ASPEN TECHNOLOGY INC /DE/, 10-K405, 2000-09-28

ASPEN TECHNOLOGY INC /DE/
10-K405, 2000-09-28
COMPUTER PROGRAMMING SERVICES

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2000

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .

COMMISSION FILE NUMBER: 0-24786

ASPEN TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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DELAWARE 04-2739697
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)

TEN CANAL PARK CAMBRIDGE, MASSACHUSETTS 02141
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 949-1000

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.10 PAR VALUE PER SHARE

Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

As of September 25, 2000, the aggregate market value of common stock (the
only outstanding class of equity of the Registrant) held by nonaffiliates of the
Registrant was $1,276,073,189.00, based on a total of 28,675,802 shares of
common stock held by nonaffiliates and on a closing price of $44.50 for the
common stock as reported on the Nasdaq National Market.

As of September 25, 2000, 29,657,517 shares of common stock were
outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE

The Registrant intends to file a definitive proxy statement pursuant to
Regulation 14A within 120 days of the end of the fiscal year ended June 30,
2000. Portions of such proxy statement are incorporated by reference in Part III
of this Form 10-K.
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TABLE OF CONTENTS

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PAGE
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PART I
Item 1. Business.................................................... 2
Item 1A. Risk Factors................................................ 16
Item 2. Properties.................................................. 22
Item 3. Legal Proceedings........................................... 22
Item 4. Submission of Matters to a Vote of Security Holders......... 22

PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 23
Item 6. Selected Financial Data..................................... 24
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 25
Item 7A. Quantitative and Qualitative Market Disclosures............. 33
Item 8. Financial Statements and Supplementary Data................. 34
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 34

PART III
Item 10. Directors and Executive Officers of the Registrant.......... 34
Item 11. Executive Compensation...................................... 34
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 34
Item 13. Certain Relationships and Related Transactions.............. 34

PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 35
Signatures............................................................. 39
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Aspen Plus, AspenTech and MIMI are our registered trademarks and Aspen
Advisor, Aspen Engineering Suite, Aspen Enterprise Optimization, Aspen eSupply
Chain Suite, Aspen Extended Supply Chain Optimization, Aspen IQ, Aspen
Manufacturing Suite, Aspen PIMS, Aspen Watch, Batch Plus, DMCplus, ICARUS,
InfoPlus.21, Petrolsoft and Plantelligence are our trademarks.

This Form 10-K contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, which are intended to be covered by the safe harbors
created thereby. For this purpose, any statements contained herein that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes," "anticipates," "plans,"
"expects" and similar expressions are intended to identify forward-looking
statements. Readers are cautioned that all forward-looking statements involve
risks and uncertainties, many of which are beyond our control, including the
factors set forth under "Item 1A. Risk Factors." Although we believe that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate and there can be no
assurance that actual results will be the same as those indicated by the
forward-looking statements included in this Form 10-K. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by us or any other person that our objectives and plans will be
achieved. Moreover, we assume no obligation to update these forward-looking
statements to reflect actual results, changes in assumptions or changes in other
factors affecting such forward-looking statements.

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PART I

ITEM 1. BUSINESS

We are a leading global provider of intelligent decision-support and
eBusiness solutions to the process industries. Our decision-support software and
service solutions enable our customers to automate, integrate and optimize
complex engineering, manufacturing and supply chain functions. Customers use our
eBusiness solutions to automate and synchronize collaborations with suppliers,
customers and other trading partners over the Internet. Our customers use our
solutions to optimize manufacturing performance at the individual plant level,
across multiple plants and throughout the extended supply chain. These solutions
enable customers to increase their competitiveness and profitability by
improving their manufacturing efficiency, responsiveness and product quality.

We believe that our extensive domain knowledge in process modeling and
chemical engineering is a competitive advantage. Our customer base of over 1,000
process manufacturers includes 46 of the world's 50 largest chemical companies,
23 of the world's 25 largest petroleum refiners and 18 of the world's 20 largest
pharmaceutical companies. In order to leverage our internal sales and marketing
efforts, enhance the breadth of our solutions and expand our implementation
capabilities, we have established a broad network of strategic partners,
including e-Chemicals, Extricity Software, IBM, Microsoft, Origin,
PricewaterhouseCoopers and Union Carbide.

RECENT DEVELOPMENTS

On June 1, 2000, we acquired Petrolsoft Corporation, a provider of unified
supply chain management systems and eBusiness and eCommerce solutions for
wholesalers and retailers of petroleum products. In the acquisition, which has
been accounted for as a pooling-of-interests transaction, we issued 2,641,101
shares of common stock, valued on the date of the acquisition at $22.93 per
share or $60.6 million in total. Petrolsoft's solutions focus on the supply and
distribution of bulk refined fuel products, including motor gasoline,
distillates, kerosene and jet fuel, to both retail and wholesale markets. As a
result of this acquisition, we believe we now offer the first integrated
solution for the optimization and automation of the extended supply chain for
petroleum companies, from crude selection, to refining, to delivery of products
to the consumer. This integrated solution is designed to enable petroleum
companies to integrate planning and scheduling at the refinery with the
distribution of products to retail consumers.

On August 29, 2000, we acquired ICARUS Corporation and ICARUS Services
Limited, providers of software used by the process manufacturing industries to
estimate plant capital costs and evaluate capital project economics. We paid
consideration of approximately $24.5 million in connection with this
acquisition, including delivering to the targets' stockholders (a) 248,411
shares of common stock, valued on the date of acquisition at $50.0625 per share
or $12,436,075.69, (b) $5.9 million in cash and (c) $2.1 million in principal
amount of one-year promissory notes. The balance of the acquisition price
consisted of cash paid to purchase outstanding ICARUS Corporation options and to
satisfy pre-existing severance and change-in-control agreements with ICARUS
Corporation employees. We will account for this acquisition as a purchase
transaction. This acquisition will enable us to provide additional functionality
to companies in the process industries, by integrating the ICARUS financial
decision-making tools with our manufacturing modeling, asset optimization and
supply chain offerings. We believe process manufacturers will be able to use
this integrated solution in making major capital investment decisions, such as
building new plants or renovating existing facilities.

On September 14, 2000, we announced that we had formed PetroVantage, Inc.
to develop and operate a digital, Internet-based marketplace for crude oil,
intermediates and refined petroleum products. We believe that this independent
marketplace will provide companies in the petroleum industry with access to
real-time, in-depth market information and with the capability to coordinate
various business processes with one another. The speed with which these
companies are able to make trading decisions and the efficiency with which they
are able to organize trading logistics are critical to the profitability of
these companies. We have initially committed $10.0 million to fund PetroVantage.
Although PetroVantage is a wholly owned subsidiary of our

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company, we expect that PetroVantage will operate independently of us and that
PetroVantage may solicit some or all of any future funding from strategic
third-party investors.

INDUSTRY BACKGROUND

To succeed in an increasingly competitive global environment, process
manufacturers must simultaneously reduce costs and increase efficiency,
responsiveness and customer satisfaction. Process manufacturers produce
petroleum products, petrochemicals, polymers, specialty chemicals,
pharmaceuticals, pulp and paper, electric power, food and beverages, consumer
products, metals and minerals, and semiconductors using certain common
production methods. These methods involve chemical reactions, combustion,
mixing, separation, heating, cooling and similar processes to make products in
the form of bulk solids, liquids, gases, powders and films. Because process
manufacturing tends to be asset-intensive, increases in profitability in these
industries depend substantially upon reducing costs of raw materials, energy and
capital.

Over the last 20 years, companies in the process industries have invested
in a number of technologies to improve manufacturing enterprise performance.
Process manufacturers initially automated their production processes by
deploying distributed control systems, or DCS, that used computer hardware
systems, communication networks and industrial instruments to measure, record
and automatically control process variables. More recently, process
manufacturers have automated key business processes by implementing enterprise
resource planning, or ERP, software solutions that enhance the flow of business
information across the enterprise. Even though DCS and ERP solutions can be
important components of a solution to improve manufacturing enterprise
performance, they do not incorporate either the detailed chemical engineering
knowledge essential to optimize the design and operation of manufacturing
processes or the plant performance data required to support more intelligent
real-time decision making.

To optimize manufacturing enterprise performance, process manufacturers
require tools that enable them to fundamentally improve their highly complex
production methods and processes. To meet these objectives, intelligent
decision-support solutions must provide an accurate understanding of a plant's
capabilities, as well as accurate planning and collaborative forecasting
information. Because of the complexity of the processes being modeled, solution
providers must possess extensive chemical engineering expertise, an in-depth
understanding of the process industry manufacturing value chain and the
technological know-how to develop and deploy these offerings. These competencies
are required to:

- build solutions that process manufacturers use to design and retrofit
manufacturing processes;

- plan and schedule production;

- optimize operating parameters in real time;

- rationalize supply chains;

- perform accurate production accounting; and

- improve other functions that impact both productivity and customer
satisfaction.

Given the large production volumes typical in the process industries and the
relatively low profit margins characteristic of many process sectors, even
relatively small reductions in raw material or energy requirements or
improvements in input costs, throughput or product yields can significantly
increase the profitability of the process manufacturing enterprise.

In recent years, increasingly sophisticated process industry-focused
software and service solutions have been developed to address these requirements
by automating, integrating and optimizing business processes in engineering, in
manufacturing and across the supply chain. Comprehensive solutions must support
collaborations among engineering professionals, from process design through
construction, startup, commissioning, de-bottlenecking and troubleshooting. In
addition, these solutions must address manufacturing challenges, including
advanced control and optimization, quality management, yield accounting and
maintenance.

As process manufacturers have become more adept at using point solutions
that optimize individual engineering and manufacturing business processes,
increasingly they are seeking additional performance
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improvements by integrating these solutions, both with one another and with DCS,
ERP and other enterprise systems, to provide real-time, intelligent decision
support. To achieve these objectives, companies are implementing plant-wide
optimization solutions to integrate related business processes across a single
production facility. Companies are also implementing enterprise optimization
solutions to extend this integration across multiple plants within an enterprise
by adding planning and scheduling functionality. To achieve true optimization,
however, process manufacturers must extend integration beyond the enterprise
walls by sharing key business processes and automating and synchronizing
collaborations across the extended supply chain of suppliers, customers and
other trading partners.

Extended supply chain optimization enables process manufacturers to reduce
cycle times substantially, adjust production quickly to meet changing customer
requirements, synchronize key business processes with plants and customers
across numerous geographies and time zone and quote delivery dates more
accurately and reliably. Until recently, no commercial solution existed to meet
these challenges in the process industries. Traditional supply chain solutions
and emerging business-to-business, or B2B, integration vendors lack the deep
process knowledge essential to solve the complex problems faced by process
manufacturers attempting to achieve true optimization of their enterprises, from
design to production to management of the extended supply chain.

The emergence of the Internet as a critical B2B collaboration platform has
accelerated the speed at which information is exchanged and the pace of change
within and among enterprises. While the proliferation of B2B applications has
made real-time optimization of the extended enterprise a reality in some
commercial sectors, most process manufacturers are only beginning to incorporate
the Internet into the various aspects of their businesses. At the same time,
innovative Internet-enabled solutions are emerging to serve the process
industries, enabling the automation of extended supply chains and the
establishment of trading exchanges and vertical industry portals. These
solutions have the potential to change fundamentally the way process
manufacturers interact and compete. The success of these solutions will depend
substantially on the caliber of the decision-support tools upon which they are
based. As a result of these developments, process manufacturers increasingly are
turning to providers with the highest-caliber domain knowledge to assist the
manufacturers in using the Internet as a platform to automate, integrate and
optimize their manufacturing performance.

Because of the size of the process industries and the rapid and significant
return on investment that we believe customers can achieve, the market for
automation, integration and optimization solutions in the process industries is
significant. Due to the recent availability of these solutions and the
traditional hesitancy of process manufacturers to adopt information technology,
the market has been only modestly penetrated. According to a recent study by the
ARC Advisory Group, the total annual potential market for providing these
solutions to the process industries was $10.6 billion in 1999 and growing 3% to
5% annually. ARC estimates that the aggregate software and services revenues
from this market totaled $1.1 billion in 1999, leaving the market less than 10%
penetrated. According to ARC, while the served market for point solutions is
more mature and growing an estimated 15% to 20% per year, the served markets for
integrated plant and supply chain/enterprise optimization solutions are
projected to increase more than 50% annually and to reach $3.4 billion by 2005.
ARC expects that new eBusiness solutions for the process industries will expand
the overall market.

THE ASPENTECH ADVANTAGE

We are a leading global provider of intelligent decision-support and
eBusiness solutions to the process industries. Our decision-support software and
service solutions enable our customers to automate, integrate and optimize
complex engineering, manufacturing and supply chain functions. Customers use our
eBusiness solutions to automate and synchronize collaborations with suppliers,
customers and other trading partners over the Internet. Our customers use our
solutions to optimize manufacturing performance at the individual plant level,
across multiple plants and throughout the extended supply chain. We have built
our reputation as technology leaders over nearly two decades by combining
substantial domain expertise in chemical engineering, modeling, computer science
and operations research. We believe we have achieved our market leadership in
part by solving many of the most challenging manufacturing problems faced by the
process industries.

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Leading process manufacturers use our solutions to improve their
competitiveness, not only by reducing raw material and energy use, cycle time,
inventory cost and time to market, but increasingly by synchronizing and
streamlining key business processes. In addition, our eBusiness solutions
support new business models, increase the intimacy of collaboration with key
business partners, improve the agility of manufacturers in adapting to rapid
changes and enable a variety of emerging process industry-focused trading
exchanges.

Our competitive advantage is based on the following key attributes:

SUBSTANTIAL PROCESS INDUSTRIES EXPERTISE. We believe we have amassed the
world's largest collection of process industries domain knowledge concerning
modeling and enterprise optimization. Our founders and executives have pioneered
many of the most significant advances that today are considered industry
standard solutions across a wide variety of engineering, manufacturing and
supply chain applications. Our modeling expertise is spread among employees who
hold more than 480 advanced degrees in chemical engineering, computer science,
operations research and management. This significant base of chemical
engineering expertise, process manufacturing experience and industry know-how
serves as the foundation for the proprietary solution methods, physical property
models and data estimation techniques embodied in our software solutions. We
continually enhance these solutions through extensive interaction with our
customers, who have performed millions of simulations in thousands of plants
using our software. To complement our software expertise, we have assembled a
staff of approximately 500 project engineers to provide implementation, advanced
process control, real-time optimization, supply chain management and other
consulting services. We believe this engineering team is the largest of any
independent solution provider. Our expertise spans the process industries
vertical markets, from chemicals, petrochemicals and refining to
pharmaceuticals, specialty chemicals and polymers.

LARGE AND VALUABLE CUSTOMER BASE. We view our customer base of more than
1,200 process manufacturers as an important strategic asset and as evidence of
one of the strongest franchises in the industry. We count among our customers 46
of the world's 50 largest chemical companies, 23 of the world's 25 largest
petroleum refiners, and 18 of the world's 20 largest pharmaceutical companies.
We also have numerous leading customers in other vertical markets. In addition,
17 of the top 20 major engineering and construction firms that serve these
industries use our design software. These relationships enable us to identify
and develop or acquire solutions that best meet the needs of our customers, and
they are a valuable tool in our efforts to rapidly penetrate the process
industries with new innovations. Notwithstanding the breadth of our customer
base, we believe the market for our solutions remains only modestly penetrated,
particularly for integration and optimization solutions. As process
manufacturers increasingly focus on integration and optimization of their
enterprises and extended supply chains, we expect many of our existing customers
to be among the first to implement our integrated eBusiness solutions.

RAPID, SIGNIFICANT RETURN ON INVESTMENT. We believe customers purchase our
solutions because the solutions provide rapid, demonstrable and significant
returns on investment. Because of the large production volumes and relatively
low profit margins typical in many of the process industries, even small
improvements in productivity can generate substantial recurring benefits.
First-year savings alone can exceed the software and implementation costs of our
solutions. Customers have reported annual savings of up to ten million dollars
from implementations of point solutions at an individual plant. Our integrated
solutions, whether applied across a plant, an enterprise or an extended supply
chain, can yield even greater returns. In addition, our solutions generate
important organizational efficiencies and operational improvements, the dollar
benefits of which are difficult to estimate.

COMPLETE, INTEGRATED SOLUTION. While some vendors offer stand-alone
products that compete with one or more of our solutions, we believe we are the
only provider that offers a comprehensive solution to process manufacturers that
addresses key business processes in engineering, manufacturing and across the
extended supply chain. Our solutions are designed to be used on a stand-alone
basis, integrated with one another or integrated with third-party applications.
Customers can initially choose to implement a point solution, which is scalable
as needs evolve, or our Plantelligence solution, which integrates multiple
business processes within a single plant. Our Enterprise Optimization solution
extends these optimization benefits across multiple plants within the enterprise
by adding planning and scheduling capabilities. To maximize productivity across
the

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extended enterprise, a process manufacturer can automate and synchronize
collaborations among customers, suppliers and other trading partners using our
Extended Supply Chain Optimization solution. Our integrated solutions target
underpenetrated and rapidly growing market sectors, and they represent an
important source of competitive differentiation.

DEMONSTRATED eBUSINESS LEADERSHIP. Our eBusiness solutions automate and
synchronize business processes among suppliers, customers and other trading
partners, and they provide B2B infrastructure to support process
industry-focused collaborative trading exchanges. For example, through our
subsidiary PetroVantage, we propose to offer an independent digital marketplace
for crude oil, intermediates and refined petroleum products that also will
provide a collaboration workflow environment, decision support tools and back
office integration. Our processcity.com portal is tailored specifically to
promote B2B collaboration among professionals in the process industries by
delivering leading edge tools, content and expertise and creating an online
professional community. We believe we are the only vendor in the market that
offers an integrated solution to address the strategic B2B infrastructure
requirements of process manufacturers, because other vendors lack the domain
knowledge critical to the underlying decision support.

STRATEGY

Our objective is to establish our intelligent decision-support and
eBusiness solutions as the standard for the process manufacturing industries.
The key elements of our strategy are:

EXTEND LEADERSHIP OF POINT SOLUTIONS. We believe we offer the most
technologically advanced family of point solutions available across the
engineering, manufacturing and supply chain functions. In addition to addressing
a broad range of challenges faced by process manufacturers, we believe many of
our solutions are best-in-class, including process simulation, advanced process
control, real-time optimization, scheduling and planning, process information
management and supply chain management.

Because these applications form the core of our integrated solutions, we
are committed to investing to enhance the functionality of our best-in-class
products, as well as developing or acquiring additional point solutions to meet
customer needs.

FOCUS ON INTEGRATED PLANTELLIGENCE, ENTERPRISE OPTIMIZATION AND EXTENDED
SUPPLY CHAIN OPTIMIZATION OPPORTUNITIES. We believe that process manufacturers
increasingly view integrated optimization solutions as essential. Our
Plantelligence, Enterprise Optimization and Extended Supply Chain Optimization
solutions represent our fastest-growing products. We intend to continue to focus
substantial financial and human resources on extending the functionality of,
quantifying the benefits of, marketing and selling, and accelerating the
implementation of these integrated solutions.

LEVERAGE DOMAIN KNOWLEDGE. We possess an extensive pool of intellectual
capital, with exceptional expertise in chemical engineering, computer science,
operations research and other process-relevant disciplines. To differentiate and
accelerate implementation of our integrated solutions, we have created vertical
market-focused business units to develop and commercialize unique,
cost-effective solutions that offer our customers best practice approaches to
common industry-specific challenges. We also have applied our domain knowledge
to create Business Process Templates which target common business processes and
provide easily configurable solutions. In addition, the expertise and process
industry know-how of our project engineers speeds customer implementation of our
solutions. We intend to continue to identify additional opportunities to
accelerate adoption of our solutions by leveraging our extensive domain
knowledge.

LEVERAGE eBUSINESS LEADERSHIP POSITION. We believe our focus on and early
launch of eBusiness solutions for process manufacturers have established our
leadership position in the market. Because of our expertise in supply chain
management and enterprise optimization for the process industries, we were among
the first to develop solutions that synchronize critical interactions among
value chains of suppliers, customers and trading partners. Our processcity.com
portal is tailored specifically to promote B2B collaboration among professionals
in the process industries by delivering leading edge tools, content and
expertise and creating an online professional community. Our newly formed
subsidiary PetroVantage proposes to offer not only an independent digital
petroleum marketplace, but also a collaboration workflow environment, decision
support

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tools and back office integration. We intend to continue to invest significant
resources to leverage our customer relationships and strategic alliances in
order to promote our eBusiness solutions and technology leadership throughout
the process industries.

EXPAND PARTNER NETWORK. In order to enhance our eBusiness leadership
position and augment our sales, marketing, development and implementation
capabilities, we are expanding our network of partners. We are working closely
with customers, complementary software and hardware vendors, trading exchanges,
process licensors, engineering and construction firms, and systems integrators
to identify opportunities for collaboration that we believe will speed our time
to market with new products, extend our reach to potential customers and
increase the resources available to implement our solutions. In fiscal 2000, we
entered into strategic relationships with leading software vendors such as
Extricity Software and Microsoft, leading process licensors such as Union
Carbide, the e-Chemicals trading exchange, and major systems integrators such as
IBM Global Services, Origin and PricewaterhouseCoopers. These relationships take
a variety of forms, including joint development and implementation,
collaborative marketing and technology transfer, and involve various levels of
financial commitment, including joint funding, equity investment and prepaid
royalties. We believe these partnering arrangements will expand the market
opportunities available to us, and we intend to continue to pursue similar
alliances.

CONTINUE TO MAKE STRATEGIC INVESTMENTS AND ACQUISITIONS. While we remain
committed to internal product development as the most significant source of
future opportunity, we intend to continue to take advantage of strategic
investment and acquisition opportunities as they arise, especially where they
are complementary to our engineering, manufacturing and supply chain solutions
or are in our core vertical markets. These may include equity investments,
acquisitions of products or technologies that could fill gaps in or meaningfully
extend our family of solutions, and acquisitions of expertise that could enhance
the overall attractiveness of our solutions. We have derived a significant
portion of our growth and solution breadth through investments in and
acquisitions of products, expertise and technologies. Most recently, we acquired
Petrolsoft in June 2000 to enhance our integrated offering for optimizing and
automating the supply chain for petroleum companies and ICARUS in August 2000 to
allow us to provide financial decision-making tools with our modeling, asset
optimization and supply chain technologies. Our ability to identify and
integrate investment and consolidation opportunities has been an important
element of our success to date, and we expect our experience with these
combinations to differentiate us as additional eBusiness initiatives and other
opportunities arise.

SOLUTIONS: SOFTWARE AND SERVICES

We offer a comprehensive portfolio of software products and services that
address engineering, manufacturing and supply chain requirements for process
manufacturers. Our software, known as the Aspen Enterprise Suite, consists of
three focused solution suites: the Aspen Engineering Suite, the Aspen
Manufacturing Suite and the Aspen eSupply Chain Suite. Our family of solutions
allows a user to start with a point solution and add and integrate additional
Aspen and third-party solutions. The Aspen Framework connects our software
solutions to one another and to third-party applications, and Aspen Business
Process Templates provide a user with a set of pre-configured best practices for
common vertical market business processes. A customer can use Plantelligence to
integrate Aspen and third-party solutions within a single plant, or it can
implement Enterprise Optimization to integrate multiple plants across the
enterprise. Ultimately, a user can optimize its extended enterprise by using our
Extended Supply Chain Optimization solution to synchronize the entire supply
chain. Our Extended Supply Chain Optimization solution provides standard,
automated functions between enterprises for order processing, including
scheduling of an order for production, tracking the order through production,
and certification of the product for delivery to the customer. Our global
services practice provides a range of services in support of deployment and
program management.

PRODUCT SUITES

We design our products to capture process knowledge in a consistent,
accurate and reliable form based on models that customers can use as the basis
for decision making across the entire manufacturing life-cycle.
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These models and the associated captured knowledge in the supporting information
technology systems provide real-time, intelligent decision support across the
manufacturing enterprise. Our software solutions can be linked with ERP
solutions and DCS systems to improve a customer's ability to gather, analyze and
use information across the process manufacturing life-cycle.

ASPEN ENGINEERING SUITE. The Aspen Engineering Suite enables companies to
optimize their research and development and engineering workflow -- from the
chemist, to conceptual design, to process engineering, to detailed engineering,
to start-up and plant operations. By creating and capturing knowledge in the
form of models, information can be re-used across the business. Detailed
engineering and cost and analysis is supported through integration with
Intergraph and ICARUS software.

