UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED November 30, 2004
Or
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 000-33335

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

FOR THE QUARTERLY PERIOD ENDED November 30, 2005

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 000-33335

LAWSON SOFTWARE, INC.

(Exact name of registrant as specified in its charter)

DELAWARE		41-1251159
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
380 ST. PETER STREET ST. PAUL, MINNESOTA 55102
(Address of principal executive offices)
(651) 767-7000
(Registrant’s telephone number, including area code)

380 ST. PETER STREET
ST. PAUL, MINNESOTA 55102
(Address of principal executive offices)

(651) 767-7000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ý NO o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES ý NO o

~~The~~Indicate ~~number~~by ofcheck ~~shares~~mark ofwhether the ~~registrant’s~~ ~~common~~registrant ~~stock~~is ~~outstanding~~a shell company (as ofdefined ~~January~~in 3,Rule 12b-2 ~~2005~~of ~~was~~the ~~99,086,047~~Exchange Act). YES o NO ý

The number of shares of the registrant’s common stock outstanding as of January 3, 2006 was 103,164,474

LAWSON SOFTWARE, INC.

Form 10-Q
Index

PART I.	FINANCIAL INFORMATION	~~FINANCIAL INFORMATION~~3	3
Item 1.	Financial Statements (unaudited)	~~Financial Statements~~3	3
		Condensed Consolidated Balance Sheets at November 30, 2004 and May 31, 2004	3
	Condensed Consolidated Balance Sheets at November 30, 2005 and May 31, 2005	3
		Condensed Consolidated Statements of Operations for the three months and six months ended November 30, 2004 and 2003	4
	Condensed Consolidated Statements of Operations for the three and six months ended November 30, 2005 and 2004	4
		Condensed Consolidated Statements of Cash Flows for the six months ended November 30, 2004 and 2003	5
	Condensed Consolidated Statements of Cash Flows for the six months ended November 30, 2005 and 2004	5
	Notes to Condensed Consolidated Financial Statements	~~Notes to Condensed Consolidated Financial Statements~~6	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~15	13
Item 3.	Qualitative and Quantitative Disclosures about Market Risk	~~Qualitative and Quantitative Disclosure about Market Risk~~27	35
Item 4.	Controls and Procedures	~~Controls and Procedures~~27	35
PART II.	OTHER INFORMATION	~~OTHER INFORMATION~~28	35
Item 1.	Legal Proceedings	~~Legal Proceedings~~28	35
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 1A.	Risk Factors	28
Item 3.		Defaults Upon Senior Securities	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 4.		Submission of Matters to a Vote of Security Holders	36
Item 3.	Defaults Upon Senior Securities	44
Item 5.		Other Information	36
Item 4.	Submission of Matters to a Vote of Security Holders	44
Item 6.		Exhibits	36
Item 5.	Other Information	44
SIGNATURES			37
Item 6.	Exhibits	45
	SIGNATURES	46

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LAWSON SOFTWARE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

(unaudited)

	November 30, 2004				May 31, 2004
	November 30, 2005			May 31, 2005
ASSETS
Current assets:
Cash and cash equivalents	$	~~119~~172,~~737~~697		$	$187,744		~~79,996~~
Marketable securities	8687,~~326~~380			43,099	~~120,465~~
Trade accounts receivable, net	48,~~160~~932			42,907	~~65,236~~
Deferred income taxes	159,~~311~~314			9,314	~~15,311~~
Prepaid expenses and other assets	2212,~~746~~841			19,260	~~20,450~~
Total current assets	~~292~~331,~~280~~164			302,324	~~301,458~~
Long-term marketable securities	~~2,858~~715			3,770	~~8,521~~
Property and equipment, net	1411,~~944~~634			13,574	~~17,235~~
Goodwill	43,~~315~~175			43,407	~~43,042~~
Other intangible assets, net	3627,~~542~~481			31,939	~~40,767~~
Deferred income taxes	1221,~~183~~320			21,385	~~12,344~~
Other assets	~~188~~6,421			4,319	~~231~~
Total assets	$	~~402~~441,~~310~~910		$	$420,718	~~423,598~~
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	1,048	~~2,155~~	$	$1,836	~~1,652~~
Accounts payable	1110,~~692~~462			12,003	~~14,391~~
Accrued compensation and benefits	2018,~~174~~465			17,656	~~25,086~~
Other accrued liabilities	1217,~~845~~809			15,848	~~11,898~~
Deferred revenue and client deposits	74,602				83,095
Deferred revenue	73,103			76,571
Total current liabilities	~~121~~120,~~468~~887			123,914	~~136,122~~
Long-term debt, less current portion	—				990
Other long-term liabilities	4,333			3,749
Other long-term liabilities	3,309				3,600
Total liabilities	125,220			127,663
Total liabilities	124,777				140,712
Commitments and contingencies (Note 9)
Commitments and contingencies (Note 8)
Stockholders’ equity:
Stockholders’ equity:
Preferred stock; $0.01 par value; 42,562 shares authorized; no shares issued or outstanding	—			—
Preferred stock	—				—
Common stock; $0.01 par value; 750,000 shares authorized; 114,152 and 112,414 shares issued, respectively; 102,971 and 100,619 shares outstanding, at November 30, 2005 and May 31, 2005, respectively	1,142			1,124
Common stock	1,113				1,099
Additional paid-in capital	350,913			338,666
Additional paid-in capital	332,941				327,715
Treasury stock, at cost; 11,181 and 11,795 shares at November 30, 2005 and May 31, 2005, respectively	(70,924		)	(72,348		)
Treasury stock, at cost	(74,082			)	(65,555			)
Deferred stock-based compensation	(327		)	(41		)
Deferred stock-based compensation	(294			)	(774			)
Retained earnings	33,466			22,733
Retained earnings	14,034				17,471
Accumulated other comprehensive income	2,420			2,921
Accumulated other comprehensive income	3,821				2,930
Total stockholders’ equity	316,690			293,055
Total stockholders’ equity	277,533				282,886
Total liabilities and stockholders’ equity	$	441,910		$	420,718
Total liabilities and stockholders’ equity	$		402,310		$	423,598

The accompanying notes are an integral part of the condensed consolidated financial statements.

LAWSON SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Three Months Ended						Six Months Ended
	November 30, 2004			November 30, 2003			November 30, 2004			November 30, 2003
	November 30, 2005			November 30, 2004			November 30, 2005			November 30, 2004
Revenues:
License fees	$	1318,~~195~~121		$	1713,~~313~~195		$	2636,~~446~~725		$	3926,~~974~~446
Services	6970,~~804~~916			6669,~~952~~804			~~139~~140,~~238~~226			~~132~~139,~~293~~238
Total revenues	8289,~~999~~037			8482,~~265~~999			~~165~~176,~~684~~951			~~172~~165,~~267~~684
Cost of revenues:
Cost of license fees	2,~~904~~774			32,~~988~~904			5,~~279~~195			85,~~079~~279
Cost of services	3733,~~048~~917			3337,~~731~~048			7366,~~504~~637			6573,~~832~~504
Total cost of revenues	3936,~~952~~691			3739,~~719~~952			7871,~~783~~832			7378,~~911~~783
Gross profit	4352,~~047~~346			4643,~~546~~047			86105,~~901~~119			9886,~~356~~901
Operating expenses:
Research and development	1514,~~654~~050			15,~~257~~654			3128,~~301~~550			3031,~~192~~301
Sales and marketing	19,~~578~~465			2119,~~498~~578			4038,~~535~~437			4440,~~496~~535
General and administrative	710,~~911~~039			107,~~085~~911			1626,~~161~~911			1916,~~310~~161
Restructuring	5,465			2,250			5,390			2,210
Restructuring (Note 7)	(5		)	5,465			5			5,390
Amortization of acquired intangibles	~~384~~357			~~321~~384			~~769~~731			~~566~~769
Total operating expenses	4843,~~992~~906			4948,~~411~~992			94,~~156~~634			9694,~~774~~156
Operating (loss) income	(5,945		)	(2,865		)	(7,255		)	1,582
Operating income (loss)	8,440			(5,945		)	10,485			(7,255		)
Other income:
Interest income	~~907~~2,367			~~780~~907			14,~~564~~672			1,~~662~~564
Interest expense	(1519		)	(2015		)	(2825		)	(3828		)
Total other income	~~892~~2,348			~~760~~892			14,~~536~~647			1,~~624~~536
(Loss) income before income taxes	(5,053		)	(2,105		)	(5,719		)	3,206
Income (loss) before income taxes	10,788			(5,053		)	15,132			(5,719		)
(Benefit) provision for income taxes	(2,033		)	(821		)	(2,282		)	1,250
Provision (benefit) for income taxes	4,232			(2,033		)	4,399			(2,282		)
Net (loss) income	$	(3,020	)	$	(1,284	)	$	(3,437	)	$	1,956
Net income (loss)	$	6,556		$	(3,020	)	$	10,733		$	(3,437	)
Net (loss) income per share:
Net income (loss) per share:
Basic	$	(0.0306	)	$	(0.0103	)	$	(0.0311	)	$	(0.0203	)
Diluted	$	(0.0306	)	$	(0.0103	)	$	(0.0310	)	$	(0.0203	)
Shares used in computing net (loss) income per share:
Shares used in computing net income (loss) per share:
Basic	98102,~~316~~428			98,~~302~~316			98101,~~305~~790			98,~~383~~305
Diluted	98107,~~316~~134			98,~~302~~316			98106,~~305~~298			~~107~~98,~~253~~305

The accompanying notes are an integral part of the condensed consolidated financial statements.

LAWSON SOFTWARE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Six Months Ended
	November 30, 2004			November 30, 2003
	November 30, 2005			November 30, 2004
Cash flows from operating activities:
Net (loss) income	$	(3,437	)	$	1,956
Net income (loss)	$	10,733		$	(3,437	)
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	87,~~482~~292			58,~~854~~482
Deferred income taxes	~~161~~65			—161
Provision for doubtful accounts	~~988~~(1,104		)	~~2,383~~988
Loss on the disposal of assets	—			160
Tax benefit from stockholder transactions for option activity	1,809			1,858
Tax benefit from stockholder transactions	1,858			4,746
Amortization of stock-based compensation	239			107
Tax commitment from exercise of stock options	(972		)	(1,132		)
Stock-based compensation	6,368			—
Amortization of stock-based compensation	107			624
Amortization of discount on notes payable	18			48
Amortization of discount on notes payable	48			—
Amortization of (premium) discount on marketable securities	(37		)	89
Amortization of discount and accretion of premium on marketable securities	89			480
Restructuring	5,390			2,210
Changes in operating assets and liabilities, net of effect from acquisitions:
Trade accounts receivable	16(4,~~088~~921		)	~~489~~16,088
Prepaid expenses and other assets	(26,~~258~~726		)	(2,~~460~~258		)
Accounts payable	(21,~~699~~541		)	(12,~~653~~699		)
Accrued and other liabilities	(81,~~141~~045		)	(43,~~858~~723		)
Income taxes payable	~~(999~~2,457		)	—(999		)
Deferred revenue and client deposits	(8,765		)	(9,583		)
Deferred revenue and customer deposits	(3,632		)	(8,765		)
Net cash provided by (used in) operating activities	5,940			(784		)
Net cash provided by operating activities	23,427			5,940
Cash flows from investing activities:
Cash paid in conjunction with acquisitions, net of cash acquired	—			(15,879		)
Cash paid in conjunction with acquisition (Note 5)	(2,407		)	—
Purchases of marketable securities	(5892,~~824~~721		)	(51382,~~600~~014		)
Sales and maturities of marketable securities	9851,~~567~~496			80356,~~245~~007
Purchases of property and equipment	(1,~~675~~112		)	(21,~~467~~675		)
Net cash provided by investing activities	38,068			10,299
Net cash used in investing activities	(44,744		)	(27,682		)
Cash flows from financing activities:
Principal payments on debt	(482		)	(457		)
Principal payments on long term debt	(967		)	(482		)
Exercise of stock options	35,~~847~~740			53,~~406~~847
Issuance of treasury shares for employee stock purchase plan	21,~~368~~497			2,~~175~~368
Repurchase of common stock	~~(10,000~~—		)	(1810,~~912~~000		)
Net cash used in financing activities	(4,267		)	(11,788		)
Net cash provided by (used in) financing activities	6,270			(4,267		)
Increase (decrease) in cash and cash equivalents	39,741			(2,273		)
Decrease in cash and cash equivalents	(15,047		)	(26,009		)
Cash and cash equivalents at beginning of period	79187,~~996~~744			~~153~~72,~~071~~396
Cash and cash equivalents at end of period	$	~~119~~172,~~737~~697		$	~~150~~46,~~798~~387

The accompanying notes are an integral part of the condensed consolidated financial statements.

LAWSON SOFTWARE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS ~~(unaudited)~~

~~1. BASIS OF PRESENTATION~~(unaudited)

~~The unaudited condensed consolidated financial statements included herein reflect all adjustments, in the opinion of management, necessary to fairly state Lawson Software, Inc~~1.’s BASIS ~~(the~~OF Company’s) consolidated financial position, results of operations and cash flows for the periods presented. These adjustments consist of normal, recurring items. The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts therein. Due to the inherent uncertainty involved in making estimates, actual results in future periods may differ from those estimates. The results of operations for the three and six month periods ended November 30, 2004 are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire fiscal year ending May 31, 2005. The unaudited condensed consolidated financial statements and notes are presented as permitted by the requirements for Form 10-Q and do not contain certain information included in the Company’s annual financial statements and notes. The accompanying interim condensed consolidated financial statements should be read in conjunction with the financial statements and related notes included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended May 31, 2004. Certain reclassifications have been made to conform prior year’s data to the current presentation. These reclassifications had no effect on reported earnings.PRESENTATION

2The unaudited condensed consolidated financial statements included herein reflect all adjustments, in the opinion of management, necessary to fairly state Lawson Software, Inc. ~~STOCK~~’s (the Company’s) consolidated financial position, results of operations and cash flows for the periods presented. These adjustments consist of normal, recurring items. The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts therein. Due to the inherent uncertainty involved in making estimates, actual results in future periods may differ from those estimates. The results of operations for the three and six month periods ended November 30, 2005, are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire fiscal year ending May 31, 2006. The unaudited condensed consolidated financial statements and notes are presented as permitted by the requirements for Form 10-~~BASED~~Q ~~COMPENSATION~~and do not contain certain information included in the Company’s annual financial statements and notes. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States. The accompanying interim condensed consolidated financial statements should be read in conjunction with the audited financial statements and related notes included in the Company’s Annual Report on Forms 10-K and Form 10-K/A filed with the Securities and Exchange Commission for the fiscal year ended May 31, 2005.

