000 were incurred in
connection with the sale of the preferred shares, resulting in net proceeds of
$938,000. Additionally, on June 30, 1993, pursuant to a stock purchase
agreement, the Company sold 12,500 shares of Series A for an aggregate sum of
$50,000.

SERIES B

On September 21, 1993, pursuant to a stock purchase agreement, the Company sold
a total of 454,888 shares of Series B at a price of $6.65 per share to Greylock
and additional third party investors. The aggregate proceeds from the sale of
this stock totaled $3,025,000. Stock issuance costs of $30,000 were incurred in
connection with the sale of the preferred shares, resulting in net proceeds of
$2,995,000.

SERIES C

On April 1, 1994, pursuant to a stock purchase agreement, the Company sold a
total of 428,572 shares of Series C at a price of $7 per share to certain
existing stockholders and additional third-party investors, resulting in
aggregate proceeds of $3,000,000. Stock issuance costs of $16,000 were
incurred, resulting in net proceeds of $2,984,000.

On August 1, 1994, the Company sold 87,500 shares of Series C Preferred Stock
to Tech Ventures for a purchase price of $7.00 per share, the same price per
share as sold to the Series C investors in April 1994. Tech Ventures paid the
purchase price through the delivery of a secured promissory note. The note was
guaranteed by an officer of the Company who controlled Tech Ventures and is
secured by the assets of an entity controlled by such officer. As of December
31, 1996 and 1997, the note was reflected as a reduction of stockholders'
equity in the accompanying balance sheets. The Company was almost entirely
dependent at the time on the implementation services of McCall Consulting
Group, a wholly owned subsidiary of Tech Ventures who was performing
substantially all

F-23
<PAGE>

SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

of the implementation services for the Company's software. In July of 1995 at
the request of and as a financial accommodation to Tech Ventures, the Company
converted the 87,500 shares of Series C Preferred Stock into a warrant to
purchase such shares on the same terms and conditions as set forth in the
promissory note. Based on its dependency on McCall Consulting Group, the
Company believed it in its best interest to maintain Tech Ventures' long-term
interest in the success of the Company through a continuing equity interest.
The note was amended effective July 31, 1995 so that the principal amount is
due and payable only upon the exercise of the warrant. The warrant has been
reflected in the statement of stockholders' deficit, with the corresponding
note as a reduction of stockholders' deficit. The warrant expires on the
earlier of August 1, 1999 or an initial public offering.

SERIES D

On January 24, 1995, the Company received an advance on a pending equity
financing arrangement. The Company issued promissory notes to certain existing
preferred stockholders totaling $750,000 at an interest rate of 6%. In
addition, the Company issued warrants to the above parties to purchase 17,544
shares of Series D at a price of $8.55 per share.

On February 21, 1995, the Company issued 701,755 shares of Series D for $8.55
per share to certain existing preferred stockholders and additional third party
investors. Of the proceeds, $750,000 was used to repay the advance on financing
discussed above. Gross proceeds before stock issuance costs were $6,000,000.
Stock issuance costs of $73,000 were incurred, resulting in net proceeds of
$5,927,000.

On January 5, 1996, the Company entered into an agreement with its bank to
extend its old working capital line of credit. As part of the agreement, the
Company granted the bank a warrant to purchase 8,201 shares of Series D
convertible preferred stock at $8.55 per share. The warrant expires on January
4, 1999.

SERIES E

On February 15, 1996, the Company issued 697,675 shares of Series E for $8.60
per share to certain existing preferred stockholders and additional third party
investors. Of the proceeds, $2,000,000 was used to repay an advance on the
financing received in 1995. Proceeds from the sale of this stock, before stock
issuance costs, were $6,000,000. Stock issuance costs of $34,000 were incurred,
resulting in net proceeds of $5,966,000.

On March 28, 1997, the Company entered into an agreement with its bank to amend
its working capital line of credit. As part of the agreement, the Company
granted the bank a warrant to purchase 8,721 shares of Series E convertible
preferred stock at $8.60 per share. The warrant expires on March 28, 2000.

F-24
<PAGE>

SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

SERIES F

On June 5, 1997 and August 5, 1997, the Company received advances on a pending
equity financing arrangement. The Company issued convertible promissory notes
to certain existing preferred stockholders totaling approximately $2,000,000
and bearing interest at a rate of 8.5%. The notes were convertible upon the
consummation of a private equity offering providing gross proceeds in excess of
defined thresholds. In connection with the issuance of the notes, the Company
issued warrants to the above parties to purchase 46,821 shares of Series F at a
price of $9.60 per share. The value of the warrants of $40,000 was recorded as
a debt discount and was amortized over the period in which the convertible
notes were outstanding. For the year ended December 31, 1997, the Company
amortized $18,000 of the discount to interest expense.

On September 27, 1997, the Company issued 416,668 shares of Series F to third
party investors for $9.60 per share. Upon issuance of Series F to the third
party investors, the aforementioned convertible notes and accrued interest were
converted to 212,141 shares of Series F at $9.60 per share. Gross proceeds
before stock issuance costs were $6,037,000. Stock issuance costs of $50,000
were incurred, resulting in net proceeds of $5,987,000.

10. COMMITMENTS AND CONTINGENCIES

LEASES

On March 20, 1997, the Company entered into an 85 month lease for office space
beginning on June 15, 1997. The lease requires annual payments of $386,000
beginning July 1, 1997 for the first 12 month period with an increase of 3% in
each 12 month period after the first year. The Company is also receiving the
first month's rent free. The 3% escalation and the first month's free rent are
recognized on a straight line basis over the life of the lease.

Lease expenses relate to the lease of office space, telephone, and computer
equipment. Rents charged to expense were approximately $576,000, $749,000, and
$772,000 for the years ended December 31, 1995, 1996, and 1997, respectively.
Aggregate future minimum lease payments under noncancelable operating leases as
of December 31, 1997 are as follows (in thousands):

<TABLE>
<S> <C>
December 31:
1998................................................................ $ 616
1999................................................................ 501
2000................................................................ 513
2001................................................................ 526
2002................................................................ 491
Thereafter............................................................ 841
------
$3,488
======
</TABLE>

F-25
<PAGE>

SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

LETTERS OF CREDIT

At December 31, 1997, standby letters of credit of approximately $290,000 and
$210,000 had been issued in accordance with provisions under certain of the
Company's lease and financing agreements. The letters of credit of $290,000 and
$210,000 expire in July 1998 and August 1998, respectively.

PRODUCT LIABILITY

As a result of their complexity, software products may contain undetected
errors or failures when first introduced or as new versions are released. There
can be no assurance that, despite testing by the Company and testing and use by
current and potential customers, errors will not be found in new financial
applications after commencement of commercial shipments or, if discovered, that
the Company will be able to successfully correct such errors in a timely manner
or at all. The occurrence of errors and failures in the Company's products
could result in loss of or delay in the market acceptance of the Company's
financial applications, and alleviating such errors and failures could require
significant expenditure of capital and other resources by the Company. The
consequences of such errors and failures could have a material adverse effect
on the Company's business, results of operations and financial condition.

LITIGATION

The Company is subject to litigation related to matters arising in the normal
course of business, including product liability. As of December 31, 1997,
management is not aware of any unasserted, asserted, or pending material
litigation or claims against the Company.

11. SUBSEQUENT EVENTS

INITIAL PUBLIC OFFERING

The Company is planning an initial public offering (the "Offering") of its
common stock which is targeted for completion in the second quarter of 1998.
There can be no assurance that the Offering will be completed.

TRANSACTIONS WITH OFFICER

In February 1998, the Company entered into an agreement with the Officer
whereby the Officer resigned as the Company's chief executive officer and as
chairman, chief executive officer and manager of the Services Subsidiary. The
Officer agreed to remain an employee of the Company at his current salary,
including incentive compensation, until the completion of the Offering, at
which time he will become a consultant to the Company for a period of one year
pursuant to the terms of an independent contractor agreement. For his
consulting services, the Company will pay the Officer the sum of $125,000 over
the one year period, with the ability to earn an additional $100,000 in
incentive compensation if certain revenue targets are met by the Company. The
Officer has agreed to continue to serve on the Company's board of directors for
at least six months following the

F-26
<PAGE>

SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

termination of his employment. In recognition of past services to the Company,
the termination of the voting trust discussed in Note 9, and resignations of
certain positions noted above, the Company agreed to pay the Officer a lump sum
of $225,000 on or before June 30, 1998 and will pay the Officer as severance an
additional $75,000, payable in semi monthly installments over a one year period
beginning on the effective date of the termination of his employment with the
Company.