The table below provides a list of the principal Aspen Engineering products
available and their applications:

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SOFTWARE SOLUTION DESCRIPTION APPLICATION
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Aspen Pinch Process energy and capacity analysis Process synthesis and analysis
Aspen Plus Steady state simulation environment Unit modeling and simulation
Aspen Hetran Heat exchanger design optimization, Equipment sizing and rating
rating and simulation
Batch Plus Batch process modeling Vertical application
Polymers Plus Polymer steady state and batch Vertical application
modeling
Aspen Zyqad Multi-user environment to store and Collaborative engineering
share engineering data
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The Aspen Engineering Suite is an open environment and is implemented on
the Microsoft Windows operating system, while selected parts are available for
implementation on UNIX and VMS systems. Implementation of our engineering
solutions does not typically require substantial consulting services, although
services may be provided for customized model designs and process synthesis.

ASPEN MANUFACTURING SUITE. The Aspen Manufacturing Suite helps companies
optimize their manufacturing work processes by supporting information flow and
manufacturing execution on a daily basis. The Aspen Manufacturing Suite combines
information management tools, control and inferential model tools, and
production management to support manufacturing execution, decision making and
optimization. It provides the manufacturing agility necessary for collaboration
with customers and suppliers, enabling the extended supply chain to function
efficiently. Using the Aspen Manufacturing Suite, companies can execute
production plans faster, limit deviations from those plans and revise plans in
real time based on actual asset performance. The Aspen Manufacturing Suite
comprises the following families of software products:

- ADVANCED CONTROL FAMILY -- Minimizes variability, maximizes capacity and
provides real-time response to dynamic disturbances.

- INFORMATION MANAGEMENT FAMILY -- Transforms data into meaningful
information, making it easily accessible to the end user for real-time
decision making.

- PRODUCTION MANAGEMENT FAMILY -- Optimizes manufacturing plant operations
to meet current demands in the most economically efficient way.

8
<PAGE> 10

The table below provides a list of the principal Aspen Manufacturing
products available and their applications:

<TABLE>
<CAPTION>
SOFTWARE SOLUTION DESCRIPTION APPLICATION
----------------- ----------- -----------
<S> <C> <C>
ADVANCED CONTROL FAMILY
Aspen IQ Inferred property measurement Predict process conditions or
product quality based on
indirect measurements
DMCplus Multivariable control Unit and multi-unit advanced
control solutions for complex
control problems
Aspen Watch Performance monitoring of DMCplus Sustained performance of
advanced control applications high-value control applications

INFORMATION MANAGEMENT FAMILY
InfoPlus.21 Real-time database historian Process monitoring and
historical data retention
Batch.21 Organizes manufacturing process Batch, pharmaceutical and other
information into batch folders to process analysis in
allow comparative assessment batch-oriented "view" of the
world
Aspen Calc Generic calculation engine, including Custom application support,
script editor and scheduler general purpose application
needs tied to real-time data
Aspen Multivariate Real-time multivariable statistical Complex process early fault
analysis detection and alarming
Aspen Process Generic user interface for Visualization of process
Explorer information management conditions

PRODUCTION MANAGEMENT FAMILY
Aspen Process Order Tracks process order information from Production order management
beginning to end, linking scheduling,
operations and yield accounting
groups
Aspen Advisor Data reconciliation and yield Large plant yield accounting
accounting system and balancing
Aspen Process Recipe Recipe management system, translating Manage complex recipe
process orders to recipes information on-line
ERP Connect Solution for integrating with ERP Connection to ERP systems
systems
</TABLE>

The Aspen Manufacturing Suite is an open environment and supports XML and
database and device communication standards. It is implemented in the Microsoft
Windows operating system. Implementation of our manufacturing solutions
typically requires substantial consulting services.

ASPEN eSUPPLY CHAIN SUITE. The Aspen eSupply Chain Suite combines supply
chain management products with flexible B2B collaboration products in a suite
with industry-specific applications. This solution suite includes an easy-to-use
graphical user interface. Our solutions work together to link our eSupply Chain
products with manufacturing systems across the extended enterprise.

9
<PAGE> 11

The table below provides a list of the principal Aspen eSupply Chain
products available and their applications:

<TABLE>
<CAPTION>
SOFTWARE SOLUTION DESCRIPTION APPLICATION
----------------- ----------- -----------
<S> <C> <C>
Aspen MIMI Strategic planning, supply chain Supply chain management
planning, operations planning and
scheduling, supply chain and
manufacturing execution
Aspen B2B Foundation Business-to-business integration Integrate customers and
business partners into a value
chain that spans the extended
supply chain

CONFIGURED INDUSTRY SOLUTIONS
Aspen PIMS Planning and scheduling Refinery and bulk petrochemical
manufacturing
Semiconductor Global Planning and scheduling Fab and fab-less semiconductor
Planner manufacturing
Polymers Scheduler Scheduling Continuous and semi-batch
polymers plants
Aspen Strategic Strategic planning Analysis of assets, strategic
Analyzer decisions on buy, sell, build,
timing and location
Bulk Transport Decision support Strategic and operational
Optimizer decision support for bulk
material transportation
</TABLE>

The Aspen eSupply Chain Suite is an open environment and supports XML and
database and device communication standards. It is implemented in the Microsoft
Windows operating system. Implementation of our eSupply Chain solutions
typically requires consulting services, although not to the same extent as our
manufacturing solutions.

INTEGRATED SOLUTIONS

INTEGRATION PRODUCTS. Our integration products provide the structure for
our integrated business solutions. We have two key product offerings:

- Aspen Framework. Aspen Framework provides a common integration platform
for our software solutions and supplies critical links between plant
systems and enterprise business systems. Aspen Framework provides
enterprise-wide management of installation, version control, security and
roles, supports automation and execution of business processes, and
enables enterprise-wide data sharing. The open architecture provides the
infrastructure to implement integrated solutions that combine in-house
technologies, third-party products and our software suites. The Aspen
Framework facilitates integration of our products by allowing the various
applications to communicate with common databases of design information,
real-time information and documents. The Aspen Framework is based on
Microsoft DNA technology and includes web-enabled features such as XML
and Active Server pages. The Aspen Framework is an open environment, with
support of XML and database and device communication standards, and is
implemented in the Microsoft Windows operating system, using the
Microsoft DNA for manufacturing architecture.

- Aspen Business Process Templates. Our Business Process Templates, or
BPTs, combine our software products with pre-configured business
processes that incorporate industry best practices for optimizing the
enterprise. BPTs embed deep process knowledge relating to engineering,
manufacturing and the supply chain. Based on the web-enabled Aspen
Framework integration software, BPTs act as a configurable starting point
for enterprise optimization solutions.

PLANTELLIGENCE. Our integrated plant-wide solution, which is marketed
under the Plantelligence name, enables process manufacturers to drive their
plant operations to higher levels of profitability. Plantelligence incorporates
products from our Engineering and Manufacturing Suites and selected components
from the

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<PAGE> 12

eSupply Chain Suite focused on plant planning and scheduling, and uses the Aspen
Framework as a vehicle for integrating these products so they work together to
support specific business processes. In addition to linking our three solution
suites, Plantelligence is designed to integrate with a plant's hardware systems,
enterprise resource planning system and existing information technology systems
to optimize the operation of the plant. By uniting our products in a common
framework, Plantelligence provides a comprehensive set of business improvements
to process manufacturing plants. We believe the benefits of integration are an
essential part of helping process manufacturers become more competitive.
Integrating the technologies that support business processes can help process
manufacturers align their people, resources and business processes to drive
their manufacturing enterprises to higher levels of productivity and overall
performance. The value of this integration is enhanced through the ability of
different technology products to share a consistent model of the plant's
manufacturing process. By running plants on consistent models that reflect true
economic, chemical and physical constraints, manufacturers obtain the critical
knowledge they need to develop, execute and evaluate their manufacturing plans
and make improvements with each production cycle.

ENTERPRISE OPTIMIZATION. Our Enterprise Optimization solution builds on
Plantelligence to coordinate multiple plants within the enterprise. Customers
with a wide array of manufacturing plants and assets can implement our
Enterprise Optimization solution to enable their plants to work together toward
common operating and business goals. Many manufacturing plants continue to act
as silos that maximize their own efficiency and productivity. In many cases,
process manufacturers have pursued large business process reengineering projects
that have failed to coordinate their plants. However, as the process industries
become increasingly global and interconnected, we believe that process
manufacturers will need to change their business processes so that they can
optimize their entire manufacturing enterprise rather than only their individual
plants. Our Enterprise Optimization solution is designed to enable process
manufacturers to adapt to rapid changes in demand and their business
environment, respond quickly to these changes, act as a single enterprise,
optimize use of resources, meet customer requirements and operate more
profitably.

EXTENDED SUPPLY CHAIN OPTIMIZATION. Our Extended Supply Chain Optimization
solution reaches beyond the traditional boundaries of the organization into
supplier, partner and customer organizations to automate and optimize
collaborative solutions for key business processes. These business processes are
automated using Aspen eBusiness and other parts of our eSupply Chain Suite. A
mixture of shared and private processes provides the ability to place orders
within a customer's production schedule, monitor the progress of the order
through production, and certify the product based on established quality
parameters for delivery to the customer. Aspen eBusiness also provides the
ability to manage inventory in the extended supply chain through collective
scheduling and replenishment via trading exchanges in which all supply chain
participants collaborate. This functionality results in significant time savings
by automating the information exchange and decision processes to improve each
participant's responsiveness to its suppliers and customers.

SERVICES

We offer implementation, advanced process control, real-time optimization
and other consulting services in order to provide our customers with complete
solutions. Customers typically use products from our Engineering Suite without
implementation assistance. Customers that purchase products from our
Manufacturing and eSupply Chain Suites and our integrated solutions frequently
request implementation assistance from us and our partners.

Customers who obtain consulting services from us typically engage us to
provide such services over periods of up to 24 months. We generally charge
customers for consulting services on a fixed-price basis, but charge customers
on a time-and-materials basis for some services, primarily supply chain and
on-site advanced process control and optimization services.

We employ a staff of approximately 500 project engineers to provide
consulting services to our customers. We believe this large team of experienced
and knowledgeable project engineers provides an important source of competitive
differentiation. We primarily hire as project engineers individuals who have
obtained doctoral or master's degrees in chemical engineering or a related
discipline or who have significant relevant industry experience. Our employees
include experts in fields including thermophysical properties, distillation,
adsorption processes, polymer processes, industrial reactor modeling, the
identification of empirical models for
11
<PAGE> 13

process control or analysis, large-scale optimization, supply distribution
systems modeling and scheduling methods.

Historically, most licensees of our planning and scheduling solutions and a
limited number of licensees of our process information management and supply
chain management systems have obtained implementation consulting services from
third-party vendors. Our strategy is to continue to develop and expand
relationships with third-party consultants in order to provide a secondary
channel of consulting services to augment our process management software
solutions and to provide complementary services.

TECHNOLOGY AND PRODUCT DEVELOPMENT

Our base of chemical engineering expertise, process manufacturing
experience and industry know-how serves as the foundation for the proprietary
solution methods, physical property models and data estimation techniques
embodied in our software solutions. Our software and services solutions combine
three of our core competencies:

- We support sophisticated empirical models generated from advanced
mathematical algorithms developed by our employees. In addition, we
support rigorous models of chemical manufacturing processes and the
equipment used in those processes. We have used these advanced algorithms
to develop proprietary models that provide highly accurate
representations of the chemical and physical properties of a broad range
of materials typically encountered in the chemicals, petroleum and other
process industries.

- We develop software that models key customer manufacturing and business
processes and automates the workflow of these processes. This software
integrates our broad product line so that the data used in manufacturing
processes are seamlessly passed between the applications used in each
step of the business processes.

- We have invested significantly in supply chain software, which embeds
sophisticated technology allowing customers to optimize their extended
supply chain activities. In addition, this software embeds key knowledge
about the details of how manufacturing and supply chain operations
function in the process industries.

Our product development activities are currently focused on strengthening
the integration of our key products, expanding the set of business processes our
software covers, exploiting web technology, and enhancing and simplifying the
user interface. As of August 31, 2000, we employed a product development staff
of more than 330 people.

CUSTOMERS

Our software solutions are installed at the facilities of more than 1,200
customers worldwide. The following table sets forth a selection of our customers
from whom we generated at least $250,000 of revenues in fiscal 1999 or 2000.

CHEMICALS AND PETROCHEMICALS
Air Liquide
Akzo Nobel
Aristech Chemical Corporation
Asahi Chemical Industry Co., Ltd
BASF AG
Borealis Exploration Limited
Celanese AG
Condea Vista Company
Copene
Daelim Industrial Co.
The Dow Chemical Company
DSM N.V.
Equistar Chemicals, LP
FMC Corporation
Formosa Petrochemical Corp.
General Electric Company
Hanwha Chemical Corp.
Huntsman Corporation
Kuraray Co., Ltd.
Mitsubishi Chemical Corporation
Mitsui Chemicals
Nova Chemicals, Ltd.
Occidental Chemical Corp.
Polifin Ltd
PPG Industries, Inc.
Sinopec
Solvay S.A.

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<PAGE> 14

Union Carbide Chemicals and Plastics Company, Inc
Wacker Corporation
Westlake Management Services Corporation

CONSUMER GOODS & PACKAGING
Bass Plc
Cargill Inc.
Nestle SA
Sealed Air Corp.
Unilever

E&C, LICENSOR, CONSULTING, RESEARCH INSTITUTE
ABB Lummus
Chiyoda Corporation
Jacobs Engineering Group, Inc.
JGC Corporation
Kellogg Brown & Root (KBR)
Kvaerner
LG Group
Linde AG
Logica plc
Lurgi AG
Technip SA
UOP

LIFE SCIENCES AND SPECIALTY CHEMICALS
Agfa Gevaert NV
Albemarle Corporation
Astrazeneca
Aventis Research & Technologies
Bayer Corporation
Borden Chemicals & Plastics
Cabot Corporation
Dow Corning Corporation
E.I. du Pont de Nemours & Company, Inc.
Eli Lilly
Engelhard Corporation
Glaxo Wellcome Plc
Hercules, Inc.
Imperial Chemical Industries plc
Owens Corning
Parke-Davis Limited
Rhodia SA
Roche
Rohm and Haas Company
SmithKline Beecham Pharmaceutical
Solutia Inc.
UCB Chemicals

REFINING, OIL AND GAS
Abu Dhabi National Oil Company
Bharat Petroleum co. Ltd.
BP Amoco plc
Chevron Corporation
Citgo Petroleum Corporation
CNPC
Enbridge Inc.
Eni
Equilon Enterprises LLC
Exxon Company U.S.A.
Fortum Oil and Gas Oy (formerly Neste)
Kuwaiti National Petroleum Company
Lyondell Citgo Refining Company Ltd.
Magyar Olaj LS
Motiva Enterprises LLC
Nippon Petroleum Refining Co.
OMV Aktiengesellschaft
Petrogal Group
Petroleo Brasileiro S.A. -- PETROBRAS
Petroleos de Venezuela, S.A.
Petronas
Phillips Petroleum Company
Repsol Petroleo SA
Shell Oil Company
SK Corp Ltd
Statoil
Sunoco Inc.
Tonen Corp
Tosco Corporation
Total-Fina
Valero Refining Company

METALS, MINING AND MINERALS
Alcoa of Australia, Ltd.
LTV Corporation
Sollac S.A.
Wabash Alloys

PULP AND PAPER
Buckeye Cellulose Corporation
Consolidated Papers, Inc.
Rayonier Inc.
Weyerhaeuser

POWER AND NUCLEAR
BNFL
Electrabel SA/NV
Electricite de France

International revenues accounted for approximately 45.2% of our total
revenues in fiscal 1998, 51.8% of our total revenues in fiscal 1999 and 45.4% of
our total revenues in fiscal 2000.

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<PAGE> 15

SALES AND MARKETING

We employ a value-based sales approach, offering customers a comprehensive
suite of software and service solutions that enhance the efficiency and
productivity of their process manufacturing operations. We have increasingly
focused on selling our solutions as a strategic investment by our customers and
therefore target our principal sales efforts at senior management levels,
including chief executive officers and senior decision makers in manufacturing,
operations and technology.

Because the complexity and cost of our solutions often result in a sales
cycle of between six and nine months, we believe that the development of
long-term, consultative relationships with our customers is essential to a
successful selling strategy. To develop these relationships, we have organized
our worldwide sales force by industry and have appointed a single sales account
manager to be responsible for our relationship with each customer. In order to
market the specific functionality and other complex technical features of our
software solutions, each sales account manager leads a specialized team of
regional account managers, technical sales engineers and product specialists
organized for each sales and marketing effort. Our technical sales engineers
typically have advanced degrees in chemical engineering or related disciplines
and actively consult with a customer's plant engineers. Product specialists
share their detailed knowledge of the specific features of our software
solutions. Each sales team also includes participants from our business
development group who determine the scope and price of service solutions offered
to customers.

We believe that our seasoned direct sales force, consisting of
approximately 125 individuals as of August 31, 2000, and our ability to sell at
senior levels within customer organizations are important competitive
advantages. We have established direct sales offices in key geographic areas
where there are high concentrations of potential business. As of August 31,
2000, we had 16 direct sales offices in cities in the United States and 32
direct sales offices in cities outside of the United States, including Brussels,
Cambridge (England), Dusseldorf, Hong Kong, Paris, Singapore and Tokyo. In
geographic areas of lower customer concentration, we use sales agents and other
resellers to leverage our direct sales force and to provide local coverage and
first-line support.

We also supplement our direct sales efforts with a variety of marketing
initiatives, including public relations activities, campaigns to promote
awareness among industry analysts, user groups and our triennial conference,
AspenWorld. AspenWorld has become a prominent forum for industry participants,
including process manufacturing executives and analysts, to discuss emerging
technologies and other process engineering solutions and to attend seminars led
by industry experts. The AspenWorld 2000 conference, held in February 2000,
attracted more than 2,200 participants.

We also license our software solutions at a substantial discount to
universities that agree to use our solutions in teaching and research. We
believe that students' familiarity with our solutions will stimulate future
demand once the students enter the workplace. Currently, more than 600
universities use our software solutions in undergraduate instruction.

COMPETITION

We face three primary sources of competition:

- commercial vendors of software products targeting one or more process
manufacturing functions in the areas of engineering, manufacturing and
supply chain, such as Hyprotech, a division of AEA Technology, i2
Technologies, SAP and Simulation Sciences, a division of Invensys;

- vendors of hardware that offer software solutions in order to add value
to their proprietary distributed control systems, such as Honeywell and
Invensys, and vendors of ERP systems, such as Oracle, PeopleSoft and SAP;
and

- large companies in the process industries that have developed their own
proprietary software solutions.

availability of their products to the marketplace. The entry of new competitors
or alliances into our market could reduce our market share, require us to lower
our prices, or both. Many of these factors are outside our control, and we may
not be able to maintain or enhance our competitive position against current and
future competitors.

INTELLECTUAL PROPERTY

We generally enter into non-disclosure agreements with our employees and
customers, and historically have restricted access to our software products'
source codes, which we regard as proprietary information. In a few cases, we
have provided copies of the source codes for certain products to customers
solely for the purpose of special product customization and have deposited
copies of the source codes for certain products in third-party escrow accounts
as security for ongoing service and license obligations. In these cases, we rely
on non-disclosure and other contractual provisions to protect our proprietary
rights.

The laws of certain countries in which our products are licensed may not
protect our products and intellectual property rights to the same extent as the
laws of the United States. The laws of many countries in which we license our
products protect trademarks solely on the basis of registration. We currently
possess a limited number of trademark registrations in certain foreign
jurisdictions and have applied for foreign copyright and patent registrations,
which correspond to the United States trademarks, copyrights and patents
described above, to protect our products in foreign jurisdictions where we
conduct business.

The steps we have taken to protect our proprietary rights may not be
adequate to deter misappropriation of our technology or independent development
by others of technologies that are substantially equivalent or superior to our
technology. Any misappropriation of our technology or development of competitive
technologies could harm our business. We could incur substantial costs in
protecting and enforcing our intellectual property rights.

Moreover, from time to time third parties may assert patent, trademark,
copyright and other intellectual property rights to technologies that are
important to our business. In such an event, we may be required to incur
significant costs in litigating a resolution to the asserted claims. The outcome
of any litigation might require that we pay damages or obtain a license of a
third party's proprietary rights in order to continue licensing our products as
currently offered. If such a license were required, it might not be available on
terms acceptable to us, or at all.

We believe that the success of our business depends more on the quality of
our proprietary software products, technology, processes and know-how than on
trademarks, copyrights or patents. While we consider our intellectual property
rights to be valuable assets, we do not believe that our competitive position in
the industry is dependent simply on obtaining legal protection for our software
products and technology. Instead, we believe that the success of our business
depends primarily on our ability to maintain a leadership position over our
competitors in developing our proprietary software products, technology,
information, processes and know-how. Nevertheless, we attempt to protect our
intellectual property rights with respect to our products and development
processes through trademark, copyright and patent registrations, both foreign
and domestic, whenever appropriate as part of our ongoing research and
development activities.

EMPLOYEES

As of August 31, 2000, we had a total of 1,731 full-time employees. None of
our employees is represented by a labor union. We have experienced no work
stoppages and believe that our employee relations are good.

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<PAGE> 17

While we have substantially expanded the breadth and depth of our
management team in recent years, our future success depends to a significant
extent on the continued service of Lawrence B. Evans, our principal founder,
Chairman and Chief Executive Officer, our other executive officers and a number
of engineering, technical, managerial and sales and marketing personnel.

ITEM 1A. RISK FACTORS

In addition to the other information in this Form 10-K, the following
factors should be considered in evaluating our company and our business.

RISKS RELATED TO OUR BUSINESS

OUR LENGTHY SALES CYCLE MAKES IT DIFFICULT TO PREDICT QUARTERLY REVENUE LEVELS
AND OPERATING RESULTS.

Because license fees for our software products are substantial and the
decision to purchase our products typically involves members of our customers'
senior management, the sales process for our solutions is lengthy and can exceed
one year. Accordingly, the timing of our software revenues is difficult to
predict, and the delay of an order could cause our quarterly revenues to fall
substantially below expectations. Moreover, to the extent that we succeed in
shifting customer purchases away from individual software solutions and toward
more costly integrated suites of software and services, our sales cycle may
lengthen, which could increase the likelihood of delays and cause the effect of
a delay to become more pronounced. We have limited experience in forecasting the
timing of sales of our integrated suites of software and services. Delays in
sales could cause significant shortfalls in our revenues and operating results
for any particular period.

FLUCTUATIONS IN OUR QUARTERLY REVENUES, OPERATING RESULTS AND CASH FLOW MAY
CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO FALL.

Our revenues, operating results and cash flow have fluctuated in the past
and may fluctuate significantly in the future as a result of a variety of
factors, many of which are outside of our control, including:

- our ability to attract and retain customers;

- our customers' purchasing patterns;

- the length of our sales cycle;

- changes in the mix of our license revenues and service revenues;

- the timing of introductions of new solutions and enhancements by us and
our competitors;

- seasonal weakness in the first quarter of each fiscal year, primarily
caused by a slowdown in business in some of our international markets;

- the timing of our investments in new product development;

- changes in our operating expenses; and

- fluctuating economic conditions, particularly as they affect companies in
the chemicals, petrochemicals and petroleum industries.

We ship software products within a short period after receipt of an order
and typically do not have a material backlog of unfilled orders for software
products. Consequently, revenues from software licenses in any quarter are
substantially dependent on orders booked and shipped in that quarter.
Historically, a majority of each quarter's revenues from software licenses has
come from license agreements that have been entered into in the final weeks of
the quarter. Therefore, even a short delay in the consummation of an agreement
may cause our revenues to fall below public expectations for that quarter.

Since our expense levels are based in part on anticipated revenues, we may
be unable to adjust spending quickly enough to compensate for any revenue
shortfall and any revenue shortfall would likely have a

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<PAGE> 18

disproportionately adverse effect on our operating results. We expect that these
factors will continue to affect our operating results for the foreseeable
future. Because of the foregoing factors, we believe that period-to-period
comparisons of our operating results are not necessarily meaningful and should
not be relied upon as indications of future performance.

As a result of lower-than-anticipated license revenues in our fiscal
quarters ended September 30, 1998 and March 31, 1999, our operating results for
each of those quarters were below the expectations of public market analysts and
many investors. In each case, the market price of our common stock declined
substantially upon the announcement of our operating results. If, due to one or
more of the foregoing factors or an unanticipated cause, our operating results
fail to meet the expectations of public market analysts and investors in a
future quarter, the market price of our common stock would likely decline.

BECAUSE WE DERIVE A MAJORITY OF OUR TOTAL REVENUES FROM CUSTOMERS IN THE
CYCLICAL CHEMICALS, PETROCHEMICALS AND PETROLEUM INDUSTRIES, OUR OPERATING
RESULTS MAY SUFFER IF THESE INDUSTRIES EXPERIENCE AN ECONOMIC DOWNTURN.