The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and complies with the disclosure provisions of Statement of Financial Accounting Standard (SFAS) No. 123, “Accounting for Stock-Based Compensation” and SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of Financial Accounting Standards Board (FASB) Statement No. 123”.Reclassifications

~~The~~ During fiscal 2005, the Company concluded ~~has~~that ~~adopted~~it ~~the~~was ~~disclosure-only~~appropriate ~~provisions~~to classify its Dutch auction rate securities as marketable securities in accordance with Statement of Financial Accounting Standard (SFAS) No. ~~123~~ 95, “Statement of Cash Flows”. ~~For~~Dutch auction rate ~~purposes~~securities ofare ~~the~~investments ~~pro~~that ~~forma~~are ~~disclosures~~typically ~~below~~backed by preferred stock or long-term, ~~the~~variable-rate ~~estimated~~debt ~~fair~~instruments ~~value~~whose ofinterest ~~the options~~rates isare ~~amortized~~reset toat predetermined ~~expense~~short-term ~~over~~intervals ~~the~~through ~~options’~~a ~~vesting~~Dutch ~~period~~auction process. ~~Had compensation~~Previously, ~~cost~~such ~~for~~investments had primarily been classified as cash and cash equivalents. Accordingly, the Company’s ~~stock~~has ~~options~~made ~~been~~corresponding ~~recognized~~reclassifications ~~based~~to onthe Condensed Consolidated Statement of Cash Flows for the ~~fair~~six ~~value~~months atended November 30, 2004, to reflect the ~~grant~~gross ~~date~~purchases ~~consistent~~and ~~with~~sales ~~the~~and ~~provisions~~maturities of ~~SFAS~~these securities Noas investing activities rather than as a component of cash and cash equivalents. ~~123~~ Purchases of marketable securities were originally reported as $58,824 ~~the~~and ~~Company’s~~were reclassified to $382,014. Sales and maturities of marketable ~~net~~securities ~~(loss)~~were ~~income~~originally ~~would~~reported ~~have~~as ~~been~~$98,567 ~~adjusted~~and were reclassified to $356,007. Cash and cash equivalents – beginning of the ~~pro~~period ~~forma~~was ~~amounts~~originally reported ~~indicated~~as $79,996 and was reclassified to $72,396. Cash and cash equivalents ~~below~~– ~~(in~~end ~~thousands~~of the period was originally reported as $119,737 ~~except~~and ~~per~~was ~~share~~reclassified ~~amounts):~~to $46,387. These changes in classification do not affect the Company’s previously reported Condensed Consolidated Statements of Operations for any period.

	Three Months Ended November 30,						Six Months Ended November 30,
	2004			2003			2004				2003
Net (loss) income:
As reported	$	(3,020	)	$	(1,284	)	$	(3,437		)	$	1,956
Add: Stock-based employee compensation expense included in reported net (loss) income, net of taxes	51			(46		)	65				380
Deduct: Total stock-based compensation expense determined under fair value based method for all rewards, net of taxes	(1,585		)	(1,701		)	(3,531		)		(3,286		)
Pro forma net loss	$	(4,554	)	$	(3,031	)	$	(6,903		)	$	(950	)
Net (loss) income per share:
Basic:
As reported	$	(0.03	)	$	(0.01	)	$	(0.03		)	$	0.02
Pro forma	$	(0.05	)	$	(0.03	)	$	(0.07		)	$	(0.01	)
Diluted:
As reported	$	(0.03	)	$	(0.01	)	$	(0.03		)	$	0.02
Pro forma	$	(0.05	)	$	(0.03	)	$	(0.07		)	$	(0.01	)

In addition to the reclassifications made to the interim accounting periods presented in this Form 10-Q, reclassifications were made to the annual financial statements. The table below presents the changes made to the annual financial statements. The Previously Reported column presents the figures as originally presented prior to the reclassification. The Reclassified column presents the figures as reported in the Company’s Annual Report on Forms 10-K and Form 10-K/A filed for the fiscal year ended May 31, 2005.

Consolidated Balance Sheet	May 31, 2004
	Previously Reported			Reclass			Reclassified

Cash and cash equivalents	$	79,996		$	(7,600	)	$	72,396
Marketable securities	120,465			7,600			128,065
Total	$	200,461		$	—		$	200,461

Consolidated Statement of Cash Flow	Year Ended May 31, 2004
	Previously Reported			Reclass			Reclassified

Purchases of marketable securities	$	(173,044	)	$	(457,655	)	$	(630,699	)
Sales and maturities of marketable securities	150,529			493,255			643,784
Net change	$	(22,515	)	$	35,600		$	13,085

3The net impact of the $35. ~~PER~~6 million ~~SHARE~~reclass ~~DATA~~decreased the total cash used in investing activities for the year by a similar amount.

Basic earnings per share is computed using the net (loss) income and the weighted average number of shares of common stock outstanding. Diluted earnings per share reflects the weighted average number of shares of common stock outstanding plus any potentially dilutive shares outstanding during the period. Potentially dilutive shares consist of shares issuable upon the exercise of stock options and warrants (in thousands, except per share amounts).

Consolidated Statement of Cash Flow	Year Ended May 31, 2003
	Previously Reported			Reclass			Reclassified

Purchases of marketable securities	$	(232,059	)	$	(271,060	)	$	(503,119	)
Sales and maturities of marketable securities	280,814			229,560			510,374
Net change	$	48,755		$	(41,500	)	$	7,255

	Three Months Ended November 30,						Six Months Ended November 30,
	2004			2003			2004			2003
Basic earnings per share computation:
Net (loss) income applicable to common stockholders	$	(3,020	)	$	(1,284	)	$	(3,437	)	$	1,956
Weighted average common shares – basic	98,316			98,302			98,305			98,383
Basic net (loss) income per share	$	(0.03	)	$	(0.01	)	$	(0.03	)	$	0.02
Diluted earnings per share computation:
Net (loss) income applicable to common stockholders	$	(3,020	)	$	(1,284	)	$	(3,437	)	$	1,956
Shares calculation:
Weighted average common shares – basic	98,316			98,302			98,305			98,383
Effect of dilutive stock options	—			—			—			8,196
Effect of dilutive warrants	—			—			—			674
Weighted average common shares – diluted	98,316			98,302			98,305			107,253
Diluted net (loss) income per share	$	(0.03	)	$	(0.01	)	$	(0.03	)	$	0.02

The net impact of the $41.5 million reclass decreased the total cash provided by investing activities for the year by a similar amount.

~~Potential dilutive shares of common stock and warrants excluded from the diluted net (loss) income per share computations were 19~~2.9 million and 0.3 million as of November 30, 2004 and 2003, respectively. Certain potential dilutive shares of common stock were excluded from the diluted earnings per share computation because their exercise prices were greater than the average market price of the common shares during the period and were therefore not dilutive. In addition, potential dilutive shares of common stock were excluded from periods with a net loss because they were anti STOCK-~~dilutive.~~BASED COMPENSATION

4The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board (APB) Opinion No. ~~NEW~~ 25, ~~ACCOUNTING~~“Accounting for Stock Issued to ~~PRONOUNCEMENTS~~Employees,” and complies with the disclosure provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” and SFAS No. 148 “Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of Financial Accounting Standards Board (FASB) Statement No. 123.”

InThe ~~December~~Company ~~2004~~has adopted the ~~Financial Accounting Standards Board (FASB) issued~~disclosure-only ~~Statement~~provisions of ~~Financial Accounting Standard No. 123 (revised 2004), Share-Based Payment (~~SFAS No. 123~~(R))~~. ~~SFAS No.~~For ~~123(R)~~purposes ~~requires compensation cost relating to unvested share-based payment transactions that are outstanding as~~ of the ~~effective~~pro ~~date~~forma ~~and newly issued~~disclosures ~~transactions~~below, ~~to be recognized in~~ the ~~financial~~estimated ~~statements. That cost will be measured based on the~~ fair value of the ~~equity~~options oris ~~liability~~amortized ~~instruments~~to ~~issued. SFAS~~expense ~~No.~~over ~~123(R) covers a wide range of share-based compensation arrangements~~the ~~including share~~ options,’ ~~restricted~~vesting ~~share plans, performance-based awards, share appreciation rights and employee share purchase plans~~period. ~~SFAS~~Had ~~No.~~compensation ~~123(R) replaces~~cost ~~SFAS No. 123, Accounting~~ for ~~Stock-Based~~ ~~Compensation~~the ~~(SFAS~~Company’s ~~No.~~stock ~~123), and supersedes Accounting Principles~~options ~~Board~~been ~~Opinion~~recognized ~~No. 25, Accounting for Stock Issued to Employees (Opinion 25). SFAS No. 123, as originally issued in 1995, established fair-value-~~based ~~method~~on ~~of accounting for share-based payment transactions with employees. However, that Statement permitted entities~~ the ~~option~~fair ofvalue ~~continuing to~~at ~~apply~~ the ~~guidance~~grant indate ~~Opinion~~consistent ~~25,~~with ~~as long as~~ the ~~footnotes to financial~~ ~~statements~~provisions ~~disclosed what net income would have been had the fair-value-based method been used. As disclosed in footnote 2, the Company elected the option~~ of ~~disclosure~~ ~~only under~~ SFAS No. ~~123. Public entities will be required to apply SFAS No. 123(R) as of the first interim or annual reporting period that begins after June~~ 15123, ~~2005,~~ ~~which is effective with~~ the Company’s ~~second quarter~~net ofincome ~~fiscal~~(loss) ~~2006.~~and ~~Based~~net onincome (loss) ~~the~~per ~~Company's significant amount of unvested~~ share~~-based payment~~ ~~awards,~~would ~~the~~have ~~adoption~~been ofadjusted ~~this statement is anticipated~~ to ~~have a material impact on~~ the ~~Company’s~~pro ~~results~~forma ofamounts ~~operations; however the Company is~~indicated ~~currently~~below ~~evaluating~~(in ~~the~~thousands, ~~impact~~except ofper ~~this~~share ~~statement.~~amounts):

In November 2003 and March 2004, the Emerging Issues Task Force (EITF) reached a consensus on EITF Issue No. 03-01, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” The consensus reached requires companies to apply new guidance for evaluating whether an investment is other-than-temporarily impaired and also requires quantitative and qualitative disclosures of debt and equity securities, classified as available-for-sale or held-to-maturity, that are determined to be only temporarily impaired at the balance sheet date. The Company incorporated the required disclosures for investments accounted for under SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” as required in the fourth quarter of fiscal year 2004, and chose to early adopt the guidance related to evaluating other-than-temporary impairment. Disclosures for all investments outside the scope of SFAS No. 115 (cost and equity method investments), of which the Company has none, are required in the fourth quarter of fiscal 2005. Adoption of EITF Issue No. 03-01 will not have an impact on the Company’s statements of consolidated operations, financial position or cash flows.

	Three Months Ended November 30,						Six Months Ended November 30,
	2005			2004			2005			2004
Net income (loss):
As reported	$	6,556		$	(3,020	)	$	10,733		$	(3,437	)
Add: Stock-based employee compensation expense included in reported net income (loss), net of taxes	65			51			4,044			65
Deduct: Total stock-based compensation expense determined under fair value based method for all rewards, net of taxes	(1,223		)	(1,585		)	(3,459		)	(3,531		)
Pro forma net income (loss)	$	5,398		$	(4,554	)	$	11,318		$	(6,903	)

Net income (loss) per share:
Basic:
As reported	$	0.06		$	(0.03	)	$	0.11		$	(0.03	)
Pro forma	$	0.05		$	(0.05	)	$	0.11		$	(0.07	)
Diluted:
As reported	$	0.06		$	(0.03	)	$	0.10		$	(0.03	)
Pro forma	$	0.05		$	(0.05	)	$	0.11		$	(0.07	)

5During the six months ended November 30, 2005, the Company recognized $4. ~~COMPREHENSIVE~~0 million of after-tax stock-based employee compensation expense that included a $3.8 million non-cash charge resulting from a negotiated separation agreement with its former president and chief executive officer. The agreement was deemed to be a modification of previously granted options and therefore resulted in an intrinsic value charge for option expense under APB No. 25. In calculating the pro forma net income (~~LOSS~~loss) ~~INCOME~~under SFAS No.123 for the three and six months ended November 30, 2005, $1.2 million and $3.5 million respectively, net of related tax effects, were deducted from net income (loss) representing the total stock-based employee compensation expense that was determined under the fair value based method for all awards. The options for the former president and chief executive officer that were deemed modified were 100% vested and therefore under the fair value based method only $0.4 million in option expense was included as expense in the pro forma calculation relating to the incremental value on the modified options as compared with the options before modification for the six months ended November 30, 2005.

~~The~~Additionally, ~~following~~during ~~table~~the ~~presents~~six months ended November 30, 2005, all “out-of-the-money” options for all Section 16b officers and ~~calculation~~directors as of ~~comprehensive~~June 1, ~~(loss)~~2005 were modified to permit a two year exercise window after termination. While this required no charge in the Company’s income (statement under APB No. 25, there was an after-tax fair value charge included in ~~thousands):~~the pro forma charge above of $0.3 million for the six months ended November 30, 2005. The total of both modifications under SFAS No. 123 was $0.7 million for the six months ended November 30, 2005.

	Three Months Ended November 30,							Six Months Ended November 30,
	2004				2003			2004			2003
Net (loss) income	$		(3,020	)	$	(1,284	)	$	(3,437	)	$	1,956
Unrealized (loss) gain on available-for-sale investments, net of taxes	(1			)	(46		)	25			(107		)
Foreign currency translation adjustment	1,014				2,049			866			1,279
Other comprehensive income	1,013				2,003			891			1,172
Comprehensive (loss) income	$	(2,007		)	$	719		$	(2,546	)	$	3,128

3. PER SHARE DATA

6Basic earnings per share is computed using the net income (loss) and the weighted average number of shares of common stock outstanding. ~~RESTRUCTURING~~ Diluted earnings per share reflect the weighted average number of shares of common stock outstanding plus any potentially dilutive shares outstanding during the period. Potentially dilutive shares consist of shares to be issued upon the exercise of stock options and warrants and release of restricted stock (in thousands, except per share amounts).

On September 28, 2004, the Company approved a plan designed to enhance the Company’s operating effectiveness and profitability. Under the restructuring plan (Phase I), the Company streamlined structure, consolidated leadership and reduced long-term costs to realign projected expenses with anticipated revenue levels. The plan included the reduction of approximately 100 employees in the United States and the United Kingdom, which in accordance with SFAS No. 112, Employers Accounting for Post Employment Benefits - an amendment of FASB Statements No. 5 and 43, resulted in a charge for severance and related benefits of $3.0 million in the second quarter ending November 30, 2004. The reduction included employees who work in operations, marketing, sales, research and development, maintenance and services. All terminations and related cash payments have primarily been completed as of November 30, 2004. The remaining cash payments are expected to be completed during fiscal 2005.7

The following table sets forth the restructuring reserve activity related to the Phase I restructuring plan and the remaining balances as of November 30, 2004, which are included in accrued compensation and benefits (in thousands):

	Three Months Ended November 30,					Six Months Ended November 30,
	2005		2004			2005		2004
Basic earnings per share computation:
Net income (loss) applicable to common stockholders	$	6,556	$	(3,020	)	$	10,733	$	(3,437	)
Weighted average common shares – basic	102,428		98,316			101,790		98,305
Basic net income (loss) per share	$	0.06	$	(0.03	)	$	0.11	$	(0.03	)

Diluted earnings per share computation:
Net income (loss) applicable to common stockholders	$	6,556	$	(3,020	)	$	10,733	$	(3,437	)
Shares calculation:
Weighted average common shares – basic	102,428		98,316			101,790		98,305
Effect of dilutive stock options	4,606		—			4,366		—
Effect of restricted stock	100		—			99		—
Effect of dilutive warrants	—		—			43		—
Weighted average common shares – diluted	107,134		98,316			106,298		98,305
Diluted net income (loss) per share	$	0.06	$	(0.03	)	$	0.10	$	(0.03	)

	Severance and related benefits
Phase I provision for restructuring	$	2,998
Cash payments	(2,282		)
Balance, November 30, 2004	$	716

Potentially dilutive shares of common stock excluded from the diluted net income (loss) per share computations were 2.0 million and 19.9 million as of November 30, 2005 and 2004, respectively. Certain potentially dilutive shares of common stock were excluded from the diluted earnings per share computation because their exercise prices were greater than the average market price of the common shares during the period and were therefore not dilutive. In addition, potentially dilutive shares of common stock were excluded from periods with a net loss because they were anti-dilutive.