CONVERSION OF REDEEMABLE CONVERTIBLE PREFERRED STOCK

In accordance with the Company's certificate of incorporation, all redeemable
convertible preferred shares will convert to common shares on the closing date
of the initial public offering if the initial public offering meets certain
defined thresholds. See Note 12.

STOCK SPLIT

On February 19, 1998, the Company's board of directors approved a three-for-two
stock split on the Company's common stock to be affected in the form of a stock
dividend. All share and per share data in the accompanying financial statements
have been adjusted to reflect the split. The effect of the split is presented
retroactively within stockholders' deficit at December 31, 1994 by transferring
the par value for the additional shares issued from the additional paid-in
capital account to the common and preferred stock accounts.

ACQUISITION OF MINORITY INTEREST IN THE SERVICES SUBSIDIARY

On February 5, 1998, the Company purchased Technology Ventures' 20% ownership
in the Services Subsidiary for a purchase price of $4,196,000. In exchange for
the 20% interest in the Services Subsidiary, the Company issued 225,000 shares
of common stock to Technology Ventures and granted Technology Ventures a
warrant to purchase an additional 300,000 shares of common stock at a purchase
price of $3.67 per share. The warrant expires on February 5, 2000. In addition,
the Company agreed to pay Technology Ventures the sum of $1,100,000 February 5,
2000 pursuant to a nonnegotiable, noninterest-bearing subordinated promissory
note (the "Note"). Technology Ventures has agreed not to sell any of its shares
for a period of 180 days after the effective date of the Offering. In addition,
prior to the purchase and sale, the Services Subsidiary distributed
approximately $241,000 to Technology Ventures as the accumulated unpaid profits
earned by the Services Subsidiary prior to February 5, 1998. The Company also
agreed to pay Technology Ventures a monthly sum equal to 20% of the net profits
of the Services Subsidiary until the earlier of (i) the completion of the
Offering or (ii) a sale of the Company. Any payments made to Technology
Ventures for this 20% of net profits of the Services Subsidiary will be
recorded by the Company as additional purchase price at the time of payment.
All of the material terms of the purchase and sale were agreed to by Technology
Ventures and the Company in January 1998, and the purchase and sale have been
accounted for in the first quarter of 1998 based on the value of the common
stock issued in such transaction at $8.00 per share at such time. In February
1998, the Services Subsidiary also paid Technology Ventures approximately
$33,000 as consideration for the termination of a

F-27
<PAGE>

SQL FINANCIALS INTERNATIONAL, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

management services agreement entered into between the parties in March 1995,
and Technology Ventures paid in full to the Services Subsidiary the remaining
principal balance and all accrued interest due under its $75,000 promissory
note (the "Tech Ventures Note").

The purchase price of $4,196,000 was determined by including the following: (i)
225,000 shares of common stock at $8.00 per share or $1,800,000, (ii) a note
payable of $1,100,000 discounted for no interest at 9.0% for two years
resulting in a net note payable of $934,000, (iii) cash paid of $62,000, and
(iv) a warrant valued at $1,400,000, determined using the Black Scholes Model
using expected volatility of 65%, an expected term of two years, and a risk
free rate of 5.5% to determine a value per share of $4.67 or a total value of
$1,400,000. The Company has accounted for the transaction using the purchase
method of accounting. The purchase price has been allocated to assets acquired
and liabilities assumed based on the fair market value at the date of
acquisition. Goodwill resulting from the transaction in the amount of
$4,159,000 will be amortized over 15 years. The Company will impute interest on
the note payable and recognize the interest over the term of the note, two
years.

12. PREFERRED STOCK CONVERSION WAIVERS

Subsequent to December 31, 1997, the Company obtained waivers from the
preferred stockholders eliminating the requirement that the initial public
offering price and the gross proceeds from an initial public offering be at a
defined threshold in order for the conversion of the preferred stock to be
effected immediately upon an initial public offering. See Note 9.

F-28
<PAGE>

CLARUS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $23,984 $ 7,213
Trade accounts receivable, less allowance for
doubtful accounts
of $484 and $338 in 1998 and 1997, respectively.. 10,918 4,050
Prepaid and other current assets.................. 407 494
------- -------
Total current assets............................ 35,309 11,757
PROPERTY AND EQUIPMENT--net......................... 2,227 1,507
OTHER ASSETS:
Intangible assets, net of accumulated amortization
of $1,758
and $1,127 in 1998 and 1997, respectively........ 5,843 1,267
Deposits and other long-term assets............... 215 150
------- -------
Total other assets.............................. 6,058 1,417
------- -------
TOTAL ASSETS........................................ $43,594 $14,681
======= =======
</TABLE>

See accompanying notes to unaudited condensed consolidated financial
statements.

F-29
<PAGE>

CLARUS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNT)

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Note payable, net of discount of $110 in 1998...... $ 990 $ -0-
Accounts payable and accrued liabilities........... 6,778 4,598
Accounts payable-related party..................... -0- 54
Deferred revenue................................... 6,415 5,717
Current maturities of long-term debt............... 244 1,841
------- -------
Total current liabilities....................... 14,427 12,210
NONCURRENT LIABILITIES:
Deferred revenue................................... 3,600 4,480
Long-term debt, net of current maturities.......... 310 497
Other non-current liabilities...................... 70 49
------- -------
Total liabilities............................... 18,407 17,236
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY........ -0- 243
------- -------
REDEEMABLE CONVERTIBLE PREFERRED STOCK:............. -0- 25,112
STOCKHOLDERS' EQUITY (DEFICIT) (Note 3):
Common Stock, $.0001 par value; 25,000,000 and
9,000,000 shares authorized in 1998 and 1997,
respectively; 9,197,312 and 1,467,160 shares
outstanding in 1998 and 1997, respectively........ 1 -0-
Additional paid in capital......................... 51,306 489
Accumulated deficit................................ (26,918) (28,019)
Warrants........................................... 1,440 652
Treasury stock, at cost............................ (2) (2)
Note from stockholder.............................. -0- (612)
Deferred compensation.............................. (640) (418)
------- -------
Total stockholders' equity (deficit)................ 25,187 (27,910)
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT).......................................... $43,594 $14,681
======= =======
</TABLE>

See accompanying notes to unaudited condensed consolidated financial
statements.

F-30
<PAGE>

CLARUS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------------------
1998 1997 1998 1997
--------- ----------------- --------
<S> <C> <C> <C> <C>
REVENUES:
License fees............................ $ 5,623 $ 4,299 $ 14,066 $ 9,026
Services fees........................... 4,387 222,064 11,277 5,340
Maintenance fees........................ 1,937 1,250 5,351 3,168
--------- -------- -------- --------
Total revenues........................ 11,947 7,613 30,694 17,534
COST OF REVENUES:
License fees............................ 960 478 1,525 856
Services fees........................... 2,717 1,366 7,223 3,688
Maintenance fees........................ 925 510 2,442 1,360
--------- -------- -------- --------
Total cost of revenues................ 4,602 2,354 11,190 5,904
OPERATING EXPENSES:
Research and development................ 1,630 1,481 4,157 5,305
Sales and marketing..................... 3,029 2,354 8,419 6,958
General and administrative.............. 1,175 754 3,723 2,103
Depreciation and amortization........... 526 352 1,456 1,049
Non-cash compensation................... 38 13 842 36
--------- -------- -------- --------
Total operating expenses.............. 6,398 4,954 18,597 15,451
OPERATING INCOME (LOSS)................... 947 305 907 (3,821)
INTEREST INCOME........................... 243 1 402 28
INTEREST EXPENSE.......................... 51 133 172 251
MINORITY INTEREST......................... -0- 133 36 322
--------- -------- -------- --------
NET INCOME (LOSS)......................... $ 1,139 $ 40 $ 1,101 $ (4,366)
========= ======== ======== ========
Income (loss) per common share:
Basic................................... $ 0.12 $ 0.03 $ 0.22 $ (3.15)
Diluted................................. 0.11 $ 0.01 $ 0.13 $ (3.15)
Weighted average shares outstanding
Basic................................... 9,123 1,390 5,080 1,384
Diluted................................. 10,039 6,595 8,767 1,384
</TABLE>

See accompanying notes to unaudited condensed consolidated financial
statements.

