ENLIGHTEN SOFTWARE SOLUTIONS INC, SB-2, 1998-04-22

ENLIGHTEN SOFTWARE SOLUTIONS INC
SB-2, 1998-04-22
PREPACKAGED SOFTWARE

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 22, 1998
REGISTRATION NO. 333-
================================================================================

U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM SB-2
------------------------
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

ENLIGHTEN SOFTWARE SOLUTIONS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

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CALIFORNIA 7372 94-3008888
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

999 BAKER WAY, FIFTH FLOOR
SAN MATEO, CALIFORNIA 94404
(650) 578-0700

(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICE AND PRINCIPAL PLACE
OF BUSINESS)

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MICHAEL A. MORGAN
CHIEF FINANCIAL OFFICER
ENLIGHTEN SOFTWARE SOLUTIONS, INC.
999 BAKER WAY, FIFTH FLOOR
SAN MATEO, CALIFORNIA 94404
(650) 578-0700

(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER OF AGENT FOR SERVICE)

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Copies to:
ERIC J. LAPP, ESQ.
GRAY CARY WARE & FREIDENRICH LLP
400 HAMILTON AVENUE
PALO ALTO, CALIFORNIA 94301
(650) 328-6561

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.

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

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

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

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

CALCULATION OF REGISTRATION FEE

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============================================================================================================================
PROPOSED PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PRICE PER SHARE PRICE(1) FEE
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock, no par value.............. 575,000 $4.25 $2,443,750 $721
============================================================================================================================
</TABLE>

(1) Estimated pursuant to Rule 457(c) solely for purposes of computing the
registration fee, based on the average of the high and low trading prices
for the Common Stock as reported by The Nasdaq National Market on April 16,
1998.

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

================================================================================
<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED APRIL 22, 1998

PROSPECTUS

575,000 SHARES

[ENLIGHTEN SOFTWARE LOGO]

COMMON STOCK

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

This Prospectus relates to up to 575,000 shares of common stock, no par
value ("Common Stock") which will be offered by Enlighten Software Solutions,
Inc. ("Enlighten Software" or the "Company") at a price and on terms prevailing
at the time of sale.

The Common Stock may be offered by the Company directly to one or more
purchasers, through agents designated from time to time by the Company or to or
through underwriters or dealers. See "Plan of Distribution."

The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol "SFTW". On April 16, 1998, the last reported sale price of the Common
Stock was $4.25 per share. See "Price Range of Common Stock."

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

SEE "RISK FACTORS" COMMENCING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SECURITIES
OFFERED HEREBY.

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=================================================================================================================
PRICE TO DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS ISSUER
- -----------------------------------------------------------------------------------------------------------------
Per Unit........................... $ $ $
- -----------------------------------------------------------------------------------------------------------------
Total.............................. $ $ $
=================================================================================================================
</TABLE>

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

, 1998
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PROSPECTUS SUMMARY

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

THE COMPANY

Enlighten Software Solutions, Inc. ("Enlighten Software" or the "Company")
develops, markets, and supports workgroup administration and enterprise
management software for the UNIX and UNIX/NT environments. The Company's product
solutions are designed for open systems distributed computing environments in
the range of ten to 1,000 servers/clients. The Enlighten(R) Distributed Systems
Manager(TM) ("EnlightenDSM(TM)") product allows companies to manage their
information systems by enabling systems managers and administrators to control
their systems from diverse UNIX/NT platform vendors such as Digital Equipment
Corporation ("DEC"), Hewlett-Packard ("HP"), IBM, Microsoft, Santa Cruz
Operation ("SCO"), Silicon Graphics, and Sun Microsystems ("Sun"). The Company's
award winning EnlightenDSM product suite provides cost-effective systems
administration solutions for such open systems environments. The product suite
is a fully integrated software solution providing a middle-tier framework that
is a standards-based multi-function management system covering the breadth of
workgroup administration and systems management disciplines. The Company's
objective is to become a market leader in integrated open systems workgroup
administration and systems management. To that end, during 1997 the Company
released its Microsoft Windows NT version of EnlightenDSM, retained a new
management team, sold its legacy product line to focus on its UNIX/NT product
suite, and entered into an agreement with a major UNIX/NT vendor that provides
for worldwide distribution of EnlightenDSM with every server and workstation
shipped by the vendor.

In May 1997 the Company released version 2.2 of EnlightenDSM which included
support for the Windows NT operating system. Allowing management of both UNIX
and NT operating systems was a significant advancement of EnlightenDSM,
broadening its market to include the rapidly expanding NT operating system
deployment.

It was determined that the Company's best opportunity for success lay in
its ability to focus all its resources on its UNIX/NT product line and to shift
its sales model to indirect channels from one of direct field sales. In October
1997, the Company sold all of the technology and operating assets associated
with its Tandem product line to New Dimension Software, Inc. ("NDS"), a
subsidiary of New Dimension Software, Ltd. This transaction provided the Company
with working capital to fund its UNIX/NT operations, as well as an ability to
focus all of its financial and human resources on the strategic direction of the
Company. Concurrent with the divestiture of the Tandem operation, the Company
changed its operating structure to facilitate an indirect channels sales model.
In connection with this change, the Company streamlined its operations by
closing field sales offices and focusing its sales resources primarily on
developing relationships with third-party vendors to market, sell, and support
its UNIX/NT product line.

In January 1998, the Company entered into a three-year worldwide OEM
bundling agreement with Silicon Graphics. Under this agreement, Silicon Graphics
will ship a bundled limited feature version of

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EnlightenDSM on new server and workstation product shipments as well as with
operating system upgrades shipped to previously installed Silicon Graphics
customers. Silicon Graphics will also market and sell, through its telesales
force, direct field organization, and authorized resellers, a full feature
version of EnlightenDSM and agent modules enabling the management of other
UNIX/NT vendor servers and workstations. This relationship is significant to the
Company in that it provides for worldwide distribution for its product to
thousands of Silicon Graphics customers. EnlightenDSM is an important element of
Silicon Graphic's strategic objective of lowering the overall cost of computing
for its customers. Since EnlightenDSM provides users with the ability to
effectively manage UNIX and NT systems distributed throughout the network from a
single point of control, this product addresses one of the largest components of
computing costs; the administration and management of distributed heterogeneous
environments.

The Company was incorporated in California in 1986. Although the Company
has been in existence since 1986, its current UNIX/NT only operations and its
dependence on a third-party distribution model have been in existence only since
October 1997. Accordingly, the Company is in many respects subject to the risks
associated and inherent with a new enterprise. See "Risk Factors," on page 5.
The Company's principal executive offices are located at 999 Baker Way, Fifth
Floor, San Mateo, California 94404. The Company's telephone number is (650)
578-0700 and its facsimile number is (650) 578-0118.

Enlighten is a registered trademark of the Company. Enlighten for
UNIX/Distributed Systems Manager and Enlighten/DSM are trademarks of the
Company. All other trademarks or tradenames referred to in this Prospectus are
the property of their respective owners.

THE OFFERING

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Common Stock offered by the Company......................... 575,000 shares
Common Stock to be outstanding after the offering........... 3,580,435 shares(1)
Use of Proceeds............................................. General corporate purposes, including
working capital. See "Use of
Proceeds."
Nasdaq National Market Symbol............................... SFTW
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

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<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996
-------- --------
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CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Total revenue............................................... $ 4,231 $ 6,477
Loss from operations(2)..................................... (2,018) (1,165)
Net loss.................................................... (1,960) (1,038)
Basic and diluted net loss per share........................ (0.67) (0.36)
Shares used in computing per share amounts.................. 2,944 2,870
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------
ACTUAL AS ADJUSTED(3)
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 1,406 $ 3,599
Working capital............................................. 1,286 3,479
Total assets................................................ 3,715 5,908
Current liabilities......................................... 1,222 1,222
Shareholders' equity........................................ 2,492 4,685
</TABLE>

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- ---------------
(1) Based on the number of shares outstanding at March 31, 1998, excluding (i)
947,595 shares reserved as of such date for issuance upon the exercise of
outstanding stock options, (ii) 546,876 shares reserved for future grant
under the Company's stock plans and (iii) 150,000 shares reserved for
issuance on exercise of outstanding warrants.

(2) 1997 amount includes a $2,158,000 gain related to the sale of the Company's
Tandem operations.

(3) Adjusted to reflect the receipt by the Company of the estimated net proceeds
of $2,193,000 from the sale of 575,000 shares of Common Stock offered hereby
at an assumed public offering price of $4.25 per share, after deduction of
estimated commissions and offering expenses.

Except as otherwise noted herein, information in this Prospectus assumes no
exercise of (i) options to purchase common stock either outstanding or reserved
for issuance under the Company's option plans and (ii) outstanding warrants to
purchase shares of the Company's Common Stock. See "Description of Capital
Stock" and "Plan of Distribution."

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RISK FACTORS

In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
securities offered by this Prospectus. The discussion in this Prospectus
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ materially from those discussed herein.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business," as
well as those discussed elsewhere in this Prospectus.

FLUCTUATING OPERATING RESULTS

The Company has experienced significant quarterly fluctuations in operating
results and expects that these fluctuations will continue in future periods.
These fluctuations have been caused by a number of factors, including the timing
of new product or product enhancement introductions by the Company or its
competitors, the development and introduction of new operating systems that
require additional development efforts, purchasing patterns of its customers,
size and timing of individual orders, the rate of customer acceptance of new
products, and pricing and promotion strategies undertaken by the Company or its
competitors. Future operating results may fluctuate as a result of these and
other factors, including the Company's ability to continue to develop, acquire,
and introduce new products on a timely basis, the timing and level of sales by
the Company's original equipment manufacturers ("OEMs") or other third-party
licensees of computer systems or software incorporating the Company's products,
technological changes in computer systems and environments, quality control of
the products sold, the Company's success in shifting its primary sales strategy
from direct to indirect channels, and general economic conditions. Additionally,
the Company's operating results may be influenced by seasonality and overall
trends in the global economy. Because the Company operates with a relatively
small backlog, quarterly sales and operating results generally depend on the
volume and timing of orders received during the quarter, which are difficult to
forecast. Historically, the Company has recognized a substantial portion of its
license revenues in the last month of the quarter, particularly the last week.
Since the Company's staffing levels and other operating expenses are based upon
anticipated revenues, delays in the receipt of orders can cause significant
fluctuations in income from quarter to quarter.

RECENT OPERATING LOSSES

The Company has generated minimal revenues, has incurred significant losses
and has substantial negative cash flow. As of December 31, 1997, the Company had
an accumulated deficit of $2.6 million, with net losses of $2.0 million, $1.0
million, and $1.3 million for the years ended December 31, 1997, 1996 and 1995,
respectively.

Historically, a large percentage of the total revenue earned by the Company
had been attributable to Tandem-based products. The Company, however, sold all
rights to its Tandem technology in October 1997. As a consequence of the
Company's recent sale of Tandem rights and change in business strategy, the
Company expects that a significant portion of future revenues will be derived
from UNIX/NT software products and OEM distribution relationships. The Company's
new business strategy has only been implemented since October 1997 and has
generated minimal revenues. There can be no assurance that the Company will
achieve or sustain significant revenues or become cash flow positive or
profitable at any time in the future.

UNCERTAINTY OF SUCCESS IN OPEN SYSTEMS MARKET

The Company has derived a substantial portion of its revenue to date from
its Tandem-based products. The Company, however, sold all rights to its Tandem
technology in October 1997. The future success of the Company is substantially
dependent on its ability to generate significant revenue from its UNIX/NT
product offering. The Company's initial product entry into the open systems
market in 1995 was unsuccessful. Version 2.0 of EnlightenDSM was released in
mid-1996 and represented 27% and 22% of the Company's license revenues in 1997
and 1996, respectively. In January 1998, the Company signed an OEM bundling

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agreement with Silicon Graphics in which Silicon Graphics will bundle a limited
version of the Company's product on each UNIX system shipped. This was the first
such OEM agreement entered into by the Company. However, the open systems market
is characterized by rapid technological growth and intense competition. There
can be no assurance that the Company has the resources, both financial and
personnel, to effectively capitalize on, and continue with, its early and
limited success in this market.

EXPANSION OF NEW DISTRIBUTION CHANNELS; RELIANCE ON RESELLERS

Prior to October 1997, the Company employed primarily a direct sales model,
complemented with a telesales force, for the sale of its software products. In
the fourth quarter of 1997, the Company began to shift a majority of its sales
and marketing resources toward third-party resellers in both the United States
and internationally. The Company's growth will be dependent on its ability to
expand its third-party distribution channel to market, sell, and support the
Company's software products. The Company is currently investing, and intends to
continue to invest, significant resources to develop this channel, which could
materially adversely affect the Company's operating margins. The Company has
only limited experience in marketing its products through distributors.
Additionally, the Company will have no control over its third-party distributors
including their shipping dates or volumes of systems shipped by its OEM and
other third-party customers. There can be no assurance that the Company will be
successful in its efforts to generate significant revenue from this channel, nor
can there can be any assurance that the Company will be successful in recruiting
new organizations to represent the Company and its products.

Additionally, as the Company shifts its sales efforts from direct to
indirect channels, the Company will become more dependent on its third-party
distributors for the technical support and consultation to end-users. The
Company will need to increase its training and education efforts related to its
third-party distributors to enable such third parties to obtain the technical
proficiency and knowledge with respect to the Company's products. Despite these
efforts, there can be no assurance that the Company will successfully train its
third-party distributors to enable them to provide adequate technical support to
the customer base. This may result in, among other things, increased workload on
the Company's internal support and engineering staff, or poor customer
acceptance of the products, or both, either of which would have a material
adverse effect on the Company's business, operating results, and financial
condition

In January 1998, the Company entered into a Software License, OEM, and
Distribution Agreement with Silicon Graphics which will provide a new
distribution channel for the Company's products. The Company has agreed to
provide a limited feature version of the EnlightenDSM product which will be
bundled with Silicon Graphic's IRIX operating system. While the Company believes
that this arrangement with Silicon Graphics will be beneficial, there can be no
assurance that the Company will be able to deliver its products to Silicon
Graphics in a timely manner or that Silicon Graphics will license the Company's
products in volumes anticipated by the Company. Further, the agreement with
Silicon Graphics is the Company's only significant third-party distribution
agreement to date. While the Company's strategy is to obtain additional
resellers to reduce the dependence on one vendor, there can be no assurance of
successfully attracting additional vendors to distribute the Company's products.
Any such failure would result in the Company having expended significant
resources with little or no return on its investment, which would have a
material adverse effect on the Company's business, operating results, and
financial condition.

These additional investments and responsibilities will require the
expenditure by the Company of substantial resources, including the diversion of
employees from other projects to provide the support services and development
efforts required to provide products and services to Silicon Graphics and other
new third parties, if any.

INTENSE COMPETITION

The Company experiences intense competition from other systems management
companies, and the market is rapidly changing. The Company believes that its
ability to compete successfully depends on a number of factors, including the
performance, price, and functionality of its products relative to those of its
competitors. Most of the Company's competitors are larger and have greater
financial, technical, marketing,

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support, and other resources than the Company. As a result, they may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements. In addition, the software industry is characterized by low
barriers to entry. There can be no assurance that the Company's current
competitors or any new market entrants will not develop systems management
products that offer significant performance, price, or other advantages over the
Company's technology. In addition, operating system vendors could introduce new
or upgrade existing operating systems or environments that include systems
management functionality offered by the Company, which could render the
Company's products obsolete and unmarketable. There can be no assurance that the
Company will be able to successfully compete against current or future
competitors which could have a material adverse effect on the Company's
business, operating results, and financial condition.

POSSIBLE NEED FOR ADDITIONAL FINANCING

The Company is currently funding product development and the expansion of
sales and marketing activities through existing cash reserves. In the event that
cash from operations, cash from this offering, and other available funds prove
to be insufficient to fund the Company's presently anticipated operations the
Company may be required to seek additional financing. There can be no assurance
that, if additional financing is required, it will be available on acceptable
terms, or at all. Additional financing may involve substantial dilution to the
interests of the Company's then-current shareholders.

POSSIBLE VOLATILITY OF STOCK PRICE

The trading price of the Company's Common Stock has been subject to
significant fluctuations since its initial public offering in 1994. The trading
price of the Company's Common Stock could be subject to wide fluctuations in the
future due to factors such as announcements of technological innovations, new
product introductions by the Company, its competitors and other third parties,
quarterly variations in the Company's operating results, and market conditions
in high technology industries generally and in the software industry in
particular. In addition, the stock market has experienced volatility that has
particularly affected the market prices of many high technology companies which
has often been unrelated to the operating performance of such companies. These
broad market fluctuations may adversely affect the market price of the Company's
Common Stock.

PRODUCT CONCENTRATION

The Company expects that a substantial majority of the Company's revenue in
future periods will be derived from its UNIX/NT product, EnlightenDSM. This
product accounted for 27%, and 22% of the Company's license revenue in the years
ended December 31, 1997, and 1996, respectively. The Company has disposed of its
Tandem product line that accounted for the balance of its license revenue in
each year. The Company expects that the EnlightenDSM product and its extensions
and derivatives will continue to account for a substantial majority, if not all,
of the Company's revenue for the foreseeable future as a result of its strategic
decision to divest itself of its Tandem technology in order to focus its
financial and other resources to selling, servicing, and supporting
EnlightenDSM. Broad market acceptance of EnlightenDSM is, therefore, critical to
the Company's future success. Failure to achieve broad market acceptance of
EnlightenDSM, as a result of competition, technological change, or otherwise,
would have a material adverse effect on the business, operating results, and
financial condition of the Company. The Company's future financial performance
will depend in significant part on the successful development, introduction, and
market acceptance of EnlightenDSM and its product enhancements. There can be no
assurance that the Company will be successful in marketing EnlightenDSM or any
new products, applications, or product enhancements, and any failure to do so
would have a material adverse effect on the Company's business, operating
results, and financial condition.

PRODUCT DEVELOPMENT; SUPPORT OF MULTIPLE ENVIRONMENTS

The Company's future success will depend on the timely and successful
development and introduction of new products (including new releases,
applications, and enhancements). Such activities can involve substantial
commitments of financial, product development, and other resources. Moreover,
even if such efforts are

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successful, the Company might have focused on particular applications that do
not achieve or maintain widespread market acceptance or whose users are
predisposed to obtain their management tools from other sources. The result of
such occurrence could mean that significant expenditures of time, effort, and
funds by the Company have little or no value, which could have a material
adverse effect on the Company's business, operating results, and financial
condition.

The Company has developed and is continuing to develop various versions of
its products for various UNIX environments and the Windows NT environment. The
Company also intends to expand its products to support additional applications
and operate across more diverse open networks, which may encompass an increasing
variety of processor, server, and workstation types and multiple operating
systems. Such efforts will require significant commitments of financial and
product development resources, and there can be no assurance that such efforts
will be successful. The failure of such efforts or the failure of any resulting
products to achieve market acceptance could have a material adverse effect on
the Company's business, operating results, and financial condition.

Software products as complex as those offered by the Company often contain
undetected errors or failures when first introduced or as new versions are
released. The Company has in the past discovered software errors in certain of
its new products after their introduction and has experienced delays or lost
revenues during the period required to correct these errors. Testing of the
Company's products is particularly difficult because of the Company's limited
ability to simulate the wide variety of computing environments in which the
Company's customers may deploy such products. Although the Company has not
experienced material adverse effects resulting from any such errors to date,
there can be no assurance that, despite testing by the Company and by current
and potential customers, errors will not be found in new products after
commencement of commercial shipments, resulting in loss of or delay in market
acceptance, which could have a material adverse effect upon the Company's
business, operating results, and financial condition.

RAPID TECHNOLOGICAL CHANGE

The market for the Company's products is characterized by rapid
technological developments, evolving industry standards, and rapid changes in
customer requirements. The introduction of products embodying new technologies,
including new operating systems, applications, hardware products, systems
management frameworks, and network management platforms, the emergence of new
industry standards, or changes in customer requirements could render the
Company's existing products obsolete and unmarketable. As a result, the
Company's success depends upon its ability to continue to enhance existing
products, respond to changing customer requirements, and develop and introduce
in a timely manner, new products that keep pace with technological developments
and emerging industry standards.