84. RECENT ACCOUNTING PRONOUNCEMENTS

AtIn ~~November 30,~~ December 2004, the ~~Company~~FASB ~~also accrued~~issued ~~for~~SFAS aNo. 123 (revised 2004), ~~plan~~Share-Based Payment (~~Phase~~“SFAS No. 123(R)”). SFAS IINo. 123(R) requires compensation cost relating to unvested share-based payment transactions that ~~includes~~are ~~initiatives~~outstanding as of the effective date and newly issued transactions to ~~further~~be ~~reduce~~recognized ~~costs~~in the financial statements. The cost will be measured based on the fair value of the equity or liability instruments issued. SFAS No. 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights and ~~realign~~employee ~~projected~~share ~~expenses~~purchase plans. ~~with~~SFAS ~~anticipated~~No. 123(R) ~~revenue~~supersedes ~~levels~~SFAS No. It 123, ~~includes~~Accounting for Stock-Based Compensation (“SFAS No. 123”), and supersedes APB No. 25, Accounting for Stock Issued to Employees (“Opinion 25”). SFAS No. 123, as originally issued in 1995, established a ~~reduction~~fair-value-based method of ~~approximately~~accounting 75for share-based payment transactions with employees. inHowever, SFAS No. 123 permitted entities the ~~United~~option ~~States~~of ~~and~~continuing to apply the ~~United~~guidance ~~Kingdom~~in Opinion 25, ~~and~~as ~~because~~long as the footnotes to financial statements disclosed what net income would have been had the fair-value-based method been used. The Company elected ~~was~~the ~~able~~option of disclosure only under SFAS No. 123. In its disclosures, the Company has historically used the Black-Scholes option pricing model to determine the fair value of its share based compensation arrangements. Upon the adoption of SFAS No. 123(R), the Company will determine ~~probability~~whether atit will continue to utilize the ~~end~~Black-Scholes model or adopt some other acceptable model. Public entities are required to apply SFAS No. 123(R) as of the ~~quarter~~first annual reporting period that begins after June 15, 2005, which is effective with the ~~restructuring~~Company’s first quarter of fiscal 2007. Based ~~resulted~~on inthe Company’s significant amount of unvested share-based payment awards, the adoption of this statement is anticipated to have a ~~charge~~material impact on the Company’s Consolidated Statements of ~~approximately~~Operations, $2however the Company is currently evaluating the impact.5 ~~million~~Historically, ~~for~~had ~~severance~~compensation ~~and~~costs ~~related~~for the ~~benefits,~~Company’s instock ~~accordance~~options been recognized based on the fair value at the grant date consistent with the provisions of SFAS No. ~~112.~~ 123, the Company’s diluted earnings ~~The~~per ~~reduction~~share ~~includes~~would ~~employees~~have ~~who~~been ~~work~~reduced inby ~~sales~~$0.06, ~~research~~$0.05, and $0.05, respectively, for ~~development~~the ~~and~~years ~~services.~~ended ~~All~~May ~~terminations~~31, 2005, May 31, 2004, and ~~related~~May ~~cash~~31, ~~payments~~2003, ~~are~~as disclosed in ~~expected~~the toCompany’s beAnnual ~~completed~~Report ~~during~~on Form 10-K and Form 10-K/A filed for the fiscal year ended May 31, 2005.

~~The~~In ~~table~~May 2005, ~~below~~the FASB issued SFAS No 154, “Accounting ~~sets~~Changes ~~forth~~and ~~the~~Error ~~restructuring~~Corrections ~~reserve~~– ~~activity~~A ~~related~~replacement toof APB Opinion No. 20 and FASB Statement No. 3” (“SFAS 154”). SFAS 154 changes the ~~Phase~~requirement IIfor the accounting for and reporting of ~~restructuring~~a ~~plan~~change in accounting principle. This statement applies to all voluntary changes in accounting principles and changes required by an accounting pronouncement in the ~~remaining~~unusual ~~balances~~instance asthat ofthe ~~November~~pronouncement ~~30,~~does ~~2004,~~not ~~which~~include specific ~~are~~transition provisions. The ~~included~~provisions in ~~accrued~~SFAS ~~compensation~~154 are effective for accounting changes and ~~benefits~~correction (of errors made in ~~thousands):~~fiscal years beginning after December 15, 2005, which is effective with the Company’s first quarter of fiscal 2007.

	Severance and related benefits
Phase II provision for restructuring	$	2,467
Cash payments	—
Balance, November 30, 2004	$	2,467

~~As of November 30, 2004, remaining reserve balances related to prior years’ restructurings consist of $0~~5.1 PENDING ~~million~~BUSINESS in employee related costs and $0.1 million of facility closure liabilities. The employee related costs are included in accrued compensation and benefits and are expected to be paid in full during fiscal 2005. The facility closure related costs are included in other accrued liabilities and are expected to be paid in full during fiscal 2006.COMBINATION

7On June 2, 2005, the Company entered into an agreement to combine with Stockholm, Sweden-based Intentia International AB (“Intentia”) in an all-stock transaction. ~~GOODWILL~~ ~~AND~~The ~~INTANGIBLE~~Company and Intentia plan to effect ~~ASSETS~~their business combination through a recommended public offer in Sweden (the “Offer”) for (i) all outstanding Intentia Series A and Series B shares and (ii) all outstanding warrants to purchase Series B shares, in exchange for shares of the Company’s common stock. Under the Offer, the Company would issue approximately 81 million shares of its common stock, with an aggregate transaction value of approximately $460 million, based on the average closing price of the Company’s common stock beginning two days before and ending two days after the June 2, 2005 announcement date. The transaction value has been adjusted from approximately $464 million as previously reported due to a revision to the estimated transaction costs used in valuing this transaction. The revision, however, does not have any impact on the exchange ratios of the Exchange Offer between Lawson and Intentia. The Offer is expected to result in the Company’s stockholders owning approximately 56.75 percent, and Intentia’s stockholders owning approximately 43.25 percent, based on the Company’s capital stock and Series A and Series B Intentia capital stock, calculated on a fully-diluted basis using the treasury method.

The ~~changes~~transaction inis expected to qualify as a tax-free exchange for both parties within the ~~carrying~~meaning ~~amount~~of Section 351 of the ~~goodwill~~United States Internal Revenue Code. The Company intends to account for the transaction under the purchase method of accounting and accordingly, the assets and liabilities acquired will be recorded at their estimated fair values at the effective date of the acquisition and the results of the operations will be included in the Consolidated Statements of Operations effective with the acquisition date. The Company has incurred approximately $9.8 million of costs related to the acquisition, of which $6.1 million has been capitalized as directly related to the transaction and eligible for inclusion as part of the purchase price. During the three and six months ended November 30, ~~2004~~2005, ~~are~~$1.6 million and $2.9 asmillion, ~~follows~~respectively, ~~(in~~of ~~thousands):~~costs related to the acquisition were charged to operations.

Balance as of May 31, 2004	$	43,042
Contingent consideration adjustment, net	(89		)
Currency translation effect	362
Balance as of November 30, 2004	$	43,315

6. COMPREHENSIVE INCOME (LOSS)

~~Acquired intangible~~The ~~assets~~following ~~subject~~table tosummarizes ~~amortization~~the components ~~were~~of ascomprehensive ~~follows~~income (loss) (in thousands):

	November 30, 2004											May 31, 2004
	Three Months Ended November 30,						Six Months Ended November 30,
	Gross Carrying Amounts				Accumulated Amortization				Net			Gross Carrying Amounts			Accumulated Amortization		Net
	2005			2004			2005			2004
Maintenance contracts	$	22,940			$	2,310			$	20,630		$	22,940		$	324	$		22,616
Net income (loss)	$	6,556		$	(3,020	)	$	10,733		$	(3,437	)
Acquired technology	14,394				6,868				7,526			14,272			5,183		9,089
Unrealized (loss) gain on available-for-sale investments, net of taxes (benefit) of $(10) and $(0.6) for the three months ended November 30, 2005 and 2004, respectively, and $(13) and $15 for the six months ended November 30, 2005 and 2004, respectively.	(15		)	(1		)	(21		)	25
Client lists	11,373				3,274				8,099			11,254			2,594		8,660
Foreign currency translation adjustment	(551		)	1,014			(480		)	866
Non-compete agreements	646				359				287			632			230		402
Other comprehensive (loss) income	(566		)	1,013			(501		)	891
	$		49,353		$		12,811		$	36,542		$		49,098	$	8,331	$	40,767
Comprehensive income (loss)	$	5,990		$	(2,007	)	$	10,232		$	(2,546	)

Intangible assets are amortized on a straight-line basis over the estimated periods benefited, generally three to five years for acquired technology, four to ten years for client lists, and the term of the agreement for non-compete agreements. Intangible assets for maintenance contracts are amortized under a front end loaded accelerated amortization schedule, over the estimated term of the agreements based on the estimated revenue for the applicable period in relation to the total estimated revenue. Amortization expense for the three months ended November 30, 2004 and 2003 was $2.2 million and $1.0 million, respectively. Amortization expense for the six months ended November 30, 2004 and 2003 was $4.4 million and $1.7 ~~million, respectively~~. ~~Amortization expense is reported in amortization of acquired intangibles, cost of license fees and cost of services in the accompanying Condensed Consolidated Statements of Operations.~~ RESTRUCTURING

9During the three months ended November 30, 2005 and 2004, the Company recorded restructuring adjustments resulting in a reversal of $0.01 million and a charge of $5.5 million, respectively. For the six months ended November 30, 2005 and 2004, the Company recorded charges of $0.01 million and $5.4 million, respectively.

~~The estimated future amortization expense for identified intangible assets is as follows (in thousands):~~9

Remainder of Fiscal Year 2005	$	4,525
Fiscal Year 2006	8,613
Fiscal Year 2007	6,941
Fiscal Year 2008	4,660
Fiscal Year 2009	3,633
Thereafter	8,170
	$	36,542

Fiscal 2005 Restructuring

8On September 28, 2004, the Company approved a plan designed to enhance the Company’s operating effectiveness and profitability. ~~COMMITMENTS~~ ~~AND~~Under the restructuring plan (Phase I), the Company streamlined ~~CONTINGENCIES~~structure, consolidated leadership and reduced long-term costs to realign projected expenses with anticipated revenue levels. The plan included the reduction of 107 employees in fiscal 2005 in the United States and the United Kingdom, which in accordance with SFAS No. 112, Employers Accounting for Post Employment Benefits - an amendment of FASB Statements No. 5 and 43(“SFAS No. 112”), resulted in a charge for severance and related benefits of $2.9 million, net of a reversal of $0.03 million subsequent to the initial charge within fiscal 2005. The reduction included employees who worked in operations, marketing, sales, research and development, maintenance and services. There were no cash payments made during the three and six months ended November 30, 2005, respectively. All employee reductions and related cash payments were substantially completed as of November 30, 2005. The Company adjusted the remaining accrual to cover additional costs that are anticipated to be incurred. The remaining cash payments are expected to be completed during fiscal 2006.

The ~~Securities~~following ~~and~~table ~~Exchange Commission (SEC)~~sets isforth ~~conducting an informal investigation regarding~~ the ~~Company’s~~restructuring ~~revenue recognition~~reserve ~~practices.~~activity ~~The Company’s Audit Committee has recently completed an independent investigation~~ related to ~~this matter and~~ the ~~Company~~Phase isI ~~fully~~restructuring ~~cooperating~~plan ~~with~~and the ~~SEC.~~remaining Inbalances ~~connection~~as ~~with~~of ~~the independent investigation~~November 30, ~~the Company has incurred approximately $2.2 million of fees and expenses~~2005, of which ~~$0.6~~are ~~million~~included ~~was~~in ~~incurred~~accrued ~~during~~compensation ~~the~~and ~~second~~benefits ~~quarter~~(in ~~fiscal 2005.~~thousands):

The Company has contingent consideration agreements related to acquisitions ranging in the aggregate from zero to $8.6 million, measured over various periods through fiscal 2007, based on the acquired company’s future performance. Contingent consideration is recorded as additional goodwill. During the three months ended August 31, 2004, a $0.3 million adjustment to reduce goodwill related to contingent consideration was recorded. During the three months ended November 30, 2004, a $0.2 million increase to goodwill consideration was recorded under the contingent consideration agreements.

	Severance and related benefits
Balance, May 31, 2005	$	29
Adjustments to provision	13
Balance, November 30, 2005	$	42

~~The~~At November 30, 2004, the Company isalso accrued ~~involved~~for ina ~~various~~restructuring ~~claims~~plan ~~and~~(Phase II) that included initiatives to ~~legal~~further ~~actions~~reduce incosts ~~the~~and ~~normal~~realign ~~course~~projected ofexpenses ~~business~~with anticipated revenue levels. ~~Management~~It isincluded a reduction of 68 employees in the ~~opinion~~United States and the ~~that~~United Kingdom, and because the ~~outcome~~Company was able to determine probability at the end of ~~such~~the ~~legal~~second ~~actions~~quarter ~~will~~of ~~not~~fiscal 2005, ~~have~~the restructuring resulted in a ~~significant~~$2.2 ~~adverse effect~~million oncharge ~~the~~for ~~Company’s~~severance ~~financial~~and ~~position~~related benefits, ~~results~~net of ~~operations~~a orreversal of ~~cash~~$0.3 million subsequent to the initial charge within fiscal 2005, in ~~flows~~accordance with SFAS No. 112. ~~Notwithstanding~~The ~~management’s~~reduction ~~belief~~included employees who worked in sales, anresearch ~~unfavorable~~and ~~resolution~~development ofand ~~some~~services. Cash payments during orfiscal 2005 ~~all~~for ofthe ~~these~~Phase ~~matters~~II ~~could~~plan ~~materially~~were ~~affect~~$2.0 million. There were no cash payments made during the ~~Company’s~~three ~~future~~months ~~results~~ended ofNovember 30, 2005. There was $0.01 million in cash payments made ~~operations~~during the six months ended November 30, 2005. All employee reductions and related cash payments ~~flows~~were substantially completed as of November 30, 2005. The Company adjusted the remaining accrual for costs that are no longer anticipated to be incurred. The remaining cash payments are expected to be completed during fiscal 2006.

InThe ~~February 2004,~~following ~~the~~table ~~Company entered into an offshore agreement~~sets ~~with~~forth ~~a third-party to provide software maintenance services. If~~ the ~~Company terminates~~restructuring ~~the~~reserve ~~agreement~~activity ~~prior~~related to ~~its~~the ~~initial~~Phase ~~twenty-four~~II ~~month term, a~~restructuring ~~termination~~plan ~~fee~~and ~~will~~the beremaining ~~incurred~~balances ~~equal~~as ~~to the sum~~ of ~~the~~November 30, ~~previous six months service charges~~2005, ~~estimated~~which ~~to be approximately $1.6 million. Management is of~~are ~~the~~included ~~opinion~~in ~~that~~accrued ~~the~~compensation ~~agreement~~and ~~will~~benefits ~~not~~(in ~~be terminated within the twenty-four month period.~~thousands):

9. SUPPLEMENTAL CASH FLOW INFORMATION

	Severance and related benefits
Balance, May 31, 2005	$	114
Cash payments	(14		)
Adjustments to provision	(25		)
Balance, November 30, 2005	$	75

~~During the~~Fiscal 2004 six months ended November 30, 2003 the Company paid cash totaling $15.9 million for the acquisitions of Apexion Technologies Inc., Closedloop Solutions, Inc and Numbercraft Limited. A consolidated summary of the acquisitions is as follows (in thousands):Restructuring

	Six Months Ended
	November 30, 2003
Details of acquisition:
Fair value of assets	$	20,697
Less liabilities assumed	(4,593		)
Cash paid	16,104
Less cash acquired	(225		)
Net cash paid for acquisitions	$	15,879

In September 2003, the Company approved a restructuring plan to realign projected expenses with anticipated lower revenue levels and incurred $2.3 million in restructuring charges for severence and related benefits. The fiscal 2004 plan resulted in the reduction of 93 employees in the second quarter of fiscal 2004, from various functions including research and development, general and adminstrative and sales and marketing, primarily in the United States. During the three months ended August 31, 2004, the Company recorded a $0.03 million reversal of restructuring charges for certain employee costs it determined would not be incurred.