F-31
<PAGE>

CLARUS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30
-----------------
1998 1997
------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss).......................................... $ 1,101 $ (4,366)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 1,456 1,049
Minority interest in subsidiary........................... 36 322
Amortization of debt discount............................. 55 18
Deferred compensation..................................... 842 46
Changes in operating assets and liabilities:
Accounts receivable...................................... (6,867) (3,073)
Prepaid and other current assets......................... 87 (110)
Deposits and other long-term assets...................... (63) 28
Accounts payable and accrued liabilities................. 2,051 1,721
Deferred revenue......................................... (181) 1,091
Other noncurrent liabilities............................. 21 (22)
------- --------
NET CASH USED IN OPERATING ACTIVITIES.................. (1,462) (3,296)
INVESTING ACTIVITIES
Increase of intangible assets............................. (709) (90)
Purchase of minority interest in subsidiary............... (326) -0-
Additions to property and equipment....................... (1,551) (557)
------- --------
NET CASH USED IN INVESTING ACTIVITIES.................. (2,586) (647)
FINANCING ACTIVITIES:
Dividends paid to holder of minority interest............. (241) (190)
Repayment of note receivable from holder of minority
interest................................................. -0- 38
Proceeds from notes payable and short term borrowings..... 1,645 29,802
Repayments of notes payable and short term borrowings..... (3,428) (30,225)
Proceeds from the exercise of warrants.................... 612 10
Proceeds from issuance of common stock, net............... 22,081 -0-
Proceeds from issuance of preferred stock................. 150 5,987
------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES.............. 20,819 5,422
------- --------
INCREASE IN CASH AND CASH EQUIVALENTS...................... 16,771 1,479
CASH AND CASH EQUIVALENTS, beginning of period............. 7,213 3,278
------- --------
CASH AND CASH EQUIVALENTS, end of period................... $23,984 $ 4,757
======= ========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Cash paid for interest.................................... $ 123 $ 259
======= ========
</TABLE>

See accompanying notes to unaudited condensed consolidated financial
statements.

F-32
<PAGE>

CLARUS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of
Clarus Corporation (the "Company" and formally SQL Financials International
Inc.) have been prepared in accordance with Generally Accepted Accounting
Principles for interim financial information and instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information in notes required by Generally Accepted Accounting Principles for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
the unaudited financial statements for this interim period have been included.
The results of the interim periods are not necessarily indicative of the
results to be obtained for the year ended December 31, 1998. These interim
financial statements should be read in conjunction with the Company's audited
consolidated financial statements and footnotes thereto included in i) the
Company's Prospectus dated May 26, 1998, filed under Form S-1 (Registration No.
333-46685) with the Securities and Exchange Commission, and ii) the Company's
Prospectus dated October 28, 1998, filed under Form S-4 (Registration No. 333-
63535) with the Securities and Exchange Commission.

NOTE 2. EARNINGS PER SHARE

Basic and diluted net income (loss) per share was computed in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings per Share,"
using the weighted average number of common shares outstanding. The diluted net
loss per share for the nine months ended September 30, 1997, does not include
the effect of common stock equivalents, including redeemable convertible
preferred stock, as their effect would be antidilutive. Diluted net income per
share for the quarters ended September 30, 1998 and 1997, and the nine months
ended September 30, 1998, includes the effect of common stock equivalents.

NOTE 3. STOCKHOLDERS' EQUITY

On May 26, 1998, the Company completed its initial public offering of 2.5
million shares of its common stock at an offering price of $10.00 per share
(the "Offering"). The proceeds, net of expenses, from this public offering of
approximately $22.0 million were placed in investment grade cash equivalents.
Immediately prior to the effective date of the Company's Registration Statement
the redeemable convertible preferred stock was converted to common stock.

NOTE 4. ACQUISITION OF MINORITY INTEREST IN THE SERVICES SUBSIDIARY

On February 5, 1998, the Company purchased the 20% interest in SQL Financial
Services, LLC (the "Services Subsidiary") from Technology Ventures, LLC
("Technology Ventures") a related party controlled by Joseph S. McCall, a
director of the Company. In exchange for the 20% interest in the Services
Subsidiary, the Company issued 225,000 shares of common stock to Technology
Ventures and granted Technology Ventures a warrant to purchase an additional
300,000 shares of common stock at a purchase price of $3.67 per share. The
warrant expires on February 5, 2000. In addition, the Company agreed to pay
Technology Ventures the sum of $1.1 million due February 5, 2000,

F-33
<PAGE>

CLARUS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
pursuant to a non-negotiable, non-interest-bearing subordinated promissory
note. Technology Ventures has agreed not to sell any of its shares for a period
of 180 days after the effective date of the Offering. The Company also agreed
to pay Technology Ventures a monthly sum equal to 20% of the net profits of the
Services Subsidiary until the completion of the Company's Initial Public
Offering. The Company as additional purchase price recorded payments made to
Technology Ventures for this 20% of net profits of the Services Subsidiary at
the time of payment.

NOTE 5. MERGER OF ELEKOM CORPORATION

On November 6, 1998, the Company completed its acquisition of Elekom
Corporation ("Elekom") for approximately $15.6 million, consisting of $8.0
million in cash and approximately 1.38 million shares of the Company's common
stock. Elekom was merged with and into Clarus CSA, Inc., a wholly owned
subsidiary of the Company and the separate existence of Elekom ceased.
Immediately following consummation of the merger, the former holders of Elekom
common and preferred stock (the "Elekom Shareholder") owned approximately 13%
of the outstanding common stock of the Company. The former Elekom Shareholders
have agreed not to sell any of their shares of the Company's common stock for a
period ending on August 6, 1999. The Company, as additional purchase price,
recorded i) payments of $500,000 made to fund the operations of Elekom from
October 1, 1998, through the closing date, and ii) expenses of approximately
$950,000 to complete the merger. Approximately $14.0 million of the purchase
price was recorded as purchased in-process research and development. These
interim financial statements should be read in conjunction with the Company's
Prospectus dated October 28, 1998, filed under Form S-4 (Registration No. 333-
63535) with the Securities and Exchange Commission.

NOTE 6. LEGAL PROCEEDINGS

The Company is subject to claims and litigation in the ordinary course of
business, including, but not limited to, a lawsuit recently filed against the
Company alleging patent infringement, but does not believe based on its current
assessment of such claims and litigation that any such claim or litigation will
have a material adverse effect on its consolidated financial position.

F-34
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
and Shareholders of
ELEKOM Corporation

In our opinion, the accompanying balance sheet and the related statements of
operations, of shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of ELEKOM Corporation (a development
stage enterprise) at December 31, 1997 and 1996 and the results of its
operations and its cash flows for the years then ended and for the period
August 7, 1995 (inception) to December 31, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 1 to the
financial statements, the Company has suffered losses from operations and has
used significant cash in its operations that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

As described in Note 1, ELEKOM Corporation (a development stage enterprise) was
a wholly owned subsidiary of Egghead, Inc. prior to November 10, 1997.

PricewaterhouseCoopers LLP
Seattle, Washington

August 17, 1998, except for
Note 7 which
is as of November 6, 1998

F-35
<PAGE>

ELEKOM CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)

BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................ $ 2,777,408 $ 1,683,272
Accounts receivable.................................. 50,000 8,090
Prepaid expenses..................................... 23,030 87,862
----------- -----------
Total current assets............................... 2,850,438 1,779,224
Property and equipment, net.......................... 364,015 338,370
----------- -----------
$ 3,214,453 $ 2,117,594
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable..................................... $ 35,304 $ 98,236
Accrued payroll and related benefits................. 236,796 32,314
Current portion, capital lease obligations........... 110,041 75,009
Deferred revenue..................................... 50,000 --
Due to Egghead, Inc.................................. -- 4,978,012
Other accrued liabilities............................ 89,902 38,786
----------- -----------
Total current liabilities.......................... 522,043 5,222,357
----------- -----------
Capital lease obligation, net of current portion
(Note 4)............................................ 117,574 157,286
----------- -----------
Commitments and contingencies (Note 4)
Shareholders' equity (deficit)
Convertible preferred stock:
Series B, $.01 par value; 4,389,945 shares
authorized; 4,255,944 shares issued and
outstanding in 1997 and none issued and
outstanding in 1996............................... 42,559 --
Series A, $.01 par value; 917,229 shares
authorized, issued and outstanding in 1997 and
none issued and outstanding in 1996............... 9,172 --
Common stock, $.01 par value; 9,692,826 shares
authorized; 50 shares issued and outstanding in
1997 and 1996..................................... -- --
Additional paid-in capital......................... 10,979,754 --
Deficit accumulated during the development stage... (8,456,649) (3,262,049)
----------- -----------
Total shareholders' equity (deficit)............. 2,574,836 (3,262,049)
----------- -----------
$ 3,214,453 $ 2,117,594
=========== ===========
</TABLE>

See accompanying notes to financial statements.