Additionally, there can be no assurance that other operating systems, such
as Windows NT, will not significantly affect deployment of UNIX systems for
business critical applications. A significant portion of the Company's revenue
will continue to be derived from UNIX-based computer systems for the foreseeable
future. While the Company has ported its products to the Windows NT platform,
the product requires customers to control systems management for their
heterogeneous environment from UNIX-based systems. A significant decline in
sales of UNIX-based systems would decrease the demand for the Company's products
and would have a material adverse effect on the Company's business, operating
results, and financial condition. Finally, there can be no assurance that the
Company will be successful in developing and marketing, on a timely basis,
product enhancements or new products that respond to technological change or
evolving industry standards, that the Company will not experience difficulties
that could delay or prevent the successful development, introduction, and sale
of these products, or that any such new products or product enhancements will
adequately meet the requirements of the marketplace and achieve market
acceptance.

PRODUCT LIABILITY

The Company's license agreements with its customers typically contain
provisions designed to limit the Company's exposure to potential product
liability claims. In licensing its products, the Company relies primarily on a
combination of signed license agreements that incorporate by reference "shrink
wrap" licenses

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that are included electronically with the product. In the future, particularly
in connection with any OEM and other bundling relationships, the Company will
rely on "shrink wrap" licensees that are not signed by the end-users, and,
therefore, such licenses may be unenforceable under the laws of certain
jurisdictions. As a result of these and other factors, the limitation of
liability provisions contained in the Company's license agreements may not be
effective. The Company's products can be used to manage systems critical to
organizations, and, as a result, the sale and support of products by the Company
may entail the risk of product liability claims. A successful product liability
claim brought against the Company could have a material adverse effect upon the
Company's business, operating results, and financial condition.

DEPENDENCE ON GROWTH OF SYSTEMS MANAGEMENT MARKET

For the foreseeable future, all of the Company's business will be in the
open systems (UNIX and NT) systems management market, which is still an emerging
market. The Company's future financial performance will depend in large part on
continued growth in the number of companies adopting systems management
solutions for their client/server computing environments. There can be no
assurance that the market for systems management solutions will continue to
grow. If the systems management market fails to grow or grows more slowly than
the Company currently anticipates, or in the event of a decline in unit price or
demand for the Company's products, as a result of competition, technological
change, or other factors, the Company's business, operating results, and
financial condition would be materially adversely affected. During recent years,
segments of the computer industry have experienced significant economic
downturns characterized by decreased product demand, production overcapacity,
price erosion, work slowdowns, and layoffs. The Company's operations may in the
future experience substantial fluctuations from period-to-period as a
consequence of such industry patterns, general economic conditions affecting the
timing of orders from major customers, and other factors affecting capital
spending. There can be no assurance that such factors will not have a material
adverse effect on the Company's business, operating results, and financial
condition.

MANAGEMENT OF GROWTH; DEPENDENCE ON KEY PERSONNEL

The Company's success in the future is dependent upon its ability to grow
rapidly and effectively manage growth. Such growth, if any, will require
increased managerial, technical, direct sales, and other personnel, expanded
information systems and additional financial and administrative control
procedures. Expansion of the Company's indirect and direct sales channels will
require significant financial and managerial commitments by the Company. There
can be no assurance that the Company will be able to effectively manage such
growth, if any. Its failure to do so would have a material adverse effect on its
business, operating results, and financial condition. Competition for qualified
technical, sales, and other qualified personnel is intense, and there can be no
assurance that the Company will be able to attract or retain highly qualified
employees in the future. The Company's future success also depends in part upon
the continued service of its key technical, sales and senior management
personnel. The loss of the services of one or more of these key employees could
have a material adverse effect on its business, operating results, and financial
condition.

CONTROL BY OFFICERS, DIRECTORS AND PRINCIPAL SHAREHOLDERS

The Company's officers, directors, principal shareholders and their
affiliates, will, in the aggregate, beneficially own approximately 38% of the
Company's outstanding Common Stock after this offering. As a result, such
persons will have, to a substantial degree, the ability to significantly
influence matters submitted to shareholders for approval (including, but not
limited to, the election of all directors, and any merger, consolidation or sale
of all or substantially all of the Company's assets) and to control the
management and affairs of the Company. Such concentration of ownership may have
the effect of delaying, deferring or preventing a change in control of the
Company. See "Management" and "Principal Shareholders."

IMMEDIATE AND SUBSTANTIAL DILUTION

Purchasers of the securities offered hereby will suffer immediate and
substantial dilution in the net tangible book value of the Common Stock. To the
extent outstanding options to purchase the Company's Common Stock and warrants
are exercised, there will be further dilution.

9
<PAGE> 11

POSSIBLE DELISTING OF SECURITIES FROM NASDAQ NATIONAL MARKET

The Company's Common Stock is currently quoted on the National Market tier
of the Nasdaq Stock Market ("Nasdaq"). Nasdaq has recently imposed new
maintenance criteria. In order to continue to be included on the National
Market, a company must, among other things, maintain $4,000,000 in net tangible
assets and a $5,000,000 market value of its public float. As of December 31,
1997, the Company was not in compliance with the recently revised Nasdaq
National Market continued listing criteria as to minimum net tangible assets. In
connection with the adoption of such new criteria, Nasdaq National Market listed
companies had until February 23, 1998 to comply. The Company has applied to
Nasdaq for a temporary exception to the National Market continued listing
requirements. This appeal is currently being considered by the Nasdaq Listing
Qualification Department. In order to address the net tangible assets
requirement, the Company is, among other things, offering the 575,000 shares
registered in this Prospectus for estimated net proceeds of $2,193,000. Upon
completion of such issuance, on a pro-forma basis the Company was in compliance
with the net assets requirement as of December 31, 1997 and January 31, 1998.
Failure to meet these National Market maintenance criteria will result in the
delisting of the Company's securities from the Nasdaq National Market and
trading, if any, in the Company's securities would thereafter be conducted on
the Nasdaq SmallCap Market. As a result of such delisting from the Nasdaq
National Market, an investor may find it more difficult to acquire and dispose
of the Company's securities.

YEAR 2000 COMPLIANCE

The Company uses a significant number of computer software programs and
operating systems in its internal operations, including applications used in
financial business systems and various administration functions. To the extent
that these software applications contain source code that is unable to
appropriately interpret the upcoming calendar year "2000," some level of
modification or even replacement of such source code or applications will be
necessary. The Company is in the process of identifying the software
applications that are not "Year 2000" compliant. Given the information known at
this time about the Company's systems, coupled with the Company's ongoing
efforts to upgrade or replace business critical systems as necessary, it is
currently not anticipated that these "Year 2000" costs will have a material
adverse impact on the Company's business, financial condition and results of
operations. However, the Company is still analyzing its software applications
and, to the extent they are not fully "Year 2000" compliant, there can be no
assurance that the costs necessary to update software or potential systems
interruptions would not have a material adverse effect on the Company's
business, financial condition and results of operations.

10
<PAGE> 12

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 575,000 shares of
Common Stock being offered by the Company hereby are estimated to be
approximately $2,193,000 based on an assumed public offering price of $4.25 per
share after deducting estimated commissions, and other expenses. The Company
intends to use the proceeds of this offering primarily for general corporate
purposes, including working capital. A portion of the net proceeds may also be
used for investments in or acquisitions of complementary businesses, products or
technologies, although no such transactions are presently contemplated or
currently under negotiations. Pending such uses, the Company expects to invest
the net proceeds in short-term, interest-bearing, investment grade securities.

PRICE RANGE OF COMMON STOCK

The Company's Common Stock has been quoted on the Nasdaq National Market
under the symbol "SFTW" since the Company's initial public offering on April 20,
1994. Prior to such time there was no public market for the Common Stock of the
Company. The following table sets forth for the periods indicated the high and
low sale prices per share of the Common Stock as reported on the Nasdaq National
Market.

<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
Fiscal year ending December 31, 1996
First Quarter............................................. $2.63 $1.63
Second Quarter............................................ $6.88 $1.88
Third Quarter............................................. $6.50 $3.38
Fourth Quarter............................................ $6.25 $3.50
Fiscal year ending December 31, 1997
First Quarter............................................. $5.25 $2.75
Second Quarter............................................ $3.25 $1.38
Third Quarter............................................. $3.50 $0.94
Fourth Quarter............................................ $3.00 $2.00
</TABLE>

On April 16, 1998, the last reported sale price of the Common Stock on the
Nasdaq National Market was $4.25 per share. As of March 31, 1998, there were
approximately 36 shareholders of record of the Common Stock.

DIVIDEND POLICY

The Company has never declared or paid cash dividends on its capital stock.
The Company currently anticipates that it will retain all future earnings, if
any, to fund the development and growth of its business and does not anticipate
paying cash dividends in the foreseeable future.

11
<PAGE> 13

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
December 31, 1997 and as adjusted to reflect the sale by the Company of 575,000
shares of Common Stock pursuant to this offering at an assumed public offering
price of $4.25 per share and the receipt by the Company of the estimated net
proceeds therefrom, after deducting estimated commissions and other offering
expenses, and the application of the net proceeds therefrom. The capitalization
information set forth in the table below is qualified by the more detailed
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus and should be read in conjunction with such Consolidated Financial
Statements and Notes.

<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------
ACTUAL AS ADJUSTED(1)
------ --------------
(IN THOUSANDS)
<S> <C> <C>
Shareholders' equity (deficit)
Preferred Stock:
Authorized: 1,000,000
Issued and Outstanding: none................... -- --
Common Stock, no par value:
Authorized: 10,000,000
Issued and Outstanding: 2,963,635 actual;
3,538,635 as adjusted........................ $ 5,079 $7,272
Accumulated deficit............................ (2,587) (2,587)
------- ------
Total capitalization................................ $ 2,492 $4,685
======= ======
</TABLE>

- ---------------
(1) Based on the number of shares outstanding at December 31, 1997, excluding
(i) 922,924 shares reserved as of such date for issuance upon the exercise
of outstanding stock options, (ii) 613,347 shares reserved for future grant
under the Company's stock plans, and (iii) 150,000 shares reserved for
issuance on exercise of outstanding warrants.

12
<PAGE> 14

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with and are qualified in their entirety by "Management's Discussion
and Analysis of Financial Condition and Results of Operations," the Consolidated
Financial Statements and Notes thereto audited by KPMG Peat Marwick LLP, and
other financial information included elsewhere in this Prospectus. The Selected
Consolidated Statements of Operations Data for each of the two years in the
period ended December 31, 1997 and the Selected Consolidated Balance Sheet Data
as of December 31, 1997 have been derived from and should be read in conjunction
with the audited Consolidated Financial Statements and Notes thereto included
elsewhere in this prospectus. The Selected Consolidated Balance Sheet Data as of
December 31, 1996 has been derived from audited consolidated financial
statements not appearing in this prospectus. All amounts are in thousands except
per share data.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996
--------- ---------
<S> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenue:
Product license fees...................................... $ 1,439 $ 2,645
Product maintenance fees.................................. 2,599 3,408
Consulting services....................................... 193 425
------- -------
Total revenue..................................... 4,231 6,478
------- -------
Cost of revenue:
Product licenses.......................................... 699 593
Product maintenance....................................... 182 102
Consulting services....................................... 96 339
------- -------
Total cost of revenue............................. 977 1,034
------- -------
Gross profit...................................... 3,254 5,444
Operating expenses:
Research and development.................................. 2,059 2,048
Sales and marketing....................................... 3,820 2,979
General and administrative................................ 1,551 1,371
Acquired in-process research and development.............. -- 210
Gain on sale of Tandem product line....................... (2,158) --
------- -------
Total operating expenses.......................... 5,272 6,608
------- -------
Operating loss.................................... (2,018) (1,164)
Other income (expense):
Interest income, net...................................... 61 190
Foreign exchange loss, net................................ (1) (5)
------- -------
Loss before income taxes............................... 1,958 979
Income taxes................................................ (2) (59)
------- -------
Net loss.................................................... $(1,960) $(1,038)
======= =======
Basic and diluted net loss per share(1)..................... $ (0.67) $ (0.36)
======= =======
Shares used in computing basic and diluted net loss per
share..................................................... 2,944 2,870
======= =======
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1997 1996
------- -------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 1,406 $ 690
Working capital............................................. 1,286 2,030
Total assets................................................ 3,715 6,709
Current liabilities......................................... 1,222 2,415
Total shareholders' equity.................................. 2,492 4,294
</TABLE>

- ---------------
(1) Computed on the basis described in Note 7 of the Notes to Consolidated
Financial Statements.

13
<PAGE> 15

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

The following statements regarding the Company's future revenues, revenue
sources, operating expenses, and capital expenditures include forward-looking
information. Actual results may vary substantially depending upon a variety of
factors including those described in "Risk Factors," as well as those discussed
else where herein.

OVERVIEW

On October 1, 1997, the Company sold its Tandem product line to NDS in
order to focus efforts on its UNIX/NT product suite. In connection with this
sale, the Company will receive approximately $2.5 million in cash, of which $1.6
million was received in 1997, and the rights to receive royalties on Tandem
related products for a period of three years based upon NDS' licensing and
support of the Tandem software products. The sale of the Tandem product line
also included the transfer to NDS of approximately 12 employees associated with
the Company's Tandem operation.

Following the disposition of its Tandem product line, the Company shifted
its sales strategy to one based primarily upon third-party distributors and
restructured its sales department as a result of this shift. The Company intends
to build its sales, marketing, and customer support organizations with a focus
on delivery of its products to original equipment manufacturer ("OEM") partners,
resellers, system integrators, and select end-users. An essential element of the
Company's sales and marketing strategy is the development of indirect
distribution channels, such as OEMs, independent software vendors ("ISVs"), and
value added resellers ("VARs"), as well as other systems management and
application software vendors whose products are complementary with those of the
Company.

VARIABILITY OF QUARTERLY RESULTS

The Company has experienced significant quarterly fluctuations in operating
results and expects that these fluctuations will continue in future periods.
These fluctuations have been caused by a number of factors, including the timing
of new product or product enhancement introductions by the Company or its
competitors, the development and introduction of new operating systems that
require additional development efforts, purchasing patterns of its customers,
size and timing of individual orders, the rate of customer acceptance of new
products, and pricing and promotion strategies undertaken by the Company or its
competitors. Future operating results may fluctuate as a result of these and
other factors, including the Company's ability to continue to develop, acquire,
and introduce new products on a timely basis, the timing and level of sales by
the Company's OEMs or other third-party licensees of computer systems or
software incorporating the Company's products, technological changes in computer
systems and environments, quality control of the products sold, the Company's
success in shifting its primary sales strategy from direct to indirect channels,
and general economic conditions. Additionally, the Company's operating results
may be influenced by seasonality and overall trends in the global economy.
Because the Company operates with a relatively small backlog, quarterly sales
and operating results generally depend on the volume and timing of orders
received during the quarter, which are difficult to forecast. Historically, the
Company has recognized a substantial portion of its license revenues in the last
month of the quarter, particularly the last week. Since the Company's staffing
levels and

14
<PAGE> 16

other operating expenses are based upon anticipated revenues, delays in the
receipt of orders can cause significant fluctuations in income from quarter to
quarter.

RESULTS OF OPERATIONS

Quarters Ended March 31, 1998 and 1997

Although not required to be included herein, the Company released its
earnings for the first quarter of 1998 prior to this registration statement's
effective date. The Company reported total revenue in the first quarter of 1998
of $701,000, compared to revenue of $1,329,000 in the first quarter of 1997. The
revenue for the first quarter of 1997 included $1,252,000 in revenue related to
the Company's Tandem operation, which was sold in the fourth quarter of 1997
and, thus, for which there was no comparable revenue in the first quarter of
1998. Revenue related solely to the Company's UNIX/NT product line increased
486% from $77,000 in the first quarter of 1997, to $451,000 in the first quarter
of 1998.

Net income for the first quarter of 1998 was $212,000, or $0.06 per diluted
share, compared to a net loss of $1,126,000 or $0.39 per diluted share, in the
first quarter of 1997. The increase in net income was a result of a $515,000
gain recognized in the first quarter of 1998 related to the sale of the
Company's Tandem operation, as well as reduction in operating expenses from
$2,224,000 in the first quarter of 1997, to $879,000 in the first quarter of
1998. The reduction in operating expenses was due to the elimination of reduced
overhead associated with the Company's disposed Tandem operation and the
Company's cost containment efforts.

Years Ended December 31, 1997 and 1996

Total revenue. Total revenue decreased 35% from $6,477,000 in 1996, to
$4,231,000 in 1997. This decrease was primarily due to the sale of the Company's
Tandem products on October 1, 1997, which primarily affected product license
fees and product maintenance fees. For the first nine months of 1997, total
revenue decreased 9%, from $4,388,000 in 1996 to $3,993,000 in 1997. The Company
had minimal revenue in the fourth quarter of 1997 as it transitioned away from
the Tandem product line and restructured its sales force to accommodate its
strategic shift from direct sales to indirect sales.

Revenue from product license fees decreased 46% from $2,645,000 in 1996, to
$1,439,000 in 1997. The decrease was primarily attributable to the sale of the
Tandem product line. Revenue from the Company's Tandem product license fees
decreased by 49%, from $2,071,000 in 1996, to $1,047,000 in 1997. Through
September 30, 1997, prior to the sale of the Tandem products, product license
fees decreased 8%, from $1,453,000 in 1996 to $1,338,000 in 1997. The decline in
product license fees during the first nine months of 1997 is primarily related
to a decline in Tandem license revenue. Tandem license revenue during this nine
month period was affected by the change in sales management and other personnel,
as well as the pending sale of the Tandem product line. The decrease in Tandem
product license fees during the first nine months of 1997 was partially offset
by an increase of $284,000, or 265%, for the Company's UNIX product,
EnlightenDSM, for nine months ended September 30, 1997 when compared to the same
period in 1996.

On an annual basis, product license fees from EnlightenDSM licensed
directly to end-users increased by $266,000, or 212%, to $391,000 in 1997 when
compared to 1996. This increase excludes license fees generated in 1996 that
represented prepaid license fees paid to the Company by distributors in exchange
for future product license credits and exclusive rights to distribute the
Company's products in certain territories. There were no such comparable
transactions in 1997.

As noted above, product maintenance fees decreased by $809,000, or 24%, to
$2,599,000 in 1997 compared to 1996. This decline is almost entirely due to the
disposition of the Tandem product line on October 1, 1997. Product maintenance
fees for the first nine months of 1997 when compared to the same period in 1996,
decreased by only $16,000, or 1%. Product maintenance fees for EnlightenDSM
increased by $92,000 for the year ended December 31, 1997, compared to 1996.

Consulting services revenue decreased by $232,000, or 55%, to $193,000 in
1997 when compared with 1996. The decrease is due to a restructuring of the
Company's service division that resulted in the termination

15
<PAGE> 17

of low margin, high level, Tandem-related custom development services projects
the Company had engaged in during prior years.

Cost of revenue. Cost of revenue consists of royalties paid to third
parties, amortization of software development and acquisition costs, product
packaging and documentation, software media, and the costs of employees and
contractors providing consulting services. Cost of revenue decreased by $58,000,
or 20%, to $976,000 in 1997. Excluding the write-off of software development
costs discussed below, cost of revenue decreased by $208,000, or 20%, in 1997
when compared to 1996. The reduction in cost of revenue is caused primarily by
the decrease in costs associated with consulting services. Costs associated with
consulting services decreased by 72%, commensurate with the decrease in
consulting service revenue. Margins related to services revenue increased in
1997 due to the shift away from low margin, customized development projects to
higher margin consulting services and training related to the Company's
products.

The Company amortized $540,000 and $349,000 in 1997 and 1996, respectively,
of acquired technology and capitalized software development costs pursuant to
Statement of Financial Accounting Standards ("SFAS") No. 86. The amount in 1997
includes a $150,000 write-off related to certain software products, or product
versions. These software products were not expected to generate sufficient
future revenue which would be required for the Company to realize the carrying
value of the assets.