10There was $0.1 million in cash payments made during the six months ended November 30, 2005. The Company adjusted the remaining accrual to cover additional costs that were incurred in the final cash payments of the plan.

10~~. SEGMENT AND GEOGRAPHIC AREAS~~

The ~~Company~~following ~~views~~table ~~its operations and~~sets ~~manages~~forth ~~its~~the ~~business~~restructuring asreserve ~~one~~activity ~~segment,~~reflecting the ~~development~~completion ~~and marketing~~ of ~~computer software and related services. Factors used to identify~~ the ~~Company’s single~~ ~~operating~~fiscal 2004 ~~segment~~restructuring ~~include~~plan ~~the~~as ~~financial~~of information available for evaluation by the chief operating decision maker in making decisions about how to allocate resources and assess performance. The Company markets its products and services through the Company’s offices in the United States and its wholly-owned branches and subsidiaries operating in CanadaNovember 30, ~~the~~2005 ~~United Kingdom, France and the Netherlands. The following table presents revenues and long-lived assets summarized by geographic region~~ (in thousands):

	Three Months Ended November 30,					Six Months Ended November 30,
	Severance and related benefits
	2004			2003		2004			2003
Balance, May 31, 2005	$	62
Revenues:
Cash payments	(104		)
Domestic operations	$	78,636		$	78,129	$		156,607	$	160,782
Adjustments to provision	42
International operations	4,363			6,136		9,077			11,485
Balance, November 30, 2005	$	—
Consolidated	$	82,999		$	84,265	$	165,684		$		172,267

	November 30, 2004		May 31, 2004
Long-lived assets:
Domestic operations	$	78,618	$	84,482
International operations	16,183		16,562
Consolidated	$	94,801	$	101,044

Fiscal 2003 Restructuring

~~The~~In ~~following~~September 2002, the ~~table~~Company ~~presents~~approved ~~revenues~~a restructuring plan to realign projected expenses with anticipated lower revenue levels and incurred $5.8 million in restructuring charges, which included $4.7 million of severence and related benefits and $1.1 million for ~~license~~the ~~fees~~closure and consolidation of facilities. The plan resulted in the reduction of 244 employees in the second quarter of fiscal 2003, ~~maintenance~~from various functions including administrative, professional and managerial in the United States, Canada and Europe. During the three months ~~consulting~~ended ~~services~~August 31, (2004, the Company recorded a reversal of restructuring charges of $0.05 million for certain employee costs it determined would not be incurred. During fiscal 2005, the Company completed its obligations under the restructuring plan and no further adjustments have been made in ~~thousands):~~fiscal 2006.

	Three Months Ended November 30,				Six Months Ended November 30,
	2004		2003		2004			2003
Components of revenues:
License fees	$	13,195	$	17,313	$		26,446	$		39,974
Services:
Consulting	26,904		28,600		55,656			56,717
Maintenance	42,900		38,352		83,582			75,576
Total services	69,804		66,952		139,238			132,293
Total revenues	$	82,999	$	84,265	$	165,684		$	172,267

Fiscal 2002 Restructuring

11In May 2002, the Company approved a restructuring plan in response to the general economic downturn and incurred $3. ~~COMMON~~3 million in ~~STOCK~~restructuring ~~REPURCHASES~~charges, which included $3.0 million for severance related benefits and $0.3 million for the closure of a leased office facility. During fiscal 2003, the Company recorded $0.2 million in additional charges associated with finalization of lease termination agreements. The plan resulted in the reduction of 111 employees in various functions including administrative, professional, and managerial, primarily in the United States. There was $0.01 million in cash payments made during the six months ended November 30, 2005. The Company adjusted the remaining accrual to cover additional costs that were incurred in the final cash payments of the plan.

InThe ~~June~~following ~~2003, the~~table ~~Company’s~~sets ~~Board~~forth ~~of Directors authorized~~ the ~~repurchase, from time to time, of~~restructuring upreserve toactivity ~~$50.0~~reflecting ~~million of~~ the ~~Company’s~~completion ~~common~~of ~~shares. Shares were repurchased as market conditions warranted either through open market transactions, block purchases, private transactions or other means. During~~ the ~~three months ended~~fiscal 2002 ~~August~~restructuring ~~31, 2004, the Company completed the authorized stock repurchase~~ plan ~~by purchasing~~as ~~1.4 million shares for $10.0 million in cash. Cash proceeds obtained from the maturities~~ of ~~marketable~~November ~~securities~~30, ~~the~~2005 ~~exercise of employee stock options and contributions to the employee stock purchase plan, largely funded the share repurchases. The repurchased shares, which remain~~ (in ~~treasury, will be used for general corporate purposes.~~thousands):

	Facilities
Balance, May 31, 2005	$	30
Cash payments	(5		)
Adjustments to provision	(25		)
Balance, November 30, 2005	$	—

128. ~~INCOME~~ GOODWILL ~~TAXES~~AND INTANGIBLE ASSETS

The ~~annual~~ ~~effective~~changes ~~tax~~in ~~rate is forecasted quarterly using actual historical information and forward-looking estimates. The Company’s effective tax rate for~~ the ~~three~~carrying ~~months~~amount ~~ended~~of ~~November~~goodwill ~~30, 2004 and 2003 was 40.2% and 39.0%, respectively. The Company’s effective tax rate~~ for ~~the~~ ~~six months ended November 30, 2004 and 2003 was 39.9% and 39.0%, respectively. The change in~~ the ~~effective~~ ~~tax rates for the three and~~ six months ended November 30, ~~2004 from~~ ~~November 30~~2005, ~~2003~~are ~~was~~as ~~primarily~~follows ~~due to the impact of changes~~ (in actual and forecasted permanent book to tax differences. The Company’s effective tax rate for the year ended May 31, 2004 was 47.8%. The change in the effective tax rate from fiscal 2004 was primarily a result of the Company recording a $1.2 million valuation allowance for net deferred tax assets in fiscal 2004. The Company determined that no additional valuation allowance was necessary for the three and six months ended November 30, 2004.thousands):

The Company reviews its annual effective tax rate on a quarterly basis and makes necessary changes. The estimated annual effective tax rate may fluctuate due to changes in forecasted annual operating income; changes to the valuation allowance for net deferred tax assets; changes to actual or forecasted permanent book to tax differences; impacts from future tax settlements with state, federal or foreign tax authorities; or impacts from tax law changes.

Balance as of May 31, 2005	$	43,407
Contingency consideration earned	200
Currency translation effect	(432		)
Balance as of November 30, 2005	$	43,175

1211

~~ITEM~~Acquired 2.intangible ~~MANAGEMENT’S~~assets ~~DISCUSSION~~subject ~~AND~~to amortization ~~ANALYSIS~~were OFas ~~FINANCIAL~~follows ~~CONDITION~~(in ~~AND RESULTS OF OPERATIONS~~thousands):

Forward-Looking Statements

	November 30, 2005								May 31, 2005
	Gross Carrying Amounts			Accumulated Amortization			Net Book Value		Gross Carrying Amounts		Accumulated Amortization			Net Book Value
Maintenance contracts	$		22,940	$	(6,304	)	$	16,636	$	22,940	$	(4,316	)	$	18,624
Acquired technology	14,109			(9,952		)	4,157		14,234		(8,417		)	5,817
Customer lists	11,096			(4,477		)	6,619		11,217		(3,879		)	7,338
Non-compete agreements	513			(444		)	69		628		(468		)	160
	$	48,658		$	(21,177	)	$	27,481	$	49,019	$	(17,080	)	$	31,939

InIntangible ~~addition~~assets toare ~~historical~~amortized ~~information, this~~on ~~Form 10~~a straight-Qline ~~contains~~basis ~~forward-looking~~over ~~statements. These forward-looking statements are made in reliance upon~~ the ~~safe~~estimated ~~harbor~~periods ~~provisions~~benefited, ofgenerally ~~the~~three ~~Private~~to ~~Securities~~five ~~Litigation~~years ~~Reform~~for ~~Act~~acquired oftechnology, ~~1995. The~~four ~~words~~to ~~“believe,”~~ten ~~“expect,”~~years ~~“anticipate,”~~for ~~“intend,”~~customer ~~“estimate~~lists,” ~~“forecast,” “project,” “should”~~ and ~~similar expressions are intended to identify “forward-looking~~ ~~statements” within~~ the ~~meaning~~term of the ~~Private~~agreement ~~Securities~~for ~~Litigation~~non-compete ~~Reform Act of 1995~~agreements. ~~Forward~~Intangible ~~looking~~assets ~~statements~~for maintenance ~~include,~~contracts ~~among~~are ~~others,~~amortized ~~statements~~under ~~about~~an ~~our future~~accelerated ~~performance,~~amortization ~~the continuation of historical trends~~method, over the ~~sufficiency~~estimated ~~of our~~term ~~sources~~ of ~~capital for future needs,~~ the ~~effects~~agreements ofbased ~~acquisitions~~on ~~and~~ the ~~expected~~ ~~impact~~estimated ofrevenue ~~recently issued accounting pronouncements. These~~for ~~forward-looking~~the ~~statements~~applicable ~~are~~period ~~subject~~in torelation ~~certain risks and uncertainties that could cause actual results~~ to ~~differ~~the ~~materially~~total ~~from~~estimated ~~those~~revenue. ~~reflected~~For in the three ~~forward-looking~~months ~~statements.~~ended November 30, ~~Factors~~2005 ~~that~~and ~~might cause such a difference include~~2004, ~~but~~ ~~are~~there ~~not~~was ~~limited~~$2.2 ~~to,~~million ~~those discussed~~ in ~~the~~amortization ~~section entitled “Management’s~~expense ~~Discussion~~for ~~and~~intangible ~~Analysis~~assets. For ofthe ~~Financial Condition and Results of~~six ~~Operations—Factors~~months ~~That~~ended ~~May~~November 30, ~~Affect~~2005 ~~Our~~and ~~Future~~2004, ~~Results~~there orwas ~~the Market Price of Our Stock”~~$4.3 ~~Readers~~million ~~are~~and ~~cautioned not to place undue reliance on these~~$4.4 ~~forward-looking statements~~million, ~~which~~respectively ~~reflect~~in ~~management’s~~amortization ~~opinions~~expense ~~only~~for asintangible ~~of the date hereof~~assets. Amortization Weexpense ~~undertake~~is noreported ~~obligation~~in tocost ~~revise~~of license orfees, ~~publicly~~cost ~~release the results~~ of ~~any~~services ~~revision~~and toamortization ~~these~~of ~~forward-looking~~acquired ~~statements based on circumstances or events~~intangibles, ~~which occur~~ in the ~~future. Readers should carefully~~ ~~review~~accompanying ~~the~~Condensed ~~risk~~Consolidated ~~factors~~Statements ~~described~~of ~~in this report on Form 10-Q and in other documents we file from time to time with the Securities and Exchange Commission~~Operations.

~~Business~~The ~~Overview~~estimated future amortization expense for identified intangible assets is as follows (in thousands):

We provide business application software, services and support that help services organizations to manage, analyze and improve their businesses. The markets we serve include healthcare, government and education, retail, financial services (including banking, insurance and other financial services), and professional services. We derive revenues from licensing business application software and providing comprehensive professional services, including consulting, training and implementation services, as well as ongoing client support. Consulting, training and implementation services are generally not essential to the functionality of our software products, are sold separately and also are available from a number of third-party service providers. Accordingly, revenues from these services are generally recorded separately from the license fee. Additionally, we generate a portion of our revenues from reselling our business application software through third-party vendors. We have offices and affiliates serving North and South America, Europe, Asia, Africa and Australia.

2006 (remaining 6 months)	$	4,175
2007	6,955
2008	4,664
2009	3,637
2010	3,005
Thereafter	5,045
	$	27,481

~~Critical~~9. COMMITMENTS ~~Accounting Policies and Estimates~~AND CONTINGENCIES

~~Our~~The ~~discussion~~Company ~~and~~has ~~analysis~~outstanding ofcontingent ~~financial~~consideration ~~condition~~agreements ~~and~~related ~~results~~to ofacquisitions ~~operations~~ranging ~~are based upon our unaudited condensed consolidated financial statements, which have been prepared~~ in ~~accordance~~ ~~with accounting principles generally accepted in~~ the ~~United~~aggregate ~~States~~from ofzero ~~America. The preparation of these financial statements requires us~~ to ~~make estimates~~$5.7 million, ~~and~~measured ~~assumptions~~over ~~that~~various ~~affect~~periods ~~the~~through ~~reported~~fiscal ~~amounts of assets and~~2007, ~~liabilities~~based aton the ~~date~~acquired ofcompany’s ~~the~~future ~~financial~~performance. ~~statements,~~Contingent ~~the reported amounts of~~consideration ~~revenues~~earned ~~and~~is ~~expenses~~paid ~~during~~in ~~the~~cash ~~reporting period,~~ and ~~related~~recorded ~~disclosures~~as ~~of contingent~~additional ~~assets and liabilities~~goodwill. ~~The~~During ~~Notes to~~ the ~~Condensed Consolidated~~three ~~Financial~~and ~~Statements~~six ~~contained~~months ~~herein~~ended ~~describe our significant accounting polices used in the preparation of the consolidated financial statements. On an on-going basis~~November 30, ~~we evaluate our estimates~~2005, ~~including,~~$0.2 ~~but~~million ~~not~~in ~~limited to, those~~additional ~~related~~consideration tohad ~~bad~~been ~~debt,~~earned ~~intangible~~and ~~assets~~recorded and ~~contingencies~~$1.0 Wemillion ~~base~~expired ~~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 these ~~estimates~~agreements.

WeThe ~~believe~~Company is involved in various claims and legal actions in the ~~critical~~normal ~~accounting~~course of business. Management is of the opinion ~~polices~~that ~~listed~~the ~~below~~outcome ~~reflect~~of ~~our~~such ~~more~~legal actions will not have a significant ~~judgments~~adverse effect on the Company’s financial position, ~~estimates~~results ~~and~~of operations or cash ~~assumptions~~flows. ~~used~~Notwithstanding inmanagement’s ~~the~~belief, ~~preparation~~an unfavorable resolution of ~~our~~some or ~~condensed~~all ~~consolidated~~of ~~financial~~these matters could materially affect the Company’s future results of ~~statements~~operations and cash flows.