We derive a majority of our total revenues from companies in the chemicals,
petrochemicals and petroleum industries. Accordingly, our future success depends
upon the continued demand for manufacturing optimization software and services
by companies in these process manufacturing industries. The chemicals,
petrochemicals and petroleum industries are highly cyclical. In the past,
worldwide economic downturns and pricing pressures experienced by chemical,
petrochemical and petroleum companies have led to consolidations and
reorganizations. These downturns, pricing pressures and restructurings have
caused delays and reductions in capital and operating expenditures by many of
these companies. These delays and reductions have reduced demand for products
and services like ours. A recurrence of these industry patterns, as well as
general domestic and foreign economic conditions and other factors that reduce
spending by companies in these industries, could harm our operating results in
the future.

IF WE DO NOT HIRE AND RETAIN HIGHLY QUALIFIED EMPLOYEES, WE MAY BE UNABLE TO
EXECUTE OUR BUSINESS PLAN SUCCESSFULLY.

Our success depends, in large part, on our ability to attract, hire, train
and retain highly qualified employees, particularly project engineers, supply
chain and eBusiness experts, sales and marketing personnel and operations
research experts. For project engineers and other process manufacturing experts,
we primarily hire individuals who have obtained a doctoral or master's degree in
chemical engineering or a related discipline or who have significant relevant
industry experience. As a result, the pool of qualified potential employees is
relatively small, and we face significant competition for these employees, from
not only our direct competitors but also our customers, academic institutions
and other enterprises. In addition, the pool of individuals with supply chain
and eBusiness expertise is very limited, and competition for these individuals
is intense. We have limited experience in hiring and retaining employees in this
area. Our failure to recruit and retain the highly qualified employees who are
integral to our services, product development and sales and marketing efforts
may limit the rate at which we generate sales and develop new products and
product enhancements, which could hurt our operating results. Moreover, intense
competition for these employees may result in significant increases in our labor
costs, which would impact our operating results.

WE WILL LOSE VALUABLE STRATEGIC LEADERSHIP AND OUR CUSTOMER RELATIONSHIPS MAY BE
HARMED IF WE LOSE THE SERVICES OF OUR CHIEF EXECUTIVE OFFICER OR OTHER KEY
PERSONNEL.

Our future success depends to a significant extent on Lawrence B. Evans,
our principal founder, Chairman and Chief Executive Officer, our other executive
officers and a number of key engineering, technical, managerial and marketing
personnel. The loss of the services of any of these individuals or groups of
individuals could harm our business. None of our executive officers has entered
into an employment agreement with us.

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IF WE DO NOT COMPETE SUCCESSFULLY, WE MAY LOSE MARKET SHARE.

We face three primary sources of competition:

- large companies in the process industries that have developed their own
proprietary software solutions.

Some of our current competitors have significantly greater financial,
marketing and other resources than we have. In addition, many of our current
competitors have established, and may in the future continue to establish,
cooperative relationships with third parties to improve their product offerings
and to increase the availability of their products to the marketplace. The entry
of new competitors or alliances into our market could reduce our market share,
require us to lower our prices, or both. Many of these factors are outside our
control, and we may not be able to maintain or enhance our competitive position
against current and future competitors.

OUR REVENUE GROWTH WILL DEPEND ON OUR RELATIONSHIPS WITH SYSTEMS INTEGRATORS AND
OTHER STRATEGIC PARTNERS.

One element of our growth strategy is to increase the number of third-party
implementation partners who market and integrate our products. If we do not
adequately train a sufficient number of systems integrator partners, or if
potential partners focus their efforts on integrating or co-selling competing
products to the process industries, our future revenue growth could be limited
and our operating results could be harmed. If our partners fail to implement our
solutions for our customers properly, the reputations of our solutions and our
company could be harmed and we might be subject to claims by our customers. We
also intend to continue to establish partnerships with technology companies,
such as Extricity Software, and new eBusiness entities, such as e-Chemicals, to
accelerate the development and marketing of our eBusiness solutions. To the
extent that we are unsuccessful in maintaining our existing relationships and
developing new relationships, our revenue growth may be harmed.

IF WE FAIL TO ANTICIPATE AND RESPOND TO CHANGES IN THE MARKET FOR eBUSINESS
SOLUTIONS FOR PROCESS MANUFACTURERS, WHICH IS AT A VERY EARLY STAGE, OUR FUTURE
REVENUE GROWTH MAY BE LIMITED.

The use of eBusiness solutions by process manufacturers is at a very early
stage. Because this market is new, it is difficult to predict its potential size
or growth rate. Moreover, historically the process industries have not been
early adopters of new business technologies. In addition, the market for
eBusiness software and services for process manufacturing optimization is
characterized by rapidly changing technology and customer needs. Our future
success depends on our ability to enhance our current eBusiness offerings, to
anticipate trends in the process industries regarding use of the Internet, and
to develop in a timely and cost-effective manner new software and services that
respond to evolving customer needs, emerging Internet technologies and
standards, and new competitive software and service offerings.

IF WE FAIL TO INTEGRATE THE OPERATIONS OF THE COMPANIES WE ACQUIRE, WE MAY NOT
REALIZE THE ANTICIPATED BENEFITS AND OUR OPERATING COSTS COULD INCREASE.

We intend to continue to pursue strategic acquisitions that will provide us
with complementary products, services and technologies and with additional
personnel. The identification and pursuit of these acquisition opportunities and
the integration of acquired personnel, products, technologies and businesses
require a significant amount of management time and skill. There can be no
assurance that we will identify suitable acquisition candidates, consummate any
acquisition on acceptable terms or successfully integrate any acquired business
into our operations. Additionally, in light of the consolidation trend in our
industry, we expect to face

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competition for acquisition opportunities, which may substantially increase the
cost of any potential acquisition.

We have experienced in the past, and may experience again in the future,
problems integrating the operations of a newly acquired company with our own
operations. Acquisitions also expose us to potential risks, including diversion
of management's attention, failure to retain key acquired personnel, assumption
of legal or other liabilities and contingencies, and the amortization of
goodwill and other acquired intangible assets. Moreover, customer
dissatisfaction with, or problems caused by, the performance of any acquired
products or technologies could hurt our reputation.

We may issue additional equity securities or incur long-term indebtedness
to finance future acquisitions. The issuance of equity securities could result
in dilution to existing stockholders, while the use of cash reserves or
significant debt financing could reduce our liquidity and weaken our financial
condition.

WE MAY LOSE ALL OR PART OF OUR INVESTMENT IN PETROVANTAGE IF PETROVANTAGE IS
UNABLE TO DEVELOP AN INDEPENDENT, SELF-SUSTAINING DIGITAL MARKETPLACE.

We have committed to invest $10 million in PetroVantage and may invest
additional amounts in the future. We may lose all or a portion of our investment
in PetroVantage if PetroVantage's digital marketplace does not gain market
acceptance, is unable to achieve profitability or positive cash flow, or
otherwise fails to meet our expectations. PetroVantage faces significant risks
and uncertainties relating to its ability to implement its new and unproven
business model. These risks include the following:

- The operation of a digital marketplace differs significantly from the
operation of our traditional business, and PetroVantage has no operating
history that can be used to evaluate its business and future prospects.
The creation and maintenance of a digital marketplace for bulk
commodities such as petroleum is a new, rapidly evolving and intensely
competitive business. Barriers to entry are relatively low as potential
competitors are able to launch new competing sites at relatively low
costs using commercially-available software.

- PetroVantage may be unable to develop and grow awareness of PetroVantage
as a recognized, independent brand. A significant marketing budget aimed
towards developing and maintaining brand loyalty among PetroVantage's
users will be required in order to develop and grow the PetroVantage
brand. Even with those expenditures, however, there can be no assurance
that PetroVantage's brand promotion activities will yield sufficient
revenues to make PetroVantage profitable. Moreover, we intend that
PetroVantage be operated and perceived as an independent entity separate
from our core business. We believe that PetroVantage's independence is
critical to its success because potential users, some of which may
compete with our company, will be less likely to utilize the marketplace
if they perceive that we, rather than PetroVantage, are operating the
marketplace.

- PetroVantage's business model relies on its ability to provide users of
the PetroVantage digital marketplace with a superior trading experience
and to maintain sufficient transaction volume to attract buyers and
sellers to the PetroVantage marketplace. The effective promotion and
positioning of PetroVantage will depend heavily upon PetroVantage's
efforts to provide users with high quality and efficient service to help
them carry out transactions. To accomplish this goal, PetroVantage will
invest heavily in site development, technology and operating
infrastructure development. We cannot be certain that PetroVantage will
be able to develop, license or acquire, and then integrate, those
technologies, if at all, without delays or inefficiencies.

WE MAY SUFFER LOSSES ON FIXED-PRICE ENGAGEMENTS.

We derive a substantial portion of our total revenues from service
engagements and a significant percentage of these engagements have been
undertaken on a fixed-price basis. We bear the risk of cost overruns and
inflation in connection with fixed-price engagements, and as a result, any of
these engagements may be unprofitable. In the past, we have had cost overruns on
fixed-price service engagements. In addition, to the extent that we are
successful in shifting customer purchases to our integrated suites of software
and

19
<PAGE> 21

services and we price those engagements on a fixed-price basis, the size of our
fixed-price engagements may increase, which could cause the impact of an
unprofitable fixed-price engagement to have a more pronounced impact on our
operating results.

WE ARE, AND MAY IN THE FUTURE BE, INVOLVED IN SECURITIES CLASS ACTION
LITIGATION.

In October and November 1998, stockholders commenced three separate legal
actions against us and some of our directors and officers. These lawsuits seek
substantial monetary damages for alleged violations of securities laws. If the
plaintiffs are successful and their recoveries exceed the limits of our
insurance coverage, our financial position will be harmed. Litigation is
inherently uncertain and an adverse resolution of these actions may have a
negative effect on our operating results in the period in which they are
resolved. For further discussion of these lawsuits, see "Item 3. Legal
Proceedings."

OUR BUSINESS MAY SUFFER IF WE FAIL TO ADDRESS THE CHALLENGES ASSOCIATED WITH
INTERNATIONAL OPERATIONS.

We have derived approximately 50% of our total revenues from customers
outside the United States in each of the past three fiscal years. We anticipate
that revenues from customers outside the United States will continue to account
for a significant portion of our total revenues for the foreseeable future. Our
operations outside the United States are subject to additional risks, including:

- unexpected changes in regulatory requirements, exchange rates, tariffs
and other barriers;

- political and economic instability;

- difficulties in managing distributors and representatives;

- difficulties in staffing and managing foreign subsidiary operations;

- difficulties and delays in translating products and product documentation
into foreign languages; and

- potentially adverse tax consequences.

The impact of future exchange rate fluctuations on our operating results
cannot be accurately predicted. In recent years, we have increased the extent to
which we denominate arrangements with international customers in the currencies
of the countries in which the software or services are provided. From time to
time we have engaged in, and may continue to engage in, hedges of a significant
portion of installment contracts denominated in foreign currencies. Any hedging
policies implemented by us may not be successful, and the cost of these hedging
techniques may have a significant negative impact on our operating results.

WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, WHICH COULD MAKE
US LESS COMPETITIVE AND CAUSE US TO LOSE MARKET SHARE.

We regard our software as proprietary and rely on a combination of
copyright, patent, trademark and trade secret laws, license and confidentiality
agreements, and software security measures to protect our proprietary rights. We
have United States patents for the expert guidance system in our proprietary
graphical user interface, the simulation and optimization methods in our
optimization software, a process flow diagram generator in our planning and
scheduling software, and a process simulation apparatus in our polymers
software. We have registered or have applied to register certain of our
significant trademarks in the United States and in certain other countries. We
generally enter into non-disclosure agreements with our employees and customers,
and historically have restricted access to our software products' source codes,
which we regard as proprietary information. In a few cases, we have provided
copies of the source code for certain products to customers solely for the
purpose of special product customization and have deposited copies of the source
code for some of our products in third-party escrow accounts as security for
ongoing service and license obligations. In these cases, we rely on
non-disclosure and other contractual provisions to protect our proprietary
rights.

The laws of certain countries in which our products are licensed do not
protect our products and intellectual property rights to the same extent as the
laws of the United States. The laws of many countries in which we license our
products protect trademarks solely on the basis of registration. The steps we
have taken

20
<PAGE> 22

to protect our proprietary rights may not be adequate to deter misappropriation
of our technology or independent development by others of technologies that are
substantially equivalent or superior to our technology. Any misappropriation of
our technology or development of competitive technologies could harm our
business, and could force us to incur substantial costs in protecting and
enforcing our intellectual property rights.

WE MAY HAVE TO DEFEND AGAINST INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS, WHICH
COULD BE EXPENSIVE AND, IF WE ARE NOT SUCCESSFUL, COULD DISRUPT OUR BUSINESS.

Third parties may assert patent, trademark, copyright and other
intellectual property rights to technologies that are important to us. In such
an event, we may be required to incur significant costs in litigating a
resolution to the asserted claims. The outcome of any litigation could require
us to pay damages or obtain a license to a third party's proprietary rights in
order to continue licensing our products as currently offered. If such a license
is required, it might not be available on terms acceptable to us, if at all.

OUR INABILITY TO MANAGE OUR GROWTH MAY HARM OUR OPERATING RESULTS.

We have experienced substantial growth in recent years in the number of our
employees, the scope of our operating and financial systems, and the geographic
area of our operations. Our operations have expanded significantly through both
internal growth and acquisitions. Our growth has placed, and is expected to
continue to place, a significant strain on our management and our operating and
financial systems. To manage our growth effectively, we must continue to expand
our management team, attract, motivate and retain employees, and implement and
improve our operating and financial systems. Our current management systems may
not be adequate and we may not be able to manage any future growth successfully.

OUR SOFTWARE IS COMPLEX AND MAY CONTAIN UNDETECTED ERRORS.

Like many other complex software products, our software has on occasion
contained undetected errors or "bugs." Because new releases of our software
products are initially installed only by a selected group of customers, any
errors or "bugs" in those new releases may not be detected for a number of
months after the delivery of the software. These errors could result in loss of
customers, harm to our reputation, adverse publicity, loss of revenues, delay in
market acceptance, diversion of development resources, increased insurance costs
or claims against us by customers.

WE MAY BE SUBJECT TO SIGNIFICANT EXPENSES AND DAMAGES BECAUSE OF LIABILITY
CLAIMS.

The sale and implementation of certain of our software products and
services, particularly in the areas of advanced process control and
optimization, may entail the risk of product liability claims. Our software
products and services are used in the design, operation and management of
manufacturing processes at large facilities, and any failure of our software
could result in significant claims against us for damages or for violations of
environmental, safety and other laws and regulations. Our agreements with our
customers generally contain provisions designed to limit our exposure to
potential product liability claims. It is possible, however, that the limitation
of liability provisions in our agreements may not be effective as a result of
federal, state or local laws or ordinances or unfavorable judicial decisions. A
substantial product liability claim against us could harm our operating results
and financial condition.

OUR COMMON STOCK MAY EXPERIENCE SUBSTANTIAL PRICE AND VOLUME FLUCTUATIONS.

The equity markets have from time to time experienced extreme price and
volume fluctuations, particularly in the high technology sector, and those
fluctuations have often been unrelated to the operating performance of
particular companies. In addition, factors such as our financial performance,
announcements of technological innovations or new products by us or our
competitors, as well as market conditions in the computer software or hardware
industries, may have a significant impact on the market price of our common
stock.

21
<PAGE> 23

WE HAVE ANTI-TAKEOVER DEFENSES THAT COULD DELAY OR PREVENT AN ACQUISITION OF OUR
COMPANY, WHICH MAY REDUCE THE MARKET PRICE OF OUR COMMON STOCK.

Our charter and bylaws and applicable Delaware laws contain provisions that
may discourage acquisition bids for us and that may deprive stockholders of
certain opportunities to receive a premium for their stock as part of an
acquisition, which may have the effect of reducing the market price of our
common stock. In addition, we have adopted a stockholder rights plan, which also
may deter or delay attempts to acquire us or accumulate shares of our common
stock.

ITEM 2. PROPERTIES

Our principal offices occupy approximately 110,000 square feet of office
space in Cambridge, Massachusetts. The lease of this office space expires on
September 30, 2012. We and our subsidiaries also own or lease office space in
San Diego, California; Rockville, Maryland; New Providence, New Jersey; Houston,
Texas; Midlothian, Virginia; Bothell, Washington; Brussels, Belgium; Calgary,
Alberta, Canada; Cambridge, England; Warrington, England; Hong Kong; Tokyo,
Japan; Best, The Netherlands; Singapore; and other locations where additional
sales and customer support offices are located. In the third quarter of fiscal
2000, we consolidated our Houston, Texas facilities by entering into a 12-year
lease agreement for new office space that encompasses approximately 245,000
square feet. We believe that our existing and planned facilities are adequate
for our needs for the foreseeable future and that, if additional space is
needed, such space will be available on acceptable terms.

ITEM 3. LEGAL PROCEEDINGS

On October 5, 1998, a purported class action lawsuit was filed in the
United States District Court for the District of Massachusetts against us and
certain of our officers and directors, on behalf of purchasers of our common
stock between April 28, 1998 and October 2, 1998. This lawsuit is identified
here as the Van Ormer Complaint. The lawsuit seeks an unspecified amount of
damages and claims violations of Sections 10(b) and 20(a) of the Securities
Exchange Act, alleging that we issued a series of materially false and
misleading statements concerning our financial condition, our operations and our
integration of several acquisitions. On October 26, 1998, a second purported
class action lawsuit was filed in the United States District Court for the
District of Massachusetts against us and certain of our officers and directors,
on behalf of purchasers of our common stock between April 28, 1998 and October
2, 1998. This second lawsuit was identical to the Van Ormer Complaint except for
the named plaintiff. This second lawsuit is identified here as the Clancey
Complaint. On November 20, 1998, a third purported class action lawsuit was
filed in the same court against the same defendants. This third lawsuit was
identical to the Van Ormer and Clancey Complaints except for the named
plaintiff, the expansion of the class action period to include purchasers of our
common stock from January 27, 1998 to October 2, 1998 and the addition of
references to statements made between January 27, 1998 and April 28, 1998. This
third lawsuit is identified here as the Marucci Complaint. On January 27, 1999,
in response to a motion to dismiss filed by us, the plaintiffs consolidated the
three complaints and filed a consolidated amended class action complaint. On
December 9, 1999, the Court heard oral arguments to review the pleadings in the
case; to date, there has been no decision rendered by the Court. We believe we
have meritorious legal defenses to the lawsuits and intend to defend vigorously
against this consolidated action. We are currently unable, however, to determine
whether resolution of these matters will have a material adverse effect on our
operating results or financial position, or reasonably estimate the amount of
the loss, if any, that may result from resolution of these matters.

In addition to the foregoing lawsuits, we may be a party to lawsuits in the
normal course of our business. We note that securities litigation, in
particular, can be expensive and disruptive to our normal business operations
and the outcome of complex legal proceedings can be very difficult to predict.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of our security holders during the fourth
quarter of fiscal 2000.

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<PAGE> 24

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

Our common stock is traded on the Nasdaq National Market under the symbol
"AZPN." The following table sets forth, for the periods indicated, the high and
low sales prices per share of our common stock as reported by the Nasdaq
National Market.

<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
FISCAL 1999:
First Quarter............................................. $56.875 $18.500
Second Quarter............................................ 26.750 6.125
Third Quarter............................................. 18.125 9.125
Fourth Quarter............................................ 13.813 8.250
FISCAL 2000:
First Quarter............................................. $13.875 $ 8.125
Second Quarter............................................ 30.500 8.531
Third Quarter............................................. 55.375 27.375
Fourth Quarter............................................ 41.000 19.250
</TABLE>

HOLDERS

As of September 25, 2000, there were 1,025 holders of record of our common
stock.

DIVIDENDS

We have never declared or paid cash dividends on our capital stock,
although two of our subsidiaries paid dividends to their stockholders prior to
their acquisitions by us in fiscal 1995 and fiscal 2000. We currently intend to
retain all of our dividends in the foreseeable future. In addition, under the
terms of our bank line of credit, we are prohibited from paying any cash
dividends. Any future determination relating to dividend policy will be made at
the discretion of our Board of Directors and will depend on a number of factors,
including our future earnings, capital requirements, financial condition and
future prospects and such other factors as the Board of Directors may deem
relevant.

SALE OF UNREGISTERED SECURITIES

On June 1, 2000, we acquired Petrolsoft Corporation. In the acquisition, we
issued 2,641,101 shares of common stock to the three stockholders of Petrolsoft
in a private placement exempt from registration under Section 4(2) of the
Securities Act of 1933.

On August 29, 2000, we acquired ICARUS Corporation and ICARUS Services
Limited. In the acquisition, we issued 248,411 shares of common stock and
$2,095,000 principal amount of one-year promissory notes to the two stockholders
of ICARUS Corporation and ICARUS Services Limited in a private placement exempt
from registration under Section 4(2) of the Securities Act of 1933.

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<PAGE> 25

ITEM 6. SELECTED FINANCIAL DATA

The following consolidated statement of operations data (other than pro
forma data) for the years ended June 30, 1998, 1999 and 2000 and consolidated
balance sheet data as of June 30, 1999 and 2000 have been derived from
consolidated financial statements that have been audited by Arthur Andersen LLP,
independent public accountants, and are included elsewhere in this Form 10-K.
The consolidated statement of operations data (other than pro forma data) for
the years ended June 30, 1996 and 1997 and consolidated balance sheet data as of
June 30, 1996, 1997 and 1998 have been derived from our consolidated financial
statements that also have been audited by Arthur Andersen LLP but are not
included in this Form 10-K. The selected consolidated financial data include the
financial data of Petrolsoft, which we acquired on June 1, 2000 in a transaction
accounted for under the "pooling of interests" accounting method. The selected
consolidated financial data should be read in conjunction with our consolidated
financial statements and related notes included elsewhere in this Form 10-K and
the discussion under "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues:
Software licenses................. $ 70,424 $103,822 $140,857 $ 97,108 $132,843
Service and other................. 45,180 91,480 113,879 129,411 135,250
-------- -------- -------- -------- --------
Total revenues...................... 115,604 195,302 254,736 226,519 268,093
-------- -------- -------- -------- --------
Expenses:
Cost of software licenses......... 3,992 5,539 8,178 7,899 9,605
Cost of service and other......... 27,270 54,106 68,677 83,905 85,193
Selling and marketing............. 36,708 56,139 75,060 85,664 91,863
Research and development.......... 22,412 33,714 43,793 48,625 51,567
General and administrative........ 10,749 17,110 20,250 23,503 24,736
Costs related to acquisitions..... -- -- 4,984 -- 1,547
Restructuring and other charges... -- -- -- 17,867 --
Charge for in-process research and
development.................... 24,421 8,664 8,472 -- --
-------- -------- -------- -------- --------
Total expenses...................... 125,552 175,272 229,414 267,463 264,511
-------- -------- -------- -------- --------
Income (loss) from operations....... (9,948) 20,030 25,322 (40,944) 3,582
Interest income................... 3,761 5,588 5,784 10,092 9,847
Interest expense.................. (1,323) (151) (377) (5,677) (5,563)
Foreign currency exchange loss.... (223) (236) (454) (94) (118)
Income (loss) on equity in joint
ventures....................... 10 26 45 19 4
-------- -------- -------- -------- --------
Income (loss) from before provision
for (benefit from) income taxes... (7,723) 25,257 30,320 (36,604) 7,752
Provision for (benefit from)
income taxes................... 6,157 10,178 14,109 (15,809) 2,324
-------- -------- -------- -------- --------
Net income (loss)................... $(13,880) $ 15,079 $ 16,211 $(20,795) $ 5,428
======== ======== ======== ======== ========
Pro forma net income (loss),
reflecting provision for income
taxes on Subchapter S-Corporation
income............................ $(14,024) $ 14,822 $ 15,781 $(22,066) $ 5,428
======== ======== ======== ======== ========
</TABLE>

24
<PAGE> 26

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
Diluted net income (loss) per
share............................. $ (0.69) $ 0.59 $ 0.59 $ (0.76) $ 0.18
Basic net income (loss) per share... $ (0.69) $ 0.63 $ 0.62 $ (0.76) $ 0.19
Pro forma diluted net income (loss)
per share......................... $ (0.70) $ 0.58 $ 0.57 $ (0.80) $ 0.18
Weighted average shares
outstanding -- diluted............ 20,073 25,348 27,524 27,476 30,785
Weighted average shares
outstanding -- basic.............. 20,073 24,009 26,056 27,476 28,221
</TABLE>

<TABLE>
<CAPTION>
JUNE 30,
--------------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash-equivalents......... $ 14,933 $ 18,550 $ 78,969 $ 34,039 $ 49,371
Working capital................... 72,942 74,104 173,589 153,987 169,380
Total assets...................... 169,408 203,895 344,432 325,023 364,945
Long-term obligations, less
current maturities............. 706 462 90,635 89,405 88,173
Total stockholders' equity........ 105,160 137,764 166,557 145,750 169,198
</TABLE>

Basic and diluted net income (loss) per share and weighted average shares
outstanding in the preceding table have been computed as described in note 2(h)
to the consolidated financial statements included elsewhere in this Form 10-K.
We have never declared or paid cash dividends on our capital stock.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

Since our founding in 1981, we have developed and marketed software and
services to companies in the process industries. Our revenues have increased at
an average compounded rate of 32.6% since fiscal 1994, when we filed our initial
public offering. In addition to internally generated growth, we have acquired 18
businesses since May 1995, including Industrial Systems in the fourth quarter of
fiscal 1995, DMCC and Setpoint in the third quarter of fiscal 1996, Chesapeake
in the fourth quarter of fiscal 1998 and Petrolsoft in the fourth quarter of
fiscal 2000.