F-36
<PAGE>

ELEKOM CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
AUGUST 7, 1995
YEAR ENDED (INCEPTION)
DECEMBER 31, THROUGH
------------------------ DECEMBER 31,
1997 1996 1997
----------- ----------- --------------
<S> <C> <C> <C>
Sales................................. $ 16,930 $ 5,532 $ 22,462
Cost of sales......................... 12,613 155 12,768
----------- ----------- -----------
Gross profit........................ 4,317 5,377 9,694
----------- ----------- -----------
Operating expenses:
Research and development............. 1,171,941 409,062 1,793,769
Sales and marketing.................. 1,425,063 726,671 2,288,582
General and administrative (Note 1).. 2,001,083 1,247,562 3,628,781
----------- ----------- -----------
Total operating expenses............ 4,598,087 2,383,295 7,711,132
----------- ----------- -----------
Operating loss........................ (4,593,770) (2,377,918) (7,701,438)
Interest expense...................... (616,527) (192,655) (809,182)
Other income.......................... 15,697 38,274 53,971
----------- ----------- -----------
Loss before income taxes expense...... (5,194,600) (2,532,299) (8,456,649)
Income tax expense.................... -- -- --
----------- ----------- -----------
Net loss.............................. $(5,194,600) $(2,532,299) $(8,456,649)
=========== =========== ===========
Basic and diluted net loss per common
shares............................... $ (103,892) $ (50,646) $ (169,133)
=========== =========== ===========
Weighted average number of common
shares outstanding................... 50 50 50
=========== =========== ===========
Pro forma basic and diluted net loss
per common shares (Note 1)........... $ (.84)
===========
Pro forma weighted average number of
common shares
outstanding (Note 1)................. 6,183,097
===========
</TABLE>

See accompanying notes to financial statements.

F-37
<PAGE>

ELEKOM CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
---------------- ----------------- ------------- PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
-------- ------- --------- ------- ------ ------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common
stock, August 7, 1995
(inception)............ -- $ -- -- $ -- 50 $-- $ -- $ -- $ --
Net loss................ -- -- -- -- -- -- $ (729,750) $ (729,750)
-------- ------- --------- ------- --- ---- ----------- ----------- ----------
December 31, 1995....... -- -- -- -- 50 -- -- (729,750) (729,750)
Net loss................ -- -- -- -- -- -- (2,532,299) (2,532,299)
-------- ------- --------- ------- --- ---- ----------- ----------- ----------
December 31, 1996....... -- -- -- -- 50 -- -- (3,262,049) (3,262,049)
Issuance of Series A
convertible preferred
stock, net............. 917,229 $ 9,172 -- -- -- -- $ 8,122,313 -- 8,131,485
Issuance of Series B
convertible preferred
stock, net............. -- -- 4,255,944 $42,559 -- -- 2,857,441 -- 2,900,000
Net loss................ -- -- -- -- -- -- -- (5,194,600) (5,194,600)
-------- ------- --------- ------- --- ---- ----------- ----------- ----------
December 31, 1997....... 917,229 $ 9,172 4,255,944 $42,559 50 $-- $10,979,754 $(8,456,649) $2,574,836
======== ======= ========= ======= === ==== =========== =========== ==========
</TABLE>

See accompanying notes to financial statements.

F-38
<PAGE>

ELEKOM CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
AUGUST 7, 1995
YEAR ENDED (INCEPTION)
DECEMBER 31, THROUGH
------------------------ DECEMBER 31,
1997 1996 1997
----------- ----------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss............................. $(5,194,600) $(2,532,299) $(8,456,649)
Adjustments to reconcile net loss to
net cash used in operations
Depreciation....................... 204,002 39,838 249,606
Changes in assets and liabilities:
Accounts receivable............... (41,910) (8,090) (50,000)
Prepaid expenses and other
assets........................... 64,834 (87,733) (23,030)
Accounts payable.................. 110,900 98,107 209,136
Accrued payroll and related
benefits......................... 204,482 32,314 236,796
Deferred revenue.................. 50,000 -- 50,000
Other accrued liabilities......... 51,116 38,786 89,902
----------- ----------- -----------
Net cash used in operating
activities...................... (4,551,176) (2,419,077) (7,694,239)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures................. (136,881) (129,527) (282,512)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of capital lease
obligations......................... (97,448) (6,046) (103,494)
Net borrowings from Egghead Inc...... 2,979,641 4,237,922 7,957,653
Proceeds from issuance of Series B
convertible preferred stock......... 2,900,000 -- 2,900,000
----------- ----------- -----------
Net cash provided by financing
activities...................... 5,782,193 4,231,876 10,754,159
----------- ----------- -----------
Net increase in cash and cash
equivalents.......................... 1,094,136 1,683,272 2,777,408
Cash and cash equivalents at beginning
of year.............................. 1,683,272 -- --
----------- ----------- -----------
Cash and cash equivalents at end of
year................................. $ 2,777,408 $ 1,683,272 $ 2,777,408
=========== =========== ===========
Property and equipment acquired under
capital leases....................... $ 92,767 $ 238,342 $ 331,109
=========== =========== ===========
</TABLE>

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES

Loans from Egghead, Inc., in the amount of $6,612,524, were forgiven in
November 1997, just prior to the recapitalization, and Egghead paid accounts
payable outstanding at November 4, 1997 totaling $173,832 on ELEKOM's behalf in
exchange for 917,229 shares of Series A convertible preferred stock.
Additionally, allocated expenses from Egghead, including imputed interest on
the intercompany debt, totaling $1,345,129 were also forgiven. The amounts
forgiven by Egghead, Inc. were recorded as capital contributions by ELEKOM.

See accompanying notes to financial statements.

F-39
<PAGE>

ELEKOM CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996

1. ORGANIZATION AND BUSINESS

Organization

ELEKOM Corporation ("ELEKOM" or the "Company") was founded in 1995 and is a
privately owned Washington corporation. The Company was formed as a subsidiary
of Egghead, Inc. ("Egghead") to focus on the development of advanced supplier-
independent electronic procurement systems for large enterprises. The Company's
initial product, ELEKOM Procurement, integrates all of the activities
associated with procurement into a comprehensive Intranet business application
that streamlines the entire process. ELEKOM Procurement is directed at mid- to
large-sized corporations where nonproduction purchasing is expensive and time-
consuming.

On November 10, 1997, the Company was recapitalized. In connection with the
recapitalization, ELEKOM reacquired debt in the amount of $6,612,524 owed to
Egghead in exchange for 917,229 shares of Series A preferred stock of the
Company. Additionally, allocated expenses from Egghead, including imputed
interest, Egghead assumed responsibility for all accounts payable, totaling
$173,832 incurred before or on November 4, 1997.

In connection with the recapitalization, ELEKOM sold 4,255,944 shares of Series
B convertible preferred stock to new investors for $2,900,000.

The financial statements for all periods prior to November 10, 1997 reflect the
results of operations, financial position, and cash flows of ELEKOM as a wholly
owned subsidiary of Egghead and may not be indicative of actual results of
operations and financial position of the Company under other ownership.

The statement of operations reflects certain expense items incurred by Egghead
which were allocated to the Company on a basis which management believes
represents a reasonable allocation of such costs to present ELEKOM as a stand-
alone company. These allocations consist primarily of corporate expenses such
as executive and other compensation, depreciation of corporate assets, rent
expense and legal fees and interest expense on intercompany borrowings. The
corporate expenses have been allocated based on an estimate of Egghead
personnel time dedicated to the operations and management of ELEKOM. Interest
expense has been allocated based on ELEKOM's estimated borrowing rate (10%) and
actual intercompany borrowings. A summary of these allocations is as follows:

<TABLE>
<CAPTION>
CORPORATE INTEREST
EXPENSE EXPENSE
--------- --------
<S> <C> <C>
Inception through December 31, 1997......................... $551,535 $793,594
Year ended December 31, 1996................................ $186,291 $192,655
Year ended December 31, 1997................................ $365,244 $600,939
</TABLE>

F-40
<PAGE>

ELEKOM CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Business

The Company was in the development stage as of and for the period from
inception through December 31, 1997. In connection with its development
activities, the Company has incurred costs to incorporate and establish its
business activities as well as the design and development of the Company's
initial product, ELEKOM Procurement, which was available for sale in June 1997.
As a result, cash requirements have exceeded cash receipts and the Company must
obtain interim financing or additional capital to continue its development,
sales and marketing efforts. Management plans to obtain such financing or
capital during the year; however, there can be no assurance that financing or
capital can be obtained. As a result, even though the accompanying financial
statements have been prepared assuming that the Company will continue as a
going concern, there is substantial doubt about the Company's ability to
continue as a going concern. The accompanying financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash and cash equivalents

Cash equivalents consist of highly liquid investments purchased within 90 days
or less of maturity. They are recorded at cost which approximates fair value.
The Company places its cash in high credit quality financial institutions. The
Company has not experienced any losses on its cash and cash equivalents.

