~~U.S.~~UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~EXCHANGE~~For ~~ACT~~the OFquarterly ~~1934~~period ended November 30, 2005

~~For the quarterly period ended May 31, 2005~~or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o 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 0-22154

MANUGISTICS GROUP, INC.

(Exact name of Registrant as specified in its charter)

Delaware		52-1469385
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification ~~Number~~No.)
9715 Key West Avenue, Rockville, Maryland		20850
(Address of principal executive office)		(Zip Code)

9715 Key West Avenue, Rockville, Maryland 20850

(Address of principal executive office) (Zip code)

(301) 255-5000

(Registrant’s telephone number, including area code)

~~Indicate by check mark whether the Registrant:~~ (~~1) has~~Former ~~filed~~name, ~~all~~former ~~reports~~address ~~required~~and ~~to be filed by Section 13~~former orfiscal ~~15(d) of~~year, ~~the~~if ~~Securities~~changed ~~Exchange~~since ~~Act~~last ~~of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports~~report) ~~and (2) has been subject to such filing requirements for the past 90 days.~~

~~Yes~~ 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. ý No Yes o No

Indicate by check mark whether the ~~Registrant~~registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.)

~~Yes~~ ý No Yes o No

Indicate ~~the number of~~ ~~shares~~by ~~outstanding~~check ofmark ~~each~~whether of the ~~issuer’s~~registrant ~~classes~~is ofa ~~common~~shell ~~stock,~~company (as ofdefined ~~the~~in Rule ~~latest~~12b-2 ~~practicable date: 83.8 million shares~~ of ~~common~~the ~~stock,~~Exchange ~~$.002 par value,~~Act) aso ofYes ý ~~June 30, 2005.~~No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 84.1 million shares of common stock, $.002 par value, as of December 31, 2005

MANUGISTICS GROUP, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION	3
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets (Unaudited) -
	Condensed Consolidated Balance Sheets (Unaudited) - November 30, 2005 and February 28, 2005	3
	May 31, 2005 and February 28, 2005	3
	Condensed Consolidated Statements of Operations (Unaudited) - Three and nine months ended November 30, 2005 and 2004	4
	Condensed Consolidated Statements of Operations (Unaudited) -
	Condensed Consolidated Statements of Cash Flows (Unaudited) - Nine months ended November 30, 2005 and 2004	5
	Three months ended May 31, 2005 and 2004	4
	Notes to Condensed Consolidated Financial Statements (Unaudited) - November 30, 2005	6
	Condensed Consolidated Statements of Cash Flows (Unaudited) -
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
	Three months ended May 31, 2005 and 2004	5
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
	Notes to Condensed Consolidated Financial Statements (Unaudited) -
Item 4.	Controls and Procedures	43
	May 31, 2005	6
PART II	OTHER INFORMATION	43
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 1.	Legal Proceedings	43
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 5.	Other Information	44
Item 4.	Controls and Procedures	44
Item 6.	Exhibits	44
PART II	OTHER INFORMATION	45
	SIGNATURES	45
Item 1.	Legal Proceedings	45
Item 6.	Exhibits	45
	SIGNATURES	46

PART I-FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands)

	May 31, 2005			February 28, 2005
	November 30,			February 28,
	2005			2005
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	7567,~~579~~234		$	80,342
Marketable securities	5456,~~758~~332			49,636
Total cash, cash equivalents and marketable securities	~~130~~123,~~337~~566			129,978
Accounts receivable, net of allowance for doubtful accounts of $7,533 and $7,605 at May 31, 2005 and February 28, 2005, respectively	41,587			45,659
Accounts receivable, net of allowance for doubtful accounts of $7,238 and $7,605 at November 30, 2005 and February 28, 2005, respectively	37,045			45,659
Other current assets	109,~~844~~923			10,890
Total current assets	~~182~~170,~~768~~534			186,527
NON-CURRENT ASSETS:
Property and equipment, net of accumulated depreciation	14,~~999~~585			15,795
Software development costs, net of accumulated amortization	129,~~747~~580			14,390
Long-term investments	2,~~960~~942			5,911
Goodwill	185,~~631~~784			185,658
Acquired technology, net of accumulated amortization	115,~~825~~340			13,816
Customer relationships, net of accumulated amortization	74,~~673~~349			9,335
Other intangibles and non-current assets, net of accumulated amortization	87,~~288~~193			8,848
TOTAL ASSETS	$	~~426~~400,~~891~~307		$	440,280
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	64,~~415~~718		$	7,117
Accrued compensation	32,~~820~~891			2,858
Accrued exit and disposal obligations	65,~~640~~479			8,032
Deferred revenue	4234,~~038~~576			43,173
Other current liabilities	1511,~~833~~787			19,814
Total current liabilities	7459,~~746~~451			80,994
NON-CURRENT LIABILITIES:
Convertible debt	175,500			175,500
Accrued exit and disposal obligations	1211,~~288~~171			13,799
Long-term debt and capital leases	1,~~505~~151			1,668
Other non-current liabilities	3,~~573~~870			3,573
Total non-current liabilities	~~192~~191,~~866~~692			194,540
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS’ EQUITY:
Preferred stock, $.01 par value per share, 4,620,253 shares authorized; none outstanding	—			—
Preferred stock, $.01 par value per share, 4,620 shares authorized; none outstanding	—			—
Common stock, $.002 par value per share; 300,000 shares authorized; 83,819 and 83,869 issued and outstanding at May 31, 2005 and February 28, 2005, respectively	168			168
Common stock, $.002 par value per share; 300,000 shares authorized; 84,133 and 83,869 issued and outstanding at November 30, 2005 and February 28, 2005, respectively	168			168
Additional paid-in capital	780,~~102~~326			780,306
Deferred compensation	(21,~~109~~271		)	(3,044		)
Accumulated other comprehensive income	2,~~783~~368			4,065
Accumulated deficit	(~~621~~632,~~665~~427		)	(616,749		)
Total stockholders’ equity	~~159~~149,~~279~~164			164,746
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	~~426~~400,~~891~~307		$	440,280

See accompanying Notes to Condensed ~~Consolidated~~ Consolidated Financial Statements.

MANUGISTICS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share data)

	Three Months Ended May 31,
	Three Months Ended						Nine Months Ended
	2005			2004
	November 30,						November 30,
REVENUE:
	2005			2004			2005			2004
Software	$	8,391		$	10,368
REVENUE:
Support	21,815			21,421
Software license	$	4,093		$	6,664		$	17,552		$	28,143
Services	14,681			17,558
Support	21,099			20,666			64,669			63,383
Reimbursed expenses	1,770			2,236
Services	13,184			16,159			43,124			50,091
Total revenue	46,657			51,583
Reimbursed expenses	1,548			1,556			4,885			6,273
OPERATING EXPENSES:
Total revenue	39,924			45,045			130,230			147,890
Cost of revenue:
OPERATING EXPENSES:
Cost of software	4,468			3,914
Cost of revenue:
Amortization of acquired technology	1,991			3,546
Cost of software license	3,599			3,525			11,181			10,861
Total cost of software	6,459			7,460
Amortization of acquired technology	935			3,546			4,743			10,638
Cost of services and support	15,388			18,190
Total cost of software license	4,534			7,071			15,924			21,499
Cost of reimbursed expenses	1,770			2,236
Cost of services and support	14,526			18,391			46,158			55,621
Non-cash stock option compensation expense for cost of services and support	—			69
Cost of reimbursed expenses	1,548			1,556			4,885			6,273
Total cost of services and support	17,158			20,495
Non-cash stock option compensation expense for cost of services and support	—			—			—			75
Sales and marketing	11,208			15,240
Total cost of services and support	16,074			19,947			51,043			61,969
Non-cash stock option compensation expense for sales and marketing	—			20
Sales and marketing	9,321			11,387			28,842			41,852
Total cost of sales and marketing	11,208			15,260
Non-cash stock option compensation expense for sales and marketing	—			—			—			26
Product development	7,498			8,328
Total cost of sales and marketing	9,321			11,387			28,842			41,878
Non-cash stock option compensation expense for product development	—			10
Product development	6,523			8,257			21,977			25,151
Total cost of product development	7,498			8,338
Non-cash stock option compensation expense for product development	—			—			—			15
General and administrative	5,268			6,014
Total cost of product development	6,523			8,257			21,977			25,166
Non-cash stock option compensation expense for general and administrative	—			21
General and administrative	4,173			5,250			14,495			17,270
Total cost of general and administrative	5,268			6,035
Non-cash stock option compensation expense for general and administrative	—			—			—			52
Amortization of intangibles	1,663			1,662
Total cost of general and administrative	4,173			5,250			14,495			17,322
Exit and disposal activities	427			(2,517		)
Amortization of intangibles	1,662			1,662			4,987			4,986
Total operating expenses	49,681			56,733
Asset impairment	—			—			3,733			—
LOSS FROM OPERATIONS	(3,024		)	(5,150		)
Exit and disposal activities	1,259			2,931			2,988			6,636
OTHER EXPENSE, NET	(1,496		)	(2,262		)
Total operating expenses	43,546			56,505			143,989			179,456
LOSS BEFORE INCOME TAXES	(4,520		)	(7,412		)
LOSS FROM OPERATIONS	(3,622		)	(11,460		)	(13,759		)	(31,566		)
PROVISION FOR INCOME TAXES	396			321
OTHER EXPENSE, NET	(1,215		)	(1,585		)	(4,446		)	(5,655		)
NET LOSS	$	(4,916	)	$	(7,733	)
LOSS BEFORE INCOME TAXES	(4,837		)	(13,045		)	(18,205		)	(37,221		)
BASIC AND DILUTED LOSS PER SHARE	$	(0.06	)	$	(0.09	)
(BENEFIT) PROVISION FOR INCOME TAXES	(193		)	223			(2,527		)	894
SHARES USED IN BASIC AND DILUTED LOSS PER SHARE CALCULATION	82,109			81,819
NET LOSS	$	(4,644	)	$	(13,268	)	$	(15,678	)	$	(38,115	)
BASIC AND DILUTED LOSS PER SHARE	$	(0.06	)	$	(0.16	)	$	(0.19	)	$	(0.47	)
SHARES USED IN BASIC AND DILUTED LOSS PER SHARE COMPUTATION	82,368			81,928			82,240			81,885

See accompanying Notes to Condensed ~~Consolidated~~ Consolidated Financial Statements.

MANUGISTICS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

	Three Months Ended May 31,
	Nine Months Ended November 30,
	2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(415,~~916~~678	)	$	(738,~~733~~115	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	822,~~139~~582			1029,~~044~~433
Amortization of debt issuance costs	~~225~~674			~~226~~678
Exit and disposal activities	~~427~~2,988			(26,~~517~~636		)
Non-cash stock option compensation expense	—			~~120~~168
Bad debt expense	~~155~~359			—3,965
Other	754			160
Asset impairment	3,733			—
Other	1,404			793
Changes in assets and liabilities:
Accounts receivable	38,~~780~~145			913,~~028~~894
Other assets	~~122~~1,013			(1,~~160~~311		)
Accounts payable	(~~702~~2,399		)	~~622~~(2,436		)
Accrued compensation	~~962~~33			24(1,837		)
Other liabilities	(37,~~890~~865		)	(32,~~838~~763		)
Accrued exit and disposal obligations	(38,~~330~~080		)	(49,~~528~~778		)
Deferred revenue	(17,~~135~~833		)	(112,~~462~~697		)
Net cash provided by (used in) operating activities	591			(1,014		)
Net cash used in operating activities	(924		)	(13,370		)
CASH FLOWS FROM INVESTING ACTIVITIES
(Purchases) sales of marketable securities, net	(23,~~300~~643		)	282,~~943~~115
Purchases of property and equipment	(~~433~~2,779		)	(23,~~064~~352		)
Capitalization and purchases of software	(1,056		)	(2,570		)
Proceeds from sale of fractional shares of jet	—			1,958
Purchases of long-term investments, net	—			(13,001		)
Capitalization and purchases of software	(2,577		)	(7,341		)
Net cash (used in) provided by investing activities	(3,789		)	11,308
Purchases of long-term investments, net	—			(5,128		)
Net cash used in investing activities	(8,999		)	(11,748		)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments of debt and capital lease obligations and debt issuance costs	(~~812~~2,245		)	(~~628~~1,976		)
Proceeds from exercise of stock options and employee stock plan purchases	~~123~~368			~~459~~745
Net cash used in financing activities	(~~689~~1,877		)	(~~169~~1,231		)
EFFECTS OF EXCHANGE RATES ON CASH BALANCES	(~~876~~1,308		)	~~(745~~406		)
NET CHANGE IN CASH AND CASH EQUIVALENTS	(413,~~763~~108		)	9(25,~~380~~943		)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	80,342			97,559
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	7567,~~579~~234		$	~~106~~71,~~939~~616
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest	$	48,~~460~~966		$	49,~~503~~011
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Acquisition of capital leases	$	~~468~~1,009		$	~~918~~1,490

See accompanying Notes to Condensed ~~Consolidated~~ Consolidated Financial Statements.

MANUGISTICS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~May 31~~November 30, 2005

1. The Company and Basis of Presentation

The Company

Manugistics Group, Inc. (the “Company”) is a leading global provider of supply chain, demand and revenue management software products and services. The Company combines its products and services to deliver solutions that address the specific business needs of its clients. The Company’s approach to client delivery is to advise its clients on how best to use ~~the~~its ~~Company’s~~solutions ~~software~~ and other technologies across their ~~entire~~ demand and supply chain to integrate pricing, forecasting, operational planning and execution in ~~their~~a ~~revenue~~manner ~~management~~that ~~practices~~will toallow ~~enable~~them ~~informed,~~to ~~responsive,~~enhance ~~rapid~~margins ~~and~~across ~~cost~~their enterprise and ~~price~~extended ~~effective~~trading ~~decision~~networks ~~making~~and ~~throughout~~to improve their ~~own~~revenue ~~enterprise~~management ~~and across~~practices. ~~their~~The ~~extended~~Company ~~trading~~delivers ~~network~~its bysolutions ~~creating~~using acommercially ~~fully~~available ~~synchronized~~products ~~supply~~and provides ~~chain~~additional functionality addressed through product extensions for industry-specific capabilities.

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements of the Company and its wholly-owned subsidiaries have been prepared in accordance with generally accepted accounting principles for interim reporting and follow the guidance provided in the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments that are necessary for a fair presentation of the unaudited results for the interim periods presented have been included. The results of operations for the periods presented herein are not necessarily indicative of the results of operations for the entire fiscal year, which ends on February 28, 2006.

These financial statements should be read in conjunction with the financial statements and notes thereto for the fiscal year ended February 28, 2005 included in the Annual Report on Form 10-K of the Company for that year filed with the Securities and Exchange Commission.

Certain prior year amounts have been reclassified to conform to the current year’s financial statement presentation.

2. Stock Option-Based Compensation Plans & Restricted Stock Program

Stock Option-Based Compensation Plans. The Company accounts for its stock option-based compensation plans in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations using the intrinsic value based method of accounting. If the Company accounted for its share-based payments using a fair value based method of accounting in accordance with the provisions of Statement of Financial Accounting Standards No. 123 (R), “Share-Based Payment,” (“SFAS 123 (R)”) as required beginning in the first quarter of fiscal year 2007, and in accordance with the provisions in Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation –— Transition and Disclosure” (“SFAS 148”), the Company’s net loss and loss per basic and diluted share amounts would have been as follows (amounts in thousands, except per share amounts):

	Three Months Ended May 31,
	Three Months Ended						Nine Months Ended
	2005			2004
	November 30,						November 30,
Net loss, as reported	$	(4,916	)	$	(7,733	)
	2005			2004			2005			2004
Add: Stock option-based compensation expense included in reported net loss, net of tax	—			120
Net loss, as reported	$	(4,644	)	$	(13,268	)	$	(15,678	)	$	(38,115	)
Deduct: Stock option-based compensation expense determined under the fair-value method, net of tax (1)	(1,042		)	(2,170		)
Add: Stock option-based compensation expense included in reported net loss, net of tax	—			—			—			168
Pro forma net loss	$	(5,958	)	$	(9,783	)
Deduct: Stock option-based compensation expense determined under the fair-value method, net of tax (1)	(450		)	(1,257		)	(39		)	(4,999		)
Basic and diluted loss per share, as reported	$	(0.06	)	$	(0.09	)
Pro forma net loss	$	(5,094	)	$	(14,525	)	$	(15,717	)	$	(42,946	)
Basic and diluted loss per share, pro forma	$	(0.07	)	$	(0.12	)
Basic and diluted loss per share, as reported	$	(0.06	)	$	(0.16	)	$	(0.19	)	$	(0.47	)
Basic and diluted loss per share, pro forma	$	(0.06	)	$	(0.18	)	$	(0.19	)	$	(0.52	)

(1) Includes the impact of actual stock option forfeitures related to employee terminations.

Consistent with the Company’s accounting for deferred tax assets resulting from the exercise of employee stock options in the accompanying unaudited Condensed Consolidated Financial Statements, the Company has not provided a tax benefit or expense on the pro forma expense in the above table.

During the three and nine months ended ~~May 31,~~November ~~2005 and~~30, ~~2004~~2005, stock options granted had weighted average fair values of $0.9158 and $30.6864 per share, respectively, and $1.65 and $1.76 per share during the three and nine months ended November 30, 2004, respectively, as calculated using the Black-Scholes option valuation model.

The weighted average estimated fair value of the common stock purchase rights granted under the 2004 Employee Stock Purchase ~~Plan~~ Plan (ESPP) during the three and nine months ended ~~May~~November 3130, 2005 was $0.36 and $0.37 per share, respectively. ~~There~~The weighted average estimated fair ~~were~~value noof the common stock purchase rights ~~granted~~ under the ~~employee~~ESPP ~~stock purchase plan~~ during the three months ended ~~May 31~~November 30, 2004. ~~The Company’s then-existing employee stock purchase plan~~ was ~~suspended as of June 30, 2003~~$0.51 Atper ~~the 2004 Annual Meeting of Shareholders, the shareholders of the Company approved the 2004 ESPP, and participation commenced on September 1, 2004~~share. On ~~May~~November 3130, 2005, ~~79,611~~ 75,331 shares of the Company’s common stock were issued under the Company’s 2004 ESPP.

The Company determined the assumptions used in computing the fair value of stock options and ~~stock~~ESPP ~~purchase plan~~ shares by estimating the expected useful lives, giving consideration to the vesting and purchase periods, contractual lives, actual employee forfeitures, and the relationship between the exercise price and the fair market value of the Company’s common stock, among other factors. The risk-free interest rate is the U.S. Treasury bill rate for the relevant expected life. The fair value of stock options and stock purchase plan shares was estimated on the date of grant using the Black-Scholes option- pricing model with the following weighted average assumptions:

	OPTIONS				ESPP				OPTIONS				ESPP
	Three Months Ended				Three Months Ended				Nine Months Ended				Nine Months Ended
	May 31,				May 31,
	November 30,				November 30,				November 30,				November 30,
	2005		2004		2005		2004		2005		2004		2005		2004
Risk-free interest rates	34.~~71%~~05	%	23.~~43%~~37	%	3.~~03%~~87	%	~~N/A~~2.02	%	3.99	%	3.15	%	3.43	%	2.02	%
Expected term	42.8012 years		35.7641 years		~~.25~~3 ~~years~~months		~~N/A~~3 months		2.56 years		4.71 years		3 months		3 months
Volatility	0.~~5645~~5273		0.~~8794~~7812		0.~~4014~~4726		~~N/A~~0.5499		0.5333		0.7902		0.4981		0.5499
Dividend yield	0%	%	0%	%	0%	%	~~N/A~~0	%	0	%	0	%	0	%	0	%

Restricted Stock Program. In June 2003, the Company’s Board of of Directors approved an amendment to the Company’s 1998 stock option plan to issue restricted shares of Manugistics’ common stock to its employees. This amendment was approved by shareholders at the Company’s 2003 Annual Meeting of Shareholders on July 29, 2003. ~~During~~Restricted ~~fiscal year 2005, the Company issued 1.3 million shares of restricted~~ stock ~~to certain key employees. The restricted stock~~ awards ~~granted~~generally ~~to key employees~~ have a vesting schedule ~~pursuant to which the stock awards vest in three equal annual increments over three years from the date~~ of ~~grant,~~one ~~with~~to ~~the~~four ~~first increment vesting on November 3, 2005~~years. The ~~total~~ value of ~~the fiscal 2005~~ restricted ~~stock~~ awards ~~granted of approximately~~is ~~$2.6 million was~~ computed using the closing ~~stock~~ price of the stock on the date of grant and aincludes an ~~22%~~ estimated forfeiture rate ~~and~~that ~~was~~is ~~recorded~~based asupon athe ~~component~~actual ~~of deferred~~historical ~~compensation~~forfeiture rate. The ~~related~~value ~~compensation~~of ~~expense~~restricted awards is ~~recognized~~recorded ~~and~~as ~~amortized over~~deferred ~~the~~compensation ~~vesting~~and ~~period.~~reported ~~Additionally,~~as ina ~~fiscal~~reduction ~~2005,~~to ~~333,000~~stockholders’ ~~shares,~~equity. ~~which~~The ~~vest in~~related ~~full~~compensation onexpense ~~January 1,~~is ~~2006,~~recognized ~~were~~over ~~issued to~~ the ~~new~~vesting ~~Chief~~period ~~Executive~~of ~~Officer, resulting~~the ~~in an increase in deferred compensation in stockholders’ equity of $0~~award.~~9 million.~~

OnDuring ~~October 17,~~fiscal ~~2003,~~years ~~the~~2004 ~~Company~~and ~~issued~~2005 ~~205,000 shares~~and offor ~~restricted~~the ~~stock to certain key employees. The restricted stock~~nine ~~awards~~months ~~granted~~ended toNovember ~~key~~30, ~~employees~~2005, ~~have~~the aCompany ~~vesting~~issued ~~schedule~~205,000, ~~pursuant~~1,628,000 ~~to which the~~and ~~stock~~357,500 ~~awards~~shares ~~vest in four equal increments over four years from the date~~ of ~~grant. The~~restricted ~~first~~stock ~~increment~~to ~~vested~~employees, ~~on April 17~~respectively, ~~2005.~~and ~~The total value of the fiscal~~recorded ~~2004~~deferred ~~restricted~~compensation ~~stock awards granted~~ of ~~approximately~~ $1.3 million, ~~was~~$3.5 ~~computed using~~million ~~the closing stock price on the date of grant~~ and ~~was recorded as a component of deferred compensation~~$0.5 ~~The related compensation expense is~~million, ~~recognized and amortized over the vesting period~~respectively.

The Company recorded $0.53 million and $0.1.2 million in in compensation expense related to restricted shares outstanding during the ~~three~~ three and nine months ended ~~May~~November 3130, 2005, respectively, and recorded $0.3 million and $0.6 million in compensation expense during the three and nine months ended November 30, 2004, respectively.

3. Net Loss Per Share

Basic net loss per share is computed using the weighted average number of shares of common stock outstanding. Diluted net loss per share is computed using the weighted average number of shares of common stock and, when dilutive, potential common shares from options, restricted stock and warrants to purchase common stock using the treasury stock method and the effect of the assumed conversion of the Company’s convertible subordinated debt, using the if-converted method. The dilutive effect of options, restricted stock and warrants to acquire 0.8 million and 1.1 million shares for the three and nine months ended November 30, 2005, respectively, and six thousand and 0.9 million shares for the three and nine months ended November 30, 2004, respectively, was excluded from the calculation of diluted net loss per share because including these shares would be anti-dilutive due to the Company’s reported net loss. The assumed conversion of the Company’s convertible debt was excluded from the computation of diluted net loss per share for the three and nine months ended November 30, 2005 and 2004 because it was anti-dilutive.

conversion of the Company’s convertible subordinated debt using the if-converted method. The dilutive effect of options, restricted stock and warrants to acquire forty-eight thousand and 1.5 million shares for the three months ended May 31, 2005 and 2004, respectively was excluded from the calculation of diluted net loss per share because including these shares would be anti-dilutive due to the Company’s reported net loss. The assumed conversion of the Company’s convertible debt was excluded from the computation of diluted net loss per share for the three months ended May 31, 2005 and 2004 because it was anti-dilutive.

4. Commitments and Contingencies

Legal Actions. The Company is involved from time to time in disputes and litigation in the ordinary ~~normal~~ course of business. The Company has established accruals for losses related to such matters that are probable and reasonably estimable. The Company does not believe that the outcome of any existing disputes or litigation ~~will~~ will have a material adverse effect on the Company’s business, operating results, financial condition or cash flows. ~~The~~However, ~~Company~~the ~~has~~ultimate ~~established~~outcome of these ~~accruals~~matters, ~~for~~as ~~losses~~with ~~related~~dispute toresolution ~~such~~and ~~matters~~litigation ~~that~~generally, ~~are~~is ~~probable~~inherently uncertain and ~~reasonably~~it is possible that some of these matters may be resolved ~~estimable~~adversely to the Company. ~~However~~Accordingly, an unfavorable outcome of some or all of these matters could have a material adverse effect on the Company’s business, operating ~~performance~~results, financial condition ~~and~~or cash flows.

Indemnification. The Company licenses software to its customers under ~~contracts~~software ~~which the Company refers to~~license asagreements, ~~Software~~which ~~License~~generally ~~Agreements~~provide ~~(“SLA”). Each SLA contains~~ the ~~relevant~~customer ~~terms of the contractual arrangement~~ with ~~the~~limited ~~customer, and generally includes certain~~indemnification ~~provisions for indemnifying the customer~~ against ~~losses~~damages, ~~expenses,~~judgments and ~~liabilities~~ ~~from~~reasonable ~~damages~~costs ~~that~~and ~~may~~expenses beincurred ~~awarded~~by ~~against~~ the customer infor ~~the~~any ~~event the~~claim ~~Company’s~~or ~~software~~suit isbased ~~found~~on toinfringement ~~infringe~~of ~~upon~~ a ~~patent,~~trademark or copyright, ~~trademark or~~as ~~other~~a ~~proprietary~~result ~~right~~ of ~~a third party. The SLA generally limits~~ the ~~scope and~~customer’s ~~remedies~~use ~~for such indemnification obligations in a variety~~ of ~~industry-standard~~ ~~respects,~~the ~~including~~Company’s ~~but~~software. ~~not~~To ~~limited to certain time~~date, ~~operational~~the ~~user~~Company ~~and~~has ~~geography-based~~not ~~scope~~incurred ~~limitations~~any ~~and~~material acosts ~~right~~associated towith ~~obtain~~these ~~for~~indemnification ~~the~~provisions ~~customer~~and ~~the~~no ~~right~~material toclaims ~~continue~~of ~~using~~this ~~the~~nature ~~infringing item, replace an~~were ~~infringing~~outstanding ~~product~~as orof ~~modify~~November ~~the~~30, ~~product~~2005. soHowever, ~~that~~there itcan isbe no ~~longer~~assurance ~~infringing. If~~that ~~the~~claims ~~Company~~under ~~cannot~~these ~~address~~indemnification ~~the~~provisions ~~infringement~~will bynot ~~replacing~~arise in the ~~products~~future or ~~services,~~that orany ~~modifying~~such ~~the~~claims ~~products~~will ornot ~~services,~~have ~~the~~a ~~Company~~material isadverse ~~allowed~~effect ~~to cancel~~on the ~~software license and return the fees paid by the customer. The~~ Company ~~requires its employees to sign a proprietary information and inventions~~’s ~~assignment agreement~~business, ~~which~~operating ~~assigns~~performance, ~~the~~financial ~~rights~~condition inor ~~its~~cash ~~employees’ development work to the Company~~flows.

~~To date,~~Product ~~the~~Warranty. The Company ~~has~~typically ~~not~~provides ~~had~~a limited warranty to ~~reimburse any of~~ its customers ~~for~~with ~~any~~respect ~~losses related~~ to ~~these~~its ~~indemnification~~software ~~provisions~~products. ~~and~~The ~~no material claims are~~Company ~~outstanding~~records asa ofliability ~~May 31,~~for ~~2005.~~the ~~For~~estimated ~~several~~cost ~~reasons,~~of ~~including~~product ~~the~~warranties ~~lack~~based ofon ~~prior~~specific ~~indemnification~~warranty claims, ~~and~~provided ~~the~~that ~~lack~~it ofis aprobable ~~monetary~~that a liability ~~limit for~~exists ~~certain~~and ~~infringement~~provided ~~cases under~~ the ~~SLAs, the Company cannot determine the maximum~~ amount ~~of potential future payments, if any, related to such indemnification provisions. There~~ can be noreasonably ~~assurance~~estimated. ~~that~~To ~~potential~~date, ~~future payments~~the ~~will~~Company has not ~~have~~had aany material ~~adverse~~costs ~~effect~~associated onwith ~~the~~these ~~Company’s operating performance, financial condition and cash flows~~warranties.

~~Product~~Tax ~~Warranty~~Matters. The Company ~~generally~~recorded ~~warrants~~a ~~its~~benefit ~~software~~for ~~products.~~income ~~The~~taxes ~~Company~~of ~~provides~~$0.2 ~~for~~million and ~~the~~$2.5 ~~estimated~~million ~~cost~~for ofthe ~~product~~three ~~warranties~~and ~~based~~nine onmonths ~~specific~~ended ~~warranty~~November ~~claims~~30, 2005, ~~provided~~respectively, ~~that~~compared itto isan ~~probable~~income ~~that~~tax aexpense ~~liability~~of ~~exists~~$0.2 million and ~~provided~~$0.9 million for the ~~amount~~three and nine months ended November 30, 2004, respectively. ~~can~~The bebenefit ~~reasonably~~recorded ~~estimated~~for the nine months ended November 30, 2005 included a $1.9 Tomillion ~~date~~refund for previously paid withholding taxes, $1.3 million related to the reversal of additional amounts accrued for certain withholding tax obligations which the Company ~~has~~no ~~not~~longer ~~had~~deemed ~~any~~probable ~~material~~to be paid and ~~costs~~approximately ~~associated~~$0.7 ~~with~~million ~~these~~in ~~warranties~~current income tax expense related to certain of the Company’s foreign subsidiaries.

5. Intangible Assets and Goodwill

Acquisition-related intangible assets subject to amortization as of ~~May 31~~November 30, 2005 and February 28, 2005 were as follows (amounts in thousands):

	Gross Assets		Accumulated Amortization			Net Assets
			Accumulated
May 31, 2005
	Gross Assets		Amortization			Net Assets
Acquired technology	$	64,739	$	(52,914	)	$	11,825
November 30, 2005
Customer relationships	28,109		(20,436		)	7,673
Acquired technology	$	51,939	$	(46,599	)	$	5,340
Total	$	92,848	$	(73,350	)	$	19,498
Customer relationships	28,109		(23,760		)	4,349
Total	$	80,048	$	(70,359	)	$	9,689
February 28, 2005
Acquired technology	$	64,739	$	(50,923	)	$	13,816
Customer relationships	28,109		(18,774		)	9,335
Total	$	92,848	$	(69,697	)	$	23,151

During the three months ended August 31, 2005, the Company performed an impairment test of its long-lived assets and concluded that although the Company continues to sell the products acquired in the PartMiner CSD, Inc. asset acquisition, the Company does not believe that future operating cash flows will be sufficient to support the related asset balance. Therefore, the Company wrote-off the remaining $12.8 million gross acquired technology asset balance and related $(9.1) million of accumulated amortization. The impairment resulted in a net reduction in acquisition-related intangible assets of $3.7 million.

The change in the carrying amount of goodwill for the ~~three~~nine months ended ~~May 31~~November 30, 2005 was as follows (amounts in thousands):

	2005
Balance as of February 28, 2005	$	185,658
Foreign currency translation adjustments, net	~~(27~~126		)
Balance as of May 31, 2005 (capitalize “The” once other sentence is included)	$	185,631
Balance as of November 30, 2005	$	185,784

During the three months ended May 31, 2005, the Company experienced adverse changes in its stock price. The Company performed a test for goodwill impairment and determined that based upon the implied fair value (which includes factors such as, but not limited to, the Company’s market capitalization, control premium and recent stock price volatility) of the Company as of May 31, 2005, there was no impairment of goodwill.

~~Amortization~~During the three months ended November 30, 2005, the ~~expense~~Company’s ~~for~~Chief ~~acquisition-related~~Financial ~~intangible~~Officer ~~assets~~left ~~was~~the ~~$3.7~~Company ~~million~~to ~~and~~take ~~$5.2~~a position at ~~million~~another ~~for~~company. As a result, the ~~three~~Company ~~months~~performed ~~ended~~a ~~May 31,~~test ~~2005~~for ~~and~~goodwill impairment ~~2004~~as of November 30, ~~respectively~~2005. ~~Estimated~~ ~~aggregate~~The ~~future~~Company ~~amortization~~determined ~~expense~~that ~~for~~based ~~acquisition-related~~upon the ~~intangible~~implied ~~assets~~fair ~~for~~value ~~the~~(which ~~nine-month~~includes ~~period~~factors ~~ending~~such ~~February 28~~as, ~~2006~~but not limited to, the Company’s market capitalization, control premium and recent stock price ~~future~~volatility) ~~fiscal~~of ~~years~~the isCompany as ~~follows~~of ~~(amounts~~November in30, ~~thousands):~~2005, there was no impairment of goodwill.

	Nine Months Ending February 28,		Fiscal Year Ending February 28 or 29,
	2006		2007		2008		2009		2010		Total
Amortization expense	$	8,844	$	7,146	$	2,441	$	914	$	153	$	19,498

Amortization expense for acquisition-related intangible assets was $2.6 million and $5.2 million for the three months ended November 30, 2005 and 2004, respectively, and $9.7 million and $15.6 million for the nine months ended November 30, 2005 and 2004, respectively. Estimated aggregate future amortization expense for acquisition-related intangible assets for the three-month period ended February 28, 2006 and future fiscal years is as follows (amounts in thousands):

6. Comprehensive Loss

	Three Months Ending
	February 28,		Fiscal Year Ending February 28 or 29,
	2006		2007		2008		2009		2010		Total
Amortization expense	$	1,701	$	5,013	$	1,908	$	914	$	153	$	9,689

~~Other comprehensive loss relates primarily to foreign currency translation adjustments and unrealized gains (losses) on investments in marketable securities and long-term investments~~6. ~~The~~Capitalized ~~following~~Software ~~table~~Development ~~sets forth the comprehensive loss for the three-month periods ended May 31, 2005 and 2004 (amounts in thousands):~~Costs

	Three Months Ended May 31,
	2005			2004
Net loss	$	(4,916	)	$	(7,733	)
Other comprehensive loss, net of tax
Unrealized gains (losses) on investments	74			(254		)
Foreign currency translation adjustments	(1,356		)	(598		)
Total comprehensive loss	$	(6,198	)	$	(8,585	)

Operations commenced at the Company’s new development center in Hyderabad, India during the fourth quarter of fiscal 2005. Once the Company has completed transitioning the development process to India, the Company will no longer capitalize software development costs due to the change in the developmental life cycle of our products that is due to the expected shortening of time between reaching technological feasibility and the introduction of the Company’s products into the market. Capitalized software development costs as of November 30, 2005 and February 28, 2005 were as follows (amounts in thousands):

7. Exit and Disposal Activities

	November 30, 2005			February 28, 2005
Software development costs	$	47,416		$	44,960
Less: Accumulated amortization	(37,836		)	(30,570		)

Total software development costs, net	$	9,580		$	14,390

~~The~~Capitalization ~~following~~of ~~table~~software ~~sets~~development ~~forth~~costs awas $2.5 ~~summary~~million ofand ~~total~~$7.1 ~~exit and~~million ~~disposal~~for ~~charges~~the nine months ended November 30, ~~payments~~2005 ~~made~~and 2004, ~~against~~respectively. ~~those~~Amortization ~~charges~~expense was $7.3 million and ~~the~~$7.2 ~~remaining~~million for ~~liabilities~~the asnine ofmonths ~~May 31~~ended November 30, 2005 ~~(amounts~~and in2004, ~~thousands):~~respectively.