Research and development. Research and development expenses consist of
personnel expenses and associated overhead, and costs of short-term independent
contractors required in connection with the Company's product development
efforts, less amounts capitalized. Net research and development expenses
increased by less than 1% from $2,048,000, or 32% of revenue in 1996, to
$2,059,000, or 49% of revenue in 1997. This increase is solely attributable to
the decrease in the portion of the Company's research and development expenses
that were capitalized pursuant to SFAS No. 86 in 1997 when compared to 1996. In
1997 and 1996 the Company capitalized $66,000 and $484,000, respectively, of
software development costs. Gross research and development costs decreased by
$405,000, or 16%, in 1997 when compared to 1996. This decrease is related to the
sale of the Tandem product line on October 1, 1997. Prior to that product line's
disposition, gross research and development expenses were approximately the same
in 1997 as in 1996.

Costs incurred in the research and development of new software products are
expensed as incurred until technological feasibility is established. Recently,
the establishment of technological feasibility of the Company's EnlightenDSM
product and general release substantially coincided. As a result, the Company
has capitalized a lesser portion of its software development costs since a
majority of such costs have not been significant. The Company expects research
and development expenses to continue to increase in absolute dollars as the
Company continues to invest in the enhancement of existing products and the
development of new products.

Sales and marketing. Sales and marketing expenses include costs of sales
and marketing personnel, advertising and promotion expenses, customer service
and technical support, travel and entertainment, and other selling and marketing
costs. Sales and marketing expenses increased by 28%, from $2,979,000, or 46% of
revenue in 1996, to $3,820,000, or 90% of revenue in 1997, primarily due to the
increase in sales and marketing costs during the first nine months of 1997 when
compared to the same period in 1996. Sales and marketing costs for the first
nine months ended September 30, 1997, prior to the Tandem product line
disposition, increased by $826,000, or 41%, when compared to the nine months
ended September 30, 1996. The increase during this nine month period is
primarily due an increase in expenses related to the Company's U.K. subsidiary
including the addition of senior sales management personnel and the undertaking
of several new marketing initiatives. Additionally, sales and marketing expenses
for the first nine months of 1996 reflected lower personnel costs due to a
reduction in force in January 1996. An expansion of the worldwide sales force
occurred in the fourth quarter of 1996, thus increasing the sales and marketing
costs thereafter.

Despite the sale of the Tandem product line, sales and marketing expenses
in the fourth quarter of 1997 were approximately equal to the fourth quarter of
1996. Only two employees in the sales and support departments were transferred
to NDS as a result of the transaction. The Company's restructuring of the sales
and marketing department related to the shift in sales strategy from direct to
indirect occurred during the fourth quarter of 1997. Most employees terminated
as a result of the restructuring were employed by the

16
<PAGE> 18

Company through December 31, 1997. Additionally, sales and marketing costs for
the fourth quarter of 1997 include one-time charges related to severance
packages given to employees affected by the restructuring and expenses related
to the office closures of the Company's field sales offices in the Chicago and
New York areas and in the U.K. The Company expects sales and marketing costs to
continue to increase in absolute dollars for the foreseeable future as it
expands its ability to sell and service its products through third-party
resellers and expands its direct sales force.

General and administrative. General and administrative expenses, which
include personnel costs for finance, administration, information systems, and
general management, as well as professional fees, legal expenses, and other
administrative costs, increased by 13%, from $1,371,000, or 21% of revenue in
1996, to $1,551,000, or 37% of revenue in 1997. The increase in expense is
primarily related to increased legal fees associated with an arbitration hearing
settled in 1997, other professional fees, investor relations costs, and
personnel costs.

Acquired in-process research and development. In December 1994, the Company
acquired (the "Acquisition") all of the outstanding shares of Network Partners,
Inc. ("NPI"). At the time of the Acquisition, NPI's sole asset consisted of core
UNIX systems management technology. In connection with this acquisition, the
purchase price was allocated to in-process research and development, expensed in
the fourth quarter of 1994. The acquisition of NPI was accounted for using the
purchase method and was not considered deductible for tax purposes. Under the
terms of the agreements for the acquisition, the purchase price was to be
increased upon sales of the acquired technology. In December 1996 the Company
successfully negotiated a termination agreement with the former shareholders of
Network Partners, Inc. ("NPI Shareholders"). In exchange for a guaranteed
payment, the NPI Shareholders agreed to forego any and all rights to future
revenue from the UNIX technology purchased in connection with the Acquisition.

Gain on sale of Tandem product line. On October 1, 1997, the Company sold
its Tandem product line to NDS. In 1997, the Company recognized a gain on the
sale of the operating assets of the Tandem product line of approximately $2.2
million. The Company will receive approximately $2.5 million in cash, of which
$1.6 million was received in 1997, and the rights to receive royalties on Tandem
related products for a period of three years. The Tandem operations contributed
revenues of $3,659,000 and $5,882,000 in 1997 and 1996, respectively. The sale
of the Tandem product line also included the transfer to NDS of approximately 12
employees associated with the Company's Tandem operation.

Other income (expense). Other income and expense includes interest income
net of interest expense and gains and losses on foreign currency transactions.
Interest income is primarily derived from interest on the Company's savings
accounts and short term interest-bearing securities. Interest expense is
comprised of interest on bank notes and capital leases of computer equipment.
Other income and expense (net) decreased by $125,000, or 68%, in 1997 when
compared to 1996 as a result of lower cash balances, resulting in a decrease in
interest income from cash reserves.

Income tax expense. The Company's tax expense recognized in 1997 and 1996
is primarily due to taxes paid to foreign jurisdictions. No tax benefit was
recognized in either year due to the uncertainty related to the Company's
ability to recognize a tax benefit for loss and credit carryforwards.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1997, the Company's cash, cash equivalents, and short term
investments were $1,692,000, representing 46% of total assets. The Company's
working capital as of December 31, 1997, was $1,286,000. Cash equivalents are
highly liquid with original maturities of ninety days or less. The Company's
short term investments are primarily investment grade commercial paper and
highly liquid. The Company had no debt as of December 31, 1997, other than
normal trade payables and accrued liabilities. Shareholders' equity as of
December 31, 1997, was $2,492,000.

The Company's operating activities used cash of $1,915,000 in 1997,
compared to cash used by operating activities of $570,000 in the prior year. The
increase in cash used by operating activities was principally caused

17
<PAGE> 19

by increased net losses excluding the gain on the sale of the Tandem operation.
This was partially offset by a decrease in accounts receivable.

The Company's investing activities have consisted primarily of short-term
investments, capitalization of software development costs, and additions to
capital equipment. Investing activities provided cash of $2,473,000 in 1997,
compared with using cash of $1,024,000 in 1996. The increase is primarily due to
an increase in sales of short-term investments, the cash received for the sale
of the Tandem operation, and a decrease in both capitalized software development
costs and equipment acquisitions.

Financing activities provided cash of $158,000 in 1997, compared with cash
provided of $159,000 in the prior year. An increase in cash provided from
financing activities that resulted from a reduction in payments on bank
borrowings was more than offset by a decrease in cash provided by the exercise
of employee stock options.

On October 1, 1997, the Company sold its Tandem product line to New
Dimension Software, Inc. ("NDS"). The Company will receive approximately $2.5
million in cash and the rights to receive royalties on Tandem related products
for a period of three years. In 1997 the Company received $1.6 million in cash,
which included a $300,000 prepayment of future royalties. The Company expects to
receive the remaining amount related to the sale, equal to approximately
$900,000, in 1998. Of the remaining amount, approximately $700,000 is held in
escrow pending the satisfactory completion of certain short-term performance
objectives. The majority of such performance objectives were met during the
first quarter of 1998.

The Company believes that the proceeds from this Offering, together with
its existing cash, cash equivalents, and short term investment balances, the
additional proceeds from the sale of the Tandem product line, and funds from
operations will satisfy the Company's projected working capital and capital
expenditure requirements through the next twelve months. However, the Company
may require funds to support additional working capital requirements or for
other purposes and may seek to raise such additional funds through public or
private equity financing or from other sources. There can be no assurance that
additional financing will be available at all or that, if available, such
financing will be obtainable on terms favorable to the Company.

18
<PAGE> 20

BUSINESS
OVERVIEW

Enlighten Software develops, markets, and supports software products for
UNIX and UNIX/NT environment workgroup administration and enterprise management.
The Company's product solutions are designed for open systems distributed
computing environments in the range of ten to 1,000 servers/clients. The
Enlighten(R) Distributed Systems Manager(TM)("EnlightenDSM(TM)") product allows
companies to manage their information systems by enabling systems managers and
administrators to control their systems from diverse UNIX/NT platform vendors
such as DEC, HP, IBM, Microsoft, SCO, Silicon Graphics, and Sun. The Company's
award winning EnlightenDSM product suite provides cost-effective systems
administration solutions for such open systems environments. The product suite
is a fully integrated software solution providing a middle-tier framework that
is a standards-based multi-function management system covering the breadth of
workgroup administration and systems management disciplines.

RECENT DEVELOPMENTS FOR THE COMPANY

Fiscal 1997 was a period of significant change for Enlighten Software. In
May 1997 the Company released version 2.2 of EnlightenDSM which included support
for the Windows NT operating system. Allowing management of both UNIX and NT
operating systems was a significant advancement of EnlightenDSM, broadening its
market to include the rapidly expanding NT operating system deployment. After
continued disappointing results from the sales and marketing efforts related to
the Company's UNIX/NT product, the Company began a search for a new Chairman of
the Board and a new President and Chief Executive Officer ("CEO"). These
appointments were made in July and August 1997, respectively. In October 1997,
the Company sold its Tandem operation in order to focus on its UNIX/NT product
line. During the fourth quarter of 1997 the Company streamlined its operations
and shifted its primary sales strategy from direct field sales to indirect
channels sales, resulting in a reduction and change of its sales and marketing
personnel and the elimination of field sales offices in the U.S. and Europe. In
January 1998, following the Company's shift to the indirect sales model,
Enlighten Software entered into its first OEM bundling agreement with Silicon
Graphics.

Key Management Changes

In July 1997, the Company appointed Michael Seashols as Chairman of the
Board. In August 1997, the Company hired David D. Parker as the Company's new
President and CEO. Mr. Seashols previously served as CEO of Usoft, Inc. from
1994 through 1997. Prior to that, he served as CEO and was a founder of Versant
Object Technology, Inc. ("Versant") and Documentum, Inc., as well as vice
president of sales for several software companies, including Oracle Corporation
and Ingres. In addition to his role with Enlighten Software, he currently serves
as Chairman of the Board of Evolve Corporation. Mr. Parker brings 19 years of
software industry experience at companies such as IBM, Versant, and Quintus
Corporation ("Quintus"), where he held several sales and marketing positions,
most recently vice president of sales and marketing at Quintus. Prior to joining
Enlighten Software, Mr. Parker was President of Web Logic, a privately held Java
middleware software development company. Additionally, in the restructuring of
the Company's sales and marketing departments, the Company's Vice President of
Sales and Marketing, its Director of Marketing, and its Managing Director,
Europe, Middle-East and Africa were either replaced or left the Company during
the fourth quarter of 1997.

Tandem Divestiture

In October 1997, the Company sold all of the technology and operating
assets associated with its Tandem product line to New Dimension Software, Inc.
("NDS"), a subsidiary of New Dimension Software, Ltd. In

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this transaction the Company will receive approximately $2.5 million in cash,
which resulted in a gain to the Company of approximately $2.2 million in 1997.
Approximately $1.6 million was received in 1997, with the substantial portion of
the remaining amounts due in the first quarter of 1998. In addition, NDS is
required to pay the Company royalties through September 2000 from NDS' licensing
and support of the Tandem software products. The sale of the Tandem product line
also included the transfer to NDS of approximately 12 employees associated with
the Company's Tandem operation.

OEM Bundling Agreement

On January 22, 1998, the Company entered into a three-year worldwide OEM
bundling agreement with Silicon Graphics. Under the terms of the agreement,
Silicon Graphics will ship a bundled limited feature version of EnlightenDSM on
new server and workstation product shipments as well as with operating system
upgrades shipped to already installed Silicon Graphics customers. Silicon
Graphics will also offer and include on its price list a full feature version of
EnlightenDSM as well as agent modules to enable the management of other UNIX/NT
vendor servers and workstations. The products will be supported through Silicon
Graphic's global customer support organization. In addition to OEM bundling,
Silicon Graphics will market the products through its telesales force, direct
field organization, and authorized resellers.

INDUSTRY BACKGROUND

In recent years there has been a significant change in the market for
networked, enterprise-wide computer systems. Technology advances in hardware and
software have created a new paradigm in computing based upon a client/server
architecture, where the user and the information server are connected via high
speed networks, locally via LANs, or remotely via communications networks. In
many cases, these systems are being deployed to replace the existing mainframe
systems. Yet the Company believes that, in the majority of cases, these systems
are additional and complementary to an organization's existing computing
capability. In the latter situations, computer systems based upon UNIX and NT
operating systems are generally being deployed at the divisional and
departmental levels, although many companies are increasingly using UNIX and NT
systems for more critical applications used in the organization's day-to-day
operations. The transition to open distributed computing has been accelerated by
the adoption of Internet and Intranet technologies that utilize such open
systems. The development of client/server or distributed systems has created a
significant market for hardware and software companies that have developed
products for these open environments based on UNIX or NT. Sun, HP, IBM, and
Silicon Graphics are a few of the hardware companies that ship large quantities
of UNIX workstations and servers. Database and programming development products
from companies such as Oracle, Informix, Sybase, Forte, SAP, and Baan have also
enjoyed success based upon the development of open systems.

Open systems environments offer several benefits, such as common standards,
allowing for combinations of hardware and software from a variety of vendors.
These environments also provide easy portability of applications from one
vendor's UNIX system to another, thereby protecting a customer's original
investment. Other benefits include lower price points, cost effective
networking, and a large pool of experienced technical personnel. However,
managing the operations of large client/server systems can be difficult and
labor intensive. As corporate customers migrate mission critical applications
from mainframes to distributed UNIX and NT systems, they are demanding the same
type of management and administration tools provided in the mainframe
environment. The diversity of systems and applications has increased
significantly in recent years. The introduction and proliferation of the NT
operating system, the increased scope of applications from core business
transactional software to decision support, groupware, and Internet/Intranet
products, and the advancement of requirements of a centralized information
technology ("IT") department to manage systems in remote physical locations has
greatly expanded the systems management expertise required within IT
organizations of these companies. Additionally, an inherent characteristic of
open systems is a lack of complete integration of the various vendors' products.
The development of standards such as Simple Network Management Protocol
("SNMP"), the leading protocol for network management and the leading standard
for information collection in multi-vendor computing environments, and OpenView
provide a standard framework for systems management products in open
environments, but these standards must be integrated and managed.

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Many hardware manufacturers have been slow to provide effective multi-vendor
solutions to manage their own, let alone their competitor's hardware, creating a
market need for truly heterogeneous system administration solutions.

While open systems have produced significant advantages, the management of
distributed, heterogeneous open systems presents a major challenge. Unlike the
mainframe environments where an operations department typically has both trained
resources and extensive systems utilities, the responsibility for managing open
systems became the responsibility of technicians who typically use limited
system utilities and "home grown" routines.

These market needs are currently being addressed either through manual
procedures by a company's internal IT organization, or by one of three types of
solutions: (i) point products, or stand-alone products designed to address one
particular function or requirement; (ii) interfaced products, or a set of point
products loosely coupled by a common interface but not truly integrated; and
(iii) enterprise systems management frameworks, or large monolithic products
designed to manage a customer's entire computing infrastructure from mainframe
systems, to UNIX/NT systems, to desktop PCs. Many products serving this market
were developed by porting dated mainframe technology and architecture to the
UNIX environment. These solutions are typically expensive to acquire and
implement due to the extensive efforts associated with installing and
configuring these products to a customer's particular environment.

THE ENLIGHTEN SOFTWARE SOLUTION

Enlighten Software offers a middle-tier framework for workgroup
administration and systems management for UNIX and NT open systems. Enlighten
Software's mission is to provide the industry's most pervasive software
solutions which help enterprises monitor, manage, and administer distributed,
heterogeneous computers simply and inexpensively. The Company intends to
establish a presence as a market leader for easy to use, out-of-the-box,
broad-based functionality for workgroup administration and systems management
across major open systems platforms. While numerous standards are being
introduced and companies are vying to position themselves in the open systems
management market, Enlighten Software is positioning its Enlighten product suite
as the one product that is vital and affordable to open systems managers in
mixed UNIX/NT environments.

Enlighten Software's systems management solution differentiates itself from
other companies' systems management approaches. The Company believes that
systems managers demand management tools that are simple to use, easy to
install, scalable and customizable, intuitive to learn, and reasonably priced.
The Enlighten product suite is targeted to the broadest segment of the open
systems market: customers with ten to 1,000 workstations from a variety of the
most popular vendors. The Company believes the product's key strengths that
address the needs of this market niche are:

O Ease of use: EnlightenDSM is designed to be easily installed, and
configured. Enterprise systems management products such as Computer
Associates' Unicenter and Tivoli Systems' TME are very complex and often
require a substantially increased investment of time and money to make
useful when compared to the Company's product. Typically, EnlightenDSM
installs and begins operating in hours, and can be fully configured with
customized event alarms and thresholds and integration with other
third-party products in weeks.

O Broad functionality: The customer in the Company's target market
typically has a limited budget, limited resources, and limited staff.
Therefore, the Company designed the product to be able to address a broad
range of system management and administration needs, alleviating the
customer from the need to make a series of investments in point product
solutions. EnlightenDSM provides a common interface for an integrated
product that addresses (i) user account configuration, (ii) printer
resource management, (iii) network services configuration and management,
(iv) security auditing, (v) disk and file management, (vi) archive
management, (vi) systems management, and (vii) event generation and
monitoring.

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O Price performance: The Company believes its product is generally priced
below comparable point products in the market, as well as enterprise
framework products.

O Open architecture: EnlightenDSM is based on an architecture which is
designed to be easily integrated with most existing point solutions as
well as solutions developed by customers internally. The product is also
designed to communicate "up" to the enterprise framework products with
event mechanisms or easy-to-write scripts in the product's Programmable
Event Processor ("PEP"). EnlightenDSM uses Structured Query Language
("SQL") with any Open Database Connectivity ("ODBC") databases and SNMP.
The product can operate as an integral part of an enterprise management
environment in a larger customer environment, or as the focal point of
administration and management in a smaller customer environment, or in
divisions/sites of a larger customer environment.

EnlightenDSM is scalable to large networks and supports the day-to-day
operational requirements of networked systems, such as adding users and nodes,
reconfiguring system processes, managing disk storage, and managing
Internet/Intranet users. The Company believes its product suite is affordably
priced, scalable from ten to several thousand systems, designed to install
within one half hour for most configurations, and will integrate with other
system console and network administration products, such as Tivoli, CA
Unicenter, Remedy, and many others.

COMPANY STRATEGY

Enlighten Software's objective is to become a market leader in integrated
open systems workgroup administration and systems management. To achieve this
objective, Enlighten Software has adopted a business strategy incorporating the
following elements:

Focus on the "under-served" market

The Company believes that most of the products in the enterprise systems
management market are currently focused toward Fortune 500 companies that can
afford the time and expense, and possess the resources necessary to implement a
monolithic enterprise-wide systems management solution. Mid-sized companies, and
smaller sites or departments of larger companies, cannot effectively and
efficiently implement these solutions and require less intrusive, more
cost-effective means to manage their UNIX/NT systems. The Company believes there
are very few products to assist these organizations in managing and monitoring
their open systems networks. Enlighten Software's focus for its UNIX/NT products
is this under-served market, defined as sites with ten to 1,000 UNIX or NT
workstations or servers without a large mainframe presence. The Company feels
its low-cost, easy-to-use, non-intrusive workgroup administrations and systems
management solution is the most effective tool for these companies to use for
managing and monitoring their systems.