Property and equipment

Property and equipment are stated at cost less accumulated depreciation and are
depreciated using the straight-line method over their estimated useful lives.
The estimated useful lives are as follows:

<TABLE>
<S> <C>
Office furniture and equipment....................... Five years
Computer hardware and software....................... Two to three years
Leasehold improvements............................... Over the life of the lease
</TABLE>

Deferred revenues

Deferred revenues consist of advanced billings and payments on software
contracts.

Revenue recognition

Revenue from software contracts is recognized using the percentage-of-
completion contract accounting method, or on a completed contract basis, in
accordance with the American Institute of Certified Public Accountant's
Statement of Position 91-1, Software Revenue Recognition. American Institute of
Certified Public Accountant's Statement of Position 97-2 (SOP 97-2), Software
Revenue Recognition, will be adopted by the Company during fiscal 1998.
Applying the provisions of SOP 97-2 is not expected to materially impact the
Company's financial statements.

F-41
<PAGE>

ELEKOM CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Research and development

Expenditures relating to the development of new products and processes,
including significant improvements and refinements to existing products, are
expensed as incurred.

Income taxes

The Company accounts for income taxes under the asset and liability method,
which requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities. If it is more likely than
not that some portion of a deferred tax asset will not be realized, a valuation
allowance is recorded. Commencing August 7, 1995 through November 10, 1997, the
Company's operations have been included in consolidated income tax returns
filed by Egghead. Income taxes in the accompanying financial statements for the
associated period have been computed assuming the Company filed a separate
income tax return.

Net loss per share

In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (FAS 128), Earnings Per Share. FAS 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Basic earnings per share excludes
any dilutive effects of options and convertible securities. Earnings per share
for 1996 and for the periods from August 7, 1995 (inception) through December
31, 1997 reflect the adoption of FAS 128. Net loss per share assuming dilution
for the years ended December 31, 1997 and 1996 is equal to net loss per share
due to the fact that the effect of common stock equivalents outstanding during
the periods is anti-dilutive.

Proforma net loss per share

Given the changes in ELEKOM's capital structure as a result of the 1997
recapitalization and the changes to be effected as a result of the agreement to
sell 100% of the Company's stock (Note 7) pro forma earnings per share is
presented. Pro forma earnings per share is calculated based on the number of
shares of common stock and preferred stock outstanding at June 30, 1998 and has
been adjusted to give effect to the conversion of all shares of preferred stock
into common stock that will occur in connection with the sale of 100% of the
Company's stock (Note 7). Stock options outstanding at each period and have not
been included in the loss per share calculations as their effect is
antidilutive.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and 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.

F-42
<PAGE>

ELEKOM CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

Advertising expenses

The Company expenses advertising costs as incurred. Total advertising expense
was $89,860 and $147,914 for the years ended December 31, 1997 and 1996,
respectively.

3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1996
--------- --------
<S> <C> <C>
Computer hardware and software............................. $ 531,469 $327,269
Office furniture and equipment............................. 61,178 35,731
Leasehold improvements..................................... 20,974 20,974
--------- --------
613,621 383,974
Less: Accumulated depreciation............................. (249,606) (45,604)
--------- --------
$ 364,015 $338,370
========= ========
</TABLE>

4. LEASE COMMITMENTS

The Company's office facilities are leased under an operating lease that
provides for minimum rentals. The lease expired in May 1998, but was renewed
until the end of June 1998, at which time the Company moved to another
facility. Future lease payments over the life of the new lease are
approximately $628,000. In addition, the Company also rents certain equipment
under agreements treated for financial reporting purposes as capital leases.
The Company's property under capital leases which is included in property and
equipment on the balance sheet at December 31, 1997 and 1996 was $224,890 and
$231,720, respectively, which is net of accumulated depreciation of $106,217
and $6,621, respectively.

Future minimum lease payments under capital leases are as follows:

<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1998.............................................................. $120,972
1999.............................................................. 113,705
2000.............................................................. 7,926
--------
Total minimum lease payments.......................................... 242,603
Less: Amount representing interest.................................... 14,988
--------
Present value of net minimum lease payments........................... 227,615
Current portion....................................................... 110,041
--------
$117,574
========
</TABLE>

Rent expense for the years ended December 31, 1997 and 1996 was $171,172 and
$101,051, respectively.

F-43
<PAGE>

ELEKOM CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

5. SHAREHOLDERS' EQUITY

On December 1, 1997, the Board of Directors authorized a one-for-ten reverse
stock split for all outstanding securities. All references in the financial
statements to number of shares and per share amounts of the Company's preferred
and common stock have been retroactively restated to reflect the decreased
number of shares outstanding.

Recapitalization

Pursuant to the terms of the Stock Exchange Agreement and the Separation
Agreement entered into between the Company and Egghead dated November 10, 1997,
Egghead forgave debt in the amount of $6,612,524 owed from ELEKOM and assumed
responsibility for outstanding accounts payable totaling $173,832, in exchange
for 917,229 shares of Series A convertible preferred stock of the Company. The
allocated corporate expenses and interest expense of $1,345,129 included in the
Statement of Operations have also been forgiven by Egghead and therefore, are
reflected as an increase to additional paid-in capital. The terms of the
agreements also authorized the Company to issue 4,255,944 shares of Series B
convertible preferred stock at $0.68 per share in the Company's initial private
placement offering. Accordingly, effective November 10, 1997 as a result of the
foregoing transactions, the Company was no longer a wholly owned subsidiary of
Egghead.

Preferred stock

The preferred Series A and B shares are convertible into one share of common
stock (subject to antidilution adjustments) at any time at the option of the
holder. Outstanding preferred shares automatically convert into common stock
upon consummation of an underwritten public offering with an offering price of
not less than $3.40 per share and aggregate proceeds in excess of $10,000,000.
The Company has reserved and set aside 5,307,174 shares of its authorized but
unissued common stock required for issuance and delivery upon conversion of
Series A and Series B convertible preferred stock. Both Series A and Series B
preferred shareholders are entitled to a noncumulative dividend of $.055 per
share when and if declared by the Board of Directors. Terms of the Stock
Purchase and Stock Exchange Agreements provide anti-dilution protection,
provide right of first negotiation on proposed equity and debt financing and
prohibit authorization of any senior class of equity instrument without
approval. Series B convertible preferred stock have liquidation preferences
over both Series A convertible preferred stock and common stock. Holders of
Series A and Series B convertible preferred stock are entitled to the number of
votes equal to the number of shares of common stock into which the preferred
shares are convertible. The holders of Series A convertible preferred stock,
voting as a class, have the right to elect one director. The holders of
preferred stock and common stock, voting as a single class, shall be entitled
to elect any remaining directors.

Pursuant to the amended articles of incorporation of the Company dated May 1,
1998, in the event of liquidation, Series B preferred shareholders will be
entitled to receive an amount equal to the purchase price for each share owned
plus accrued dividends. If assets remain after this initial distribution, the
holders of the Series A preferred stock will receive 17.28% of the assets
distributed

F-44
<PAGE>

ELEKOM CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

and the Series B and common stock shareholders will receive 82.72% of the
assets distributed on a pro rata basis until Series A preferred shareholders
have received an amount equal to the purchase price of each share owned plus
accrued dividends. Thereafter, all shareholders of preferred stock and common
stock share on an as-converted basis. The distribution provisions in effect at
December 31, 1997 called for distribution to the Series A in an amount equal to
the original purchase price for each share owned plus accrued dividends prior
to any distributions to the common stock shareholders.