All Plans	Balance as of Feb. 28, 2005		Charges and adjustments to charges in three months ended May 31, 2005			Utilization of cash in three months ended May 31, 2005			Balance as of May 31, 2005
Lease obligations and terminations (1)	$	18,274	$	225		$	(1,973	)	$	16,526
Severance and related benefits	2,312		227			(1,299		)	1,240
Other	83		(25		)	(58		)	—
Subtotal	$	20,669	$	427		$	(3,330	)	17,766
Reclassification of deferred rent	1,162								1,162
Total	$	21,831							$	18,928

7. Comprehensive Loss

Other comprehensive loss relates primarily to foreign currency translation adjustments and unrealized gains (losses) on investments in marketable securities and long-term investments. The following table sets forth the comprehensive loss for the three and nine-month periods ended November 30, 2005 and 2004 (amounts in thousands):

	Three Months Ended						Nine Months Ended
	November 30,						November 30,
	2005			2004			2005			2004

Net loss	$	(4,644	)	$	(13,268	)	$	(15,678	)	$	(38,115	)
Other comprehensive (loss) income, net of tax
Unrealized gains (losses) on investments	35			(114		)	155			(308		)
Foreign currency translation adjustments	(681		)	1,949			(1,852		)	911
Total comprehensive loss	$	(5,290	)	$	(11,433	)	$	(17,375	)	$	(37,512	)

8. Exit and Disposal Activities

Summary: The Company has adjusted its cost structure and resource allocation several times in recent years to respond to business and market conditions. Each exit and disposal plan has included involuntary terminations across most functional areas throughout the Company and the reduction of excess office space.

The following table sets forth a summary of total exit and disposal charges, payments made against those charges and the remaining liabilities as of November 30, 2005 (amounts in thousands):

			Charges and			Charges and			Charges and
			adjustments to			adjustments to			adjustments to			Utilization of			Non-cash
			charges in three			charges in three			charges in three			cash in the nine			activity disposal losses
	Balance as of		months ended			months ended			months ended			months ended			in the nine months ended			Balance as of
	Feb. 28, 2005		May 31, 2005			August 31, 2005			November 30, 2005			November 30, 2005			November 30, 2005			November 30, 2005
Lease obligations and terminations (1) (2)	$	18,274	$	225		$	(37	)	$	1,534		$	(5,058	)	$	—		$	14,938
Severance and related benefits	2,312		227			1,339			(364		)	(2,964		)	—			550
Impairment charges and write-downs	—		—			—			89			—			(89		)	—
Other	83		(25		)	—			—			(58		)	—			—
Subtotal	$	20,669	$	427		$	1,302		$	1,259		$	(8,080	)	$	(89	)	$	15,488
Reclassification of deferred rent	1,162																	1,162
Total	$	21,831																$	16,650

(1) Certain accrued lease obligations extend through fiscal year 2019.

~~Plan FY05 Q2 Exit and Disposal Plans~~ (~~“FY05 Q2 Plans”~~2). Includes In$110 ~~order~~thousand ~~to further adjust the Company’s cost structure~~ and ~~resource~~$360 ~~allocation,~~thousand ~~to increase~~of ~~efficiencies~~accretion ~~and~~expense ~~reduce excess office space~~ in adjustments ~~response~~ to ~~current business~~charges ~~conditions,~~in the ~~Company~~three ~~announced~~ and ~~began~~nine ~~implementing~~months ~~the~~ended ~~FY05 Q2~~November 30, ~~Plans in the second quarter of fiscal~~ 2005. ~~Actions taken under the FY05 Q2 Plans included the involuntary termination of employees across most business functions and the abandonment of excess office space deemed no longer in use.~~

~~Involuntary terminations.~~The ~~For~~Company ~~the~~has ~~three~~outstanding ~~months~~lease ~~ended~~obligations ~~May 31, 2005,~~for ~~the~~facilities ~~Company~~that ~~involuntarily~~have ~~terminated~~been aentirely ~~total~~vacated ofwhich 13are ~~employees~~ located in ~~the~~Brussels, ~~U.S.~~Belgium; ~~and~~Wayne, ~~recorded~~Pennsylvania; ~~severance~~Detroit, Michigan and ~~benefit~~Ratingen ~~related~~and ~~charges of approximately $0.2~~Munich, ~~million~~Germany. ~~All~~The ~~terminated~~Company ~~employees~~has ~~were~~outstanding ~~notified~~lease ~~within~~obligations ~~the~~for ~~requisite~~facilities ~~time period as prescribed by SFAS 146 “Accounting~~ for ~~Costs~~which ~~Associated~~a ~~with~~portion ~~Exit~~of orthe ~~Disposal~~office ~~Activities”~~space ~~(“SFAS~~was ~~146”)~~vacated ~~and~~in ~~were not~~certain ~~required~~facilities tothat ~~render~~are located ~~service~~in toRockville, ~~the~~Maryland; ~~Company~~Atlanta, ~~for~~Georgia; ~~severance~~Calabasas and ~~related benefits~~San ~~beyond the earlier of their termination date or a minimum retention~~Carlos, ~~period~~California; ofand 60Bracknell, ~~days~~United Kingdom.

~~During fiscal~~Exit ~~2005,~~and ~~the Company involuntarily terminated a total of 127 employees~~disposal ~~across~~activities: In ~~most~~order ~~functional~~to ~~areas~~further ~~throughout~~adjust the Company,’s ~~or approximately 14.2% of~~cost ~~the~~structure ~~total~~and ~~headcount~~resource atallocation ~~the~~to ~~end~~increase ofefficiencies ~~fiscal~~and ~~2004.~~reduce ~~Ninety-six of the involuntarily~~excess ~~terminated~~office ~~employees~~space ~~were located~~ in ~~the~~response ~~U.S.,~~to ~~eleven~~current ~~employees~~business ~~were located in the United Kingdom~~conditions, ~~fifteen employees were located in~~ the ~~rest~~Company ~~of Europe, four~~announced ~~employees~~and ~~were~~began ~~located~~implementing intwo ~~Asia~~exit and ~~one~~disposal ~~was located in Canada. As a result of the involuntary terminations~~plans, (the Company recorded severance and benefit related charges of approximately $6.0 million. Three of the terminated employees had employment contracts that defined the amount of severance and related benefits they would receive upon termination. The severance and related benefits for employees with employment contracts were accrued during fiscal 2005 in accordance with Statement of Financial Accounting Standards No. 88, “~~Employers’~~FY05 ~~Accounting~~Q2 ~~for Settlements and Curtailments of Defined Benefit Pension~~ Plans ~~and for Termination Benefits~~” ~~(“SFAS 88”~~) as in the ~~amounts~~second ~~were~~quarter ~~both~~of ~~probable~~fiscal ~~and estimable~~2005. ~~Additionally, there~~Actions ~~were~~taken 23included ~~employees who were required to render service beyond~~ the ~~earlier~~involuntary ~~of their~~ termination ~~date or minimum retention period~~ of ~~60 days, as defined by SFAS 146. The severance cost for these~~ employees isacross ~~recognized~~most ~~and~~business ~~accrued~~functions ~~over the required service period in accordance with SFAS 146. All terminated employees were notified within the requisite time period as prescribed by SFAS 146~~ and, ~~except for those 23 employees noted above, no employees were required to render service to~~ the ~~Company~~abandonment ~~for severance and related benefits beyond the~~of ~~earlier~~excess ofoffice ~~their termination date or a minimum retention period of 60 days~~space.

Excess office space. During the three months ended May 31, 2005, the Company recorded a charge of approximately $0.3 million related to abandoning office space located in Brussels, Belgium. During fiscal 2005, the Company recorded charges, net of adjustments, totaling approximately $8.5 million related to consolidating certain office space and abandoning excess capacity deemed no longer in use. The Company recorded the charge for excess office space for properties located in San Carlos and Calabassas, California; Rockville, Maryland; and Bracknell, United Kingdom. The Company permanently vacated the office space located in Munich, Germany; Stockholm, Sweden; and the Philippines and consolidated certain office space in Tokyo, Japan. The costs associated with the facilities charges were recorded based on the present value of the sum of expected remaining lease commitments and include management’s best estimates of expected sublease income and costs associated with subleasing the vacated space. The estimated sublease income amounts require judgment and include assumptions regarding the period of sublease and the price per square foot to be paid by the sublessors. As required by the applicable accounting standards, the Company will review these estimates periodically and make adjustments, as necessary, to reflect management’s best estimates. In connection with the abandonment of the excess office space, the Company recorded a write-down of certain property, plant and equipment and leasehold improvements in accordance with Statement of Financial Accounting Standards 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). Total charges for the write-down of certain property, plant and equipment and leasehold improvements were approximately $2.5 million and included a benefit of approximately $0.4 million related to the sale of the Company’s right to certain fractional shares of three jet planes.

~~Other contract~~The ~~termination~~following ~~costs.~~table ~~During~~summarizes ~~fiscal 2005,~~ the Company’s ~~recorded~~exit ~~approximately~~and ~~$0.3~~disposal ~~million~~activities insince ~~contract~~fiscal ~~termination-related~~year ~~costs primarily~~2003 ~~related~~(amounts toin ~~the~~millions, except ~~termination~~number of ~~the~~involuntarily ~~Fall~~terminated ~~2004 enVISION Series Conference.~~employees):

Adjustments to charges. During the three months ended May 31, 2005, the Company recorded approximately $0.1 million in adjustments primarily related to accretion and other miscellaneous adjustments.

	Involuntary terminations
	Number of					Office			Property and
Period	employees		$ Amount			leases			equipment		Other		Total
Three months ended November 30, 2005	2	(a)	$	(0.4	)(h)	$	1.5	(g)	$	0.1	—		$	1.2
Three months ended August 31, 2005	31	(b)	$	1.3		—			—		—		$	1.3
Three months ended May 31, 2005	13	(c)	$	0.2		$	0.2	(e)	—		—		$	0.4
Fiscal Year 2005	127	(d)	$	6.1		$	8.1	(f)	$	2.7	$	0.4	$	17.3
Fiscal Year 2004	79		$	0.9		$	12.9		$	4.2	$	0.6	$	18.6
Fiscal Year 2003	343		$	8.0		$	8.0		$	2.5	$	0.7	$	19.2

~~The following table sets forth a summary of the FY05 Q2 Plans exit and disposal charges, payments made and the remaining liabilities as of May 31, 2005~~ (~~amounts in thousands~~a): US.

FY05 Q2 Plans	Balance as of Feb. 28, 2005		Charges and adjustments to charges in three months ended May 31, 2005			Utilization of cash in three months ended May 31, 2005			Balance as of May 31, 2005
Lease obligations and terminations (1)	$	7,327	$	432		$	(826	)	$	6,933
Severance and related benefits	2,312		227			(1,299		)	1,240
Other	83		(25		)	(58		)	—
Subtotal	$	9,722	$	634		$	(2,183	)	8,173
Reclassification of deferred rent	352								352
Total	$	10,074							$	8,525

(b) 30 US, 1 Europe.

(1c) ~~Includes~~ 13 ~~$65 thousand of accretion expense in adjustments to charges in the three months ended May 31, 2005~~US.

~~In accordance with SFAS 146, in periods subsequent to the initial recording of the FY05 Q2 Plans facilities charge and the FY04 Q4 and FY04 Q1 Plans~~ (~~defined below~~d) 96 ~~facilities charge~~US, ~~the~~11 ~~Company~~United ~~recognizes~~Kingdom, ~~accretion~~15 ~~expense~~Other ~~due~~Europe, to4 ~~the passage~~Asia, of1 ~~time~~Canada. ~~Accretion expense is recorded as an additional restructuring-related expense and an increase to restructuring liabilities.~~

~~Plan FY04 Q4 Exit and Disposal Plan~~ (~~“FY04 Q4 Plan”~~e)~~. During~~ Completely ~~the three~~vacated ~~months ended February 29~~Brussels, ~~2004, the Company announced and implemented the FY04 Q4 Plan designed to further adjust its cost structure and resource allocation to increase efficiencies and reduce excess office space~~Belgium. Actions taken included reductions in workforce through involuntary terminations, further consolidation of the Company’s U.S. product development functions to the corporate headquarters in Rockville, Maryland and abandoning excess office space deemed no longer in use.

~~Involuntary terminations. The~~(f) Partially ~~Company involuntarily terminated seven employees within the product development function as a result of further consolidating the product development function from Wayne, Pennsylvania to~~ vacated-Rockville, Maryland.; ~~The Company recorded a charge for~~San ~~severance~~Carlos and ~~related~~Calabasas, ~~benefits~~California; ofBracknell, ~~approximately~~United ~~$0.1~~Kingdom ~~million.~~and ~~All~~Tokyo, ~~terminated~~Japan. ~~employees~~Completely ~~were~~vacated-Munich, ~~notified~~Germany; ~~within~~Stockholm, ~~the~~Sweden ~~requisite time period as prescribed by SFAS 146~~ and ~~were not required to render service to~~ the ~~Company for severance and related benefits beyond the earlier of their termination date or a minimum retention period of 60 days~~Philippines.

~~Excess office~~(g) Partially space. The Company recorded charges totaling approximately $5.6 million related to consolidating certain office space and abandoning excess capacity deemed no longer in use. The Company recorded the charge for excess office space for properties located in Atlanta, Georgia; Itasca, Illinois; Calabasas, California; and Bracknell, United Kingdom. The Company permanently vacated ~~the office space located in Wayne~~Rockville, ~~Pennsylvania~~ ~~and~~Maryland ~~the remaining office space in Irving, Texas~~ and ~~Detroit, Michigan.~~includes ~~The~~adjustments ~~costs associated with the facilities charge were recorded based~~to on the present value of the sum of expected remaining lease commitments and include management’s best estimates of expected sublease income and costs associated with subleasing the vacated space. The estimated sublease income ~~amounts~~ ~~require~~based ~~judgment~~upon ~~and~~actual ~~include~~signed ~~assumptions~~subleases ~~regarding~~in ~~the~~San ~~period of sublease and the price per square foot to be paid by the sublessors. As required by the applicable accounting standards~~Carlos, ~~the Company will review these~~ ~~estimates~~California ~~periodically~~ and ~~make adjustments~~Detroit, ~~as necessary, to reflect management’s best estimates~~Michigan. In connection with the abandonment of the excess office space, the Company recorded a write-down of certain property, plant and equipment and leasehold improvements in accordance with SFAS 144. Total charges for the write-down of certain property, plant and equipment and leasehold improvements were approximately $1.1 million.

~~Other. Other~~(h) Includes ~~exit and~~adjustments ~~disposal~~to ~~related~~previously ~~costs~~established ~~were $0~~accruals.~~1 million.~~

~~Adjustments to~~Exit ~~charges. During~~and ~~the~~disposal accounting ~~three~~policies ~~months~~and ~~ended~~practices: The ~~May 31, 2005, the~~ Company ~~recorded~~records ~~approximately~~exit ~~$0.1~~and ~~million~~disposal costs in ~~adjustments~~accordance ~~primarily related~~with toStatement ~~accretion~~of ~~and~~Financial ~~changes~~Accounting inStandards ~~the~~No. ~~estimated~~146 ~~sublease~~“Accounting ~~income~~ for ~~its facility~~Costs ~~located~~Associated inwith ~~Detroit,~~Exit ~~Michigan~~or Disposal Activities” (“SFAS 146”).

SFAS 146 (excess office space): The Company records charges for excess office space once vacated based on the present value of the sum of expected remaining lease commitments offset by management’s best estimate of expected sublease income and costs associated with subleasing the vacated space. The estimated sublease income amounts require judgment and include assumptions regarding the period of sublease and the price per square foot to be paid by sublessors. The Company reviews these estimates periodically and records appropriate adjustments, as necessary, to reflect management’s best estimates. In certain cases, only a portion of the total office space within a property is vacated when such excess office space allows appropriate physical separation.

SFAS 146 (severance costs): All terminated employees are notified within the requisite time period as prescribed by SFAS 146 and are typically not required to render service beyond the earlier of their termination date or a minimum retention period of 60 days, as defined by SFAS 146. When employees are required to render service beyond the earlier of their termination date or minimum retention period of 60 days, the severance cost for such employees is recognized and accrued over the required service period in accordance with SFAS 146. There were seven employees involuntarily terminated during the nine months ended November 30, 2005 and 23 during fiscal year 2005 who were required to render service beyond 60 days.

SFAS 88: Certain terminated employees had employment contracts that defined the amount of severance and related benefits received upon termination. The severance and related benefits for such employees are accounted for in accordance with Statement of Financial Accounting Standards No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits” (“SFAS 88”) when amounts are both probable and estimable. During fiscal year 2005, three employees with employment contracts were involuntarily terminated.

SFAS 144: In connection with permanently vacating excess office space, the Company records an impairment charge of certain property, plant and equipment and leasehold improvements in accordance with Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”).

~~The following~~9. ~~table sets forth a summary of the FY04 Q4 Plan exit and disposal charges, payments made and the remaining liabilities as of May 31, 2005 (amounts in thousands):~~Warrant

FY04 Q4 Plan	Balance as of Feb. 28, 2005		Charges and adjustments to charges in three months ended May 31, 2005		Utilization of cash in three months ended May 31, 2005			Balance as of May 31, 2005
Lease obligations and terminations (1)	$	3,269	$	80	$	(446	)	$	2,903
Subtotal	$	3,269	$	80	$	(446	)	2,903
Reclassification of deferred rent	225							225
Total	$	3,494						$	3,128

In March 2004, the Company entered into an amendment to an existing alliance agreement with International Business Machines Corporation (“IBM”) under which the companies will develop, market, sell and deliver demand and supply chain solutions globally. In connection with entering into the amendment to the alliance agreement, the Company issued a warrant (the “Warrant”) to IBM to acquire 250,000 shares of the Company’s common stock at a per share purchase price of $8.51, in reliance upon an exception provided under Section 4(2) of the Securities Act of 1933, as amended, for transactions not involving a public offering. The Warrant is immediately exercisable, expires March 12, 2009, and provides for customary registration and indemnification rights and certain limited transfer rights. The fair value of the Warrant of $1.1 million is being recognized as operating expense over the three-year service period of the alliance agreement. The fair value of the Warrant was calculated using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 2.79%; dividend yield of zero; volatility of 99%; and a Warrant life of five years. The Company recorded $0.3 million in amortization expense associated with the Warrant for each of the nine months ended November 30, 2005 and November 30, 2004.

~~(1) Includes~~10. ~~$31~~Credit ~~thousand of accretion expense in adjustments to charges in the three months ended May 31, 2005.~~Facilities

~~Plan~~The Company had a one-year unsecured revolving ~~FY04~~credit Q1facility ~~Exit~~with ~~and~~Silicon ~~Disposal~~Valley ~~Plan~~Bank (“~~FY04 Q1 Plan~~SVB”) for $15. ~~During~~0 million which expired ~~the~~on ~~three~~March 30, ~~months~~2005. ~~ended~~On ~~May~~April 318, ~~2003~~2005, the Company renewed the credit ~~announced~~facility with SVB for $15.0 million and ~~implemented~~a ~~the~~two-year ~~FY04~~term, Q1effective March 29, ~~Plan~~2005 ~~designed~~(the to“Credit ~~further~~Facility”). ~~adjust~~Under ~~its~~the ~~cost~~terms of the Credit ~~structure~~Facility, ~~and~~the ~~resource~~Company ~~allocation~~may torequest ~~increase~~cash ~~efficiencies~~advances, ~~and~~letters ~~reduce~~of ~~excess~~credit, or both. ~~office~~Borrowings ~~space~~under the Credit Facility accrue interest at the prime rate plus 0.5%. ~~Actions~~The ~~taken~~Credit ~~included~~Facility ~~reductions~~requires inthe ~~workforce~~Company ~~through~~to comply with the following ~~involuntary~~financial ~~terminations~~covenants: (i) minimum tangible net worth (defined as stockholders’ equity plus convertible debt less goodwill, ~~further~~capitalized ~~consolidation~~software costs and other intangible assets) must be at least $90.0 million plus 50% of consolidated net income generated cumulatively commencing with the first quarter of fiscal 2006 and (ii) the Company’s ~~U.S.~~ratio ~~product~~of ~~development~~(a) unrestricted ~~functions~~cash, cash equivalents, marketable securities and long-term investments deposited with SVB and its affiliates plus net accounts receivable to ~~the~~(b) current ~~corporate~~liabilities ~~headquarters~~plus long-term indebtedness to SVB and outstanding letters of credit minus deferred revenue, must be at least 2.0 to 1.0. The Company was in ~~Rockville~~compliance with all financial covenants as of November 30, ~~Maryland~~2005 and there were no cash draws outstanding. As of November ~~abandoning~~30, ~~excess~~2005, ~~office~~the ~~space~~Company ~~deemed~~had no$9.9 ~~longer~~million in ~~use~~letters of credit outstanding under the Credit Facility to secure its lease obligations for certain office space.

~~Involuntary terminations.~~ The ~~Company~~Credit ~~involuntarily~~Facility ~~terminated~~requires ~~seventy-two~~the Company to maintain ~~employees~~$50.0 ~~across~~million ~~most~~in ~~functional~~funds ~~areas~~with ~~within~~SVB ~~the~~Asset ~~company~~Management and its affiliates. ~~Involuntary~~The Credit ~~terminations~~Facility byalso ~~geography~~restricts ~~consisted~~the amount of ~~sixty-six~~additional ~~employees~~debt in the ~~U.S.,~~Company ~~three~~can incur and inrestricts ~~Mexico,~~the ~~two~~amount inof ~~Canada~~cash that the Company can use for acquisitions and ~~one~~for the inrepurchase ~~Japan~~of convertible debt. ~~The~~Under the terms of the Credit Facility, the Company ~~recorded~~retains athe ~~charge~~right ~~for~~to terminate the facility at any time upon repayment ~~severance~~of any advances and ~~related~~the ~~benefits~~posting of ~~approximately~~cash ~~$1.3~~collateral ~~million.~~for ~~All~~any ~~terminated~~outstanding letters ~~employees~~of ~~were~~credit. ~~notified~~Under ~~within~~the Credit Facility, SVB has the ~~requisite~~right ~~time~~to ~~period~~obtain asa ~~prescribed~~lien byon ~~SFAS~~all ~~146~~of ~~and~~the ~~were~~Company’s ~~not~~assets, ~~required~~other tothan ~~render~~intellectual ~~service~~property, toupon an occurrence of default, unless the Company ~~for~~terminates ~~severance~~the ~~and~~facility as provided above. The ~~related~~Credit ~~benefits~~Facility ~~beyond~~also ~~the~~provides ~~earlier~~that, upon an event of ~~their~~default, ~~termination~~the ~~date~~Company oris prohibited from paying a ~~minimum retention~~cash ~~period~~dividend ofto 60its ~~days~~shareholders.

~~Excess office space.~~ The ~~Company~~Credit ~~recorded~~Facility ~~charges totaling~~includes ~~approximately~~a ~~$5.9~~provision ~~million related to consolidating certain office~~for ~~space~~supplemental ~~and~~equipment ~~abandoning~~advances, ~~excess~~under ~~capacity~~which ~~deemed~~the noCompany ~~longer~~may inborrow ~~use.~~up ~~The~~to ~~Company~~an ~~recorded~~additional ~~the~~$5.0 ~~charge~~million for ~~excess~~the ~~office~~purchase ~~space~~of ~~for properties located in Rockville~~equipment, ~~Maryland;~~ ~~San~~office ~~Carlos,~~furniture ~~California; Atlanta, Georgia; Irving, Texas;~~ and ~~Detroit,~~ ~~Michigan.~~other ~~The~~capital ~~costs~~expenditures. ~~associated~~Amounts ~~with~~may ~~the~~be ~~facilities~~borrowed ~~charge~~for ~~were~~such ~~recorded based~~capital onexpenditures ~~the~~through ~~present~~December 31, ~~value~~2005 ~~of the sum of expected remaining lease commitments~~ and ~~include~~ ~~management’s~~accrue ~~best~~interest ~~estimates~~at ofa ~~expected sublease income and costs~~fixed ~~associated~~interest ~~with~~rate ~~subleasing~~equal ~~the~~to ~~vacated~~7.75% ~~space~~annually. ~~The~~Equipment ~~estimated~~advances ~~sublease~~will ~~income~~be repaid ~~amounts~~monthly ~~require~~over ~~judgment~~a ~~and~~36-month ~~include assumptions regarding the~~ period, ~~of sublease~~beginning ~~and~~in the ~~price~~month ~~per~~following ~~square foot to be paid by~~ the ~~sublessors~~advance. As ~~required~~As byof ~~the~~November 30, ~~applicable accounting standards~~2005, ~~the~~there ~~Company~~were ~~will~~no ~~review~~borrowings ~~these~~outstanding for ~~estimates~~equipment ~~periodically~~advances ~~and~~under ~~make~~the ~~adjustments,~~Credit ~~as necessary, to reflect management’s best estimates~~Facility. InThe ~~connection~~financial ~~with~~covenants ~~the~~for ~~abandonment of~~ the ~~excess~~ ~~office~~supplemental ~~space, the Company recorded a write-down of certain property, plant and~~ equipment ~~and~~advances ~~leasehold~~are ~~improvements~~the insame ~~accordance~~as ~~with~~the ~~SFAS~~financial ~~144.~~covenants ~~Total charges~~ for the ~~write-down of certain property, plant and equipment and leasehold~~ ~~improvements~~Credit ~~were approximately $3~~Facility.~~2 million.~~

The Company had an additional credit agreement (the “Equipment ~~following~~Line”) ~~table~~with ~~sets~~SVB, ~~forth~~as amended, which expired March 31, 2003, under which the Company was permitted to borrow up to $5.0 million for the purchase of equipment. Amounts borrowed under the Equipment Line accrue interest at a ~~summary~~rate equal to the greater of ~~FY04~~the Q1three-year ~~Plan~~Treasury ~~exit~~note rate plus 5%, or 8.25%, and ~~disposal~~are ~~charges~~repaid monthly over a 36-month period. During fiscal 2003, the Company ~~payments~~borrowed ~~made~~$2.9 ~~and~~million under the ~~remaining~~Equipment ~~liabilities~~Line. The principal balance remaining as of ~~May~~November 3130, 2005 ~~(amounts~~was approximately $0.1 million. The financial covenants for the Equipment Line are the same as the financial covenants for the Credit Facility. The Company was in compliance with all financial covenants ~~thousands):~~as of November 30, 2005.

FY04 Q1 Plan	Balance as of Feb. 28, 2005		Charges and adjustments to charges in three months ended May 31, 2005		Utilization of cash in three months ended May 31, 2005			Balance as of May 31, 2005
Lease obligations and terminations (1)	$	3,517	$	48	$	(198	)	$	3,367
Subtotal	$	3,517	$	48	$	(198	)	3,367
Reclassification of deferred rent	504							504
Total	$	4,021						$	3,871

(1) Includes $34 thousand of accretion expense in adjustments to charges in the three months ended May 31, 2005.

Plans FY03, FY02 and FY99 Exit and Disposal Plans (the “Prior Plans”). During fiscal years 2003, 2002 and 1999, the Company announced and implemented three, two and two exit and disposal plans, respectively, designed to further adjust its cost structure and resource allocation to increase efficiencies and reduce excess office space. Actions taken included reductions in workforce through involuntary terminations, further consolidation of the Company’s U.S. product development functions to the corporate headquarters in Rockville, Maryland and abandoning excess office space deemed no longer in use.

~~Involuntary terminations~~11. ~~The~~ ~~Company involuntarily~~Segment terminated 918 employees and recorded approximately $14.3 million in charges related to severance and related benefits while implementing the Prior Plans. A summary of involuntary terminations related to the Prior Plans is as follows:Information

• In fiscal 2003, the Company involuntarily terminated 343 employees across most functional areas within the Company and recorded a charge for severance and related benefits of approximately $7.9 million.

• In fiscal 2002, the Company involuntarily terminated 163 employees across most functional areas within the Company and recorded a charge for severance and related benefits of approximately $2.3 million.

• In fiscal 1999, the Company involuntarily terminated 412 employees across most functional areas within the Company and recorded a charge for severance and related benefits of approximately $4.1 million.

Excess office space. The Company recorded charges totaling approximately $32.5 million related to consolidating certain office space and abandoning excess capacity deemed no longer in use. These costs include management’s best estimates of expected sublease income. A summary of facility charges and facility abandonments related to the prior plans is as follows:

• In fiscal 2003, the Company recorded a charge of approximately $8.6 million related to excess office space deemed no longer in use for Bracknell, United Kingdom; San Carlos, California and Atlanta, Georgia and the expected loss of sublease rental income from a previously closed office in Bracknell, United Kingdom. The charge also related to permanently vacated offices located in Ratingen, Germany; Milan, Italy; and Denver, Colorado. The facility charges were offset by a credit of approximately $0.7 million related to the reduction of a previously recorded office space liability assumed as part of the Talus Solutions, Inc. (“Talus”) acquisition where the landlord subsequently agreed to reduce the remaining office space and lease obligation held by the Company. In connection with the abandonment of the excess office space, the Company recorded a write-down of certain property, plant and equipment and leasehold improvements in accordance with SFAS 144. Total charges for the write-down of certain property, plant and equipment and leasehold improvements were approximately $1.3 million. Additionally, the Company recorded an impairment charge of approximately $1.2 million related to the discontinued use of certain internal software used by its sales force that was replaced with another tool. The remaining book value of $0.7 million was amortized over its remaining useful life;

• In fiscal 2002, the Company recorded a charge of approximately $3.7 million related to excess office space deemed no longer in use for office space located in Itasca, Illinois and Ottawa, Canada and $0.1 million related to the closure and abandonment of certain leased facilities; and

• In fiscal 1999, the Company recorded a charge of approximately $20.2 million related to excess office space deemed no longer in use for office space located in Itasca, Illinois and Ratingen, Germany. Additionally, in connection with the fiscal 1999 exit and disposal plan, the Company recorded impairment charges and write-downs of approximately $9.1 million related to its property and equipment, leasehold improvements, goodwill and certain capitalized software development costs in accordance with Statement of Financial Accounting Standards No. 121 (“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of”) (“SFAS 121”).

Other. In connection with the Prior Plans, the Company recorded contract termination and other related exit and disposal costs of $0.9 million in FY03, $0.5 million in FY02 and $0.4 million in FY99.

Adjustments to charges. During the three months ended May 31, 2005, the Company recorded adjustments to the Prior Plans of approximately $(0.3) million related to changes in the estimated sublease income for facilities located in Detroit, Michigan; San Carlos, California; and Atlanta, Georgia. The following table sets forth a summary of the Prior Plans exit and disposal charges, payments made and the remaining liabilities as of May 31, 2005 (amounts in thousands):

Prior Plans	Balance as of Feb. 28, 2005		Charges and adjustments to charges in three months ended May 31, 2005			Utilization of cash in three months ended May 31, 2005			Balance as of May 31, 2005
Lease obligations and terminations	$	4,161	$	(335	)	$	(503	)	$	3,323
Subtotal	$	4,161	$	(335	)	$	(503	)	3,323
Reclassification of deferred rent	81								81
Total	$	4,242							$	3,404

8. Warrant

In March 2004, the Company entered into an amendment to an existing alliance agreement with International Business Machines Corporation (“IBM”) under which the companies will develop, market, sell and deliver demand and supply chain solutions globally. In connection with entering into the amendment to the alliance agreement, the Company issued a warrant (the “Warrant”) to IBM to acquire 250,000 shares of the Company’s common stock at a per share purchase price of $8.51, in reliance upon an exception provided under Section 4(2) of the Securities Act of 1933, as amended, for transactions not involving a public offering. The Warrant is immediately exercisable, expires March 12, 2009, and provides for customary registration and indemnification rights and certain limited transfer rights. The fair value of the Warrant of $1.1 million will be recognized as operating expense over the three-year service period of the alliance agreement. The fair value of the Warrant was calculated using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 2.79%; dividend yield of zero; volatility of 99%; and a Warrant life of five years. The Company recorded $0.1 million in amortization expense associated with the Warrant for the three months ended May 31, 2005.

9. Credit Facilities

The Company had a one-year unsecured revolving credit facility (the “Credit Facility”) with Silicon Valley Bank (“SVB”) for $15.0 million which expired on March 30, 2005. Under the terms of the Credit Facility, the Company could request cash advances, letters of credit, or both. On April 8, 2005, the Company renewed the Credit Facility (the “New Credit Facility”) with SVB for $15.0 million and a two year term, effective March 29, 2005. Under the terms of the New Credit Facility, the Company may request cash advances, letters of credit, or both. Borrowings under the New Credit Facility accrue interest at the prime rate plus 0.5%. The New Credit Facility requires the Company to comply with the following financial covenants: (i) minimum tangible net worth (defined as stockholders’ equity plus convertible debt less goodwill, capitalized software costs and other intangible assets) must be at least $90.0 million plus 50% of consolidated net income generated cumulatively commencing with the first quarter of fiscal 2006 and (ii) the Company’s ratio of (a) unrestricted cash, cash equivalents, marketable securities and long-term investments deposited with SVB and its affiliates plus net accounts receivable to (b) current liabilities plus long-term indebtedness to SVB and outstanding letters of credit minus deferred revenue, must be at least 2.0 to 1.0. The Company was in compliance with all financial covenants as of May 31, 2005 and there were no cash draws outstanding. As of May 31, 2005, the Company had $9.2 million in letters of credit outstanding under the New Credit Facility to secure its lease obligations for certain office space.

The New Credit Facility requires the Company to maintain $50.0 million in funds with SVB Asset Management and its affiliates. The New Credit Facility also restricts the amount of additional debt the Company can incur and restricts the amount of cash that the Company can use for acquisitions and for the repurchase of convertible debt. Under the terms of the New Credit Facility, the Company retains the right to terminate the facility at any time upon repayment of any advances and the posting of cash collateral for any outstanding letters of credit. Under the New Credit Facility, SVB has the right to obtain a lien on all of the Company’s assets, other than intellectual property, upon an occurrence of default, unless the Company terminates the facility as provided above. The New Credit Facility also provides that, upon an event of default, the Company is prohibited from paying a cash dividend to its shareholders.

The New Credit Facility includes a provision for supplemental equipment advances, under which the Company may borrow up to an additional $5.0 million for the purchase of equipment, office furniture and other capital expenditures. Amounts may be borrowed for such capital expenditures through December 31, 2005 and accrue interest at a fixed interest rate equal to 7.75% annually. Equipment advances will be repaid monthly over a 36-month period, beginning in the month following the advance. As of May 31, 2005, there were no borrowings outstanding for equipment advances under the New Credit Facility. The financial covenants for the supplemental equipment advances are the same as the financial covenants for the New Credit Facility.

The Company had an additional credit agreement (the “Equipment Line”) with SVB, as amended, which expired March 31, 2003, under which the Company was permitted to borrow up to $5.0 million for the purchase of equipment. Amounts borrowed under the Equipment Line accrue interest at a rate equal to the greater of the three-year Treasury note rate plus 5%, or 8.25%, and are repaid monthly over a 36-month period. During fiscal 2003, the Company borrowed $2.9 million under the Equipment Line. The principal balance remaining as of May 31, 2005 was approximately $0.5 million. The financial covenants for the Equipment Line are the same as the financial covenants for the New Credit Facility. The Company was in compliance with all financial covenants as of May 31, 2005.

10. Segment Information

The Company and its subsidiaries are principally engaged in the design, development, marketing, licensing and support and implementation of supply chain, demand and revenue management software products and services. Substantially all revenue results from the licensing of the Company’s software products and related consulting and support services. The Company’s chief operating decision maker reviews financial information, presented on a consolidated basis, accompanied by disaggregated information about revenue by geographic region for purposes of making operating decisions and assessing financial performance. Accordingly, the Company considers itself to be in a single industry segment.