Prior to June 30, 2000, we acquired DMCC, Setpoint and five other, less
material businesses in transactions accounted for as purchases. Our results of
operations include the results of operations of DMCC, Setpoint and these five
other companies only for periods subsequent to their respective dates of
acquisition. As a result, period-to-period comparisons of our results of
operations may not be meaningful. See note 4 to the consolidated financial
statements included elsewhere in this Form 10-K. In August 2000, we acquired
ICARUS in a transaction accounted for as a purchase. Our results of operations
for fiscal 2001 will include the results of ICARUS commencing on the date of
acquisition.

We acquired Industrial Services, Chesapeake, Petrolsoft and eight other
businesses in transactions accounted for as poolings of interest. Of these
acquisitions, only the acquisitions of ISI, Chesapeake and Petrolsoft were
material to our financial condition and results of operations. Accordingly, we
have restated our consolidated financial statements to reflect the historic
operations of ISI, Chesapeake and Petrolsoft, but not the other acquisitions.

We typically license our engineering suite solutions for terms of 3 to 5
years and license, our manufacturing and our e-business/supply chain solutions
for terms of 99 years.

License revenues, including license renewals, consist principally of
revenues earned under fixed-term and perpetual software license agreements and
generally are recognized upon shipment of the software if collection

25
<PAGE> 27

of the resulting receivable is probable, the fee is fixed or determinable, and
vendor-specific objective evidence exists for all undelivered elements to allow
allocation of the total fee to all delivered and undelivered elements of the
arrangement.

In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements." SAB 101 provides guidance on the
recognition, disclosure and presentation of revenue in financial statements. SAB
101, as amended by SAB 101A and SAB 101B, is required to be implemented no later
than the fourth fiscal quarter of fiscal years beginning after December 15,
1999. We are currently evaluating the impact of SAB 101 on our financial
statements and related disclosures, but we do not expect that any impact will be
material.

We use installment contracts as a standard business practice and have a
history of successfully collecting under the original payment terms without
making concessions on payments, products or services. We recognize revenues from
customer support ratably over the term of the support agreement. If a customer
elects to pay for a license in annual installments, we charge an implicit amount
of interest and recognize interest income over the term of the license. A
substantial majority of our term licenses have been renewed upon expiration.
There can be no assurance, however, that our customers will continue to renew
expiring term licenses at the historical rate.

We derive a significant portion of our revenues from consulting projects
related to the implementation of our software. For fiscal 2000, we derived 49.6%
of our total revenues from the licensing of software products and 50.4% of our
total revenues from the provision of services. We charge customers for
consulting services on a fixed-price basis and we charge for certain services,
primarily on-site advanced process control and optimization services and supply
chain services, on a time-and-materials basis. Consulting service revenues from
fixed-price contracts are recognized on the percentage-of-completion method,
measured by the portion of costs incurred to date as a percentage of the
estimated total (primarily labor) costs for each contract. Consulting service
revenues from time-and-materials contracts are recognized as the related
services are performed. Training revenues are recognized as services are
performed. Services that have been performed but for which billings have not
been made are recorded as unbilled receivables, and billings for which services
have not been performed are recorded as unearned revenues in our consolidated
balance sheets.

We license our software in U.S. dollars and certain foreign currencies. We
hedge material foreign currency-denominated receivables with specific hedge
contracts in amounts equal to those receivables. While we have experienced minor
foreign currency exchange gains or losses due to foreign exchange rate
fluctuations, the impact of such movements has not been material in any period.
We do not expect fluctuations in foreign currencies to have a significant impact
on either our revenues or our expenses in the foreseeable future.

Our operating costs include the amortization of intangible assets,
including goodwill, arising from acquisitions accounted for as purchases. The
net balance of these intangible assets as of June 30, 2000 was $8.9 million and
is being amortized over periods ranging from 5 to 12 years. The amortization
from acquisitions that was charged to operations was $3.0 million for fiscal
1999 and $2.4 million for fiscal 2000. Amortization expense related to existing
intangible assets as of June 30, 2000 will range from $761,000 to $510,000 per
quarter in fiscal 2001, on a declining schedule; from $510,000 to $468,000 per
quarter in fiscal 2002; and from $468,000 to $328,000 per quarter for fiscal
2003. Thereafter, amortization expense related to existing intangible assets
will continue to decline through fiscal 2009.

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<PAGE> 28

RESULTS OF OPERATIONS

The following table sets forth the percentages of total revenues
represented by certain consolidated statement of operations data for the periods
indicated:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------
1998 1999 2000
----- ----- -----
<S> <C> <C> <C>
Revenues:
Software licenses......................................... 55.3% 42.9% 49.6%
Service and other......................................... 44.7 57.1 50.4
----- ----- -----
Total revenues.............................................. 100.0 100.0 100.0
----- ----- -----
Expenses:
Cost of software licenses................................. 3.2 3.5 3.6
Cost of service and other................................. 27.0 37.0 31.8
Selling and marketing..................................... 29.5 37.8 34.3
Research and development.................................. 17.2 21.5 19.2
General and administrative................................ 7.9 10.4 9.2
Costs related to acquisitions............................. 2.0 -- 0.6
Restructuring and other charges........................... -- 7.9 --
Charge for in-process research and development............ 3.3 -- --
----- ----- -----
Total expenses.............................................. 90.1 118.1 98.7
----- ----- -----
Income (loss) from operations............................... 9.9 (18.1) 1.3
Interest income........................................... 2.3 4.4 3.7
Interest expense.......................................... (0.1) (2.5) (2.1)
Other income (expense), net............................... (0.2) -- --
----- ----- -----
Income (loss) before provision for (benefit from) income
taxes..................................................... 11.9 (16.2) 2.9
Provision for (benefit from) income taxes................. 5.5 (7.0) 0.9
----- ----- -----
Net income (loss)........................................... 6.4% (9.2)% 2.0%
===== ===== =====
</TABLE>

COMPARISON OF FISCAL 2000 TO FISCAL 1999

REVENUES. Revenues are derived from software licenses, consulting services
and maintenance and training. Total revenues for fiscal 2000 increased 18.4% to
$268.1 million from $226.5 million in fiscal 1999. Total revenues from customers
outside the United States were $121.7 million or 45.4% of total revenues and
$117.3 million or 51.8% of total revenues for fiscal 2000 and 1999,
respectively. The geographical mix of revenues can vary from period to period.

Software license revenues represented 49.6% and 42.9% of total revenues for
fiscal 2000 and 1999, respectively. Revenues from software licenses in fiscal
2000 increased 36.8% to $132.8 million from $97.1 million in fiscal 1999.
Software license revenues are attributable to software license renewals covering
existing users, the expansion of existing customer relationships through
licenses covering additional users, licenses of additional software products,
and, to a lesser extent, to the addition of new customers. The lower license
revenues in fiscal 1999 resulted primarily from delayed decision making driven
by economic difficulties among customers in our core vertical markets of
refining, chemicals and petrochemicals.

Total revenues from customers outside the United States were $121.2
million, or 45.2% of total revenues, in fiscal 2000 and $117.3 million, or 51.8%
of total revenues, in fiscal 1999. The geographical mix of revenues can vary
from period to period.

Revenues from service and other consist of consulting services,
post-contract support on software licenses, training and sales of documentation.
Revenues from service and other for fiscal 2000 increased 4.5% to $135.3 million
from $129.4 million for fiscal 1999. This increase reflected a continued focus
during fiscal 2000 on

27
<PAGE> 29

providing high value-added consulting and training services to existing
customers. Revenues from service and other for both fiscal 2000 and 1999 were
adversely affected by lower-than-planned levels of consultant utilization. The
lower utilization was attributable to the delay of project starts by clients.
Growth in the services business was slower than our license business as a result
of (1) our decision to utilize partners to help deploy our solutions and (2) the
effect on post-contract support revenues of slower license revenue growth in
prior periods.

Historically, neither our joint venture or similar activities nor any
discounting or similar activities have had a material effect on our revenues.

COST OF SOFTWARE LICENSES. Cost of software licenses consists of
royalties, amortization of previously capitalized software costs, costs related
to delivery of software (including disk duplication and third-party software
costs), printing of manuals and packaging. Cost of software licenses for fiscal
2000 increased 21.6% to $9.6 million from $7.9 million in fiscal 1999. Cost of
software licenses as a percentage of revenues from software licenses decreased
to 7.2% for fiscal 2000 from 8.1% for fiscal 1999. This decrease was primarily
due to the spreading of fixed production and delivery costs over a larger
revenue base.

COST OF SERVICE AND OTHER. Cost of service and other consists of the cost
of execution of application consulting services, technical support expenses, the
cost of training services and the costs of manuals that are sold as separate
items. Cost of service and other for fiscal 2000 increased 1.5% to $85.2 million
from $83.9 million for fiscal 1999. Cost of service and other as a percentage of
revenues from consulting services and maintenance and training decreased to
63.0% for fiscal 2000 from 64.8% for fiscal 1999. Cost of service and other
increased to support the expansion of these business segments. The costs as a
percentage of the service and other revenue decreased as operating efficiencies
were realized as a result of the expansion of these business segments in fiscal
2000.

SELLING AND MARKETING. Selling and marketing expenses for fiscal 2000
increased 7.2% to $91.9 million from $85.7 million for fiscal 1999 while
decreasing as a percentage of revenues to 34.3% from 37.8%. The dollar increase
in fiscal 2000 was attributable to an expense base that was increased to support
a higher revenue level, particularly a higher license revenue level. As
discussed above, the increase in license revenue for fiscal 2000 was
significantly above the fiscal 1999 level. We continue to invest selectively in
sales personnel and regional sales offices to improve our geographic proximity
to our customers, to maximize the penetration of existing accounts and to add
new customers.

RESEARCH AND DEVELOPMENT. Research and development expenses consist of
personnel and outside consultancy costs required to conduct our product
development efforts. Capitalized research and development costs are amortized
over the estimated remaining economic life of the relevant product, not to
exceed three years. Research and development expenses for fiscal 2000 increased
6.1% to $51.6 million from $48.6 million for fiscal 1999, while decreasing as a
percentage of total revenues to 19.2% from 21.5%. The increase in costs
principally reflected increased development of the Aspen Framework and the
business process templates as the backbone of our Plantelligence solution and
continued investment in development of our individual software solutions.
Additionally, the increase was attributable to performance bonuses paid to
employees under a program that had been in effect but was suspended as part of
our cost-cutting program in fiscal 1999. We capitalized 7.5% of our total
research and development costs during fiscal 2000 as compared to 5.7% in fiscal
1999. This increase was primarily attributable to the capitalization of
development costs related to major releases of products in fiscal 2000.

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries of administrative, executive, financial and legal
personnel, outside professional fees and amortization of intangibles. General
and administrative expenses for fiscal 2000 increased 5.2% to $24.7 million from
$23.5 million for fiscal 1999 and decreased as a percentage of total revenues to
9.2% from 10.4%. These costs did not grow at the same rate as revenues, as our
infrastructure was able to support a larger revenue base; however, the increased
dollar amounts reflect the growth in the scale and scope of our operations.
Additionally, the increase was attributable to performance bonuses paid to
employees under a program that had been in effect but was suspended as part of
our cost-cutting program in fiscal 1999.

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<PAGE> 30

INTEREST INCOME. Interest income is generated from investment of excess
cash in short-term and long-term investments and from the license of software
pursuant to installment contracts for engineering suite software. Under these
installment contracts, we offer a customer the option to make annual payments
for its term licenses instead of a single license fee payment at the beginning
of the license term. Historically, a substantial majority of our engineering
suite customers have elected to license these products through installment
contracts. Included in the annual payments is an implicit interest established
by us at the time of the license. As we sell more perpetual licenses for eSupply
Chain and Plantelligence Solutions, these new sales are being paid for in forms
that are not installment contracts. If the mix of sales moves away from
installment contracts, the interest income in future periods will be reduced. We
sell a portion of the installment contracts to unrelated financial institutions.
The interest earned by us on the installment contract portfolio in any one year
is the result of the implicit interest established by us on installment
contracts and the size of the contract portfolio. Interest income was $9.8
million for fiscal 2000 as compared to $10.1 million in fiscal 1999.

INTEREST EXPENSE. Interest expense was incurred under our 5 1/4%
convertible debentures, bank line of credit and capital lease obligations.
Interest expense in fiscal 2000 decreased to $5.6 million from $5.7 million in
fiscal 1999.

PROVISION FOR/BENEFIT FROM INCOME TAXES. The effective tax rate in fiscal
2000 was calculated as a percentage of income before taxes. The effective tax
rate changed for fiscal 2000 to 30.0% of pre-tax income as compared to 43.2% of
pre-tax loss for fiscal 1999. This change was primarily due to the generation
and utilization of tax credits, including foreign tax credits.

COMPARISON OF FISCAL 1999 TO FISCAL 1998

REVENUES. Total revenues for fiscal 1999 decreased 11.1% to $226.5 million
from $254.7 million in fiscal 1998.

Software license revenues represented 42.9% and 55.3% of total revenues for
fiscal 1999 and 1998, respectively. Revenues from software licenses in fiscal
1999 decreased 31.1% to $97.1 million from $140.9 million in fiscal 1998. The
decrease in fiscal 1999 license revenues resulted primarily from delayed
decision making driven by economic difficulties among customers in our core
vertical markets of refining, chemicals, and petrochemicals.

Total revenues from customers outside the United States were $117.3
million, or 51.8% of total revenues, in fiscal 1999 and $115.1 million, or 45.2%
of total revenues, in fiscal 1998.

Revenues from service and other for fiscal 1999 increased 13.6% to $129.4
million from $113.9 million for fiscal 1998. This increase reflected a continued
focus during fiscal 1999 on providing high value-added consulting and training
services to existing customers. The lower fiscal 1999 utilization was
attributable to the delay of project starts by clients, while the fiscal 1998
utilization shortfall was attributable to temporary mismatches between types and
geographies of scheduled projects, the skill sets and locations of available
personnel, and the timing of certain project starts.

COST OF SOFTWARE LICENSES. Cost of software licenses for fiscal 1999
decreased 3.4% to $7.9 million from $8.2 million in fiscal 1998. Cost of
software licenses as a percentage of revenues from software licenses increased
to 8.1% for fiscal 1999 from 5.8% for fiscal 1998. This increase was due to
relatively flat expenses spread over a lower revenue base.

COST OF SERVICE AND OTHER. Cost of service and other for fiscal 1999
increased 22.2% to $83.9 million from $68.7 million for fiscal 1998. Cost of
service and other as a percentage of revenues from services increased to 64.8%
for fiscal 1999 from 60.3% for fiscal 1998. This percentage increase reflected a
cost base that was increased to support a projected higher revenue level. This
higher revenue level was not realized due to lower utilization rates
attributable to the delay of project starts by clients.

SELLING AND MARKETING. Selling and marketing expenses for fiscal 1999
increased 14.1% to $85.7 million from $75.1 million for fiscal 1998 while
increasing as a percentage of revenues to 37.8% from 29.5%. The dollar and
percentage increases were attributable to a cost base that was increased to
support a higher revenue

29
<PAGE> 31

level that was not achieved. A significant component of the April 1999
restructuring included reduction of sales and marketing staff in selected
markets and geographic locations. These selective reductions were made to
correspond to the customer opportunities in certain of our core vertical markets
and customer locations.

RESEARCH AND DEVELOPMENT. Research and development expenses for fiscal
1999 increased 11.0% to $48.6 million from $43.8 million for fiscal 1998 and
increased as a percentage of total revenues to 21.5% from 17.2%. The increase in
costs principally reflected continued investment in development of our
individual software solutions and increased development of the Aspen Framework
as the backbone of our Plantelligence solution. We capitalized 5.8% of our total
research and development costs during fiscal 1999 as compared to 8.2% in fiscal
1998.

GENERAL AND ADMINISTRATIVE. General and administrative expenses for fiscal
1999 increased 16.1% to $23.5 million from $20.3 million for fiscal 1998 and
increased as a percentage of total revenues to 10.4% from 7.9%. The increase in
costs was due primarily to payments to strategic consultants to assist in the
realignment of the business, litigation support and the increase in the reserve
for bad debts.

RESTRUCTURING AND OTHER CHARGES. In the fourth quarter of fiscal 1999, we
undertook actions to restructure our business. The restructuring resulted from a
lower-than-expected level of license revenues which adversely affected fiscal
1999 operating results. The license revenue shortfall resulted primarily from
delayed decision making driven by economic difficulties in certain of our core
vertical markets. The restructuring plan resulted in a pre-tax restructuring
charge totaling $17.9 million. The principal charges in the restructuring plan
included: the reduction of workforce, $4.3 million; the close-down or
consolidation of a number of offices and facilities, $10.2 million;
rationalizing certain non-core products and activities acquired in recent years
yielding the writing off of $3.1 million of assets; and other general cost
reductions, $0.3 million.

INTEREST INCOME. Interest income was $10.1 million for fiscal 1999 as
compared to $5.9 million in fiscal 1998. The increase reflects the interest
income generated from excess cash from our 5 1/4% convertible debentures, which
was not issued and outstanding until June 1998.

INTEREST EXPENSE. Interest expense was incurred under our 5 1/4%
convertible debentures, bank line of credit and capital lease obligations.
Interest expense in fiscal 1999 increased to $5.7 million from $0.4 million in
fiscal 1998. The increase was primarily related to the interest expense on our
5 1/4% convertible debentures, which were issued in June 1998.

PROVISION FOR/BENEFIT FROM INCOME TAXES. The effective tax rate in fiscal
1999 was calculated as a percentage of loss before taxes. The effective tax rate
changed for fiscal 1999 to 43.2% of pre-tax loss as compared to 32.5% of net
income exclusive of the non-recurring charge for in-process research and
development for fiscal 1998. This change was primarily due to utilization of
carrybacks of the fiscal 1999 taxable loss to prior years taxable income and the
generation of certain tax credits.

QUARTERLY RESULTS

Our operating results and cash flow have fluctuated in the past and may
fluctuate significantly in the future as a result of a variety of factors,
including purchasing patterns, timing of introductions of new solutions and
enhancements by us and our competitors, and fluctuating economic conditions.
Because license fees for our software products are substantial and the
implementation of our solutions often requires the services of our engineers
over an extended period of time, the sales process for our solutions is lengthy
and can exceed one year. Accordingly, software revenue is difficult to predict,
and the delay of any order could cause our quarterly revenues to fall
substantially below expectations. Moreover, to the extent that we succeed in
shifting customer purchases away from point solutions and toward integrated
suites of our software and service solutions, the likelihood of delays in
ordering may increase and the effect of any delay may become more pronounced.

We ship software products within a short period after receipt of an order
and usually do not have a material backlog of unfilled orders of software
products. Consequently, revenues from software licenses, including license
renewals in any quarter are substantially dependent on orders booked and shipped
in that quarter. Historically, a majority of each quarter's revenues from
software licenses has been derived from license agreements that have been
consummated in the final weeks of the quarter. Therefore, even a short
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<PAGE> 32

delay in the consummation of an agreement may cause revenues to fall below
expectations for that quarter. Since our expense levels are based in part on
anticipated revenues, we may be unable to adjust spending in a timely manner to
compensate for any revenue shortfall and any revenue shortfalls would likely
have a disproportionately adverse effect on net income. We expect that these
factors will continue to affect our operating results for the foreseeable
future.

In fiscal 1999 and 2000, we experienced a net loss for the first quarter,
in part because a substantial portion of our total revenues was derived from
countries other than the United States where business is slow during the summer
months and also in part because of the timing of renewals of software licenses.
We believe that we may continue to experience challenges in growing total
revenues and net income in the first fiscal quarter as compared to the
immediately preceding fiscal quarter. Because of the foregoing factors, we
believe that period-to-period comparisons of our operating results are not
necessarily meaningful and should not be relied upon as indications of future
performance.

The following table presents selected quarterly consolidated statement of
operations data for fiscal 1999 and 2000. These data are unaudited but, in our
opinion, reflect all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of these data in accordance with
generally accepted accounting principles.

<TABLE>
<CAPTION>
FISCAL 1999 FISCAL 2000
--------------------------------------- --------------------------------------
SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30
-------- ------- ------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses... $ 16,034 $32,459 $23,493 $ 25,122 $21,507 $29,318 $34,746 $47,272
Service and other... 30,980 33,276 32,457 32,698 31,845 33,166 34,158 36,081
-------- ------- ------- -------- ------- ------- ------- -------
Total revenues........ 47,014 65,735 55,950 57,820 53,352 62,484 68,904 83,353
-------- ------- ------- -------- ------- ------- ------- -------
Expenses:
Cost of software
licenses......... 1,667 1,947 2,162 2,123 2,076 2,187 2,467 2,875
Cost of service and
other............ 20,036 21,214 21,353 21,302 20,138 20,805 21,546 22,704
Selling and
marketing........ 19,186 21,722 22,327 22,429 19,328 20,820 22,819 28,896
Research and
development...... 11,659 12,094 12,442 12,430 11,722 11,774 12,942 15,129
General and
administrative... 5,481 5,681 6,331 6,010 5,568 5,748 6,012 7,408
Costs related to
acquisitions..... -- -- -- -- -- -- -- 1,547
Restructuring and
other charges.... -- -- -- 17,867 -- -- -- --
-------- ------- ------- -------- ------- ------- ------- -------
Total expenses........ 58,029 62,658 64,615 82,161 58,832 61,334 65,786 78,559
-------- ------- ------- -------- ------- ------- ------- -------
Income (loss) from
operations.......... (11,015) 3,077 (8,665) (24,341) (5,480) 1,150 3,118 4,794
Other income
(expense), net...... 218 28 (115) (174) 50 (51) (106) 70
Interest income,
net................. 1,176 1,228 1,039 940 981 1,015 1,100 1,111
-------- ------- ------- -------- ------- ------- ------- -------
Income (loss) before
provision for
(benefit from)
income taxes........ (9,621) 4,333 (7,741) (23,575) (4,449) 2,114 4,112 5,975
Provision for (benefit
from) income
taxes............... (3,338) 309 (3,140) (9,640) (1,379) 785 1,507 1,411
-------- ------- ------- -------- ------- ------- ------- -------
Net income (loss)..... $ (6,283) $ 4,024 $(4,601) $(13,935) $(3,070) $ 1,329 $ 2,605 $ 4,564
======== ======= ======= ======== ======= ======= ======= =======
</TABLE>

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<PAGE> 33

LIQUIDITY AND CAPITAL RESOURCES

In recent years, we have financed our operations principally through cash
generated from sales of securities through private placements and public
offerings of our common stock and 5 1/4% convertible debentures, operating
activities, the sale of installment contracts to third parties and, at certain
times during the year, borrowings under a bank line of credit.

To date, we have received a total of $87.0 million of net proceeds from our
initial public offering and subsequent public offerings. A portion of the total
net proceeds was used for working capital and other general corporate purposes,
to pay a portion of the purchase prices of certain acquisitions and to repay
outstanding indebtedness under our bank line of credit, subordinated notes and a
promissory note issued in conjunction with certain acquisitions. In the fourth
quarter of fiscal 1998, we received a total of $82.4 million from our sale of
the 5 1/4% convertible debentures. A portion of these net proceeds was used for
working capital and other general corporate purposes. We evaluate on an ongoing
basis potential opportunities to acquire or invest in technologies, products,
services, businesses or engineering personnel that expand, complement or are
otherwise related to our current business and products.

In fiscal 2000, operating activities provided $28.0 million of cash
primarily as a result of the net income, increases in accounts payable, accrued
expenses and long term installments receivable and offset in part by increases
in accounts receivable, unbilled services and deferred income taxes. In fiscal
1998 and 1999, operating activities provided $18.9 million and used $3.6 million
of cash, respectively, primarily as a result of net income (loss) and increases
in accounts payable, accrued expenses and deferred revenue, offset in part by
increases in long-term installments receivable and accounts receivable.