Stock options

The 1996 Stock Option Plan (the Plan) was approved by shareholders of the
Company in August 1996 and became effective August 8, 1996 and was amended on
November 6, 1997 to increase the number of options available for grants to a
maximum of 1,528,664 shares of the Company's common stock. Qualified stock
options may be granted to an employee of the Company and nonqualified stock
options may be granted to an employee or a nondirector of the Company or to
consultants, agents, advisors and independent contractors who provide services
or other benefits to the Company. The option price per share may not be less
than the estimated fair market value of a share of common stock as determined
by the board of directors on the date of grant, and the maximum term of an
option may not exceed ten years. Each option is exercisable at the time it is
granted and the shares covered by the option vest at a rate of 25% each year,
unless accelerated by the plan administrator or upon certain other
circumstances as defined in the plan document.

At the sole discretion of the plan administrator, consideration for the
purchase of shares under the Plan may be paid either at the time the options
are granted or at any time prior to exercise of the option. Payment may be in
the form of cash, common stock already owned by the optionee, promissory notes
or such other consideration as the plan administrator may permit. Unvested
options for which consideration has been exchanged prior to exercise of the
options are subject to repurchase by the Company upon termination of employment
or services at the exercise price paid for the shares. Accordingly, all options
outstanding are considered exercisable although the options may be unvested.

In December 1997, all but 29,457 options previously issued were canceled and
reissued at an exercise price equal to $0.068, the fair market value of the
Company's common stock at the new date of grant. The term of all outstanding
options is ten years. The vesting of outstanding options reissued in December
1997 has been accelerated to account for prior years of service, the balance to
vest in accordance with the Plan. In 1997 and 1996, no stock options issued
under the Plan were exercised.

In addition, during the year ended December 31, 1997 a warrant to purchase
23,000 shares of common stock for $0.068 per share was issued as part of a
severance agreement.

The Company applies Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations in accounting for its
plan. No compensation cost has been charged against income for the Plan for the
year ended December 31, 1997 and 1996. Had compensation cost for the Company's
stock option plan been determined based on the fair value at

F-45
<PAGE>

ELEKOM CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

the grant dates consistent with the method of Statement of Financial Accounting
Standards No. 123, Accounting for Stock Based Compensation (SFAS 123), the
Company's net loss would have increased by $164,582 for the period from August
7, 1995 (inception) to December 31, 1997 and by $109,640 and $54,942 for the
years ended December 31, 1997 and 1996, respectively.

For SFAS 123 pro forma disclosure, the fair value of each option is estimated
on the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1997 and 1996;
dividend and volatility of zero; risk-free interest rates of 5.63% and 6.62%,
respectively; and an expected life of 5 years.

As of December 31, 1997 and 1996, options for 728,166 and 882 shares of common
stock, respectively, were available for future grant.

A summary of the Company's stock option plan as of December 31, 1997 and
changes during the period from inception through December 31, 1995 and the
years ended December 31, 1997 and 1996 is presented below:

<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
SHARES EXERCISE PRICE
------- --------------
<S> <C> <C>
Outstanding at August 7, 1995 (inception)............... --
Granted................................................. --
Exercised............................................... --
Canceled................................................ --
-------
Outstanding at December 31, 1995........................ --
Granted................................................. 74,118 $10.00
Exercised............................................... --
Canceled................................................ --
-------
Outstanding at December 31, 1996........................ 74,118 $10.00
Granted................................................. 776,879 $ 0.14
Exercised............................................... --
Canceled................................................ 50,499 $10.00
-------
Outstanding at December 31, 1997........................ 800,498 $ 0.43
=======
Options exercisable at year-end......................... 800,498 $ 0.43
=======
Weighted-average fair value of:
Options granted during 1997........................... $ 0.04
======
Options granted during 1996........................... $ 2.82
======
Weighted-average remaining contractual life at December
31, 1997............................................... 9.95
======
Weighted-average remaining contractual life at December
31, 1996............................................... 9.42
======
</TABLE>

6. INCOME TAXES

A current provision for income taxes was not recorded for the year ended
December 31, 1997 due to taxable losses incurred during such period. A
valuation allowance has been recorded for deferred tax

F-46
<PAGE>

ELEKOM CORPORATION

NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
assets because realization is primarily dependent on generating sufficient
taxable income prior to the expiration of net operating loss carry-forwards.

Deferred tax assets are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
----------- ---------
<S> <C> <C>
Net operating loss carry-forward........................ $ 2,009,000 $ 596,000
Less: Valuation allowance............................... (2,009,000) (596,000)
----------- ---------
$ -- $ --
=========== =========
</TABLE>

At December 31, 1997, the Company has net operating loss carry-forwards of
approximately $5,909,000 for federal income tax reporting purposes of which
approximately $2,944,000 were generated in periods in which the Company was a
subsidiary of Egghead. The net operating losses will expire beginning in 2012
if not previously utilized. Based upon the ownership changes in November 1997,
as described in Note 5, utilization of substantially all of the net operating
loss carry-forwards is limited to $219,583 per year.

7. SUBSEQUENT EVENT

Effective November 6, 1998, the merger of the Company into a wholly-owned
subsidiary of Clarus Corporation was completed.

F-47
<PAGE>

ELEKOM CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)

BALANCE SHEET (UNAUDITED)
IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA

<TABLE>
<CAPTION>
AT
SEPTEMBER 30,
1998
-------------
<S> <C>
ASSETS
Cash and cash equivalents........................................ $ 181
Accounts Receivable.............................................. 201
Prepaid expenses................................................. 130
-------
Total current assets........................................... 512
Other assets..................................................... 40
Property and equipment........................................... 491
-------
Total Assets................................................. $ 1,043
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable................................................. $ 263
Accrued payroll and related benefits............................. 131
Notes payable.................................................... 150
Current portion, capital lease obligations....................... 119
Deferred revenue................................................. 249
Other accrued liabilities........................................ 384
-------
Total current liabilities...................................... 1,296
-------
Capital lease obligation, net of current portion................. 33
-------
Commitments and contingencies
Shareholders' equity
Convertible preferred stock:
Series B, $.01 par value; 4,389,945 shares authorized, issued
and outstanding at September 30, 1998........................ 43
Series A, $.01 par value; 917,229 shares authorized, issued
and outstanding at September 30, 1998........................ 9
Common stock, $.01 par value; 9,692,826 shares authorized;
875,923 shares issued and outstanding at September 30, 1998... 10
Additional paid-in capital..................................... 11,128
Deficit accumulated during the development stage............... (11,476)
-------
Total shareholders' equity.................................... (286)
-------
Total liabilities and shareholders' equity................... $ 1,043
=======
</TABLE>

See accompanying notes to unaudited interim financial statements

F-48
<PAGE>

ELEKOM CORPORATION
(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENT OF OPERATIONS
(UNAUDITED)
IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1998 1997
---------- -----------
<S> <C> <C>
Sales................................................. $ 430 $ -0-
Cost of sales......................................... 220 -0-
---------- -----------
Gross Profit........................................ 210 -0-
---------- -----------
Operating expenses:
Research and development............................ 850
Sales and marketing................................. 1,120
General and administrative.......................... 1,430
---------- -----------
Total operating expenses........................... 3,271 3,400
---------- -----------
Operating loss........................................ (3,061) (3,400)
Interest expense...................................... -0- 483
Other income.......................................... 42 (1)
---------- -----------
Loss before income tax expense........................ (3,019) (3,884)
Income tax expense.................................... -0- -0-
---------- -----------
Net loss.............................................. $ (3,019) $ (3,884)
========== ===========
Basic and diluted net loss per common share........... $ (4.11) (77,680.00)
========== ===========
Weighted average number of common shares outstanding.. 734,800 $ 50
========== ===========
Pro forma basic and diluted net loss per common share. $ (0.48)
==========
Pro forma weighted average number of common shares
outstanding.......................................... 6,282,347
==========
</TABLE>

See accompanying notes to unaudited interim financial statements

F-49
<PAGE>

ELEKOM CORPORATION

(A DEVELOPMENT STAGE ENTERPRISE)

STATEMENT OF CASH FLOWS
(UNAUDITED)
IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
----------------
1998 1997
------- -------
<S> <C> <C>
Cash flows from operating activities
Net loss................................................... $(3,019) $(3,884)
Adjustments to reconcile net loss to net cash used in
operations
Depreciation.............................................. 101 115
Changes in assets and liabilities:
Accounts receivable...................................... (151) 8
Prepaid expenses and other assets........................ (147) 65
Accounts payable......................................... 228 26
Accrued payroll and related benefits..................... (105) 21
Deferred revenue......................................... 199 -0-
Other accrued liabilities................................ 294 (5)
------- -------
Net cash used in operating activities................... (2,600) (3,654)
Cash flows from investing activities
Capital expenditures....................................... (228) (136)
------- -------
Cash flows from financing activities
Borrowings from line of credit............................. 150 -0-
Payment of capital lease obligations....................... (76) (69)
Proceeds from issuance of Series B convertible preferred
stock..................................................... 91 -0-
Proceeds from exercise of stock options.................... 67 -0-
Net borrowing from Egghead, Inc. .......................... -0- 2,520
------- -------
Net cash provided by financing activities............... 232 2,451
------- -------
Net increase (decrease) in cash and cash equivalents......... (2,596) (1,339)
Cash and cash equivalents at beginning of period............. 2,777 1,683
------- -------
Cash and cash equivalents at end of period................... $ 181 $ 344
======= =======
</TABLE>

See accompanying notes to unaudited interim financial statements

F-50
<PAGE>

ELEKOM CORPORATION

NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS

1. BASIC OF PRESENTATION

The balance sheet presented as of September 30, 1998 and for the nine months
ended September 30, 1998 and 1997 has not been audited. In the opinion of
management, the unaudited interim balance sheet, statements of income and of
cash flows include all adjustments consisting solely of normal recurring
adjustments necessary to present fairly the financial position, results of
operations and cash flows as of and for the periods presented of ELEKOM
Corporation (the "Company").