14Revenue is attributable to geographic regions based on the location of the Company’s customers. The following table presents total revenue by geographic region for the three and nine months ended November 30, 2005 and 2004, and total long-lived assets for the periods ended November 30, 2005 and February 28, 2005 (in thousands):

Revenue is attributable to geographic regions based on the location of the Company’s customers. The following table presents total revenue by geographic region for the three months ended May 31, 2005 and 2004, and total long-lived assets for the periods ended May 31, 2005 and February 28, 2005 (in thousands):

	Three Months Ended November 30,				Nine Months Ended November 30,
	2005		2004		2005		2004
Revenue:
United States	$	25,236	$	28,904	$	82,102	$	97,555
Europe	11,070		10,857		36,271		33,183
Asia/Pacific	2,883		3,626		9,333		11,694
Other	735		1,658		2,524		5,458

	$	39,924	$	45,045	$	130,230	$	147,890

	Three Months Ended May 31,
			November 30, 2005			February 28, 2005
	2005			2004
	Long-lived Assets:
Revenue:
	United States		$	218,043		$	239,374
United States	$	28,047		$	36,113
	Europe		4,574			5,351
Europe	14,610			10,359
	Asia/Pacific		578			770
Asia/Pacific	2,833			3,025
	Other		3,636			2,347
Other	1,167			2,086
			$	226,831		$	247,842
	$	46,657		$	51,583

	Period Ended
	May 31, 2005		Feb. 28, 2005
Long-lived Assets:
United States	$	232,981	$	239,374
Europe	5,033		5,351
Asia/Pacific	667		770
Other	2,482		2,347
	$	241,163	$	247,842

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~For the~~Forward-Looking ~~three months ended May 31, 2005, one customer accounted for more than 10% of the Company’s consolidated revenue.~~Statements

~~Item~~The 2following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and the related notes and other financial information included elsewhere in this Quarterly Report on Form 10-Q. ~~MANAGEMENT’S~~ ~~DISCUSSION~~The ~~AND~~discussion ~~ANALYSIS~~and OFanalysis ~~FINANCIAL~~contains ~~CONDITION~~forward-looking ~~AND~~statements ~~RESULTS~~which OFare ~~OPERATIONS~~made in reliance upon safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Our actual results may differ materially from those anticipated in these forward-looking statements and other forward-looking statements made elsewhere in this Quarterly Report on Form 10-Q as a result of specified factors, including those set forth under the caption “Factors that May Affect Future Results.”

~~Forward-Looking~~Executive ~~Statements~~Summary

~~The following~~Our ~~discussion~~unaudited ~~and~~Condensed ~~analysis~~Consolidated ofFinancial Statements ~~our~~are ~~financial~~included ~~condition~~in ~~and~~Item ~~results~~1 of this Quarterly Report on Form 10-Q. ~~operations~~The ~~should~~following bediscussion ~~read~~is inprovided ~~conjunction~~to ~~with~~allow the ~~Condensed~~reader ~~Consolidated~~to have a better ~~Financial~~understanding ~~Statements~~of ~~and~~our ~~the~~operating ~~related~~results ~~notes~~for the three and ~~other~~nine ~~financial~~months ~~information~~ended ~~included~~November ~~elsewhere~~30, in2005, ~~this~~including ~~Quarterly~~(i) a ~~Report~~brief ondiscussion ~~Form 10-Q.~~of ~~The~~our business and ~~discussion~~products, (ii) the business environment and ~~analysis~~factors ~~contains~~that ~~forward-looking~~affected ~~statements~~our financial ~~which~~performance, ~~are~~(iii) our ~~made~~focus on future improvements in our ~~reliance~~financial ~~upon~~performance ~~safe~~and ~~harbor~~(iv) Key ~~provisions~~Financial ofMetrics ~~the~~– ~~Private~~Third ~~Securities Litigation~~Quarter ~~Reform~~Fiscal ~~Act~~2006. ofThis ~~1995.~~executive ~~Our~~summary ~~actual~~should ~~results~~be ~~may~~read ~~differ~~in ~~materially~~conjunction ~~from~~with ~~those~~the more ~~anticipated~~detailed indiscussion ~~these~~and ~~forward-looking~~analysis ~~statements~~of our financial condition and ~~other~~results ~~forward-looking~~of ~~statements~~operations ~~made~~included ~~elsewhere~~ in this ~~Quarterly~~Item ~~Report~~2, ~~on Form~~section ~~10-Q~~titled, as“Factors athat ~~result~~May Affect ofFuture ~~specified~~Results” ~~factors~~and our unaudited Condensed Consolidated Financial Statements, ~~including~~which ~~those~~are ~~set~~included ~~forth~~in ~~under~~Item ~~the~~1 ~~caption~~of ~~“Factors that~~this ~~May Affect~~Quarterly ~~Future~~Report ~~Results~~on Form 10-Q.”

~~Executive Summary~~13

~~Our~~Overview– ~~Condensed Consolidated~~Business Financial Statements are included in Item 1 of this Quarterly Report on Form 10-Q. The following discussion is provided to allow the reader to have a better understanding of our operating results for the three months ended May 31, 2005, including (i) a brief discussion of our business and products, (ii) the business environment and factors that affected our financial performance, (iii) our focus on future improvements in our financial performance and (iv) Key Financial Metrics-First Quarter Fiscal 2006. This executive summary should be read in conjunction with the more detailed discussion and analysis of our financial condition and results of operations included in this Item 2, section titled, “Factors that May Affect Future Results” and our Condensed Consolidated Financial Statements, which are included in Item 1 of this Quarterly Report on Form 10-Q.Products

~~Overview~~We –are ~~Business~~a leading global provider of supply chain management and ~~Products~~demand and revenue management software products and services. We combine these products and services to deliver solutions that address specific business needs of our clients. We focus primarily on the Consumer Goods, Retail, and Government, Aerospace & Defense markets. We also provide revenue management solutions for the Travel, Transportation & Hospitality markets.

WeOur ~~are~~solutions aenable ~~leading~~our ~~global~~clients to reduce operating ~~provider~~costs, ofimprove ~~supply~~customer ~~chain~~service ~~management~~and increase their top-line revenue by allowing them to plan, optimize and synchronize their demand and supply chain and to improve their revenue management ~~software~~practices. These benefits create efficiencies ~~products~~in how goods and services are brought to market, how they are priced and sold and how they are serviced and maintained. WeOur ~~combine~~software ~~these~~solutions ~~products~~enable clients to optimize cost and ~~services~~revenue simultaneously on an enterprise-wide basis by integrating pricing, forecasting and operational planning and execution to enhance ~~deliver~~margins ~~solutions~~across the client’s enterprise and extended trading networks. ~~that~~In ~~address~~addition, ~~specific~~our ~~business~~software ~~needs~~solutions ofhelp our clients derive more benefits from their existing IT investments with other software vendors, such as legacy Enterprise Resource Planning (ERP) and other transaction-based systems, and help ensure the security and integrity of their global supply chains.

Our ~~solutions~~approach ~~enable~~to client delivery is to advise our clients toon ~~reduce~~how ~~operating~~best ~~costs,~~to ~~improve~~use ~~customer~~our ~~service~~solutions and ~~increase~~other technologies across their ~~top-line~~demand ~~revenue~~and bysupply ~~allowing~~chain ~~them~~ to ~~plan~~integrate pricing, ~~optimize~~forecasting, operational planning and ~~synchronize~~execution in a manner that will allow them to enhance margins across their ~~entire~~enterprise ~~demand~~ and ~~supply~~extended ~~chain~~trading networks and to improve their revenue ~~management~~ management practices. ~~These~~We ~~benefits~~deliver ~~create~~our ~~efficiencies~~solutions inusing ~~how~~commercially ~~goods~~available products and ~~services~~will ~~are~~provide additional functionality addressed through product ~~brought~~extensions tofor ~~market,~~industry-specific ~~how~~capabilities. ~~they~~Certain ~~are~~of ~~priced~~our clients and prospects ~~sold~~ask ~~and~~for ~~how~~unique ~~they~~capabilities ~~are~~in ~~serviced~~addition ~~and~~to our core capabilities to ~~maintained.~~give ~~Our~~them ~~software~~a ~~solutions~~competitive ~~provide~~edge in the ~~further~~marketplace, ~~benefit~~which ofwe may provide on a ~~simultaneously~~case-by-case ~~optimizing~~basis. ~~cost~~We ~~and~~expect ~~revenue~~this onwill lead to an ~~enterprise-wide~~increase ~~basis~~in bysoftware license ~~integrating~~revenue ~~pricing,~~being ~~forecasting~~recognized ~~and~~on ~~operational~~a ~~planning~~contract ~~and~~accounting ~~execution~~basis ~~to enhance~~over ~~margins~~the ~~across~~course of the delivery ~~client’s~~of ~~enterprise~~the solution rather than upon initial delivery of the software and contract ~~extended~~execution.

15Business Environment and Factors That Affected our Results for the Three and Nine Months Ended November 30, 2005

~~trading~~Our ~~network.~~operating Inresults for the three and nine months ~~addition~~ended November 30, ~~our~~2005 were affected by several broad-based factors including cautious capital spending by corporations for enterprise application software. We ~~solutions~~believe ~~help~~changing conditions over the last three fiscal years caused changes in the behavior patterns in our markets as our clients ~~derive~~and ~~more~~prospects intensified ~~benefits~~their efforts to reduce costs. Many shifted their focus from larger ~~their~~longer-term ~~existing~~strategic ITinitiatives ~~investments~~to smaller short-term tactical initiatives with ~~other~~more ~~software~~rapid ~~vendors,~~paybacks. ~~such~~We asalso ~~legacy~~believe ~~ERP and~~that ~~other~~many ~~transaction-based~~of ~~systems,~~our clients and prospects ~~help~~are ~~ensure~~focused ~~the~~on ~~security~~realizing ~~and~~benefits ~~integrity~~from earlier investments in ofinformation ~~their~~technology ~~global~~rather ~~supply~~than ~~chains~~committing to new initiatives. These changes in our markets have led to fewer opportunities for us to win business. We believe that these changes in the markets for enterprise application software will continue.

~~Our~~We ~~approach~~continue to ~~client delivery~~see isa togrowing ~~advise~~number ~~our~~of ~~clients on how to best use~~ our ~~solutions and other~~clients ~~technologies across their entire demand~~ and ~~supply~~prospects ~~chain~~wanting to ~~integrate~~structure ~~pricing, forecasting,~~deals ~~operational planning and execution in a manner that will allow them~~ to ~~enhance~~reduce ~~margins across~~ their ~~entire~~overall ~~enterprise and extended trading~~perceived ~~network~~risks. ~~and~~These todeal ~~improve~~structures ~~their~~include, ~~revenue~~but ~~management~~are ~~practices.~~not Welimited ~~deliver~~to, ~~our~~phased projects, ~~solutions~~delayed ~~using~~payments ~~commercially~~for ~~available~~software, ~~products~~ and ~~will~~tying ~~provide~~payments ~~additional functionality~~for ~~addressed~~software ~~through~~to ~~product extensions for industry-specific capabilities~~performance. Certain of our clients and prospects ~~are~~want ~~also~~us ~~asking for unique capabilities in addition~~ to ~~our~~structure ~~core~~deals ~~capabilities~~where ~~to give them a competitive edge in the marketplace, which~~ we ~~may provide on a case-by-case basis. This~~can ~~could~~earn ~~lead~~additional ~~to an increase in software license~~ revenue ~~being~~based ~~recognized~~ on ~~a contract~~performance. ~~accounting~~During ~~basis over~~ the ~~course~~nine ofmonths ~~the delivery of the solution~~ended ~~rather~~November ~~than upon initial delivery of the software and contract execution. We are primarily focused on the Consumer Goods~~30, ~~Retail~~2005, ~~and~~we ~~Government,~~closed ~~Aerospace & Defense~~one ~~markets.~~such ~~We are focused also on providing revenue management solutions for the Travel, Transportation & Hospitality markets~~transaction.

~~Business~~We believe that the size of enterprise application ~~Environment~~software ~~and~~license ~~Factors~~transactions ~~That~~has ~~Affected~~declined in general. We experienced declines in the numbers and size of our ~~Three~~software ~~Months~~transactions, ~~Ended~~including ~~May 31~~the number of software transactions of $1 million or greater, in the three and nine months ended November 30, 2005, which has also resulted in a decrease in our average ~~Results~~selling price (“ASP”).

~~Our~~We ~~operating~~believe our financial results ~~for~~ in the ~~three~~fiscal ~~months~~ year ended ~~May~~February 3128, 2005 and for the ~~past~~ three ~~fiscal~~and ~~years were~~nine ~~affected~~months byended ~~several~~November 30, ~~broad-based~~2005 ~~factors~~were ~~including~~also ~~global~~adversely ~~macro-economic conditions~~affected ~~and~~by ~~cautious~~the ~~capital~~ongoing ~~spending~~consolidation byin ~~corporations~~our industry, ~~for~~the ~~enterprise application~~pace ~~software.~~of Wewhich ~~believe~~has ~~changing~~significantly ~~conditions~~increased over the ~~last~~past three ~~fiscal~~ ~~years~~quarters ~~caused~~and ~~changes~~may incontinue. ~~the~~This ~~behavior~~consolidation ~~patterns~~has inincreased ~~our~~uncertainty ~~markets~~about the asabilities ~~our~~of ~~clients~~smaller ~~and prospects~~enterprise ~~intensified~~application ~~their~~software ~~efforts~~vendors to ~~reduce~~remain independent ~~costs.~~and ~~Many~~thrive, ~~shifted~~which ~~their~~has ~~focus from~~negatively ~~longer-term~~affected ~~strategic~~and ~~initiatives~~may continue to ~~short-term tactical initiatives with~~negatively ~~more~~affect ~~rapid~~our ~~paybacks.~~ability Weto ~~also~~grow ~~believe that~~ our ~~clients~~revenue and ~~prospects~~improve ~~are~~our ~~focused on realizing benefits from earlier investments in information technology~~performance. In addition, ~~we believe that~~ some of our ~~clients~~larger ~~and~~competitors ~~prospects~~increasingly ~~are still deferring capital spending on enterprise application software in part as a result of the challenges they~~ have ~~faced~~raised ~~in complying with the requirements of the~~concerns ~~Sarbanes-Oxley~~about ~~Act of 2002 and other related regulatory requirements. We believe that~~ our financial ~~results~~viability inwith ~~the~~our ~~fiscal~~clients ~~year ended February 28, 2005~~ and ~~the three months ended May 31~~prospects, ~~2005~~which ~~were also~~ have affected ~~by the magnitude of changes in~~ our ~~workforce,~~ability ~~including~~to ~~our~~close ~~executive~~software ~~management~~transactions ~~and sales organization, difficulties in execution, a market focus that was too broad for existing market conditions and a strong competitive environment~~successfully. AsSee a“Forward-Looking ~~result,~~Statements” ~~during the first quarter of fiscal 2006~~ and ~~the~~“Factors ~~past~~that ~~three~~May Affect ~~fiscal~~Future ~~years we have faced challenges in our ability to stabilize revenue and improve our operating performance~~Results.”

~~Focus~~Over the past eighteen months, we have made substantial changes in our company, including reorganizing and downsizing our workforce, including our executive management team and our sales organization, narrowing our market focus, narrowing our product focus, moving a portion of our product development function to India, increasing our emphasis on ~~Future~~transportation ~~Improvements~~and retail markets and pricing optimization capabilities and increasing our emphasis on the Asia-Pacific region. Although we believe these changes were necessary and the correct actions to take, we have not yet been able to increase our revenue, particularly our software license revenue. However, these changes have enabled us to reduce our ongoing operating expense and to improve our financial performance in ~~Our~~our ~~Financial~~most ~~Performance~~recent quarters.

For the three months ended May 31, 2005 we continued the development of a more focused product and market strategy and we continued the strategic restructuring of the organization in an effort to reduce our operating expenses to a level that may allow us to become profitable. During fiscal 2005, we organized our sales and marketing efforts to address the Consumer Goods, Retail, Government, Aerospace & Defense and Revenue Management markets. In two European countries where we currently do not have a critical mass of resources, we continued to eliminate certain offices, which are now being serviced from other locations in the region. We also intend to provide more focused sales and marketing efforts to small and medium-sized businesses in Europe and the Asia-Pacific region through third-party marketing and reseller agreements. We continue to see a growing number of our clients wanting to structure deals where we can earn additional revenue based on performance. During the three months ended May 31, 2005, we closed one such transaction that accounted for more than 10% of total revenue recorded during the quarter.14

AsFocus ofon ~~May 31,~~Future ~~2005, we~~Improvements had achieved quarterly cost savings of approximately $4.0 million, compared to the three months ended May 31, 2004, as a result of our FY05 Q2 Plans. These exit and disposal plans included the abandonment of certain office space and related asset write-offs and the involuntary termination of employees. We recorded exit and disposal charges of $0.4 million in ~~the~~Our ~~three~~Financial months ended May 31, 2005 related to these cost-cutting initiatives, including $0.2 million in lease abandonment and related asset write-offs and $0.2 million in severance and other benefits related to headcount reductions. We have completed most of the planned initiatives approved in our FY05 Q2 Plans and will complete the remainder of the initiatives in fiscal 2006.Performance

~~During~~For the ~~fourth quarter~~three ofand ~~fiscal~~nine ~~2005,~~months weended ~~commenced~~November ~~operations at our new product development~~30, ~~center in Hyderabad~~2005, ~~India.~~we Wecontinued ~~intend~~the todevelopment ~~move~~of a ~~substantial~~more ~~portion~~focused ~~of our~~ product ~~development~~and ~~capabilities~~market strategy, toand ~~our~~we ~~new~~continued ~~facility over~~ the ~~course~~strategic restructuring of the ~~next~~ ~~year~~organization ~~while~~in an ~~keeping~~effort ~~our~~to ~~core~~reduce ~~product development capabilities at~~ our ~~headquarters~~ inoperating ~~Rockville,~~expenses ~~Maryland.~~to Wea ~~believe~~level ~~this~~that ~~will~~would ~~allow~~better position us to ~~both increase~~become ~~our~~profitable. ~~product~~During ~~development~~fiscal ~~resources~~2005, ~~and~~we toorganized ~~lower~~ our ~~product development~~sales ~~costs.~~and Atmarketing ~~May 31,~~efforts ~~2005,~~to weaddress ~~had~~the ~~approximately~~Consumer 82Goods, ~~employees~~Retail, ~~at our Hyderabad~~Government, Aerospace & ~~India~~Defense ~~development center~~ and ~~expect~~Revenue ~~that~~Management ~~number~~markets. toIn ~~increase~~Europe ~~substantially~~where we bycurrently ~~the~~do ~~first~~not ~~quarter~~have ofa ~~fiscal~~critical ~~2007.~~mass ~~For~~of ~~the~~resources, ~~three~~we ~~months~~eliminated ~~ended May 31,~~certain ~~2005~~offices, ~~amortization~~which ofare ~~previously~~now ~~capitalized~~being ~~software~~serviced ~~exceeded~~from ~~capitalization of~~other ~~software~~locations ~~development~~in ~~costs~~the ~~by approximately $1~~region.6 ~~million.~~ We ~~expect~~ ~~amortization~~also ofintend ~~previously capitalized software~~ to ~~exceed~~provide ~~capitalization~~more ~~of software~~focused ~~development~~sales ~~costs~~and ~~for~~marketing atefforts ~~least~~to ~~the~~small ~~next~~and medium-sized ~~several~~businesses ~~quarters~~in ~~while~~Europe ~~we continue~~and tothe ~~shift~~Asia-Pacific ~~development~~region ~~operations~~through third-party tomarketing ~~Hyderabad,~~and ~~India~~reseller agreements.

IfWe ~~market~~intend ~~conditions~~to increase our focus and investments for the future in our ~~products~~Asia Pacific region, in our Transportation and ~~services~~Retail industries doand ~~not~~in ~~improve~~our Pricing area. As part of this focus, we ~~may~~have ~~need~~recently hired a President of our Asia-Pacific region and a President of our Japan office. We are implementing specific Retail marketing programs and recruiting for sales employees with Retail experience. We intend to make ~~further adjustments~~strategic investments to round out the solutions and add sales and marketing people for our ~~cost~~Pricing ~~structure~~and Transportation solutions. In addition, we intend to start a services organization in India to reduce the number of contractors we currently use in an effort to improve ~~performance~~the margins in our services business.

16As of November 30, 2005, we had achieved quarterly cost savings of approximately $7.0 million, compared to the three months ended November 30, 2004, as a result of our FY05 Q2 Plans. These exit and disposal plans included the abandonment of certain office space and related asset write-offs and the involuntary termination of employees. We have completed most of the planned initiatives approved in our FY05 Q2 Plans and expect to complete the remainder of the initiatives by the end of fiscal 2006.

~~Key~~During ~~Financial~~the ~~Metrics~~fourth –quarter ~~First~~of ~~Quarter~~fiscal ~~Fiscal~~2005, ~~2006~~we commenced operations at our product development center in Hyderabad, India. We continue to move a substantial portion of our product development capabilities to our new facility while keeping our core product development capabilities at our headquarters in Rockville, Maryland. We believe this will allow us to both increase our product development resources and to lower our product development costs. As of November 30, 2005, we had approximately 159 employees at our Hyderabad, India development center and expect that number to increase through the first quarter of fiscal 2007. For the three months ended November 30, 2005, amortization of previously capitalized software exceeded capitalization of software development costs by approximately $1.5 million. We expect amortization of previously capitalized software to continue to exceed capitalization of software development costs as we continue to shift development operations to Hyderabad, India. Once we have completed transitioning the development process to India, we believe that we will no longer capitalize software development costs due to the change in the developmental life cycle of our products that is due to the expected shortening of time between reaching technological feasibility and introduction of our products into the market.

WeIf ~~reported~~market ~~first~~conditions ~~quarter year-over-year~~for ~~revenue~~our ~~decreases~~products ~~in software, services~~ and ~~reimbursed expense and~~services ~~total~~do ~~revenue.~~not ~~“All~~improve, ~~other~~we ~~operating~~may ~~expenses”~~need ~~decreased~~to ~~$8.3~~make ~~million,~~further oradjustments ~~15.4%,~~ to ~~$45.6~~our ~~million~~cost ~~for the three months ended May 31, 2005 compared~~ structure to ~~the three~~further ~~months~~improve ~~ended May 31, 2004~~performance.

	Three Months Ended May 31,
	2005		2004
	(in thousands, except number of employees and DSO)
Revenue:
Software	$	8,391	$	10,368
Support	21,815		21,421
Services and reimbursed expenses	16,451		19,794
Total revenue	$	46,657	$	51,583
Operating expenses and employee headcount:
Exit and disposal activities
and acquisition-related expenses (1)	$	4,081	$	2,811
All other operating expenses (2)	45,600		53,922
Total operating expenses	$	49,681	$	56,733
Total employees (period end)	722		865
Total average employees	703		874
Total revenue per average employee	$	66	$	59
	May 31, 2005		February 28, 2005
Financial condition, liquidity and capital structure:
Cash, cash equivalents, marketable securities
and long-term investments	$	133,297	$	135,889
Days sales outstanding (DSO)	80		91
Convertible debt	175,500		175,500
Total stockholders’ equity	159,279		164,746
Common shares outstanding (period end)	83,819		83,869
Cash flows from operating activities	591		7,362

Key Financial Metrics – Third Quarter Fiscal 2006

~~(1) Includes~~We ~~exit~~reported ~~and~~third ~~disposal~~quarter ~~activities~~year-over-year ~~plus~~revenue ~~acquisition-related~~decreases in software license, services and total revenue. “All other operating expenses” decreased $8.7 million, ~~such~~or as18%, ~~amortization~~to of$39.7 ~~acquired~~million ~~technology~~for ~~and~~the three months ~~intangibles~~ended ~~and~~November 30, ~~non-cash~~2005 ~~stock~~compared ~~option~~to ~~compensation~~the ~~expense~~three months ended November 30, 2004.

~~(2) Includes cost of software, cost of support and services, cost of reimbursed expenses, sales and marketing, product development and general and administrative costs.~~15

The following is a brief discussion of the above financial metrics and analysis of the reasons for the change between the three months ended May 31, 2005 and the three months ended May 31, 2004 and recent trends.

	Three Months Ended				Nine Months Ended
	November 30,				November 30,
	2005		2004		2005		2004
	(in thousands, except number of employees and DSO)
Revenue:
Software license	$	4,093	$	6,664	$	17,552	$	28,143
Support	21,099		20,666		64,669		63,383
Services and reimbursed expenses	14,732		17,715		48,009		56,364
Total revenue	$	39,924	$	45,045	$	130,230	$	147,890

Operating expenses and employee headcount:
Exit and disposal activities and acquisition-related expenses (1)	$	3,856	$	8,139	$	16,451	$	22,428
All other operating expenses (2)	39,690		48,366		127,538		157,028
Total operating expenses	$	43,546	$	56,505	$	143,989	$	179,456

Total employees (period end)	766		733		766		733
Total average employees	762		766		737		828
Total revenue per average employee	$	52	$	59	$	177	$	179

Software revenue

	November 30,			August 31,		May 31,		February 28,
	2005			2005		2005		2005
Financial condition, liquidity and capital structure:
Cash, cash equivalents, marketable securities and long-term investments	$	126,508		$	136,109	$	133,297	$	135,889
Days sales outstanding (DSO)	84			78		80		91
Convertible debt	175,500			175,500		175,500		175,500
Total stockholders’ equity	149,164			154,005		159,279		164,746
Common shares outstanding (period end) (3)	84,133			83,780		83,819		83,869
Cash flows from operating activities (quarter ended)	(6,775		)	5,260		591		7,865

~~Our software revenue decreased $2.0 million, or 19.~~(1%,) Includes toexit ~~$8.4~~and ~~million~~disposal ~~for the~~activities, ~~three~~impairment ~~months~~of ~~ended~~long-lived ~~May 31~~assets, ~~2005~~acquisition-related ~~compared~~expenses tosuch ~~the three months ended May 31,~~as ~~2004.~~amortization ~~Approximately 12%~~ of ~~our~~acquired ~~software~~technology ~~revenue~~and ~~was~~intangibles ~~recognized~~and ~~on a percentage~~non-~~of-completion~~cash ~~basis.~~stock ~~The following table highlights some of the~~option ~~significant~~compensation ~~trends affecting our software revenue:~~expense.

17(2) Includes cost of software, cost of support and services, cost of reimbursed expenses, sales and marketing, product development and general and administrative costs.

Quarter Ended	Significant Software Transactions (1)	Average Selling Price (“ASP”)		Software Transactions $1.0 Million or Greater
		(in 000s)
May 31, 2004	13	$	695	1
August 31, 2004	18	$	533	3
November 30, 2004	11	$	491	1
February 28, 2005	12	$	559	2
May 31, 2005	7	$	976	2

(3) Includes the impact of restricted stock forfeitures

~~(1) Significant software~~The ~~transactions~~following ~~(excluding~~is ~~those~~a ~~recognized~~brief ondiscussion ~~a percentage-~~of~~-completion basis)~~ ~~are~~the ~~those~~above financial ~~with~~metrics aand ~~value~~analysis of ~~$100,000~~the orreasons ~~greater~~for ~~recognized~~the ~~within~~change between the fiscal periods ~~quarter~~ended November 30, 2005 and 2004 and recent trends.

~~Software revenue by industry for the three months ended May 31, 2005 and 2004 is as follows (in thousands):~~16

	Three Months Ended May 31,
	2005		2004
Government, Aerospace & Defense	$	180	$	507
Consumer Goods	6,675		1,593
Revenue Management	692		244
Retail	617		7,164
Other	227		860
	$	8,391	$	10,368

Software license revenue

~~The~~Our ~~previous~~software ~~tables~~license revenue decreased $2.6 million, ~~indicate~~or 39%, to $4.1 million and $10.6 million, or 38%, to $17.6 million for the three ~~following~~and ~~trends~~nine ~~affecting~~months ~~our~~ended November 30, 2005, respectively, compared to the three and nine months ended November 30, 2004. Approximately 16% and 8% of our software license revenue inwas recognized on a percentage-of-completion basis or ratable basis for both the three and nine months ended ~~May 31~~November 30, 2005 and November 30, 2004, respectively. The following table highlights some of the significant trends affecting our software license revenue:

• The number of significant software license transactions completed decreased in the three months ended May 31, 2005 compared to the three months ended May 31, 2004.

	Average			Software
	Significant	Selling Price		Transactions
	Software	(“ASP”)		$ 1.0 Million
Quarter Ended	Transactions (1)	(in thousands)		or Greater
May 31, 2004	13	$	695	1
August 31, 2004	18	$	533	3
November 30, 2004	11	$	491	1
February 28, 2005	12	$	559	2
May 31, 2005	7	$	976	2
August 31, 2005	13	$	264	—
November 30, 2005	10	$	288	—

~~• The Average Selling Price~~ (~~“ASP”~~1) Significant ~~has fluctuated~~software ~~during~~transactions ~~the~~(excluding ~~past~~those ~~five~~recognized ~~quarters,~~on ~~ranging from $491,000 to $976,000.~~a ~~The~~percentage-of-completion ~~quarter~~or ~~ended~~ratable ~~May 31,~~basis) ~~2005~~are ~~included~~those ~~one~~with ~~software~~a ~~transaction~~value ~~which accounted for more than 10%~~ of ~~total revenue. This transaction was in the Consumer Goods industry~~$100, ~~causing the large increase in software revenue for~~000 ~~this~~or ~~industry~~greater ~~and~~recognized inwithin the ~~ASP~~fiscal ~~for the three months ended May 31, 2005 compared to the three months ended May 31, 2004~~quarter.

~~• The~~Software license ~~concentration of software~~ revenue ~~from~~ ~~the~~by ~~Retail~~industry ~~Industry~~for ~~was significantly higher during~~ the three ~~months~~and ~~ended May~~nine ~~31, 2004 compared to the three~~ months ended ~~May~~November 3130, 2005 ~~reflecting increased~~and ~~spending~~2004 atis ~~that~~as ~~time~~follows by(in ~~retail customers.~~thousands):

Support revenue

	Three Months Ended				Nine Months Ended
	November 30,				November 30,
	2005		2004		2005		2004
Government, Aerospace & Defense	$	347	$	230	$	527	$	2,356
Consumer Goods	2,286		5,170		11,342		12,567
Revenue Management	478		523		1,854		2,014
Retail	173		117		2,059		8,621
Other	809		624		1,770		2,585

	$	4,093	$	6,664	$	17,552	$	28,143

~~Our~~The ~~support~~previous ~~revenue~~tables ~~increased~~indicate ~~$0.4 million, or 1.8%, to $21.8 million for~~ the ~~three months~~following ~~ended~~trends ~~May 31,~~affecting ~~2005~~our ~~compared~~software ~~to the three months ended May 31,~~license ~~2004.~~revenue ~~The increase~~ in ~~support revenue for~~ the three ~~months~~and ~~ended~~nine ~~May 31, 2005 compared to the three~~ months ended ~~May 31,~~November ~~2004 was due primarily to collection from a customer for outstanding support for which the related revenue did not previously meet the criteria for recognition. This increase was~~30, ~~partially~~2005 ~~offset~~and by decreases in support revenue from non-renewals not being fully offset by increases in support revenue from new software sales. Our percentage of annual support renewals by our clients continues to remain over ninety percent.2004:

~~Services~~• The number of significant software license transactions completed decreased in the three and ~~reimbursed~~nine ~~expenses~~months ~~revenue~~ended November 30, 2005 compared to the three and nine months ended November 30, 2004.

~~Our~~• ASP ~~services~~has ~~and~~fluctuated ~~reimbursed~~during ~~expenses~~the ~~revenue~~past ~~decreased~~five ~~$3.3 million~~quarters, orranging ~~16.9%~~from $264,000 to $16976,000.~~5 million~~ ~~for~~The ~~the~~quarter ~~three months~~ ended May 31, 2005 ~~compared~~included toone ~~the~~software ~~three~~transaction ~~months~~which ~~ended~~accounted ~~May 31,~~for ~~2004.~~more ~~Services~~than ~~revenue~~10% ~~tends~~of tototal ~~track software~~ revenue in ~~prior~~that ~~periods.~~quarter, ~~We primarily attribute the decrease in services~~resulting ~~revenue to the decrease~~ in ~~number~~a ofhigher ~~completed~~ASP ~~software~~for ~~transactions~~that ~~in late~~quarter. The ~~fiscal~~quarter ~~2005~~ended ~~compared~~November to30, ~~the~~2005 ~~same~~did ~~period~~not ininclude ~~fiscal~~any ~~2004.~~transactions ~~Additionally,~~greater ~~we have~~than ~~experienced~~$1 ~~competitive rate pressures on our consulting engagements~~million, ~~lower demand~~which ~~for~~had ~~implementation services and a decrease in~~ the ~~number~~impact of ~~consulting employees~~reducing ~~who~~the ~~generate services revenue, both from voluntary and involuntary terminations~~ASP.

18• There was only one significant software transaction in the Government, Aerospace & Defense industry during the current fiscal year, causing a significant decrease in the concentration of revenue from that industry for the nine months ended November 30, 2005 compared to the nine months ended November 30, 2004. Software license revenue from the Consumer Goods industry was lower in the three and nine months ended November 30, 2005 compared to the three and nine months ended November 30, 2004, due to fewer closed software transactions, lower ASP and fewer deals greater than $1 million. Software license revenue from the Retail industry was significantly higher during the nine months ended November 30, 2004 compared to the nine months ended November 30, 2005 reflecting increased spending at that time by retail customers and the inclusion of one large software license deal during the three months ended May 31, 2004.

~~Total~~ Support revenue ~~per average employee~~

Our ~~total~~ support revenue ~~per~~increased ~~average~~$0.4 ~~employee~~million, ~~increased~~or 2%, to $721.1 million and $1.3 million,~~000,~~ or ~~12.0~~2%, to $~~66,000~~64.7 million for the three and nine months ended ~~May 31~~November 30, 2005, respectively, compared to the three and nine months ended ~~May 31~~November 30, 2004. ~~Total~~The ~~revenue~~increase ~~per~~for ~~average~~the ~~employee~~three ismonths ~~calculated~~ended November as30, ~~total~~2005 ~~revenue~~compared ~~for~~to the ~~quarter~~ ~~divided~~three bymonths ~~average~~ended ~~employees~~November ~~for~~30, ~~the~~2004 ~~quarter~~was due to new software license sales. The increase ~~during~~for the ~~three~~ nine months ended ~~May 31~~November 30, 2005 ~~was~~compared ~~primarily due~~ to the ~~decrease~~nine ~~in employee~~months ~~headcount~~ended November 30, ~~which~~2004 was ~~proportionately~~due ~~higher~~to ~~than~~new ~~the decrease in total revenue.~~

~~Total operating expenses~~17

~~Our~~software ~~total~~license ~~operating~~sales ~~expenses~~and ~~declined~~collections byfrom ~~12.4%~~certain ~~during~~customers ~~the~~for ~~three~~outstanding ~~months ended May 31,~~support ~~2005~~for towhich ~~$49.7 million compared to~~ the ~~three months ended May 31, 2004. Exit and disposal activities and acquisition-~~related ~~expenses~~revenue ~~increased~~did ~~45.2% during~~not ~~the~~previously ~~three~~meet ~~months ended May 31, 2005 to $4.1 million. This increase was~~ the ~~result~~criteria ~~of higher exit and disposal costs of $0.4 million in the three~~for ~~months ended May 31, 2005 compared to a benefit of $2~~recognition.8 ~~million~~These inincreases ~~the three~~were ~~months ended May 31, 2004 related to a lease termination,~~ partially offset by ~~lower~~decreases ~~amortization costs related to the completion of amortization~~ in ~~late~~ ~~fiscal 2005 of acquired technology related to the STG Holdings, Inc. and~~support Talus Solutions, Inc. acquisitions. All other operating expenses declined 15.4% during the three months ended May 31, 2005 to $45.6 million. This decrease was primarily the result of lower office and travel expenses and salary costs due to a 19.6% decrease in average employee headcount and reduced office space costs as a result of exit and disposal plans executed during the second half of fiscal 2005 and the three months ended May 31, 2005, lower commissions and incentives related to decreased software revenue, ~~and~~from ~~a $1~~non-renewals.~~5 million~~ ~~benefit~~Our ~~related~~percentage ~~to the reversal~~ of aannual ~~previously~~support ~~recorded~~renewals ~~provision for anticipated losses on a contract for which the Company’s obligation to provide services expired in the three months ended May 31, 2005, partially offset~~ by ~~increased marketing expenses related to~~ our ~~enVISION 2005 client conference~~ ~~held~~clients inremains ~~May 2005.~~over ~~Additionally,~~ninety ~~our amortization of previously capitalized software costs exceeded capitalization of software costs by $1~~percent.6 million in the three months ended May 31, 2005 compared to $0.2 million for the three months ended May 31, 2004. The increase in amortization of previously capitalized software costs in excess of capitalized software costs is primarily the result of shifting operations to our new development center in Hyderabad, India.