Penetrate the market primarily through third-party relationships

The Company has recently shifted its sales and marketing focus from direct
sales to indirect channels sales. Shortly after this shift occurred the Company
entered into an OEM bundling agreement with Silicon Graphics. The Company's
product architecture and the design, price point, and ease of use of the
EnlightenDSM product allow it to be effectively bundled with a hardware
manufacturer's operating system. The relationship with Silicon Graphics will
allow the Company to begin penetrating the market by proliferating a limited
version of its product on thousands of Silicon Graphics systems, thereby
providing a base within which to sell the full feature version of EnlightenDSM,
as well as other products. The Company intends to continue to pursue additional
partnering relationships and intends to focus its sales and marketing efforts on
the following:

O Additional UNIX hardware manufacturers -- The Company believes that
several UNIX hardware manufacturers lack effective systems management
solutions. As the competition for UNIX hardware increases and price
points drop, the Company feels these manufacturers will need to
differentiate themselves through the ability to offer solutions to
customers that provide lower cost of ownership through ease of use and
administration for their systems.

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O Systems management and other software application vendors -- The Company
believes its product suite is complementary with several software
vendors' applications. EnlightenDSM's architecture is designed to allow
integration with other third-party software products with minimal
engineering requirements. The Company intends to pursue relationships
with software companies providing systems management, help desk software,
and other "customer care' applications with which the Company's product
could be integrated and sold as a combined solution.

O Systems integrators and consultants -- The Company also believes that
companies providing systems management consulting and outsourcing
services to IT organizations are in need of effective administration and
management tools to provide their clients with improved efficiencies in
managing heterogeneous open systems environments.

O Selected end-users -- The Company has shifted its primary focus from
direct to indirect channels to market and distribute its product.
However, it maintains a small direct sales force focused on select
opportunities where the Company can provide value through stronger, more
dedicated customer relationships.

The preceding discussion regarding the Company's response to the systems
management market and its product and marketing strategy contains
forward-looking statements, and actual results may vary substantially depending
upon a variety of factors, including, but not limited to, the development of
emerging markets for systems management and administration software,
competition, technological change, changing customer needs, evolving industry
standards, any product development delays, and the ability of the Company to
manage future growth and new distribution channels, if any. These and other
factors are more fully discussed under the caption "Risk Factors" on page 5 of
this registration statement.

PRODUCTS

Enlighten Software offers software products designed to automate the
management and administration of computer systems. Set forth below is a summary
of the Company's principal product offerings.

In the fast-paced UNIX/NT environment, millions of new computers are being
deployed annually. All system administrators must learn to manage networks in
which users are added on a regular and continuous basis. The tools these system
administrators need to effectively perform their jobs should be simple, easy to
implement, and intuitive; not complex, rules-based systems management software.
The Company acquired core technology for UNIX systems administration products in
December 1994, and released two complementary UNIX products in the second
quarter of 1995. The features of these two products were combined in
EnlightenDSM version 2.0, which was released in May 1996. The Company is
currently shipping version 2.3 of EnlightenDSM. Product license fees from the
Company's open systems product family represented 27% and 22% of total product
license fees in 1997 and 1996, respectively.

EnlightenDSM is a standards-based, multi-function management system
covering the following disciplines: user administration, file system management,
Internet/Intranet management, printer management, security checking, archiving,
subsystem monitoring, event generation/tracking, and other system functions.
EnlightenDSM runs on a variety of open systems computer platforms, including
HP/UX, SUN/Solaris, IBM/AIX, Intel 486/SCO, Silicon Graphics/IRIX, Digital UNIX,
and Microsoft NT. Cross-platform functionality enables the management of diverse
and distributed systems from a centralized console.

EnlightenDSM automatically collects and saves status, configuration,
performance, and capacity information and makes it available for monitoring by
most commercial SNMP managers. The product monitors system resources including
peripheral devices, processes, resources, and services. Thresholds can be set to
generate alarms that warn users of an error or problem about to occur. The
product can also be set to take corrective action automatically. EnlightenDSM
monitors and reports changes in system inventory and can track the addition or
removal of memory, disk drives, tape drives, and other devices, thereby reducing
costly downtime and improving system performance.

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The Company shifted its strategic focus away from the Tandem platform and
toward the UNIX/NT environment. In October 1997, the Company sold all of the
technology and operating assets associated with its Tandem product line to NDS.
Product license fees from the Company's Tandem product line accounted for 73%
and 78% of total product license fees in 1997 and 1996, respectively.

SALES AND DISTRIBUTION

The Company's revenues are derived from three sources: product license
fees, product maintenance fees, and consulting services.

Product license fees

During 1997, Enlighten Software marketed its products through a direct
field sales force, an inside telesales channel, and third-party distributors.
The Company's products were marketed throughout North America, South America,
and parts of the Pacific Rim by its product sales organization located at the
Company's headquarters in San Mateo, California as well as through its regional
field sales offices in the Chicago and New York areas. Enlighten Software
marketed its products in Europe, the Middle East, and Africa through its
wholly-owned subsidiary headquartered in the United Kingdom and through
independent distributors.

Product license fees in 1997 consisted primarily of revenue from the
granting of perpetual licenses and from the licensing of product upgrades
necessary when customers upgrade their system hardware. Revenue from end-user
licenses is payable in full at the commencement of the license period and is
recognized after all of the following events have occurred: (i) a product
evaluation has been shipped to the customer; (ii) the customer elects to
purchase the software following an evaluation period; and (iii) the customer
signs the related contract. Product license fees represented 34% and 41% of
total revenue in 1997 and 1996, respectively.

Following the disposition of its Tandem product line during the fourth
quarter of 1997, the Company shifted its sales strategy to one based primarily
upon third-party distributors and restructured its sales department as a result
of this shift. This restructuring included personnel changes as well as the
closing of field sales offices in the Chicago and New York areas, as well as the
U.K. sales and support office.

Enlighten Software intends to build its sales, marketing, and customer
support organizations with a focus on delivery of its products to OEM partners,
resellers, system integrators, and select end-users. An essential element of the
Company's sales and marketing strategy is the development of indirect
distribution channels, such as OEMs, ISVs, and VARs, as well as other systems
management and application software vendors whose products are complementary
with those of the Company.

In January 1998, the Company established its first OEM relationship with
Silicon Graphics. Under the agreement, Silicon Graphics will incorporate a
limited version of EnlightenDSM bundled with its operating system on a bundled
basis on new servers and workstations as well as with operating system upgrades
shipped to already installed Silicon Graphics customers. Silicon Graphics will
also offer and included in their price book licenses for the full-feature
version of EnlightenDSM as well as agent modules to enable the management of
other UNIX/NT vendor servers and workstations as optional enhancements. The
products will be supported through Silicon Graphic's global customer support
organization. In addition to OEM bundling, Silicon Graphics will market the
products through its telesales force, direct field organization, and authorized
resellers. The Company receives a license fee for each copy distributed by
Silicon Graphics to its customers.

The Company is currently investing, and intends to continue to invest,
significant resources to develop the OEM, ISV, and VAR channels, which could
have a material adverse affect on the Company's operating margins. The Company's
efforts to expand its third-party channels are intended to penetrate the market
and achieve widespread commercial acceptance of the Company's products as a
workgroup administration standard. There can be no assurance that the Company
will be successful in its efforts to increase the revenues represented by this
channel. The Company will be dependent upon Silicon Graphics and new third-party
relationships for a significant portion of its revenue for the foreseeable
future. There is no assurance that the

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Company's third-party distributors will effectively distribute and exploit the
Company's products. The inability to recruit additional third parties to
distribute, market, and support the Company's products could have a material
adverse affect the Company's business, operating results, and financial
condition. A more detailed discussion of these and other risks associated with
the Company's business is set forth under the caption "Risk Factors" on page 5
of this report.

Product maintenance fees

All customers subscribing to Enlighten Software's maintenance service
agreements are entitled to receive (i) technical support and consultation,
primarily over the telephone, and (ii) subsequent product enhancement and
maintenance releases periodically produced by the Company. Product maintenance
support is provided directly to customers as well as through the Company's
authorized distributors. As the Company shifts its sales efforts from direct to
indirect channels, the Company will become more dependent on its third-party
distributors for the technical support and consultation to end-users. The
Company will need to increase its training and education efforts related to its
third-party distributors to ensure the technical proficiency and knowledge of
such third parties with respect to the Company's products.

Product maintenance fees consist of all maintenance revenue on new and
existing installed software products. The Company generally charges, on an
annual basis, 20% of the current list price of its products in exchange for
telephone support, product updates, and product enhancements. Product
maintenance revenue is recognized ratably over the maintenance contract period
(typically one year). Product maintenance fees accounted for 61% and 53% of
total revenue in 1997 and 1996, respectively.

Consulting services

Revenue from consulting services consists of fees charged for contract
services, product training, and other service activities. This division of the
Company's technical support organization provides fee-based consulting services
to the Company's customers throughout the U.S. Consulting service revenue is
recognized when services are performed for time and material contracts and on a
percentage of completion basis for fixed price contracts. Consulting services
represented 5% and 7% of total revenue in 1997 and 1996, respectively.

PRODUCT DEVELOPMENT

The computer software industry is characterized by rapid technological
change and is highly competitive in regard to timely product innovation.
Accordingly, the Company believes that its future success depends on its ability
to enhance current products that meet a wide range of customer needs and to
develop new products rapidly to attract new customers and provide additional
solutions to existing customers. In particular, the Company believes it must
continue to respond quickly to users' needs for broad functionality and open
systems support.

Enlighten Software addresses the needs of current users through regularly
scheduled maintenance and enhancement releases. At the same time, the Company
seeks to acquire and develop new products to meet the needs of a broader group
of users.

The Company provides an integrated workgroup administration and systems
management product for open systems running on six different UNIX-based systems
and Microsoft NT. The EnlightenDSM product consists of the following features:
user administration, file system management, Internet/Intranet management,
printer management, security checking, archiving, subsystem monitoring, and
event generation/tracking.

The Company significantly enhanced its EnlightenDSM product with several
releases during 1997. The new releases contained new features such as NFS and
Veritas file system monitoring, performance enhancements to the communication
layer resulting in better reliability and response time, and support for the new
operating system releases from the supported operating system vendors.
Electronic documentation was also added to the EnlightenDSM product. Both the
User Guide and Reference Manuals are now supplied in Adobe Acrobat format,
complete with electronic hyperlinks and cross references. In addition, the
Company

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added to its supported platforms with ports to DEC ALPHA OSF and Windows NT. In
preparation for its third-party distribution efforts, the Company customized its
licensing procedures to allow more flexible, multi-tiered licensing structures.
Additionally, the product suite was modified to allow for distribution of both a
limited feature and an enhanced feature product for its newly established OEM
relationship with Silicon Graphics.

The Company's strategy is to continue to enhance EnlightenDSM's
functionality through new releases and new feature development to meet the
continually advancing systems administration and management requirements of its
customers, including:

O increased scalability and performance;

O increased integration with other systems management point solutions as
well as other enterprise systems management frameworks;

O increased levels of automation and ease of use to further reduce
administrative costs and overhead;

O increased range of supported platforms; and

O continued customization for the Company's current and new third-party
distributors.

There can be no assurance that the Company will be successful in developing
and marketing new features or products that respond to technological change or
evolving industry standards, that the Company will not experience difficulties
that could delay or prevent the successful development, introduction, and
marketing of any new features or products, or that its new features or products
will adequately meet the requirements of the marketplace and achieve market
acceptance. Additionally, the Company's product development staff will be under
increased pressure as the Company's products are deployed on a significantly
greater number and variety of machines by virtue of the Silicon Graphics
bundling relationship (or other additional third-party relationships, if any).
Due to the complexity of the product and the large number of network
configurations in the market, it is extremely difficult to fully test
EnlightenDSM in all possible environments and, although the Company employs a
continual effort to assure a quality product, there is no assurance that errors
will not be found in the released commercial product resulting in delays of new
feature development. If the Company is unable, due to lack of resources or for
technological or other reasons, to develop and introduce new features and
products in a timely manner in response to changing market conditions or
customer requirements, the Company's business, operating results, and financial
condition will be materially adversely affected. See "Risk Factors" on page 5 of
this Prospectus.

As of December 31, 1997, the Company had ten professional and technical
employees engaged in research and development. During the fiscal years ended
December 31, 1997 and 1996, the Company's research and development expenditures
before the capitalization of software development were $2,125,944 and
$2,531,237, respectively.

COMPETITION

The systems management market in which the Company competes is intensely
competitive, highly fragmented and rapidly changing. In order to compete, the
Company must enhance its current products, enhance the operability of its
products with other products, management frameworks, and operating systems
through a truly open architecture, develop new products in a timely fashion, and
develop key strategic partnerships with other hardware and software vendors.
Many of the Company's competitors in the open systems markets are larger and
have greater financial, technical, marketing, and other resources than the
Company. Because there are relatively low barriers to entry in the software
market, the Company expects additional competition from other established and
emerging companies. Increased competition is likely to result in price
reductions, reduced gross margins, and increased difficulty in establishing
market share, any of which could have a material adverse affect the Company's
business, operating results, and financial condition. See "Risk Factors" on page
5 of this report.

The Company's principal competition in the market for open systems
workgroup administration and system management products is from enterprise
systems management vendors such as Tivoli, a wholly-owned

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subsidiary of IBM, and Computer Associates, as well as point products from BMC
Software, Inc., Platinum Technologies, Inc., Veritas Software, Inc., and Legato
Systems, Inc. The Company also faces competition from internal development
groups of prospective end-user customers and OEMs, including operating system
vendors, many of which have substantial internal programming resources and are
capable of developing specific operating system level products for their own
needs. In addition, certain operating systems vendors have already incorporated
systems management capabilities into their operating system, including HP, Sun,
IBM, and Microsoft, which reduces such vendors' need for the Company's products.
Additional hardware manufacturers may elect to offer similar competitive
products in the future.

The Company believes that it competes favorably with its competitors with
respect to product features and functionality, such as scalability,
interoperability across multiple platforms, adherence to standards, security, as
well as reliability, ease-of-use, price/performance ratio, and an ability to
integrate easily with third-party vendors' products. However, given the
Company's size, its recent entry into this market, and the advantages its
competition enjoys with respect to size and resources, there can be no
assurances the Company can effectively compete in this market.

PRODUCT PROTECTION

The Company relies on a combination of copyright, trade secret and
trademark laws, and software security measures, along with employee and
third-party nondisclosure agreements, to protect its intellectual property
rights, products, and technology. The Company's products are typically licensed
on a "right to use" basis pursuant to perpetual licenses that restrict the use
of the products to the customer's internal purposes. The Company distributes its
software under license agreements that are signed by its end-users. Despite the
precautions taken by the Company to protect its software, unauthorized parties
may attempt to reverse engineer, copy, or obtain and use information the Company
regards as proprietary. Policing unauthorized use of the Company's products is
difficult, and software piracy is expected to be a persistent problem.
Additionally, the laws of some foreign countries do not protect the Company's
proprietary rights to the same extent as do the laws of the United States.

The Company has entered into source code escrow agreements with some of its
customers that require the release of source code to the customer in the event
there is a bankruptcy proceeding by or against the Company, the Company ceases
to do business, or the Company is unable to fulfill its contractual obligations
with respect to support. In the event of a release of the source code, the
customer is required to maintain its confidentiality and, in general, to use the
source code solely for the purpose of maintaining the software's usability. The
provision of source code may increase the likelihood of misappropriation or
other misuse of the Company's intellectual property.

The Company is not aware that its products, trademarks, or other
proprietary rights infringe the proprietary rights of third parties. However,
from time to time, the Company receives notices from third parties asserting
that the Company has infringed their patents or other intellectual property
rights. In addition, the Company may initiate claims or litigation against third
parties for infringement of the Company's proprietary rights or to establish the
validity of the Company's proprietary rights. Any such claims could be
time-consuming, result in costly litigation, cause product shipment delays or
lead the Company to enter into royalty or licensing agreements rather than
disputing the merits of such claims. As the number of software products in the
industry increases and the functionality of such products further overlap, the
Company believes that software developers may become increasingly subject to
infringement claims. Any such claims, with or without merit, can be time
consuming and expensive to defend. An adverse outcome in litigation or similar
proceedings could subject the Company to significant liabilities to third
parties, require expenditure of significant resources to develop non-infringing
technology, require disputed rights to be licensed from others, or require the
Company to cease the marketing or use of certain products, any of which could
have a material adverse effect on the Company's business, operating results, and
financial condition. See "Risk Factors" on page 5 of this report.

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EMPLOYEES

As of December 31, 1997, the Company employed 34 people worldwide,
consisting of 31 in the United States and 3 in Europe. Of these employees, 10
were engaged in product development, 16 in sales, marketing, and customer
support, and 8 in finance and other administrative departments. The Company's
believes its future success depends in large part upon the continued service of
its key technical and senior management personnel and its ability to attract and
retain highly qualified technical and managerial personnel. Competition for such
personnel is intense, as certain of these personnel have significant prior
industry experience and are in great demand. There can be no assurance that the
Company can retain its key technical and managerial employees or that it can
attract, assimilate or retain other highly qualified technical and managerial
personnel in the future. None of the Company's employees are subject to any
collective bargaining agreements. Each employee of the Company has executed an
agreement not to disclose trade secrets or other confidential information.
Enlighten Software believes its employee relations are good.

FACILITIES

The Company leases approximately 17,000 square feet of office space in San
Mateo, California under a lease which expires in March 2001. The Company
previously leased additional sales and support offices in Lisle, Illinois,
Saddlebrook, New Jersey, and the United Kingdom under month-to-month leases,
each of which were terminated in the fourth quarter of 1997. The Company
believes that its current facilities are adequate for its needs through 1998 and
should additional space be needed, it will be available to accommodate the
expansion of the Company's operations on commercially reasonable terms.

LEGAL PROCEEDINGS

From time to time, the Company may be involved in litigation relating to
claims arising out of its operations in the normal course of business. As of the
date of this Prospectus, the Company is not engaged in any legal proceedings
that are expected, individually or in the aggregate, to have a material adverse
effect on the Company's business, financial condition or results of operations.

28
<PAGE> 30

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following sets forth the executive officers and directors of the
Company as of March 31, 1998:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Michael Seashols(1)(2)................. 52 Chairman of the Board of Directors
David D. Parker........................ 42 President and Chief Executive Officer
Michael A. Morgan...................... 35 Vice President, Finance and Administration,
Chief Financial Officer, Secretary, and
Director
Peter J. McDonald...................... 50 Director
Peter J. Sprague(1)(2)................. 59 Director
Bruce Cleveland(1)(2).................. 39 Director
</TABLE>

- ---------------
(1) Member of Audit Committee

(2) Member of Compensation Committee

Mr. Seashols joined the Company in July 1997 as Chairman of the Board and
Director. From 1994 through 1997, Mr. Seashols served as Chief Executive Officer
of Usoft, Inc., a wholly-owned software subsidiary of Unysis, Inc. that provides
development and maintenance tools for client/server and Internet based computer
applications. From 1988 through 1993, he served as Chief Executive Officer and
was a founder of Versant Object Technology Corporation, a provider of enterprise
component management software systems for commercial applications in distributed
computing environments. Previously, Mr. Seashols was a founder and the original
Chief Executive Officer of Documentum, Inc., as well as vice president of sales
for several software companies, including Oracle Corporation and Ingres. He also
currently serves as Chairman of the Board of Evolve Corporation, a provider of
Services Resource Management (SRM) applications designed to manage
mission-critical processes for services organizations, as well as a consultant
to several software companies.

Mr. Parker joined the Company in August 1997 as President and Chief
Executive Officer. From November 1996 through August 1997, Mr. Parker served as
President of Web Logic, a software company developing enterprise Java server
components. From July 1993 through October 1996, Mr. Parker served in various
sales management positions, most recently as Vice President, Indirect Sales of
Quintus Corporation, which markets and develops software and services for use in
call center operations. Mr. Parker has over nineteen years of experience in the
software industry, including senior sales and management positions at Versant
Object Technology Corporation. and IBM.

Mr. Morgan joined Enlighten Software in May 1991 as Controller and became
Vice President, Finance and Administration, Chief Financial Officer, Secretary,
and Director in October 1991. Mr. Morgan served in various positions at KPMG
Peat Marwick LLP in San Jose, California, from 1987 to 1991, most recently as
manager. Mr. Morgan is a certified public accountant in California.