13In fiscal 2005, the Company and International Business Machines Corporation (IBM) entered into an OEM Software Agreement that was modified in the second quarter of fiscal 2006, and a Master Relationship Agreement (MRA). Under these agreements, the Company is reselling its business applications in conjunction with IBM’s open standards-based software, and the companies will jointly market these software solutions. The MRA governs the joint marketing activities and has a three-year term. During the term of the modified OEM Software Agreement, the Company will pay royalties to IBM for the licensing of IBM programs to each applicable existing and new customer of the Company, and will also pay IBM annual maintenance fees for each applicable customer. The royalty and maintenance payments to IBM will be based on transactions with each applicable Lawson customer. The modified OEM Software Agreement has an initial term of three years commencing September 2005 and may be extended by the Company for two additional one-year terms. During the initial three-year term, the Company has agreed to pay certain minimum quarterly and annual royalties to IBM. Total commitments under the modified OEM Software Agreement approximate $9.5 million over the three-year term. The Company may elect to

Revenue Recognition. Revenue recognition rules for software companies are very complex. We follow specific and detailed guidelines in determining the proper amount of revenue to be recorded; however, certain judgments affect the application of our revenue recognition policy. Revenue results are difficult to predict, and any shortfall in revenue or delay in recognizing revenue could cause our operating results to vary significantly from quarter to quarter.12

~~The~~terminate ~~significant~~the ~~judgments~~OEM Software Agreement for convenience ~~revenue~~upon 90 days advance notice to IBM. ~~recognition~~If ~~typically~~the ~~involve~~Company ~~whether~~elects ~~collectibility~~early ~~can~~termination beat ~~considered~~any ~~probable~~time during the initial ~~and~~three-year ~~whether~~term, ~~fees~~the ~~are~~Company ~~fixed~~would orpay ~~determinable.~~IBM Inany ~~addition,~~unpaid ~~our~~minimum ~~transactions~~royalties ~~often~~through ~~consist~~the date of ~~multiple~~termination ~~element~~plus ~~arrangements,~~a ~~which~~prorated ~~must~~share beof ~~analyzed~~the toguaranteed ~~determine~~annual minimum payment due for the ~~relative~~year ~~fair~~in ~~value~~which the termination occurred. The Company has made cash payments of ~~each~~$1.7 million ~~element,~~according to the ~~amount~~terms of ~~revenue~~the tomodified beOEM ~~recognized~~Software Agreement during ~~upon~~the ~~shipment~~six months ended November 30, if2005. ~~any~~In addition, ~~and~~the Company recorded $0.2 million as other accrued liabilities on the ~~period~~November 30, ~~and~~2005 Condensed ~~conditions~~Consolidated ~~under~~Balance ~~which~~Sheet, ~~deferred~~representing the prorated portion of the ~~revenue~~$0.6 ~~should~~million beannual ~~recognized~~minimum owed in the initial year of the contract.

WeOn ~~recognize revenues in accordance~~May 9, 2005, ~~with~~ the ~~provisions~~Company ofand ~~the~~The ~~American~~Hackett ~~Institute~~Group, Inc., ofa ~~Certified~~wholly-owned ~~Public~~subsidiary ~~Accountants~~of ~~(AICPA)~~Answerthink ~~Statement~~Inc. ~~of Position~~ (~~SOP~~“Hackett”) ~~97-2~~, ~~“Software~~entered ~~Revenue~~into ~~Recognition”,~~an ~~as amended~~Advisory byAlliance ~~SOP~~Agreement ~~98-4,~~(the “~~Deferral~~Agreement”). The ofAgreement ~~the~~identifies ~~Effective~~joint ~~Date~~programs ofin awhich Hackett ~~Provision~~will ofprovide ~~SOP~~the ~~97-2,~~Company ~~Software~~and ~~Revenue~~its ~~Recognition”~~customers and ~~SOP~~prospects ~~98-9~~with, ~~“Modification~~among ofother ~~SOP 97-2~~things, access ~~Software~~to Hackett ~~Revenue~~benchmark ~~Recognition~~tools, ~~With~~best-practices ~~Respect~~research toand ~~Certain~~business ~~Transactions”, as well as~~advisory ~~Technical~~services ~~Practice~~in ~~Aids~~exchange ~~issued~~for ~~from~~the ~~time~~payment toof ~~time~~specified byprogram ~~the~~fees. ~~AICPA,~~The ~~and~~term inof the ~~accordance~~Agreement ~~with~~commenced ~~the~~on ~~Securities~~May 9, 2005, and ~~Exchange~~continues ~~Commission~~until ~~Staff Accounting Bulletin (SAB) No.~~May ~~104~~31, 2008, unless ~~“Revenue~~terminated ~~Recognition”.~~earlier Wein ~~license~~accordance ~~software~~with ~~under non-cancelable~~the ~~license~~provisions ~~agreements~~of ~~and~~the ~~provide~~Agreement. The ~~related~~Company ~~professional~~and ~~services, including~~Hackett ~~consulting,~~have ~~training,~~the ~~and~~option ~~implementation~~to ~~services,~~extend asthe ~~well~~terms asof ~~ongoing~~the programs ~~client~~upon ~~support.~~mutual ~~Consulting~~written agreement, ~~training~~ and ~~implementation~~Hackett ~~services~~has ~~are~~agreed ~~generally~~to provide certain ~~not~~exclusivity ~~essential~~rights to the ~~functionality~~Company ofin ~~our~~connection ~~software~~with ~~products,~~certain ~~are~~of ~~sold~~its programs. ~~separately~~Under ~~and~~the ~~also~~Agreement, ~~are~~the ~~available~~Company ~~from~~paid a$1.1 ~~number~~million ofin ~~third-party~~the ~~service~~six ~~providers.~~months ended November 30, ~~Accordingly~~2005, ~~revenues~~and ~~from~~is ~~these~~contractually ~~services~~committed ~~are~~to ~~generally~~pay ~~recorded~~an ~~separately from~~additional ~~license fees~~$1.0 ~~Software~~million ~~arrangements~~within the ~~which~~next ~~include~~twelve ~~fixed-fee~~months ~~service components~~that ~~are~~has ~~recognized~~been recorded as ~~the~~other ~~services~~accrued ~~are~~liabilities ~~performed~~at ~~and~~November 30, 2005. ~~the~~Approximately ~~costs~~$1.6 ~~to provide~~million ~~the~~of ~~related~~fees ~~services~~is ~~are~~being ~~expensed~~amortized ason ~~incurred.~~a ~~Software~~straight ~~arrangements~~line ~~which~~basis ~~include~~over ~~services that are essential to~~ the ~~functionality~~term of ~~our~~the ~~software products~~Agreement ~~are~~and ~~recognized~~is ~~using~~reflected ~~contract~~as ~~accounting~~sales and ~~the~~marketing ~~percentage-of-completion~~expenses ~~methodology~~and ~~based~~approximately on$0.5 ~~labor~~million ~~hours~~is ~~input.~~being ~~The~~amortized ~~amount~~over ~~of judgment~~the ~~involved~~same inperiod the ~~addressing~~revenue ~~significant~~is ~~assumptions,~~being ~~risks~~recognized and ~~uncertainties~~ inis ~~applying~~reflected ~~the~~as ~~application~~cost of ~~the~~license ~~percentage-of-completion~~fees. In ~~methodology~~addition, ~~can impact~~ the ~~amounts~~Company ofwill ~~revenue~~pay ~~and~~additional ~~related~~fees ~~expenses~~when ~~reported~~sales involumes meet ~~the~~established ~~consolidated~~criteria ~~financial~~throughout ~~statements.~~the ~~Our~~term ~~specific~~of ~~revenue~~the ~~recognition policies are as follows:~~contract.

~~• Software License~~In ~~Fees— License fee revenues from end-users are recognized when the software product has been shipped~~February 2004, ~~provided a non-cancelable license agreement has been signed, there are no uncertainties surrounding product acceptance,~~ the ~~fees~~Company ~~are fixed or determinable and~~entered ~~collection~~into ~~of the related receivable is considered probable. Provided the above criteria are met, license fee revenues from resellers are recognized when there is a sell-through by a reseller to~~ an ~~end-user.~~offshore Aagreement ~~sell-through~~with ~~is determined when we receive an order form from~~ a ~~reseller for a specific end~~third-~~user~~party ~~sale. We do not generally offer rights of return, acceptance clauses or price protection~~ to ~~our clients. In situations where we do~~ provide ~~rights~~software ~~of return or~~customer ~~acceptance~~support ~~clauses, revenue is deferred until the clause expires~~services. ~~Typically, our software license fees are due within a twelve-month period from the date of shipment.~~ If the ~~fee~~Company ~~due~~terminates ~~from~~this ~~the~~agreement ~~client~~prior isto ~~not~~its ~~fixed or determinable,~~initial ~~including~~twenty-four ~~payment~~month ~~terms greater than twelve months from shipment~~term, ~~revenue~~a ~~is recognized~~termination asfee ~~payments~~would ~~become~~be ~~due~~incurred ~~and~~equal ~~all other conditions for revenue recognition have been satisfied. In software arrangements that include rights~~ to ~~multiple software products, specified upgrades, support or services, we allocate~~ the ~~total~~sum ~~arrangement fee among each deliverable using the fair value~~ of ~~each of the deliverables determined using vendor-specific objective~~ ~~evidence. Vendor-specific objective evidence of fair value is determined using~~ the ~~price~~previous ~~charged~~six ~~when~~months ~~that~~service ~~element is sold separately. In software arrangements in which we have fair value of all undelivered elements but not of a delivered element~~charges, weestimated ~~use the residual method~~ to ~~record~~be ~~revenue~~$2. ~~Under~~0 ~~the residual method, the fair value of~~million. ~~the~~Management ~~undelivered elements~~ is ~~deferred and the remaining portion~~ of the ~~arrangement~~ ~~fee~~opinion isthat ~~allocated to~~ the ~~delivered~~agreement ~~element(s)~~will ~~and~~not isbe ~~recognized~~terminated aswithin ~~revenue. In~~the ~~software~~initial ~~arrangements in which we do not have vendor~~twenty-~~specific~~four ~~objective~~month ~~evidence~~period ofand ~~fair~~therefore ~~value~~has ~~of all undelivered elements, revenue is deferred until fair value is determined or all elements for which we do~~ not ~~have~~accrued ~~vendor-specific objective evidence of fair~~any ~~value,~~termination ~~have been delivered~~fees.

~~• Services—Revenues from training and consulting services are recognized as services are provided to clients~~10. SEGMENT ~~Revenues~~AND ~~from~~GEOGRAPHIC support contracts are deferred and recognized ratably over the term of the support agreements. Revenues for client support that are bundled with the initial license fee are deferred based on the fair value of the bundled support services and recognized ratably over the term of the agreement. Fair value is based on the renewal rate for continued support arrangements.AREAS

14The Company views its operations and manages its business as one segment, the development and marketing of computer software and related services. Factors used to identify the Company’s single operating segment include the financial information available for evaluation by the chief operating decision maker in making decisions about how to allocate resources and assess performance. The Company markets its products and services through the Company’s offices in the United States and its wholly-owned branches and subsidiaries operating in Canada, the United Kingdom, France and the Netherlands. The following table presents revenues and long-lived assets summarized by geographic region (in thousands):

Allowance for Doubtful Accounts. We maintain an allowance for doubtful accounts at an amount we estimate to be sufficient to provide adequate protection against losses resulting from extending credit to our clients. In judging the adequacy of the allowance for doubtful accounts, we consider multiple factors including historical bad debt experience, the general economic environment, the need for specific client reserves and the aging of our receivables. This provision is included in operating expenses as a general and administrative expense. A considerable amount of judgment is required in assessing these factors. If the factors utilized in determining the allowance do not reflect future performance, then a change in the allowance for doubtful accounts would be necessary in the period such determination has been made impacting future results of operations.

	Three Months Ended November 30,						Six Months Ended November 30,
	2005				2004		2005		2004
Revenues:
Domestic operations	$			84,114	$	78,636	$	168,691	$	156,607
International operations	4,923				4,363		8,260		9,077
Consolidated	$		89,037		$	82,999	$	176,951	$	165,684

	November 30, 2005				May 31, 2005
Long-lived assets:
Domestic operations	$	68,616			$	73,925
International operations	13,674				14,995
Consolidated	$	82,290			$	88,920

Sales Returns and Allowances. Although we do not provide a contractual right of return, in the course of arriving at practical business solutions to various warranty and other claims, we have allowed sales returns and allowances. We record a provision for estimated sales returns and allowances on license and services in the same period the related revenues are recorded or when current information indicates additional amounts are required. These estimates are based on historical experience determined by analysis of specific return activity and other known factors. If the historical data we utilize does not reflect future performance, then a change in the allowances would be necessary in the period such determination has been made impacting future results of operations.13

~~Valuation~~The offollowing ~~Long-Lived~~table ~~and~~presents ~~Intangible Assets~~revenues ~~and Goodwill. We review identifiable intangible and other long-lived assets~~ for ~~impairment~~ ~~whenever~~license ~~events or changes in circumstances indicate the carrying amount may not be recoverable. Events or changes in circumstances that indicate the carrying amount may not be recoverable include~~fees, ~~but~~customer ~~are~~support not limited to, a significant decrease in the market value of the business or asset acquired, a significant adverse change in the extent or manner in which the business or asset acquired is used or a significant adverse change in the business climate. If such events or changes in circumstances are present, the first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. We operate as one reporting unit and ~~therefore~~consulting ~~compare~~services ~~our book value to market value~~ (market capitalization plus a control premium). If our market value exceeds our book value, goodwill is considered not impaired, thus the second step of the impairment test is not necessary. If our book value exceeds our market value, the second step of the goodwill impairment test shall be performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test, used to measure the amount of impairment loss, compares the implied fair value of the goodwill with the book value of the goodwill. If the carrying value of the goodwill exceeds the implied fair value of the goodwill, an impairment loss would be recognized in an amount equal to the excess. Any loss recognized cannot exceed the carrying amount of goodwill. After a goodwill impairment loss is recognized, the adjusted carrying amount of goodwill is the new accounting basis. A subsequent reversal of a previously recognized goodwill impairment loss is prohibited once the measurement of that loss is completed.thousands):

Income Taxes. Significant judgment is required in determining our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and financial reporting purposes. These differences result in deferred tax assets and liabilities, which are included within our condensed consolidated balance sheets. Although we believe our assessments are reasonable, no assurance can be given that the final tax outcome of these matters will not be different than that which is reflected in our historical income tax provisions, benefits and accruals. Such differences could have a material effect on our income tax provision and net (loss) income in the period in which such a determination is made.

	Three Months Ended November 30,					Six Months Ended November 30,
	2005			2004		2005		2004
Components of revenues:
License fees	$		18,121	$	13,195	$	36,725	$	26,446
Services:
Consulting	26,362			26,904		52,059		55,656
Customer support	44,554			42,900		88,167		83,582
Total services	70,916			69,804		140,226		139,238
Total revenues	$	89,037		$	82,999	$	176,951	$	165,684

We must assess the likelihood that our net deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance11. ~~To the extent we~~ COMMON ~~establish~~STOCK a valuation allowance; we must include an expense within the tax provision in the statement of operations. As of May 31, 2004, the condensed consolidated balance sheet includes net deferred tax assets in the amount of $27.7 million. For the year ended May 31, 2004, we recorded a valuation allowance of $1.2 million associated primarily with federal contribution carryforwards, state net operating loss carryforwards and certain federal tax credit carryforwards that are estimated to expire prior to our utilization.REPURCHASES

~~Our~~In ~~methodology~~June 2003, ~~for~~the ~~determining~~Company’s Board of Directors authorized the ~~realizability~~repurchase of ~~our~~up ~~deferred~~to ~~tax assets~~$50.0 ~~involves~~million ~~estimates~~ of ~~future~~the ~~taxable~~Company’s common ~~income~~shares. Shares were repurchased from ~~our~~time ~~core~~to ~~business~~time as market conditions warranted either through open market transactions, ~~the~~block purchases, private ~~estimated~~transactions ~~impact~~or ofother ~~future~~means. ~~stock~~During ~~option~~the ~~deductions~~six ~~from~~months ~~outstanding~~ended ~~stock~~November 30, ~~options~~2004, ~~and~~ the ~~expiration~~Company ~~dates~~completed ~~and~~the ~~amounts~~authorized ofstock ~~net~~repurchase ~~operating~~plan ~~loss~~by purchasing ~~carryforwards~~the ~~and~~remaining ~~other~~1.4 ~~tax~~million ~~credits~~shares for $10.0 ~~These~~million ~~estimates~~in ~~are~~cash. ~~projected~~Cash ~~through~~proceeds obtained from the ~~life~~ maturities of marketable securities, the ~~related~~exercise ~~deferred~~of ~~tax~~employee stock ~~assets~~options ~~based~~and oncontributions ~~assumptions~~to ~~which~~the ~~management~~employee stock purchase plan, largely ~~believes~~funded tothe beshare ~~reasonable~~repurchases. ~~and~~The ~~consistent~~repurchased ~~with~~shares, ~~current~~which ~~operating~~remain ~~results~~in treasury, will be used for general corporate purposes.