In recent years, we have had arrangements to sell long-term contracts to
two financial institutions, General Electric Capital Corporation and Fleet
Business Credit Corporation (formerly Sanwa Business Credit Corporation). These
contracts represent amounts due over the life of existing term licenses. During
fiscal 2000, installment contracts decreased by $4.0 million to $53.2 million,
net of $28.0 million of installment contracts sold to General Electric Credit
Corporation and Fleet Business Credit Corporation. During fiscal 1999,
installment contracts decreased by $3.4 million to $57.2 million, net of $32.3
million of installment contracts sold to General Electric Capital Corporation
and Fleet Business Credit Corporation. During fiscal 1998, installment contracts
increased by $10.6 million to $60.6 million, net of $51.3 million of installment
contracts sold to General Electric Capital Corporation and Fleet Business Credit
Corporation. Our arrangements with these two financial institutions provide for
the sale of installment contracts up to certain limits and with certain recourse
obligations. At June 30, 2000, June 30, 1999 and June 30, 1998 the balance of
the uncollected principal portion of the contracts sold to these two financial
institutions was $90.2 million, $91.5 million, and $87.6 million, respectively,
for which we had partial recourse obligations of $6.0 million, $3.8 million and
$4.5 million, respectively. The availability under these arrangements will
increase as the financial institutions receive payment on installment contracts
previously sold.

We maintain a $30.0 million bank line of credit, expiring on December 31,
2000, that provides for borrowings of specified percentages of eligible accounts
receivable and eligible current installment contracts. Advances under the line
of credit bear interest at a rate (9.50% at June 30, 2000) equal to the bank's
prime rate or, at our option, a rate (6.77% at June 30, 2000) equal to a defined
LIBOR plus a specified margin. The line of credit agreement requires us to
provide the bank with certain periodic financial reports and to comply with
certain financial tests, including maintenance of minimum levels of consolidated
net income before taxes and of the ratio of current assets to current
liabilities. Additionally, the line is secured by certain of our marketable
securities. As of June 30, 2000, there were no outstanding borrowings under the
line of credit. We are negotiating with our lender bank, pursuant to a
nonbinding commitment letter entered into in September 2000, in order to amend
our existing line of credit to, among other things, extend the term of the line
of credit through December 31, 2003.

As of June 30, 2000, we had cash and cash-equivalents totaling $49.4
million, as well as short-term investments totaling $64.2 million. Our
commitments as of June 30, 2000 consisted primarily of leases on our
headquarters and other facilities. See "Item 2. Properties." There were no other
material commitments for capital or other expenditures. We believe our current
cash balances, availability of sales of our installment

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<PAGE> 34

contracts, availability under our bank line of credit and cash flows from our
operations will be sufficient to meet our working capital and capital
expenditure requirements for at least the next 12 months.

INFLATION

Inflation has not had a significant impact on our operating results to date
and we do not expect inflation to have a significant impact during fiscal 2001.

ITEM 7A. QUANTITATIVE AND QUALITATIVE MARKET DISCLOSURES

Information relating to quantitative and qualitative disclosure about
market risk is set forth in notes 2(c), 2(g), 2(j) and 12 to our consolidated
financial statements included elsewhere in this Form 10-K and below under the
captions "Investment Portfolio" and "Foreign Exchange Hedging."

INVESTMENT PORTFOLIO

We do not use derivative financial instruments in our investment portfolio.
We place our investments in instruments that meet high credit quality standards,
as specified in our investment policy guidelines; the policy also limits the
amount of credit exposure to any one issuer and the types of instruments
approved for investment. We do not expect any material loss with respect to our
investment portfolio. The following table provides information about our
investment portfolio. For investment securities, the table presents principal
cash flows and related weighted average interests rates by expected maturity
dates.

PRINCIPAL (NOTIONAL) AMOUNTS BY EXPECTED MATURITY IN U.S. DOLLARS
(IN THOUSANDS, EXCEPT INTEREST RATES)

<TABLE>
<CAPTION>
FAIR VALUE AT FY2005 &
JUNE 30, 2000 FY2001 FY2002 FY2003 FY2004 THEREAFTER
------------- ------- ------- ------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Cash Equivalents................. $28,682 $28,682 -- -- -- --
Weighted Average Interest Rate... 4.56% 4.56% -- -- -- --
Investments...................... $63,911 $24,132 $20,007 $12,698 $2,986 $4,088
Weighted Average Interest Rate... 6.20% 6.32% 5.43% 6.90% 6.35% 6.91%
Total Portfolio.................. $92,593 $52,814 $20,007 $12,698 $2,986 $4,088
Weighted Average Interest Rate... 5.69% 5.36% 5.43% 6.90% 6.35% 6.91%
</TABLE>

IMPACT OF FOREIGN CURRENCY RATE CHANGES

During fiscal 2000, most currencies in Europe and Asia/Pacific fluctuated,
with a general strengthening of the U.S. dollar. The translation of our
intercompany receivables and foreign entities assets and liabilities did not,
however, have a material impact on our consolidated operating results. Foreign
exchange forward contracts are only purchased to hedge certain customer accounts
receivable amounts denominated in a foreign currency.

Effective January 1, 1999, the functional currency of several of our
foreign subsidiaries was changed from the U.S. dollar to the respective foreign
currency. This change was made based on significant changes in economic facts
and circumstances related to our operations in those foreign countries.

FOREIGN EXCHANGE HEDGING

We enter into foreign exchange forward contracts to reduce our exposure to
currency fluctuations on customer accounts receivables denominated in foreign
currency. The objective of these contracts is to limit the impact of foreign
currency exchange rate movement on our operating results. We do not use
derivative financial instruments for speculative or trading purposes. We had
$6.0 million of foreign exchange forward contracts denominated in British,
French, Japanese, Swiss, and German currencies which represented underlying
customer accounts receivable transactions at the end of fiscal 2000. The gains
and losses on these contracts are included in earnings when the underlying
foreign currency denominated transaction is recognized. Gains and loss related
to these instruments for fiscal 2000 did not have a material effect on our
operating results. We do not anticipate any material adverse effect on our
consolidated financial position, results of operations, or cash flows

33
<PAGE> 35

resulting from the use of these instruments. There can be no assurance, however,
that these strategies will be effective or that transaction losses can be
limited or forecasted accurately.

The following table provides information about our forward contracts, at
the end of fiscal 2000, to sell foreign currencies for U.S. dollars. All of
these contracts relate to customer accounts receivable. The table presents the
value of the contracts in U.S. dollars at the contract exchange rate as of the
contract maturity date. The average contract rate approximates the weighted
average contractual foreign currency exchange rate and the forward position in
U.S. dollars approximates the fair value on the contract at the end of fiscal
2000.

<TABLE>
<CAPTION>
AVERAGE FORWARD
CONTRACT AMOUNT IN
CURRENCY RATE U.S. DOLLARS CONTRACT ORIGINATION DATE CONTRACT MATURITY DATE
-------- -------- -------------- ------------------------- -------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Japanese Yen......... 109.90 $3,257 Various: Mar 98 - May 00 Various: Jul 00 - Jun 02
British Pound
Sterling........... 1.57 974 Various: Apr 98 - Jan 00 Various: Jul 00 - Jul 02
French Franc......... 6.21 574 Various: Jan 99 - Jun 00 Various: Jan 01 - May 02
German Deutsche
Mark............... 1.57 718 Various: Jan 98 - Apr 99 Various: Jul 00 - Jan 01
Swiss Franc.......... 1.52 460 Various: Jan 99 - Jul 99 Various: Feb 01 - Jul 02
------
Total................ $5,983
======
</TABLE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated financial statements are listed in the Index to
Consolidated Financial Statements filed in Item 14(a)(i) as part of this Form
10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

There have been no changes or disagreements with accountants on accounting
or financial disclosure matters during our two most recent fiscal years.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required under this Item is incorporated herein by
reference to our definitive proxy statement pursuant to Regulation 14A, to be
filed with the SEC not later than October 28, 2000, under the heading "Election
of Directors."

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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<PAGE> 36

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1) FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
DESCRIPTION PAGE
----------- ----
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Financial Statements:
Balance Sheets as of June 30, 1999 and 2000............... F-3
Statements of Operations for the years ended June 30,
1998, 1999 and 2000.................................... F-4
Statements of Stockholders' Equity and Comprehensive
Income (Loss) for the years ended June 30, 1998, 1999
and 2000............................................... F-5
Statements of Cash Flows for the years ended June 30,
1998, 1999 and 2000.................................... F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>

(a)(2) FINANCIAL STATEMENT SCHEDULES

<TABLE>
<CAPTION>
DESCRIPTION PAGE
----------- ----
<S> <C>
Report of Independent Public Accountants on Schedule........ S-1
Schedule II -- Valuation and Qualifying Accounts............ S-2
</TABLE>

All other schedules are omitted because they are not required or the
required information is shown in the consolidated financial statements or notes
thereto.

(a)(3) EXHIBITS

<TABLE>
<S> <C>
3.1(1) Certificate of Incorporation of Aspen Technology, Inc.
3.2(1) By-laws of Aspen Technology, Inc.
4.1(2) Specimen Certificate for Shares of Aspen Technology, Inc.'s
common stock, $.10 par value.
4.2(1) Rights Agreement dated as of March 12, 1998 between Aspen
Technology, Inc. and American Stock Transfer and Trust
Company, as Rights Agent, including related forms of the
following:
(a) Certificate of Designation of Series A Participating
Cumulative Preferred Stock of Aspen Technology, Inc.
(b) Right Certificate.
4.3(3) Indenture dated as of June 17, 1998 between Aspen
Technology, Inc. and The Chase Manhattan Bank, as trustee,
with respect to up to $86,250,000 principal amount of 5 1/4%
Convertible Subordinated Debentures due June 15, 2005 of
Aspen Technology, Inc.
4.4(3) Form of 5 1/4% Convertible Subordinated Debentures due June
15, 2005 of Aspen Technology, Inc. (included in Sections
2.2, 2.3 and 2.4 of the Indenture filed as Exhibit 4.1).
10.1(4) Lease Agreement dated as of January 30, 1992 between Aspen
Technology, Inc. and Teachers Insurance and Annuity
Association of America regarding Ten Canal Park, Cambridge,
Massachusetts.
10.2 First amendment to Lease Agreement dated May 5, 1997 between
Aspen Technology, Inc. and Beacon Properties; L.P.,
successor-in-interest to Teachers Insurance and Annuity
Association of America, regarding Ten Canal Park, Cambridge,
Massachusetts.
10.3 Second Amendment to Lease Agreement dated as of August 14,
2000 between Aspen Technology, Inc. and EOP-Ten Canal Park,
L.L.C., successor-in-interest to Beacon Properties, L.P.
regarding Ten Canal Park, Cambridge, Massachusetts.
10.4(4) System License Agreement between Aspen Technology, Inc. and
the Massachusetts Institute of Technology, dated March 30,
1982, as amended.
</TABLE>

35
<PAGE> 37

<TABLE>
<S> <C>
10.5(4)+ Non-Equilibrium Distillation Model Development and License Agreement between Aspen Technology, Inc.
and Koch Engineering Company, Inc., as amended.
10.6(4)+ Letter, dated October 19, 1994, from Aspen Technology, Inc. to Koch Engineering Company, Inc.,
pursuant to which Aspen Technology, Inc. elected to extend the term of Aspen Technology, Inc.'s
license under the Non-Equilibrium Distillation Model Development and License Agreement.
10.7(4)+ Batch Distillation Computer Program Development and License Agreement between Process Simulation
Associates, Inc. and Koch Engineering Company, Inc.
10.8(4)+ Agreement between Aspen Technology, Inc. and Imperial College of Science, Technology and Medicine
regarding Assignment of SPEEDUP.
10.9(4) Common stock purchase warrant no. 91-1.
10.10(4) Common stock purchase warrant no. 91-2.
10.11(4) Vendor Program Agreement between Aspen Technology, Inc. and General Electric Capital Corporation.
10.12(6) Rider No. 1, dated December 14, 1994, to Vendor Program Agreement between Aspen Technology, Inc. and
General Electric Capital Corporation.
10.13(4)+ Letter Agreement between Aspen Technology, Inc. and Sanwa Business Credit Corporation.
10.14(4) Equity Joint Venture Contract between Aspen Technology, Inc. and China Petrochemical Technology
Company.
10.15(7) Further Amended and Restated Revolving Credit Agreement dated as of February 15, 1996 among Aspen
Technology, Inc., Prosys Modeling Investment Corporation, Industrial Systems, Inc., Dynamic Matrix
Control Corporation and Setpoint, Inc., as the Borrowers, the Lenders Parties thereto, and Fleet
Bank of Massachusetts, N.A., as Agent and Lender, together with related forms of the following (each
in the form executed by each of such Borrowers):
(a) Amended and Restated Revolving Credit Note.
(b) Patent Conditional Assignment and Security Agreement.
(c) Trademark Collateral Security Agreement.
(d) Security Agreement.
10.16 Letter, dated September 21, 1999, from Fleet National Bank to Aspen Technology, Inc. and Deposit
Pledge Agreement dated as of October 18, 1999 between Fleet National Bank and Aspen Technology, Inc.
further amending the Revolving Credit Agreement.
10.17(3) Registration Rights Agreement, dated as of June 17, 1998, between Aspen Technology, Inc. and
Goldman, Sachs & Co., NationsBanc Montgomery Securities LLC and William Blair & Company, L.L.C.
10.18 Registration Rights Agreement dated June 1, 2000 between Aspen Technology, Inc. and the former
stockholders of Petrolsoft Corporation.
10.19 Registration Rights Agreement dated August 29, 2000 between Aspen Technology, Inc. and the former
stockholders of ICARUS Corporation and ICARUS Services Limited.
10.20(4) 1988 Non-Qualified Stock Option Plan, as amended.
10.21(5) 1995 Stock Option Plan.
10.22(5) 1995 Directors Stock Option Plan.
10.23(5) 1995 Employees' Stock Purchase Plan.
10.24(8) 1996 Special Stock Option Plan.
10.25(12) Petrolsoft Corporation Stock Option Plan.
</TABLE>

36
<PAGE> 38

<TABLE>
<S> <C>
10.26(7) Amended and Restated Agreement and Plan of Reorganization, dated as of May 12, 1995, by and among
Aspen Technology, Inc., Industrial Systems, Inc. and the stockholders of Industrial Systems, Inc.
10.27(13) Stock Purchase Agreement dated as of December 15, 1995, among Aspen Technology, Inc., Dynamic Matrix
Control Corporation and Charles R. Cutler, June A. Cutler, Charles R. Johnston and Cheryl Lynne
Johnston, as stockholders of Dynamic Matrix Control Corporation.
10.28(4) Form of Employee Confidentiality and Non-Competition Agreement.
10.29(4) Noncompetition, Confidentiality and Proprietary Rights Agreement between Aspen Technology, Inc. and
Joseph F. Boston.
10.30(13) Share Purchase Agreement dated as of January 5, 1996 among Aspen Technology, Inc., Amelinc
Corporation and Cegelec S.A.
10.31(4) Noncompetition, Confidentiality and Proprietary Rights Agreement between Aspen Technology, Inc. and
Herbert I. Britt.
10.32(4) Noncompetition, Confidentiality and Proprietary Rights Agreement between Aspen Technology, Inc. and
Lawrence B. Evans.
10.33(8) Change in Control Agreement between Aspen Technology, Inc. and Joseph F. Boston dated August 12,
1997.
10.34(4) Noncompetition, Confidentiality and Proprietary Rights Agreement between Aspen Technology, Inc. and
Paul W. Gallier.
10.35(8) Change in Control Agreement between Aspen Technology, Inc. and Stephen J. Doyle dated August 12,
1997.
10.36(8) Change in Control Agreement between Aspen Technology, Inc. and Lawrence B. Evans dated August 12,
1997.
10.37(8) Change in Control Agreement between Aspen Technology, Inc. and David McQuillin dated August 12,
1997.
10.38 Change in Control Agreement between Aspen Technology, Inc. and Helen Moye dated September 1, 2000.
10.39 Change in Control Agreement between Aspen Technology, Inc. and Michael Muscatello dated August 1,
2000.
10.40(11) Change in Control Agreement between Aspen Technology, Inc. and David Mushin dated December 30, 1998.
10.41(8) Change in Control Agreement between Aspen Technology, Inc. and Mary A. Palermo dated August 12,
1997.
10.42(8) Change in Control Agreement between Aspen Technology, Inc. and Joel B. Rosen dated August 12, 1997.
10.43(9) Change in Control Agreement between Aspen Technology, Inc. and Lisa W. Zappala dated November 3,
1998.
10.44 Financing Partner Agreement between Aspen Technology, Inc. and IBM Credit Corporation dated June 15,
2000.
10.45 Direct Vendor Program Agreement dated as of November 18, 1999 between Aspen Technology, Inc. and
General Electric Capital Corporation.
</TABLE>

37
<PAGE> 39

<TABLE>
<CAPTION>
21.1 Subsidiaries of Aspen Technology, Inc.
<S> <C>
23.1 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (included in signature page to Form 10-K).
27.1 Financial Data Schedules for fiscal year ended June 30,
2000.
</TABLE>

---------------
(1) Previously filed as an exhibit to the Current Report on Form 8-K of Aspen
Technology, Inc. dated March 12, 1998 (filed on March 27, 1998) and
incorporated herein by reference.

(2) Previously filed as an exhibit to the Registration Statement on Form 8-A of
Aspen Technology, Inc., as amended by Amendment No. 1 thereto (filed on
June 12, 1998) and incorporated herein by reference.

(3) Previously filed as an exhibit to the Current Report on Form 8-K of Aspen
Technology, Inc. dated June 17, 1998 (filed on June 19, 1998) and
incorporated herein by reference.

(4) Previously filed as an exhibit to the Registration Statement on Form S-1 of
Aspen Technology, Inc. (Registration No. 33-83916) (filed on September 13,
1994) and incorporated herein by reference.

(5) Previously filed as an exhibit to the Registration Statement on Form S-8 of
Aspen Technology, Inc. (Registration No. 333-11651) (filed on September 9,
1996) and incorporated herein by reference.

(6) Previously filed as an exhibit to the Registration Statement on Form S-1 of
Aspen Technology, Inc. (Registration No. 33-88734) (filed on January 29,
1995) and incorporated herein by reference.

(7) Previously filed as an exhibit to the Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1996, and incorporated herein by reference.

(8) Previously filed as an exhibit to the Annual Report on Form 10-K for the
fiscal year ended June 30, 1997, and incorporated herein by reference.

(9) Previously filed as an exhibit to the Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1998 and incorporated herein by
reference.

(10) Previously filed as exhibit 10.36 to the Quarterly Report on Form 10-Q for
the fiscal quarter ended December 31, 1998 and incorporated herein by
reference.

(11) Previously filed as exhibit 10.43 to the Annual Report on Form 10-K for the
fiscal year ended June 30, 1999, and incorporated herein by reference.

(12) Previously filed as an exhibit to the Registration Statement on Form S-8 of
Aspen Technology, Inc. (Registration No. 333-42536) (filed on July 28,
2000) and incorporated herein by reference.

(13) Previously filed as an exhibit to the Current Report on Form 8-K of Aspen
Technology, Inc. dated January 5, 1996 (filed on January 5, 1996) and
incorporated herein by reference.

(b) REPORTS ON FORM 8-K

On June 27, 2000, we filed a Current Report on Form 8-K with respect to our
press release announcing that two new members were to join our board of
directors, effective on July 1, 2000.

On June 29, 2000, we filed a Current Report on Form 8-K with respect to our
press release announcing our acquisition of Petrolsoft Corporation.

38
<PAGE> 40

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Cambridge, Commonwealth of Massachusetts, as of September 27, 2000.

ASPEN TECHNOLOGY, INC.

By: /s/ LAWRENCE B. EVANS
------------------------------------
Lawrence B. Evans
Chairman of the Board and
Chief Executive Officer

POWER OF ATTORNEY

We, the undersigned officers and directors of Aspen Technology, Inc.,
hereby severally constitute and appoint Lawrence B. Evans, Lisa W. Zappala and
Michael J. Muscatello, and each of them singly, our true and lawful attorneys
with full power to them, and each of them singly, to sign for us and in our
names in the capacities indicated below, the Annual Report on Form 10-K filed
herewith and any and all amendments to said Annual Report and generally to do
all such things in our names and on our behalf in our capacities as officers and
directors to enable Aspen Technology, Inc. to comply with the provisions of the
Securities Exchange Act of 1934 and all requirements of the Securities and
Exchange Commission, hereby ratifying and confirming our signatures as they may
be signed by our said attorneys, or any of them, to said Annual Report and any
and all amendments thereto.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated as of September 27, 2000.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>

/s/ LAWRENCE B. EVANS Chairman of the Board and Chief Executive
--------------------------------------------------- Officer (Principal Executive Officer)
Lawrence B. Evans

/s/ LISA W. ZAPPALA Chief Financial Officer (Principal Financial and
--------------------------------------------------- Accounting Officer)
Lisa W. Zappala

/s/ JOSEPH F. BOSTON Director
---------------------------------------------------
Joseph F. Boston

Director
---------------------------------------------------
Gresham T. Brebach, Jr.

/s/ DOUGLAS R. BROWN Director
---------------------------------------------------
Douglas R. Brown

Director
---------------------------------------------------
Stephen L. Brown
</TABLE>

39
<PAGE> 41

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ STEPHEN M. JENNINGS Director
---------------------------------------------------
Stephen M. Jennings

/s/ JOAN C. MCARDLE Director
---------------------------------------------------
Joan C. McArdle
</TABLE>

40
<PAGE> 42

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
DESCRIPTION PAGE
----------- ----
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Financial Statements:
Balance Sheets as of June 30, 1999 and 2000............... F-3
Statements of Operations for the years ended June 30,
1998, 1999 and 2000.................................... F-4
Statements of Stockholders' Equity and Comprehensive
Income (loss) for the years ended June 30, 1998, 1999
and 2000............................................... F-5
Statements of Cash Flows for the years ended June 30,
1998, 1999 and 2000.................................... F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>

F-1
<PAGE> 43

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Aspen Technology, Inc.:

We have audited the accompanying consolidated balance sheets of Aspen
Technology, Inc. (a Delaware corporation) and subsidiaries as of June 30, 1999
and 2000, and the related consolidated statements of operations, stockholders'
equity and comprehensive income (loss) and cash flows for each of the three
years in the period ended June 30, 2000. 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 auditing standards generally
accepted in the United States. 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 Aspen
Technology, Inc. and subsidiaries as of June 30, 1999 and 2000, and the results
of their operations and their cash flows for each of the three years in the
period ended June 30, 2000 in conformity with accounting principles generally
accepted in the United States.