Mr. McDonald founded the Company in June 1986 and served as Chairman of the
Board, Director, President, and Chief Executive Officer from that date through
July 1997. Since July 1997, Mr. McDonald has been employed as a strategic
advisor to the Company. From 1982 to 1986, Mr. McDonald was the Managing
Director of Software Professionals Pty. Ltd., an Australian company that
principally provided systems analysis and software programming and consulting
services to the Australian banking community.

Mr. Sprague has served as a Director of the Company since February 1994.
From 1975 through 1995, Mr. Sprague served as Chairman of the Board of National
Semiconductor Corporation, a leading manufacturer of semiconductor components
and integrated circuits. In May 1988, Mr. Sprague founded Wave Systems Corp., an
electronic information company, for which he currently serves as Chairman.

Mr. Cleveland has served as a Director of the Company since February 1994.
Since May 1997, Mr. Cleveland has been the Vice President Marketing of Siebel
Systems, Inc., an industry leading provider of

29
<PAGE> 31

sales and marketing information software systems. From October 1995 through
April 1997, Mr. Cleveland served as the President of Component Integration
Laboratories. From 1992 through October 1995, Mr. Cleveland was the Senior
Director of Apple Computers' Open Systems Business Unit. In 1989, Mr. Cleveland
co-founded Siren Software, an open systems company, where he was the Vice
President of Marketing from 1989 to 1992.

All directors hold office until the next annual meeting of shareholders and
until their successors have been duly elected and qualified. There are no family
relationships among the directors or executive officers of the Company. Officers
are elected by and serve at the discretion of the Board of Directors.

EXECUTIVE COMPENSATION

The following table sets forth information concerning the compensation
during the years ended December 31, 1997, 1996, and 1995 of the Chief Executive
Officer and the other most highly compensated executive officer of the Company
in 1997 and two former executive officers (including the former Chief Executive
Officer) who would have been among the most highly compensated executive
officers in 1997 but who were not executive officers at December 31, 1997 (the
"Named Executive Officers"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION(S) YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
------------------------------ ---- --------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
David D. Parker(1).................... 1997 $ 40,923 $20,000 200,000 --
President, and Chief 1996 -- -- -- --
Executive Officer 1995 -- -- -- --

Michael A. Morgan..................... 1997 110,000 23,781 50,352(2) --
Vice President, Finance and 1996 92,500 13,750 25,000 --
Administration, and Chief 1995 82,714 6,250 7,500 --
Financial Officer

FORMER OFFICERS:

Peter J. McDonald(1).................. 1997 188,125 -- -- $7,666(3)
Former President, 1996 227,083 -- -- 7,606(3)
Chief Executive Officer, 1995 275,000 12,500 7,500 6,816(3)
and Chairman of the Board

Byron Jacobs(4)....................... 1997 91,432 31,708 -- --
Former Vice President, 1996 99,538 -- 100,000 --
Sales and Marketing 1995 -- -- -- --
</TABLE>

- ---------------
(1) Mr. McDonald served as Chairman of the Board, President, and Chief Executive
Officer of the Company until August 27, 1997; remaining as a Director of the
Company. Mr. Parker replaced Mr. McDonald as President and Chief Executive
Officer.

(2) Includes options to purchase an aggregate of 15,875 shares granted on June
19, 1997 at $1.53 per share replacing an option to purchase 3,375 shares at
$4.00 per share granted on September 15, 1993, an option to purchase 5,000
hares at $3.13 per share granted on July 15, 1994, and an option to purchase
7,500 shares at $3.13 per share granted in August 30, 1995. Options to
purchase 15,875 shares were canceled in connection with the repricing. See
"Ten-Year Option Repricings."

(3) Includes $6,816, $6,816, and $6,026 paid by the Company in 1997, 1996, and
1995, respectively, for a leased automobile used by Mr. McDonald. Also
includes $850, $790, and $790 in 1997, 1996, and 1995, respectively, for a
$1 million split-dollar life insurance policy issued on the life of Mr.
McDonald. These portions of the total insurance payments made are treated as
income to Mr. McDonald under IRS regulations. The Company pays a monthly
premium of $2,500 on this policy. The Company will be

30
<PAGE> 32

reimbursed from the policy values in an amount equal to its cumulative
premium contributions upon the earlier of (i) Mr. McDonald's death, (ii) Mr.
McDonald's cancellation of the policy or (iii) Mr. McDonald's request for
release of the Company's contributions.

(4) Mr. Jacobs was Vice President, Sales and Marketing of the Company until
August 1997; he is no longer an employee of the Company.

The following table provides the specified information concerning grants of
options to purchase the Company's Common Stock made during 1997 to Named
Executive Officers.

OPTION GRANTS IN 1997

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS IN 1997 VALUE AT ASSUMED
-------------------------------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(1)
OPTIONS EMPLOYEES PRICE PER EXPIRATION ---------------------
NAME GRANTED(2) IN 1997 SHARE(3)(4) DATE 5% 10%
---- ---------- ---------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
David D. Parker............. 200,000(5) 23.0% $1.91 10/18/07 $351,003 $785,184

Michael A. Morgan........... 34,477 4.0 1.19 7/23/07 25,802 65,387
3,375(6) 0.4 1.53 6/19/07 3,247 8,230
5,000(7) 0.6 1.53 6/19/07 4,811 12,192
7,500(8) 0.9 1.53 6/19/07 7,217 18,288

FORMER OFFICERS:

Peter J. McDonald........... -- -- -- -- -- --
Byron Jacobs................ -- -- -- -- -- --
</TABLE>

- ---------------
(1) Potential gains are net of exercise price, but before taxes associated with
exercise. These amounts represent certain assumed rates of appreciation
only, based on the Securities and Exchange Commission rules. Actual gains,
if any, on stock option exercises are dependent on the future performance of
the Company's Common Stock, overall market conditions, and the option
holder's continued employment through the vesting period. The amounts
reflected in this table may not necessarily be achieved.

(2) All options granted in 1997, except as noted in footnote (5), were granted
pursuant to the Company's 1992 Stock Option Plan. These options, except as
noted, vest and become exercisable at the rate of one-seventh six months
from the date of grant and 1/42nd per month thereafter for each full month
of the optionee's continuous employment by the Company. Under the Company's
1992 Stock Option Plan, the Board retains discretion to modify the terms,
including the price, of outstanding options. See "Benefit Plans."

(3) All options were granted at market value on the date of grant except as
noted.

(4) In June 1997, as a result of a broad decline in the fair market value of the
Company's Common Stock, the Compensation Committee determined that it was in
the best interests of the Company to offer to all current employees who were
optionholders, including executive officers whom the Committee considered
separately, the opportunity to exchange outstanding options with an exercise
price above $3.00 for options with an exercise price equal to the then
current fair market value.

(5) These options were granted under a non-qualified stock option agreement.
50,000 of such options were granted outside the Company's 1992 Stock Option
Plan. Such non-plan options were registered by the Company on April 9, 1998.
All options have an option exercise price equal to 85% of fair market value.

(6) Reflects options that were repriced in June 1997, replacing options granted
in September 1993.

(7) Reflects options that were repriced in June 1997, replacing options granted
in July 1994.

(8) Reflects options that were repriced in June 1997, replacing options granted
in August 1995.

31
<PAGE> 33

The following table provides the specified information concerning exercises
of options to purchase the Company's Common Stock in 1997 and unexercised
options held as of December 31, 1997 by the Named Executive Officers.

AGGREGATE OPTION EXERCISES AND 1997
YEAR-END VALUES

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
SHARES VALUE OPTIONS AT 12/31/97(1) AT 12/31/97(2)
ACQUIRED ON REALIZED --------------------------------- ---------------------------------
NAME EXERCISE(#) ($) EXERCISABLE(#) UNEXERCISABLE(#) EXERCISABLE($) UNEXERCISABLE($)
---- ----------- -------- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
David D. Parker...... -- -- -- 200,000 $ -- $94,000
Michael A. Morgan.... -- -- 86,553 63,447 56,810 58,712
FORMER OFFICERS:
Peter J. McDonald.... -- -- 21,131 2,619 -- --
Byron Jacobs......... 8,214 $1,486 32,142 -- 18,305 --
</TABLE>

- ---------------
(1) Company stock options generally vest one-seventh six months from the date of
grant and 1/42nd per month thereafter for each full month of the optionee's
continuous employment by the Company. Options are exercisable only to the
extent vested.

(2) The value of the unexercised in-the-money options is based on the closing
price of the Company's Common Stock ($2.38 per share) on the Nasdaq National
Market on December 31, 1997, and is net of the exercise price of such
options.

TEN-YEAR OPTION REPRICING

The following table provides the specified information concerning all
repricings of options to purchase the Company's Common Stock held by any
executive officer of the Company since April 20, 1994, the date of the Company's
initial public offering:

<TABLE>
<CAPTION>
LENGTH OF
ORIGINAL OPTION
NUMBER OF MARKET TERM
SECURITIES PRICE OF EXERCISE REMAINING
UNDERLYING STOCK AT THE PRICE AT NEW AT DATE OF
OPTIONS TIME OF TIME OF EXERCISE REPRICING
NAME AND PRINCIPAL POSITION(S) DATE REPRICED REPRICING REPRICING PRICE (MONTHS)
------------------------------ ------- ---------- ------------ --------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Michael A. Morgan............... 6/19/97(1) 3,375 $1.53 $4.00 $1.53 75
Vice President, Finance and 6/19/97(1) 5,000 $1.53 $3.13 $1.53 85
Administration, and Chief 6/19/97(1) 7,500 $1.53 $3.13 $1.53 98
Financial Officer
</TABLE>

- ---------------
(1) Options that were repriced continue to vest in accordance with their
original vesting schedule, however, no vested portion of any repriced
options were eligible for exercise until March 19, 1998, provided the
employee was employed with the Company as of that date.

COMPENSATION OF DIRECTORS

Directors who are employees of the Company do not receive any compensation
for their services as directors. Directors who are not employees of the Company
receive between $500 and $750 for attendance at each Board Meeting.
Additionally, the Company's 1992 Stock Option Plan (the "Option Plan") provides
that the Board has no authority, discretion, or power to grant options to any
independent directors. Instead, each nonemployee director is automatically
granted a nonqualified stock option to purchase 5,000 shares of Common Stock
upon initial appointment or election and, for each year that a nonemployee
director continues to serve on the Board, options to purchase 5,000 shares of
Common Stock on the anniversary date of such initial appointment or election.
Such options vest quarterly over a three year period. Options to purchase 5,000

32
<PAGE> 34

shares at an exercise price of $3.40 per share were granted to Messrs. Sprague
and Cleveland in February 1997.

In July 1997, Bruce Cleveland was granted additional non-qualified options
to purchase 20,000 shares of the Company's Common Stock at an exercise price of
$1.01, which was 85% of the fair market value of the stock on the date of grant.
These options were granted to Mr. Cleveland in exchange for his services to the
Company as a marketing consultant during 1997. Such options were granted with an
unanimous vote of the Board of Directors, including the only other disinterested
member of the Compensation Committee, Peter Sprague.

In July 1997, Michael Seashols was appointed Chairman of the Board. Mr.
Seashols entered into an agreement with the Company that provided for a grant of
non-qualified options to purchase 100,000 shares of the Company's Common Stock
at an exercise price of $1.01, which was 85% of the fair market value of the
stock on the date of grant. These options vest monthly over a twelve month
period. Upon the occurrence of an "Acceleration Event," the option agreement
provides for (i) accelerated vesting of any remaining unvested options, and (ii)
an automatic grant of additional non-qualified options to purchase 100,000
shares of the Company's Common Stock at 85% of the then current fair market
value with monthly vesting over a two year period. An Acceleration Event is
defined as a change of control in the Company or the completion of certain other
strategic business objectives as defined in the agreement. If the Company and
Mr. Seashols mutually agree to the continuation of Mr. Seashols' role as
Chairman of the Board for an additional year, effective September 1, 1998, Mr.
Seashols will be granted additional non-qualified options to purchase 100,000
shares of the Company's Common Stock at 85% of the then current fair market
value with monthly vesting over a two year period. Such options were approved by
a unanimous vote of the Board of Directors, including both members of the
Compensation Committee.

BENEFIT PLANS

1992 Stock Option Plan

The Board of Directors and the Company's sole shareholder initially
approved the adoption of the 1992 Stock Option Plan (the "Option Plan") on
October 30, 1992 and September 10, 1993, respectively. On February 14, 1994 and
February 15, 1994, respectively, the Board of Directors and the sole shareholder
approved amendments to the Option Plan to provide for the automatic grant of
options to nonemployee directors of the Company. On May 15, 1995, the Company's
shareholders approved an amendment to the Option Plan to increase the aggregate
maximum number of shares of the Company's Common Stock issuable under the Option
Plan by 590,000 shares, from 410,000 shares to 1,000,000 shares. On May 20,
1997, the Company's shareholders approved an amendment to the Option Plan to
increase the aggregate maximum number of shares of the Company's Common Stock
issuable under the Option Plan by 500,000 shares, from 1,000,000 shares to
1,500,000 shares, and to increase the per person share limitation (the "Employee
Option Limit") from 25,000 to 150,000 shares per fiscal year. The Option Plan
provides for the grant to employees of incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and for the grant to employees, non-employee directors, and consultants
of the Company of nonstatutory stock options. In the event of any stock
dividend, stock split, reverse stock split, recapitalization, combination,
reclassification, or similar change in the capital structure of the Company,
appropriate adjustments will be made to the shares subject to the Option Plan,
to the Employee Option Limit, and to outstanding options. To the extent any
outstanding option under the Option Plan expires or terminates prior to exercise
in full, the shares for which the option has not been exercised are returned to
the Option Plan and become available for future grant. As of March 31, 1998,
126,281 options to purchase shares of Common Stock (net of cancellations) had
been exercised, options to purchase 947,595 shares of Common Stock were
outstanding under the Option Plan at a weighted average exercise price of $1.93
per share, and 426,124 shares of Common Stock remained available for future
grants.

The Option Plan may be administered by the Board of Directors or a
committee of the Board (collectively the "Administrator"), so that options
granted thereunder shall qualify as transactions exempt from Section 16(b) of
the Securities Exchange Act of 1934, as amended, pursuant to Rule 16b-3
promulgated

33
<PAGE> 35

thereunder. Subject to the terms of the Option Plan, the Administrator has the
power to determine the terms of the options granted, including the persons to
whom options are to be granted, the number of shares to be covered by each
option, whether an option is to be an incentive stock option or a nonstatutory
stock option, the terms of vesting and exercisability of each option, the type
of consideration to be paid to the Company upon exercise of an option, the
duration of each option, and all other terms and conditions of the options. The
Administrator will interpret the Option Plan and options granted under the
Option Plan, and all determinations of the Administrator will be final and
binding on all persons having an interest in the Option Plan or any option.
Options granted under the Option Plan are not transferable by the holders
thereof other than by will or the laws of descent and distribution and each
option, is exercisable during the lifetime of the holder only by such holder. No
employee or contractor my be granted options to purchase more than 150,000
shares in any one fiscal year. The Company intends that compensation related to
options granted to employees of the Company ("Employee Options") granted under
the Option Plan qualify for the "performance-based compensation" exemption under
Section 162(m) of the Code. Section 162(m) generally limits the deductibility by
the Company for federal income tax purposes of compensation paid to certain
executive officers. The per share exercise price of an incentive stock option
must equal at least the fair market value of a share of the Company's Common
Stock on the date of grant. However, the per share exercise price of any
Employee Option granted to a person who at the time of grant owns stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company or any parent or subsidiary corporation of the Company must
be at least 110% of the fair market value of a share of the Company's Common
Stock on the date of grant, and the term of any such option cannot exceed five
years. The terms of all other options granted under the Option Plan may not
exceed 10 years. The per share exercise price of a nonstatutory stock option may
be no less than 85% of the fair market value of a share of the Common Stock on
the date of grant.

All incentive stock option agreements under the Option Plan in effect on
December 31, 1997 provide that one-seventh ( 1/7) of the options become vested
six months after the initial grant date and one-forty-second ( 1/42) of the
options vest upon completion of each succeeding full month of continuous
employment (or service as a director or consultant) with the Company until fully
vested 42 months after the initial grant date. Additionally, such agreements
have provided that the exercise period for any optionee who ceases to be an
employee for any reason, except death or disability, shall expire 30 days after
such termination, but in no event later than the initial option term date; and
if the optionee's employment ceases because of death or disability, the exercise
period shall expire six months after such termination, but in no event later
than the initial option term date.

Generally, Employee Options may be exercised by payment of the exercise
price in cash, by check, or in cash equivalent, by tender of shares of the
Company's Common Stock owned by the optionee having a fair market value not less
than the exercise price, by the assignment of the proceeds of a sale of some or
all of the shares of Common Stock being acquired upon the exercise of the
option, or by any combination of these. However, the Administrator may restrict
the forms of payment permitted in connection with any option grant or may grant
options permitting payment of the exercise price with a recourse promissory note
in a form approved by the Company.

Director Options. Only members of the Board of Directors who are not
employees of the Company or any parent or subsidiary corporation of the Company
("Outside Directors") are eligible to receive Director Options under the Option
Plan. As of April 21, 1995, the Company had two Outside Directors. Director
Options are nonstatutory stock options.

The Director Option component of the Option Plan is intended to constitute
a "formula plan" within the meaning of Rule 16b-3 under the Exchange Act.
Accordingly, Director Options are granted automatically and without the
Administrator's discretion as to eligibility to receive Director Options or the
amount, price and timing of Director Options. The Option Plan provides that on
the first anniversary of the effective date (February 14, 1994) of the amendment
to the Option Plan authorizing the grant of Directors Options (the "Effective
Date"), each Outside Director who held office on the Effective Date is
automatically granted a Director Option for 5,000 shares of the Company's Common
Stock. Each new Outside Director first appointed or elected to the Board after
the Effective Date will automatically receive a Director Option for 5,000 shares
on the date of such appointment or election. In addition, each Outside Director
will automatically receive an

34
<PAGE> 36

annual grant of a Director Option for 5,000 shares. The annual grant will be
made on the anniversary of the Effective Date for each Outside Director holding
office on the Effective Date or on the anniversary of an Outside Director's
initial Director Option grant for all other Outside Directors.

Each Director Option is evidenced by a written agreement between the
Company and the Outside Director specifying the number of shares subject to the
option and the other terms and conditions of the option, consistent with the
requirements of the Option Plan. The per share exercise price of each Director
Option is the fair market value of a share of the Company's Common Stock on the
date of grant. Director Options may be exercised by payment of the exercise
price in cash, by check, or in cash equivalent, by tender of shares of the
Company's Common Stock owned by the optionee having a fair market value not less
than the exercise price, by the assignment of the proceeds of a sale of some or
all of the shares of Common Stock being acquired upon the exercise of the
option, or by any combination of these.

Director Options become exercisable in twelve approximately equal quarterly
installments, subject to the Outside Director's continued service on the Board,
and terminate ten years after the date of grant. Director Options are
nontransferable by the optionee other than by will or by the laws of descent and
distribution, and are exercisable during the optionee's lifetime only by the
optionee.

As of March 31, 1998, non-qualified options to purchase an aggregate of
195,000 shares issued to outside directors were outstanding at an average
exercise price of $2.02, equal to 85% of the fair market value on the dates of
grant.

Transfer of Control. A "Transfer of Control" will be deemed to occur upon
any of the following events in which the shareholders of the Company do not
retain, directly or indirectly, at least a majority of the beneficial interest
in the voting stock of the Company or its successor: (i) the direct or indirect
sale or exchange by the shareholders of the Company of all or substantially all
of the stock of the Company, or (ii) a merger in which the Company is a party. A
Transfer of Control will also occur in the event of the sale, exchange or
transfer (other than to a subsidiary of the Company) of all or substantially all
of the assets of the Company or a liquidation or dissolution of the Company. If
a Transfer of Control occurs, the Board of Directors may arrange with the
surviving, continuing, successor, or purchasing corporation or parent
corporation thereof (the "Acquiring Corporation") to either assume outstanding
options or substitute options for the Acquiring Corporation's stock for the
outstanding options. However, if the Acquiring Corporation does not assume or
substitute for outstanding options in connection with a Transfer of Control, the
Board of Directors may provide that any unexercisable portion of the outstanding
options will be fully exercisable as of a date prior to the Transfer of Control.
Any options which are neither assumed or substituted for by the Acquiring
Corporation nor exercised as of the date of the Transfer of Control will
terminate effective as of such date.