1512. STOCK WARRANT

~~Although~~On weJuly 18, ~~had~~2005, ~~cumulative~~a ~~pre-tax~~stock ~~income~~warrant ~~for financial reporting~~issued ~~purposes~~in ~~for~~fiscal 2001 ~~the~~with ~~three~~a ~~years~~five-year ~~ended May 31~~life, ~~2004,~~was weexercised ~~did~~allowing ~~not~~its ~~pay~~holder ~~any significant~~to ~~income~~purchase ~~taxes~~1.0 million ~~over~~shares ~~that~~of ~~period~~the ~~because~~Company’s ~~tax~~common ~~deductions~~stock ~~from~~at ~~the~~an exercise price of ~~stock options~~$4.64 ~~granted~~per ~~prior~~share. toThe ~~our~~warrant ~~initial~~was ~~public~~exercised ~~offering~~on ~~generated~~a ~~tax~~net ~~operating losses for the years ended May 31~~basis, ~~2004,~~resulting in ~~2003 and 2002. In assessing~~ the ~~realizability~~issuance of ~~our~~ 0.1 million ~~deferred~~shares ~~tax~~of ~~assets~~common asstock offrom ~~May 31~~treasury, ~~2004,~~which weresulted ~~considered~~in ~~evidence~~a ~~regarding our~~$0.3 million ~~ability~~reduction to ~~generate~~additional ~~sufficient future taxable income to realize our deferred tax assets. The primary evidence considered included the cumulative tax operating loss for the past three years; the cumulative pre~~paid-~~tax~~in ~~income~~capital ~~for~~during ~~financial reporting purposes for~~ the ~~past~~first ~~three~~quarter ~~years; the estimated impact~~ of ~~future tax~~fiscal ~~deductions~~2006. As ~~from the exercise~~ of ~~stock options outstanding as of May 31~~November 30, ~~2004;~~2005, ~~and~~there ~~the~~are ~~estimated~~no ~~future~~more ~~taxable~~outstanding ~~income~~stock ~~based on historical operating results~~warrants.

After giving consideration to these factors, we concluded that it was more likely than not that tax loss carryforwards and other tax credits that expire within the next ten years will not be utilized primarily due to the estimated future tax deductions from the exercise of stock options outstanding as of May 31, 200413. ~~As a result, for the year ended May 31, 2004, we~~ STOCK established a valuation allowance through the provision for income taxes of $1.2 million for certain deferred tax assets associated primarily with federal contribution carryforwards, state net operating loss carryfowards and certain federal tax credit carryfowards.COMPENSATION

AsAmendments ~~of November 30, 2004, we updated our analysis~~ to ~~reflect~~Stock ~~the necessary~~Option ~~changes in estimates and determined that no additional valuation allowance was necessary.~~Agreements

WeEffective ~~also~~on ~~concluded~~June 1, 2005, ~~that it was more likely than not that~~ the ~~net~~ ~~deferred~~Company ~~tax~~amended ~~assets of $27.5 million as of November 30, 2004 as well as~~ the ~~estimated~~ ~~future~~stock ~~tax~~options ~~deductions~~held ~~from~~by ~~the~~each ~~exercise~~ of ~~stock~~its ~~options~~non-employee ~~outstanding~~directors asto: of(1) fully ~~November~~vest ~~30,~~and ~~2004~~eliminate ~~would~~the beCompany’s ~~utilized~~call ~~prior~~right to ~~expiring in greater than ten~~purchase ~~years.~~shares ~~Based~~issued onafter ~~this~~exercise ~~conclusion,~~and we(2) allow ~~would~~those ~~require~~options ~~approximately~~to ~~$118.0~~be ~~million~~exercised inuntil ~~cumulative~~the ~~future~~earlier ~~taxable~~of ~~income~~two toyears beafter ~~generated~~resignation atas ~~various~~a ~~times~~director ~~over~~or ~~the next~~ten ~~twenty~~ years after tothe ~~realize~~date ~~the~~of ~~related~~grant. ~~net~~This ~~deferred~~change ~~tax~~resulted ~~assets~~in ofrecognizing $270.51 million asin ofcompensation ~~November~~expense ~~30,~~included ~~2004~~in asgeneral ~~well~~and asadministrative ~~the~~expenses ~~estimated~~in ~~future tax deductions from~~ the ~~exercise~~Condensed ofConsolidated ~~stock~~Statements ~~options outstanding and in-the-money as~~ of ~~November~~Operations ~~30,~~during ~~2004. Additionally, we determined that it is likely~~ the ~~net~~first ~~deferred~~quarter ~~tax assets will continue to increase for the next several years prior to utilization~~ of ~~the tax~~ ~~loss~~fiscal ~~carryforwards~~2006 ~~and~~because ~~could~~a ~~reach~~portion ~~in excess~~ of ~~$40.5 million~~these ~~if the stock~~ options ~~outstanding~~were ~~and~~ “in-the-money” asat ofthe ~~November~~time they ~~30,~~were ~~2004~~immediately ~~are exercised~~vested.

InEffective on June 1, 2005, the Company amended the ~~event~~stock options that wehave ~~adjust~~an ~~estimates~~exercise ofprice ~~future~~per ~~taxable~~share ~~income~~greater than or ~~tax~~equal ~~deductions from~~to $5.95 (the ~~exercise~~closing ofprice ~~stock~~on ~~options~~NASDAQ on June 1, 2005) and orthat ~~our~~are ~~stock~~held ~~price~~by ~~increases~~each ~~significantly~~officer who was subject to the reporting requirements ~~without~~of aSection 16 ~~corresponding~~of ~~increase~~the inSecurities ~~taxable~~Exchange ~~income~~Act of 1934, weto ~~may~~allow ~~need~~that officer to ~~establish~~exercise ~~an additional~~the ~~valuation~~options ~~allowance,~~that ~~which~~are ~~could~~unexercised ~~materially~~and ~~impact~~vested ~~our~~as ~~financial~~of that ~~position~~officer’s ~~and~~employment ~~results~~termination date until the earlier of ~~operations.~~two Weyears ~~currently~~after termination ~~expect~~of ~~the~~employment ~~second~~or ~~half~~ten years after the date of ~~fiscal~~ ~~2005~~grant. Stock options previously granted to beany ~~profitable;~~Section 16 reporting ~~however~~person ifwith itan exercise price per share of less than $5.95 were not, amended. weThis ~~would~~stock-based ~~likely~~compensation ~~be required~~change resulted in no impact to ~~fully~~the Condensed ~~reserve~~Consolidated ~~our~~Statements ~~deferred~~of ~~tax~~Operations ~~assets~~in the first quarter of fiscal 2006.

~~Contingencies. We are~~Restricted ~~subject~~Stock ~~to the possibility of various loss contingencies in the normal course of business. We accrue for loss contingencies when a loss is estimatable and probable.~~Award

~~Informal~~On June 2, 2005, the Company granted a ~~Securities~~restricted stock award of 100,000 shares of common stock to its newly appointed president and ~~Exchange~~chief ~~Commission~~executive ~~Investigation~~officer. The shares, with a $0.5 million market value at date of grant, shall vest in two 50,000 share increments on June 1, 2006 and 2007, subject to acceleration upon certain events. The market value of the restricted stock was recorded as unearned compensation, a component of shareholders’ equity, and is being amortized over the respective vesting periods. For the three and six months ended November 30, 2005 amortization of the unearned compensation related to restricted stock was $0.1 million and $0.2 million, respectively.

On January 5, 2005 we announced that the Securities and Exchange Commission (SEC) is conducting an informal investigation concerning our revenue recognition practices. We are fully cooperating with the SEC. In response to a telephone call from the SEC seeking information from us, our Audit Committee retained independent legal counsel, which retained an independent accounting firm, to investigate thoroughly the issues identified by the SEC. The Audit Committee’s investigation was recently completed. Following the Audit Committee's investigation, we concluded that our financial statements can continue to be relied upon and need not be restated. The Audit Committee will share the results of its independent investigation with the SEC, and we will continue to provide information to the SEC as the process proceeds. The SEC has not concluded its informal investigation, and it is not bound by the results of our independent investigation.14

WeStock ~~have incurred~~Compensation approximately $2.2 million in fees and expenses for this independent investigation, of which approximately $0.6 million was incurred during the second quarter fiscal 2005. If the SEC initiates a formal investigation or initiates other actions we would incur additional fees and expenses and may incur other associated costs or liabilities.Charge

16During the first quarter of fiscal 2006, the Company recorded a $6.3 million non-cash charge resulting from a negotiated separation agreement with its former president and chief executive officer, which among other terms provided that he remain available to the Company in a part-time employment status for a period of up to two years. That agreement was deemed to be a modification of previously granted options, resulting in a non-cash charge for option expense. The charge is included in general and administrative expenses in the Condensed Consolidated Statements of Operations for the six months ended November 30, 2005.

~~Results of Operations~~14. INCOME TAXES

The ~~following~~quarterly ~~table~~tax ~~sets~~expense ~~forth~~is ~~certain~~measured using an ~~line~~estimated ~~items~~annual tax rate for the period. At November 30, 2005, the Company’s estimated annual tax rate was 39.7%. The Company’s effective tax rate was 39.2% and 40.2% for the three months ended November 30, 2005 and 2004, respectively. The Company’s overall effective tax rate was 29.1% and 39.9% for the six months ended November 30, 2005 and 2004, respectively. The decrease in ~~our~~the ~~condensed~~effective ~~consolidated~~tax ~~statements~~rate offor ~~operations~~the six months ended November 30, 2005 as acompared to the same prior year period was primarily the ~~percentage~~result of ~~total~~the ~~revenues~~Company ~~for~~releasing $1.6 million of tax reserves in the ~~periods~~first quarter ~~indicated:~~of fiscal 2006.

	Three Months Ended November 30,				Six Months Ended November 30,
	2004		2003		2004		2003
Revenues:
License fees	15.9	%	20.5	%	16.0	%	23.2	%
Services	84.1		79.5		84.0		76.8
Total revenues	100.0		100.0		100.0		100.0
Cost of revenues:
Cost of license fees	3.5		4.8		3.2		4.7
Cost of services	44.6		40.0		44.4		38.2
Total cost of revenues	48.1		44.8		47.6		42.9
Gross margin	51.9		55.2		52.4		57.1
Operating expenses:
Research and development	18.9		18.1		18.9		17.5
Sales and marketing	23.6		25.5		24.4		25.9
General and administrative	9.5		12.0		9.8		11.2
Restructuring	6.6		2.6		3.3		1.3
Amortization of acquired intangibles	0.5		0.4		0.4		0.3
Total operating expenses	59.1		58.6		56.8		56.2
Operating (loss) income	(7.2	)	(3.4	)	(4.4	)	0.9
Other income	1.1		0.9		0.9		0.9
(Loss) income before income taxes	(6.1	)	(2.5	)	(3.5	)	1.8
(Benefit) provision for income taxes	(2.5	)	(1.0	)	(1.4	)	0.7
Net (loss) income	(3.6	)%	(1.5	)%	(2.1	)%	1.1	%

The Company reviews its annual tax rate on a quarterly basis and makes any necessary changes. The estimated annual tax rate may fluctuate due to changes in forecasted annual operating income; positive or negative changes to the valuation allowance for net deferred tax assets; changes to actual or forecasted permanent book to tax differences; impacts from future tax settlements with state, federal or foreign tax authorities; or impacts from enacted tax law changes. The Company identifies items which are unusual and non-recurring in nature, and treats these as discrete events. The tax effect of discreet items is booked entirely in the quarter in which the discrete event occurs.

~~Three~~ITEM ~~Months~~2. ~~Ended~~MANAGEMENT’S ~~November~~DISCUSSION ~~30,~~AND ~~2004~~ANALYSIS ~~Compared~~OF ToFINANCIAL ~~Three~~CONDITION ~~Months Ended~~AND ~~November~~RESULTS ~~30,~~OF ~~2003~~OPERATIONS

~~Revenues~~Forward-Looking Statements

~~Total~~In ~~Revenues. We~~addition to historical information, ~~license~~this ~~software~~Form 10-Q ~~under~~contains ~~non~~forward-~~cancelable~~looking ~~license~~statements. ~~agreements~~These ~~and~~forward-looking statements ~~provide~~are ~~related~~made in reliance upon the safe harbor provisions of the Private ~~professional~~Securities ~~services~~Litigation ~~including~~Reform ~~consulting~~Act of 1995. The words “believe,” ~~training~~“expect,” ~~and~~“anticipate,” ~~implementation~~“intend,” “estimate,” “forecast,” ~~services~~“project,” as“should” ~~well~~and assimilar ~~ongoing~~expressions ~~client~~are ~~support.~~intended ~~Total~~to ~~revenues~~identify ~~decreased~~“forward-looking statements” towithin the meaning of the Private Securities Litigation Reform Act ~~$83~~of 1995.~~0 million~~ ~~for~~Forward-looking statements include, among others, statements about our future performance, the ~~three~~continuation ~~months~~of ~~ended~~historical ~~November~~trends, 30the sufficiency of our sources of capital for future needs, ~~2004~~the ~~from~~effects of acquisitions and the ~~$84~~expected impact of recently issued accounting pronouncements.~~3 million~~ ~~for~~These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking ~~three~~statements. ~~months~~Factors ~~ended~~that ~~November~~might 30cause such a difference include, but ~~2003~~are not limited to, ~~representing~~those adiscussed in the section entitled “Management’s ~~decrease~~Discussion and Analysis of ~~1.5%.~~Financial ~~The~~Condition ~~$1.3~~and ~~million~~Results ~~decline~~of Operations—Factors inThat ~~total~~May Affect ~~revenue~~Our ~~was~~Future ~~attributed~~Results or the Market Price of Our Stock.” Readers are cautioned not to aplace undue reliance on these $4forward-looking statements, which reflect management’s opinions only as of the date hereof.1 ~~million~~We ~~decline~~undertake inno ~~license~~obligation ~~fees~~to ~~that~~revise ~~was~~or ~~partially~~publicly ~~offset~~release bythe results aof $2any revision to these forward-looking statements based on circumstances or events, which occur in the future.8 Readers should carefully ~~million~~review ~~increase~~the risk factors described in ~~services~~this report on Form 10-Q and in other documents we file from time to time with the Securities and Exchange Commission (SEC).