ARTHUR ANDERSEN LLP

Boston, Massachusetts
August 7, 2000
(except for the matters
discussed in Notes 4(d) and
5, as to which the date is
September 27, 2000)

F-2
<PAGE> 44

ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
JUNE 30,
--------------------
1999 2000
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 34,039 $ 49,371
Short-term investments.................................... 64,662 64,161
Accounts receivable, net of reserves of $1,288 in 1999 and
$1,439 in 2000.......................................... 74,075 81,781
Unbilled services......................................... 16,634 21,894
Current portion of long-term installments receivable, net
of unamortized discount of $1,478 in 1999 and $1,475 in
2000.................................................... 25,344 24,873
Deferred tax asset........................................ 2,752 3,300
Prepaid expenses and other current assets................. 12,196 16,175
-------- --------
Total current assets............................... 229,702 261,555
-------- --------
Long-term installments receivable, net of unamortized
discount of $5,924 in 1999 and $5,831 in 2000........... 31,851 28,301
-------- --------
Property and leasehold improvements, at cost:
Land...................................................... 727 727
Building and improvements................................. 6,261 6,200
Computer equipment........................................ 36,163 39,225
Purchased software........................................ 23,449 27,580
Furniture and fixtures.................................... 11,833 13,225
Leasehold improvements.................................... 4,440 5,386
-------- --------
82,873 92,343
Less -- Accumulated depreciation and amortization......... 45,875 56,250
-------- --------
36,998 36,093
-------- --------
Computer software development costs, net of accumulated
amortization of $8,967 in 1999 and $12,031 in 2000...... 6,011 7,026
-------- --------
Intangible assets, net of accumulated amortization of
$9,027 in 1999 and $11,452 in 2000...................... 9,143 8,856
-------- --------
Deferred tax asset........................................ 4,757 10,130
-------- --------
Other assets.............................................. 6,561 12,984
-------- --------
$325,023 $364,945
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations.................. $ 2,360 $ 1,327
Accounts payable.......................................... 7,803 8,748
Accrued expenses.......................................... 34,832 44,644
Unearned revenue.......................................... 10,116 13,903
Deferred revenue.......................................... 20,604 23,553
-------- --------
Total current liabilities.......................... 75,715 92,175
-------- --------
Long-term obligations, less current portion................. 3,155 1,923
-------- --------
5 1/4% Convertible subordinated debentures.................. 86,250 86,250
-------- --------
Deferred revenue, less current portion...................... 13,528 14,374
-------- --------
Other liabilities........................................... 625 1,025
-------- --------
Commitments and contingencies (Notes 11, 12, and 13)
Stockholders' equity:
Common stock, $.10 par value --
Authorized -- 40,000,000 shares
Issued -- 27,807,152 shares in 1999 and 29,060,428
shares in 2000......................................... 2,781 2,906
Additional paid-in capital................................ 154,219 173,591
Accumulated deficit....................................... (8,736) (3,752)
Treasury stock, at cost -- 230,430 shares of common
stock................................................... (502) (502)
Accumulated other comprehensive loss...................... (2,012) (3,045)
-------- --------
Total stockholders' equity......................... 145,750 169,198
-------- --------
$325,023 $364,945
======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 45

ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Software licenses........................................ $140,857 $ 97,108 $132,843
Service and other........................................ 113,879 129,411 135,250
-------- -------- --------
254,736 226,519 268,093
-------- -------- --------
Expenses:
Cost of software licenses................................ 8,178 7,899 9,605
Cost of service and other................................ 68,677 83,905 85,193
Selling and marketing.................................... 75,060 85,664 91,863
Research and development................................. 43,793 48,625 51,567
General and administrative............................... 20,250 23,503 24,736
Costs related to acquisitions............................ 4,984 -- 1,547
Restructuring and other charges.......................... -- 17,867 --
Charge for in-process research and development........... 8,472 -- --
-------- -------- --------
229,414 267,463 264,511
-------- -------- --------
Income (loss) from operations......................... 25,322 (40,944) 3,582
Interest income............................................ 5,784 10,092 9,847
Interest expense........................................... (377) (5,677) (5,563)
Foreign currency exchange loss............................. (454) (94) (118)
Income on equity in joint ventures......................... 45 19 4
-------- -------- --------
Income (loss) before provision for (benefit from)
income taxes........................................ 30,320 (36,604) 7,752
Provision for (benefit from) income taxes.................. 14,109 (15,809) 2,324
-------- -------- --------
Net income (loss)........................................ $ 16,211 $(20,795) $ 5,428
======== ======== ========
Pro forma net income (loss), reflecting provision for
income taxes on Subchapter S-Corporation income
(unaudited).............................................. $ 15,781 $(22,066) $ 5,428
======== ======== ========
Net income (loss) per share:
Diluted.................................................. $ 0.59 $ (0.76) $ 0.18
======== ======== ========
Basic.................................................... $ 0.62 $ (0.76) $ 0.19
======== ======== ========
Pro forma diluted (unaudited)............................ $ 0.57 $ (0.80) $ 0.18
======== ======== ========
Weighted average shares outstanding:
Diluted.................................................. 27,524 27,476 30,785
======== ======== ========
Basic.................................................... 26,056 27,476 28,221
======== ======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 46

ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK RETAINED OTHER TREASURY STOCK
--------------------- ADDITIONAL EARNINGS COMPREHENSIVE -----------------
NUMBER OF $.10 PAR PAID-IN (ACCUMULATED INCOME NUMBER OF
SHARES VALUE CAPITAL DEFICIT) (LOSS) SHARES COST
---------- -------- ---------- ------------ ------------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1997............ 24,983,500 $2,499 $128,083 $ 7,954 $ (270) 230,330 $(502)
Issuance of common stock in
immaterial poolings........... 766,443 77 2,046 (7,321) -- -- --
Issuance of common stock under
employee stock purchase
plans......................... 115,617 11 3,867 -- -- -- --
Exercise of stock options and
warrants...................... 525,830 53 7,194 -- -- -- --
ESOP contribution............... 983,145 98 380 -- -- -- --
Dividends paid.................. -- -- -- (384) -- -- --
Retired stock................... (3,693) (1) (1) -- -- -- --
Translation adjustment, not tax
effected...................... -- -- -- -- 98 -- --
Unrealized market loss on
investments, net of $31 tax
effect........................ -- -- -- -- (47) -- --
Tax benefit related to stock
options....................... -- -- 6,512 -- -- -- --
Net income...................... -- -- -- 16,211 -- -- --
Comprehensive net income for the
year ended June 30, 1998......
---------- ------ -------- -------- ------- ------- -----
BALANCE, JUNE 30, 1998............ 27,370,842 2,737 148,081 16,460 (219) 230,330 (502)
Issuance of common stock in an
immaterial pooling............ 45,000 5 443 (444) -- -- --
Issuance of common stock under
employee stock purchase
plans......................... 267,324 27 4,371 -- -- -- --
Exercise of stock options and
warrants...................... 123,986 12 901 -- -- -- --
Purchase of treasury stock...... -- -- -- -- -- 100 --
Dividends paid.................. -- -- -- (3,957) -- -- --
Translation adjustment, not tax
effected...................... -- -- -- -- (1,574) -- --
Unrealized market loss on
investments, net of $135 tax
effect........................ -- -- -- -- (219) -- --
Tax benefit related to stock
options....................... -- -- 423 -- -- -- --
Net loss........................ -- -- -- (20,795) -- -- --
Comprehensive net loss for the
year ended June 30, 1999......
---------- ------ -------- -------- ------- ------- -----
BALANCE, JUNE 30, 1999............ 27,807,152 2,781 154,219 (8,736) (2,012) 230,430 (502)
Issuance of common stock under
employee stock purchase
plans......................... 384,864 38 3,822 -- -- -- --
Exercise of stock options....... 868,412 87 7,773 -- -- -- --
Dividends paid.................. -- -- -- (444) -- -- --
Translation adjustment, not tax
effected...................... -- -- -- -- (904) -- --
Unrealized market loss on
investments, net of $90 tax
effect........................ -- -- -- -- (129) -- --
Tax benefit related to stock
options....................... -- -- 7,777 -- -- -- --
Net income...................... -- -- -- 5,428 -- -- --
Comprehensive net income for the
year ended June 30, 2000......
---------- ------ -------- -------- ------- ------- -----
BALANCE, JUNE 30, 2000............ 29,060,428 $2,906 $173,591 $ (3,752) $(3,045) 230,430 $(502)
========== ====== ======== ======== ======= ======= =====

TOTAL COMPREHENSIVE
STOCKHOLDERS' INCOME
EQUITY (LOSS)
------------- -------------
<S> <C> <C>
BALANCE, JUNE 30, 1997............ $137,764
Issuance of common stock in
immaterial poolings........... (5,198)
Issuance of common stock under
employee stock purchase
plans......................... 3,878
Exercise of stock options and
warrants...................... 7,247
ESOP contribution............... 478
Dividends paid.................. (384)
Retired stock................... (2)
Translation adjustment, not tax
effected...................... 98 $ 98
Unrealized market loss on
investments, net of $31 tax
effect........................ (47) (47)
Tax benefit related to stock
options....................... 6,512
Net income...................... 16,211 16,211
--------
Comprehensive net income for the
year ended June 30, 1998...... $ 16,262
-------- ========
BALANCE, JUNE 30, 1998............ 166,557
Issuance of common stock in an
immaterial pooling............ 4
Issuance of common stock under
employee stock purchase
plans......................... 4,398
Exercise of stock options and
warrants...................... 913
Purchase of treasury stock...... --
Dividends paid.................. (3,957)
Translation adjustment, not tax
effected...................... (1,574) (1,574)
Unrealized market loss on
investments, net of $135 tax
effect........................ (219) (219)
Tax benefit related to stock
options....................... 423
Net loss........................ (20,795) (20,795)
--------
Comprehensive net loss for the
year ended June 30, 1999...... $(22,588)
-------- ========
BALANCE, JUNE 30, 1999............ 145,750
Issuance of common stock under
employee stock purchase
plans......................... 3,860
Exercise of stock options....... 7,860
Dividends paid.................. (444)
Translation adjustment, not tax
effected...................... (904) (904)
Unrealized market loss on
investments, net of $90 tax
effect........................ (129) (129)
Tax benefit related to stock
options....................... 7,777
Net income...................... 5,428 5,428
--------
Comprehensive net income for the
year ended June 30, 2000...... $ 4,395
-------- ========
BALANCE, JUNE 30, 2000............ $169,198
========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 47

ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------------
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 16,211 $(20,795) $ 5,428
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities --
Depreciation and amortization........................... 14,163 18,336 16,327
Charge for in-process research and development.......... 8,472 -- --
Deferred income taxes................................... (2,749) (14,124) (6,201)
Writeoff of assets related to restructuring............. -- 3,060 --
Changes in assets and liabilities --
Accounts receivable................................... (23,601) (2,372) (7,977)
Unbilled services..................................... (5,477) 1,186 (5,625)
Prepaid expenses and other current assets............. (396) (2,061) (4,119)
Long-term installments receivable..................... (10,167) 3,424 4,021
Accounts payable and accrued expenses................. 14,963 4,577 18,555
Unearned revenue...................................... 1,713 4,040 3,831
Deferred revenue...................................... 5,744 1,179 3,774
-------- -------- --------
Net cash provided by (used in) operating
activities.......................................... 18,876 (3,550) 28,014
-------- -------- --------
Cash flows from investing activities:
Purchase of property and leasehold improvements........... (19,384) (7,688) (9,682)
Increase in computer software development costs........... (3,900) (2,966) (4,082)
(Increase) decrease in other assets....................... (3,981) 323 (6,826)
(Increase) decrease in short-term investments............. (18,464) (29,845) 373
(Decrease) increase in other liabilities.................. (28) (289) 400
Cash acquired in immaterial poolings...................... (1,123) -- --
Cash used in the purchase of business, net of cash
acquired................................................ (9,911) (1,200) (2,085)
-------- -------- --------
Net cash used in investing activities............... (56,791) (41,665) (21,902)
-------- -------- --------
Cash flows from financing activities:
Issuance of common stock under employee stock purchase
plans................................................... 3,878 4,398 3,860
Issuance of common stock under employee stock ownership
plan.................................................... 478 -- --
Exercise of stock options and warrants.................... 7,247 913 7,860
Repurchase of common stock................................ (2) -- --
Proceeds from 5 1/4% convertible subordinated
debentures.............................................. 86,250 -- --
Additions to (payments of) long-term debt and capital
lease obligations....................................... 769 (947) (2,266)
Payment of dividends...................................... (384) (3,957) (444)
-------- -------- --------
Net cash provided by financing activities........... 98,236 407 9,010
-------- -------- --------
Effect of exchange rate changes on cash and cash
equivalents............................................... 98 (122) 210
-------- -------- --------
Increase (decrease) in cash and cash equivalents............ 60,419 (44,930) 15,332
Cash and cash equivalents, beginning of period.............. 18,550 78,969 34,039
-------- -------- --------
Cash and cash equivalents, end of period.................... $ 78,969 $ 34,039 $ 49,371
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid for income taxes................................ $ 1,363 $ 2,985 $ 806
======== ======== ========
Cash paid for interest.................................... $ 245 $ 4,709 $ 4,972
======== ======== ========
Supplemental schedule of noncash investing and financing
activities:
Increase in equipment under capital lease obligations..... $ 2,351 $ -- $ --
======== ======== ========
Increase in additional paid-in capital and decrease in
accrued expenses relating to the tax benefit of exercise
of nonqualified stock options........................... $ 6,512 $ 423 $ 7,777
======== ======== ========
Supplemental disclosure of cash flows related to
acquisitions:
The Company acquired certain companies as described in
Note 4. These acquisitions are summarized as follows --
Fair value of assets acquired, excluding cash........... $ 11,316 $ 1,290 $ 2,360
Payments in connection with the acquisitions, net of
cash acquired.......................................... (9,911) (1,200) (2,085)
-------- -------- --------
Liabilities assumed................................. $ 1,405 $ 90 $ 275
======== ======== ========
</TABLE>

During the fiscal year 1998, the Company acquired NeuralWare, Inc., the SAST
Corporation Limited, Cimtech S.A./ N.V., Contas Process Control S.r.L., Zyqad
Limited and Treiber Controls, Inc. During the fiscal year 1999, the Company
acquired Syllogistics, Inc. All of these acquisitions were accounted for as
poolings of interests. Due to their immateriality to the financial position and
results of operations of the Company, the historical financial statements were
not restated.

The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 48

ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000

(1) OPERATIONS

Aspen Technology, Inc. and subsidiaries (the Company) is a supplier of
software and service solutions that companies in the process industries use to
design, operate and manage their manufacturing processes. The process industries
include manufacturers of chemicals, petrochemicals, petroleum products,
pharmaceuticals, pulp and paper, electric power, food and beverages, consumer
products, and metals and minerals. The Company offers a comprehensive,
integrated suite of process manufacturing optimization solutions that help
process manufacturers enhance profitability by improving efficiency,
productivity, capacity utilization, safety and environmental compliance
throughout the entire manufacturing life-cycle, from research and development to
engineering, planning and scheduling, procurement, production and distribution.
In addition to its broad range of software solutions, the Company offers system
implementation, advanced process control, real-time optimization and other
consulting services through its staff of project engineers. The Company has
operations and customers worldwide.

On June 1, 2000 the Company acquired Petrolsoft Corporation and subsidiary
(Petrolsoft), a supplier of web-enabled supply chain software for the downstream
petroleum industry. The Company exchanged 2,641,101 shares of its common stock
for all of the outstanding shares of Petrolsoft. The Company placed 132,054 of
these shares into escrow as security for indemnification obligations of
Petrolsoft relating to representation, warranties and other matters, as defined.
This merger was accounted for as a pooling of interests. Accordingly, the
consolidated financial statements of the Company have been restated to give
retroactive effect to the combination of Petrolsoft. The Company incurred
approximately $1.5 million of expenses related to this acquisition, which were
charged to operations in the quarter ending June 30, 2000. Prior to the
acquisition, Petrolsoft was an S-Corporation and subject only to certain state
franchise taxes. As such, unaudited pro forma net income (loss) and per share
information has been provided as if Petrolsoft had been subject to the Company's
effective income tax rates prior to the acquisition. The consolidated financial
statements also reflect the Petrolsoft dividends that were distributed to the
S-Corporation shareholders in accordance with Petrolsoft's historical policy in
order to meet the shareholders' personal income tax obligations.

The following information details the results of operations of the Company
and Petrolsoft for the periods before the pooling of interests combination was
consummated.

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Revenue
The Company...................................... $252,555 $219,593 $263,460
Petrolsoft....................................... 2,181 6,926 4,633
-------- -------- --------
Combined......................................... $254,736 $226,519 $268,093
======== ======== ========
Net income (loss)
The Company...................................... $ 14,636 $(25,735) $ 5,591
Petrolsoft....................................... 1,575 4,940 (163)
-------- -------- --------
Combined......................................... $ 16,211 $(20,795) $ 5,428
======== ======== ========
Net income (loss) per share
Diluted
The Company...................................... $ 0.59 $ (1.04) $ 0.20
======== ======== ========
Petrolsoft....................................... $ 0.60 $ 1.87 $ (0.06)
======== ======== ========
Combined......................................... $ 0.59 $ (0.76) $ 0.18
======== ======== ========
Net income (loss) per share
Basic
The Company...................................... $ 0.63 $ (1.04) $ 0.22
======== ======== ========
Petrolsoft....................................... $ 0.60 $ 1.87 $ (0.06)
======== ======== ========
Combined......................................... $ 0.62 $ (0.76) $ 0.19
======== ======== ========
</TABLE>

F-7
<PAGE> 49
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000

(2) SIGNIFICANT ACCOUNTING POLICIES

(a) PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the results of
operations of the Company, Petrolsoft and their wholly owned subsidiaries. All
material intercompany balances and transactions have been eliminated in
consolidation.

(b) CASH AND CASH EQUIVALENTS

Cash and cash equivalents are stated at cost, which approximates market,
and consist of short-term, highly liquid investments with original maturities of
less than three months.

Securities purchased to be held for indefinite periods of time, and not
intended at the time of purchase to be held until maturity, are classified as
available-for-sale securities. Securities classified as available-for-sale are
included in short-term investments and cash and cash equivalents and are
recorded at market value in the accompanying consolidated financial statements.
Unrealized gains and losses have been accounted for as a separate component of
consolidated stockholders' equity and comprehensive income (loss). Realized
investment gains and losses were not material in fiscal 1998, 1999 or 2000.

Available-for-sale investments as of June 30, 1999 and 2000 are as follows
(in thousands):

<TABLE>
<CAPTION>
JUNE 30, 1999 JUNE 30, 2000
------------------- --------------------
TOTAL TOTAL TOTAL TOTAL
CONTRACTED MARKET AMORTIZED MARKET AMORTIZED
DESCRIPTION MATURITY VALUE COST VALUE COST
----------- ----------- ------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents...... N/A $13,228 $13,228 $ 20,730 $ 20,730
Commercial paper............... 0-3 months 18,570 18,570 18,929 18,929
Money market funds............. 0-3 months 2,241 2,241 9,712 9,712
------- ------- -------- --------
Total cash and cash
equivalents........ 34,039 34,039 49,371 49,371
------- ------- -------- --------
SHORT-TERM INVESTMENTS:
Mutual funds................... N/A 1,150 1,150 250 250
Certificates of deposit........ 4-11 months 1,450 1,449 7,000 6,998
Corporate and foreign bonds.... 4-12 months 31,238 31,282 6,344 6,356
Corporate and foreign bonds.... 1-5 years 30,824 31,056 50,567 50,961
------- ------- -------- --------
Total short term
investments........ 64,662 64,937 64,161 64,564
------- ------- -------- --------
$98,701 $98,976 $113,532 $113,936
======= ======= ======== ========
</TABLE>

F-8
<PAGE> 50
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000

(d) DEPRECIATION AND AMORTIZATION

The Company provides for depreciation and amortization, computed using the
straight-line and declining balance methods, by charges to operations in amounts
estimated to allocate the cost of the assets over their estimated useful lives,
as follows:

<TABLE>
<CAPTION>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
-------------------- -------------
<S> <C>
Building and improvements................................... 7-30 years
Computer equipment.......................................... 3-5 years
Purchased software.......................................... 3 years
Furniture and fixtures...................................... 3-10 years
Leasehold improvements...................................... Life of lease
</TABLE>

(e) REVENUE RECOGNITION

Effective July 1, 1998, the Company adopted Statement of Position (SOP) No.
97-2, "Software Revenue Recognition". SOP 97-2 was issued by the American
Institute of Certified Public Accountants in October 1997 in order to provide
guidance on applying generally accepted accounting principles in recognizing
revenue on software transactions. The adoption of SOP 97-2 did not have a
material impact on the Company's financial position, results of operations or
cash flows. License revenue, including license renewals, consists principally of
revenue earned under fixed-term and perpetual software license agreements and is
generally recognized upon shipment of the software if collection of the
resulting receivable is probable, the fee is fixed or determinable, and
vendor-specific objective evidence exists for all undelivered elements to allow
allocation of the total fee to all delivered and undelivered elements of the
arrangement. Revenues under such arrangements, which may include several
different software products and services sold together, are allocated to each
element based on the residual method in accordance with SOP 98-9, "Software
Revenue Recognition, with Respect to Certain Transactions." Under the residual
method, the fair value of the undelivered elements is deferred and subsequently
recognized when earned. The Company has established sufficient vendor specific
objective evidence for professional services, training and maintenance and
support services. Accordingly, software license revenue is recognized under the
residual method in arrangements in which software is licensed with professional
services, training and maintenance and support services. The Company uses
installment contracts as a standard business practice and has a history of
successfully collecting under the original payment terms without making
concessions on payments, products or services.

Service revenues from fixed-price contracts are recognized using the
percentage-of-completion method, measured by the percentage of costs (primarily
labor) incurred to date as compared to the estimated total costs (primarily
labor) for each contract. When a loss is anticipated on a contract, the full
amount thereof is provided currently. Service revenues from time and expense
contracts and consulting and training revenue are recognized as the related
services are performed. Services that have been performed but for which billings
have not been made are recorded as unbilled services, and billings that have
been recorded before the services have been performed are recorded as unearned
revenue in the accompanying consolidated balance sheets.

Installments receivable represent the present value of future payments
related to the financing of noncancellable term and perpetual license agreements
that provide for payment in installments over a one-to five-year period. A
portion of each installment agreement is recognized as interest income in the
accompanying consolidated statements of operations. The interest rates utilized
for the years ended June 30, 1998, 1999 and 2000 were 8.5%, 8.5%, and 8.5% to 9%
respectively.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." SAB 101 provides guidance on the

F-9
<PAGE> 51
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000

recognition, disclosure and presentation of revenue in financial statements. SAB
101, as amended by SAB 101A and SAB 101B, is required to be implemented no later
than the fourth fiscal quarter of fiscal years beginning after December 15,
1999. We are currently evaluating the impact of SAB 101 on our financial
statements and related disclosures, but we do not expect that any impact will be
material.

(f) COMPUTER SOFTWARE DEVELOPMENT COSTS

Certain computer software development costs are capitalized in the
accompanying consolidated balance sheets. Capitalization of computer software
development costs begins upon the establishment of technological feasibility.
Amortization of capitalized computer software development costs is provided on a
product-by-product basis using the straight-line method, beginning upon
commercial release of the product, and continuing over the remaining estimated
economic life of the product, not to exceed three years. Total amortization
expense charged to operations was approximately $1,263,000, $2,653,000 and
$3,064,000 in fiscal 1998, 1999 and 2000, respectively.

(g) FOREIGN CURRENCY TRANSLATION

The financial statements of the Company's foreign subsidiaries are
translated in accordance with Statement of Financial Accounting Standards (SFAS)
No. 52, Foreign Currency Translation. The determination of functional currency
is based on the subsidiaries' relative financial and operational independence
from the Company. Foreign currency exchange gains or losses for certain wholly
owned subsidiaries are credited or charged to the accompanying consolidated
statements of operations since the functional currency of the subsidiaries is
the U.S. dollar. Gains and losses from foreign currency translation related to
entities whose functional currency is their local currency are credited or
charged to the cumulative translation adjustment account, included in
stockholders' equity in the accompanying consolidated balance sheets. Effective
January 1, 1999, the functional currency of several foreign subsidiaries was
changed from the U.S. dollar to the respective foreign currency. This change was
made as significant changes in economic facts and circumstances related to the
Company's operations in those foreign countries occurred.

At June 30, 1999 and 2000, the Company had long-term installments
receivable of approximately $3,295,000 and $4,955,000 denominated in foreign
currencies. The June 2000 installments receivable mature through July 2004 and
have been hedged with specific foreign currency contracts. There have been no
material gains or losses recorded relating to hedge contracts for the periods
presented.

(h) NET INCOME (LOSS) PER SHARE

Basic earnings per share was determined by dividing net income (loss) by
the weighted average common shares outstanding during the period. Diluted
earnings per share was determined by dividing net income (loss) by diluted
weighted average shares outstanding. Diluted weighted average shares reflects
the dilutive effect, if any, of common equivalent shares. Common equivalent
shares include common stock options and warrants to the extent their effect is
dilutive, based on the treasury stock method. Proforma basic and diluted net
income (loss) per share assumes earnings from Petrolsoft, an acquired Subchapter
S-Corporation accounted for as a pooling of interests, were taxed at the
Company's effective tax rate.

F-10
<PAGE> 52
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000

The calculations of basic, diluted and pro forma diluted net income (loss)
per share and basic and diluted weighted average shares outstanding are as
follows (in thousands):

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------------
1998 1999 2000
------- -------- -------
<S> <C> <C> <C>
Net income (loss).................................... $16,211 $(20,795) $ 5,428
Pro forma provision for income taxes on Subchapter
S-Corporation income (unaudited)................... 430 1,271 --
------- -------- -------
Pro forma net income (loss) (unaudited).............. $15,781 $(22,066) $ 5,428
======= ======== =======
Basic weighted average common shares outstanding..... 26,056 27,476 28,221
Weighted average common shares....................... 1,468 -- 2,564
------- -------- -------
Diluted weighted average shares outstanding.......... 27,524 27,476 30,785
======= ======== =======
Basic net income (loss) per share.................... $ 0.62 $ (0.76) $ 0.19
======= ======== =======
Diluted net income (loss) per share.................. $ 0.59 $ (0.76) $ 0.18
======= ======== =======
Pro forma diluted net income (loss) per share
(unaudited)........................................ $ 0.57 $ (0.80) $ 0.18
======= ======== =======
</TABLE>

The following dilutive effect of potential common shares was excluded from
the calculation of dilutive weighted average shares outstanding as their effect
would be anti-dilutive (in thousands):

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------
1998 1999 2000
----- ----- -----
<S> <C> <C> <C>
Convertible debt............................................ 1,623 1,628 1,628
Options and warrants........................................ -- 994 --
----- ----- -----
Total....................................................... 1,623 2,622 1,628
===== ===== =====
</TABLE>

(i) MANAGEMENT ESTIMATES

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

(j) CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to
concentrations of credit risk are principally cash and cash equivalents,
investments, accounts receivable and installments receivable. The Company places
its cash and cash equivalents and investments in highly rated institutions.
Concentration of credit risk with respect to receivables is limited to certain
customers (end users and distributors) to which the Company makes substantial
sales. To reduce risk, the Company routinely assesses the financial strength of
its customers, hedges specific foreign receivables and routinely sells its
receivables to financial institutions with limited recourse and without
recourse. As a result, the Company believes that its accounts and installments
receivable credit risk exposure is limited. The Company maintains an allowance
for potential credit losses but historically has not experienced any significant
losses related to individual customers or groups of customers in any particular
industry or geographic area. As of June 30, 1999 and 2000, the Company had no
customers that represented 10% of total accounts receivable.