~~Financial~~Services and ~~condition,~~reimbursed ~~liquidity~~expenses ~~and capital structure~~revenue

~~During~~Our services and reimbursed expenses revenue decreased $3.0 million, or 17%, to $14.7 million and $8.4 million, or 15%, to $48.0 million for the three and nine months ended ~~May~~November 3130, 2005, respectively, wecompared ~~had~~to athe ~~net~~three ~~usage~~and ofnine ~~cash~~months ended November 30, 2004. Services ~~Activity~~revenue ~~includes~~tends to track software license revenue in prior periods. We primarily attribute the decrease in services revenue to the decrease in number ~~following:~~of size of completed software transactions in the first half of fiscal 2006 compared to the same periods in fiscal 2005 and due to the deferral of services revenue related to a previously closed transaction for which the criteria for revenue recognition has not yet been met. Additionally, we have experienced competitive rate pressures on our consulting engagements and lower demand for implementation services.

~~• Cash, cash equivalents, marketable~~Total ~~securities~~revenue ~~and~~per ~~long-term~~average investments decreased $2.6 million, or 1.9%, to $133.3 million as of May 31, 2005 compared to $135.9 million as of February 28, 2005. This decrease is primarily the result of the semi-annual interest payment on our convertible debt, partially offset by cash flows provided by operating activities in the three months ended May 31, 2005.employee

~~• Cash~~Our ~~flows~~total ~~from~~revenue ~~operating~~per ~~activities~~average employee decreased by $~~6.8~~7,000, ~~million~~or 12%, to $~~0.6~~52,000 ~~million~~and decreased $2,000, or 1%, to $177,000 for the three and nine months ended ~~May~~November 3130, 2005 , respectively, compared to the $7three and nine months ended November 30, 2004.4 ~~million~~Total revenue per average employee is calculated as total revenue for the quarter divided by average number of employees for the quarter. The decrease during the three months ended November ~~February 28~~30, 2005 ~~primarily~~ ~~resulting~~compared ~~from~~to the ~~semi-annual~~three ~~interest~~months ~~payment~~ended onNovember ~~our~~30, ~~convertible~~2004 was ~~debt,~~primarily ~~increased~~due ~~payments~~to ~~for~~the ~~exit~~decrease ~~and~~in ~~disposal~~total ~~activities~~revenue, awhich was proportionately higher than the decrease in ~~deferred~~ ~~revenue~~average ~~due~~headcount, in addition to ~~the~~an ~~timing~~increase ofin employee ~~billing~~headcount ~~renewals~~in ~~and~~India ~~the~~as ~~seasonal~~we ~~nature of~~migrate our ~~support~~product ~~renewals,~~development ~~partially~~function ~~offset~~to our bynew aproduct ~~lower~~development ~~reported~~center. ~~operating~~This ~~loss~~trend ~~and~~will have a negative effect on antotal revenue per average employee as we increase headcount in ~~accounts~~India ~~receivable~~to ~~contribution~~take advantage of the lower wage scale unless we can grow revenue at a faster rate than we increase headcount.

~~Use of~~Total ~~Estimates~~operating ~~and Critical Accounting Policies~~expenses

~~The accompanying~~Our ~~discussion~~total ~~and~~operating ~~analysis~~expenses ofdecreased ~~our~~by ~~financial~~$13.0 million, ~~condition~~or ~~and~~23% ~~results~~to ~~of operations~~$43.5 ~~are~~million ~~based~~and ~~upon~~$35.5 ~~our~~million, ~~Condensed~~or ~~Consolidated~~20% ~~Financial~~to ~~Statements,~~$144.0 million ~~which~~during ~~have~~the ~~been~~three ~~prepared~~and innine ~~accordance~~months ~~with~~ended ~~accounting~~November ~~principles~~30, ~~generally~~2005, respectively, ~~accepted~~compared into the Uthree and nine months ended November 30, 2004.S. ~~The~~Exit ~~preparation~~and disposal ofactivities ~~these~~and ~~financial~~acquisition-related ~~statements~~expenses ~~requires~~decreased $4.3 million, or ~~that~~53% weto ~~make~~$3.9 ~~estimates~~million and ~~judgments~~$6.0 ~~that~~million, ~~affect~~or ~~the~~27% ~~reported~~to ~~amounts~~$16.5 ofmillion during the three ~~assets~~and nine months ended November 30, ~~liabilities~~2005, ~~revenue~~respectively, compared to the three and ~~expenses~~nine months ended November 30, ~~and~~2004. ~~related~~This ~~disclosure~~decrease was the result of ~~contingent~~lower ~~assets~~exit and ~~liabilities~~disposal costs of $1.3 Wemillion ~~base~~and ~~our~~$3.0 ~~estimates~~million onin ~~historical~~the ~~experience~~three and onnine ~~various~~months ~~other~~ended ~~assumptions~~November 30, ~~that~~2005, werespectively, ~~believe~~compared to be$2.9 ~~reasonable~~million ~~under~~and $6.6 million in the ~~circumstances~~ three and nine months ended November 30, ~~the~~2004. ~~results~~Additionally, we ofhad ~~which~~lower ~~form~~amortization costs for the ~~basis~~three ~~for~~and ~~making~~nine ~~judgments~~months ~~about~~ended November 30, 2005 compared to the ~~carrying~~three ~~values~~and nine months ended November 30, 2004 related to the completion of ~~assets~~amortization ~~and~~of ~~liabilities~~acquired ~~that~~technology ~~are~~related ~~not~~to ~~readily~~the ~~apparent~~STG ~~from~~Holdings, Inc., ~~other~~Talus ~~sources~~Solutions, Inc. ~~Actual~~and ~~results~~SpaceWorks, ~~could~~Inc. acquisitions. ~~differ~~The ~~from~~decrease in the ~~estimates~~nine ~~made~~months byended November 30, 2005 was ~~management~~partially ~~with~~offset ~~respect~~by a $3.7 million impairment charge recognized related to ~~these~~the impairment ~~and~~of ~~other~~acquisition-related ~~items~~intangible ~~that~~assets ~~require~~from ~~management’s~~the PartMiner CSD, ~~estimates~~Inc. acquisition.

WeAll other operating expenses decreased 18% to $39.7 ~~believe~~million ~~that~~and 19% to $127.5 million during the ~~following~~three ~~accounting~~and ~~policies~~nine ~~are~~months ~~critical~~ended November 30, 2005, respectively, compared to ~~understanding~~the three and nine months ended ~~our~~November ~~historical~~30, 2004. This decrease was primarily the result of lower office and travel ~~future~~expenses ~~performance~~and salary costs due to a 1% and 11% decrease in average employee headcount during the three and nine months ended November 30, 2005, respectively, compared to the three and nine months ended November 30, 2004, and reduced office space costs as ~~these~~a ~~policies~~result ~~affect~~of exit and disposal plans executed during the ~~reported~~second half of fiscal 2005 and the nine months ended November 30, ~~amounts~~2005. Additionally, the decrease was the result of ~~revenue~~lower commissions and incentives ~~relate~~in the nine months ended November 30, 2005 compared to the ~~more~~nine months ~~significant~~ended ~~areas~~November ~~involving~~30, 2004 related to decreased software license revenue ~~management~~and a $1.5 million benefit related to the reversal of a previously recorded provision for anticipated losses on a contract for which the Company’s obligation ~~judgments~~to provide services expired in the nine months ended November 30, 2005, partially offset by increased marketing expenses related to our enVISION 2005 client conference held in May 2005. Additionally, our amortization of previously capitalized software development costs exceeded capitalization of software development costs by $1.5 million and ~~estimates:~~$4.8 million in the three and nine months ended November 30, 2005, respectively, compared to capitalized software development costs in excess of amortization by $0.2 for the three months ended November 30, 2004 and amortization in excess of capitalized software development costs by $0.1 million in the nine months ended November 30, 2004. The increase in amortization of previously capitalized software development costs in excess of capitalized software development costs is primarily the result of changes in the development life cycle of our products as we shift operations to our development center in Hyderabad, India.

~~• revenue recognition and deferred revenue;~~18

~~• allowance~~Financial condition, ~~for~~liquidity ~~doubtful~~and ~~accounts;~~capital structure

~~• capitalized~~During the ~~software~~three ~~development~~months ended November 30, 2005, we had a net decrease in cash. ~~costs;~~Activity included the following:

• ~~valuation~~Cash, cash equivalents, marketable securities and ~~impairment~~long-term ~~review~~investments decreased $9.6 million, or 7%, to $126.5 million as of November 30, 2005 compared to $136.1 million as of August 31, 2005. This decrease is primarily the result of cash usage for operating activities, including the $4.4 million semi-annual interest payment on our long-~~lived~~term debt, $2.8 million in payments related to ~~assets;~~exit and disposal activities and capital expenditures of $1.0 million.

19• Cash flows from operating activities decreased by $12.0 million to $(6.8) million for the three months ended November 30, 2005 compared to $5.3 million for the three months ended August 31, 2005. We made a semi-annual interest payment on our convertible debt in the three months ended November 30, 2005 with no corresponding payment in the three months ended August 31, 2005.

~~• income~~Use ~~taxes;~~of Estimates and Critical Accounting Policies

~~• exit~~The accompanying discussion and ~~disposal~~analysis ~~activities;~~of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires that we make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from the estimates made by management with respect to these and other items that require management’s estimates.

~~• stock~~We ~~option-based~~believe ~~compensation~~that ~~plans.~~the following accounting policies are critical to understanding our historical and future performance, as these policies affect the reported amounts of revenue and relate to the more significant areas involving management’s judgments and estimates:

~~Our~~• revenue ~~management~~recognition ~~has reviewed our critical accounting policies, our critical accounting estimates~~ and ~~the~~deferred related disclosures with our Disclosure and Audit Committees. These policies and our procedures related to these policies are described further in our Annual Report on Form 10-K for the year ended February 28, 2005 in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Use of Estimates and Critical Accounting Policies.”revenue;

~~Results~~• allowance offor ~~Operations~~doubtful accounts;

~~The~~• capitalized ~~following~~software ~~table~~development ~~includes the Condensed Consolidated Statements of Operations data for the three months ended May 31, 2005 and 2004 expressed as a percentage of total revenue:~~costs;

	Three Months Ended May 31,
	2005		2004
Revenue:
Software	18.0	%	20.1	%
Support	46.8	%	41.6	%
Services	31.4	%	34.0	%
Reimbursed expenses	3.8	%	4.3	%
Total revenue	100.0	%	100.0	%
Operating expenses:
Cost of software	9.6	%	7.6	%
Amortization of acquired technology	4.3	%	6.9	%
Cost of services and support	33.0	%	35.4	%
Cost of reimbursed expenses	3.8	%	4.3	%
Sales and marketing	24.0	%	29.5	%
Product development	16.0	%	16.1	%
General and administrative	11.3	%	11.7	%
Amortization of intangibles	3.6	%	3.2	%
Exit and disposal activities	0.9	%	(4.9	)%
Non-cash stock option compensation expense	0.0	%	0.2	%
Total operating expenses	106.5	%	110.0	%
Loss from operations	(6.5	)%	(10.0	)%
Other expense-net	(3.2	)%	(4.4	)%
Loss before income taxes	(9.7	)%	(14.4	)%
Provision for income taxes	0.8	%	0.6	%
Net loss	(10.5	)%	(15.0	)%

• valuation and impairment review of long-lived assets;

~~The~~• income percentages shown above for cost of services and support, sales and marketing, product development and general and administrative expenses have been calculated excluding non-cash stock option compensation expense.taxes;

~~Revenue:~~• exit and disposal activities; and

~~Software Revenue.~~• stock ~~Software~~option-based ~~revenue~~compensation ~~decreased $2~~plans.0 million, or 19.1%, to $8.4 million for the three months ended May 31, 2005 compared to the three months ended May 31, 2004. We believe the decrease in software revenue and software revenue as a percentage of total revenue is due to cautious capital spending for supply chain software purchases and to effects resulting from the magnitude of changes in our workforce, including our executive management and sales organization, difficulties in sales execution and a strong competitive environment. These factors resulted in a decrease in the number of significant software license transactions with a value of $100,000 or greater for the three months ended May 31, 2005 compared to the three months ended May 31, 2004 partially offset by an increase in ASP. ASP for the three months ended May 31, 2005 was higher due to one software transaction which accounted for more than 10% of total revenue.

20Our management has reviewed our critical accounting policies, our critical accounting estimates and the related disclosures with our Disclosure and Audit Committees. These policies and our procedures related to these policies are described further in our Annual Report on Form 10-K for the year ended February 28, 2005 in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under the heading “Use of Estimates and Critical Accounting Policies.”

~~The following table summarizes significant software transactions completed during the three months ended May 31, 2005 and 2004:~~19

	Three Months Ended May 31,
	2005		2004
Significant Software Transactions (1)
Number of transactions $100,000 to $999,999	5		12
Number of transactions $1.0 million or greater	2		1
Total number of transactions	7		13
Average selling price (in thousands)	$	976	$	695

Results of Operations

~~(1) Significant~~The ~~software transactions~~following ~~are~~table ~~those~~includes ~~with~~the aCondensed Consolidated ~~value~~Statements of ~~$100,000~~Operations ordata ~~greater~~for ~~recognized~~the ~~within~~three and nine months ended ~~the~~November ~~fiscal~~30, ~~quarter.~~2005 and 2004 expressed as a percentage of total revenue:

Support Revenue. Support revenue increased $0.4 million, or 1.8%, to $21.8 million for the three months ended May 31, 2005 compared to the three months ended May 31, 2004. The increase in support revenue for the three months ended May 31, 2005 compared to the three months ended May 31, 2004 was primarily due to collection from a customer for outstanding support for which the related revenue previously did not meet the criteria for recognition. This increase was partially offset by decreases in support revenue from non-renewals not being fully offset by increases in support revenue from new software sales. Our percentage of annual support renewals by our clients continues to remain over ninety percent. There can be no assurance that our historical renewal rate will continue. See “Forward-Looking Statements” and “Factors That May Affect Future Results.”

	Three Months Ended				Nine Months Ended
	November 30,				November 30,
	2005		2004		2005		2004
Revenue:
Software license	10.3	%	14.8	%	13.4	%	19.0	%
Support	52.8	%	45.9	%	49.7	%	42.9	%
Services	33.0	%	35.9	%	33.1	%	33.9	%
Reimbursed expenses	3.9	%	3.4	%	3.8	%	4.2	%
Total revenue	100.0	%	100.0	%	100.0	%	100.0	%

Operating expenses:
Cost of software license	9.0	%	7.8	%	8.6	%	7.3	%
Amortization of acquired technology	2.3	%	7.9	%	3.6	%	7.2	%
Cost of services and support	36.4	%	40.8	%	35.4	%	37.6	%
Cost of reimbursed expenses	3.9	%	3.4	%	3.8	%	4.2	%
Sales and marketing	23.3	%	25.3	%	22.1	%	28.3	%
Product development	16.3	%	18.3	%	16.9	%	17.0	%
General and administrative	10.5	%	11.7	%	11.1	%	11.7	%
Amortization of intangibles	4.2	%	3.7	%	3.8	%	3.4	%
Asset impairment	—		—		2.9	%	—
Exit and disposal activities	3.2	%	6.5	%	2.3	%	4.5	%
Non-cash stock option compensation expense	—		—		—		0.1	%
Total operating expenses	109.1	%	125.4	%	110.5	%	121.3	%

Loss from operations	(9.1	)%	(25.4	)%	(10.5	)%	(21.3	)%
Other expense—net	(3.0	)%	(3.5	)%	(3.4	)%	(3.8	)%

Loss before income taxes	(12.1	)%	(28.9	)%	(13.9	)%	(25.1	)%
(Benefit) provision for income taxes	(0.5	)%	0.5	%	(1.9	)%	0.6	%

Net loss	(11.6	)%	(29.4	)%	(12.0	)%	(25.7	)%

Services Revenue. Services revenue decreased $2.9 million, or 16.4%, to $14.7 million for the three months ended May 31, 2005 compared to the three months ended May 31, 2004. Services revenue tends to track software revenue in prior periods. The ~~decrease~~ inpercentages ~~services~~shown ~~revenue~~above for ~~the~~cost ~~three months ended May 31, 2005 compared to the three months ended May 31, 2004 was primarily due to the decrease in the number~~ of ~~completed~~services ~~software transactions in late fiscal 2005~~and ~~compared to the same period in fiscal 2004. Additionally~~support, wesales ~~have~~and ~~experienced competitive rate pressures on our consulting engagements~~marketing, ~~lower~~product ~~demand~~development ~~for implementation services~~ and ageneral ~~decrease in the number of consulting employees~~and ~~who~~administrative ~~generate~~expenses ~~services~~have ~~revenue,~~been ~~both~~calculated ~~from~~excluding ~~voluntary and involuntary terminations. See “Forward~~non-~~Looking~~cash ~~Statements”~~stock ~~and “Factors That May Affect~~option ~~Future~~compensation ~~Results~~expense.”

~~Geographic~~ Revenue. We market and sell our software and services internationally, primarily in Europe, Asia, Canada, Central America and South America. Total revenue outside of the U.S. increased $3.1 million, or 20.3%, to $18.6 million for the three months ended May 31, 2005 compared to the three months ended May 31, 2004. Total revenue by geographic area is determined on the basis of the geographic area in which transactions are consummated. Total revenue outside of the U.S. as a percentage of total revenue was 39.9% and 30.0% for the three months ended May 31, 2005 and 2004, respectively. The increase in total revenue outside of the U.S. for the three months ended May 31, 2005 compared to the three months ended May 31, 2004 was primarily due to one software transaction consummated in Europe which accounted for more than 10% of total revenue.:

~~Operating~~Software License ~~Expenses:~~Revenue. Software license revenue decreased $2.6 million, or 39%, to $4.1 million and $10.6 million, or 38%, to $17.6 million for the three and nine months ended November 30, 2005, respectively, compared to the three and nine months ended November 30, 2004. We believe the decrease in software license revenue and software license revenue as a percentage of total revenue is due to cautious capital spending for supply chain software purchases, concerns about consolidation in our industry and about our financial viability and to effects resulting from changes in our workforce, including our executive management and sales organization, difficulties in sales execution and a highly competitive environment. These factors resulted in a decrease in the number of significant software license transactions with a value of $100,000 or greater (excluding those recognized on a percentage-of-completion or ratable basis), the number of software license transactions of $1 million or greater and our ASP for the three and nine months ended November 30, 2005 compared to the three and nine months ended November 30, 2004.

Cost of Software. Cost of software consists primarily of amortization of capitalized software development costs and royalty fees associated with third-party software either embedded in our software or resold by us. The following table sets forth amortization of capitalized software development costs and other costs of software for the three months ended May 31, 2005 and 2004 (in thousands):20

	Three Months Ended May 31,
	2005			2004
Amortization of capitalized software	$	2,638		$	2,683
Percentage of software revenue	31.4		%	25.9		%
Other costs of software	1,830			1,231
Percentage of software revenue	21.8		%	11.9		%
Total cost of software	$	4,468		$	3,914
Percentage of software revenue	53.2		%	37.8		%

The following table summarizes significant software license transactions completed during the three and nine months ended November 30, 2005 and 2004:

The increase in the total cost of software during the three months ended May 31, 2005 as compared to the three months ended May 31, 2004 was primarily a result of increased amortization of prepaid royalty fees paid to a certain alliance partner over the period of remaining benefit.

	Three Months Ended				Nine Months Ended
	November 30,				November 30,
	2005		2004		2005		2004
Significant Software License Transactions (1)
Number of transactions $100,000 to $999,999	10		10		28		37
Number of transactions $1.0 million or greater	0		1		2		5
Total number of transactions	10		11		30		42
Average selling price (in thousands)	$	288	$	491	$	438	$	572

21(1) Significant software transactions are those with a value of $100,000 or greater (excluding those recognized on a percentage-of-completion or ratable basis) recognized within the fiscal quarter.

~~Amortization~~Support ofRevenue. ~~Acquired~~Support revenue increased $0.4 million, or ~~Technology~~2%, to $21.1 million and $1.3 million, or 2%, to $64.7 million for the three Inand ~~connection~~nine ~~with~~months ~~acquisitions~~ended inNovember ~~fiscal~~30, ~~2003~~2005, ~~2002~~respectively, compared to the three and ~~2001~~nine months ended November 30, we2004, ~~acquired~~respectively. The increase for the ~~developed~~three ~~technology~~months ~~that~~ended weNovember ~~offer~~30, as2005 ~~part~~compared ofto ~~our~~the ~~solutions~~three months ended November 30, 2004 was due to new software license sales. ~~Acquired~~The increase for the ~~technology~~nine ismonths ~~amortized~~ended ~~over~~November ~~periods~~30, ~~ranging~~2005 ~~from~~compared ~~four~~to the nine months ended November 30, 2004 was due to ~~six~~new ~~years~~software license sales and collections from certain customers for outstanding support for which the related revenue did not previously meet the criteria for recognition. WeThese ~~expect~~increases were partially ~~annual~~offset ~~amortization~~by decreases in support revenue from non-renewals. Our percentage of annual ~~acquired~~support ~~technology~~renewals toby our clients remains over ninety percent. There can be ~~approximately~~no $6assurance that our historical renewal rate will continue.7 ~~million~~See in“Forward-Looking ~~fiscal~~Statements” ~~2006~~and “Factors That May Affect Future Results.”

~~Cost of~~ Services ~~and Support~~Revenue. ~~Cost~~Services ofrevenue services and support includes primarily personnel and third-party contractor costs. Cost of services and support, excluding the cost of reimbursed expenses and non-cash stock option compensation expense, decreased $23.80 million, or ~~15.4~~ 18%, to $1513.4 2 million, ~~while the cost of services~~ and ~~support~~$7.0 asmillion, aor ~~percentage~~14%, ~~of related revenue decreased~~ to 42$43.2%1 million for the three and nine months ended ~~May 31~~November 30, 2005 , respectively, compared to ~~46.7% for~~ the three and nine months ended ~~May 31~~November 30, 2004. ~~The~~Services ~~decrease~~revenue ~~in cost~~tends ofto ~~services~~track software ~~and~~license ~~support~~revenue ~~was~~in ~~attributable~~prior toperiods. anThe ~~overall~~ decrease in ~~the average number of~~ services ~~and~~revenue ~~support employees to 277 during~~ for the three and nine months ended ~~May 31~~November 30, 2005, compared to ~~325 during~~ the three and nine months ended ~~May 31~~November 30, 2004. ~~This~~ was primarily ~~the~~due ~~result~~to ofdecreases in the number ~~exit~~ and ~~disposal~~size ~~initiatives~~of ~~that we~~completed ~~approved~~software ~~and~~transactions ~~began implementing~~ in the ~~second~~first half of fiscal 2006 ~~2005~~ and ~~continued~~ due to ~~implement in~~ the ~~three~~deferral ~~months ended May 31, 2005. The decrease in the cost~~ of services ~~and~~revenue ~~support~~related asto a ~~percentage~~previously ~~of related revenue in the three~~closed ~~months~~transaction ~~ended~~for ~~May 31,~~which ~~2005 compared to~~ the ~~three~~criteria ~~months~~for ~~ended~~revenue ~~May 31, 2004~~recognition ~~was~~has ~~primarily~~not ayet ~~result~~been ~~of a $1~~met.~~5 million benefit related to the reversal~~ ofAdditionally, awe ~~previously~~have ~~recorded~~experienced ~~provision~~competitive ~~for~~rate ~~anticipated~~pressures ~~losses~~ on aour ~~contract for~~consulting ~~which~~engagements ~~the~~and ~~Company’s~~lower ~~obligation~~demand tofor ~~provide~~implementation services. ~~expired~~See in“Forward-Looking Statements” ~~the~~and ~~three~~“Factors ~~months ended~~That May ~~31,~~Affect ~~2005~~Future Results.”

~~Sales and Marketing~~Geographic Revenue. ~~Sales~~We market and ~~marketing~~sell ~~expense~~our ~~consists~~software ~~primarily~~and ofservices ~~personnel costs~~internationally, ~~sales~~primarily ~~commissions~~in Europe, Asia-Pacific, Canada, Central America and ~~promotional~~South ~~events~~America. ~~such~~Total asrevenue ~~user~~outside of ~~conferences,~~the ~~trade~~U.S. ~~shows~~decreased ~~and~~$1.5 ~~technical conferences~~million, ~~advertising~~or ~~and~~9%, ~~public~~to ~~relations programs~~$14.7 ~~Sales~~million and ~~marketing expense decreased~~ $42.02 million, or ~~26.5~~4%, to $1148.21 million ~~during~~for the three and nine months ended ~~May 31~~November 30, 2005, respectively, compared to the three and nine months ended ~~May 31~~November 30, 2004. Total revenue by geographic area is determined on the basis of the geographic area in which transactions are consummated. Total revenue outside of the U.S. as a percentage of total revenue was 37% for the three and nine months ended November 30, 2005, respectively, compared to 36% and 34% for the three and nine months ended November 30, 2004, respectively. The ~~decrease~~increase ~~during~~in the ~~three~~percentage of total revenue outside of the U.S. for the nine months ended ~~May 31~~November 30, 2005 compared ~~was~~to the nine months ended November 30, 2004 is due to: a European software license transaction in our first fiscal quarter of 2006 which accounted for more than 10% of the total revenue for that quarter.

~~• an~~Operating overall decrease in the average number of sales, marketing and business development employees to 125 during the three months ended May 31, 2005 compared to 198 during the three months ended May 31, 2004. This was the result of our exit and disposal initiatives that we approved and began implementing in the second half of fiscal 2005 and continued to implement in the three months ended May 31, 2005, in addition to some voluntary attrition;Expenses:

~~• a~~Cost ~~decrease~~of Software License. Cost of software license consists primarily of amortization of capitalized software development costs and royalty fees associated with third-party software either embedded in ~~sales~~our ~~commissions~~software ~~due~~or resold by us. The following table sets forth toamortization ~~lower~~of capitalized software ~~revenue;~~development costs and other costs of software for the three and nine months ended November 30, 2005 and 2004 (in thousands):

• a decrease in promotional spending, travel and public relations spending resulting from cost containment and cost reduction measures implemented in the second half of fiscal 2005 and the first quarter of fiscal 2006.

	Three Months Ended						Nine Months Ended
	November 30,						November 30,
	2005			2004			2005			2004
Amortization of capitalized software	$	2,298		$	2,435		$	7,266		$	7,224
Percentage of software license revenue	56.1		%	36.5		%	41.4		%	25.7		%
Other costs of software license	1,301			1,090			3,915			3,637
Percentage of software license revenue	31.8		%	16.4		%	22.3		%	12.9		%
Total cost of software license	$	3,599		$	3,525		$	11,181		$	10,861
Percentage of software license revenue	87.9		%	52.9		%	63.7		%	38.6		%

~~These decreases~~The ~~were~~increase ~~partially~~in ~~offset~~the bytotal ~~increased~~cost ~~marketing~~of ~~expenses~~software inlicense during the ~~three~~ nine months ended ~~May 31~~November 30, 2005 ~~related~~compared to ~~our~~the ~~enVISION~~nine ~~2005~~months ended ~~client~~November ~~conference held~~30, 2004 was the result of an increase in ~~May 2005~~other costs of software license.

Product Development. Product development costs include expenses associated with the development of new software products, enhancements of existing products and quality assurance activities and are reported net of capitalized software development costs. Such costs are primarily from employees and third-party contractors. The following table sets forth product development costs for the three months ended May 31, 2005 and 2004 (in thousands):21

	Three Months Ended May 31,
	2005			2004
Gross product development costs	$	8,494		$	10,847
Percentage of total revenue	18.2		%	21.0		%
Less: Capitalized software development costs	996			2,519
Percentage of total revenue	2.1		%	4.9		%
Product development costs, as reported	$	7,498		$	8,328
Percentage of total revenue	16.1		%	16.1		%

Amortization of Acquired Technology. In connection with acquisitions in fiscal 2003, 2002 and 2001, we acquired developed technology that we offer as part of our solutions. Acquired technology is amortized over periods ranging from four to six years. We expect annual amortization of acquired technology to be approximately $5.7 million in fiscal 2006.

~~Gross~~Cost of Services ~~product~~and ~~development~~Support. Cost of services and support includes primarily personnel and third-party contractor costs. Cost of services and support, excluding the cost of reimbursed expenses and non-cash stock option compensation expense, decreased $23.4 9 million, or 21%, to $14.75 million, and $9.5 million, or 17%, to $846.5 2 million ~~during~~while the cost of services and support as a percentage of related revenue decreased to 42% and 43% for the three and nine months ended ~~May 31~~November 30, 2005, respectively, compared to 50% and 49% for the three and nine months ended ~~May 31~~November 30, 2004, respectively. The decrease in ~~gross~~cost ~~product~~of ~~development~~services ~~costs~~and support was attributable to ~~for~~an overall decrease in the average number of services and support employees to 285 and 280 during the three and nine months ended ~~May 31~~November 30, 2005, compared to 292 and 310 during the three and nine months ended November 30, 2004, respectively. This was primarily the result of the exit and disposal initiatives that we approved and began implementing in the second half of fiscal 2005 and continued to implement during the nine months ended November 30, 2005. The decrease in the cost of services and support as a percentage of related revenue in the three and nine months ended November 30, 2005 compared ~~May 31~~to the three and nine months ended November 30, 2004 was ~~due~~primarily a result of lower outside contractor costs and a $1.5 million benefit related to: the reversal of a previously recorded provision for anticipated losses on a contract for which the Company’s obligation to provide services expired in the nine months ended November 30, 2005.

~~• an~~Sales ~~overall~~and Marketing. ~~decrease~~Sales and inmarketing ~~the~~expense ~~average number~~consists primarily of ~~product~~personnel ~~development~~costs, ~~employees~~sales tocommissions, and ~~203~~promotional ~~for~~events ~~the~~such ~~three~~as ~~months~~user ~~ended May 31~~conferences, trade shows and technical ~~2005~~conferences, ~~compared~~advertising toand ~~235~~public ~~for~~relations ~~the~~programs. ~~three~~Sales ~~months~~and ~~ended~~marketing expense ~~May 31~~decreased $2.1 million, ~~2004~~or 18%, asto a$9.3 ~~result~~million and $13.0 million, or of31%, ~~the~~to ~~implementation~~$28.8 ofmillion ~~our~~during ~~exit~~the three and ~~disposal~~nine ~~initiatives~~months ~~that~~ended weNovember ~~approved~~30, ~~and~~2005, ~~began~~respectively, ~~implementing~~compared into the ~~second~~three ~~half~~and ofnine ~~fiscal~~months ~~2005~~ended ~~and~~November ~~continued~~30, ~~to implement~~2004, inrespectively. The decrease during the three and nine months ended ~~May 31,~~November 30, 2005; was due to:

22• an overall decrease in the average number of sales, marketing and business development employees to 119 and 122 during the three and nine months ended November 30, 2005, respectively, compared to 153 and 181 during the three and nine months ended November 30, 2004, respectively. This was the result of our exit and disposal initiatives that we approved and began implementing in the second half of fiscal 2005 and continued to implement in the nine months ended November 30, 2005 and some voluntary attrition;

• ~~an overall~~ a decrease in ~~the~~sales ~~average number~~commissions ~~of product development contractors~~ in the ~~U.S.~~nine ~~during the three~~ months ended ~~May 31~~November 30, 2005 compared to the ~~three~~nine months ended ~~May 31~~November 30, 2004; due to lower software license revenue; and

• ~~lower~~a decrease ~~personnel~~in ~~costs~~promotional asspending, wetravel ~~continue~~and public relations spending toresulting ~~migrate~~from ~~more~~cost ~~product~~containment ~~development~~and ~~efforts~~cost toreduction ~~our~~measures ~~new~~implemented ~~product~~in ~~development~~the ~~center~~second inhalf ~~Hyderabad,~~of ~~India~~fiscal 2005 and the first half of fiscal 2006.

~~General~~These ~~and~~decreases ~~Administrative.~~were ~~General and~~partially ~~administrative~~offset ~~expenses~~by ~~decreased $0.7 million, or 12.4%, to $5.3 million~~marketing ~~for~~expenses in the ~~three~~nine months ended ~~May 31~~November 30, 2005 ~~compared~~related to ~~the three months ended May 31, 2004. General and administrative expenses include personnel and other costs of~~ our ~~legal, finance, accounting, human resources, facilities, and~~enVISION ~~information systems functions. The decrease for the three months ended May 31,~~ 2005 ~~compared~~client toconference ~~the~~held ~~three~~in ~~months ended~~ May ~~31, 2004 was the result of a decrease in the average number of general and administrative employees and decreased outside professional fees~~2005.

~~Amortization~~Product ~~of Intangibles~~Development. ~~Our past~~Product ~~acquisitions~~development ~~were~~costs ~~accounted~~include ~~for~~expenses associated ~~under~~with the ~~purchase~~development ~~method~~ of ~~accounting. As~~new asoftware ~~result~~products, weenhancements ~~recorded~~of existing ~~goodwill~~products and ~~other~~quality ~~intangible~~assurance ~~assets~~activities ~~that~~and ~~represent the~~are ~~excess~~reported ofnet ~~the purchase price paid over the fair value~~ of capitalized ~~the~~software ~~net~~development ~~tangible assets acquired~~costs. ~~Other~~Such ~~intangible~~costs ~~assets~~ are ~~amortized~~primarily ~~over~~from ~~periods ranging~~employees ~~from~~and ~~four~~third-party ~~to seven years~~contractors. ~~Amortization~~The offollowing ~~intangibles~~table ~~remained~~sets ~~stable~~forth atproduct ~~$1.7~~development ~~million~~costs for the three and nine months ended ~~May 31~~November 30, 2005 and 2004. ~~We continue to monitor our performance and the useful lives of our intangible assets~~ (in ~~view~~ ~~of declining revenue.~~thousands):

Goodwill Impairment. During the three months ended May 31, 2005, we experienced adverse changes in our stock price. We performed a test for goodwill impairment at May 31, 2005 and determined that based upon our implied fair value (which includes factors such as, but not limited to, our market capitalization, control premium and recent stock price volatility) as of May 31, 2005, there was no impairment of goodwill.

	Three Months Ended						Nine Months Ended
	November 30,						November 30,
	2005			2004			2005			2004
Gross product development costs	$	7,355		$	10,853		$	24,434		$	32,291
Percentage of total revenue	18.4		%	24.1		%	18.8		%	21.8		%
Less: Capitalized software development costs	832			2,596			2,457			7,140
Percentage of total revenue	2.1		%	5.8		%	1.9		%	4.8		%
Product development costs, as reported	$	6,523		$	8,257		$	21,977		$	25,151
Percentage of total revenue	16.3		%	18.3		%	16.9		%	17.0		%

Exit and Disposal Charges. During the three months ended May 31, 2005, we continued to implement the FY05 Q2 Plans designed to further adjust our cost structure and resource allocation to increase efficiencies and reduce excess office space. For the three months ended May 31, 2005, we involuntarily terminated a total of 13 employees located in the U.S and recorded a charge for severance and related benefits of approximately $0.2 million and recorded a facility charge of approximately $0.3 million as a result of abandoning idle office space located in Brussels, Belgium. Additionally, we recorded a benefit of approximately $0.1 million, net related to changes in sublease income estimates due to extending and executing subleases for our properties located in San Carlos, California; Atlanta, Georgia; and Detroit, Michigan and interest accretion charges.22

OnGross ~~April 14,~~product ~~2004,~~development wecosts ~~signed~~decreased $3.5 million, aor ~~lease~~32%, ~~termination~~to ~~agreement~~$7.4 ~~with the~~million ~~landlord~~and ofdecreased ~~our~~$7.9 ~~facility in metropolitan Chicago~~million, ~~Illinois,~~or ~~for unused~~24%, ~~office~~to ~~space as a result of past restructuring activity~~$24.4 Asmillion ~~part~~during of the ~~lease termination~~three ~~agreement,~~and wenine ~~paid~~months ~~approximately~~ended ~~$3.3~~November ~~million~~30, ~~in cash in exchange~~2005, ~~for~~respectively, ~~terminating~~compared ~~our~~to ~~lease~~the ~~agreement~~three ~~which~~and ~~expires~~nine inmonths ~~fiscal~~ended ~~2009.~~November We30, ~~recorded a~~2004, ~~restructuring~~respectively. ~~benefit~~The ofdecrease ~~approximately~~in ~~$2.8~~gross ~~million~~product ~~related~~development tocosts ~~the~~for ~~lease termination during~~ the three and nine months ended ~~May 31~~November 30, ~~2004.~~2005 was due to:

~~The~~• an ~~following~~overall ~~table~~change ~~sets~~in ~~forth~~the aaverage ~~summary~~number of ~~exit~~product development employees to 253 and ~~disposal~~232 ~~charges~~for the three and nine months ended November 30, ~~net~~2005 ofcompared to ~~adjustments~~217 and 227 for the three and nine months ended November 30, 2004. The increase in the average number of product development employees for the three and nine months ended ~~May 31~~November 30, 2005 compared to the three and nine months ended November 30, 2004 ~~(in~~was a result of increased headcount at our Hyderabad, India product ~~thousands):~~development facility;

	Three Months Ended May 31,
	2005			2004
Lease obligations and terminations	$	225		$	(2,837	)
Severance and related benefits	227			—
Impairment charges	—			246
Other	(25		)	74
Total exit and disposal activities	$	427		$	(2,517	)

• an overall decrease in the average number of product development contractors in the U.S. during the three and nine months ended November 30, 2005 compared to the three and nine months ended November 30, 2004; and

~~The~~• despite ~~impact~~increased toheadcount, ~~reported~~we ~~basic~~have ~~and~~experienced ~~diluted~~lower ~~loss~~personnel ~~per~~costs ~~share~~ as awe ~~result~~continue to ofmigrate ~~the~~more ~~exit~~product ~~and disposal~~development ~~charges~~efforts ~~was~~to ~~$(0.01)~~our product development center in Hyderabad, India and ~~$0.03~~take ~~for~~advantage of the ~~three~~lower ~~months~~wage ~~ended~~resources ~~May 31,~~located in ~~2005~~that ~~and 2004, respectively~~region.