Termination or Amendment. Unless sooner terminated, no options may be
granted under the Option Plan after February 14, 2004. The Administrator may
terminate or amend the Option Plan at any time, but, without shareholder
approval, the Administrator may not amend the Option Plan to increase the total
number of shares of Common Stock reserved for issuance thereunder, change the
class of persons eligible to receive incentive stock options, or expand the
class of persons eligible to receive nonstatutory stock options. No amendment
may adversely affect an outstanding option without the consent of the optionee,
unless the amendment is intended to preserve the option's status as an incentive
stock option.

1994 EMPLOYEE STOCK PURCHASE PLAN

The Company's 1994 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors and by the shareholders in February 1994. On
April 7, 1996 and May 20, 1996, respectively, the Board of Directors and the
Company's shareholders approved an amendment to the Purchase Plan to provide for
a change in the eligibility requirements which reduced the continuous employment
requirement from six months to three months. A total of 200,000 shares of Common
Stock have been reserved for issuance under this Plan. As of March 31, 1998,
79,248 shares of Common Stock had been acquired under the Purchase Plan and
120,752 shares of Common Stock remained available for future purchases.

35
<PAGE> 37

The Purchase Plan is intended to qualify as an "employee stock purchase
plan" under section 423 of the Internal Revenue Code of 1986, as amended (the
"Code"). The Purchase Plan provides for the grant of a right to each participant
at the beginning of each offering period under the plan to purchase shares of
the Common Stock of the Company (a "Purchase Right"). Each participant's
Purchase Right will be exercised on each purchase date under the Purchase Plan
unless the participant has withdrawn from participation in the offering or in
the plan prior to such purchase date. A maximum of 200,000 of the authorized but
unissued shares of the Common Stock of the Company may be issued under the
Purchase Plan. In the event of any stock dividend, stock split, reverse stock
split, recapitalization, combination, reclassification, or similar change in the
capital structure of the Company, or in the event of any merger, sale, or other
reorganization, appropriate adjustments will be made to the shares subject to
the Purchase Plan and to the shares subject to a Purchase Right. If any Purchase
Right expires or terminates, the shares of Common Stock subject to such Purchase
Right are returned to the plan and may again be subjected to a Purchase Right.

The Purchase Plan is administered by the Board of Directors or by a duly
appointed committee of the Board (the "Administrator"). The Administrator will
interpret the Purchase Plan and Purchase Rights granted under the Purchase Plan,
and all determinations of the Administrator will be final and binding on all
persons having an interest in the Purchase Plan or any Purchase Right.
Currently, the Purchase Plan provides that any employee of the Company or of any
present or future parent or subsidiary corporation of the Company designated by
the Administrator as a corporation included in the Purchase Plan is eligible to
participate in the Purchase Plan so long as the employee is customarily employed
for at least 20 hours per week and at least five months in any calendar year and
has completed at least three months of continuous employment. No employee who
owns or holds options to purchase, or as a result of participation in the
Purchase Plan would own or hold options to purchase, 5% or more of the total
combined voting power or value of all classes of stock of the Company is
entitled to participate in the Purchase Plan. As of March 31, 1998,
approximately 25 employees were eligible to participate in the Purchase Plan.

Generally, each offering of shares under the Purchase Plan (an "Offering")
is for a period of 12 months. Offerings generally commence on or about February
1 and August 1 of each year. However, the Board of Directors may establish a
different term for one or more Offerings or different commencement or ending
dates. Generally, each Offering is comprised of two six-month purchase periods
ending on July 31 and January 31 of each year, ending on a "Purchase Date".

Participation in the Purchase Plan is limited to eligible employees who
authorize payroll deductions, which may not exceed 10% of total compensation or
such other limit established by the Administrator. Once an employee becomes a
participant in the Purchase Plan, the employee will automatically participate in
each successive Offering until such time as the employee ceases to be an
eligible employee, withdraws from the Purchase Plan, or terminates employment.
On each Purchase Date, a participant acquires shares of the Company's Common
Stock based on the participant's accumulated payroll deductions. The purchase
price per share at which the shares are sold under the Purchase Plan generally
equals 85% of the lesser of the fair market value of a share of the Company's
Common Stock on the first day of the Offering (the "Offering Date") or on the
Purchase Date.

Each participant in an Offering has a Purchase Right equal to the lesser of
that number of whole shares arrived at by dividing $25,000 by the fair market
value of a share of Common Stock on the first day of the Offering or 1,500
shares. The number of shares a participant purchases on each Purchase Date is
determined by dividing the total amount of payroll deductions from the
participant's compensation during the Purchase Period by the purchase price,
limited in any case by the number of shares subject to the participant's
Purchase Right for the Offering. Any payroll deductions under the Purchase Plan
not applied to the purchase of shares are returned to the participant, except
for an amount insufficient to purchase another whole on the Purchase Date, which
amount may be applied to the next Purchase Period.

A participant may withdraw from an Offering at any time without affecting
his or her eligibility to participate in future Offerings. However, once a
participant withdraws from an Offering, that participant may not again
participate in the same Offering.

36
<PAGE> 38

Transfer of Control. A "Transfer of Control" will be deemed to occur upon
any of the following events in which the shareholders of the Company do not
retain, directly or indirectly, at least a majority of the beneficial interest
in the voting stock of the Company or its successor: (i) the direct or indirect
sale or exchange by the shareholders of the Company of all or substantially all
of the stock of the Company, or (ii) a merger in which the Company is a party. A
Transfer of Control will also occur in the event of the sale, exchange, or
transfer (other than to a subsidiary of the Company) of all or substantially all
of the assets of the Company or a liquidation or dissolution of the Company. If
a Transfer of Control occurs, the Board of Directors may arrange for the
acquiring or successor corporation to assume the Company's rights and
obligations under the Purchase Plan. All Purchase Rights terminate effective as
of the date of the Transfer of Control to the extent that the Purchase Right is
neither exercised as of the date of the Transfer of Control nor assumed by the
acquiring or successor corporation.

Termination or Amendment. The Administrator may terminate or amend the
Purchase Plan at any time, except that the approval of the Company's
shareholders is required within twelve months of the adoption of any amendment
increasing the number of shares authorized for issuance under the Purchase Plan
or changing the definition of the corporations that may be designated by the
Administrator as corporations the employees of which may participate in the
Purchase Plan.

401(k) Plan

Effective November 1, 1991, the Company adopted a retirement savings plan
(the "401(k) Plan") that covers all employees of the Company. An employee may
elect to defer, in the form of contributions to the 401(k) Plan, up to 15% of
the total compensation that would otherwise be paid to the employee in the
applicable year, not to exceed a statutorily prescribed annual limit ($9,500 in
1997). Employee contributions are held and invested by the plan's trustees for
the benefit of plan participants. The contributions are fully vested and
nonforfeitable at all times. The 401(k) Plan permits, but does not require
(except as may be required by the Internal Revenue Code), the Company to make
contributions to the plan. The Company does not currently make contributions to
the 401(k) Plan on behalf of its employees.

EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL AGREEMENTS

The Company has entered into an agreement with its Chief Executive Officer
("CEO") providing for benefits upon termination. The agreement provides that in
the event the CEO's employment is terminated by the Company, other than for
"Cause," or if the CEO terminates his employment with the Company for "Good
Reason" (as those terms are defined in the agreement), the CEO shall be entitled
to the following: (i) a severance payment equal to six (6) months of his
then-current base salary; and (ii) continued vesting for a period of six (6)
months post-termination in all stock options granted prior to the date of
termination.

The Company has also entered into an agreement with its Chief Financial
Officer ("CFO") providing for benefits upon termination and in the event of a
"Change of Control" (as defined in the agreement). The agreement provides that
in the event of a Change of Control, if the CFO's employment is terminated by
the Company or its successor within twelve (12) months of a Change of Control,
other than for cause, or if the CFO terminates his employment because of a
change in duties, or in certain other circumstances, the CFO shall be entitled
to the following: (i) a one-time payment equal to twelve (12) months of his
then-current base salary; (ii) full vesting in all stock options; and (iii)
payment of any unearned portion of the CFO's targeted incentive compensation or
bonus for that fiscal year. The agreement also provides that the CFO shall
receive payment equal to one (1) year of his then-current base salary in the
event the CFO is terminated by the Company other than for "Cause," or if the CFO
terminates his employment with the Company for "Good Reason" (as those terms are
defined in the agreement).

The Option Plan provides that in the event of certain mergers, sales of
assets, or sales by the shareholders of substantially all of their voting stock
in the Company constituting a "Transfer of Control," as defined in the Option
Plan, the Board may, it its sole discretion, arrange for the surviving,
continuing, successor, or purchasing corporation or a parent corporation
thereof, as the case may be (the "Acquiring Corporation"), to either assume the
Company's rights and obligations under outstanding stock option agreements under
the

37
<PAGE> 39

Option Plan (the "Options") or substitute options for the Acquiring
Corporation's stock for such outstanding Options. The Board may also provide
that any options that are not assumed or substituted for by the Acquiring
Corporation will be fully exercisable as of a date prior to the Transfer of
Control. An Option will terminate effective as of the date of the Transfer of
Control to the extent that the Option is neither assumed by the Acquiring
Corporation, nor exercised of the date of the transfer of Control.

The Purchase Plan provides that in the event of a "Transfer of Control," as
defined in the Purchase Plan, the Board may, in its sole discretion, arrange for
the assumption of the Company's rights and obligations under the Purchase Plan
by the acquiring or successor corporation. All purchase rights shall terminate
if no assumption occurs.

LIMITATIONS OF DIRECTORS' LIABILITY AND INDEMNIFICATION

The Company's Bylaws provide that the Company may indemnify its directors,
officers, employees and agents to the fullest extent permitted by law.

The Company has entered into agreements to indemnify its directors and
officers, in addition to the indemnification provided for in the Company's
Amended and Restated Articles of Incorporation and Bylaws. These agreements,
among other things, indemnify the Company's directors and officers for certain
expenses (including attorneys' fees), judgments, fines and settlement amounts
incurred by any such person in any action or proceeding, including any action by
or in the right of the Company, arising out of such person's services as a
director or officer of the Company, any subsidiary of the Company or any other
company or enterprise to which the person provides services at the request of
the Company. The Company believes that these provisions and agreements are
necessary to attract and retain qualified directors and officers.

At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where indemnification will
be required. The Company is not aware of any threatened litigation or proceeding
that might result in a claim for such indemnification.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

For transactions between the Company and its officers, directors and
holders of more than 5% of its outstanding common stock, see "Summary
Compensation Table," "Stock Options Granted in 1997," "Option Exercise in 1997
Year-End Values" and "Compensation of Directors."

38
<PAGE> 40

PRINCIPAL SHAREHOLDERS

The following table sets forth as of March 31, 1998, certain information
with respect to the beneficial ownership of the Company's Common Stock by (i)
all persons known by the Company to be the beneficial owners of more than 5% of
the outstanding Common Stock of the Company, (ii) each director and
director-nominee of the Company, (iii) each Named Executive Officer, and (iv)
all executive officers and directors of the Company as a group.

<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF SHARES BENEFICIALLY OWNED
OF COMMON STOCK ---------------------------
BENEFICIALLY BEFORE THE AFTER THE
BENEFICIAL OWNER(1) OWNED(1)(2) OFFERING OFFERING
------------------- ------------------ ------------ ------------
<S> <C> <C> <C>
Peter J. McDonald(3).......................... 1,050,747 34.7% 29.2%
Michael Seashols(4)........................... 200,834 6.5 5.5
David D. Parker(5)............................ 33,333 1.1 *
Michael A. Morgan(6).......................... 117,097 3.8 3.2
Peter J. Sprague(5)........................... 36,250 1.2 1.0
Bruce Cleveland(5)............................ 26,250 * *
Byron Jacobs(7)............................... 34,142 1.1 *
Executive officers and directors as a group
(7 persons)(8).............................. 1,498,653 44.7 38.2
</TABLE>

- ---------------
* Less than 1%

(1) The persons named in this table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable and to the information
contained in the footnotes to this table.

(2) Shares beneficially owned and percentage of ownership are based on 3,005,435
shares of Common Stock outstanding before this offering and 3,580,435 shares
of Common Stock to be outstanding after the closing of this offering.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally include voting or
disposition power with respect to such shares.

(3) Includes 22,143 shares subject to options which are exercisable within sixty
days of March 31, 1998. Also includes 10,800 shares held by Mr. McDonald's
children. Mr. McDonald resigned as Chairman of the Board, President, and
Chief Executive Officer of the Company on August 27, 1997, and continues to
serve as a Director.

(4) Includes 83,334 shares subject to options which are exercisable within sixty
days of March 31, 1998.

(5) Consists of shares subject to options which are exercisable within sixty
days of March 31, 1998.

(6) Includes 112,006 shares subject to options which are exercisable within
sixty days of March 31, 1998.

(7) Includes 32,142 shares subject to options which are exercisable within sixty
days of March 31, 1998. On August 28, 1997, Byron Jacobs' employment with
the Company was terminated.

(8) Includes shares described in Notes 3, 4, 5, 6 and 7.

39
<PAGE> 41

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 10,000,000 shares
of Common Stock, no par value and 1,000,000 shares of Preferred Stock, no par
value. The following summary description relating to the Company's capital stock
does not purport to be complete and is qualified in its entirety by reference to
the Amended and Restated Articles of Incorporation (the "Articles") and Bylaws,
copies of which have been filed as exhibits to the Registration Statement of
which the Prospectus is a part.

As of March 31, 1998, there were 3,005,435 shares of Common Stock
outstanding held by 36 shareholders of record. Immediately after the completion
of this offering, the Company estimates that there will be outstanding an
aggregate of 3,580,435 shares of Common Stock. An additional 1,500,000 shares
have been reserved for issuance of upon exercise options. Of these 1,500,000
shares, approximately 947,595 shares will be issuable upon exercise of currently
outstanding options.

COMMON STOCK

Holders of Common Stock are entitled to cast one vote for each share on all
matters on which shareholders may vote, including the election of directors
subject to the preferences that may be applicable to outstanding shares of
Preferred Stock. The holders of Common Stock are entitled to participate in cash
dividends, pro rata based on the number of shares held, when, as and if declared
by the Board of Directors out of funds legally available therefor. See "Dividend
Policy." Such holders do not have any preemptive or other rights to subscribe
for additional shares subject to the preferences that may be applicable to
outstanding shares of Preferred Stock. All holders of Common Stock are entitled
to share ratably in any assets for distribution to shareholders upon the
liquidation, dissolution or winding up of the Company. There are no conversion,
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are fully paid and nonassesable.

CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK

The authorized but unissued shares of Common Stock are available for future
issuance without shareholder approval. These additional shares may be utilized
for a variety of corporate purposes, including future public offerings to raise
additional capital, corporate acquisitions and employee benefit plans.

The existence of authorized but unissued and unreserved Common Stock may
enable the board of Directors to issue shares to persons friendly to current
management which could render more difficult or discourage an attempt to obtain
control of the Company by means of a proxy contest, tender offer, merger, or
otherwise, and thereby protect the continuity of the Company's management.

PREFERRED STOCK

The Board of Directors has authority to issue up to 1,000,000 shares of
Preferred Stock of the Company, no par value ("Preferred Stock") and to fix the
rights, preferences, privileges and restrictions, including voting rights, of
these shares without any vote or action by the shareholders. The issuance of
Preferred Stock may have the effect of delaying or preventing a change in
control of the Company. The issuance of Preferred Stock could decrease the
amount of earnings and assets available for distributions to the holders of
Common Stock or could adversely affect the rights and powers, including voting
rights, of the holders of the Common Stock. In certain circumstances, such
issuance could have the effect of decreasing the market price of the Common
Stock. The Company has no present plan to issue shares of Preferred Stock.

WARRANTS

In connection with its initial public offering, the Company issued to L.H.
Alton and Company and Laidlaw Equities, Inc. and their designees warrants (the
"IPO Warrants") to purchase up to 100,000 shares of Common Stock (50,000 shares
each) at an exercise price of $6.60. The IPO Warrants were transferred to
several individuals and entities and are exercisable during the four-year period
commencing from April 19, 1995 (the "Warrant Exercise Term") and expire on April
19, 1999.

40
<PAGE> 42

In June 1995, in connection with its facility lease, the Company issued to
Richard Dewey warrants to purchase 50,000 shares of the Company's Common Stock
at an exercise price of $5.50. Such warrants expire in June 2000.

ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS

Certain provisions of the Articles and Bylaws could discourage potential
acquisition proposals and could delay a change of control of the Company not
approved by the Company's Board of Directors. Such provisions diminish the
opportunities for a shareholder to participate in tender offers, including
tender offers at a price above the then current market value of the Common
Stock. Such provisions may also inhibit fluctuations in the market price of the
Common Stock that could result from takeover attempts. The Articles provide that
directors are removable only for cause. Additionally, because the Board of
Directors has the right to has authority to issue up to 1,000,000 shares of
Preferred Stock of the Company, no par value ("Preferred Stock") and to fix the
rights, preferences, privileges and restrictions, including voting rights, of
these shares without any vote or action by the shareholders, the rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third-party to acquire a
majority of the outstanding voting stock of the Company, thereby delaying,
deferring or preventing a change in control of the Company. Furthermore, such
Preferred Stock may have other rights, including economic rights, senior to the
Common Stock, and as a result, the issuance of such Preferred Stock could have a
material adverse effect on the market value of the Common Stock.

TRANSFER AGENT AND REGISTRAR

ChaseMellon Shareholder Services has been appointed as the transfer agent
and registrar for the Common Stock.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have outstanding
approximately 3,580,435 shares of Common Stock. Of these shares, the 575,000
shares sold in this offering and an additional 3,005,435 shares will be freely
tradeable without restriction under the Securities Act, unless purchased or held
by "affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregate) who has beneficially owned restricted shares for at
least one year (including the holding period of any prior owner except an
affiliate) is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of (i) one percent of the number of
shares of Common Stock then outstanding (which will equal approximately 36,000
shares immediately after this offering) or (ii) the average weekly trading
volume of the Common Stock during the four calendar weeks preceding the filing
of a Form 144 with respect to such sale. Sales under Rule 144 are also subject
to certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
to be sold for at least two years (including the holding period of any prior
owner except an affiliate), is entitled to sell such shares without complying
with the manner of sale, public information, volume limitation or notice
provisions of Rule 144.

In April 1998, the Company filed a Registrations Statement on Form S-8
registering 634,642 shares of Common Stock subject to outstanding options or
reserved for future issuances under its stock plans. As of March 31, 1998,
options to purchase a total of 947,595 shares were outstanding and 546,876
shares were reserved for future issuance under the Company's stock plans. Common
Stock issued upon exercise of outstanding vested options or issued pursuant to
the Purchase Plan, other than Common Stock issued to affiliates of the Company,
are available for immediate resale in the open market.

41
<PAGE> 43

As of March 31, 1998, the Company has issued warrants to purchase 150,000
shares of Common Stock of the Company. Common Stock issued upon exercise of
outstanding warrants are available for immediate resale in the open market.

No predictions can be made of the effect, if any, that the sale or
availability for sale of shares of additional Common Stock will have on the
market price of the Common Stock. Nevertheless, sales of a substantial amount of
such shares by existing shareholder or by shareholders purchasing in the
offering could have a negative impact on the market price of the Common Stock.

PLAN OF DISTRIBUTION

The Company may sell all or a portion of the Common Stock on the Nasdaq
National Market, or otherwise, at a price and on terms prevailing at the time of
sale . The Common Stock may be sold by one or more of the following methods: (a)
a block trade in which the broker or dealer so engaged will attempt to sell the
Common Stock as agent, but may position and resell a portion of the block as
principal to facilitate the transaction; (b) purchases by a broker or dealer as
principal and resale by such broker or dealer for its own account pursuant to
this Prospectus; (c) an over-the-counter distribution in accordance with the
rules of the Nasdaq National Market; (d) ordinary brokerage transactions and
transactions in which the broker solicits purchasers; and (e) in privately
negotiated transactions. There is no assurance that the Company will offer or
sell any or all of the Common Stock registered hereunder.