F-11
<PAGE> 53
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000

(k) FINANCIAL INSTRUMENTS

Financial instruments consist of cash and cash equivalents, short-term
investments, accounts receivable and installments receivable. The estimated fair
value of these financial instruments approximates their carrying value and,
except for accounts receivable and installments receivable, is based primarily
on market quotes.

(l) INTANGIBLE ASSETS AND IMPAIRMENT OF LONG-LIVED ASSETS

Intangible assets consist of the following at June 30, 1999 and 2000 (in
thousands):

<TABLE>
<CAPTION>
ESTIMATED JUNE 30, JUNE 30,
USEFUL LIFE 1999 2000
----------------- -------- --------
<S> <C> <C> <C>
Goodwill....................................... 10 years $ 5,547 $ 6,446
Acquired Technology............................ 3-5 years 7,162 8,401
Acquired Assembled Workforce................... 5-7 years 2,748 2,748
Acquired Uncompleted Contracts................. Life of contracts 913 913
Other Intangible assets........................ 5-12 years 1,800 1,800
------- -------
18,170 20,308
Less-Accumulated Amortization.................. 9,027 11,452
------- -------
$ 9,143 $ 8,856
======= =======
</TABLE>

The Company evaluates it long-lived assets, which include property and
leasehold improvements and intangible assets for impairment as events and
circumstances indicate that the carrying amount may not be recoverable and at a
minimum at each balance sheet date. The Company evaluates the realizability of
its long-lived assets based on profitability and undiscounted cash flow
expectations for the related asset or subsidiary. Management believes that as of
each of the balance sheet dates presented none of the Company's long-lived
assets were impaired. See Note 3 for discussion regarding restructuring and
other charges.

(m) COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) is defined as the change in equity of a
business enterprise during a period from transactions and other events and
circumstances from non-owner sources. Comprehensive income (loss) is disclosed
in the accompanying consolidated statements of stockholders' equity and
comprehensive income (loss). The components of accumulated other comprehensive
income (loss) as of June 30, 1998, 1999 and 2000 are as follows (in thousands):

<TABLE>
<CAPTION>
1998 1999 2000
----- ------- -------
<S> <C> <C> <C>
Unrealized loss on investments, net of taxes............ $ (56) $ (275) $ (404)
Cumulative translation adjustment....................... (163) (1,737) (2,641)
----- ------- -------
Total accumulated other comprehensive income (loss)..... $(219) $(2,012) $(3,045)
===== ======= =======
</TABLE>

(n) NEW ACCOUNTING STANDARDS

In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133, as amended by SFAS No. 137 and
SFAS No. 138, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities,
and is effective for all fiscal

F-12
<PAGE> 54
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000

quarters of all fiscal years beginning after June 15, 2000. The Company does not
expect adoption of this statement to have a material impact on its consolidated
financial position or results of operations.

In March 2000, the FASB issued Interpretation (FIN) No. 44, "Accounting for
Certain Transactions Involving Stock Compensation -- An Interpretation of APB
Opinion No. 25." FIN 44 clarifies the definition of employees, the criteria for
determining whether a plan qualifies as a non-compensatory plan, the accounting
consequences of various modifications to the terms of a previously fixed stock
option or award and the accounting for an exchange of stock compensation awards
in a business combination. FIN 44 is effective July 1, 2000, but certain
conclusions in the Interpretation cover specific events that occurred after
either December 15, 1998 or January 12, 2000. We do not expect that the adoption
of FIN 44 will have a material effect on our results of operations or financial
position.

(3) RESTRUCTURING AND OTHER CHARGES

In the fourth quarter of fiscal 1999, the Company undertook certain actions
to restructure its business. The restructuring resulted from a lower than
expected level of license revenues which adversely affected fiscal year 1999
operating results. The license revenue shortfall resulted primarily from delayed
decision making driven by economic difficulties among customers in certain core
vertical markets. The restructuring plan resulted in a pre-tax restructuring
charge totaling $17.9 million. The principal actions in the restructuring plan
includes the reduction of workforce, the close-down or consolidation of a number
of offices and facilities, the rationalizing of certain non-core products and
activities acquired in recent years and other general cost reductions. The
restructuring and other charge is broken down as follows:

<TABLE>
<CAPTION>
ACCRUED ACCRUED
RESTRUCTURING WRITE-OFF EXPENSES EXPENSES,
AND OTHER OF ASSETS, FISCAL 1999 JUNE 30, FISCAL 2000 JUNE 30,
CHARGES AND OTHER PAYMENTS 1999 PAYMENTS 2000
------------- ---------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Close-down/consolidation of
facilities................ $10,224 $5,440 $ 24 $4,760 $1,408 $3,352
Employee severance, benefits
and related costs......... 4,324 -- 2,386 1,938 1,462 476
Write-off of assets......... 3,060 3,060 -- -- -- --
Other....................... 259 101 57 101 97 4
------- ------ ------ ------ ------ ------
$17,867 $8,601 $2,467 $6,799 $2,967 $3,832
======= ====== ====== ====== ====== ======
</TABLE>

Close-down/consolidation of facilities: Approximately $10.2 million of the
restructuring charge relates to the termination of facility leases and other
lease-related costs. The facility leases have remaining terms ranging from one
month to five years. The remaining accrual reflects the Company's best estimate
of actual costs to buy out the leases in certain cases or the net cost to
sublease the properties in other cases. Included in this amount is the write off
of certain assets, primarily building and leasehold improvements and adjustments
to certain obligations that relate to the closing of facilities.

Employee Severance, Benefits and Related Costs: The reduction in
workforce, by function, resulting in the employee severance costs detailed above
is as follows:

<TABLE>
<S> <C>
Services............................................... 82
Selling and Marketing.................................. 59
Research and Development............................... 38
General and Administrative............................. 26
---
205
===
</TABLE>

F-13
<PAGE> 55
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000

Write-off of assets: Approximately $3.1 million of the restructuring and
other charge relates to the write-off of certain assets that had been determined
to be of no further value to the Company as a direct consequence of the change
in the business plans that have been made as a result of the restructuring.
These business plan changes are the result of management's assessment and
rationalization of certain non-core products and activities acquired in recent
years. The write-off was based on management's assessment of the current fair
value of certain assets, including intangible assets, and their resale value, if
any.

(4) ACQUISITIONS

(a) ACQUISITIONS DURING FISCAL YEAR 1998

During fiscal year 1998, the Company acquired 100% of the outstanding
shares of NeuralWare, Inc., The SAST Corporation Limited, Cimtech S.A./N.V.,
Contas Process Control S.r.L., Zyqad Limited, and Treiber Controls, Inc. The
Company exchanged 766,443 shares of its common stock and paid approximately
$841,000 in cash for all outstanding shares of the acquired companies. These
acquisitions were accounted for as poolings of interest and were immaterial to
the Company's financial position and results of operations. Accordingly, the
historical financial statements of the Company have not been restated.

Additionally, the Company acquired 100% of the outstanding shares of IISYS,
Inc. for an aggregate purchase price of approximately $8,400,000 in cash and the
assumption of approximately $1,600,000 in debt. For financial statement
purposes, this acquisition was accounted for as a purchase, and accordingly, the
results of operations from the date of acquisition are included in the Company's
consolidated statements of operations. The fair market value of assets acquired
and liabilities assumed was based on an independent appraisal. The portion of
the purchase price allocated to in-process research and development represents
projects that had not yet reached technological feasibility and had no
alternative future use. Pro forma information related to these acquisitions is
not presented as it is not material. The purchase price was allocated to the
fair market value of assets acquired and liabilities assumed, as follows (in
thousands):

<TABLE>
<CAPTION>
DESCRIPTION AMOUNT LIFE
----------- ------- -------
<S> <C> <C>
Purchased in process research and development............... $ 8,472 --
Acquired technology......................................... 2,178 5 years
Intangible assets........................................... 392 5 years
-------
11,042
Net book value of tangible assets acquired, less liabilities
assumed................................................... (321)
-------
10,721
Less -- Deferred taxes...................................... 800
-------
$ 9,921
=======
</TABLE>

On May 27, 1998, the Company acquired Chesapeake Decision Sciences, Inc.
and subsidiaries (CDI), a provider of software and services for the supply chain
management market. The Company exchanged 2,961,959 shares of its common stock
for all the outstanding shares of CDI common stock. The Company placed 296,196
of these shares into escrow as security for indemnification obligations of CDI
relating to representation, warranties and tax matters. These shares were
released on May 26, 1999. This merger was accounted for as a pooling of
interests. Accordingly, the consolidated financial statements of the Company
have been restated to give retroactive effect to the combination of CDI. The
Company incurred approximately $4.0 million of expenses related to this
acquisition, which were charged to operations in the quarter ending June 30,
1998.

F-14
<PAGE> 56
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000

CDI maintained an Employee Stock Ownership Plan and Trust (the Plan) in
which CDI made discretionary contributions on an annual basis based on 10% of
all eligible employees' base salaries. The common stock shares were then
allocated based on a formula determined by management. CDI's discretionary
contributions for the year ended June 30, 1998 was approximately $478,000. The
Plan was frozen as of May 27, 1998 and all outstanding shares were converted
into the Company's common stock. CDI also maintained a defined contribution
401(k) profit sharing plan covering all full-time employees. The plan provided
for CDI to make matching contributions under a defined formula. In addition, CDI
could make discretionary contributions to the plan determined annually by
management. During the fiscal year ended June 30, 1998, CDI made a matching
contribution of approximately $314,000. This plan was merged with the Company's
plan as of June 1, 1998.

(b) ACQUISITIONS DURING FISCAL YEAR 1999

On September 14, 1998, the Company paid $1.2 million in cash for certain
assets and personnel of Callidus Technologies, Inc., a consulting firm that
specializes in the modeling of predictive emissions monitoring. This acquisition
has been accounted for as a purchase transaction. The purchase price has been
allocated to various assets, primarily intangible assets, based on their fair
values. On October 14, 1998 the Company issued 45,000 shares of its common stock
for all the outstanding shares of Syllogistics, Inc., a provider of logistics
management software. This acquisition was accounted for as pooling of interests.
Pro forma information related to these acquisitions is not presented as it is
not material.

On June 8, 2000, the Company acquired M2R, SA (M2R), a leading provider of
manufacturing execution software for the life sciences and consumer packaged
goods related industries. The Company acquired 100% of the outstanding shares of
M2R for a purchase price of approximately $2.1 million. This acquisition was
accounted for as a purchase, and accordingly, the results of operations from the
date of acquisition are included in the Company's consolidated statements of
operations. Pro forma information related to these acquisitions is not presented
as it is not material. The purchase price was allocated to the fair market value
of assets acquired and liabilites assumed as follows (in thousands):

<TABLE>
<CAPTION>
DESCRIPTION AMOUNT LIFE
----------- ------ -------
<S> <C> <C>
Acquired technology......................................... $1,230 3 years
Goodwill.................................................... 946 5 years
------
2,176
Net book value of tangible assets acquired, less liabilities
assumed................................................... 184
------
2,360
Less -- Deferred taxes.................................... 275
------
$2,085
======
</TABLE>

(d) SUBSEQUENT ACQUISITION

On August 29, 2000, the Company acquired ICARUS Corporation (ICARUS), a
market leader in providing software that is used by process manufacturing
industries to estimate plant capital costs and evaluate project economics. The
Company acquired 100% of the outstanding shares of ICARUS for a purchase price
of approximately $24.5 million. The Company intends to account for this
acquisition as a purchase. The Company is currently evaluating the allocation of
the purchase price.

F-15
<PAGE> 57
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000

(5) LINE OF CREDIT

The Company has a revolving line-of-credit agreement with a bank, which
provides for borrowings of up to $30,000,000, subject to certain limitations.
There is an annual commitment fee of $50,000. At the Company's election,
borrowings bear interest on the basis of the applicable LIBOR, as defined (6.77%
as of June 30, 2000), or at the bank's prime rate (9.5% as of June 30, 2000).
The line is subject to certain covenants, including profitability and operating
ratios, as defined. Additionally, the line is secured by certain of the
Company's marketable securities. As of June 30, 2000, no amounts were
outstanding under this line and approximately $22,708,000 was available for
future borrowings as approximately $7,292,000 was reserved for certain
performance bonds relating to outstanding letters of credit and service
contracts. The line of credit expires on December 31, 2000. The Company is
negotiating with its lender bank, pursuant to a non-binding commitment letter
entered into in September 2000, in order to amend the Company's existing line of
credit to, among other things, extend the term of the line of credit through
December 31, 2003.

(6) LONG-TERM OBLIGATIONS

Long-term obligations consist of the following at June 30, 1999 and 2000
(in thousands):

<TABLE>
<CAPTION>
1999 2000
------ ------
<S> <C> <C>
Capital lease obligation due in monthly installments of
approximately $55,000 plus interest at 9.3% per year
through April 2001........................................ $1,062 $475
Credit arrangement of a Belgian subsidiary with a bank...... 256 237
Mortgage payable of a UK subsidiary due in annual
installments of approximately $91,000 plus interest at 6%
per year.................................................. 1,176 1,040
Note payable of a Belgian subsidiary with annual
installments of approximately $126,000 through June 2012,
plus interest ranging from 8.5% to 10%, payable in June
2010, 2011, and 2012...................................... 2,565 1,082
Convertible Debenture of a Belgian subsidiary due in 2000,
interest payable at an annual rate of 6% This note is
convertible into approximately 7,500 shares of the
Company's common stock at the option of the holder........ 385 355
Other obligations........................................... 71 61
------ ------
5,515 3,250
Less -- Current maturities.................................. 2,360 1,327
------ ------
$3,155 $1,923
====== ======
</TABLE>

Maturities of these long term obligations are as follows (in thousands):

<TABLE>
<CAPTION>
YEARS ENDING JUNE 30, AMOUNT
--------------------- ------
<S> <C>
2001.............................................. $1,327
2002.............................................. 234
2003.............................................. 217
2004.............................................. 217
2005.............................................. 217
Thereafter........................................ 1,038
------
3,250
Less -- Current maturities.......................... 1,327
------
$1,923
======
</TABLE>

F-16
<PAGE> 58
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000

(7) 5 1/4% CONVERTIBLE SUBORDINATED DEBENTURES

In June 1998, the Company sold $86.3 million of 5 1/4% Convertible
subordinated debentures (the Debentures) to qualified institutional buyers in
reliance on Rule 144A under the Securities Act of 1933. The Debentures are
convertible into shares of the Company's common stock at any time prior to June
15, 2005, unless previously redeemed or repurchased, at a conversion price of
$52.97 per share, subject to adjustment in certain events. Interest on the
Debentures is payable on June 15 and December 15 of each year. The Debentures
are redeemable in whole or part at the option of the Company at any time on or
after June 15, 2001 at the following redemption prices expressed as a percentage
of principal plus accrued interest through the date of redemption:

<TABLE>
<CAPTION>
REDEMPTION
12 MONTHS BEGINNING JUNE 15 OF PRICE
------------------------------ ----------
<S> <C>
2001............................................ 103.00%
2002............................................ 102.25%
2003............................................ 101.50%
2004............................................ 100.75%
</TABLE>

In the event of a change of control, as defined, each holder of the
Debentures may require the Company to repurchase its Debentures, in whole or in
part, for cash or, at the Company's option, for common stock (valued at 95% of
the average last reported sale prices for the 5 trading days immediately
preceding the repurchase date) at a repurchase price of 100% of the principal
amount of the Debentures to be repurchased, plus accrued interest to the
repurchase date. The Debentures are unsecured obligations subordinate in right
of payment to all existing and future senior debt of the Company, as defined,
and effectively subordinate in right of payment to all indebtedness and other
liabilities of the Company's subsidiaries. The Company has filed a shelf
registration statement in respect of the Debentures and common stock issuable
upon conversion thereof.

In connection with this financing the Company incurred approximately $3.9
million of issuance costs. These costs have been classified as other assets in
the accompanying consolidated balance sheets and are being amortized, as
interest expense, over the term of the Debentures. Approximately $3.0 million of
issuance costs related to fees paid to investment bankers in connection with the
sale of these Debentures.

(8) PREFERRED STOCK

The Company's Board of Directors is authorized, subject to any limitations
prescribed by law, without further stockholder approval, to issue, from time to
time, up to an aggregate of 10,000,000 shares of preferred stock in one or more
series. Each such series of preferred stock shall have such number of shares,
designations, preferences, voting powers, qualifications and special or relative
rights or privileges, which may include, among others, dividend rights, voting
rights, redemption and sinking fund provisions, liquidation preferences and
conversion rights, as shall be determined by the Board of Directors in a
resolution or resolutions providing for the issuance of such series. Any such
series of preferred stock, if so determined by the Board of Directors, may have
full voting rights with the common stock or superior or limited voting rights
and may be convertible into common stock or another security of the Company.

(9) COMMON STOCK

(a) WARRANTS

During fiscal 1992, the Company issued warrants to purchase 60,000 shares
of common stock to a research consultant at an exercise price of $3.34 per
share. In fiscal 1995 through fiscal 1997, warrants totalling 34,624 shares were
either exercised or terminated. In 1998, warrants to purchase 3,513 shares were
exercised

F-17
<PAGE> 59
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000

and warrants to purchase 283 shares were terminated. The remaining warrants to
purchase 21,580 shares of common stock are exercisable through June 30, 2001.

During fiscal 1993, the Company issued warrants to purchase 12,000 shares
of common stock to two research consultants at an exercise price of $2.67 per
share. In 1997, warrants to purchase 2,250 shares were exercised. In 1998,
warrants to purchase 750 shares were exercised. In 1999, warrants to purchase
the remaining 9,000 shares were exercised.

In connection with the August 1997 acquisition of NeuralWare, Inc., the
Company converted warrants and options to purchase NeuralWare common stock into
warrants and options to purchase 10,980 and 6,618 shares of the Company's common
stock, respectively. All shares are currently exercisable with exercise prices
that range between $61.73 and $135.80 per share.

In connection with the March 1998 acquisition of Zyqad Limited, the Company
converted warrants to purchase Zyqad common stock into warrants to purchase
47,490 shares of the Company's common stock. All of these warrants were
exercised in 1999 at an exercise price of $28.94 per share.

(b) STOCK OPTIONS

In November 1995, the Board of Directors approved the establishment of the
1995 Stock Option Plan (the 1995 Plan) and the 1995 Directors Stock Option Plan
(the 1995 Directors Plan), which provided for the issuance of incentive stock
options and nonqualified options. Under these plans, the Board of Directors may
grant stock options to purchase up to an aggregate of 3,827,687 (as adjusted)
shares of common stock. Shares available for grant under these plans were
increased on July 1, 1996 and 1997 by an amount equal to 5% of the outstanding
shares as of the preceding June 30. In December 1997, the shareholders approved
an amendment to the 1995 Plan. The amendment provides for three annual increases
in the number of shares for which options may be granted, beginning July 1, 1998
by an amount equal to 5% of the outstanding shares on the preceding June 30. On
July 1, 1999 and 2000 the number of shares available under the 1995 Plan were
increased by 1,247,711 shares and 1,442,398, respectively. On December 7, 1999,
the number of shares available under the 1995 Directors Plan was increased by
200,000. In December 1996, the shareholders of the Company approved the
establishment of the 1996 Special Stock Option Plan (the 1996 Plan). This plan
provides for the issuance of incentive stock options and nonqualified options to
purchase up to 500,000 shares of common stock. The exercise price of options are
granted at a price not less than 100% of the fair market value of the common
stock on the date of grant. Stock options become exercisable over varying
periods and expire no later than 10 years from the date of grant. The following
is a summary of stock option activity in fiscal 1998, 1999 and 2000:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Outstanding, June 30, 1997.................................. 2,978,937 $13.43
Options granted........................................... 2,092,637 16.95
Options exercised......................................... (512,321) 14.41
Options terminated........................................ (108,064) 18.80
--------- ------
Outstanding, June 30, 1998.................................. 4,451,189 14.76
Options granted........................................... 1,297,281 11.17
Options exercised......................................... (67,496) 12.85
Options terminated........................................ (379,907) 17.30
--------- ------
</TABLE>

F-18
<PAGE> 60
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Outstanding, June 30, 1999.................................. 5,301,067 14.14
Options granted........................................... 2,065,250 12.63
Options exercised......................................... (868,412) 9.05
Options terminated........................................ (298,807) 12.73
--------- ------
Outstanding, June 30, 2000.................................. 6,199,098 $14.38
========= ======
</TABLE>

As of June 30, 2000, there were 7,575, 162,000 and 3,546 shares of common
stock available for grant under the 1995 Plan, the 1995 Directors Plan and the
1996 Plan, respectively. On July 1, 2000, the number of shares available under
the 1995 Plan were increased by 1,442,398.

In connection with the acquisition of Petrolsoft, the Company assumed the
Petrolsoft option plan (the Petrolsoft Plan). Under the Petrolsoft Plan, the
Board of Directors of Petrolsoft was entitled to grant either incentive or
nonqualified stock options for a maximum of 264,110 shares of common stock to
eligible employees, as defined. These options for shares are converted to
reflect the pooling of interests upon closing of the transaction, and now
represent options to purchase the Company's common stock.

Stock option activity under the Petrolsoft Plan (as converted into options
to purchase the Company's stock) is as follows:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Outstanding, June 30, 1998.................................. -- $ --
Options granted........................................... 55,022 11.36
------- ------
Outstanding, June 30, 1999.................................. 55,022 11.36
Options granted........................................... 77,692 11.36
Options terminated........................................ (11,004) 11.36
------- ------
Outstanding, June 30, 2000.................................. 121,710 $11.36
======= ======
Exercisable, June 30, 2000.................................. 18,559 $11.36
======= ======
</TABLE>

No future grants are available under the Petrolsoft Plan. The options
outstanding under the Petrolsoft Plan as of June 30, 2000 have a weighted
average remaining contractual life of 9.1 years.

During fiscal year 2000, Petrolsoft established a Stock Appreciation Rights
agreement for certain employees. Stock Appreciation Rights (SARs) were granted
at an option price which was not less than the fair market value as determined
by Petrolsoft's Board appointed committee on the date of grant. In fiscal year
ended June 30, 2000, Petrolsoft issued 55,000 SARs with an option price of $5.00
per right. 50,000 of these SARs were forfeited due to termination of employment
prior to the acquisition date and the remaining 5,000 were paid and expensed in
June 2000 in accordance with the SAR agreement.

F-19
<PAGE> 61
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000

The following tables summarize information about stock options outstanding
and exercisable at June 30, 2000:

<TABLE>
<CAPTION>
WEIGHTED
OPTIONS AVERAGE WEIGHTED OPTIONS WEIGHTED
OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
AT JUNE 30, CONTRACTUAL EXERCISE AT JUNE 30, EXERCISE
RANGE OF EXERCISE PRICES 2000 LIFE PRICE 2000 PRICE
------------------------ ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 2.66 -- $ 4.33............ 256,474 2.7 $ 3.02 256,474 $ 3.02
4.33 -- 8.66............ 1,653,574 9.0 8.23 411,632 7.89
8.66 -- 13.00............ 182,395 8.1 10.10 57,706 10.02
13.00 -- 17.33............ 2,997,450 7.0 14.38 1,654,046 14.55
17.33 -- 26.00............ 524,624 9.4 22.54 67,841 23.65
26.00 -- 39.00............ 545,581 7.2 30.52 349,673 29.42
39.00 -- 43.34............ 39,000 7.0 40.75 24,438 40.24
--------- --- ------ --------- ------
June 30, 2000............... 6,199,098 7.6 $14.42 2,821,810 $14.72
========= ====== ========= ======
Exercisable, June 30,
1999...................... 2,454,674 $12.69
========= ======
Exercisable, June 30,
1998...................... 1,827,859 $17.25
========= ======
</TABLE>

On November 11, 1998 the Company's Board of Directors approved the
repricing of certain employee stock options with exercise prices in excess of
the fair market value of the Company's common stock. The exercise price for the
2.62 million shares of employee stock options that were repriced was reset to
$14.125, the closing market price on November 11, 1998. In connection with the
repricing, the accumulated vesting of options outstanding was reduced by one
year. Stock options held by executive officers and directors were not eligible
for such repricing. The option data in Note 9(b) has been restated to reflect
this repricing.