The financial statements of the Company for all periods prior to November 10,
1997 reflect the results of operations, financial position, and cash flows of
ELEKOM as a wholly-owned subsidiary of Egghead and may not be indicative of
actual results of operations and financial position of the Company under other
ownership.

The statement of operations for the six months ended September 30, 1997
reflects certain expense items incurred by Egghead which were allocated to the
Company on a basis which management believes represents a reasonable allocation
of such costs to present ELEKOM as a stand-alone company. These allocations
consist primarily of corporate expenses such as executive and other
compensation, depreciation of corporate assets, rent expense and legal fees and
interest expenses on intercompany borrowings. The corporate expenses have been
allocated based on an estimate of Egghead personnel time dedicated to the
operations and management of ELEKOM. Interest expense has been allocated based
on ELEKOM's estimated borrowing rate (10%) and actual intercompany borrowings.
A summary of these allocation is as follows:

<TABLE>
<CAPTION>
CORPORATE INTEREST
EXPENSE EXPENSE
--------- --------
<S> <C> <C>
Six months ended September 30, 1997......................... $328,000 $439,000
</TABLE>

BUSINESS

The Company was in the development stage as of and for the period from
inception through September 30, 1998. In connection with its development
activities, the Company has incurred costs to incorporate and establish its
business activities as well as the design and development of the Company's
initial product, ELEKOM Procurement, which was available for sale in June 1997.
As a result, cash requirements have exceeded cash receipts and the Company must
obtain interim financing or additional capital to continue its development,
sales and marketing efforts. Management plans to obtain such financing or
capital during the year; however, there can be no assurance that financing or
capital can be obtained. As a result, even though the accompanying financial
statements have been prepared assuming that the Company will continue as a
going concern, there is substantial doubt about the Company's ability to
continue as a going concern. The accompanying financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

NET LOSS PER SHARE

In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (FAS 128), Earnings per Share. FAS 128
replaced the previously

F-51
<PAGE>

ELEKOM CORPORATION

NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS--CONTINUED

reported primary and fully diluted earnings per share with basic and diluted
earnings per share. Basic earnings per share excludes any dilutive effects of
options and convertible securities. Earnings per share for 1996 reflect the
adoption of FAS 128. Net loss per share assuming dilution for the nine months
ended September 30, 1998 and 1997 is equal to net loss per share due to the
fact that the effect of common stock equivalents outstanding during the periods
is anti-dilutive.

Given the changes in ELEKOM's capital structure as a result of the 1997
recapitalization and the changes to be effected as a result of the Merger pro
forma earnings per share is presented. Pro forma earnings per share is
calculated based on the number of shares of common stock and preferred stock
outstanding at September 30, 1998 and has been adjusted to give effect to the
conversion of all shares of preferred stock into common stock that will occur
in connection with the Merger. Stock options outstanding at each period and
have not been included in the loss per share calculations as their effect is
anti-dilutive.

F-52
<PAGE>

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

NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS.
IF ANY SUCH INFORMATION IS GIVEN OR ANY SUCH REPRESENTATIONS ARE MADE, THEY
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CLARUS OR THE SELLING
SHAREHOLDERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SHARES OF CLARUS COMMON STOCK
OFFERED HEREBY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF CLARUS SINCE SUCH DATE.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 20
Selling Stockholders...................................................... 20
Dividend Policy........................................................... 23
Dilution.................................................................. 23
Selected Historical Financial Data........................................ 24
Unaudited Pro Forma Financial Data........................................ 25
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 33
Business.................................................................. 47
Management................................................................ 60
Principal Stockholders.................................................... 69
Certain Transactions...................................................... 71
Shares Eligible for Future Sale........................................... 75
Plan of Distribution...................................................... 77
Legal Matters............................................................. 78
Experts................................................................... 78
Index to Financial Statements............................................. F-1
</TABLE>

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

629,625 SHARES OF COMMON STOCK

CLARUS CORPORATION

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

PROSPECTUS

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

DECEMBER , 1998

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

PART II

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 13,440
National Association of Securities Dealers, Inc. fee............. 5,275
Nasdaq National Market listing fee............................... 75,625
Accountants' fees and expenses................................... 410,000
Underwriting Fees and Commissions................................ 1,750,000
Legal fees and expenses.......................................... 430,000
Blue Sky fees and expenses....................................... 10,000
Transfer Agent's fees and expenses............................... 20,000
Printing and engraving expenses.................................. 300,000
Miscellaneous.................................................... $ 135,660
----------
Total Expenses................................................. $3,050,000
==========
</TABLE>
- --------
* All fees other than the SEC registration fee, the NASD fee and the Nasdaq
listing fee are estimated.

None of the expenses of issuance and distribution will be borne by the
selling stockholders.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Our Restated By-Laws (the "Restated By-Laws") and our Restated Certificate
of Incorporation (the "Restated Certificate") provide that we shall indemnify
the directors and officers to the fullest extent authorized by Delaware law,
as it now exists or may in the future be amended, against all expenses and
liabilities reasonably incurred in connection with service for or on behalf of
us. Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Company pursuant to the Restated B-
Laws, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. We intend to obtain insurance which insures
our directors and officers against certain losses and which insures us against
certain of our obligations to indemnify such directors and officers. In
addition, our Restated Certificate provides that our directors will not be
personally liable for monetary damages to us for breaches of their fiduciary
duty as directors, unless they violated their duty of loyalty to us or our
stockholders, acted in bad faith, knowingly or intentionally violated the law,
authorized illegal dividends or redemptions or derived an improper personal
benefit from their action as directors. Such limitations of personal liability
under the Delaware Business Corporation Law do not apply to liabilities
arising out of certain violations of the federal securities laws. While non-
monetary relief such as injunctive relief, specific performance and other
equitable remedies may be available to us, such relief may be difficult to
obtain or, if obtained, may not adequately compensate us for our damages.

There is no pending litigation or proceeding involving any of our directors,
officers, employees or agents where indemnification by us will be required or
permitted. We are not aware of any threatened litigation or proceeding that
might result in a claim for such indemnification.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

During the past three years, we have issued the securities set forth which
were not registered under the Securities Act:

(i) On January 5, 1996, we issued a warrant to purchase 5,848 shares of
Series D Preferred Stock at an exercise price of $8.55 per share. The
warrant was issued to a lender in exchange for the lender's agreement to
extend our working capital line of credit.

(ii) On February 15, 1996, we issued 697,675 shares of our Series E
Preferred Stock for $8.60 per share. In addition, we issued warrants to our
lender to purchase 8,721 shares of its Series E Preferred Stock at an
exercise price of $8.60 per share.

II-1
<PAGE>

(iii) On September 26, 1997, we issued 628,809 shares of Series F
Preferred Stock for $9.60 per share. Of the 628,809 shares of Series F
Preferred Stock, Spitfire Capital Partners, L.P., an affiliate of
NationsBanc Montgomery Securities LLC, acquired 208,334 shares of Series F
Preferred Stock for $9.60 per share.

(iv) On September 26, 1997, we issued warrants to purchase 46,821 shares
of Series F Preferred Stock for $9.60 per share to certain stockholders in
connection with loans made to us.

(v) On February 5, 1998, we issued 225,000 shares of Common Stock and a
warrant to purchase 300,000 shares of Common Stock at an exercise price of
$3.69 per share, to Technology Ventures LLC in exchange for its 20%
interest in SQL Financials Services, LLC.