The Company and any dealers or agents that participate in the distribution
of the Common Stock may be deemed to be underwriters within the meaning of the
Securities Act and any discounts, commissions or concessions received by them
and any provided pursuant to the sale of the shares by them might be deemed to
be underwriting discounts and commissions under the Securities Act.

In order to comply with the securities laws of certain states, if
applicable, the Common Stock will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Common Stock may not be sold unless such Common Stock has been registered or
qualified for sale in the applicable state or an exemption from the registration
or qualification requirement is available and is complied with.

Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Common Stock may not simultaneously engage in
market making activities with respect to such Common Stock for a period of nine
business days prior to the commencement of such distribution. In addition and
without limiting the foregoing, the Company will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including, without limitation, Rules 10b-2, 10b-6 and 10b-7, which may limit the
timing of purchases and sales of the Common Stock by the Company. All of the
foregoing may affect the marketability of the Common Stock.

The Company will keep the Registration Statement of which this Prospectus
constitutes a part hereof effective for up to one (1) month following the date
on which such Registration Statement becomes effective. The Company intends to
de-register any of the Common Stock not sold by the Company at the end of such
one (1) month period.

LEGAL MATTERS

The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Gray Cary Ware & Freidenrich LLP, Palo
Alto, California.

42
<PAGE> 44

EXPERTS

The consolidated financial statements of Enlighten Software Solutions, Inc.
as of December 31, 1997 and for each of the years in the two-year period ended
December 31, 1997, have been included herein and in the Registration Statement
in reliance upon the report of KPMG Peat Marwick LLP, independent auditors,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission, a
Registration Statement on Form SB-2 relating to the Common Stock offered hereby.
This Prospectus which constitutes a part of the Registration Statement does not
contain all of the information set forth in the Registration Statement and the
exhibits and schedules thereto. Statements contained in this Prospectus as to
the contents of any contract or other document referred to are not necessarily
complete and in each instance reference is made to the copy of such contract or
other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits and schedules
filed therewith. A copy of the Registration Statement may be inspected by anyone
without charge at the Commission's principal office located at 450 Fifth Street,
N.W., Washington, D.C. 20549, and copies of all or any part thereof may be
obtained from the Public Reference Branch of the Commission upon the payment of
certain fees prescribed by the Commission. The Commission maintains a Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission
(http://www.sec.gov).

The Company intends to furnish its shareholders annual reports containing
financial statements audited by its independent auditors and to make available
quarterly reports containing unaudited financial statements for each of the
first three quarters of each year.

43
<PAGE> 45

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheet as of December 31, 1997.......... F-3
Statements of Operations for the fiscal years ended December
31, 1997 and 1996......................................... F-4
Statements of Shareholders' Equity for the fiscal years
ended December 31, 1997 and 1996.......................... F-5
Statements of Cash Flows for the fiscal years ended December
31, 1997 and 1996......................................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>

F-1
<PAGE> 46

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Enlighten Software Solutions, Inc.:

We have audited the accompanying consolidated balance sheet of Enlighten
Software Solutions, Inc. and subsidiary as of December 31, 1997, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the years in the two-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Enlighten
Software Solutions, Inc. and subsidiary as of December 31, 1997, and the results
of their operations and their cash flows for each of the years in the two-year
period ended December 31, 1997, in conformity with generally accepted accounting
principles.

Mountain View, California
February 4, 1998

F-2
<PAGE> 47

ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEET

DECEMBER 31, 1997

ASSETS

<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents................................. $ 1,406,141
Short term investments.................................... 286,000
Accounts receivable, less allowance for doubtful accounts
of $125,000............................................ 240,444
Refundable income taxes................................... 127,035
Prepaid expenses and other assets......................... 449,256
-----------
Total current assets.............................. 2,508,876
Property and equipment, net............................... 748,736
Software development costs, net........................... 231,063
Other assets.............................................. 226,034
-----------
$ 3,714,709
===========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable.................................... $ 134,043
Accrued and other current liabilities..................... 728,975
Deferred revenue.......................................... 359,361
-----------
Total current liabilities......................... 1,222,379
-----------
Commitments
Shareholders' equity:
Preferred stock; 1,000,000 shares authorized; none issued
and outstanding........................................ --
Common stock; 10,000,000 shares authorized; 2,963,635
shares issued and outstanding.......................... 5,079,505
Accumulated deficit....................................... (2,587,175)
-----------
Total shareholders' equity........................ 2,492,330
-----------
$ 3,714,709
===========
</TABLE>

See accompanying notes to consolidated financial statements
F-3
<PAGE> 48

ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenue:
Product license fees...................................... $ 1,438,805 $ 2,644,546
Product maintenance fees.................................. 2,598,679 3,407,778
Consulting services....................................... 193,358 424,975
----------- -----------
Total revenue..................................... 4,230,842 6,477,299
----------- -----------
Cost of revenue:
Product licenses.......................................... 698,714 593,206
Product maintenance....................................... 182,096 101,675
Consulting services....................................... 95,525 338,768
----------- -----------
Total cost of revenue............................. 976,335 1,033,649
----------- -----------
Gross profit...................................... 3,254,507 5,443,650
----------- -----------
Operating expenses:
Research and development.................................. 2,059,495 2,047,604
Sales and marketing....................................... 3,819,738 2,979,078
General and administrative................................ 1,551,457 1,371,108
Acquired in-process research and development.............. -- 210,469
Gain on sale of Tandem product line....................... (2,157,827) --
----------- -----------
Total operating expenses.......................... 5,272,863 6,608,259
----------- -----------
Operating loss.............................................. (2,018,356) (1,164,609)
Other income (expense):
Interest income, net...................................... 61,228 190,016
Foreign exchange loss, net................................ (905) (4,852)
----------- -----------
Loss before income taxes.................................. (1,958,033) (979,445)
Income taxes................................................ 2,390 58,535
----------- -----------
Net loss.......................................... $(1,960,423) $(1,037,980)
=========== ===========
Basic and diluted net loss per share........................ $ (0.67) $ (0.36)
=========== ===========
Shares used in computing basic and diluted net loss per
share..................................................... 2,944,228 2,870,448
=========== ===========
</TABLE>

See accompanying notes to consolidated statements
F-4
<PAGE> 49

ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
RETAINED
EARNINGS TOTAL
COMMON STOCK (ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT DEFICIT) EQUITY
------------ ---------- ------------ -------------
<S> <C> <C> <C> <C>
Balances at December 31, 1995............ 2,821,214 $4,639,954 $ 411,228 $ 5,051,182
Stock options exercised.................. 79,080 263,129 -- 263,129
Employee stock purchase plan shares
issued................................. 10,662 18,125 -- 18,125
Net loss................................. -- -- (1,037,980) (1,037,980)
--------- ---------- ----------- -----------
Balances at December 31, 1996............ 2,910,956 4,921,208 (626,752) 4,294,456
Stock options exercised.................. 27,963 125,215 -- 125,215
Employee stock purchase plan shares
issued................................. 24,716 33,082 -- 33,082
Net loss................................. -- -- (1,960,423) (1,960,423)
--------- ---------- ----------- -----------
Balances at December 31, 1997............ 2,963,635 $5,079,505 $(2,587,175) $ 2,492,330
========= ========== =========== ===========
</TABLE>

See accompanying notes to consolidated financial statements
F-5
<PAGE> 50

ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(1,960,423) $(1,037,980)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization.......................... 813,636 639,044
Gain on sale of Tandem product line.................... (2,157,827)
Deferred income taxes.................................. -- 210,512
Acquired in-process research and development........... -- 210,469
Loss on disposal of property and equipment............. 38,422 --
Changes in operating assets and liabilities:
Accounts receivable.................................. 1,259,607 (399,426)
Refundable income taxes.............................. 273,634 (112,404)
Prepaid expenses and other assets.................... (251,087) (129,090)
Trade accounts payable............................... (210,223) 68,115
Accrued and other liabilities........................ 133,724 44,288
Deferred revenue..................................... 145,359 (63,801)
----------- -----------
Net cash used for operating activities............ (1,915,178) (570,273)
----------- -----------
Cash flows from investing activities:
Purchases of short-term investments....................... -- (1,331,338)
Sales of short-term investments........................... 1,353,065 1,013,000
Proceeds from sale of Tandem product line................. 1,285,378 --
Capitalization of software development costs.............. (66,449) (483,632)
Purchases of property and equipment....................... (98,583) (222,056)
----------- -----------
Net cash provided by (used for) investing
activities..................................... 2,473,411 (1,024,026)
----------- -----------
Cash flows from financing activities:
Repayment of bank borrowings and debt.................. -- (121,869)
Proceeds from issuance of stock........................ 158,297 281,254
----------- -----------
Net cash provided by financing activities......... 158,297 159,385
----------- -----------
Net increase (decrease) in cash and cash equivalents........ 716,530 (1,434,914)
Cash and cash equivalents at beginning of year.............. 689,611 2,124,525
----------- -----------
Cash and cash equivalents at end of year.................... $ 1,406,141 $ 689,611
=========== ===========
</TABLE>

See accompanying notes to consolidated financial statements
F-6
<PAGE> 51

ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996

(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Enlighten Software Solutions develops, markets, and supports software
products for UNIX and UNIX/NT environment workgroup administration and
enterprise management. The Company's product solutions are designed for open
systems distributed computing environments in the range of ten to 1,000
servers/clients. The EnlightenDSM product allows companies to manage their
information systems by enabling systems managers and administrators to control
their systems from diverse UNIX/NT platform vendors such DEC, HP, IBM, SCO,
Silicon Graphics, Sun, and Microsoft. The Company's award winning EnlightenDSM
product suite provides cost-effective systems administration solutions for such
open systems environments. The product suite is a fully integrated software
solution providing a middle-tier framework that is a standards-based
multi-function management system covering the breadth of workgroup
administration and systems management disciplines.

Founded in 1986, the Company was a leading provider of systems management
software on the Tandem platform, providing a range of automated systems
management products to over 400 companies in 30 countries. On October 1, 1997,
the Company sold its Tandem product line to New Dimension Software, Inc.
("NDS"), a subsidiary of New Dimension Software, Ltd. in order to focus efforts
on its UNIX/NT product suite. In 1997, the Company recognized a gain on the sale
of the operating assets of the Tandem product line of approximately $2.2
million. Approximately $1.6 million was received in 1997, and the Company
expects to receive the remaining amount related to the sale, equal to
approximately $900,000, in 1998. Of the remaining amount, approximately $700,000
is held in escrow pending the satisfactory completion of certain short-term
performance objective. The majority of such performance objectives were met
during the first quarter of 1998. In addition, NDS is required to pay the
Company royalties through September 2000 from NDS' licensing and support of the
Tandem software products. The sale of the Tandem product line included the
transfer of property and equipment, purchased and internally developed software,
and deferred maintenance revenue with net book values of $141,000, $248,000, and
$1,261,000, respectively. The sale of the Tandem product line also included the
transfer to NDS of approximately 12 employees associated with the Company's
Tandem operation.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
Enlighten Software Solutions, Inc. and its wholly-owned subsidiary, a field
sales office in Europe. All significant intercompany accounts and transactions
have been eliminated in consolidation.

Revenue Recognition

Product license fees are recognized after the following events have
occurred: a product evaluation has been shipped to the customer; the customer
elects to purchase the software following an evaluation period; the customer
signs the related contract; and collection of the sales price is probable.
Royalty revenues that are contingent upon sale to an end-user by original
equipment manufacturers are recognized upon receipt of a report of shipment.
Product maintenance fees committed as part of new product licenses and
maintenance resulting from renewed maintenance contracts are deferred and
recognized ratably over the contract period, generally one year. Consulting
service revenue is recognized when services are performed for time and material
contracts and on a percentage of completion basis for fixed price contracts.

In October 1997, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 97-2, "Software Revenue Recognition,"
which supersedes SOP No. 91-1. SOP No. 97-2 will change the accounting for
"multiple-element arrangements" and is effective for fiscal years beginning
after

F-7
<PAGE> 52
ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

December 15, 1997. SOP 97-2 generally requires revenue earned on software
arrangements involving multiple elements to be allocated to each element based
on the relative fair values of the elements. If a vendor does not have evidence
of the fair value for all elements in a multiple-element arrangement, all
revenue from the arrangement is deferred until such evidence exists or until all
elements are delivered. The Company will adopt the provisions of SOP 97-2 for
all software revenue transactions beginning January 1, 1998. The adoption of SOP
97-2 is not expected to have a material effect upon the Company's results of
operations.

Cash Equivalents and Short Term Investments

The Company considers all liquid investments purchased with an original
maturity of three months or less to be cash equivalents.

The Company has classified its investments in commercial paper and U.S.
Treasury notes as "held-to-maturity." All such investments mature in less than
one year and are stated at amortized cost, which approximates fair value.
Interest income is recorded using an effective interest rate, with the
associated discount or premium amortized to interest income.

Additionally, the Company has classified its investments in preferred stock
as "available-for-sale." Such investments are recorded at fair market value
based on quoted market prices, with unrealized gains and losses reported as a
separate component of shareholders' equity. As of December 31, 1997, unrealized
gains and losses were not significant.

Property and Equipment

Property and equipment are stated at cost. Depreciation is calculated on
the straight-line method over the estimated useful lives of the assets,
generally five years. Leasehold improvements are amortized on a straight-line
basis over the lease term or the estimated useful life of the asset, whichever
is less.

The Company reviews property and equipment for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of property and equipment is measured by
comparison of its carrying amount to future net cash flows the property and
equipment are expected to generate. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the property and equipment exceeds its fair market value. To
date, the Company has made no adjustments to the carrying values of its property
and equipment.

Acquired Technology and Software Development Costs

Acquired technology represents amounts paid by the Company for the rights
to use certain completed software that is either incorporated into the Company's
products or sold as a stand-alone product, and is amortized using the
straight-line method over the estimated useful lives of the related products,
generally three years. As of December 31, 1997, the Company had no acquired
technology.

Software development costs incurred subsequent to the determination of
product technological feasibility are capitalized and amortized over the
products' estimated useful lives, generally three years. Costs related to
computer software development incurred prior to establishing product
technological feasibility are expensed as incurred.

The Company periodically assesses the recoverability of these intangible
assets by comparing their remaining amortized cost to the net realizable value
of the related products. The amount by which the unamortized costs exceed the
net realizable value is written off.

F-8
<PAGE> 53
ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Foreign Currency Translation

The functional currency for the Company's foreign subsidiary is the U.S.
dollar. Accordingly, this entity remeasures monetary assets and liabilities at
year-end exchange rates while nonmonetary items are remeasured at historical
rates. Income and expense accounts are remeasured at the average rates in effect
during the year, except for depreciation which is remeasured at historical
rates. Remeasurement adjustments and transaction gains and losses are recognized
in income in the year of occurrence.

Use of Estimates

The Company's management has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results may
differ from those estimates.

Stock Based Compensation

The Company uses the intrinsic value-based method to account for all of its
employee stock-based compensation plans.

Fair Value of Financial Instruments and Concentration of Credit Risk

The fair value of the Company's cash, cash equivalents, accounts
receivable, and accounts payable approximate the carrying amount due to the
relatively short maturity of these items. The fair value of the Company's short
term investments are based on quoted market prices.

Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of short term investments and
trade account receivables. The Company has investment policies that limit the
amount of credit exposure to any one financial institution and restrict
placement of these investments to financial institutions evaluated as credit
worthy. Concentrations of credit risk with regard to trade account receivables
are limited due to the large number of customers comprising the Company's
customer base and their dispersion across many different industries and
geographies. The Company has no significant concentration of credit risk in any
geographic area or industry.

Income Taxes

The Company accounts for income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Deferred tax assets are reduced by an allowance to an
amount whose realization is more likely than not. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

Net Loss Per Share

Net loss per share has been computed in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." Basic
earnings per share is computed using the weighted average number of common
shares outstanding during the period. Diluted earnings per share is computed
using the weighted average number of common and dilutive common equivalent
shares outstanding for the period, if any. Common equivalent shares from stock
options outstanding (see Note 7) have not been included as their effect would be
antidilutive.
F-9
<PAGE> 54
ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(2) CASH, CASH EQUIVALENTS, AND SHORT TERM INVESTMENTS

Cash and cash equivalents consisted of the following as of December 31,
1997:

<TABLE>
<S> <C>
Cash............................................. $ 400,794
Money market funds............................... 1,005,347
----------
$1,406,141
==========
</TABLE>

As of December 31, 1997, short term investments consisted of equity
securities totaling $286,000.

(3) PROPERTY AND EQUIPMENT

A summary of property and equipment as of December 31, 1997, follows:

<TABLE>
<S> <C>
Equipment........................................ $1,224,991
Furniture and fixtures........................... 271,511
Leasehold improvements........................... 136,669
----------
1,633,171
Less accumulated depreciation and amortization... 884,435
----------
$ 748,736
==========
</TABLE>

(4) SOFTWARE DEVELOPMENT COSTS

As of December 31, 1997, gross software development costs were $416,444,
with related accumulated amortization of $185,381. During 1997, the Company had
a write-off related to certain products which totaled $324,422 of gross
developed software that had an accumulated amortization balance of $174,086.
These products were not expected to generate sufficient future revenue which
would be required for the Company to realize the carrying value of the assets.

(5) INCOME TAXES

Income taxes consist of:

<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
--------- -------- --------
<S> <C> <C> <C>
Year ended December 31, 1997:
Federal......................................... $ -- $ -- $ --
State and local................................. 800 -- 800
Foreign......................................... 1,590 -- 1,590
--------- -------- --------
$ 2,390 $ -- $ 2,390
========= ======== ========
Year ended December 31, 1996:
Federal......................................... $(164,333) $142,767 $(21,566)
State and local................................. 800 67,745 68,545
Foreign......................................... 11,556 -- 11,556
--------- -------- --------
$(151,977) $210,512 $ 58,535
========= ======== ========
</TABLE>

F-10
<PAGE> 55
ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's income tax expense differed from the expected tax benefit
computed by applying the statutory U.S. federal income tax rate (34%) to loss
before income taxes as a result of the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Computed "expected" tax benefit............................. $(665,731) $(333,011)
Increase (reduction) in income taxes resulting from:
State and local income taxes, net of federal benefit... 528 45,240
Change in valuation allowance.......................... 673,086 399,440
Foreign taxes.......................................... 1,590 11,556
Other.................................................. (7,083) (64,690)
--------- ---------
$ 2,390 $ 58,535
========= =========
</TABLE>

The tax expense recognized in 1997 was due to the Company's inability to
recognize a tax benefit for loss and credit carryforwards. The tax effects of
temporary differences that give rise to significant portions of the deferred tax
assets and deferred tax liabilities are presented below:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
----------- ---------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts.......................... $ 50,173 $ 84,290
Covenant not to compete.................................. 64,189 65,730
Accrued compensation..................................... 18,144 21,294
Depreciation and amortization............................ -- 88,950
State taxes.............................................. -- 272
Credit carryforward...................................... 326,212 233,727
Loss carryforward........................................ 784,782 211,569
----------- ---------
Deferred tax assets.............................. 1,243,500 705,832
Valuation allowance...................................... (1,072,526) (399,440)
----------- ---------
Net deferred tax assets.......................... 170,974 306,392
----------- ---------
Deferred tax liabilities:
Software development costs............................... 92,744 306,392
Depreciation and amortization............................ 78,230 --
----------- ---------
Total deferred tax liabilities................... 170,974 306,392
----------- ---------
Net deferred tax asset........................... $ -- $ --
=========== =========
</TABLE>

The Company has recorded a valuation allowance of $1,072,526 with respect
to the deferred tax assets as of December 31, 1997. Management has determined
that such portion of deferred tax assets may not be realized.

The Company has federal and state net operating loss carryforwards of
approximately $1,983,000 and $1,802,000, respectively, that may be used to
offset future taxable income and federal and state research tax credits of
approximately $246,000 and $80,000, respectively, that may be used to offset
future tax liability. If unused, both the net operating loss and research credit
carryforwards will expire in the year 2012.