InGeneral and ~~response~~Administrative. toGeneral and ~~the~~administrative ~~challenges~~expenses wedecreased ~~faced~~$1.1 inmillion, ~~our~~or ~~ability~~21%, to ~~stabilize~~$4.2 ~~revenue~~million and ~~operating~~$2.8 ~~performance~~million, weor ~~enacted~~16%, ato ~~number~~$14.5 ofmillion ~~cost~~for ~~containment~~the three and ~~cost~~nine months ended ~~reduction~~November 30, ~~measures~~2005, ~~over~~respectively, compared to the ~~past~~three ~~four~~and ~~fiscal~~nine ~~years~~months ended toNovember ~~better~~30, ~~align~~2004. General and administrative expenses include personnel and other costs of our ~~cost~~legal, finance, accounting, human resources, facilities ~~structure~~and ~~with~~information ~~expected~~systems ~~revenue~~functions. ~~Specifically~~The decrease for the three and nine months ended November 30, we2005 ~~took~~compared to the ~~following~~three ~~actions:~~and nine months ended November 30, 2004 was the result of a decrease in the average number of general and administrative employees and decreased outside professional fees.

1Amortization of Intangibles. We Our ~~reduced~~past ~~our~~acquisitions ~~workforce~~were byaccounted ~~140,~~for 79under the purchase method of accounting. As a result, ~~343~~we recorded goodwill and ~~163~~other ~~employees~~intangible ~~through~~assets ~~involuntary~~that represent ~~terminations~~the ~~under~~excess of the ~~exit~~purchase ~~and~~price ~~disposal~~paid ~~plans~~over ~~approved~~the ~~during~~fair ~~fiscal~~value ~~2005,~~of the net tangible ~~2004~~assets acquired. Other intangible assets are amortized over periods ranging from four to seven years. Amortization of intangibles was $1.7 million for the three months ended November 30, ~~2003~~2005 and ~~2002,~~2004. ~~respectively~~We continue to monitor our performance and the useful lives of our intangible assets in view of declining revenue.

23Impairment of Long-Lived Assets. During the nine months ended November 30, 2005, we performed an impairment test of our long-lived assets and concluded that, although we continue to sell the products acquired in the PartMiner CSD, Inc. asset acquisition, we do not believe that future operating cash flows will be sufficient to support the related asset balance. Therefore, we wrote-off the remaining asset balance which resulted in a net reduction in acquisition-related intangible assets of $3.7 million.

2Goodwill Impairment. We During ~~further~~the ~~consolidated~~three ~~our~~months ~~product~~ended ~~development~~May ~~function~~31, 2005, we experienced adverse changes in ~~the~~our stock Uprice.S. toWe ~~the corporate~~performed ~~headquarters~~a intest ~~Rockville,~~for ~~Maryland~~goodwill asimpairment ~~part~~at ofMay ~~the~~31, ~~exit~~2005 and ~~disposal~~ ~~plans~~determined ~~approved~~that ~~during~~based ~~fiscal~~upon ~~2004,~~our ~~2003~~implied ~~and~~fair ~~2002.~~value ~~This~~(which ~~included~~includes ~~the~~factors ~~relocation~~such ofas, ~~certain~~but ~~employees~~not ~~from~~limited ~~Wayne~~to, ~~Pennsylvania;~~our ~~San~~market ~~Carlos~~capitalization, ~~California;~~control ~~Atlanta,~~premium and recent ~~Georgia;~~stock ~~Denver,~~price ~~Colorado~~volatility) ~~and~~as ~~Ottawa~~of May 31, ~~Canada~~2005, tothere ~~our~~was ~~headquarters~~no inimpairment ~~Rockville,~~of ~~Maryland~~goodwill.

~~3. As a~~During ~~result of~~ the ~~workforce~~three ~~reductions,~~months ~~product~~ended ~~development~~November ~~consolidation~~30, ~~and employee attrition~~2005, ~~certain of~~ our ~~facilities were under-utilized. Accordingly,~~ weChief ~~consolidated~~Financial ~~our~~Officer ~~remaining~~left ~~workforce in~~ the ~~under-utilized~~Company ~~facilities and ceased~~ to ~~utilize~~take ~~the~~a ~~then-vacated~~position ~~office~~at ~~space.~~another ~~The facilities permanently~~company. ~~removed~~As ~~from~~a ~~our~~result, ~~operations~~we ~~during~~performed ~~the~~a ~~first~~test ~~quarter~~for ofgoodwill ~~fiscal~~impairment. ~~2006,~~We ~~fiscal~~determined ~~2005~~that, ~~2004,~~based ~~2003~~upon ~~and~~the ~~2002~~implied ~~were~~fair ~~located~~value in(which ~~Brussels,~~includes ~~Belgium;~~factors ~~Wayne,~~such ~~Pennsylvania; Irving~~as, ~~Texas;~~but ~~Detroit, Michigan; Denver, Colorado; Ratingen and Munich,~~not ~~Germany;~~limited ~~Ottawa~~to, ~~Canada;~~our ~~Chicago,~~market ~~Illinois; Milan~~capitalization, ~~Italy~~control premium and ~~Stockholm,~~recent ~~Sweden.~~stock price Avolatility) ~~portion~~as of ~~the~~November ~~office space was permanently vacated in certain facilities located in Rockville~~30, ~~Maryland; Atlanta~~2005, ~~Georgia;~~there ~~Calabasas~~was ~~and~~no ~~San~~impairment ~~Carlos, California~~of ~~and Bracknell, United Kingdom~~goodwill.

4Exit and Disposal Charges. As During ~~part~~the ofthree ~~the~~and ~~consolidation~~nine ofmonths ~~our~~ended ~~facilities~~November 30, ~~certain~~2005, ~~leasehold~~we ~~improvements~~continued to implement the FY05 Q2 Plans designed to further adjust our cost structure and ~~furniture~~resource allocation to increase efficiencies and ~~fixtures~~reduce ~~were~~excess ~~abandoned~~office space. For Asthe anine ~~result~~months ended November 30, 2005, we ~~recorded~~involuntarily ~~non-cash~~terminated ~~charges~~32 ~~equal~~employees tolocated in the ~~net~~U.S. ~~book~~and ~~value~~one located in Europe and recorded a charge for severance and related benefits of ~~these~~approximately ~~abandoned~~$1.2 ~~assets~~million. Additionally, we vacated additional space at our Headquarters located in ~~exit~~Rockville, Maryland, signed sublease agreements for our previously vacated space located in San Carlos, California and ~~disposal~~Detroit, Michigan and entered into two lease amendments for our office space in Calabasas, California. Total charges related to lease obligations and terminations were approximately $1.7 million for the nine months ended November 30, 2005. Other impairment and miscellaneous charges were approximately $0.1 million.

~~We expect~~On toApril 14, ~~incur~~2004, ~~additional~~we ~~exit~~signed ~~and~~a ~~disposal charges of $0.8 million to $1.1 million~~lease astermination aagreement ~~result~~with of the ~~continued~~landlord ~~implementation~~ of our ~~FY05~~facility Q2in ~~Plans during the~~metropolitan ~~second~~Chicago, ~~and third quarters of fiscal 2006~~Illinois. ~~This~~As ~~will~~part ~~result in future cash expenditures consisting primarily~~ of ~~$0.5~~the ~~million~~lease totermination ~~$0.7~~agreement, ~~million~~we ~~for lease~~paid ~~abandonments~~approximately ~~and~~ $03.3 million ~~to $0.4 million~~ in ~~severance~~cash ~~and other benefits associated with further reductions~~ in ~~headcount.~~exchange Infor ~~addition,~~terminating inour ~~the third~~lease ~~quarter~~agreement ofwhich ~~fiscal~~would ~~2005,~~have weexpired ~~commenced operations at our new product development facility~~ in ~~Hyderabad,~~fiscal ~~India~~2009. ~~In conjunction~~ ~~with~~We ~~the~~recorded ~~opening~~an ofexit ~~this facility, we announced that we would be~~and ~~shifting~~disposal abenefit ~~substantial portion~~ of ~~our~~approximately ~~development to the new facility throughout calendar year 2005. We expect to realize additional cost savings from our third quarter of fiscal 2005 of~~ $2.08 million related to ~~$3.0 million per quarter by~~ the ~~end~~lease ~~of fiscal 2006 as a result~~termination ofduring ~~opening~~ the ~~new~~three ~~development~~months ~~center~~ended May 31, 2004.

Primarily as a result of our exit and disposal activities and cost containment initiatives during the past three fiscal years, we have reduced “all other operating expenses” (as shown in the table under “Key Financial Metrics – Fiscal 2006”) to $45.6 million for the three months ended May 31, 2005 as compared to $53.9 million for the three months ended May 31, 2004. The cost savings associated with our exit and disposal and cost containment efforts will begin to be fully realized in the quarter following completion of the implementation of the exit and disposal plans. Details of our exit and disposal charges are included in Note 7 in the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.23

~~Substantially all~~The offollowing ~~the~~table ~~cost~~sets ~~savings~~forth ~~from~~a ~~our~~summary of exit and disposal ~~activities~~charges, ~~and~~net ~~cost containment initiatives implemented in fiscal 2004 and fiscal 2005 were reflected in our operating results by the first quarter~~ of ~~fiscal~~adjustments, ~~2005~~for ~~and fiscal 2006. We expect to complete our cost containment initiatives related to~~ the ~~FY05~~three ~~Q2 Plans by the end of the third quarter of fiscal year 2006~~ and ~~fully~~nine ~~realize~~months ~~the cost~~ended ~~savings associated with these actions by the fourth quarter of fiscal 2006.~~November 30, ~~The~~2005 ~~total exit~~ and ~~disposal~~2004 ~~charges reflected~~ (in the financial statements are based on management’s current estimates, which may change materially if actual lease-related expenditures or sublease income differ from current estimates. See “Forward-Looking Statements.”thousands):

Non-Cash Stock Option Compensation Expense. Non-cash stock option compensation expense was $0 for the three months ended May 31, 2005 compared to $0.1 million for the three months ended May 31, 2004 related to unvested stock options assumed in the Talus acquisition, completed in December 2000. These amounts are included as a separate component of stockholders’ equity and are amortized by charges to operations in accordance with FASB Interpretation No. 44 (“FIN 44”) “Accounting for Certain Transactions Involving Stock Compensation.”

	Three Months Ended						Nine Months Ended
	November 30,						November 30,
	2005			2004			2005			2004
Lease obligations and terminations	$	1,534		$	578		$	1,722		$	1,118
Severance and related benefits	(364		)	2,647			1,202			4,569
Impairment charges	89			(370		)	89			562
Other	—			76			(25		)	387
Total exit and disposal activities	$	1,259		$	2,931		$	2,988		$	6,636

~~As part~~The ofimpact ~~the~~to ~~Talus~~reported ~~acquisition,~~basic weand ~~assumed~~diluted ~~all~~loss ~~outstanding Talus stock options,~~per ~~which~~share ~~were~~as ~~converted~~a ~~into~~result ~~our stock options. Options to purchase approximately 631,000 shares~~ of ~~our~~the ~~common~~exit ~~stock~~and ~~were~~disposal ~~unvested~~charges atwas ~~the~~$(0.02) ~~acquisition~~and ~~date~~$(0.04) ~~FIN~~for ~~44 requires~~ the ~~acquiring~~three ~~company~~and tonine ~~measure~~months ~~the~~ended ~~intrinsic~~November ~~value~~30, of2005, ~~unvested stock~~respectively, ~~options~~compared ~~assumed at the acquisition date in a purchase business~~to ~~combination~~$(0.04) and ~~record~~$(0.08) afor ~~compensation charge over~~ the ~~remaining~~three ~~vesting period of those options to the extent those options remain outstanding. All of these outstanding options are fully vested~~ and ~~all~~nine ~~compensation~~months ~~expense~~ended ~~has~~November 30, ~~been~~2004, ~~recognized~~respectively.

~~Other~~In ~~Expense,~~response Net. Other expense, net, includes interest income from cash equivalents, marketable securities and long-term investments, interest expense from borrowings, foreign currency exchange gains or losses and other gains or losses. Other expense, net decreased $0.8 million, or 33.9%, to ~~$1.5 million for~~ the ~~three~~challenges ~~months~~we ~~ended~~faced ~~May 31,~~in ~~2005 compared~~our ability to ~~the~~stabilize ~~three~~revenue ~~months~~and ~~ended~~operating ~~May 31~~performance, ~~2004.~~we ~~The~~enacted ~~decrease~~a innumber ~~other expense, net~~of ~~for~~cost ~~the~~containment ~~three~~and ~~months~~cost ~~ended~~reduction ~~May 31,~~measures ~~2005~~over ~~compared to~~ the ~~three~~past ~~months~~four ~~ended May 31,~~fiscal ~~2004~~years ~~primarily relates~~ to ~~an increase in interest income of $0.3~~ ~~million~~better ~~and~~align aour ~~foreign~~cost ~~exchange~~structure ~~gain~~with ofexpected $0revenue.3 ~~million~~Specifically, ~~compared~~we ~~to a foreign~~took ~~exchange loss of $0.2 million during~~ the ~~three~~following ~~months ended May 31, 2004.~~actions:

241. We reduced our workforce by 173, 79 and 343 employees through involuntary terminations under the exit and disposal plans approved during fiscal 2005, 2004 and 2003, respectively.

~~Provision for Income Taxes~~2. We ~~Income~~further ~~tax~~consolidated ~~expense~~our ~~was~~product ~~$0.4~~development ~~million~~function ~~for~~in the ~~three~~U.S. ~~months~~to ~~ended~~the ~~May 31,~~corporate ~~2005~~headquarters ~~compared~~in ~~to $0.3~~Rockville, ~~million~~Maryland ~~for~~as ~~the~~part ~~three~~of ~~months~~the ~~ended~~exit ~~May 31,~~and ~~2004.~~disposal ~~Income~~plans ~~tax~~approved ~~expense~~during ~~is related~~fiscal to2004 ~~our foreign operations~~and 2003. WeThis ~~did~~included ~~not~~the ~~record~~relocation aof ~~deferred~~certain ~~income~~employees ~~tax~~from Wayne, ~~benefit~~Pennsylvania; ~~during~~San ~~the~~Carlos, ~~three~~California; ~~months~~Atlanta, ~~ended~~Georgia; ~~May 31~~Denver, ~~2005~~Colorado ~~because we believe it~~and isOttawa, ~~more~~Canada ~~likely~~to ~~than~~our ~~not~~headquarters ~~the~~in ~~tax~~Rockville, ~~benefit will not be realized~~Maryland.

~~Loss per Common Share~~3. As ~~Loss~~a ~~per~~result ~~common share is computed in accordance with Statement~~ of ~~Financial~~the ~~Accounting~~workforce ~~Standards No. 128~~reductions, ~~“Earnings~~product ~~Per~~development ~~Share”~~consolidation ~~(“SFAS~~and ~~128”)~~employee ~~which requires~~attrition, ~~dual~~certain ~~presentation~~ of ~~basic and diluted earnings per common share for~~our ~~entities~~facilities ~~with~~were ~~complex capital structures~~under-utilized. ~~Basic~~Accordingly, ~~loss~~we ~~per~~consolidated ~~common~~our ~~share is based~~remaining onworkforce ~~net~~in ~~loss divided by~~ the ~~weighted~~under-~~average~~utilized ~~number~~facilities ofand ~~common~~ceased ~~shares~~to ~~outstanding during~~utilize the then-vacated ~~reporting~~office ~~period~~space. ~~Diluted~~The ~~loss~~facilities ~~per~~entirely ~~common~~vacated ~~share~~during ~~includes,~~the ~~when~~first ~~dilutive,~~quarter ~~(i) the effect~~ of ~~outstanding~~fiscal ~~stock~~2006, ~~options~~fiscal 2005, ~~restricted~~2004 ~~stock~~ and ~~warrants~~2003 ~~granted~~were ~~using~~located ~~the~~in ~~treasury stock method~~Brussels, ~~(ii) the effect of~~ ~~contingently~~Belgium; ~~issuable~~Wayne, ~~shares~~Pennsylvania; ~~earned during the reporting period~~Irving, ifTexas; ~~any~~Detroit, ~~and~~Michigan; ~~(iii) shares~~Denver, ~~issuable~~Colorado; ~~under~~Ratingen ~~the~~and ~~conversion~~Munich, ~~feature~~Germany; ofMilan, ~~our~~Italy 5%and ~~Convertible~~Stockholm, ~~Subordinated~~Sweden. ~~Notes~~A ~~due~~portion inof ~~2007 (~~the ~~“Notes”)~~office ~~using~~space ~~the~~was ~~if-converted~~vacated ~~method.~~in ~~Calculations~~certain offacilities located in ~~weighted-average~~Rockville, ~~shares~~Maryland; ~~outstanding~~Atlanta, inGeorgia; ~~future~~Calabasas ~~reporting~~and ~~periods~~San ~~will~~Carlos, beCalifornia; ~~affected~~Tokyo, byJapan ~~the~~and ~~following~~Bracknell, ~~factors:~~United Kingdom.

~~• the~~4. As ~~ongoing~~part ~~issuance~~of the consolidation of ~~common~~our facilities, ~~stock~~certain leasehold improvements and furniture and fixtures were ~~associated~~abandoned. ~~with~~As ~~stock~~a ~~option~~result, we recorded non-cash charges equal to the net book value of these abandoned assets in exit and ~~warrant~~disposal ~~exercises;~~charges.

• In the ~~potential~~third ~~future~~quarter ~~issuance~~of fiscal 2005, we commenced operations at our product development facility in Hyderabad, India. In conjunction with the opening of this facility, we announced that we would be shifting a substantial portion of our development efforts to the new facility throughout calendar year 2005. As a result of the transition to our Hyderabad facility, we expect to realize additional ~~common~~cost ~~shares~~savings ~~associated~~of ~~with~~$2.0 million to $3.0 million per quarter of gross product development costs by the end of fiscal 2006 compared to our ~~employee~~third ~~stock~~quarter ~~purchase~~of ~~plan;~~fiscal 2005.

~~• any~~Primarily ~~fluctuations~~as ina result of our ~~stock~~exit ~~price~~and disposal activities and cost containment initiatives during the past three fiscal years, ~~which~~we ~~could~~have ~~cause~~reduced ~~changes~~“all other operating expenses” (as shown in the ~~number~~table ofunder ~~common~~“Key Financial ~~stock~~Metrics ~~equivalents~~— ~~included~~Fiscal in2006”) to $39.7 million and $127.5 million for the three and nine months ended November 30, 2005, respectively, as compared to $48.4 million and $157.0 million for the ~~diluted~~three ~~earnings~~and ~~per~~nine ~~common~~months ~~share~~ended November ~~calculations~~30, (2004, respectively. The cost savings associated with our exit and disposal and cost containment efforts will begin to be fully realized in the quarter ~~extent~~following wecompletion ~~have~~of ~~net~~the implementation of the exit and disposal ~~income);~~plans. Details of our exit and disposal charges are included in Note 8 in the Notes to Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

• Substantially all of the ~~potential~~cost ~~ongoing~~savings ~~future~~from ~~issuance~~our exit and disposal activities and cost containment initiatives implemented in fiscal 2004 and fiscal 2005 were reflected in our operating results by the first quarter of fiscal ~~restricted~~2005 ~~stock;~~and fiscal 2006, respectively. We expect to complete our cost containment initiatives related to the FY05 Q2 Plans by the end of fiscal year 2006 and fully realize the cost savings associated with these actions by the first quarter of fiscal 2007. The total exit and disposal charges reflected in the financial statements are based on management’s current estimates, which may change materially if actual lease-related expenditures or sublease income differ from current estimates.

~~• the~~Other ~~issuance~~Expense, Net. ofOther expense, ~~common~~net, ~~stock~~includes tointerest income from cash equivalents, marketable ~~effect~~securities ~~capital~~and ~~transactions~~long-term investments, interest expense from borrowings, foreign currency exchange gains or ~~business~~losses ~~combinations~~and ~~should~~other wegains ~~enter~~or ~~into~~losses. ~~such~~Other expense, net ~~transactions;~~decreased $0.4 million, or 23%, to $1.2 million and $1.2 million, or 21%, to $4.4 million for the three and nine months ended November

~~• assumed or actual conversions of our convertible debt into common stock.~~24

~~Liquidity~~30, 2005, respectively, compared to the three and ~~Capital~~nine ~~Resources:~~months ended November 30, 2004, respectively. The decrease in other expense, net for the three and nine months ended November 30, 2005 compared to the three and nine months ended November 30, 2004 primarily relates to an increase in interest and other income by $0.5 and $1.4 million for the three and nine months ended November 30, 2005 compared to the three and nine months ended November 30, 2004, respectively.

~~Historically, we~~(Benefit) ~~have~~Provision ~~financed~~for ~~our~~Income ~~operations~~Taxes. ~~and~~We ~~met~~recorded ~~our~~a ~~capital~~benefit ~~expenditure~~for ~~requirements through~~income ~~cash~~taxes ~~flows~~of $0.2 ~~provided~~million ~~from~~and ~~operations,~~$2.5 ~~long-term~~million ~~borrowings~~for ~~(including~~ the ~~sale~~three ~~of convertible notes)~~ and ~~sales~~nine ofmonths ~~equity~~ended ~~securities.~~November ~~Our cash~~30, ~~cash~~ ~~equivalents~~2005, ~~marketable~~respectively, ~~securities~~compared ~~and~~to ~~long-term~~a ~~investments~~provision infor ~~aggregate decreased~~income ~~$2.6 million,~~taxes orof 1$0.~~9%,~~2 tomillion and $~~133~~0.39 million for the three and nine months ended ~~May 31~~November 30, ~~2005~~2004, respectively. ~~Working~~The ~~capital~~benefit ~~increased~~recorded ~~$2.5~~for ~~million,~~nine ormonths ~~2.4%~~ended November 30, to2005 included a $~~108~~1.0 9 million refund for ~~the~~previously ~~three~~paid ~~months~~withholding ~~ended May 31~~taxes, ~~2005~~$1.3 million ~~For~~related to the ~~three~~reversal ~~months~~of additional amounts accrued for certain ~~ended~~withholding ~~May 31,~~tax ~~2005,~~obligations ~~the~~for ~~decrease~~which we no longer deemed probable to be paid and approximately $0.7 million in ~~cash,~~current ~~cash~~income ~~equivalents,~~tax ~~marketable~~expense related to certain ~~securities~~of ~~and~~our ~~long-term~~foreign ~~investments~~subsidiaries. ~~resulted~~We ~~from~~did not record a ~~net~~deferred ~~loss,~~income ~~excluding~~tax benefit ~~non-cash~~for ~~charges~~projected losses during the three and nine months ended November 30, ~~plus~~2005 because ~~changes~~we inbelieve ~~working~~it ~~capital~~is ~~items~~more ~~plus:~~likely than not that any tax benefits will not be realized.

~~• $1~~Loss per Common Share.5 Loss per ~~million~~common share is computed in ~~expenditures~~accordance with Statement of Financial Accounting Standards No. 128, “Earnings Per Share” (“SFAS 128”) which requires dual presentation of basic and diluted earnings per common share for ~~property~~entities with complex capital structures. Basic loss per common share is based on net loss divided by the weighted-average number of common shares outstanding during the reporting period. Diluted loss per common share includes, ~~equipment~~when dilutive, (i) the effect of outstanding stock options, restricted stock and ~~software~~warrants granted using the treasury stock method, (ii) the ~~including~~effect ~~$1.1~~of ~~million~~contingently issuable shares earned during the reporting period, if any, and (iii) shares issuable under the conversion feature of ~~capitalized~~our ~~software;~~5% Convertible Subordinated Notes due in 2007 (the “Notes”) using the if-converted method. Calculations of weighted-average shares outstanding in future reporting periods will be affected by the following factors:

• ~~$3.3~~the ~~million~~ongoing inissuance ~~payments~~of ~~for~~common ~~exit~~stock ~~and~~associated ~~disposal~~with ~~obligations~~stock option and warrant exercises;

• ~~$0.8~~the ~~million~~potential infuture ~~principal~~issuance ~~payments~~of onadditional ~~long-term~~common ~~debt~~shares ~~and~~associated ~~capital~~with ~~leases;~~our employee ~~and~~stock purchase plan;

• ~~$2.3~~any ~~million,~~fluctuations ~~net~~in our stock price, inwhich ~~payments~~could ~~for~~change ~~purchases~~the number of ~~marketable~~common ~~securities.~~stock equivalents included in the diluted earnings per common share calculations (to the extent we have net income);

~~Offset~~• the potential ~~by:~~ongoing future issuance of restricted stock;

• ~~$0.1~~the ~~million~~issuance inof ~~cash~~common ~~proceeds~~stock ~~from~~to ~~the~~effect ~~exercise~~capital oftransactions ~~stock~~or ~~options.~~business combinations should we enter into such transactions; and

25• assumed or actual conversions of our convertible debt into common stock.

Commitments.Liquidity and Capital Resources:

AsHistorically, ofwe ~~May 31,~~have financed our operations and ~~2005,~~met our ~~future~~capital ~~fixed~~expenditure ~~commitments~~requirements through cash flows provided from operations, long-term borrowings (including the sale of convertible notes) and sales of equity securities. Our cash, cash equivalents, marketable securities and long-term investments in the ~~effect~~aggregate ~~these~~decreased ~~commitments~~$9.4 million ~~are~~to ~~expected~~$126.5 million and working capital increased $5.6 million to ~~have~~$111.1 onmillion ~~our~~for the ~~liquidity~~nine ~~and~~months ~~cash~~ended ~~flows~~November 30, 2005. For the nine months ended November 30, 2005, the decrease in ~~future~~cash, ~~periods~~cash ~~are~~equivalents, asmarketable ~~follows~~securities (and long-term investments resulted from changes in ~~thousands)~~working capital items plus:

	Nine Months
	Ending		Fiscal Year Ended February 28 or 29,
	Feb. 28, 2006		2007		2008		2009		2010		Thereafter		Total
Capital lease obligations (1)	$	1,649	$	1,544	$	602	$	41	$	—	$	—	$	3,836
Operating lease obligations not in exit and disposal activities	5,499		6,240		5,900		5,455		5,547		17,864		46,505
Operating lease obligations in exit and disposal activities	5,469		7,135		5,682		4,100		3,943		17,959		44,288
Equipment line of credit (1)	486		—		—		—		—		—		486
Convertible subordinated notes (1)	4,388		8,775		185,006		—		—		—		198,169
Total fixed commitments	$	17,491	$	23,694	$	197,190	$	9,596	$	9,490	$	35,823	$	293,284

• $5.4 million in expenditures for property, equipment and software, including $2.6 million of capitalized software;

(• $8.1~~) Includes~~ ~~principal~~million in payments for exit and ~~interest~~disposal ~~payments~~obligations;

The lease commitments in the above table designated as “Operating lease obligations in exit and disposal activities” only include the non-cancelable portion of lease commitments included in past cost containment initiatives and, accordingly, have not been reduced by estimated sublease income. However, as required by EITF 88-10 “Costs Associated with Lease Modification or Termination” and SFAS 146, we have reduced these lease commitments by estimated sublease income in determining the total exit and disposal-related lease obligations of • $173.7 6 million ~~recorded~~ in ~~the accompanying~~net ~~balance~~purchases ~~sheet as~~ of ~~May 31,~~marketable ~~2005.~~securities; ~~Please refer to Note 7 in our Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.~~and

~~In the future, we may pursue acquisitions of complementary businesses and technologies~~• $2. ~~In addition,~~2 wemillion ~~may make strategic investments~~ in ~~businesses~~principal ~~and~~payments ~~enter~~on ~~into~~long-term ~~joint~~debt ~~ventures that complement our existing business. Any future acquisition or investment may result in a decrease to our liquidity~~ and ~~working~~ capital ~~to the extent we pay with cash.~~leases;

~~We may choose to purchase~~Offset a portion of the Notes in the open market from time to time with cash or enter into alternative transactions to reduce the balance of the Notes, such as exchanging Notes for shares of our common stock, if we are able to do so on terms favorable to us. Purchases of the Notes with cash would reduce our debt outstanding and may result in a decrease to our liquidity and working capital.by:

~~We had~~ • $~~175.5 million in outstanding Notes as of May 31, 2005. The Notes bear interest at 5.~~0~~% per annum which is payable semi-annually~~. ~~The fair market value of the Notes in the hands of~~4 ~~the holders was $155.5~~ million ~~as of May 31, 2005 based on market quotes. The Notes mature~~ in November 2007 and are convertible into approximately 4.0 million shares of our common stock at a conversion price of $44.06, subject to adjustment under certain conditions. The conversion price of the Notes will be adjusted in the event that we issue our common stock as a dividend or distribution with respect to our common stock, we subdivide, combine or reclassify our common stock, we issue rights to our common stockholders to purchase our common stock at less than market price, we make certain distributions of securities, cash orproceeds other property to our common stockholders (other than ordinary cash dividends), or we make certain repurchases of our common stock. Upon a change of control of our Company, the holders of the Notes would have the right to require us or our successor to repurchase the Notes in cash at a purchase price equal to 100% of the principal amount, plus accrued and unpaid interest to the date of repurchase. The Notes do not have any financial covenants. On or after November 7, 2003, we may redeem, from ~~time~~ toESPP ~~time, the Notes in whole or in part, at our option~~purchases. Redemption can be made on at least 30 days notice if the trading price of our common stock for 20 trading days in a period of 30 consecutive trading days ending on the day prior to the mailing of notice of redemption exceeds 120% of the conversion price of the Notes. The redemption price, expressed as a percentage of the principal amount, is:

Redemption Period	Redemption Price
November 1, 2004 through October 31, 2005	102	%
November 1, 2005 through October 31, 2006	101	%
November 1, 2006 through maturity	100	%

~~In the second half of fiscal 2004, we exchanged $74~~Commitments.5 million of the Notes for 9,725,750 shares of our common stock in privately negotiated transactions with note holders. The offer and issuance of the common stock underlying these transactions were exempt from registration under Section 3(a)(9) of the Securities Act of 1933 and were freely traded upon issuance.

26As of November 30, 2005, our future fixed commitments and the effect these commitments are expected to have on our liquidity and cash flows in future periods are as follows (in thousands):

At the conversion price of $44.06 per share, the $74.5 million of Notes exchanged would have been convertible into 1,690,780 shares of common stock. For accounting purposes, the additional 8,034,970 shares of common stock that we issued in these transactions are considered an inducement for the holders to convert their Notes, which required us to record a non-operating expense equal to the fair value of the additional shares issued to the holders. Accordingly, we recorded a non-cash debt conversion expense of approximately $59.8 million during the twelve months ended February 29, 2004. These transactions resulted in a $74.5 million reduction of the Notes outstanding and increased stockholders’ equity by $74.5 million. The 9,725,750 shares of common stock represent 11.9% of the shares outstanding as of February 29, 2004.

	Three Months
	Ending		Fiscal Year Ended February 28 or 29,
	Feb. 28, 2006		2007		2008		2009		2010		Thereafter		Total
Capital lease obligations (1)	$	606	$	1,770	$	803	$	123	$	—	$	—	$	3,302
Operating lease obligations not in exit and disposal activities	1,742		6,251		6,081		5,278		5,250		16,716		41,318
Operating lease obligations in exit and disposal activities	1,752		7,104		5,762		4,189		4,042		17,381		40,230
Equipment line of credit (1)	57		—		—		—		—		—		57
Convertible subordinated notes (1)	—		8,775		185,006		—		—		—		193,781
Total fixed commitments	$	4,157	$	23,900	$	197,652	$	9,590	$	9,292	$	34,097	$	278,688

~~Credit~~(1) ~~Facility.~~Includes principal and interest payments

~~We had~~The alease ~~one-year~~commitments ~~unsecured~~in ~~revolving credit facility (~~the ~~“Credit~~above ~~Facility”)~~table ~~with~~designated ~~Silicon~~as ~~Valley Bank (~~“~~SVB”)~~Operating ~~for~~lease ~~$15.0~~obligations ~~million~~in ~~which~~exit ~~expired~~and ondisposal ~~March 30, 2005.~~activities” ~~Under~~only include the ~~terms~~non-cancelable ofportion ~~the Credit Facility, we could request cash advances, letters~~ of ~~credit,~~lease orcommitments ~~both.~~included Onin ~~April 8,~~past ~~2005, we renewed the Credit~~cost ~~Facility~~containment ~~(the~~initiatives ~~“New Credit Facility”) with SVB for $15.0 million~~ and ~~a two year term~~, ~~effective March 29~~accordingly, ~~2005.~~have ~~Under~~not ~~the~~been ~~terms~~reduced ofby ~~the New Credit~~estimated ~~Facility,~~sublease weincome. ~~may request cash advances~~However, ~~letters~~as ofrequired ~~credit,~~by orEITF ~~both.~~88-10 ~~Borrowings under~~“Costs ~~the~~Associated ~~New Credit Facility accrue interest at the prime rate plus 0.5%. The New Credit Facility requires us to comply~~ with ~~the~~Lease ~~following~~Modification ~~financial covenants:~~or ~~(i) minimum~~Termination” ~~tangible net worth (defined as stockholders’ equity~~and ~~plus~~SFAS ~~convertible debt less goodwill~~146, ~~capitalized~~we ~~software~~have ~~costs~~reduced ~~and~~these ~~other intangible~~lease ~~assets)~~commitments ~~must~~by beestimated atsublease ~~least $90.0 million plus 50% of consolidated net~~ income in ~~generated~~determining ~~cumulatively commencing with~~ the ~~first~~total ~~quarter~~exit ~~of fiscal 2006~~ and ~~(ii) our ratio of (a) unrestricted cash, cash equivalents, marketable securities and long~~disposal-~~term~~related ~~investments~~lease ~~deposited~~obligations ~~with SVB and its affiliates plus net accounts receivable to (b) current liabilities plus long-term indebtedness to SVB and outstanding letters~~ of ~~credit minus deferred revenue, must be at least 2~~$16.~~0 to~~ 1~~.0.~~ million Werecorded ~~were~~ in ~~compliance~~the ~~with~~accompanying ~~all~~balance ~~financial covenants~~sheet as of ~~May~~November 3130, 2005 ~~and there were no cash draws outstanding~~. ~~As of~~Please ~~May 31,~~refer ~~2005,~~to weNote ~~had~~8 ~~$9.2 million~~ in ~~letters~~our ofCondensed ~~credit~~Consolidated ~~outstanding~~Financial Statements ~~under~~included ~~the~~elsewhere ~~New~~in ~~Credit~~this ~~Facility~~Quarterly toReport ~~secure~~on ~~our lease obligations for certain office space~~Form 10-Q.