17Business Overview

~~License~~We ~~Fees. Revenues~~provide ~~from~~business ~~license~~application software, ~~fees~~services ~~decreased~~and tosupport ~~$13.2~~that ~~million~~help ~~for~~organizations ~~the~~manage, ~~three~~analyze ~~months~~and ~~ended~~improve ~~November 30, 2004~~their ~~from $17~~businesses.~~3 million~~ ~~for~~The ~~the~~markets ~~three~~we ~~months~~serve ~~ended~~include ~~November 30~~healthcare, ~~2003~~retail, financial services ~~representing~~(including abanking, ~~decrease~~insurance ofand ~~23.8%. The $4.1~~other ~~million~~financial ~~decline~~services), inlocal/state government, ~~license~~education ~~fees~~and ~~was~~professional ~~primarily~~services. ~~due~~We toderive ~~our~~revenues ~~lower~~from licensing business ~~activity~~ ~~and~~application ~~longer~~software ~~customer~~and ~~decision~~providing ~~cycles.~~ comprehensive ~~This~~professional ~~was~~services, aincluding ~~result~~consulting, oftraining ~~issues~~and ~~impacting~~implementation services, usas ~~relating~~well toas ~~the~~ongoing ~~prospect~~customer ~~of industry~~support ~~consolidation~~ and ~~priorities~~maintenance. ~~such as Sarbanes-Oxley compliance~~Consulting, bytraining ~~public~~and ~~companies~~implementation ~~reducing~~services ~~capital~~are ~~spending~~generally onnot ~~software. The~~essential ~~average~~to ~~overall~~the functionality ~~selling price~~ of our ~~licensing~~ ~~transactions~~software ~~for~~products, ~~the~~are ~~three~~sold ~~months~~separately ~~ended~~and ~~November~~also ~~30,~~are ~~2004, decreased~~available ~~8.7%~~from ~~while~~a ~~the~~ number of ~~licensing~~third-party ~~transactions~~service ~~decreased 8~~providers.1% asAccordingly, ~~compared~~revenues tofrom ~~the~~these ~~same~~services ~~three~~are ~~month~~generally ~~period~~recorded ofseparately ~~fiscal 2004. Revenues~~ from license fees. asWe ~~a percentage of total revenues, for the~~have ~~three~~offices ~~months~~and ~~ended~~affiliates ~~November~~serving ~~30,~~North ~~2004~~ and ~~2003~~South ~~were~~America, ~~15.9%~~Europe, ~~and~~Asia, ~~20.5%~~Africa, ~~respectively~~and Australia.

Services. Revenues from services increased to $69.8 million for the three months ended November 30, 2004 from $67.0 million for the three months ended November 30, 2003, representing an increase of 4.3%. The $2.8 million increase in services was due to a $4.5 million increase in support revenue that was partially offset by a $1.7 million decrease in consulting revenue. The $4.5 million increase in support revenue was primarily due to a $2.9 million increase in revenue earned on support contracts purchased in April 2004. The $1.6 million decrease in consulting revenue is consistent with lower business activity in product sales that directly impacts consulting revenue. Services, as a percentage of total revenues, for the three months ended November 30, 2004 and 2003 were 84.1% and 79.5%, respectively.15

~~Cost~~5. ofPENDING BUSINESS ~~Revenues~~COMBINATION

~~Cost~~On ofJune ~~License Fees. Cost~~2, of2005, ~~license~~we ~~fees~~entered ~~includes~~into ~~royalties~~an agreement to ~~third~~combine ~~parties~~with Stockholm, ~~amortization~~Sweden-based Intentia ofInternational ~~acquired software~~AB ~~and~~(“Intentia”) ~~software~~in ~~delivery~~all-stock ~~expenses~~transaction. ~~Our~~We ~~software~~plan ~~solutions~~to effect ~~may~~our ~~include embedded~~business ~~components~~combination ofthrough ~~third-party~~a ~~vendors,~~recommended public offer in Sweden (the “Offer”) for ~~which~~(i) aall ~~fee~~outstanding isIntentia ~~paid~~Series toA ~~the~~and Series B shares and ~~vendor~~(ii) ~~upon~~all ~~sale~~outstanding warrants to purchase Series B shares, in exchange for shares of our ~~products~~common stock. InUnder ~~addition~~the Offer, we ~~resell~~would ~~third-party~~issue ~~products~~approximately 81 inmillion ~~conjunction~~shares of our common stock, with an aggregate transaction value of approximately $460 million, based on the ~~license~~average closing price of our ~~software~~common stock ~~solutions~~beginning two days before and ending two days after the June 2, 2005 announcement date. The ~~cost~~transaction ofvalue ~~license~~has been adjusted from approximately ~~fees~~$464 ismillion ~~higher~~as ~~when~~previously wereported ~~resell~~due ~~products~~to ofa ~~third-party~~revision ~~vendors~~to the estimated transaction costs used in valuing this transaction. AsThe arevision, ~~result~~however, does ~~gross~~not ~~profits~~have ~~vary~~any ~~depending~~impact on the ~~proportion~~exchange ratios of ~~third-party~~the ~~product~~Exchange ~~sales~~Offer. The Offer is expected to result in our stockholders owning approximately $56.75 percent, and Intentia’s stockholders owning approximately 43.25 percent, based on our capital ~~revenue~~stock ~~mix~~and Series A and Series B Intentia capital stock, calculated on a fully-diluted basis using the treasury method.

~~Cost~~The oftransaction ~~license~~is ~~fees~~expected ~~decreased~~ to ~~$2.9 million~~ ~~for~~qualify ~~the~~as ~~three~~a tax-free ~~months~~exchange ~~ended~~for ~~November~~both ~~30,~~parties ~~2004~~within ~~from $4.0 million for~~ the ~~three~~meaning ~~months~~of ~~ended~~Section ~~November~~351 ~~30, 2003, representing a decrease~~ of ~~27.2%. The $1.1 million~~the ~~decrease~~United ~~was~~States ~~primarily~~Internal ~~due~~Revenue ~~to a 23~~Code.8% ~~decline~~We inintend ~~license~~to ~~fees~~account asfor ~~well~~the ~~as a~~transaction ~~decline~~under in the ~~proportion~~purchase method of ~~third-party~~accounting ~~product~~and ~~sales~~accordingly, inthe ~~our~~assets ~~revenue mix. Cost~~and ofliabilities ~~license~~acquired ~~fees~~will asbe arecorded ~~percentage~~at oftheir ~~total~~estimated ~~revenues~~fair ~~for~~values at the effective ~~three~~date ~~months~~of ~~ended November~~the ~~30,~~acquisition ~~2004~~ and ~~2003~~the ~~were~~results ~~3.5%~~of ~~and~~the ~~4.8%,~~operations ~~respectively.~~will ~~Gross margin on~~be ~~revenue~~included ~~from~~in ~~license~~the ~~fees~~Consolidated ~~was~~Statements ~~78.0%~~of ~~and~~Operations ~~77.0%~~effective ~~for~~with the ~~three months ended~~ ~~November~~acquisition ~~30, 2004 and 2003, respectively~~date.

~~Cost of~~On ~~Services. Cost of services includes the salaries~~November 21, ~~employee~~2005 ~~benefits~~we ~~and~~announced ~~related~~that ~~travel~~we ~~and overhead~~had ~~costs~~made ~~for~~our ~~providing~~initial ~~consulting,~~filing ~~training,~~of ~~implementation and support~~a ~~services~~proxy tostatement ~~customers~~and asprospectus ~~well~~ as ~~intangible~~part ~~asset~~of ~~amortization~~a ~~on support contracts purchased in April~~Form ~~2004.~~S-4 ~~Cost of services increased to~~registration ~~$37.0 million~~statement, ~~for~~with the ~~three~~SEC ~~months~~under ~~ended November 30, 2004 from $33.7 million for~~ the ~~three~~name ~~months~~Lawson ~~ended November 30~~Holdings, ~~2003, representing an increase of 9~~ Inc.~~8%. The~~ ~~$3.3 million~~The ~~increase~~registration instatement ~~cost~~provides ~~of services was primarily due to a $1.6 million increase in employee related costs, with annual salary increases being~~ the ~~largest~~details ~~single contributing factor; a $1.3 million increase in third-party consulting costs resulting from a higher proportion~~ of ~~third-party~~the ~~services~~previously inannounced ~~our revenue mix; a~~offer ~~$1.0~~for ~~million~~the ~~increase~~shares ~~in amortization related to support contracts purchased in April 2004;~~ and awarrants ~~$0.2 million increase~~ in ~~third~~Intentia ~~party~~International ~~maintenance costs~~AB. ~~These increases~~The ~~were~~S-4 ~~partially~~also ~~offset by a $0.2 million decrease due to general cost~~contains ~~containment activities;~~ a ~~$0.2~~proxy ~~million~~statement ~~decrease~~that inwill ~~our~~be ~~sales~~used ~~reward~~to ~~program; and~~solicit acertain ~~$0.4~~actions ~~million~~by ~~decrease in other costs~~Lawson shareholders, ~~primarily~~including ~~related~~approval ~~to travel. Cost~~ of ~~services as a percentage of total revenues for~~ the ~~three~~merger ~~months~~agreement ~~ended November 30, 2004~~ and ~~2003~~issuance ~~were~~of ~~44.6% and~~new 40shares.~~0%,~~ ~~respectively. Gross~~The ~~margin~~registration ~~on services~~statement ~~revenues~~has ~~were~~not ~~46.9%~~yet ~~and~~become 49effective.~~6% for the three months ended November 30, 2004 and 2003, respectively.~~

~~Operating~~Critical ~~Expenses~~Accounting Policies and Estimates

~~Research~~Our discussion and ~~Development. Research~~analysis ~~and~~of ~~development~~financial ~~expenses~~condition ~~consist~~and ~~primarily~~results of ~~salaries,~~operations ~~employee~~are ~~benefits,~~based ~~related~~upon our unaudited ~~overhead~~condensed ~~costs~~consolidated ~~and~~financial ~~consulting~~statements, ~~fees~~which ~~relating~~have tobeen ~~product~~prepared ~~development,~~in ~~enhancements,~~accordance ~~upgrades,~~with ~~testing,~~accounting ~~quality~~principles ~~assurance~~generally ~~and~~accepted ~~documentation. Research~~in ~~and~~the ~~development~~United ~~expenses increased~~States. toThe ~~$15.7~~preparation ~~million~~of ~~for~~these ~~the~~financial ~~three~~statements ~~months~~requires ~~ended~~us ~~November~~to ~~30,~~make ~~2004~~estimates ~~from~~and ~~$15.3 million~~assumptions ~~for~~that affect the ~~three~~reported ~~months~~amounts ~~ended~~of ~~November~~assets ~~30,~~and ~~2003,~~liabilities ~~representing~~at the andate ~~increase~~ of ~~2.6%. The~~the ~~$0.4~~financial ~~million increase~~statements, inthe ~~research~~reported ~~and~~amounts ~~development~~of ~~was~~revenues ~~primarily~~and ~~due~~expenses during tothe areporting ~~$1.1~~period, ~~million increase~~and inrelated ~~spending~~disclosures onof ~~corporate~~contingent ~~initiatives,~~assets ~~including $0~~and liabilities.6 ~~million~~The ~~related~~ Notes to the ~~third-party~~Condensed ~~offshore~~Consolidated ~~software~~Financial ~~support~~Statements contained ~~services~~herein ~~agreement~~describe weour ~~entered~~significant ~~into~~ accounting polices used in ~~February 2004;~~the preparation ~~and~~of athe ~~$0.2~~consolidated ~~million~~financial ~~increase~~statements. inOn ~~other~~an ~~costs~~on-going ~~including~~basis, we ~~annual~~evaluate ~~salary~~our ~~increases. These~~estimates, ~~increases were~~including, ~~partially~~but ~~offset~~not bylimited ato, ~~$0.5~~those ~~million~~related ~~decrease~~to inbad debt, ~~incentive~~intangible ~~compensation;~~assets and a $0contingencies.4 ~~million~~We ~~reduction~~base inour ~~costs~~estimates ason ahistorical experience ~~result~~and ofon ~~favorable~~various ~~impacts~~other ~~from restructuring~~assumptions ~~activities.~~that ~~Research~~we ~~and~~believe ~~development~~to ~~expenses~~be asreasonable under athe ~~percentage~~circumstances, the results of ~~total~~ ~~revenues~~which ~~for~~form the ~~three~~basis ~~months~~for ~~ended~~making judgments ~~November~~about ~~30,~~the ~~2004~~carrying values of assets and ~~2003~~liabilities ~~were~~that ~~18.9%~~are not ~~and~~readily 18apparent from other sources.~~1%,~~ ~~respectively~~Actual results could differ from these estimates.

18We believe the critical accounting polices listed below reflect our more significant judgments, estimates and assumptions used in the preparation of our condensed consolidated financial statements.

~~Sales~~Revenue ~~and Marketing~~Recognition. ~~Sales~~ Revenue recognition rules for software ~~and~~businesses ~~marketing~~are ~~expenses~~very ~~consist~~complex. ~~primarily~~We offollow ~~salaries~~specific and ~~incentive compensation,~~detailed ~~employee~~guidelines ~~benefits,~~in determining ~~travel~~the ~~and~~proper ~~overhead~~amount ~~costs~~of ~~related~~revenue to ~~our~~be ~~sales and~~recorded; ~~marketing personnel~~however, ascertain judgments ~~well~~affect asthe ~~trade~~application ~~show~~of ~~activities~~our ~~and~~revenue ~~advertising costs~~recognition policy. ~~Sales~~ ~~and~~Revenue results ~~marketing~~are ~~expenses decreased~~difficult to ~~$19.6~~predict, ~~million~~and ~~for~~any ~~the~~shortfall ~~three~~in ~~months~~revenue ~~ended~~or ~~November~~delay ~~30, 2004 from~~in ~~$21.5 million~~recognizing ~~for~~revenue ~~the~~could ~~three~~cause ~~months~~our ~~ended~~operating ~~November~~results ~~30,~~to ~~2003,~~vary ~~representing a~~significantly ~~decrease~~from ofquarter 8to quarter.~~9%.~~

The ~~$1.9~~significant ~~million~~judgments ~~decrease~~for ~~in sales and~~revenue ~~marketing~~recognition ~~expenses~~typically ~~was~~involve ~~primarily~~whether ~~due~~collectibility tocan abe ~~$1.1~~considered ~~million favorable impact from~~probable ~~general~~and ~~cost~~whether ~~containment~~fees ~~activities;~~are afixed $0or determinable.7 ~~million~~In ~~decrease~~addition, inour ~~incentive~~transactions often ~~compensation;~~consist ~~and~~of amultiple ~~$0.7~~element ~~million~~arrangements, ~~decrease~~which intypically ~~employee~~include ~~related~~license ~~costs driven~~fees, ~~primarily~~customer bysupport afees ~~reduction in headcount~~ and ~~the~~professional ~~favorable~~service ~~impacts from restructuring activities~~fees. These ~~decreases~~ ~~were~~multiple ~~partially~~element ~~offset~~arrangements bymust abe analyzed ~~$0.9~~to ~~million~~determine ~~increase~~the inrelative ~~costs~~fair ~~associated with~~value ~~marketing~~of ~~initiatives,~~each ~~including event spending~~element, ~~public~~the ~~relations~~amount ~~costs~~of ~~and~~revenue ~~industry~~to ~~analyst~~be ~~relations~~recognized ~~costs. Sales~~upon ~~and~~shipment, ~~marketing~~if ~~expenses~~any, asand athe ~~percentage~~period ofand ~~total revenues for the~~conditions ~~three~~under ~~months~~which ~~ended November~~deferred ~~30,~~revenue ~~2004~~should ~~and~~be ~~2003 were 23~~recognized.~~6% and 25.5%, respectively.~~