F-11
<PAGE> 56
ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(6) ACCRUED AND OTHER CURRENT LIABILITIES

Accrued and other current liabilities consisted of the following as of
December 31, 1997:

<TABLE>
<S> <C>
Accrued employee compensation..................... $230,696
Other............................................. 498,279
--------
$728,975
========
</TABLE>

(7) SHAREHOLDERS' EQUITY

(a) Preferred Stock

The Board of Directors has the authority to issue, without further action
by the shareholders, up to 1,000,000 shares of Preferred Stock in one or more
series and to fix the rights, preferences, privileges, and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms, and the number of
shares constituting any series or the designation of such series.

(b) Employee Stock Option and Purchase Plans

As of December 31, 1997, the Company had authorized 1,500,000 shares of
Common Stock for issuance under the 1992 Employee Stock Option Plan (the Option
Plan). The Option Plan may be administered by the Board of Directors or a
committee of the Board, which determines the terms of the options granted under
the Option Plan, including exercise price, number of shares subject to each
option, and the exercisability thereof. The vesting periods determined by the
Board of Directors generally provides for shares to vest ratably over 3.5 years
and expire over 10 years.

The Company's option activity was as follows:

<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Balance at December 31, 1995.............................. 532,668 $3.30
Granted................................................. 383,750 2.88
Exercised............................................... (79,080) 3.33
Terminated.............................................. (148,230) 3.28
--------
Balance at December 31, 1996.............................. 689,108 3.06
Granted................................................. 869,655 1.70
Exercised............................................... (27,963) 2.47
Terminated.............................................. (607,876) 2.95
--------
Balance at December 31, 1997.............................. 922,924 1.87
========
</TABLE>

The following table summarizes information about stock options outstanding
at December 31, 1997:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------- ------------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
RANGE OF NUMBER REMAINING WEIGHTED-AVERAGE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE OUTSTANDING PRICE
- --------------- ----------- ---------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$1.00 - 1.88 494,567 8.2 Years $1.29 155,234 $1.37
1.91 - 4.68 428,357 8.1 2.53 147,598 3.20
------- -------
1.00 - 4.68.. 922,924 8.1 1.87 302,832 2.27
======= =======
</TABLE>

Under the Company's 1994 Employee Stock Purchase Plan (the Purchase Plan) a
total of 148,142 shares of common stock remain reserved for issuance under the
Purchase Plan. The Purchase Plan permits eligible

F-12
<PAGE> 57
ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

employees to purchase common stock through payroll deductions, which may not be
less than 1% nor exceed 10% of an employee's compensation, not to exceed shares
with a fair market value of $25,000. The price of stock purchased under the
Purchase Plan must be at least 85% of the lower of the fair market value of the
common stock at the beginning of each six-month offering period or at the end of
the present purchasing period. Employees may end their participation in the
offering at any time during the offering period, and participation ends
automatically upon termination of employment with the Company.

The Company has elected to use the intrinsic value-based method in
accounting for its Plan. Accordingly, no compensation cost has been recognized
in the accompanying consolidated financial statements because the exercise price
of each option equaled or exceeded the fair value of the underlying common stock
as of the grant date for each option. Had compensation cost for the Company's
stock options been determined in a manner consistent with SFAS No. 123, the
Company's net loss and net loss per share as reported would have been increased
to the pro forma amounts indicated below (in thousands, except per share
amounts):

<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Reported net loss........................................ $(1,960) $(1,038)
Pro forma net loss....................................... $(2,408) $(1,444)
Reported basic and diluted net loss per share............ $ (0.67) $ (0.36)
Pro forma basic and diluted net loss per share........... $ (0.82) $ (0.50)
</TABLE>

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: 1997 -- an expected life of 3.5 years, risk-free interest rates of
5.84%, 140.4% expected volatility, and no dividend yield; 1996 -- an expected
life of 3.5 years, risk-free interest rates of 6.25%, 114.9% expected
volatility, and no dividend yield. The weighted-average fair value of options
granted during the period at an exercise price equal to market price at grant
date was $1.57 and $2.10 for the periods ended December 31, 1997 and 1996,
respectively.

The fair value of employees' stock purchase rights under the Purchase Plan
was estimated by calculating the difference between the share purchase price and
the fair market value of the share at the date of the purchase. All assumptions
were omitted in the estimate due to the immateriality of the compensation cost
generated in association with the Purchase Plan.

Pro forma net income reflects only options granted in 1997, 1996, and 1995.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net income amounts
presented above because compensation cost is reflected over the options' vesting
period of 3.5 years and compensation cost for options granted prior to January
1, 1995 is not considered.

(d) Warrants

In connection with its IPO, the Company issued warrants to purchase up to
100,000 shares of Common Stock at an exercise price of $6.60. These warrants
expire on April 19, 1999. In June 1995, in connection with a facility lease, the
Company issued warrants to purchase 50,000 shares of Common Stock at an exercise
price of $5.50. Such warrants expire in June 2000.

F-13
<PAGE> 58
ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(8) COMMITMENTS

Leases

The Company leases office space, automobiles, and certain office equipment
under noncancelable leases expiring through 2001. Future minimum lease payments
under these leases aggregate approximately $393,328, $407,092, $421,340, and
$142,048 in 1998, 1999, 2000, and 2001. Rent expense was $459,108 and $550,387
in 1997 and 1996, respectively.

Royalties

The Company has license agreements with unrelated third parties covering
certain of its products requiring royalty payments ranging from 10% to 50% of
product license and maintenance fees. Royalties related to these agreements were
$320,818 and $289,273 in 1997 and 1996, respectively.

(9) FOREIGN OPERATIONS

The Company's operations outside of the United States consist solely of a
sales office in the United Kingdom. Domestic operations are responsible for the
design, development, and licensing of all products. Following are selected
financial data, categorized by primary geographic area:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Sales to unaffiliated customers:
North America........................................... $ 3,189,407 $ 5,306,348
United Kingdom.......................................... 1,041,435 1,170,951
----------- -----------
Total........................................... $ 4,230,842 $ 6,477,299
=========== ===========
Operating income (loss):
North America........................................... $(2,052,865) $(1,181,971)
United Kingdom.......................................... 34,509 17,362
----------- -----------
Total........................................... $(2,018,356) $(1,164,609)
=========== ===========
Total assets:
North America........................................... $ 3,400,998 $ 6,296,838
United Kingdom.......................................... 313,711 412,409
----------- -----------
Total........................................... $ 3,714,709 $ 6,709,247
=========== ===========
Export sales.............................................. $ 310,594 $ 1,045,775
=========== ===========
</TABLE>

F-14
<PAGE> 59

======================================================

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF
COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF ANY OFFER TO BUY THE SHARES OF COMMON STOCK BY ANYONE IN
ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.

------------------------
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 2
Risk Factors.......................... 5
Use of Proceeds....................... 11
Price Range of Common Stock........... 11
Dividend Policy....................... 11
Capitalization........................ 12
Selected Consolidated Financial
Data................................ 13
Management's Discussion and Analysis
of Financial Conditions and Results
of Operations....................... 14
Business.............................. 19
Management............................ 29
Certain Relationships and Related
Transactions........................ 38
Principal Shareholders................ 39
Description of Capital Stock.......... 40
Shares Eligible for Future Sale....... 41
Plan of Distribution.................. 42
Legal Matters......................... 42
Experts............................... 43
Additional Information................ 43
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>

======================================================
======================================================

575,000 SHARES

[ENLIGHTEN SOFTWARE LOGO]

COMMON STOCK
---------------------

PROSPECTUS
---------------------
, 1998
======================================================
<PAGE> 60

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS

As permitted by Section 204(a) of the California General Corporation Law,
the Registrant's Amended and Restated Articles of Incorporation eliminate a
director's personal liability for monetary damages to the Registrant and its
shareholders arising from a breach or alleged breach of the director's fiduciary
duty, except for liability arising under Sections 310 and 316 of the California
General Corporation Law or liability for (i) acts or omissions that involve
intentional misconduct or knowing and culpable violation of law, (ii) acts or
omissions that a director believes to be contrary to the best interests of the
Registrant or its shareholders or that involve the absence of good faith on the
part of the director, (iii) any transaction from which a director derived an
improper personal benefit, (iv) acts or omissions that show a reckless disregard
for the director's duty to the Registrant or its shareholders in circumstances
in which the director was aware, or should have been aware, in the ordinary
course of performing a director's duties, of a risk of serious injury to the
Registrant or its shareholders, (v) acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the Registrant or its shareholders, (vi) interested transactions between
the corporation and a director in which a director has a material financial
interest, and (vii) liability for improper distributions, loans or guarantees.
This provision does not eliminate the directors' duty of care, and in
appropriate circumstances equitable remedies such as an injunction or other
forms of non-monetary relief would remain available under California law.

Sections 204(a) and 317 of the California General Corporation Law authorize
a corporation to indemnify its directors, officers, employees and other agents
in terms sufficiently broad to permit indemnification (including reimbursement
for expenses) under certain circumstances for liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"). The Registrant's
Articles of Incorporation and Bylaws contain provisions covering indemnification
to the maximum extent permitted by the California General Corporation Law of
corporate directors, officers and other agents against certain liabilities and
expenses incurred as a result of proceedings involving such persons in their
capacities as directors, officers employees or agents, including proceedings
under the Securities Act or the Securities Exchange Act of 1934, as amended. The
Company has entered into Indemnification Agreements with its directors and
executive officers.

At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Registrant in which
indemnification is being sought, nor is the Registrant aware of any threatened
litigation that may result in a claim for indemnification by any director,
officer, employee or other agent of the Registrant.

II-1
<PAGE> 61

ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses payable by the
Registrant in connection with the sale of Common Stock being registered. All
amounts are estimates.

<TABLE>
<CAPTION>
AMOUNT TO BE PAID
-----------------
<S> <C>
Discounts and commissions................................... $125,000
SEC Registration fee........................................ 1,000
Nasdaq National Market listing fee.......................... 3,000
Printing and engraving expenses............................. 15,000
Legal fees and expenses..................................... 50,000
Accounting fees and expenses................................ 30,000
Blue Sky fees and expenses.................................. 2,000
Transfer agent and registrar fees........................... 5,000
Miscellaneous expenses...................................... 20,000
--------
Total............................................. $251,000
========
</TABLE>

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES

Not applicable.

ITEM 27. EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
---------- -----------
<S> <C>
3.1(1) Amended and Restated Articles of Incorporation.
3.2(1) By Laws.
5.1 Opinion of Gray Cary Ware & Freidenrich LLP ("GCWF")
10.21(2) Employment letter and Termination and Change in Control
Agreement, dated March 4, 1996, by and between Enlighten
Software Solutions, Inc. and Byron E. Jacobs.
10.21.1(3) Amendment to Employment letter and Termination and Change in
Control Agreement, dated November 6, 1996, by and between
Enlighten Software Solutions, Inc. and Byron E. Jacobs.
10.22(2) Nonqualified Stock Option Agreement, dated March 4, 1996, by
and between Enlighten Software Solutions, Inc. and Byron E.
Jacobs.
10.23(2) Incentive Stock Option Agreement, dated March 4, 1996, by
and between Enlighten Software Solutions, Inc. and Byron E.
Jacobs.
10.24(3) Termination and Change in Control Agreement, dated April 24,
1996, by and between Enlighten Software Solutions, Inc. and
Michael A. Morgan.
10.25(3) Employment letter, dated December 27, 1996, by and between
Enlighten Software Solutions, Inc. and Mark Himelstein.
10.26(3) Nonqualified Stock Option Agreement, dated December 27,
1996, by and between Enlighten Software Solutions, Inc. and
Mark Himelstein.
10.27(4) Agreement dated as of September 22, 1997, by and among
Enlighten Software Solutions, Inc., Peter J. McDonald, and
New Dimension Software, Inc.
10.28(5) Employment letter, dated July 3, 1997, by and between
Enlighten Software Solutions, Inc. and Michael Seashols.
</TABLE>

II-2
<PAGE> 62

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
---------- -----------
<S> <C>
10.29(5) Employment letter, dated August 28, 1997, by and between
Enlighten Software Solutions, Inc. and David D. Parker.
10.30(5)* Agreement dated as of January 21, 1998, by and between
Enlighten Software Solutions, Inc. and Silicon Graphics,
Inc.
21.1(6) Subsidiaries of the Company.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of GCWF (included in Exhibit 5.1).
27.1 Financial Data Schedule.
</TABLE>

- ---------------
(1) Incorporated by reference from exhibits of the same number in the Company's
Registration Statement on Form S-1, which became effective April 19, 1994.

(2) Incorporated by reference from an exhibit of the same number in the
Company's Quarterly Report on Form 10-QSB for the year ended March 31, 1996.

(3) Incorporated by reference from an exhibit of the same number in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1996.

(4) Incorporated by reference from exhibit 10.27 in the Company's Current Report
on Form 8-K dated October 1, 1997.

(5) Incorporated by reference from an exhibit of the same number in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1997.

(6) Incorporated by reference from an exhibit of the same number in the
Company's Annual Report on Form 10-K for the year ended December 31, 1994.

* This exhibit was filed with the Commission pursuant to an application for
confidential treatment.

ITEM 28. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions referenced in Item 26 of this Registration Statement
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

The undersigned registrant hereby undertakes that:

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

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

II-3
<PAGE> 63

SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of San
Mateo, State of California, on this 21st day of April, 1998.

ENLIGHTEN SOFTWARE SOLUTIONS, INC.

By: /s/ MICHAEL A. MORGAN
------------------------------------
Michael A. Morgan
Chief Financial Officer

POWER OF ATTORNEYS

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Michael A. Morgan as his
attorney-in-fact, full power of substitution, for him in any and all capacities,
to sign any and all amendments to this Registration Statement, including post-
effective amendments and any and all new registration statements filed pursuant
to Rule 462(b) under the Securities Act of 1933, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorney to any and all amendment
to said Registration Statement.

Pursuant to the requirements of the Securities Act of 1933, 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/ DAVID D. PARKER President and Chief Executive April 21, 1998
- ----------------------------------------------------- Officer (Principal Executive
David D. Parker Officer)

/s/ MICHAEL A. MORGAN Vice President, Finance and April 21, 1998
- ----------------------------------------------------- Administration, Chief
Michael A. Morgan Financial Officer, Secretary
and Director (Principal
Financial and Accounting
Officer)

/s/ MICHAEL SEASHOLS Chairman of the Board of April 21, 1998
- ----------------------------------------------------- Directors
Michael Seashols

/s/ PETER J. MCDONALD Director April 21, 1998
- -----------------------------------------------------
Peter J. McDonald

/s/ PETER J. SPRAGUE Director April 21, 1998
- -----------------------------------------------------
Peter J. Sprague

/s/ BRUCE CLEVELAND Director April 21, 1998
- -----------------------------------------------------
Bruce Cleveland
</TABLE>

II-4
<PAGE> 64

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- -----------
<S> <C>
3.1(1) Amended and Restated Articles of Incorporation.
3.2(1) By Laws.
5.1 Opinion of Gray Cary Ware & Freidenrich LLP ("GCWF")
10.21(2) Employment letter and Termination and Change in Control
Agreement, dated March 4, 1996, by and between Enlighten
Software Solutions, Inc. and Byron E. Jacobs.
10.21.1(3) Amendment to Employment letter and Termination and Change in
Control Agreement, dated November 6, 1996, by and between
Enlighten Software Solutions, Inc. and Byron E. Jacobs.
10.22(2) Nonqualified Stock Option Agreement, dated March 4, 1996, by
and between Enlighten Software Solutions, Inc. and Byron E.
Jacobs.
10.23(2) Incentive Stock Option Agreement, dated March 4, 1996, by
and between Enlighten Software Solutions, Inc. and Byron E.
Jacobs.
10.24(3) Termination and Change in Control Agreement, dated April 24,
1996, by and between Enlighten Software Solutions, Inc. and
Michael A. Morgan.
10.25(3) Employment letter, dated December 27, 1996, by and between
Enlighten Software Solutions, Inc. and Mark Himelstein.
10.26(3) Nonqualified Stock Option Agreement, dated December 27,
1996, by and between Enlighten Software Solutions, Inc. and
Mark Himelstein.
10.27(4) Agreement dated as of September 22, 1997, by and among
Enlighten Software Solutions, Inc., Peter J. McDonald, and
New Dimension Software, Inc.
10.28(5) Employment letter, dated July 3, 1997, by and between
Enlighten Software Solutions, Inc. and Michael Seashols.
10.29(5) Employment letter, dated August 28, 1997, by and between
Enlighten Software Solutions, Inc. and David D. Parker.
10.30(5)* Agreement dated as of January 21, 1998, by and between
Enlighten Software Solutions, Inc. and Silicon Graphics,
Inc.
21.1(6) Subsidiaries of the Company.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of GCWF (Included in Exhibit 5.1).
27.1 Financial Data Schedule.
</TABLE>

- ---------------
(1) Incorporated by reference from exhibits of the same number in the Company's
Registration Statement on Form S-1, which became effective April 19, 1994.

(2) Incorporated by reference from an exhibit of the same number in the
Company's Quarterly Report on Form 10-QSB for the year ended March 31, 1996.

(3) Incorporated by reference from an exhibit of the same number in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1996.

(4) Incorporated by reference from exhibit 10.27 in the Company's Current Report
on Form 8-K dated October 1, 1997.

(5) Incorporated by reference from an exhibit of the same number in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1997.

(6) Incorporated by reference from an exhibit of the same number in the
Company's Annual Report on Form 10-K for the year ended December 31, 1994.

* This exhibit was filed with the Commission pursuant to an application for
confidential treatment.

<PAGE> 1
EXHIBIT 5.1

[GRAY CARY WARE FREIDENRICH LLP LETTERHEAD]

Our File No.:
1050379-900000

April 21, 1998

Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549

RE: ENLIGHTEN SOFTWARE SOLUTIONS, INC.
REGISTRATION STATEMENT ON FORM SB-2

Ladies and Gentlemen:

As counsel to Enlighten Software Solutions, Inc. (the "Company"), we are
rendering this opinion in connection with a proposed sale of those certain
shares of the Company's newly-issued Common Stock as set forth in the
Registration Statement on Form SB-2 to which this opinion is being filed as
Exhibit 5.1 (the "Shares"). We have examined all instruments, documents and
records which we deemed relevant and necessary for the basis of our opinion
hereinafter expressed. In such examination, we have assumed the genuineness of
all signatures and the authenticity of all documents submitted to us as
originals and the conformity to the originals of all documents submitted to us
as copies.

We express no opinion with respect to (i) the availability of equitable
remedies, including specific performance, or (ii) the effect of bankruptcy,
insolvency, reorganization, moratorium or equitable principles relating to or
limiting creditors' rights generally.

Based on such examination, we are of the opinion that the Shares identified
in the above-referenced Registration Statement will be, upon effectiveness of
the Registration Statement and receipt by the Company of payment therefor,
validly authorized, legally issued, fully paid and nonassessable.

We hereby consent to the filing of this opinion as an exhibit to the
above-referenced Registration Statement and to the use of our name wherever it
appears in said Registration Statement, including the Prospectus constituting a
part thereof, as originally filed or as subsequently amended.

Respectfully submitted,

/s/ Gray Cary Ware & Freidenrich

GRAY CARY WARE & FREIDENRICH

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
Enlighten Software Solutions, Inc.:

We consent to the use of our report included herein and to the references
to our firm under the headings "Selected Consolidated Financial Data" and
"Experts" in the prospectus.

Mountain View, California
April 20, 1998

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,406,141
<SECURITIES> 286,000
<RECEIVABLES> 240,444
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,508,876
<PP&E> 1,633,171
<DEPRECIATION> (884,435)
<TOTAL-ASSETS> 3,714,709
<CURRENT-LIABILITIES> 1,222,370
<BONDS> 0
0
0
<COMMON> 5,079,505
<OTHER-SE> (2,587,175)
<TOTAL-LIABILITY-AND-EQUITY> 3,714,709
<SALES> 4,230,842
<TOTAL-REVENUES> 4,230,842
<CGS> 976,335
<TOTAL-COSTS> 976,335
<OTHER-EXPENSES> 5,272,863
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,958,033)
<INCOME-TAX> 2,390
<INCOME-CONTINUING> (1,960,423)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,960,423)
<EPS-PRIMARY> (0.67)
<EPS-DILUTED> (0.67)

</TABLE>