~~The New~~In ~~Credit Facility requires us to maintain $50.0 million in funds with SVB Asset Management and its affiliates. The New Credit Facility also restricts~~ the ~~amount~~ offuture, ~~additional debt~~ we ~~can~~may ~~incur~~pursue ~~and~~acquisitions ~~restricts the amount~~ of ~~cash that we~~ ~~can~~complementary ~~use~~businesses ~~for acquisitions~~ and ~~for the repurchase of convertible debt~~technologies. ~~Under~~In ~~the terms of the New Credit Facility~~addition, we ~~retain~~may ~~the~~make ~~right to terminate the facility~~strategic atinvestments ~~any~~in ~~time~~businesses ~~upon~~and ~~repayment~~enter ofinto ~~any~~joint ~~advances~~ventures ~~and~~that ~~the~~complement ~~posting of cash collateral~~our ~~for~~existing ~~any~~business. ~~outstanding~~Any ~~letters~~future ofacquisition ~~credit.~~or ~~Under~~investment ~~the~~may ~~New~~result ~~Credit~~in ~~Facility, SVB has~~a ~~the~~decrease ~~right~~ to ~~obtain a lien on all of~~ our ~~assets,~~liquidity ~~other~~and ~~than~~working ~~intellectual property,~~capital ~~upon~~to ~~an occurrence of default, unless we terminate~~ the ~~facility~~extent ~~as provided above. The New Credit Facility also provides that, upon an event of default,~~ we ~~are~~pay ~~prohibited~~with ~~from paying a~~ cash ~~dividend to our shareholders~~.

~~The New~~We ~~Credit~~may ~~Facility~~choose ~~includes~~to purchase a ~~provision~~portion ~~for~~of ~~supplemental~~the ~~equipment~~Notes ~~advances,~~in ~~under~~the ~~which~~open wemarket ~~may~~from ~~borrow~~time up to antime ~~additional~~with ~~$5.0~~cash ~~million~~or ~~for~~enter ~~the~~into ~~purchase of~~alternative ~~equipment,~~transactions ~~office~~to ~~furniture~~reduce ~~and~~the ~~other~~balance ~~capital~~of ~~expenditures.~~the ~~Amounts~~Notes, ~~may be borrowed for~~ such ~~capital~~as ~~expenditures~~exchanging ~~through~~Notes ~~December 31, 2005 and~~for ~~accrue~~shares ~~interest~~of atour acommon ~~fixed~~stock, ~~interest~~if ~~rate~~we ~~equal~~are able to ~~7.75%~~do ~~annually.~~so ~~Equipment advances~~on ~~will~~terms befavorable ~~repaid~~to ~~monthly over a 36-month-period, beginning in the~~us. ~~month~~Purchases ~~following~~of the ~~advance.~~Notes Aswith ofcash ~~May 31,~~would ~~2005,~~reduce ~~there~~our ~~were~~debt ~~no borrowings~~ outstanding ~~for~~and ~~equipment advances under the New Credit Facility. The financial~~may ~~covenants~~result ~~for~~in ~~the~~a ~~supplemental~~decrease ~~equipment~~to ~~advances~~our ~~are~~liquidity ~~the~~and ~~same~~working ~~as the financial covenants for the New Credit Facility~~capital.

We had $175.5 million in outstanding Notes as of anNovember 30, ~~additional~~2005. ~~credit~~The ~~agreement~~Notes ~~(the~~bear ~~“Equipment~~interest ~~Line”)~~at ~~with~~5.0% ~~SVB,~~per asannum ~~amended,~~ which ~~expired~~is payable ~~March 31,~~semi-annually. ~~2003,~~The ~~under~~fair ~~which~~market wevalue ~~were~~of ~~permitted~~the toNotes ~~borrow~~in upthe tohands of the holders was $5163.0 million ~~for~~as ~~the~~of ~~purchase~~November of30, ~~equipment~~2005 based on market quotes. ~~Amounts~~The Notes ~~borrowed~~mature ~~under~~in ~~the~~November 2007 and are convertible into approximately 4.0 ~~Equipment~~million ~~Line~~shares ~~accrue~~of ~~interest~~our common stock at a ~~rate~~conversion ~~equal~~price of $44.06, subject to adjustment ~~the~~under ~~greater~~certain conditions. The conversion price of the ~~three-year~~Notes will be ~~Treasury~~adjusted ~~note~~in ~~rate~~the ~~plus~~event 5%that we issue our common stock as a dividend or distribution with respect to our common stock, we subdivide, combine or reclassify ~~8.25%~~our common stock, ~~and~~we ~~are~~issue ~~repaid~~rights ~~monthly~~to ~~over~~our acommon ~~36-month~~stockholders to ~~period.~~purchase ~~During~~our ~~fiscal~~common ~~2003~~stock at less than market price, we ~~borrowed~~make ~~$2.9~~certain distributions ~~million~~of ~~under~~securities, ~~the~~cash ~~Equipment~~or ~~Line.~~other property to our common stockholders ~~The~~(other ~~principal~~than ~~balance~~ordinary ~~remaining~~cash asdividends), or we make certain repurchases of ~~May 31~~our common stock. Upon a change of control of our Company, ~~2005~~the ~~was~~holders ~~approximately~~of ~~$0.5~~the Notes ~~million.~~would ~~The~~have ~~financial~~the ~~covenants~~right ~~for~~to require us or our successor to repurchase the ~~Equipment~~Notes ~~Line~~in cash ~~are~~at a purchase price equal to 100% of the ~~same~~principal asamount, plus accrued and unpaid interest to the date of repurchase. The Notes do not have any financial covenants. ~~for~~We may redeem, from time to time, the ~~New~~Notes ~~Credit~~in ~~Facility~~whole or in part, at our option. WeRedemption ~~were~~can be made upon at least 30 days notice if the trading price of our common stock for 20 trading days in ~~compliance~~a ~~with~~period ~~all~~of 30 ~~financial~~consecutive ~~covenants~~trading asdays ending on the day prior to the mailing of ~~May 31,~~notice ~~2005~~of redemption exceeds 120% of the conversion price of the Notes.

~~Cash~~The ~~flows.~~redemption price, expressed as a percentage of the principal amount, is:

Cash provided by (used in) operations was $0.6 million and $(1.0) for the three months ended May 31, 2005 and 2004, respectively. The increase in operating cash flows of $1.6 million in the three months ended May 31, 2005 compared to the three months ended May 31, 2004 resulted from a lower net loss for the three months ended May 31, 2005, a decrease in payments made for exit and disposal obligations, partially offset by increased payments made to vendors related to the timing of receiving vendor invoices and lower net accounts receivable contribution due to the timing of cash receipts from billings and lower software and services revenue for the three months ended May 31, 2005 compared the three months ended May 31, 2004.

Redemption Period	Redemption Price
November 1, 2005 through October 31, 2006	101	%
November 1, 2006 through maturity	100	%

~~Cash (used~~In ~~in)~~the ~~provided~~second byhalf ~~investing~~of ~~activities~~fiscal ~~was~~2004, ~~$(3.8) million~~we ~~and~~exchanged $1174.3 5 million ~~during~~of the ~~three~~Notes ~~months~~for ~~ended May 31~~9, ~~2005 and 2004~~725, ~~respectively.~~750 ~~Investing~~shares ~~activities consist~~ of ~~the~~our ~~sales~~common ~~and~~stock ~~purchases~~in ofprivately ~~marketable~~negotiated ~~securities~~transactions ~~and~~with ~~long-term~~note ~~investments,~~holders. ~~sales~~The ~~and~~offer ~~purchases of property~~ and ~~equipment,~~issuance ~~purchases and capitalization~~ of ~~software~~the ~~and~~common ~~acquisitions~~stock ofunderlying ~~businesses.~~these ~~Total~~transactions ~~purchases~~were ofexempt ~~property,~~from ~~equipment~~registration ~~and~~under ~~software, including capitalized software, were $1.5 million and $4.6~~Section ~~million~~3(a)(9) of ~~during~~ the ~~three~~Securities ~~months~~Act ~~ended May 31, 2005 and 2004, respectively. (Purchases) sales~~ of ~~long-term~~1933 ~~investments~~ and ~~marketable securities, net,~~ were ~~$(2.3) million and $15.9 million during the three months~~freely ~~ended~~tradable ~~May 31,~~upon ~~2005 and 2004, respectively~~issuance.

27At the conversion price of $44.06 per share, the $74.5 million of Notes exchanged would have been convertible into 1,690,780 shares of common stock. For accounting purposes, the additional 8,034,970 shares of common stock that we issued in these transactions are considered an inducement for the holders to convert their Notes, which required us to record a non-operating expense equal to the fair

Cash used in financing activities was $(0.7) million and $(0.2) million during the three months ended May 31, 2005 and 2004, respectively. Cash used in financing activities consisted of payments of long-term debt and capital lease obligations offset by proceeds from the exercise of stock options and employee stock plan purchases.26

Wevalue ~~believe~~of ~~that~~ the ~~combination~~additional ofshares ~~cash~~issued ~~and~~to ~~cash~~the ~~equivalents,~~holders. ~~marketable securities and long-term investments~~Accordingly, ~~and~~we ~~anticipated~~recorded a non-cash ~~flows~~debt ~~from operations~~conversion ~~will~~expense beof ~~sufficient~~approximately to$59.8 ~~fund~~million ~~expected~~during ~~capital expenditures, capital lease obligations and working capital needs for~~ the ~~next~~ twelve months~~. However,~~ ~~weakening~~ended ~~economic~~February 29, ~~conditions~~2004. orThese ~~weak~~transactions ~~demand~~resulted ~~for supply chain management software~~ in ~~future periods could have~~ a ~~material adverse effect on~~ ~~our future operating results and liquidity~~$74.5 ~~Although~~million wereduction ~~have~~of nothe ~~current~~Notes ~~plans to~~outstanding doand ~~so,~~increased ~~we may elect to obtain additional debt or~~ stockholders’ equity ~~financing~~by if$74.5 wemillion. ~~are able~~The to9,725,750 ~~raise~~shares itof oncommon ~~terms~~stock ~~favorable~~represent ~~to us~~11.9% of ~~See~~the ~~“Forward-Looking~~shares ~~Statements”~~outstanding ~~and “Factors~~as ~~That~~of ~~May~~February ~~Affect~~29, ~~Future Results~~2004.”

~~Off-Balance~~Credit ~~Sheet Arrangements:~~Facility.

We do ~~not~~had ~~use~~a ~~off~~one-~~balance~~year ~~sheet~~unsecured ~~arrangements~~revolving credit facility with ~~unconsolidated~~Silicon ~~entities~~Valley orBank (“SVB”) for $15.0 million which expired on ~~related~~March 30, ~~parties~~2005. On April 8, ~~nor~~2005, dowe renewed the credit facility with SVB for $15.0 million and a two-year term, effective March 29, 2005 (the “Credit Facility”). Under the terms of the Credit Facility, we ~~use~~may ~~other~~request ~~forms~~cash advances, letters of ~~off-balance~~credit, ~~sheet~~or ~~arrangements~~both. Borrowings under the Credit Facility ~~such~~accrue interest at the prime rate plus 0.5%. The Credit Facility requires us to comply with the following financial covenants: (i) minimum tangible net worth (defined as ~~research~~stockholders’ equity plus convertible debt less goodwill, capitalized software costs and ~~development~~other ~~arrangements~~intangible assets) must be at least $90.0 million ~~Accordingly,~~plus 50% of consolidated net income generated cumulatively commencing with the first quarter of fiscal 2006 and (ii) our ~~liquidity~~ratio of (a) unrestricted cash, cash equivalents, marketable securities and ~~capital~~long-term ~~resources~~investments ~~are~~deposited ~~not~~with ~~subject~~SVB and its affiliates plus net accounts receivable to ~~off~~(b) current liabilities plus long-~~balance~~term ~~sheet~~indebtedness ~~risks~~to ~~from~~SVB ~~unconsolidated~~and ~~entities~~outstanding letters of credit minus deferred revenue, must be at least 2.0 to 1.0. We were in compliance with all financial covenants as of November 30, 2005 and there were no cash draws outstanding. As of November 30, 2005, we had $9.9 million in letters of credit outstanding under the Credit Facility to secure our lease obligations for certain office space.

~~Lease~~The Credit Facility requires us to maintain $50.0 ~~Arrangements~~million in funds with SVB Asset Management and its affiliates. The Credit Facility also restricts the amount of additional debt we can incur and restricts the amount of cash that we can use for acquisitions and for the repurchase of convertible debt. Under the terms of the Credit Facility, we retain the right to terminate the facility at any time upon repayment of any advances and the posting of cash collateral for any outstanding letters of credit. Under the Credit Facility, SVB has the right to obtain a lien on all of our assets, other than intellectual property, upon an occurrence of default, unless we terminate the facility as provided above. The Credit Facility also provides that, upon an event of default, we are prohibited from paying a cash dividend to our shareholders.

~~We have~~The ~~entered~~Credit ~~into~~Facility ~~operating~~includes ~~leases~~a ~~with~~provision ~~unrelated third parties~~ for ~~our U.S.~~ ~~and~~supplemental ~~international~~equipment ~~sales~~advances, ~~and~~under ~~support~~which ~~offices~~we ~~and~~may ~~certain~~borrow ~~equipment~~up into ~~the~~an ~~normal~~additional ~~course of business~~$5.0 ~~These~~million ~~arrangements~~for ~~are~~the ~~sometimes~~purchase ~~referred~~of toequipment, asoffice afurniture ~~form~~and ~~of off-balance~~other ~~sheet financing~~capital expenditures. ~~Future~~Amounts ~~minimum~~may ~~lease~~be ~~payments~~borrowed ~~under~~for ~~our~~such ~~operating leases~~capital asexpenditures ~~of May~~through December 31, 2005 ~~are detailed previously in “Liquidity~~ and ~~Capital~~ ~~Resources.”~~accrue Weinterest ~~have~~at a ~~two-year~~fixed ~~unsecured~~interest ~~revolving~~rate ~~credit~~equal ~~facility (the~~to ~~“Credit~~7.75% ~~Facility”)~~annually. ~~with~~Equipment ~~SVB~~advances ~~for~~will ~~$15.0~~be ~~million~~repaid ~~which~~monthly ~~will~~over ~~expire~~a ~~on March 29~~36-month-period, ~~2007,~~beginning ~~unless~~in ~~renewed. Under~~ the ~~terms~~month offollowing the ~~Credit Facility, we may request cash advances, letters of credit, or both~~advance. As of ~~May~~November 3130, 2005, there ~~$9.2~~were ~~million in~~no ~~letters~~borrowings ofoutstanding ~~credit~~for ~~was~~equipment ~~outstanding~~advances under the Credit Facility. toThe ~~secure~~financial ~~our~~covenants for the supplemental equipment advances are ~~lease~~the ~~obligations~~same as the financial covenants for ~~certain~~the ~~office~~Credit ~~space~~Facility.

~~Indemnification~~We had an additional credit agreement (the “Equipment ~~Obligations~~Line”) with SVB, as amended, which expired March 31, 2003, under which we were permitted to borrow up to $5.0 million for the purchase of equipment. Amounts borrowed under the Equipment Line accrue interest at a rate equal to the greater of the three-year Treasury note rate plus 5%, or 8.25%, and are repaid monthly over a 36-month period. During fiscal 2003, we borrowed $2.9 million under the Equipment Line. The principal balance remaining as of November 30, 2005 was approximately $0.1 million. The financial covenants for the Equipment Line are the same as the financial covenants for the Credit Facility. We were in compliance with all financial covenants as of November 30, 2005.

We license software to our customers under contracts which we refer to as Software License Agreements (“SLAs”). Each SLA contains the relevant terms of the contractual arrangement with the customer, and generally includes provisions for indemnifying the customer against damages, judgments, reasonable cost and expenses incurred by the customer for any claim or suit based on infringement of a trademark or copyright as a result of the customer’s use of our software. The SLA generally limits our indemnification obligations in a variety of industry-standard respects. To date, we have not had to reimburse any of our customers for any losses related to these indemnification provisions and no material claims are outstanding as of May 31, 2005. We account for these indemnity obligations in accordance with Statement of Financial Accounting Standards No. 5, Accounting for Contingencies, and record a liability for these obligations when a loss is probable and reasonably estimable. We have not recorded any liabilities for indemnification obligations as of May 31, 2005. For several reasons, including the lack of prior indemnification claims and the lack of a monetary liability limit for certain infringement cases under the SLAs, we cannot determine the maximum amount of potential future payments, if any, related to such indemnification provisions. There can be no assurance that potential future payments will not have a material adverse effect on our operating performance, financial condition and cash flows.27

~~The SLA~~Cash generally provides that in the event of a determination that our software, or the customer’s use of our software, infringes any trademark or copyright of any third party, or if we reasonably believe that such is the case, we, at our option and expense, have the right to obtain for the customer the right to continue using the infringing item, replace the infringing item or modify the infringing item so that it is no longer infringingFlows.

~~Warranty~~Cash used in operations was $0.9 million and ~~Obligations~~$13.4 million for the nine months ended November 30, 2005 and 2004, respectively. The increase in operating cash flows of $12.4 million in the nine months ended November 30, 2005 compared to the nine months ended November 30, 2004 resulted from a lower net loss for the three and nine months ended November 30, 2005, a decreased contribution from deferred revenue, a decrease in payments made for exit and disposal obligations, partially offset by cash flows related to other liabilities and a lower net accounts receivable contribution due to the timing of cash receipts from billings and lower software license and services revenue for the nine months ended November 30, 2005 compared to the nine months ended November 30, 2004.

WeCash ~~warrant~~used in investing activities was to$9.0 million ~~our~~and ~~customers~~$11.7 million induring the ~~SLA~~nine ~~that~~months ~~our~~ended ~~software~~November 30, ~~products~~2005 ~~will~~and ~~perform~~2004, inrespectively. ~~all material~~Investing ~~respects~~activities inconsist ~~accordance~~of ~~with~~the ~~our~~sales ~~standard~~and purchases ~~published~~of ~~specifications~~marketable ~~in effect~~securities atand ~~the~~long-term ~~time~~investments, ofsales ~~delivery~~and purchases of ~~the~~property ~~licensed~~and ~~products~~equipment and purchases and capitalization of software. IfTotal ~~necessary~~purchases of property, weequipment ~~would provide~~and ~~for~~software, ~~the~~including capitalized ~~estimated~~software, ~~cost~~were of$5.4 ~~product~~million and ~~service~~$10.7 million ~~warranties~~during ~~based~~the onnine ~~specific~~months ~~warranty~~ended ~~claims~~November 30, 2005 and ~~claim~~2004, ~~history~~respectively. ~~However,~~During wethe ~~have not incurred~~nine ~~significant~~months ~~recurring~~ended ~~expense~~November ~~under~~30, ~~our~~2004, ~~product~~we orsold ~~service~~fractional ~~warranties.~~shares Asof a ~~result,~~ wejet ~~believe~~in the amount ~~estimated~~of ~~fair~~$2.0 ~~value~~million. Purchases of ~~these~~long-term ~~warranties~~investments isand ~~nominal.~~marketable ~~Accordingly~~securities, wenet, ~~have~~were no$3.6 ~~liabilities~~million ~~recorded~~and ~~for~~$3.0 ~~these~~million ~~warranties~~during asthe ofnine ~~May~~months ended November 3130, 2005 and 2004, respectively.

~~Factors~~Cash ~~that~~used ~~May~~in financing activities was $1.9 million and $1.2 ~~Affect~~million ~~Future~~during ~~Results~~the nine months ended November 30, 2005 and 2004, respectively. Cash used in financing activities consisted of payments of long-term debt and capital lease obligations offset by proceeds from the exercise of stock options and employee stock purchase plan purchases.

~~In addition~~We tobelieve that the ~~other~~combination ~~information~~of incash ~~this~~and ~~Quarterly~~cash equivalents, ~~Report~~marketable onsecurities ~~Form 10~~and long-Qterm investments, and anticipated ~~the~~cash ~~following~~flows ~~factors~~from ~~should~~operations will be ~~considered~~sufficient into ~~evaluating~~fund usexpected capital expenditures, capital lease obligations and ~~our~~working ~~business.~~capital needs for the next ~~The~~twelve ~~risks~~months. ~~and~~However, ~~uncertainties~~weakening ~~described~~economic ~~below~~conditions ~~are~~or ~~not~~weak ~~the~~demand ~~only~~for ~~ones~~supply chain ~~facing~~management ~~us.~~software in future periods could have a material adverse ~~Additional~~effect ~~risks~~on our future operating results and ~~uncertainties~~liquidity. ~~that~~Although we have no current plans to do ~~not~~so, ~~presently~~we ~~know~~may elect to obtain additional debt or ~~that~~equity financing if we ~~currently~~ ~~deem~~are ~~immaterial,~~able ~~may~~to ~~also~~raise ~~impair~~it ~~our~~on ~~business,~~terms ~~results~~favorable ofto ~~operations~~us. See “Forward-Looking Statements” and ~~financial~~“Factors ~~condition~~That May Affect Future Results.”

28Off-Balance Sheet Arrangements:

~~RISKS~~We ~~RELATED~~do TOnot ~~OUR~~use ~~INDEBTEDNESS~~off-balance ~~AND~~sheet ~~FINANCIAL~~arrangements with ~~CONDITION~~unconsolidated entities or related parties, nor do we use other forms of off-balance sheet arrangements such as research and development arrangements. Accordingly, our liquidity and capital resources are not subject to off-balance sheet risks from unconsolidated entities.

~~OUR~~Lease ~~INDEBTEDNESS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL CONDITION~~Arrangements.

~~In November 2000,~~We wehave ~~completed~~entered ainto ~~convertible~~operating ~~debt~~leases ~~offering~~with ofunrelated third ~~$250~~parties for our U.0S. ~~million~~and international sales and support offices and certain equipment in ~~Notes~~the ~~that~~normal course of business. These arrangements are sometimes ~~due~~referred ~~November 2007~~to as a form of off-balance sheet financing. ~~During~~Future ~~fiscal~~minimum lease ~~2004~~payments under our operating leases as of November 30, 2005 are detailed previously in “Liquidity and Capital Resources.” Under the ~~balance~~terms of ~~the~~our ~~Notes~~New ~~was~~Credit ~~reduced~~Facility, towe ~~$175.5~~may ~~million~~request ascash aadvances, ~~result~~letters of ~~$74~~credit, or both.5 ~~million~~As of ~~Notes being~~November ~~exchanged~~30, ~~for~~2005, ~~shares~~$9.9 million in letters of ~~our~~credit ~~common~~was outstanding ~~stock.~~under ~~Our~~the ~~indebtedness~~Credit ~~could~~Facility ~~have important~~to ~~consequences~~secure ~~for~~our ~~investors.~~lease ~~For~~obligations ~~example,~~for certain itoffice ~~could:~~space.

~~• increase~~Factors ~~our vulnerability~~that toMay Affect ~~general~~Future ~~adverse economic and industry conditions;~~Results

~~• place~~In addition to the other information in this Quarterly Report on Form 10-Q, the following factors should be considered in evaluating us atand our business. The risks and uncertainties described below aare ~~competitive~~not ~~disadvantage~~the ~~relative~~only toones facing us. Additional risks and uncertainties that we do not presently know or that we currently deem immaterial, may also impair our business, ~~competitors;~~results of operations and financial condition.

~~• limit our ability to obtain additional financing;~~28

~~• require~~RISKS ~~the dedication~~RELATED ofTO aOUR ~~substantial portion of our cash flows from operations to the~~INDEBTEDNESS ~~payment~~AND ofFINANCIAL principal of, and interest on, our indebtedness, thereby reducing the availability of capital to fund our operations, working capital, capital expenditures, acquisitions and other general corporate purposes; andCONDITION

~~• limit~~OUR ~~our flexibility~~INDEBTEDNESS inCOULD ~~planning~~HAVE ~~for,~~A orMATERIAL ~~reacting~~ADVERSE ~~to,~~EFFECT ON ~~changes~~OUR inFINANCIAL ~~our business and the industry~~CONDITION.

~~• influence~~In November 2000, we completed a convertible ~~our~~debt ~~customers~~offering ~~and~~of ~~potential~~$250.0 ~~customers~~million in ~~doing~~Notes ~~business~~that ~~with~~are due November 2007. During fiscal 2004, the ~~Company~~balance of the Notes was reduced to $175.5 million as a result of $74.5 million of Notes being exchanged for shares of our common stock. Our indebtedness could have important consequences for investors. For example, it could:

~~Although~~• increase ~~we have no present plans to do so, we may incur substantial additional debt in the future. While the terms of~~ our ~~credit~~vulnerability ~~facility impose certain limits on our ability~~ to ~~incur~~general ~~additional~~adverse ~~debt,~~economic ~~we are permitted to incur additional debt subject to compliance with the terms~~ and ~~conditions~~industry set forth in the credit facility. The terms of the Notes set forth no limits on our ability to incur additional debt. If a significant amount of new debt is added to our current levels, the related risks described above could intensify.conditions;

~~WE MAY HAVE INSUFFICIENT CASH FLOW TO MEET~~• place ~~OUR~~us ~~DEBT~~at ~~SERVICE~~a ~~OBLIGATIONS~~competitive ~~WHICH~~disadvantage ~~COULD~~relative ~~NEGATIVELY~~to ~~AFFECT~~our ~~OUR ABILITY TO ATTRACT AND RETAIN CUSTOMERS.~~competitors;

~~We will be required to generate sufficient cash to pay~~• limit ~~all amounts due on the Notes and to conduct~~ our business operations. The Notes require interest payments of $8.8 million annually with $175.5 million of principal due November 2007. As of May 31, 2005, the remaining principal and interest payments due under the Notes were $198.2 million. Our cash, cash equivalents, marketable securities and long-term investments totaled $133.3 million as of May 31, 2005. Assuming our cash, cash equivalents, marketable securities and long-term investments remain constant from our May 31, 2005 levels, we will have to generate a minimum of $64.9 million of net cash flow through any combination of normal operations of our Company, raising of debt and equity capital or asset sales by November 2007 to meet our remaining principal and interest payments under the Notes. We have incurred net losses in the past, and we may not be able to cover our anticipated debt service obligations. This may materially hinder our ability to ~~make~~obtain ~~principal and~~additional interest payments on the Notes. Concerns about our ability to meet our debt service obligations could negatively affect our ability to attract and retain customers. Our ability to meet our future debt service obligations will be dependent upon our future performance, which will be subject to financial, business and other factors affecting our operations, many of which are beyond our control.financing;

WE• require the ~~MAY CHOOSE~~dedication TOof ~~EXCHANGE~~a ~~THE~~substantial ~~NOTES~~portion ~~FOR SHARES~~of OFour ~~OUR~~cash ~~COMMON~~flows ~~STOCK~~from INoperations ~~THE~~to the ~~OPEN~~payment ~~MARKET~~of ORprincipal ~~PURCHASE~~of, Aand ~~PORTION~~interest OFon, ~~THE~~our indebtedness, thereby ~~NOTES~~reducing ~~FOR~~the ~~CASH,~~availability ~~WHICH~~of ~~COULD~~capital ~~MATERIALLY~~to ~~DILUTE~~fund ~~EXISTING~~our ~~STOCKHOLDERS~~operations, ORworking ~~COULD~~capital, ~~HAVE~~capital Aexpenditures, ~~MATERIAL~~acquisitions ~~ADVERSE~~and ~~EFFECT~~other ONgeneral ~~OUR~~corporate ~~FINANCIAL CONDITION.~~purposes;

~~During~~• limit ~~fiscal 2004, we issued 9,725,750 shares of~~ our ~~common~~flexibility ~~stock~~ in ~~exchange~~planning for ~~the Notes in privately negotiated transactions under Section 3(a)(9) of the Securities Act of 1933~~, ~~and~~or wereacting ~~may enter into such transactions from time~~ to ~~time if we are able to do so on terms that are favorable to us. If we choose to enter into privately negotiated transactions to exchange some of our outstanding Notes for shares of our common stock~~, itchanges ~~could materially dilute the ownership percentage of our existing shareholders and result~~ in non-cash charges to earnings. In addition, to the extent we are able to do so on terms favorable to us, we may choose to purchase a portion of the Notes outstanding from time to time in the open market with cash. While the terms of our ~~credit facility~~business ~~impose certain limits on our ability to repurchase our debt securities with cash, we are permitted to do so subject to compliance with the terms~~ and ~~conditions set forth in~~ the ~~credit~~industry; ~~facility. If purchases of the Notes in the open market were funded from available cash~~ and ~~cash equivalents, it could have a material adverse effect on our liquidity and financial condition.~~

~~WE MAY VIOLATE FINANCIAL COVENANTS UNDER~~• influence ~~OUR~~our ~~CREDIT~~customers ~~FACILITY~~and ~~WHICH~~potential ~~COULD~~customers ~~HAVE~~in Adoing ~~MATERIAL~~business ~~ADVERSE~~with ~~EFFECT~~the ~~ON OUR LIQUIDITY AND FINANCIAL CONDITION~~Company.

We may incur additional debt in the future. While ~~have~~the anterms ~~unsecured~~of our credit facility ~~with~~impose ~~SVB~~certain ~~with~~limits ~~borrowing~~on ~~capacity~~our ofability ~~$15.0~~to incur ~~million.~~additional ~~Under~~debt, we are permitted to incur additional debt subject to compliance with the terms ofand conditions set forth in the credit facility,. ~~which~~The terms ~~expires~~of onthe ~~March 29, 2007,~~Notes weset ~~are~~forth ~~also~~no ~~able~~limits toon ~~borrow~~our upability to anincur additional $5debt.0 If ~~million~~a ~~for~~significant amount of new debt is added to our current levels, the related ~~purchase~~risks ofdescribed ~~equipment~~above orcould ~~other~~intensify.

29WE MAY HAVE INSUFFICIENT CASH FLOW TO MEET OUR DEBT SERVICE OBLIGATIONS, WHICH COULD NEGATIVELY AFFECT OUR ABILITY TO ATTRACT AND RETAIN CUSTOMERS.

~~capital expenditures~~We ~~through~~will ~~December 31,~~be ~~2005.~~required Asto ofgenerate ~~May 31,~~sufficient ~~2005,~~cash to ~~approximately~~pay ~~$9.2 million~~all ofamounts ~~letters~~due ofon ~~credit~~the ~~were~~Notes ~~outstanding with SVB,~~ and ~~approximately~~to ~~$0.5~~conduct ~~million~~our ~~was~~business ~~outstanding~~operations. ~~under a previous equipment~~The ~~financing~~Notes ~~credit~~require ~~line.~~interest ~~The~~payments ~~terms~~ of ~~the~~$8.8 ~~credit~~million ~~facility~~annually ~~require~~with us$175.5 tomillion ~~comply~~of ~~with~~principal ~~the~~due ~~following~~in ~~financial covenants: (i)~~November ~~minimum~~2007. ~~tangible~~As ~~net~~of ~~worth (defined~~November as30, ~~stockholders’~~2005, ~~equity~~the ~~plus convertible debt less goodwill,~~remaining ~~capitalized~~principal ~~software costs~~ and ~~other~~interest ~~intangible~~payments ~~assets)~~due ~~must~~under bethe atNotes ~~least~~were $90193.0 8 million. ~~plus~~Our cash, ~~50%~~cash ofequivalents, ~~consolidated~~marketable ~~net~~securities ~~income~~and ~~generated~~long-term ~~cumulatively~~investments ~~commencing~~totaled ~~with~~$126.5 ~~the~~million ~~first~~as ~~quarter~~ of ~~fiscal~~November ~~2006~~30, ~~and~~2005. ~~(ii)~~ Assuming our ~~ratio of (a) unrestricted~~ cash, cash equivalents, marketable securities and long-term investments ~~deposited~~ ~~with~~remain ~~SVB~~constant ~~and~~from ~~its~~our November ~~affiliates~~30, ~~plus~~2005 ~~net~~levels, ~~accounts~~we ~~receivable~~will have to ~~(b) current~~generate a minimum of $67.3 million ~~liabilities~~of ~~plus~~net ~~long-term~~cash ~~indebtedness~~flow tothrough ~~SVB~~any ~~and~~combination ~~outstanding~~of ~~letters~~normal operations of our Company, ~~credit~~raising ~~minus~~of ~~deferred~~debt ~~revenue,~~and ~~must~~equity becapital ator ~~least~~asset ~~2.0~~sales by November 2007 to ~~1.0.~~meet our ~~The~~remaining ~~credit~~principal ~~facility requires~~and usinterest topayments ~~maintain~~under ~~$50~~the Notes.0 ~~million~~We inhave ~~funds~~incurred net ~~with~~losses ~~SVB~~in ~~Asset~~the ~~Management~~past, and we may not be able to cover our anticipated debt ~~its~~service ~~affiliates~~obligations. IfThis may materially hinder our ~~future~~ability ~~financial~~to ~~performance~~make ~~results~~principal and ininterest apayments ~~violation~~on ~~of these~~the ~~financial~~Notes. ~~covenants~~Concerns ~~under~~about our ~~credit~~ability ~~facility,~~to ormeet ~~with~~ our ~~previous~~debt ~~equipment~~service ~~financing~~obligations ~~credit~~could ~~line,~~negatively weaffect ~~could~~our beability ~~required~~ to ~~provide~~attract ~~cash~~and retain ~~collateral~~customers. ~~for~~Our ~~letters~~ability ofto ~~credit~~meet orour ~~repay~~future ~~outstanding~~debt ~~borrowings~~service obligations will be dependent upon our future performance, which ~~would have~~will abe ~~material~~subject ~~adverse~~to ~~effect~~financial, business onand other factors affecting our ~~liquidity~~operations, ~~and~~many ~~financial~~of ~~condition~~which are beyond our control.

~~RISKS~~WE ~~RELATED~~MAY CHOOSE TO EXCHANGE THE NOTES FOR SHARES OF OUR ~~BUSINESS~~COMMON STOCK IN THE OPEN MARKET OR PURCHASE A PORTION OF THE NOTES FOR CASH, WHICH COULD MATERIALLY DILUTE EXISTING STOCKHOLDERS OR COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL CONDITION.

~~ADVERSE~~During ~~ECONOMIC~~fiscal ~~AND~~2004, ~~POLITICAL~~we ~~CONDITIONS~~issued ~~CAUSED~~9,725,750 shares of Aour ~~DETERIORATION~~common OFstock ~~DEMAND~~in INexchange ~~THE~~for ~~MARKETS~~the ~~FOR~~Notes ~~OUR~~in ~~PRODUCTS~~privately ~~AND~~negotiated ~~SERVICES~~transactions under ~~AND~~Section 3(a)(9) of ~~HAVE~~the Securities Act of 1933, and we may enter ~~ADVERSELY~~into ~~AFFECTED~~such ~~AND~~transactions ~~COULD~~from ~~FURTHER~~time ~~ADVERSELY~~to ~~AFFECT~~time ~~OUR~~if ~~OPERATING~~we ~~PERFORMANCE~~are able to do so on terms that ~~AND~~are ~~FINANCIAL~~favorable ~~CONDITION~~to us. If we choose to enter into privately negotiated transactions to exchange some of our outstanding Notes for shares of our common stock, it could materially dilute the ownership percentage of our existing shareholders and result in non-cash charges to earnings. In addition, to the extent we are able to do so on terms favorable to us, we may choose to purchase a portion of the Notes outstanding from time to time in the open market with cash. While the terms of our credit facility impose certain limits on our ability to repurchase our debt securities with cash, we are permitted to do so subject to compliance with the terms and conditions set forth in the credit facility. If purchases of the Notes in the open market were funded from available cash and cash equivalents, it could have a material adverse effect on our liquidity and financial condition.

~~Our revenue~~WE ~~and~~MAY VIOLATE ~~operating~~FINANCIAL ~~results~~COVENANTS ~~depend~~UNDER ~~on the overall demand for our enterprise~~OUR ~~application~~CREDIT software and related services. Regional and global adverse changes in the economy and political upheaval and unrest caused a deterioration of the markets for our products and services in recent years. Recent improvements in economic conditions have not yet resulted in improvements in the markets for supply chain management software. These factors resulted in reductionsFACILITY, ~~delays and~~WHICH ~~postponements~~COULD ofHAVE ~~customer~~A ~~purchases,~~MATERIAL ~~which~~ADVERSE ~~materially~~EFFECT ~~and~~ON ~~adversely affected~~OUR ~~our financial performance during the last four fiscal years. Demand~~LIQUIDITY ~~for~~AND ~~our~~FINANCIAL solutions designed to optimize pricing and revenue management, a component of our demand management solutions, was more severely affected than our other solutions for which there are more mature marketsCONDITION. If these adverse conditions continue or worsen, we would likely experience further reductions, delays, and postponements of customer purchases further adversely affecting our operating performance and financial condition.