(vi) On February 9, 15, 17, 18 and 19, 1998, we issued 17,544 shares of
Series D Preferred Stock to certain existing stockholders upon the exercise
of existing warrants, at a price of $8.55 per share.

(vii) Since November 30, 1995, we have issued stock options to purchase
an aggregate of 1,090,631 shares of our Common Stock under the 1992 Stock
Option Plan at prices ranging from 1.00 to 15.00 per share.

Except as described above, no underwriters were engaged in connection with
any of the foregoing issuances of securities. The sale and issuance of shares
listed above were exempt from registration under the Securities Act by virtue
of Sections 3(a), 3(b) and 4(a) of the Securities Act and in reliance on Rule
701 and Regulation D promulgated thereunder.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits. The following is a list of exhibits filed as part of the
Registration Statement.

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1* Acquisition Agreement between the Registrant and Technology Ventures,
LLC dated February 5, 1998.
2.2* Non-Negotiable Subordinated Promissory Note to Technology Ventures,
LLC dated February 5, 1998.
2.3* Warrant for purchase of 200,000 shares issued to Technology Ventures,
LLC dated February 5, 1998.
3.1* Amended and Restated Certificate of Incorporation of the Registrant.
3.2* Amended and Restated Bylaws of the Registrant.
4.1* See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated
Certificate of Incorporation and Amended and Restated Bylaws of the
Registrant defining rights of the holders of Common Stock of the
Registrant.
4.2 Specimen Stock Certificate. (Incorporated by Reference from Exhibit
9.1 to Registrant's Registration Statement on Form S-4 (File No. 333-
63535)).
5.1* Opinion of Womble Carlyle Sandridge & Rice, PLLC, as to the legality
of the shares being registered.
10.1* Stock Purchase Agreement dated September 26, 1997 (Series F).
10.2* SQL 1992 Stock Option Plan, effective November 22, 1992.
10.3* 1998 Stock Incentive Plan, effective February 5, 1998 (with form
option agreement).
10.4* Lease Agreement between Registrant and Technology Park/Atlanta, Inc.
dated March 20, 1997.
10.5* License and Private Label Agreement between Registrant and Personnel
Data Systems, Inc. dated March 1, 1996 (with addendum).
10.6* Loan and Security Agreement with Silicon Valley Bank dated March 28,
1997.
10.7* Leasing Technologies International, Inc. Master Lease Agreement dated
March 13, 1997.
10.8* Leasing Technologies International, Inc. Master Note and Security
Agreement dated March 20, 1997.
10.9* Software License and Support Agreement between the Registrant and
McCall Consulting Group dated February 5, 1998.
</TABLE>

II-2
<PAGE>

<TABLE>
<C> <S>
10.10* Agreement between the Registrant and Joseph S. McCall dated February 5,
1998.
10.11* Independent Contractor Agreement between Registrant and McCall
Consulting Group, Inc. dated February 5, 1998.
10.12* Independent Contractor Agreement between Registrant and Joseph S.
McCall dated February 5, 1998.
10.13* Letter Agreement regarding Joseph McCall 1998 Compensation Plan dated
February 5, 1998.
10.14* Loan and Security Agreement between the Company, SQL Financial
Services, L.L.C. and Silicon Valley Bank.
10.15 Lease Agreement between the Registrant and Technology Park/Atlanta,
Inc. dated July 24, 1998 (Incorporated by reference from Exhibit 10.18
of the Registrant's Form S-4 Registration Statement (File no. 333-
63535).
10.16 Assignment and Assumption of Leases between Technology Park/Atlanta,
Inc. and Metropolitan Life Insurance Company dated July 24, 1998
(Incorporated by reference from Exhibit 10.18 of the Registrant's Form
S-4 Registration Statement (File no. 333-63535).
10.17* Acquisition Agreement between the Registrant and Technology Ventures,
LLC dated February 5, 1998.
10.18 Agreement and Plan of Reorganization dated August 31, 1998, by and
among Clarus Corporation, Clarus CSA, Inc. and Elekom Corporation
(Incorporated by reference from Exhibit 2.1 and Appendix A of the
Company's Registration Statement on Form S-4 (Registration No. 333-
63535)).
10.19 Escrow and Minority Investment Agreement by and between the Registrant
and Elekom Corporation and US Bank Trust National Association
(Incorporated by reference from Exhibit 2.2 to the Company's
Registration Statement on Form S-4 (Registration No. 333-63535)).
10.20 Voting Agreement by and among the Registrant and certain shareholders
of Elekom Corporation (Incorporated by reference from exhibit 4.3 to
the Company's Registration Statement on Form S-4 (Registration No.
333-63535)).
10.21 Registration Rights Agreement by and between the Registrant and certain
shareholders of Elekom Corporation (Incorporated by reference from
Exhibit 4.3 to the Company's Form 10-Q for the quarter ended September
30, 1998).
10.22 Escrow and Indemnity Agreement by and among the Registrant, Elekom
Corporation and certain Shareholders of Elekom Corporation
(Incorporated by reference from Exhibit 4.3 to the Company's Form 10-Q
for the quarter ended September 30, 1998).
10.18* Non-Negotiable Subordinated Promissory Note to Technology Ventures, LLC
dated February 5, 1998.
10.19* Warrant for purchase of 200,000 shares issued to Technology Ventures,
LLC dated February 5, 1998.
10.20 OEM Software License Agreement by and between the Registrant and ELEKOM
Corporation (Incorporated by reference from Exhibit 10.23 of the
Registrant's Form S-4 Registration Statement (File No. 333-63535).
10.21 Amendment OEM Software License Agreement by and between the Registrant
and ELEKOM Corporation (Incorporated by reference from Exhibit 10.24
of the Registrant's Form S-4 Registration Statement (File No. 333-
63535).
10.22 Form of Market Standby and Affiliate Agreement (Incorporated by
Reference from Exhibit 4.6 of the Registrant's Form S-4 Registration
Statement (File No. 333-63535)).
21.1 List of Subsidiaries. (Incorporated by Reference from Exhibit 21.1 to
the Registrant's Registration Statement Form S-4 (File No. 333-
63535)).
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of PricewaterhouseCoopers LLP
23.3* Consent of Womble Carlyle Sandridge & Rice, PLLC (included in Exhibit
5.1).
24.1 Powers of Attorney (included on signature page).
99.1* Report of Independent Public Accountants on Financial Statement
Schedule.
</TABLE>
- --------
* Previously filed in connection with this Registration Statement.

II-3
<PAGE>

ITEM 17. UNDERTAKINGS

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

(b) We hereby undertake that:

(i) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the 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 the
Registration Statement as of the time it was declared effective.

(ii) For purposes of determining any liability under the Securities Act,
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.

(i) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:

(1) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;

(2) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.

(3) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.

(ii) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

II-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Post-Effective Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Suwanee, State of Georgia on the 10th day of December, 1998.

CLARUS CORPORATION

/s/ Stephen P. Jeffery
By: _________________________________
Stephen P. Jeffery,
Chairman, Chief Executive Officer
and President

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

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----

<S> <C> <C>
/s/ Stephen P. Jeffery Chairman, Chief Executive December 10, 1998
____________________________________ Officer (Principal
Stephen P. Jeffery Executive Officer);
President and Director

/s/ William A. Fielder, III Chief Financial Officer December 10, 1998
____________________________________ (Principal Financial and
William A. Fielder, III Accounting Officer)

* Director December 10, 1998
____________________________________
William S. Kaiser

* Director December 10, 1998
____________________________________
Donald L. House

* Director December 10, 1998
____________________________________
Tench Coxe

* Director December 10, 1998
____________________________________
Said Mohammadioun

/s/ Mark A. Johnson Director December 10, 1998
____________________________________
Mark A. Johnson

</TABLE>

/s/ Stephen P. Jeffery
*By: __________________________
Stephen P. Jeffery
Attorney-in-Fact

II-5

<PAGE>

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our reports
(and to all references to our firm) included in or made part of this
Registration Statement.

/s/ Arthur Andersen LLP

ARTHUR ANDERSEN LLP

Atlanta, Georgia
December 7, 1998

<PAGE>

EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of Clarus Corporation of our report dated
August 17, 1998, except as to Note 7 which is as of November 6, 1998, relating
to the financial statements of ELEKOM Corporation, which appears in such
Prospectus. We also consent to the references to us under the heading "Experts"
in such Prospectus.

PricewaterhouseCoopers LLP
Seattle, Washington
December 10, 1998