(d) FAIR VALUE OF STOCK OPTIONS

SFAS No. 123 Accounting for Stock-Based Compensation requires the
measurement of the fair value of stock options to be included in the statement
of income or disclosed in the notes to financial statements. The Company has
determined that it will continue to account for stock-based compensation for
employees under Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and elect the disclosure-only alternative under SFAS No.
123.

Had compensation cost for the Company's option plans been determined based
on the fair value at the grant dates, as prescribed in SFAS No. 123, the
Company's net income (loss), and net income (loss) per share would have been as
follows:

<TABLE>
<CAPTION>
1998 1999 2000
------- -------- --------
<S> <C> <C> <C>
Net (loss) income (in thousands) --
As reported....................................... $16,211 $(20,795) $ 5,428
Pro forma......................................... 3,754 (41,293) (18,117)
</TABLE>

F-20
<PAGE> 62
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000

<TABLE>
<CAPTION>
1998 1999 2000
------- -------- --------
<S> <C> <C> <C>
Net (loss) income per share --
Diluted --
As reported.................................... $ 0.59 $ (0.76) $ 0.18
Pro forma...................................... 0.14 (1.50) (0.59)
Basic --
As reported.................................... $ 0.62 $ (0.76) $ 0.19
Pro forma...................................... 0.14 (1.50) (0.64)
</TABLE>

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions used for
grants during the applicable period:

<TABLE>
<CAPTION>
1998 1999 2000
------------ ------------ ------------
<S> <C> <C> <C>
Risk free interest rates.................... 5.60 - 6.28% 4.39 - 5.49% 5.73 - 6.71%
Expected dividend yield..................... None None None
Expected life............................... 5 Years 5 Years 5 Years
Expected volatility......................... 75% 136% 86%
Weighted average fair value per option...... $25.57 $13.23 $11.05
</TABLE>

(e) EMPLOYEE STOCK PURCHASE PLANS

In December 1995, the Company's Board of Directors approved the 1995
Employees' Stock Purchase Plan, under which the Board of Directors may grant
stock purchase rights for a maximum of 500,000 shares through November 2005. In
October 1997, the Company's Board of Directors approved the 1998 Employee Stock
Purchase Plan, under which the Board of Directors may grant stock purchase
rights for a maximum of 1,000,000 shares through September 30, 2007.

Participants are granted options to purchase shares of common stock on the
last business day of each semiannual payment period for 85% of the market price
of the common stock on the first or last business day of such payment period,
whichever is less. The purchase price for such shares is paid through payroll
deductions, and the current maximum allowable payroll deduction is 10% of each
eligible employee's compensation. Under the plans, the Company issued 115,617
shares, 267,324 and 384,864 during fiscal 1998, 1999 and 2000, respectively. As
of June 30, 2000, there were 347,812 shares available for future issuance under
the 1998 Employee Stock Purchase Plan. In addition on July 1, 2000, the Company
issued 82,929 shares under the 1998 Employee Stock Purchase Plan. No shares of
common stock were available for future issuance under the 1995 Employees' Stock
Purchase Plan.

(f) STOCKHOLDER RIGHTS PLAN

During fiscal 1998, the Board of Directors of the Company adopted a
Stockholder Rights Agreement (the Rights Plan) and distributed one Right for
each outstanding share of Common Stock. The Rights were issued to holders of
record of Common Stock outstanding on March 12, 1998. Each share of Common Stock
issued after March 12, 1998 will also include one Right, subject to certain
limitations. Each Right when it becomes exercisable will initially entitle the
registered holder to purchase from the Company one one-hundredth ( 1/100th) of a
share of Series A Preferred Stock at a price of $175.00 (the Purchase Price).

The Rights will become exercisable and separately transferable when the
Company learns that any person or group has acquired beneficial ownership of 15%
or more of the outstanding Common Stock or on such other date as may be
designated by the Board of Directors following the commencement of, or first
public disclosure of an intent to commence, a tender or exchange offer for
outstanding Common Stock that could result in the

F-21
<PAGE> 63
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000

offeror becoming the beneficial owner of 15% or more of the outstanding Common
Stock. In such circumstances, holders of the Rights will be entitled to
purchase, for the Purchase Price, a number of hundredths of a share of Series A
Preferred Stock equivalent to the number of shares of Common Stock (or, in
certain circumstances, other equity securities) having a market value of twice
the Purchase Price. Beneficial holders of 15% or more of the outstanding Common
Stock, however, would not be entitled to exercise their Rights in such
circumstances. As a result, their voting and equity interests in the Company
would be substantially diluted if the Rights were to be exercised.

The Rights expire in March 2008, but may be redeemed earlier by the Company
at a price of $.01 per Right, in accordance with the provisions of the Rights
Plan.

(10) INCOME TAXES

The Company accounts for income taxes under the provisions of SFAS No. 109,
Accounting for Income Taxes. Under the liability method specified by SFAS No.
109, a deferred tax asset or liability is measured based on the difference
between the financial statement and tax bases of assets and liabilities, as
measured by the enacted tax rates. Pro forma provisions for (benefit from)
income taxes assumes earnings from Petrolsoft, an acquired Subchapter
S-Corporation accounted for as a pooling of interests, were taxed at the
Company's effective tax rate.

Income (loss) before provision for (benefit from) income taxes consists of
the following (in thousands):

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------
1998 1999 2000
------- -------- ------
<S> <C> <C> <C>
Domestic.............................................. $23,703 $(38,123) $5,824
Foreign............................................... 6,617 1,519 1,928
------- -------- ------
Total....................................... $30,320 $(36,604) $7,752
======= ======== ======
</TABLE>

The provisions for (benefit from) income taxes shown in the accompanying
consolidated statements of operations are composed of the following (in
thousands):

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------------
1998 1999 2000
------- -------- -------
<S> <C> <C> <C>
Federal --
Current............................................ $ 8,245 $ (3,353) $ 223
Deferred........................................... 1,893 (13,111) 544
State --
Current............................................ 746 104 1,441
Deferred........................................... 857 (1,013) (1,092)
Foreign --
Current............................................ 2,368 1,564 1,208
------- -------- -------
$14,109 $(15,809) $ 2,324
======= ======== =======
Pro forma............................................ $14,539 $(14,538) $ 2,324
======= ======== =======
</TABLE>

F-22
<PAGE> 64
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000

The provision for income taxes differs from the federal statutory rate due
to the following:

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------
1998(1) 1999 2000
PROVISION BENEFIT PROVISION
--------- ------- ---------
<S> <C> <C> <C>
Federal tax at statutory rate........................... 34.5% 35.0% 34.0%
State income tax, net of federal tax benefit............ 4.2 2.1 3.0
Foreign tax............................................. (1.0) (2.7) 4.5
Tax credits generated................................... (4.7) 5.3 (24.3)
Permanent differences, net.............................. 0.6 (0.7) 7.8
Acquisition costs....................................... -- -- 5.0
Valuation allowance and other........................... (1.1) 4.2 --
---- ---- -----
Provision for/benefit from income taxes................. 32.5% 43.2% 30.0%
==== ==== =====
Pro forma............................................... 33.5% 39.7% 30.0%
==== ==== =====
</TABLE>

---------------
(1) Calculated based on pretax income, before nondeductible charges for
in-process research and development and costs related to acquisitions, of
$43,415,000.

The components of the net deferred tax asset (liability) recognized in the
accompanying consolidated balance sheets are as follows (in thousands):

<TABLE>
<CAPTION>
JUNE 30,
-----------------
1999 2000
------ -------
<S> <C> <C>
Deferred tax assets......................................... $2,978 $17,740
Deferred tax liabilities.................................... 4,531 (4,310)
------ -------
$7,509 $13,430
====== =======
</TABLE>

The approximate tax effect of each type of temporary difference and carry
forward is as follows (in thousands):

<TABLE>
<CAPTION>
JUNE 30,
------------------
1999 2000
------- -------
<S> <C> <C>
Revenue related............................................. $ 2,174 $(1,143)
US Income tax credits....................................... 1,896 9,528
US operating losses carryforward............................ 1,595 1,553
Restructuring items......................................... 4,166 4,124
Nondeductible reserves and accruals......................... 408 3,878
Intangible assets........................................... (1,561) (2,653)
Other temporary differences................................. 174 (514)
------- -------
8,852 14,773
Valuation allowance......................................... (1,343) (1,343)
------- -------
$ 7,509 $13,430
======= =======
</TABLE>

The tax credits and net operating loss carryforwards expire at various
dates from 2000 through 2020. Due to the uncertainty surrounding the realization
and timing of these tax attributes, the Company has recorded a valuation
allowance of approximately $1,343,000 as of June 30, 1999 and 2000.

F-23
<PAGE> 65
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000

The Tax Reform Act of 1986 contains provisions that may limit the net
operating loss and tax credit carryforwards available to be used in any given
year in the event of significant changes in ownership, as defined.

(11) OPERATING LEASES

The Company leases its facilities and various office equipment under
noncancellable operating leases with terms in excess of one year. Rent expense
charged to operations was approximately $6,443,000, $7,324,000 and $7,537,000
for the years ended June 30, 1998, 1999 and 2000, respectively. Future minimum
lease payments under these leases as of June 30, 2000 are as follows (in
thousands):

<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
Years Ending June 30,
2001...................................................... $ 9,660
2002...................................................... 8,438
2003...................................................... 8,804
2004...................................................... 9,052
2005...................................................... 8,799
Thereafter.................................................. 59,498
--------
$104,251
========
</TABLE>

(12) SALE OF INSTALLMENTS RECEIVABLE

The Company sold, with limited recourse, certain of its installment
contracts to two financial institutions for $32,349,000 and $27,967,000 during
fiscal 1999 and 2000, respectively. The financial institutions have partial
recourse to the Company only upon nonpayment by the customer under the
installments receivable. Consequently, at time of sale the installment
receivables are removed from the balance sheet. The amount of recourse is
determined pursuant to the provisions of the Company's contracts with the
financial institutions and varies depending on whether the customers under the
installment contracts are foreign or domestic entities. Collections of these
receivables reduce the Company's recourse obligation, as defined.

At June 30, 2000, the balance of the uncollected principal portion of the
contracts sold with partial recourse was approximately $90,189,000. The
Company's potential recourse obligation related to these contracts is
approximately $6,017,000 as of June 30, 2000. In addition, the Company is
obligated to pay additional costs to the financial institutions in the event of
default by the customer.

(13) COMMITMENTS AND CONTINGENCIES

The Company has entered into agreements with seven executive officers
providing for the payment of cash and other benefits in certain events of their
voluntary or involuntary termination within three years following a change in
control. Payment under these agreements would consist of a lump sum equal to
approximately three years of each executive's annual taxable compensation. The
agreements also provide that the payment would be increased in the event that it
would subject the officer to excise tax as a parachute payment under the federal
tax code. The increase would be equal to the additional tax liability imposed on
the executive as a result of the payment.

On October 5, 1998, October 26, 1998 and November 20, 1998, three purported
class action lawsuits were filed in the United States District Court for the
District of Massachusetts against the Company and certain of its officers and
directors, on behalf of purchasers of its common stock between April 28, 1998
and October 2, 1998. The lawsuits seek an unspecified amount of damages and
claims violations of Sections 10(b)
F-24
<PAGE> 66
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000

and 20(a) of the Securities Exchange Act of 1934, alleging that the Company
issued a series of materially false and misleading statements concerning its
financial conditions, its operations and its integration of several
acquisitions. On January 27, 1999, in response to a motion to dismiss filed by
the Company, the plaintiffs consolidated the three complaints and filed a
Consolidated Amended Class Action Complaint. On December 9, 1999, the Court
heard oral arguments to review the pleadings in the case; to date there had been
no decision rendered by the Court. The Company believes it has meritorious legal
defenses to the lawsuits and intends to defend vigorously against these actions.
We are currently unable, however, to determine whether resolution of these
matters will have a material adverse impact on its financial position or results
of operations, or reasonably estimate the amount of the loss, if any, that may
result from resolution of these matters.

(14) RETIREMENT AND PROFIT SHARING PLANS

The Company maintains a defined contribution retirement plan under Section
401(k) of the Internal Revenue Code covering all eligible employees, as defined.
Under the plan, a participant may elect to defer receipt of a stated percentage
of his or her compensation, subject to limitation under the Internal Revenue
Code, which would otherwise be payable to the participant for any plan year. The
Company may make discretionary contributions to this plan. During 1997, the plan
was modified to provide, among other changes, for the Company to make matching
contributions equal to 25% of pretax employee contributions up to a maximum of
6% of an employee's salary. During the fiscal years ended June 30, 1998, 1999
and 2000, the Company made matching contributions of approximately $839,000,
$1,000,000 and $964,000, respectively.

Petrolsoft also maintains a defined contribution (401k) retirement plan
covering all full-time employees. Under the plan, a participant may elect to
defer receipt of a stated percentage of his or her compensation, subject to
limitation under the Internal Revenue Code, which would otherwise be payable to
the participant for any plan year. The plan provides for Petrolsoft to make
matching contributions equal to 25% of pretax employee contributions up to a
maximum of 6% of an employee's salary. During the fiscal years ended June 30,
1999 and June 30, 2000, Petrolsoft made matching contributions of approximately
$13,000 and $14,000, respectively. No matching contributions were made in the
fiscal year ended June 30, 1998. This plan was merged with the Company's plan as
of July 1, 2000.

Petrolsoft also maintained a profit sharing plan for its employees whereby
all eligible employees may receive a Board determined percentage of Petrolsoft's
taxable operating profits based on their employment tenure. During the fiscal
years ended June 30, 1999 and June 30, 2000, the total amount paid by Petrolsoft
to its employees was approximately $15,000 and $61,000, respectively. This plan
was terminated as of June 1, 2000.

The Company does not provide postretirement benefits to any employees as
defined under SFAS No. 106, Employers' Accounting for Postretirement Benefits
Other Than Pensions.

(15) JOINT VENTURES AND OTHER INVESTMENTS

In May 1993, the Company entered into an Equity Joint Venture agreement
with China Petrochemical Technology Company to form a limited liability company
governed by the laws of the People's Republic of China. This joint venture has
the nonexclusive right to distribute the Company's products within the People's
Republic of China. The Company invested $300,000 on August 6, 1993, which
represents a 30% equity interest in the joint venture.

In November 1993, the Company invested approximately $100,000 in a
Cyprus-based corporate joint venture, representing approximately a 14% equity
interest. The Company had a two-year option to purchase additional shares in the
joint venture corporation, which would increase its equity interest to 22.5%. In

F-25
<PAGE> 67
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000

December 1995, the Company exercised its option to acquire these additional
shares for approximately $125,000.

The Company is accounting for these investments using the equity method.
The net investments of approximately $324,000 are included in other assets in
the accompanying consolidated balance sheets. In the accompanying consolidated
statements of operations for the years ended June 30, 1998, 1999 and 2000, the
Company has recognized approximately $45,000, $19,000, and $4,000, respectively,
as its portion of the income from these joint ventures.

On March 13, 2000, the Company and e-Chemicals, Inc., a leader in providing
end-to-end e-supply chain solutions for the chemical industry, entered into a
Stock Purchase Agreement whereby the Company acquired 833,333 shares of
e-Chemicals non-voting Series E Preferred Stock for $6.00 per share. This
investment entitles the Company to a minority interest in e-Chemicals and is
accounted for using the cost method. This investment is included in other assets
in the accompanying consolidated balance sheet as of June 30, 2000. In addition,
the Company and e-Chemicals formed an alliance to combine their technology
solutions to optimize chemical industry supply chain connectivity.

Additionally during the quarter ended June 30, 2000, the Company made a
$2.0 million investment in Extricity Software, Inc. (Extricity), a related
party. See Note 17. This investment entitles the Company to a minority interest
in Extricity and is accounted for using the cost method. This investment is
included in other assets in the accompanying consolidated balance sheet as of
June 30, 2000. The Company believes all transactions with Extricity are rendered
at arms length.

(16) ACCRUED EXPENSES

Accrued expenses in the accompanying consolidated balance sheets consist of
the following (in thousands):

<TABLE>
<CAPTION>
JUNE 30,
------------------
1999 2000
------- -------
<S> <C> <C>
Income taxes................................................ $ 9,635 $ 9,562
Payroll and payroll-related................................. 7,666 14,801
Royalties and outside commissions........................... 2,471 2,774
Restructuring and other charges............................. 6,799 3,832
Other....................................................... 8,261 13,675
------- -------
$34,832 $44,644
======= =======
</TABLE>

(17) RELATED PARTY TRANSACTIONS

Smart Finance & Co., a company of which a former director of the Company is
the President, provides advisory services to the Company from time to time. In
fiscal 1998, 1999 and 2000, payments of approximately $62,000, $279,000 and
$118,000, respectively, were made by the Company to Smart Finance & Co. as
compensation for services rendered. Included in fiscal 1999 was approximately
$200,000 paid in relation to services rendered at arm's length in fiscal 1998
relating to the 5 1/4% Convertible Debenture Offering.

On September 30, 1999, the Company entered into a "Software License
Distribution and Strategic Relationship" agreement with Extricity, a leading
provider of business-to-business e-commerce software. The Company has partnered
with Extricity to deliver e-commerce solutions that will enhance integration and
automate the flow of information between disparate supply chain and enterprise
resource planning systems and customers, suppliers and trading partners. The
President and Chief Executive Officer of Extricity is the spouse

F-26
<PAGE> 68
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000

of one of the Company's former directors. During the year ended June 30, 2000
the Company paid $1.3 million in prepaid royalty fees to Extricity. In the
accompanying consolidated statements of operations for the year ended June 30,
2000, the Company has recognized approximately $308,000 of these fees as a cost
of software licenses.

(18) SEGMENT AND GEOGRAPHIC INFORMATION

The Company follows the provisions of SFAS No. 131, which establishes
standards for reporting information about operating segments in annual financial
statements and requires selected information about operating segments in interim
financial reports issued to stockholders. It also established standards for
disclosures about products and services, and geographic areas. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker, or decision making group, in deciding how to allocate
resources and in assessing performance. The Company's chief operating decision
maker is the Chief Executive Officer of the Company.

The Company is organized geographically and by line of business. The
Company has three major line of business operating segments: license, consulting
services and maintenance and training. The Company also evaluates certain
subsets of business segments by vertical industries as well as by product
categories. While the Executive Management Committee evaluates results in a
number of different ways, the line of business management structure is the
primary basis for which it assesses financial performance and allocates
resources.

The license line of business is engaged in the development and licensing of
software. The consulting services line of business offers implementation,
advanced process control, real-time optimization and other consulting services.
The maintenance and training line of business provides customers with a wide
range of support services that include on-site support, telephone support,
software updates and various forms of training on how to use the Company's
products.

The accounting policies of the line of business operating segments are the
same as those described in the summary of significant accounting policies. The
Company does not track assets or capital expenditures by operating segments.
Consequently, it is not practical to show assets, capital expenditures,
depreciation or amortization by operating segments.

The following table presents a summary of operating segments (in
thousands):

<TABLE>
<CAPTION>
CONSULTING MAINTENANCE
LICENSE SERVICES AND TRAINING TOTAL
-------- ---------- ------------ --------
<S> <C> <C> <C> <C>
Year ended June 30, 1998 --
Revenues from unaffiliated
customers........................ $140,857 $78,134 $35,745 $254,736
Controllable expenses............... 31,664 54,204 11,413 97,281
-------- ------- ------- --------
Controllable margin(1).............. $109,193 $23,930 $24,332 $157,455
======== ======= ======= ========
Year ended June 30, 1999 --
Revenues from unaffiliated
customers........................ $ 97,108 $89,978 $39,433 $226,519
Controllable expenses............... 33,306 69,446 12,119 114,871
-------- ------- ------- --------
Controllable margin(1).............. $ 63,802 $20,532 $27,314 $111,648
======== ======= ======= ========
</TABLE>

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<PAGE> 69
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000

<TABLE>
<CAPTION>
CONSULTING MAINTENANCE
LICENSE SERVICES AND TRAINING TOTAL
-------- ---------- ------------ --------
<S> <C> <C> <C> <C>
Year ended June 30, 2000 --
Revenues from unaffiliated
customers........................ $132,843 $91,133 $44,117 $268,093
Controllable expenses............... 46,315 69,343 10,757 126,415
-------- ------- ------- --------
Controllable margin(1).............. $ 86,528 $21,790 $33,360 $141,678
======== ======= ======= ========
</TABLE>

---------------
(1) The Controllable Margins reported reflect only the expenses of the line of
business and do not represent the actual margins for each operating segment
since they do not contain an allocation for selling and marketing, general
and administrative, development and other corporate expenses incurred in
support of the line of business.

PROFIT RECONCILIATION (in thousands):

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------------
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Total controllable margin for reportable
segments......................................... $157,455 $111,648 $141,678
Selling and marketing.............................. (63,395) (68,867) (72,258)
Research and development........................... (2,154) (3,214) (877)
General and administrative and overhead............ (53,128) (62,644) (63,414)
Costs related to acquisitions...................... (4,984) -- (1,547)
Restructuring and other charges.................... -- (17,867) --
Charge for in-process research and development..... (8,472) -- --
Interest and other income and expense.............. 4,998 4,340 4,170
-------- -------- --------
Income (loss) before provision for (benefit from)
income taxes..................................... $ 30,320 $(36,604) $ 7,752
======== ======== ========
</TABLE>

GEOGRAPHIC INFORMATION:

Domestic and export sales as a percentage of total revenues are as follows:

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------
1998 1999 2000
----- ----- -----
<S> <C> <C> <C>
United States............................................... 54.8% 48.2% 54.6%
Europe...................................................... 28.1 34.6 27.5%
Japan....................................................... 4.6 4.3 4.8%
Other....................................................... 12.5 12.9 13.1%
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>

Revenues, income (loss) from operations and identifiable assets for the
Company's North American, European and Asian operations are as follows (in
thousands). The Company has intercompany distribution arrangements with its
subsidiaries. The basis for these arrangements, disclosed below as transfers
between geographic locations, is cost plus a specified percentage for services
and a commission rate for sales generated in the geographic region.

F-28
<PAGE> 70
ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 2000

<TABLE>
<CAPTION>
NORTH
AMERICA EUROPE ASIA ELIMINATIONS CONSOLIDATED
-------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1998 --
Revenues......................... $226,567 $ 52,944 $ 9,471 $ (34,246) $254,736
======== ======== ======= ========= ========
Identifiable assets.............. $407,156 $ 22,231 $(1,128) $(102,380) $325,879
======== ======== ======= ========= ========
Year ended June 30, 1999 --
Revenues......................... $190,638 $ 62,352 $13,426 $ (39,897) $226,519
======== ======== ======= ========= ========
Identifiable assets.............. $347,434 $ 55,337 $ 8,735 $(101,637) $309,869
======== ======== ======= ========= ========
Year ended June 30, 2000 --
Revenues......................... $232,616 $ 59,456 $16,206 $ (40,185) $268,093
======== ======== ======= ========= ========
Identifiable assets.............. $386,081 $ 54,982 $11,456 $(103,456) $349,063
======== ======== ======= ========= ========
</TABLE>

F-29
<PAGE> 71

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE

To Aspen Technology, Inc.:

We have audited, in accordance with auditing standards generally accepted
in the United States, the consolidated financial statements of Aspen Technology,
Inc. and subsidiaries, included in this Form 10-K, and have issued our report
thereon dated August 7, 2000 (except for the matters discussed in Notes 4(d) and
5, as to which the date is September 27, 2000). Our audit was made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. The schedule listed in Item 14(a)-2 is the responsibility of the
Company's management, is presented for purposes of complying with the Securities
and Exchange Commission's rules and is not part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in our audit of the basic financial statements and, in our opinion, fairly
states, in all material respects, the financial data required to be set forth
therein, in relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Boston, Massachusetts
August 27, 2000

S-1
<PAGE> 72

SCHEDULE II

ASPEN TECHNOLOGY, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
BALANCE, CHARGED TO BALANCE,
BEGINNING OF COSTS AND END OF
DESCRIPTION PERIOD EXPENSES DEDUCTIONS OTHER PERIOD
----------- ------------ ---------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL
ACCOUNTS:
June 30, 1998(1)........... $ 839,717 $ 180,000 $ (136,000) $598,000 $1,481,717
June 30, 1999(2)........... 1,481,717 689,000 (1,107,619) 225,000 1,288,098
June 30, 2000(1)........... 1,288,098 112,000 (10,709) 50,000 1,439,389
RESERVES FOR RESTRUCTURING:
June 30, 1998.............. $ -- $ -- $ -- $ -- $ --
June 30, 1999.............. -- 9,266,966 (2,467,816) -- 6,799,150
June 30, 2000.............. 6,799,150 -- (2,966,822) -- 3,832,328
</TABLE>

---------------
(1) Other relates to amounts acquired in acquisitions.

(2) Other relates to miscellaneous income item classified into the allowance for
doubtful accounts.

S-2