~~National~~We have an unsecured credit facility with SVB with ~~and~~borrowing ~~global~~capacity ~~responses~~of to$15.0 ~~future~~million. ~~hostilities~~Under ~~and~~the ~~terrorist~~terms ~~attacks~~of ~~may~~the ~~materially~~credit facility, ~~and~~which ~~adversely~~expires ~~affect~~on ~~demand~~March 29, 2007, we are also able to borrow up to an additional $5.0 million for ~~our~~the ~~software~~purchase ~~and~~of ~~services~~equipment ~~because~~or other capital expenditures through December 31, 2005. As of ~~the~~November 30, 2005, ~~economic~~approximately ~~and~~$9.9 million ~~political~~of ~~effects~~letters onof ~~our~~credit ~~markets~~were outstanding with SVB, and byapproximately ~~interrupting~~$0.1 ~~the~~million ~~ability~~was outstanding under a previous equipment financing credit line. The terms of ~~our~~the ~~customers~~credit tofacility dorequire ~~business~~us into comply with the ~~ordinary~~following ~~course,~~financial ascovenants: a(i) minimum ~~result~~tangible ofnet aworth ~~variety~~(defined ofas ~~factors,~~stockholders’ ~~including,~~equity ~~among~~plus ~~others~~convertible debt less goodwill, capitalized ~~changes~~software orcosts ~~disruptions~~and inother ~~movement~~intangible assets) must be at least $90.0 million plus 50% of consolidated net income generated cumulatively commencing with the first quarter of fiscal 2006 and ~~sourcing~~(ii) our ratio of (a) unrestricted ~~materials~~cash, ~~goods~~cash equivalents, marketable securities and long-term ~~components~~investments ordeposited ~~possible~~with ~~interruptions~~SVB ~~in the~~and ~~flow~~its ofaffiliates ~~information~~plus ornet ~~monies.~~accounts receivable

WE BELIEVE OUR RECENT FINANCIAL PERFORMANCE WAS ADVERSELY AFFECTED BY DIFFICULTIES IN SALES EXECUTION AND A MARKET FOCUS THAT WAS TOO BROAD FOR EXISTING MARKET CONDITIONS AND A STRONG COMPETITIVE ENVIRONMENT. IF WE CANNOT OVERCOME THESE DIFFICULTIES OUR OPERATING PERFORMANCE AND FINANCIAL CONDITION COULD BE MATERIALLY AND ADVERSELY AFFECTED.29

Weto ~~incurred~~(b) current ~~significant~~liabilities ~~losses~~plus ~~during~~long-term ~~the~~indebtedness ~~past~~to ~~four~~SVB ~~fiscal~~and ~~years~~outstanding letters of credit minus deferred revenue, must be at least 2.0 Weto ~~believe~~1.0. ~~our~~The ~~recent~~credit ~~financial~~facility ~~performance~~requires ~~was~~us ~~adversely~~to ~~affected~~maintain by$50.0 ~~difficulties~~million in ~~sales~~funds ~~execution~~with SVB Asset Management and its affiliates. If our future financial performance results in a violation ~~market~~of ~~focus~~these ~~that~~financial ~~was~~covenants ~~too~~under ~~broad~~our credit facility, or with our previous equipment financing credit line, we could be required to provide cash collateral for ~~existing~~letters ~~market~~of ~~conditions~~credit ~~and~~or arepay outstanding borrowings, which would ~~strong~~have ~~competitive~~a ~~environment~~material adverse effect on our liquidity and financial condition.

~~We experienced~~RISKS ~~sequential~~RELATED ~~declines~~TO inOUR software and total revenue during our second and third quarters of fiscal 2002. Total annual revenue decreased in each of fiscal 2003 and fiscal 2004, as compared to prior fiscal years. For the fiscal year ended 2005, there were declines in software and total revenue in comparison to the fiscal year ended 2004. The losses incurred during these periods were $115.2 million in fiscal 2002, $212.2 million in fiscal 2003, $103.8 million in fiscal 2004 and $55.3 million in fiscal 2005. We incurred a loss of $4.9 million for the three months ended May 31, 2005. If we do not successfully align our cost structure with our revenue without hindering our ability to grow revenue, or if we do not successfully overcome the recent internal factors that have hindered our performance, our operating performance and financial condition could be harmed, and we could continue to incur significant losses.BUSINESS

WEADVERSE ~~RECORDED~~ECONOMIC AAND ~~GOODWILL~~POLITICAL ~~IMPAIRMENT~~CONDITIONS ~~CHARGE OF~~CONTRIBUTED ~~$96.3~~TO ~~MILLION~~THE INDETERIORATION ~~OUR FOURTH QUARTER~~ OF ~~FISCAL~~DEMAND ~~2003 AS A RESULT OF SIGNIFICANT DECLINES~~ IN ~~OUR~~THE ~~STOCK~~MARKETS ~~PRICE~~FOR ~~DURING FISCAL 2003. IF~~ OUR ~~STOCK~~PRODUCTS ~~PRICE~~AND ~~DECREASES~~SERVICES TOAND ~~LEVELS~~HAVE ~~SUCH~~ADVERSELY ~~THAT~~AFFECTED ~~THE~~AND ~~IMPLIED~~COULD ~~FAIR~~FURTHER ~~VALUE~~ADVERSELY OFAFFECT OUR ~~COMPANY IS SIGNIFICANTLY LESS~~OPERATING ~~THAN~~PERFORMANCE ~~STOCKHOLDERS’~~AND ~~EQUITY~~FINANCIAL ~~FOR A SUSTAINED PERIOD OF TIME, WE MAY BE REQUIRED TO RECORD ADDITIONAL SIGNIFICANT NON-CASH CHARGES ASSOCIATED WITH GOODWILL IMPAIRMENT~~CONDITION.

OnOur revenue and operating results depend on the ~~March 1,~~overall ~~2002,~~demand wefor ~~adopted~~our ~~Statement~~enterprise ofapplication ~~Financial~~software ~~Accounting~~and ~~Standards No~~related services.~~142~~ Regional ~~“Goodwill~~ and ~~Other~~global ~~Intangible~~adverse ~~Assets”~~changes ~~(“SFAS~~in the economy and political upheaval and ~~142”),~~unrest ~~which~~contributed ~~changed~~to a deterioration of the ~~accounting~~markets for ~~goodwill~~our ~~from~~products anand services ~~amortization~~in ~~method~~recent toyears. Recent improvements in economic conditions have not anyet ~~impairment-only~~resulted ~~method~~in improvements in the markets for supply chain management software. AsThese ~~required~~factors byresulted ~~SFAS~~in ~~142~~reductions, wedelays ~~test~~and ~~goodwill~~postponements ~~for~~of ~~impairment~~customer onpurchases, anwhich ~~annual~~materially ~~basis,~~and ~~coinciding~~adversely ~~with~~affected our financial performance during the last four fiscal ~~year~~years. ~~end,~~Demand orfor onour ansolutions designed to ~~interim~~optimize ~~basis~~pricing ifand ~~circumstances~~revenue ~~change~~management, ~~that~~a ~~would~~component of our demand management solutions, was more ~~likely~~severely affected than ~~not reduce~~ our ~~implied~~other ~~fair~~solutions ~~value~~for ~~below~~which ~~our~~there are ~~carrying~~more ~~value~~mature markets. ~~During~~If ~~fiscal~~these ~~2003~~adverse conditions continue or worsen, we would likely experience further reductions, delays, and postponements of customer purchases further adversely affecting our operating performance and financial condition.

30National and global responses to future hostilities and terrorist attacks may materially and adversely affect demand for our software and services because of the economic and political effects on our markets and by interrupting the ability of our customers to do business in the ordinary course, as a result of a variety of factors, including, among others, changes or disruptions in movement and sourcing of materials, goods and components or possible interruptions in the flows of information or monies.

~~experienced adverse~~WE ~~changes~~BELIEVE inOUR ~~our~~RECENT ~~stock~~PERFORMANCE ~~price~~WAS ~~resulting from a decline in our financial~~ADVERSELY ~~performance~~AFFECTED ~~caused~~BY byDIFFICULTIES ~~adverse~~IN ~~business~~SALES ~~conditions that affected the technology industry~~EXECUTION, ~~especially~~CONCERNS ~~enterprise~~ABOUT ~~application~~OUR ~~software companies. As a result of~~FINANCIAL ~~these~~VIABILITY ~~tests,~~AND weA ~~determined~~HIGHLY ~~that~~COMPETITIVE based upon the implied fair value (which includes factors such as, but not limited to, our market capitalization, control premium and recent stock price volatility) of our Company as of February 28, 2003, there was an impairment of goodwillENVIRONMENT. AsIF aWE ~~result~~CANNOT ofOVERCOME ~~the impairment of~~THESE ~~goodwill~~DIFFICULTIES asOUR ofOPERATING ~~February 28,~~PERFORMANCE ~~2003,~~AND weFINANCIAL ~~recorded~~CONDITION aCOULD ~~non-cash goodwill~~BE ~~impairment~~MATERIALLY ~~charge~~AND ofADVERSELY ~~$96~~AFFECTED.3 million to reduce goodwill associated with our acquisitions to their estimated fair value as of that date. We performed our fiscal 2005 goodwill impairment review on February 28, 2005, our annual date for goodwill impairment review, and determined that the implied fair value of the Company exceeded its carrying value. Accordingly, no goodwill impairment charge was recorded for fiscal 2005.

~~During the~~We ~~three~~incurred ~~months~~significant ~~ended~~losses ~~May 31,~~during ~~2005,~~the wepast ~~experienced adverse changes in our~~four ~~stock~~fiscal ~~price~~years. As aWe ~~result,~~believe ~~we performed a test for goodwill impairment at May 31, 2005 and determined that based upon~~ our ~~implied fair value (which includes factors such as, but not limited to, our market capitalization, control premium and~~ recent ~~stock~~financial ~~price volatility)~~performance ~~as of May 31, 2005, there~~ was ~~no impairment of goodwill. We~~adversely ~~will~~affected ~~continue~~by todifficulties ~~test~~in ~~for~~sales ~~impairment on an annual basis~~execution, ~~coinciding~~concerns ~~with~~about our ~~fiscal~~ ~~year-end, or on an interim basis if circumstances change that would more~~financial ~~likely~~viability ~~than~~and not reduce the fair value of our reporting unit below its carrying value. If our stock price is significantly lower than recent levels such that the implied fair value of our Company is significantly less than stockholders’ equity for a ~~sustained~~highly ~~period~~competitive ~~of time, among other factors, we may be required to record additional impairment losses related to goodwill~~environment.

~~OUR~~Over ~~FUTURE~~the ~~RESULTS~~past ~~WILL~~eighteen BEmonths, ~~ADVERSELY~~we ~~AFFECTED~~have BYmade ~~SEVERAL~~substantial ~~TYPES~~changes OFin ~~SIGNIFICANT~~our ~~NON~~Company, including reorganizing and downsizing our workforce, including our executive management team and our sales organization, narrowing our market focus, narrowing our product focus, our ongoing move of product development to India, increasing our focus on transportation and pricing optimization markets and increasing our focus on the Asia-~~CASH~~Pacific region. ~~CHARGES~~Although ~~WHICH~~we ~~COULD~~believe ~~IMPAIR~~that ~~OUR~~these ~~ABILITY~~changes TOhave enabled us to improve our ~~ACHIEVE~~financial ORperformance ~~MAINTAIN~~and ~~PROFITABILITY~~cash INflows ~~THE~~from ~~FUTURE~~operations in our most recent quarters, we have continued to report significant losses and experience declines in both software license revenue and total revenue. If we do not successfully align our cost structure with our revenue without hindering our ability to grow revenue, or if we do not successfully overcome the recent internal factors that have hindered our performance, our operating performance and financial condition could be harmed, and we could continue to incur significant losses.

~~We will~~IF ~~incur~~OUR ~~significant~~STOCK ~~non-cash~~PRICE ~~charges~~DECREASES inTO ~~the~~LEVELS ~~future~~SUCH ~~related~~THAT ~~to the~~THE ~~amortization~~IMPLIED ofFAIR ~~acquired~~VALUE ~~technology~~OF ~~and~~OUR ~~intangible~~COMPANY ~~assets~~IS ~~from~~SIGNIFICANTLY ~~past acquisitions.~~LESS ~~During~~THAN ~~fiscal 2002, we announced that we were required to~~STOCKHOLDERS’ ~~write-off~~EQUITY ~~our~~FOR ~~investment~~A inSUSTAINED ~~Converge, Inc.,~~PERIOD ~~which~~OF ~~resulted in a pre-tax charge of $10.2 million. During fiscal 2003~~TIME, weWE ~~recorded~~MAY BE aREQUIRED ~~valuation~~TO ~~allowance~~RECORD ~~for~~ADDITIONAL ~~the~~SIGNIFICANT ~~full amount of our net deferred tax assets which resulted in a $20.4 million non~~NON-~~cash~~CASH ~~charge~~CHARGES toASSOCIATED ~~income~~WITH ~~tax~~GOODWILL ~~expense~~IMPAIRMENT. Also during fiscal 2003, we recorded a goodwill impairment charge of $96.3 million to reduce goodwill associated with our acquisitions to its estimated fair value as of that date. During fiscal 2002, 2003, 2004 and 2005, we recorded net write-downs of long-lived assets associated with exit and disposal activities of approximately $0.1 million, $2.5 million, $4.2 million and $2.7 million, respectively, consisting of the abandonment or disposal of certain furniture, fixtures, computer equipment, leasehold improvements related to vacating office space and other long-lived assets. During fiscal 2004, we exchanged $74.5 million of the Notes for 9.7 million shares of our common stock in privately negotiated transactions, which resulted in a non-cash debt conversion expense of $59.8 million. We may also incur non-cash charges in future periods related to impairments of long-lived assets and future exchanges of Notes for shares of our common stock, if any. To achieve profitability, we must grow our revenue sufficiently to cover these charges. Our failure to achieve profitability could cause our stock price to decline.

IFOn March 1, ~~OUR~~2002, ~~EXIT~~we ~~AND~~adopted ~~DISPOSAL~~Statement ~~PLANS~~of ~~AND~~Financial ~~OUR~~Accounting ~~COST~~Standards ~~CONTAINMENT~~No.142 ~~AND~~“Goodwill ~~COST~~and ~~REDUCTION~~Other ~~MEASURES~~Intangible ~~FAIL~~Assets” (“SFAS TO142”), ~~ACHIEVE~~which ~~THE~~changed ~~DESIRED~~the ~~RESULTS~~accounting ORfor goodwill from an amortization ~~RESULT~~method INto ~~UNANTICIPATED~~an ~~NEGATIVE~~impairment-only ~~CONSEQUENCES~~method. As required by SFAS 142, WEwe ~~MAY~~test goodwill for impairment on an annual basis coinciding with our fiscal year end, or on an interim basis if circumstances change that would more likely than not reduce our implied fair value below our carrying value. We have recorded a non-cash goodwill impairment charge in the past as a result of adverse changes in our stock price. We performed our fiscal 2005 goodwill impairment review on February ~~SUFFER~~28, ~~MATERIAL~~2005 ~~HARM~~and interim testing at May 31, 2005 and November 30, TO2005 ~~OUR~~due ~~OPERATING~~to ~~PERFORMANCE~~volatility ~~AND~~in ~~FINANCIAL~~our ~~CONDITION~~stock price and the departure of our Chief Financial Officer, and determined that the implied fair value of the Company exceeded its carrying value. Accordingly, no goodwill impairment charge was recorded.

In response to deteriorations in our markets, during fiscal 2002, 2003, 2004, 2005 and the three months ended May 31, 2005, we implemented exit and disposal plans and cost containment and cost reduction measures and are continuing to implement cost containment and cost reduction measures to align our cost structure with our revenue. These actions have included, among other things, reductions in workforce and consolidations of our operational facilities. We abandoned additional idle space in our Rockville, Maryland; Tokyo, Japan; San Carlos and Calabasas, California; and Bracknell, United Kingdom facilities and closed three offices in Europe and one in the Philippines during fiscal 2005 and the three months ended May 31, 2005.30

~~As part~~We ofwill ~~the~~continue ~~consolidation~~to oftest ~~our~~for ~~facilities,~~impairment weon ~~negotiate~~an ~~lease termination~~annual ~~agreements~~basis, orcoinciding ~~subleases~~with ~~for~~our ~~certain~~fiscal ofyear-end, ~~our~~or ~~facilities.~~on Wean ~~cannot~~interim ~~predict~~basis ~~when~~if orcircumstances ifchange wethat ~~will~~would bemore ~~successful~~likely inthan ~~negotiating~~not ~~lease~~reduce ~~termination~~the ~~agreements~~fair orvalue of ~~subleases~~our onreporting ~~terms~~unit ~~acceptable~~below toits uscarrying value. ~~Should~~If weour bestock ~~unsuccessful~~price ~~in such~~is ~~negotiations~~significantly orlower ~~if the negotiated terms are less favorable~~ than ~~currently anticipated,~~recent welevels ~~may~~such bethat ~~required~~the toimplied ~~materially~~fair ~~increase~~value ~~our~~of ~~exit and disposal~~our ~~related~~Company ~~expenses~~is insignificantly ~~future~~less ~~periods.~~than ~~Further,~~stockholders’ ifequity wefor ~~consolidate~~a ~~additional~~sustained period ~~facilities~~of intime, ~~the~~among ~~future~~other factors, we may ~~incur~~be ~~additional~~required ~~exit~~to ~~and~~record ~~disposal related~~additional ~~expenses,~~impairment ~~which~~losses ~~could~~related ~~have~~to ~~a material adverse effect on our business, financial condition or results of operations~~goodwill.

~~We also~~OUR ~~cannot~~FUTURE ~~assure~~RESULTS ~~you~~COULD ~~that~~BE weADVERSELY ~~will~~AFFECTED ~~not reduce or otherwise adjust our~~BY ~~workforce~~VARIOUS ~~again~~SIGNIFICANT inNON-CASH ~~the~~CHARGES, ~~future~~WHICH orCOULD ~~that~~IMPAIR ~~related~~OUR ~~transition~~ABILITY ~~issues~~TO ~~associated with~~ACHIEVE ~~such~~OR aMAINTAIN ~~reduction~~PROFITABILITY ~~will~~IN ~~not~~THE ~~occur again~~FUTURE.

~~In fiscal~~We ~~2002,~~have ~~2003,~~recorded ~~2004,~~significant ~~2005,~~non-cash ~~and~~charges in the past ~~three~~and ~~months~~will ~~ended~~incur ~~May 31,~~significant ~~2005,~~non-cash ~~we recorded~~charges ~~exit~~in ~~and~~the ~~disposal~~future ~~charges~~related to the amortization of ~~$6.6~~acquired ~~million,~~technology ~~$19.2~~and ~~million,~~intangible ~~$18.6 million,~~assets ~~$17~~from past acquisitions.3 ~~million~~We ~~and~~may ~~$0.4~~also ~~million~~incur ~~respectively.~~non-cash Ifcharges wein ~~fail~~future toperiods ~~achieve~~related ~~the~~to ~~desired~~impairments ~~results~~ of ~~our~~long-lived ~~exit~~assets and ~~disposal~~future ~~plans~~exchanges ~~and~~of ~~our~~Notes ~~cost~~for ~~containment~~shares ~~and~~of ~~cost~~our ~~reduction~~common ~~measures~~stock, if any. To achieve profitability, we ~~may~~must ~~suffer~~grow ~~material~~our ~~harm~~revenue sufficiently to ~~our~~cover ~~operating~~these charges. Our failure to achieve profitability could ~~performance~~cause ~~and~~our ~~financial~~stock ~~condition~~price to decline.

31IF OUR EXIT AND DISPOSAL PLANS AND OUR COST CONTAINMENT AND COST REDUCTION MEASURES FAIL TO ACHIEVE THE DESIRED RESULTS OR RESULT IN UNANTICIPATED NEGATIVE CONSEQUENCES, WE MAY SUFFER MATERIAL HARM TO OUR OPERATING PERFORMANCE AND FINANCIAL CONDITION.

WESince ~~REDUCED~~fiscal ~~OUR~~2002, ~~WORKFORCE~~we AShave ~~PART OF~~implemented ~~OUR~~a number of ~~COST~~exit ~~CONTAINMENT~~and ~~AND~~disposal ~~COST~~plans ~~REDUCTION~~and ~~INITIATIVES.~~cost IFcontainment WEand ~~FAIL~~cost TOreduction ~~ATTRACT~~measures ~~AND~~and we ~~RETAIN~~continue Ato ~~QUALIFIED~~implement ~~WORKFORCE,~~cost ~~OUR~~containment ~~OPERATING~~and ~~PERFORMANCE~~cost ~~AND~~reduction ~~FINANCIAL~~measures ~~CONDITION~~to align our ~~COULD~~cost BEstructure ~~MATERIALLY~~with ~~ADVERSELY~~our ~~AFFECTED~~revenue. ~~FURTHER~~These actions have included, ~~OUR~~among ~~COST~~other things, ~~CONTAINMENT~~reductions ~~AND~~in ~~COST~~workforce and consolidations of our operational ~~REDUCTION~~facilities. ~~INITIATIVES~~We ~~MAY HINDER~~abandoned ORadditional ~~IMPAIR~~idle ~~OUR~~space ~~ABILITY~~in TOour ~~TAKE~~Rockville, ~~ADVANTAGE~~Maryland; OFTokyo, ~~IMPROVEMENTS~~Japan; INSan ~~MARKET~~Carlos ~~CONDITIONS~~and Calabasas, California; and Bracknell, United Kingdom facilities and closed four offices in Europe and one in the Philippines during fiscal 2005 and the nine months ended November 30, 2005. Our cost containment and reduction measures are set forth in greater detail in the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

~~We believe~~As ~~that~~part ~~our~~of ~~success~~the ~~depends~~consolidation onof our ~~ability~~facilities, towe negotiate ~~motivate~~lease ~~and~~termination ~~retain~~agreements ~~highly skilled~~and ~~technical,~~lease ~~managerial~~modifications, ~~sales,~~or ~~marketing~~both and subleases ~~services~~for ~~personnel~~certain of our facilities. We cannot predict when or if we will ~~Competition~~be ~~for~~successful ~~skilled~~in ~~personnel~~negotiating ~~can~~lease termination agreements or subleases on terms acceptable to us. Should we be ~~intense,~~unsuccessful ~~and~~in ~~there~~such isnegotiations noor ~~assurance~~if the ~~that~~negotiated terms are less favorable than currently anticipated, we ~~will~~may be required ~~successful~~to materially increase our exit and disposal related expenses in future ~~attracting~~periods. Further, ~~motivating~~if ~~and~~we ~~retaining~~consolidate additional facilities in the ~~personnel~~ future, we ~~need~~may toincur ~~improve~~additional exit and disposal related expenses, which could have a material adverse effect on our business, financial ~~performance~~condition ~~and~~or ~~grow~~results of operations.

~~As part~~There ofcan ~~our~~be ~~cost~~no ~~containment~~assurance ~~and~~that ~~cost~~we ~~reduction~~will ~~initiatives,~~not wereduce ~~have recently~~or ~~reduced~~otherwise adjust our workforce. ~~During~~again in the ~~three~~future ~~months~~or ~~ended~~that ~~May 31,~~related ~~2005,~~transition ~~voluntary~~issues ~~employee~~associated ~~attrition~~with ~~continued.~~such ~~However,~~a ~~headcount~~reduction ~~increased~~will tonot ~~722~~occur ~~at the~~again. ~~quarter~~If ~~ended~~we ~~May 31,~~fail ~~2005 compared~~ to achieve ~~695 at~~ the ~~quarter~~desired ~~ended~~results ~~February 28, 2005, primarily as a result~~ of ~~increased staffing at~~ our ~~new~~exit ~~development~~and ~~center in~~disposal ~~Hyderabad,~~plans ~~India.~~and ~~Moreover, the recent trading levels of~~ our ~~stock have~~cost ~~decreased~~containment ~~the~~and ~~value~~cost ofreduction ~~our~~measures, ~~stock~~we ~~options~~may ~~granted~~suffer tomaterial ~~employees~~harm ~~under~~to our ~~stock~~ ~~option~~operating ~~plans.~~performance ~~We consider stock options to be critically important in attracting~~ and ~~retaining~~financial ~~employees~~condition.

~~As a~~IF ~~result~~WE ofFAIL ~~these~~TO ~~factors,~~ATTRACT ~~our~~AND ~~employees,~~RETAIN ~~whether~~A ~~or not affected by our~~QUALIFIED ~~reduction in workforce~~WORKFORCE, ~~may~~OUR ~~seek~~OPERATING ~~employment~~PERFORMANCE ~~elsewhere.~~AND ~~Continuity~~FINANCIAL ofCONDITION ~~personnel is~~COULD ~~a very important factor in our success. Moreover, the cost of hiring,~~BE ~~training~~MATERIALLY ~~and~~ADVERSELY ~~retaining skilled employees is high, and we may have difficulty attracting such personnel as a result of a perceived risk of future workforce reductions~~AFFECTED. ~~Our cost containment and cost reduction initiatives may yield further unintended consequences~~FURTHER, ~~such~~OUR asCOST ~~reduced~~CONTAINMENT ~~employee~~AND ~~morale,~~COST ~~decreased~~REDUCTION ~~productivity~~INITIATIVES ~~and~~MAY HINDER ~~disclosures~~OR ofIMPAIR ~~confidential~~OUR ~~information~~ABILITY ~~about~~TO usTAKE byADVANTAGE ~~employees~~OF ~~that~~IMPROVEMENTS ~~seek~~IN ~~employment~~MARKET ~~with others in violation of their confidentiality agreements with us~~CONDITIONS. Failure to attract, motivate and retain highly skilled personnel could materially and adversely affect our business. Further, our cost containment and cost reduction initiatives may hinder or impair our ability to take advantage of improvements in market conditions.

WEWe ~~HAVE~~believe ~~EXPERIENCED~~that ~~SIGNIFICANT~~our ~~CHANGES~~success INdepends on our ability ~~SENIOR~~to ~~MANAGEMENT~~motivate, ~~RECENTLY~~hire and retain highly skilled technical, managerial, sales, marketing and services personnel. ~~THE~~Competition ~~SUCCESS~~for ~~AND~~skilled ~~GROWTH~~personnel OFcan ~~OUR~~be intense, ~~BUSINESS~~and ~~MAY SUFFER~~there is no assurance that we will be successful in attracting, IFmotivating WEand ~~EXPERIENCE~~retaining ~~TOO~~the ~~MANY~~personnel ~~CHANGES~~we INneed ~~KEY~~to ~~PERSONNEL~~improve INour ~~TOO~~financial performance ~~SHORT~~and Agrow. ~~PERIOD~~As OFpart of our cost containment and cost reduction ~~TIME~~initiatives, we have recently reduced our workforce and experienced voluntary attrition. During the three and nine months ended November 30, 2005, voluntary employee attrition continued. However, headcount increased to 766 at November 30, 2005 compared to 765 employees at August 31, 2005, primarily as a result of continued staffing at our product development center in Hyderabad, India.

~~We have~~Continuity ~~recently~~of ~~undergone~~personnel ~~significant~~is ~~changes~~a invery ~~our~~important ~~senior management. As a~~factor ~~result,~~in our ~~senior~~success. ~~management~~We ~~team~~consider ~~has~~stock ~~only~~options, ~~recently~~restricted ~~begun~~stock toand ~~work together. In~~retention ~~July 2004,~~programs ~~Gregory~~to J.be ~~Owens~~critically ~~resigned~~important asin ~~our~~attracting ~~Chief Executive Officer~~ and ~~was~~ ~~replaced~~retaining ~~by Joseph L~~employees. ~~Cowan as Chief Executive Officer. In April 2005,~~The ~~Mr. Owens~~recent ~~resigned~~decline asin ~~Chairman of the Board. In August of 2004,~~ our ~~President,~~ ~~Jeremy~~stock P.trading ~~Coote~~price ~~resigned~~has ~~and~~decreased the ~~position~~value of ~~President was~~stock ~~eliminated.~~options Inand ~~addition,~~restricted ~~two~~stock ~~other~~granted ~~senior~~previously ~~management~~to ~~personnel left the Company during~~ our ~~third~~employees ~~quarter~~under ~~of fiscal 2005 and one, whose position was eliminated,~~our ~~left~~stock ~~the~~option ~~Company~~plans. atDespite ~~the end of~~ our ~~fourth~~efforts ~~quarter~~to ofretain ~~fiscal~~our ~~2005. In September 2004~~employees, ~~Jeffrey~~ ~~L. Kissling was hired as~~ our ~~Chief Technology Officer, and two other~~existing ~~senior~~employees ~~management~~may ~~personnel~~seek ~~were~~employment ~~promoted to new positions~~elsewhere. InFailure ~~fiscal~~to ~~year 2005~~attract, we ~~reorganized~~motivate ~~our sales~~ and retain ~~marketing~~highly ~~organization~~skilled ~~which~~personnel ~~resulted~~could inmaterially ~~further management~~and ~~changes~~adversely ~~within~~affect ~~the organizational structure~~our business. ~~Our~~Further, ~~success depends significantly on the continued service of~~ our ~~executive~~cost ~~officers~~containment and ~~their ability~~cost toreduction ~~work~~initiatives ~~together effectively as a management team. We do not have~~may ~~fixed-term~~yield ~~employment~~further ~~agreements~~unintended ~~with any executive officers~~consequences, ~~other~~such ~~than~~as ~~with Joseph~~reduced L.employee ~~Cowan~~morale, ~~who has a two-year employment agreement with our Company that~~ ~~commenced~~decreased ~~in July~~productivity, ~~2004,~~difficulty ~~and~~attracting wequalified dopersonnel ~~not~~due ~~maintain~~to ~~key person life insurance on~~a ~~our~~perceived ~~executive~~risk ~~officers. The loss~~ of ~~services~~future ofworkforce ~~any~~reductions, ofand our ~~senior management for any reason or their~~ inability to ~~manage our Company effectively could have~~take aadvantage ~~material~~of ~~adverse~~improvements ~~effect~~in onmarket ~~our operating performance and financial condition~~conditions.

WE HAVE RESTRUCTURED, AND MAY IN THE FUTURE RESTRUCTURE, OUR SALES FORCE, WHICH CAN BE DISRUPTIVE. WE HAVE ALSO REDUCED OUR SALES FORCE AS PART OF OUR COST CONTAINMENT AND COST REDUCTION INITIATIVES. OUR FAILURE TO FIELD AN EFFECTIVE SALES ORGANIZATION COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR OPERATING PERFORMANCE AND FINANCIAL CONDITION.31

~~We continue~~WE toHAVE ~~rely~~EXPERIENCED ~~heavily~~SIGNIFICANT onCHANGES ~~our~~IN ~~direct~~SENIOR MANAGEMENT ~~sales force~~RECENTLY. InTHE ~~recent~~SUCCESS ~~years,~~AND ~~we reorganized~~GROWTH ~~our~~OF ~~sales~~OUR ~~force~~BUSINESS ~~in response to management changes and other internal considerations, most recently in March~~MAY ~~2005.~~SUFFER ~~In fiscal 2003, 2004~~IF ~~and~~WE ~~2005,~~EXPERIENCE weTOO ~~reduced~~MANY ~~our~~CHANGES ~~sales~~IN ~~force~~KEY asPERSONNEL aIN ~~result~~TOO ofSHORT ~~the~~A ~~deterioration~~PERIOD inOF ~~our markets and restructuring of our operations~~TIME. Decreasing software revenue has resulted in reduced compensation earned by members of our sales force; it also has resulted, and may continue to result, in voluntary attrition of our sales force over time. In order to stabilize and then grow our revenue, we will have to field an effective sales force. Changes in the structure of the sales force and sales force management have generally resulted in a temporary lack of focus and reduced productivity. We cannot assure you that we will be able to field a more productive sales force or successfully attract and retain qualified sales people at levels sufficient to support growth. We cannot assure you that we will not continue to restructure our sales force or that the transition issues associated with restructuring the sales force will not recur. Such restructuring or associated transition issues can be disruptive and adversely impact our operating performance and financial condition.

32We have recently undergone significant changes in our senior management. In July 2004, Gregory J. Owens resigned as our Chief Executive Officer and was replaced by Joseph L. Cowan as Chief Executive Officer. In August of 2004, our President, Jeremy P. Coote resigned and the position of President was eliminated. In April 2005, Mr. Owens resigned as Chairman of the Board. In addition, two other senior management personnel left the Company during our third quarter of fiscal 2005 and one, whose position was eliminated, left the Company at the end of our fourth quarter of fiscal 2005. Most recently, in October 2005, Raghavan Rajaji, our Executive Vice President and Chief Financial Officer, resigned to accept a position with another company. In September 2004, Jeffrey L. Kissling was hired as our Chief Technology Officer, and two other senior management personnel were promoted to new positions. During fiscal year 2005, we reorganized our sales and marketing organization, which resulted in further management changes within the organizational structure.

~~SALES~~Our ~~CYCLES~~success ~~FOR~~depends ~~OUR~~significantly ~~PRODUCTS~~on ~~AND~~the ~~SERVICES~~continued service ~~CAN~~of our executive officers and their ability to work together BEeffectively ~~LONG~~as ~~AND~~a ~~UNPREDICTABLE~~management team. ~~VARIATIONS~~We INdo ~~THE~~not ~~TIME~~have ITfixed-term ~~TAKES~~employment agreements USwith TOany ~~LICENSE~~executive ~~OUR~~officers, other than with Joseph L. Cowan, who ~~SOFTWARE~~has ~~MAY CAUSE~~a ~~FLUCTUATIONS~~two-year INemployment ~~OUR~~agreement ~~QUARTERLY~~with ~~OPERATING~~our ~~RESULTS~~Company that commenced in July 2004, and we do not maintain key person life insurance on our executive officers. The loss of services of any of our senior management for any reason or their inability to manage our Company effectively could have a material adverse effect on our operating performance and financial condition.

~~Each client’s~~WE ~~decision~~HAVE toRESTRUCTURED, ~~license~~AND ~~and~~MAY IN ~~implement~~THE ~~our products and services is~~FUTURE ~~discretionary~~RESTRUCTURE, ~~involves~~OUR aSALES ~~significant~~FORCE, ~~commitment~~WHICH ofCAN ~~resources~~BE ~~and is subject to the client’s budget cycles~~DISRUPTIVE. ~~The~~WE ~~time~~HAVE itALSO ~~takes~~REDUCED ~~to license our software to~~OUR ~~prospective~~SALES ~~clients~~FORCE ~~varies~~AND ~~substantially,~~CONSOLIDATED ~~but~~OUR ~~historically~~SALES ~~has~~OFFICES ~~ranged~~AS ~~between three~~PART OF ~~and~~OUR ~~twelve months. Prior sales and implementation cycles should not be~~COST ~~relied~~CONTAINMENT ~~upon~~AND asCOST ~~any~~REDUCTION ~~indication of future cycles~~INITIATIVES. AsOUR aFAILURE ~~result~~TO ofFIELD ~~current~~AN ~~economic~~EFFECTIVE ~~conditions,~~SALES ~~recent~~ORGANIZATION ~~changes~~COULD inHAVE ~~our~~A ~~organization~~MATERIAL ~~and~~ADVERSE ~~sales~~EFFECT ~~force~~ON ~~and~~OUR ~~increased~~OPERATING ~~competition,~~PERFORMANCE ~~our~~AND ~~sales~~FINANCIAL ~~cycle has recently become longer than historical sales cycles~~CONDITION.

~~Variations in~~We ~~the~~continue ~~length~~to ofrely heavily on our direct sales force. ~~cycles~~In ~~will~~recent ~~cause~~years, ~~our~~we ~~revenue~~reorganized toour ~~fluctuate~~sales ~~widely from~~force ~~period~~in response to management ~~period.~~changes Weand ~~base~~other ~~our~~internal ~~operating~~considerations, ~~expenses~~most onrecently ~~anticipated revenue~~in ~~trends~~August 2005. ~~Because~~Since afiscal ~~high~~2003, ~~percentage~~we ofhave reduced our ~~expenses~~sales ~~are~~force ~~relatively~~as ~~fixed~~a result inof the ~~short-term~~ ~~and~~deterioration wein ~~typically~~our ~~recognize~~markets aand ~~substantial~~restructuring ~~portion~~ of our ~~software~~operations. Decreasing software license revenue has resulted in ~~the~~reduced ~~last~~compensation ~~month~~earned by members of aour ~~quarter~~sales force; it also has resulted, ~~any~~and ~~delay~~may continue to result, in ~~the~~voluntary ~~licensing~~attrition of our ~~products~~ ~~could~~sales ~~cause~~force ~~significant~~over ~~variations~~time. inIn order to stabilize and then grow our revenue, ~~from~~we ~~quarter~~will have to field an effective sales ~~quarter~~force. ~~These~~Changes ~~delays~~in the structure of the sales force and sales force management have ~~occurred~~generally onresulted in a ~~number~~temporary lack of ~~occasions~~focus inand ~~the~~reduced ~~past~~productivity. Further, ~~and~~we cannot assure you that we will be able to field a more productive ~~have~~sales ~~materially~~force or successfully attract and ~~adversely~~retain ~~affected~~qualified sales people at levels sufficient to support growth. We cannot assure you that we will not continue to restructure our ~~financial~~sales ~~performance,~~force ~~most~~or ~~recently~~that the transition issues associated with inrestructuring the ~~fiscal~~sales ~~year~~force ~~ended~~will ~~February 28,~~not ~~2005~~recur. Such restructuring or associated transition issues can be disruptive and adversely impact our operating performance and financial condition.

~~The length~~SALES ofCYCLES ~~our~~FOR ~~sales~~OUR ~~cycle~~PRODUCTS ~~depends~~AND onSERVICES aCAN ~~number~~BE ofLONG AND ~~factors,~~UNPREDICTABLE. ~~many~~VARIATIONS ofIN ~~which~~THE ~~are~~TIME IT TAKES US TO LICENSE OUR SOFTWARE ~~beyond~~MAY CAUSE ~~our~~FLUCTUATIONS ~~control,~~IN ~~including~~OUR ~~the~~QUARTERLY ~~following:~~OPERATING RESULTS.

~~• the~~Each client’s decision to license and implement our ~~complexities~~products and services is discretionary, involves a significant commitment of resources and is subject to the client’s ~~challenges~~budget cycles. The time it takes to license our ~~solutions~~software ~~address;~~to prospective clients varies substantially, but historically has ranged between three and twelve months. Prior sales and implementation cycles should not be relied upon as any indication of future cycles. As a result of current economic conditions, recent changes in our organization and sales force and increased competition, our sales cycle has recently become longer than historical sales cycles.

• Variations in the ~~breadth~~length of our sales cycles will cause our revenue to fluctuate widely from period to period. We base our operating expenses on anticipated revenue trends. Because a high percentage of our expenses are relatively fixed in the ~~solution~~short-term ~~required~~and bywe typically recognize a substantial portion of our software license revenue in the ~~client~~last month of a quarter, ~~including~~any delay in the ~~technical,~~licensing ~~organizational~~of our products could cause significant ~~and~~variations ~~geographic~~in ~~scope~~our revenue from quarter to quarter. These delays have occurred on a number of occasions in the ~~license;~~past and have materially and adversely affected our financial performance.

~~• the~~The ~~size, timing~~length ~~and~~of ~~complexity~~our ofsales ~~contractual~~cycle ~~terms~~depends ofon ~~licenses~~a ~~and~~number ~~sales~~of factors, many of which are beyond our ~~products~~ ~~and~~control, ~~services;~~including the following:

• ~~wide~~ the ~~variations~~complexities inof ~~contractual~~client ~~terms,~~challenges ~~which~~our ~~may~~solutions ~~defer recognition of revenue~~address;

• ~~customer~~ the ~~financial~~breadth ~~constraints~~of the solution required by the client, including the technical, organizational and ~~credit-worthiness~~geographic scope of the license;

~~• the evaluation and approval processes employed by the clients and prospects, which has become more complex and lengthy;~~32

• ~~economic,~~ the ~~political~~size, timing and ~~market~~complexity ~~conditions;~~of contractual terms of licenses and sales of our products and services;

• ~~any other~~ wide ~~delays~~variations ~~arising~~in ~~from~~contractual ~~factors~~terms, ~~beyond~~which ~~our~~may ~~control.~~defer recognition of revenue;

As• customer afinancial ~~result~~constraints ~~of these~~ and ~~other factors, revenue for any quarter is subject to significant variation, and we believe that period~~credit-to-period comparisons of our results of operations are not necessarily meaningful. You should not rely on these comparisons as indications of future performance. Our future quarterly operating results from time to time may not meet the expectations of market analysts or investors, which would likely have an adverse effect on the price of our common stock.worthiness;

~~AN INCREASE IN SALES OF SOFTWARE PRODUCTS THAT~~• the ~~REQUIRE~~evaluation ~~CUSTOMIZATION~~and ~~WOULD~~approval ~~RESULT~~processes INemployed ~~REVENUE~~by ~~BEING~~the ~~RECOGNIZED~~clients ~~OVER~~and ~~THE~~prospects, ~~TERM OF~~which ~~THE~~has ~~CONTRACT~~become ~~FOR~~more ~~THOSE~~complex ~~PRODUCTS~~and ~~AND~~lengthy ~~COULD~~and ~~HAVE~~now Aincludes ~~MATERIAL~~an ~~ADVERSE~~assessment ~~EFFECT~~of ~~ON OUR~~our ~~OPERATING~~financial ~~RESULTS AND FINANCIAL CONDITION.~~viability;

~~Historically~~• economic, wepolitical ~~have been able to recognize software license revenue upon delivery of our solutions~~ and ~~contract execution. Recently, more of our clients and prospects have been asking for unique capabilities in addition to our core capabilities to give them a competitive edge in the~~ market ~~place.~~conditions; ~~These instances could cause us to recognize more of our software license revenue on a contract accounting basis over the course of the delivery of the solution rather than upon delivery~~ and contract execution. The period between initial contact and the completion of the implementation of our products can be lengthy and is subject to a number of factors (over many of which we have little or no control) that may cause significant delays. These factors include the size and complexity of the overall project. As a result, a shift toward a higher proportion of software license contracts requiring contract accounting could have a material adverse effect on our operating results and financial condition and cause our operating results to vary significantly from quarter to quarter.

~~FAILURE TO MAINTAIN OUR MARGINS AND SERVICE~~• any ~~RATES~~other ~~FOR~~delays ~~IMPLEMENTATION~~arising ~~SERVICES~~from ~~COULD~~factors ~~HAVE~~beyond Aour ~~MATERIAL ADVERSE EFFECT ON OUR OPERATING PERFORMANCE AND FINANCIAL CONDITION~~control.

~~A significant~~As ~~portion~~a result of ~~our~~these ~~revenue~~and isother ~~derived~~factors, ~~from~~revenue ~~implementation~~for any ~~services.~~quarter ~~If we~~is ~~fail~~subject to ~~scope~~significant ~~our implementation projects correctly, our service margins may suffer~~variation. ~~Implementation~~You ~~services~~should ~~are~~not ~~predominately~~rely ~~billed~~ on ~~an hourly or daily~~period ~~basis~~to ~~(time~~period ~~and~~comparisons ~~materials)~~as ~~and~~indications ~~sometimes~~of ~~under~~future ~~fixed price contracts~~performance. ~~Implementation~~ ~~services~~Our ~~billed on an hourly or daily basis are generally~~future ~~recognized~~quarterly asoperating ~~work~~results isfrom ~~performed.~~time ~~If we are not able~~ to ~~maintain the current service rates for our~~ time ~~and~~may ~~materials~~not ~~implementation~~meet ~~services, without corresponding cost reductions, or if~~ the ~~percentage~~expectations of ~~fixed price contracts~~ ~~increases~~market ~~and~~analysts weor ~~underestimate the costs of our fixed price contracts~~investors, ~~our operating~~which ~~performance~~would ~~may~~likely ~~suffer.~~have ~~The~~an ~~rates~~adverse weeffect ~~charge~~on ~~for our implementation~~the ~~services~~price ~~depend on a number~~ of ~~factors,~~our ~~including~~common ~~the following:~~stock.

~~• perceptions~~AN INCREASE IN SALES OF SOFTWARE PRODUCTS THAT REQUIRE ofCUSTOMIZATION ~~our~~WOULD ~~ability~~RESULT toIN ~~add~~REVENUE ~~value~~BEING ~~through~~RECOGNIZED ~~our~~OVER ~~implementation~~THE ~~services;~~TERM OF THE CONTRACT FOR THOSE PRODUCTS AND COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR OPERATING RESULTS AND FINANCIAL CONDITION.

33Historically, we have been able to recognize software license revenue upon delivery of our solutions and contract execution. Recently, more of our clients and prospects have been asking for unique capabilities in addition to our core capabilities to give them a competitive edge in the market place. These instances could cause us to recognize more of our software license revenue on a contract accounting basis over the course of the delivery of the solution rather than upon delivery and contract execution. The period between initial contact and the completion of the implementation of our products can be lengthy and is subject to a number of factors (over many of which we have little or no control) that may cause significant delays. These factors include the size and complexity of the overall project. As a result, a shift toward a higher proportion of software license contracts requiring contract accounting could have a material adverse effect on our operating results and financial condition and cause our operating results to vary significantly from quarter to quarter.

~~• complexity~~FAILURE TO MAINTAIN OUR MARGINS AND SERVICE RATES FOR ofIMPLEMENTATION ~~services~~SERVICES ~~performed;~~COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR OPERATING PERFORMANCE AND FINANCIAL CONDITION.

~~• competition;~~A significant portion of our revenue is derived from implementation services. If we fail to scope our implementation projects correctly, our service margins may suffer. Implementation services are predominately billed on an hourly or daily basis (time and materials) and sometimes under fixed price contracts. Implementation services billed on an hourly or daily basis are generally recognized as work is performed. If we are not able to maintain the current service rates for our time and materials implementation services, without corresponding cost reductions, or if the percentage of fixed price contracts increases and we underestimate the costs of our fixed price contracts, our operating performance may suffer. The rates we charge for our implementation services depend on a number of factors, including the following:

• ~~pricing~~ perceptions ~~policies~~ of our ~~competitors~~ability ~~and~~to ~~systems~~add ~~integrators~~value through our implementation services;

• ~~the use of~~ complexity ~~globally~~of ~~sourced,~~services ~~lower-cost service delivery capabilities within our industry~~performed; ~~and~~

• ~~economic, political and market conditions.~~ competition;

~~CHANGES IN THE SIZE OR NUMBER OF OUR SOFTWARE~~• pricing ~~TRANSACTIONS~~policies ~~MAY CAUSE~~of ~~MATERIAL~~our ~~FLUCTUATIONS~~competitors INand ~~OUR~~systems ~~QUARTERLY OPERATING RESULTS.~~integrators;

~~The size and number of our software license transactions fluctuate. Fluctuations in~~ • the ~~size and number of our software transactions have occurred, and may in the~~ ~~future~~use ~~occur, as a result~~ of ~~changes~~globally ~~in demand for our software and services. Losses of~~sourced, orlower-cost ~~delays~~service indelivery ~~concluding~~capabilities ~~larger~~within ~~software transactions (which typically are more complex, take longer to negotiate and are subject to more delays) have had and could continue to have a proportionately greater effect on~~ our ~~revenue~~industry; and financial performance for a particular period. We have experienced declines in the number of software transactions of $1.0 million or greater since fiscal 2002. Specifically, we recorded 38 such software transactions in fiscal 2002, 19 such software transactions in fiscal 2003, 18 such software transactions in fiscal 2004, 7 such software transactions in fiscal 2005 and 2 such software transactions for the quarter ended May 31, 2005. During the quarter ended May 31, 2005, one transaction accounted for more than 10% of our consolidated revenue on a quarterly basis. As a result of these changes in the size and number of our software transactions, our quarterly revenue and financial performance have fluctuated significantly and may fluctuate significantly in the future.

~~WE EXPERIENCED DECLINES IN SOFTWARE REVENUE IN FISCAL 2003~~• economic, ~~FISCAL 2004 AND FISCAL 2005. LOWER SOFTWARE LICENSE REVENUE HAS~~ ~~RESULTED~~political ~~AND~~and ~~MAY CONTINUE~~market ~~TO RESULT IN REDUCED SERVICES AND SUPPORT REVENUE~~conditions.

Our ability to maintain or increase services and support revenue depends on our ability to maintain or increase the amount of software we license to customers. During fiscal 2003, 2004, 2005 and the quarter ended May 31, 2005, we experienced declines in services revenue primarily as a result of declining software revenue in prior periods. Additional decreases of software license revenue or slowdowns in licensing may have a material adverse effect on our services and support revenue in future periods.33

~~FURTHER~~CHANGES ~~DECLINES~~ IN ~~SOFTWARE REVENUE, A REDUCTION IN~~ THE ~~RENEWAL~~SIZE ~~RATE~~OR NUMBER OF ~~ANNUAL~~OUR ~~SUPPORT CONTRACTS, OR BOTH, COULD~~SOFTWARE ~~RESULT~~TRANSACTIONS INMAY CAUSE A MATERIAL ~~ADVERSE~~FLUCTUATIONS ~~EFFECT~~IN ON OUR ~~OPERATING~~QUARTERLY ~~PERFORMANCE AND FINANCIAL~~OPERATING ~~CONDITION~~RESULTS.

~~In our~~The ~~third~~size ~~quarter~~and number of ~~fiscal~~our ~~2003,~~software ~~second~~license transactions ~~and~~fluctuate. ~~fourth~~Fluctuations ~~quarters~~in ofthe ~~fiscal~~size ~~2004~~ and ~~the~~ ~~first~~number ~~three~~of ~~quarters~~our ofsoftware transactions ~~fiscal~~have ~~2005~~occurred, weand ~~experienced~~may ~~sequential~~in ~~quarterly declines~~the infuture ~~support~~occur, ~~revenue~~as ~~resulting~~a ~~from~~result ~~both~~of ~~the~~changes in ~~recent~~demand ~~decline~~for inour software ~~revenue~~ and ~~clients~~services. ~~not~~Losses ~~renewing~~of, or ~~partially~~delays ~~renewing~~in ~~existing support~~concluding, ~~contracts.~~larger ~~Our~~software ~~support~~transactions ~~revenue~~(which ~~includes~~typically ~~post-contract~~are ~~support~~more ~~and~~complex, ~~the~~take ~~rights~~longer to ~~unspecified~~negotiate ~~software~~and ~~upgrades~~are subject to more delays) have had and ~~enhancements.~~could ~~Support~~continue ~~contracts~~to ~~are~~have ~~generally~~a ~~renewable~~proportionately ~~annually~~greater ateffect ~~the~~on ~~option~~our ofrevenue ~~our~~and ~~customers~~financial performance for a particular period. We have experienced ~~high~~declines in the number of software ~~rates~~transactions of ~~renewed~~$1.0 ~~annual~~million ~~support~~or ~~contracts~~greater ~~from~~since ~~our~~fiscal ~~customers~~2002. IfSpecifically, ~~our~~we recognized 38 such software transactions in fiscal 2002, 19 such software ~~revenue~~transactions ~~does~~in ~~not~~fiscal ~~grow~~2003, 18 such software transactions in fiscal 2004, 7 such software transactions in fiscal 2005, 2 such software transactions for the quarter ended May 31, 2005, and ifnone ~~our~~in ~~customers~~each ~~fail~~of tothe ~~renew~~quarters orended August 31, to2005 ~~fully~~and ~~renew~~November 30, 2005. During the three months ended ~~their~~May 31, ~~support~~2005, ~~contracts~~one attransaction ~~historical~~accounted ~~rates~~for more than 10% of our consolidated revenue on a quarterly basis. As a result of these changes in the size and number of our software transactions, our ~~support~~quarterly revenue ~~could~~and financial performance have fluctuated ~~materially~~significantly ~~decline~~and may fluctuate significantly in the future.

OUR ~~MARKETS~~SOFTWARE ~~ARE~~LICENSE ~~VERY~~REVENUE ~~COMPETITIVE,~~HAS ~~AND~~BEEN WEDECLINING SINCE FISCAL 2003. LOWER SOFTWARE LICENSE REVENUE HAS RESULTED AND MAY ~~NOT~~CONTINUE BETO ~~ABLE~~RESULT TOIN ~~COMPETE~~REDUCED ~~EFFECTIVELY~~SERVICES AND SUPPORT REVENUE.

~~The~~Our ability to maintain or increase services and support ~~markets~~revenue ~~for~~depends on our ~~solutions~~ability ~~are~~to ~~very~~maintain ~~competitive.~~or ~~The~~increase ~~intensity~~the amount of ~~competition in~~software ~~our~~we ~~markets~~license ~~has~~to ~~significantly~~customers. ~~increased~~Since fiscal 2003, we have experienced declines in services ~~part~~revenue primarily as a result of ~~the~~declining ~~deterioration in~~software ~~our~~license ~~markets.~~revenue Wein prior ~~expect~~periods. ~~this~~Additional ~~intensity~~decreases of ~~competition~~software tolicense ~~increase~~revenue or slowdowns in licensing ~~the~~may have a material adverse effect on our services and support revenue in future periods.

~~In addition,~~FURTHER ~~many~~DECLINES ~~leading~~IN ~~companies~~SOFTWARE inLICENSE ~~the~~REVENUE, ~~business of providing enterprise~~A ~~application~~REDUCTION ~~software~~IN ~~have~~THE ~~been~~RENEWAL ~~the~~RATE ~~subject~~OF ofANNUAL ~~mergers~~SUPPORT ~~and~~CONTRACTS, ~~acquisitions~~OR ~~during the~~BOTH, ~~last several years. We expect this trend toward consolidation to continue.~~COULD ~~This~~RESULT ~~industry~~IN ~~consolidation~~A ~~may~~MATERIAL ~~result~~ADVERSE inEFFECT ~~stronger~~ON ~~competitors~~OUR ~~that~~OPERATING ~~are~~PERFORMANCE ~~better able~~AND ~~to compete as sole-source vendors for customers. If there is significant~~FINANCIAL ~~consolidation among enterprise application software companies, we may be at a competitive disadvantage~~CONDITION.

~~Some competitors~~In ~~are~~multiple ~~offering~~quarters ~~software~~during ~~that~~fiscal ~~competes~~years ~~with~~2003 through ~~ours~~2006, atwe ~~little~~experienced orsequential noquarterly declines in support revenue ~~charge~~resulting asfrom ~~components~~both ofthe ~~bundled~~decline ~~products~~in software license revenue and clients not renewing or onpartially arenewing ~~stand-alone~~existing ~~basis~~support contracts. ~~Smaller niche~~Our ~~software~~support ~~companies~~revenue includes ~~have~~post-contract ~~developed,~~support and ~~will~~the ~~likely~~rights ~~continue~~ to ~~develop,~~unspecified software upgrades ~~unique~~and ~~offerings~~enhancements. ~~that~~Support ~~compete~~contracts ~~effectively~~are ~~with~~generally ~~some~~renewable annually at the option of our ~~solutions~~customers. ~~Further~~Although we have historically experienced high rates of renewed annual support contracts from our customers, if our software license revenue does not grow and if our ~~current~~customers fail to renew or ~~prospective~~to ~~clients~~fully ~~and~~renew their ~~partners~~support ~~may~~contracts ~~become~~at ~~competitors~~historical inrates, ~~the~~our support revenue could ~~future~~materially decline.

34OUR MARKETS ARE VERY COMPETITIVE, AND WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY.

~~INCREASED~~The ~~COMPETITION~~markets ~~HAS~~for ~~RESULTED~~our ~~IN,~~solutions ~~AND~~are ~~IN THE~~very ~~FUTURE COULD RESULT IN, PRICE REDUCTIONS, LOWER GROSS MARGINS, LONGER SALES~~competitive. ~~CYCLES~~The ~~AND~~intensity ~~THE~~of ~~LOSS~~competition OFin ~~MARKET~~our ~~SHARE.~~markets ~~EACH~~has OFsignificantly ~~THESE~~increased ~~DEVELOPMENTS~~in ~~COULD HAVE A~~part ~~MATERIAL~~as ~~ADVERSE~~a ~~EFFECT~~result ONof ~~OUR~~the ~~OPERATING~~deterioration ~~PERFORMANCE~~in ~~AND~~our ~~FINANCIAL CONDITION~~markets. ~~MANY OF~~We ~~OUR~~expect ~~CURRENT~~this ~~AND~~intensity ~~POTENTIAL COMPETITORS HAVE SIGNIFICANTLY GREATER RESOURCES~~of ~~THAN~~competition WEto ~~DO,~~increase ~~AND~~in ~~THEREFORE,~~the ~~WE MAY BE AT A DISADVANTAGE IN COMPETING WITH THEM~~future.

~~We directly~~In ~~compete with other enterprise application software vendors including: Aspen Technology~~addition, ~~DemandTec,~~many ~~Global~~leading ~~Logistics~~companies ~~Technologies,~~in i2the ~~Technologies,~~business ~~JDA Software, Logility, Manhattan Associates, Profit Logic, PROS Revenue Management, Rapt, Retek (acquired by Oracle), Sabre, SAP and Teradata (a division~~ of ~~NCR).~~providing ~~Certain~~ enterprise ~~resource~~application ~~planning~~software ~~(“ERP”)~~have ~~vendors,~~been inthe ~~addition~~subject ~~to SAP, all~~ of ~~which are substantially larger than Manugistics, have acquired or~~mergers ~~developed demand-driven~~ and ~~supply~~acquisitions ~~chain~~during ~~management~~the ~~software~~last ~~companies, products,~~several ~~or functionality or have announced intentions to develop and sell demand and supply chain management solutions~~years. ~~Such~~This ~~vendors~~industry ~~include~~consolidation ~~Oracle~~may ~~(which~~result ~~recently~~in ~~acquired~~stronger ~~PeopleSoft and Retek) and SSA Global Technologies. Some of our current and potential~~ competitors, ~~particularly~~that ~~the~~are ~~ERP~~better ~~vendors, have~~able ~~significantly~~to ~~greater~~compete ~~financial,~~as ~~marketing, technical and other resources~~sole-source ~~than~~vendors wefor ~~do, as well as greater name recognition and larger installed bases of clients~~customers. ~~Three~~The ofpace ~~our competitors, Oracle and PeopleSoft and Retek, have combined and other~~ of ~~our~~consolidation ~~current~~has ~~and~~significantly ~~potential competitors may combine~~increased ~~pursuant~~over tothe ~~recently~~last ~~announced~~three ~~mergers~~quarters ~~or tender offers~~ and may ~~subsequently utilize enhanced financial and human resources to develop and sell more competitive demand-driven supply chain products~~continue. InIf ~~addition,~~there ~~many~~is ~~of our~~significant ~~competitors~~consolidation ~~have~~among ~~well-established~~enterprise ~~relationships~~application ~~with~~software ~~our current and potential clients and have extensive knowledge of our industry. As a result~~companies, ~~they~~we may be ~~able~~ toat ~~adapt more quickly to new or emerging technologies and changes in~~a ~~client~~competitive ~~requirements~~disadvantage oras toan ~~devote~~independent ~~greater resources to the development, promotion and sale~~ best-of-breed ~~their~~enterprise ~~products than we can. Any of these factors could~~application ~~materially~~software ~~impair our ability to compete and have a material adverse effect on our operating performance and financial condition~~vendor.

IFSome ~~THE~~competitors ~~DEVELOPMENT~~are OFoffering ~~OUR~~software ~~PRODUCTS~~that ~~AND~~competes with ~~SERVICES~~ours at little or no charge as components of bundled products or on a ~~FAILS~~stand-alone TObasis. ~~KEEP~~To ~~PACE~~counter ~~WITH~~this ~~OUR~~increased ~~INDUSTRY’S~~competition, ~~RAPIDLY~~we ~~EVOLVING~~may ~~TECHNOLOGY~~need to make further adjustments to our business, ~~OUR~~including ~~FUTURE~~reorganizing or reducing our ~~RESULTS~~workforce, ~~MAY BE~~altering ~~MATERIALLY~~our ~~AND~~pricing ~~ADVERSELY~~and ~~AFFECTED~~narrowing our market focus and our product focus. Smaller niche software companies have developed, and will likely continue to develop, unique offerings that compete effectively with some of our solutions. Further, our current or prospective clients and partners may become competitors in the future.

~~The markets~~INCREASED ~~for~~COMPETITION ~~our~~HAS ~~solutions~~RESULTED ~~are~~IN, ~~subject~~AND toIN ~~rapid~~THE FUTURE ~~technological~~COULD ~~change~~RESULT IN, ~~changing client~~PRICE ~~needs~~REDUCTIONS, ~~frequent~~LOWER ~~new~~GROSS ~~product~~MARGINS, ~~introductions~~LONGER ~~and evolving industry~~SALES ~~standards.~~CYCLES IfAND weTHE ~~fail~~LOSS toOF ~~keep~~MARKET ~~pace~~SHARE. ~~with~~EACH ~~these~~OF ~~changes,~~THESE ~~our~~DEVELOPMENTS ~~products~~COULD ~~and~~HAVE A ~~services~~MATERIAL ~~may~~ADVERSE beEFFECT ~~rendered~~ON ~~less~~OUR ~~competitive~~OPERATING orPERFORMANCE ~~obsolete.~~AND ~~Our~~FINANCIAL ~~product development~~CONDITION. ~~and~~MANY ~~testing~~OF ~~efforts~~OUR ~~have~~CURRENT ~~required,~~AND ~~and~~POTENTIAL ~~are~~COMPETITORS ~~expected~~HAVE toSIGNIFICANTLY ~~continue to require,~~GREATER ~~substantial~~RESOURCES ~~investments.~~THAN WeWE ~~may~~DO, ~~not~~AND ~~possess~~THEREFORE, ~~sufficient~~WE ~~resources~~MAY BE inAT ~~the~~A ~~future~~DISADVANTAGE IN toCOMPETING ~~continue~~WITH ~~to make further necessary investments in technology~~THEM.

~~If we~~We ~~are~~directly ~~unable,~~compete ~~for~~with ~~technological~~other orenterprise application ~~other~~software ~~reasons,~~vendors toincluding: ~~develop~~Aspen ~~and~~Technology, ~~introduce~~DemandTec, ~~new~~Global ~~and~~Logistics ~~enhanced~~Technologies ~~software~~(recently inacquired aby ~~timely~~Oracle), ~~manner~~i2 Technologies, weJDA Software, ~~may~~Logility, ~~lose~~Manhattan ~~existing~~Associates, ~~clients~~Profit ~~and~~Logic ~~fail~~(recently acquired by toOracle), ~~attract~~PROS ~~new~~Revenue ~~clients~~Management, ~~which~~Rapt, ~~may~~Retek ~~have~~(acquired by Oracle), Sabre, SAP and Teradata (a ~~material~~division ~~adverse~~of ~~effect~~NCR). onCertain ~~our~~enterprise resource planning (“ERP”) ~~operating~~vendors, ~~performance~~in ~~and~~addition ~~financial~~to ~~condition.~~SAP, all of which are substantially larger than us, have acquired or

~~OUR BUSINESS IS SUBJECT TO CHANGING REGULATION OF CORPORATE GOVERNANCE AND PUBLIC DISCLOSURE THAT HAS INCREASED BOTH OUR COSTS AND THE RISK OF NONCOMPLIANCE.~~34

~~Because~~developed ~~our~~demand-driven ~~common~~and ~~stock~~supply ischain ~~publicly~~management ~~traded~~software companies, weproducts, ~~are~~or functionality ~~subject~~or have announced intentions to ~~certain~~develop ~~rules~~ and sell demand and ~~regulations~~supply ofchain ~~federal,~~management ~~state~~solutions. ~~and~~Such ~~financial~~vendors ~~market~~include ~~exchange~~Oracle, ~~entities~~SAP ~~charged~~(which ~~with~~recently ~~the~~agreed ~~protection~~to ofacquire ~~investors~~Khimetrics) and ~~the~~SSA ~~oversight~~Global ofTechnologies. ~~companies~~Some ~~whose~~of our ~~securities~~current ~~are~~and ~~publicly~~potential ~~traded. These entities~~competitors, ~~including~~particularly the ~~Public~~ERP ~~Company~~vendors, have ~~Accounting~~significantly ~~Oversight~~greater ~~Board~~financial, ~~the~~marketing, ~~Securities~~technical and ~~Exchange~~other ~~Commission~~resources than we do, as well as greater name recognition and ~~NASDAQ~~larger installed bases of clients. Five of our competitors, Oracle, PeopleSoft, ProfitLogic, Global Logistics Technologies and Retek, have ~~recently~~combined ~~issued~~and ~~new~~other ~~requirements~~of our current and potential ~~regulations~~competitors may combine and ~~continue~~may subsequently utilize enhanced financial and human resources to develop and sell more competitive ~~additional~~demand-driven ~~regulations~~supply ~~and~~chain ~~requirements~~products. inThese ~~response~~larger toenterprise ~~recent~~application software ~~laws~~vendors ~~enacted~~have byincreasingly raised concerns about our financial ~~Congress~~viability with our clients and prospects, ~~most~~which ~~notably~~has ~~the~~contributed ~~Sarbanes-Oxley~~to ~~Act~~delays ofin successfully ~~2002~~closing software transactions. ~~Our~~In ~~efforts~~addition, tomany ~~comply~~of our competitors have well-established relationships with ~~these~~our ~~new~~current ~~regulations~~and potential clients and have ~~resulted~~extensive inknowledge of our industry. As a result, ~~and~~they ~~are~~may ~~likely~~be able to ~~continue~~adapt more quickly to ~~result~~ ~~in,~~new ~~increased~~or ~~general~~emerging technologies and ~~administrative~~changes ~~expenses~~in client requirements or to devote greater resources to the development, promotion and asale ~~diversion~~of their products than we can. Any of these factors could ~~management~~materially ~~time~~impair our ability to compete and ~~attention~~have ~~from~~a ~~revenue-generating~~material ~~activities~~adverse toeffect ~~compliance~~on ~~activities~~our operating performance and financial condition.

~~In particular,~~IF ~~our efforts to comply with Section 404 of the Sarbanes-Oxley~~THE ~~Act~~DEVELOPMENT ofOF ~~2002~~OUR ~~and~~PRODUCTS ~~the~~AND ~~related~~SERVICES ~~regulations~~FAILS ~~regarding~~TO ~~our~~KEEP ~~required~~PACE ~~assessment~~WITH ~~of our~~OUR ~~internal controls over financial reporting and our external auditor~~INDUSTRY’~~s audit~~S ofRAPIDLY ~~that~~EVOLVING ~~assessment have required~~TECHNOLOGY, ~~and~~OUR ~~continue~~ABILITY toTO ~~require,~~COMPETE ~~the~~IN ~~commitment~~OUR ~~of significant~~MARKETS ~~financial~~AND ~~and managerial resources. Moreover, because these laws,~~OUR ~~regulations~~FUTURE ~~and~~RESULTS ~~standards~~MAY BE ~~are~~MATERIALLY ~~subject~~AND toADVERSELY ~~varying interpretations, their application in practice may evolve over time as new guidance becomes available~~AFFECTED. ~~This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices.~~

~~DURING~~The ~~OUR~~markets ~~FISCAL~~for ~~2005~~our ~~AUDIT~~solutions are subject to rapid technological change, WEchanging ~~RECOGNIZED~~client ~~ONE~~needs, ~~MATERIAL~~frequent new product introductions ~~WEAKNESS~~and ~~REGARDING~~evolving ~~THE~~industry ~~ACCOUNTING~~standards. ~~TREATMENT~~If ~~FOR~~we ~~ONE~~fail ~~LARGE~~to ~~TRANSACTION~~keep ~~INVOLVING~~pace with these changes, ~~COMPLEX~~our ~~JUDGMENT.~~products ~~ALTHOUGH~~and ~~THE~~services ~~ACCOUNTING~~may ~~ERROR~~be ~~WAS~~rendered ~~DETECTED~~less ~~AND~~competitive ~~CORRECTED~~or obsolete. Our ~~PRIOR~~product TOdevelopment ~~THE~~and ~~RELEASE~~testing OFefforts ~~OUR~~have ~~FINANCIAL~~required, ~~RESULTS~~and ~~FOR~~are ~~THE~~expected ~~PERIOD~~to continue to require, IFsubstantial WEinvestments. ~~FAIL~~We TOmay not possess sufficient ~~MAINTAIN~~resources ANin ~~EFFECTIVE~~the ~~SYSTEM~~future OFto ~~INTERNAL~~continue ~~CONTROL~~to ~~OVER~~make ~~FINANCIAL~~further ~~REPORTING~~necessary investments in technology. If we are unable, WEfor ~~MAY NOT~~technological or other reasons, to develop BEand ~~ABLE~~introduce TOnew ~~ACCURATELY~~and ~~REPORT~~enhanced ~~OUR~~software ~~FINANCIAL~~in ~~RESULTS~~a ORtimely ~~PREVENT~~manner, ~~FRAUD.~~we ASmay Alose ~~RESULT,~~existing ~~OUR~~clients ~~BUSINESS~~and fail to attract new clients, ~~RESULTS~~which OFmay ~~OPERATIONS~~have ~~AND~~a ~~FINANCIAL~~material adverse ~~CONDITION~~effect ~~COULD~~on our operating performance and financial condition.

35OUR BUSINESS IS SUBJECT TO CHANGING REGULATION OF CORPORATE GOVERNANCE AND PUBLIC DISCLOSURE THAT HAS INCREASED BOTH OUR COSTS AND THE RISK OF NONCOMPLIANCE.

BEBecause ~~HARMED~~our ~~AND~~common ~~INVESTORS~~stock ~~COULD~~is ~~LOSE~~publicly ~~CONFIDENCE~~traded, INwe are ~~OUR~~subject ~~FINANCIAL~~to ~~REPORTING~~certain rules and regulations of federal, ~~WHICH~~state ~~COULD~~and ~~CAUSE~~financial market ~~OUR~~exchange ~~STOCK~~entities ~~PRICE~~charged TOwith ~~DECLINE~~the protection of investors and the oversight of companies whose securities are publicly traded. These entities, including the Public Company Accounting Oversight Board, the Securities and Exchange Commission and The Nasdaq Stock Market, continue to develop and issue regulations and requirements in response to market concerns and laws enacted by Congress, most notably the Sarbanes-Oxley Act of 2002. Our efforts to comply with these new regulations have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

~~Effective internal~~In ~~controls~~particular, ~~are~~our ~~necessary~~efforts to ~~provide~~comply ~~reliable financial reports and~~with ~~effectively~~Section 404 ~~prevent~~of ~~fraud.~~the WeSarbanes-Oxley ~~have~~Act inof ~~the~~2002 ~~past discovered,~~ and ~~may~~the inrelated ~~the~~regulations ~~future~~regarding ~~discover,~~our ~~areas~~required assessment of our ~~system of~~ internal ~~control~~controls over financial reporting ~~that~~and ~~need~~our ~~improvement.~~external ~~For~~auditor’s ~~example,~~audit ~~during~~of ~~the~~that ~~recent~~assessment ~~audit~~have ~~of our~~required, ~~system~~and ofcontinue ~~internal~~to ~~control~~require, ~~over~~the ~~financial~~commitment ~~reporting~~of ~~for~~significant ~~the~~financial ~~fiscal~~and ~~year~~managerial resources. ~~ended February 28~~Moreover, ~~2005,~~ webecause ~~recognized~~these ~~one~~laws, ~~material~~regulations ~~weakness~~and ~~regarding~~standards ~~the~~are ~~accounting treatment~~subject ~~for~~to ~~one~~varying ~~large~~interpretations, ~~transaction~~their ~~involving~~application ~~complex~~in ~~judgment~~practice asmay toevolve ~~whether~~over ~~services in~~time ~~the~~as ~~transaction~~new ~~were~~guidance ~~essential~~becomes toavailable. ~~the~~This ~~functionality~~evolution ofmay ~~the~~result ~~software~~in ~~sold. The~~continuing ~~accounting~~uncertainty ~~error~~regarding ~~was~~compliance ~~detected~~matters and ~~corrected~~additional ~~prior~~costs tonecessitated ~~the~~by ongoing ~~release~~revisions ofto our ~~financial~~ ~~results~~disclosure ~~for~~and ~~the~~governance ~~period~~practices.

~~Since~~

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