~~General~~We ~~and~~recognize ~~Administrative. General~~revenues ~~and~~in accordance ~~administrative~~with ~~expenses~~the ~~consist~~provisions ~~primarily~~of the American Institute of ~~salaries~~Certified Public Accountants (AICPA) Statement of Position (SOP) 97-2, ~~employee~~“Software ~~benefits~~Revenue ~~and~~Recognition,” as ~~related~~amended ~~overhead~~and ~~costs~~SOP ~~for~~98-9, ~~administrative~~“Modification ~~employees~~of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions,” as well as ~~legal~~Technical ~~and~~Practice Aids ~~accounting~~issued ~~expenses,~~from ~~consulting~~time ~~fees~~to time by the AICPA, ~~bad~~and ~~debt~~in ~~expense~~accordance with the Securities and ~~corporate~~Exchange ~~insurance~~Commission Staff Accounting Bulletin (SAB) No. 104, “Revenue ~~policies~~Recognition”. We license software under non-cancelable license agreements and provide related professional services, including ~~property~~consulting, training, and implementation ~~casualty~~services, ~~general~~as ~~liability~~well as ongoing customer support and ~~other insurance~~maintenance. ~~General~~ Consulting, training and ~~administrative expenses~~implementation ~~decreased~~services toare ~~$7.9 million~~generally ~~for~~not essential to the ~~three~~functionality ~~months~~of ~~ended~~our ~~November~~software 30products, are sold separately and also are ~~2004~~available from ~~$10~~a number of third-party service providers.~~1 million~~ ~~for~~Accordingly, revenues from these services are generally recorded separately from license fees and recognized as the ~~three~~services ~~months~~are ~~ended~~performed. ~~November~~Software ~~30,~~arrangements ~~2003,~~which include ~~representing~~certain afixed-fee ~~decrease~~service ofcomponents 21are recognized as the services are performed while corresponding costs to provide these services are expensed as incurred.~~6%.~~ Software arrangements including services that are essential to the functionality of our software products are recognized using contract accounting and the percentage-of-completion methodology based on labor hours

The $2.2 million decrease in general and administrative expenses was primarily due to $1.8 million decrease in legal related costs; an $0.8 million decline in bad debt expense reflecting a general decrease in accounts receivable; and a $0.5 million reduction in incentive compensation. The decreases were partially offset by a $0.6 million increase in fees and expenses related to the SEC's informal investigation: a $0.3 million increase in costs related to corporate initiatives designed to increase efficiencies; and a $0.3 million increase in costs associated with Sarbanes-Oxley compliance initiatives. General and administrative expenses as a percentage of total revenues for the three months ended November 30, 2004 and 2003 were 9.5% and 12.0%, respectively.16

~~Restructuring~~input. On ~~September~~The ~~30,~~amount ~~2004~~of judgment involved in addressing significant assumptions, werisks and ~~announced~~uncertainties ~~our~~in ~~intent~~applying tothe ~~enact~~application ~~corporate~~of ~~restructure~~the percentage-of-completion ~~initiatives.~~methodology Wecan ~~have~~impact ~~approved~~the ~~two~~amounts ~~separate~~of ~~restructure~~revenue ~~plans.~~and ~~Both~~related ~~were~~expenses reported in ~~designed~~the toconsolidated ~~enhance~~financial ~~operating~~statements. ~~effectiveness~~Our ~~and~~specific ~~profitability.~~revenue recognition policies are as follows:

~~The~~• Software License ~~plan~~Fees— ~~announced~~License onfee revenues from ~~September~~end-users ~~30,~~are ~~2004~~recognized ~~(Phase~~when Ithe software product has been shipped, provided a non-cancelable ~~restructuring)~~license agreement has been signed, ~~included~~there ~~initiatives~~are tono uncertainties ~~streamline~~surrounding ~~structure~~product acceptance, ~~consolidate~~the ~~leadership~~fees are fixed or determinable and collection ~~reduce~~of ~~long~~the related receivable is considered probable. Provided the above criteria are met, license fee revenues from resellers are recognized when there is a sell-~~term~~through ~~costs~~by a reseller to an end-user. A sell-through is determined ~~realign~~when ~~projected~~we ~~expenses~~receive ~~with~~an ~~anticipated~~order ~~levels.~~form Itfrom ~~included~~a reseller for a ~~reduction~~specific end-user sale. We do not generally offer rights of return, acceptance clauses or price protection ~~approximately~~to ~~100~~our ~~employees~~customers. inIn ~~the~~situations ~~United~~where ~~States~~we ~~and~~do ~~the~~provide ~~United~~rights ~~Kingdom~~of return or acceptance clauses, ~~and~~revenue is deferred until the clause expires. Typically, ~~resulted~~our insoftware license fees are due within a ~~charge~~twelve-month ofperiod ~~approximately~~from $3the date of shipment.0 ~~million~~If ~~for~~the ~~severance~~fee due from the customer is not fixed or determinable, including payment terms greater than twelve months from shipment, revenue is recognized as payments become due and ~~related~~all other conditions for revenue ~~benefits~~recognition inhave ~~the~~been ~~second~~satisfied. ~~quarter~~In ~~ended~~software ~~November~~arrangements 30that include rights to multiple software products, ~~2004~~specified upgrades, support or services, we allocate the total arrangement fee among each deliverable using the fair value of each of the deliverables determined using vendor-specific objective evidence. ~~The~~Vendor-specific ~~reduction~~objective ~~included~~evidence of fair value is determined using ~~employees~~the ~~who~~price ~~work~~charged when that element is sold separately. In software arrangements in ~~operations,~~which ~~marketing~~we have fair value of all undelivered elements but not of a delivered element, ~~sales~~we use the residual method to record revenue. Under the residual method, ~~research~~the fair value of the undelivered elements is deferred and ~~development,~~the remaining portion of the ~~support~~arrangement fee is allocated to the delivered element(s) and ~~services~~is recognized as revenue. In ~~All~~software ~~terminations~~arrangements ~~and~~in which ~~related~~we ~~cash~~do ~~payments~~not have ~~been primarily~~vendor-specific ~~completed~~objective asevidence of ~~November~~fair 30value of all undelivered elements, ~~2004.~~revenue ~~The~~is ~~remaining~~deferred ~~payments~~until ~~are~~fair value is determined or all ~~expected~~elements tofor bewhich ~~completed~~we ~~during~~do ~~fiscal~~not ~~2005~~have vendor-specific objective evidence of fair value, have been delivered.

At• Services—Revenues ~~November~~from ~~30,~~training ~~2004, we~~and ~~also~~consulting ~~accrued~~services ~~for~~are arecognized ~~plan~~as ~~(Phase~~services IIare -provided ~~restructuring) that includes initiatives~~ to ~~further~~ ~~reduce costs and realign projected expenses with anticipated revenue levels~~customers. Revenues Itfrom ~~includes~~support acontracts ~~reduction~~are ofdeferred ~~approximately~~and 75recognized ~~employees~~ratably inover the ~~United~~ ~~States~~term ~~and~~of the ~~United~~support ~~Kingdom~~agreements. ~~Because~~Revenues wefor ~~were~~customer ~~able~~support tothat ~~determine~~are ~~probability at~~bundled with the ~~end~~initial oflicense ~~the~~fee ~~quarter,~~are ~~the~~deferred ~~restructuring~~based ~~resulted~~on inthe afair ~~charge~~value of ~~approximately~~the ~~$2.5~~bundled ~~million~~support ~~for~~services ~~severence~~ and ~~related~~recognized ~~benefits.~~ratably ~~The~~over ~~reduction~~the ~~includes employees~~term ~~who~~of ~~work~~the ~~in sales, research and development and services~~agreement. ~~All~~ ~~terminations~~Fair ~~and~~value ~~related~~is ~~cash~~based ~~payments~~on ~~are~~the ~~expected~~renewal torate befor ~~completed~~continued ~~during fiscal~~support ~~2005~~arrangements.

InAllowance ~~September~~for ~~2003,~~Doubtful weAccounts. We maintain an allowance for ~~approved~~doubtful aaccounts ~~restructuring~~at ~~plan~~an amount we estimate to ~~realign~~be ~~projected~~sufficient ~~expenses~~to ~~with~~provide ~~anticipated~~adequate ~~lower~~protection ~~revenue~~against ~~levels~~losses ~~and~~resulting ~~incurred~~from ~~restructuring~~extending ~~charges~~credit ofto $2our customers.3 In ~~million~~judging the adequacy of the allowance for doubtful accounts, we consider multiple factors including ~~severence~~historical ~~and~~bad ~~related~~debt ~~benefits.~~experience, ~~The~~the ~~plan~~general ~~included~~economic environment, the ~~termination~~need for specific customer reserves and the aging of 93our receivables. This provision is ~~employees~~included in ~~various~~operating ~~functions~~expenses ~~including~~as ~~research~~a general and ~~development,~~administrative ~~general~~expense. ~~and~~A ~~administrative~~considerable ~~and~~amount ~~sales~~of ~~and~~judgment ~~marketing~~is ~~primarily~~required in ~~the~~assessing ~~United~~these ~~States,~~factors. ~~all~~If ofthe ~~which~~factors ~~were~~utilized ~~terminated~~in ~~during~~determining the ~~three~~allowance ~~months~~do ~~ended~~not ~~November~~reflect 30future performance, ~~2003.~~then ~~During~~a change in the allowance for doubtful accounts would be necessary in the ~~three~~period ~~months~~such ~~ended~~determination ~~November 30, 2003,~~has webeen made ~~cash~~impacting ~~payments to~~future ~~terminated~~results ~~employees~~of ~~totaling $2~~operations.~~0 million.~~

19Sales Returns and Allowances. Although we do not provide a contractual right of return, in the course of arriving at practical business solutions to various warranty and other claims, we have allowed sales returns and allowances. We record a provision for estimated sales returns and allowances on licenses in the same period the related revenues are recorded or when current information indicates additional amounts are required. These estimates are based on historical experience determined by analysis of specific return activity and other known factors. If the historical data we utilize does not reflect future performance, then a change in the allowances would be necessary in the period such determination has been made impacting future results of operations.

~~Cash~~Valuation ~~payments~~of Long-Lived and Intangible Assets and Goodwill. In accordance with SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets,” we review ~~2004~~identifiable ~~Phase~~intangible Iand ~~restructuring~~other ~~plans were~~long-lived assets for impairment whenever ~~$2.3~~events ~~million. The~~or ~~remaining~~changes ~~cash~~in circumstances indicate the carrying amount may not be ~~payments~~recoverable. ~~for~~Events or changes in circumstances that indicate the ~~2004~~carrying amount ~~restructuring~~may ~~plans~~not ~~(Phase~~be Irecoverable ~~and~~include, ~~II)~~but are ~~expected~~not limited to bea significant ~~completed~~decrease ~~during~~in ~~fiscal~~the ~~2005.~~market ~~Although~~value of the ~~restructuring~~business ~~plans~~or ~~for~~asset ~~fiscal~~acquired, ~~2003~~a significant ~~and~~adverse ~~2002~~change ~~have~~in ~~been~~the ~~fully~~extent ~~executed,~~or wemanner ~~continue~~in towhich ~~make~~the ~~cash~~business ~~payments~~or ~~for~~asset ~~continuing~~acquired ~~lease~~is ~~and~~used ~~employee~~or ~~related~~a ~~costs.~~significant ~~During~~adverse change in the ~~three~~business ~~months~~climate. ~~ended~~If ~~November~~such ~~30,~~events ~~2004~~or changes in circumstances are present, wethe ~~made~~undiscounted cash ~~payments~~flows ~~totaling~~method ~~approximately~~is used ~~$0.04~~to ~~million~~determine whether the long-lived asset is impaired. ~~During~~Cash flows would include the estimated terminal value of the asset and exclude any interest ~~three~~charges. ~~months~~To ~~ended~~the ~~November~~extent ~~2003,~~the wecarrying ~~made~~value of the asset exceeds the undiscounted cash ~~payments~~flows ~~totaling~~over ~~$0.1~~the ~~million. The~~estimated remaining ~~cash~~life ~~payments~~of ~~for~~the asset; the ~~fiscal~~impairment is ~~2003~~measured ~~and~~using ~~2002~~the ~~restructuring~~discounted ~~plans~~cash ~~are~~flows ~~expected~~method. toThe discount rate utilized would be ~~completed~~based ~~during~~on ~~fiscal 2006.~~management’s

Amortization of Acquired Intangibles. Amortization of acquired intangibles increased to $0.4 million for the three months ended November 30, 2004 from $0.3 million for the three months ended November 30, 2003. The $0.1 million increase in amortization expense is primarily due to increases in amortization of intangibles associated with companies acquired since the prior year period. The companies acquired include, Closedloop Solutions, Inc. acquired in September 2003 and Apexion Technologies, Inc. acquired in October 2003.17

~~Other~~best ~~Income,~~estimate ~~Net~~of the related risks and return at the time the impairment assessment is made.

In accordance with SFAS No. 142 “Goodwill and Other ~~income~~Intangible Assets” if events or changes in circumstances indicate the carrying amount may not be recoverable, ~~net~~the first step of the goodwill impairment test, ~~which~~used isto ~~primarily~~identify potential impairment, ~~comprised~~compares the fair value of ~~interest~~a ~~income~~reporting ~~earned~~unit ~~from~~with ~~cash~~its carrying amount, ~~marketable~~including goodwill. ~~securities~~We operate as one reporting unit and ~~long term~~therefore ~~investments~~compare ~~increased~~our book value to $0market value.9 ~~million~~Market ~~for~~value ~~the~~is ~~three~~determined ~~months~~utilizing ~~ended~~our ~~November~~market capitalization 30plus a control premium. If our market value exceeds our book value, ~~2004~~goodwill ~~from~~is considered $0not impaired, thus the second step of the impairment test is not necessary.8 ~~million~~If ~~for~~our book value exceeds our market value, the ~~three~~second ~~months~~step ~~ended~~of ~~November~~the goodwill 30impairment test is performed to measure the amount of impairment loss, if ~~2003~~any. The $0second step of the goodwill impairment test, used to measure the amount of impairment loss, compares the implied fair value of the goodwill with the book value of the goodwill.1 ~~million~~If ~~increase~~the incarrying ~~interest~~value ~~income~~of the goodwill exceeds isthe ~~primarily~~implied ~~due~~fair tovalue of the goodwill, an ~~approximate~~impairment ~~$39~~loss ~~million~~would ~~increase~~be recognized in ~~average~~an ~~invested balances~~amount ~~compared~~equal to the ~~same~~excess. ~~prior~~Any ~~year~~loss ~~period~~recognized cannot exceed the carrying amount of goodwill. After a goodwill impairment loss is recognized, the adjusted carrying amount of goodwill is the new accounting basis. A subsequent reversal of a previously recognized goodwill impairment loss is prohibited once the measurement of that loss is completed.

~~Benefit~~Income Taxes. Significant judgment is required in determining the income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax exposure together with assessing temporary differences resulting from the different treatment of specific items for ~~Income~~tax ~~Taxes~~and financial reporting purposes. These differences result in deferred tax assets and liabilities, which are included within our Condensed Consolidated Balance Sheets. Although we believe our assessments are reasonable, no assurance can be given that the final tax outcome of these matters will not be different than that which is reflected in our historical income tax provisions, benefits and accruals. Such differences could have a material effect on our income tax provision and net income in the period in which such a determination is made.

We ~~recognized~~are required to evaluate the likelihood that our annet ~~income~~deferred tax ~~benefit~~assets ofwill ~~$2.0~~be ~~million~~recovered ~~for~~from ~~the~~future ~~three~~taxable ~~months~~income ~~ended~~and ~~November~~to ~~30,~~the ~~2004~~extent ~~compared~~we tobelieve anthat ~~income~~recovery ~~tax~~is ~~benefit~~not oflikely, ~~$0.8~~we ~~million~~must ~~for~~establish ~~the~~a ~~three months~~valuation ~~ended~~allowance. ~~November~~To ~~30,~~the ~~2003.~~extent ~~Our~~we ~~income~~establish ~~tax~~or ~~benefit~~reverse issome ~~based~~or onall ~~pretax~~of ~~loss~~the ~~and~~valuation ~~consists~~allowance, ~~primarily~~we ofmust ~~federal~~include ~~and~~an ~~state~~expense ~~income~~or ~~tax~~expense ~~benefits.~~reversal ~~Our~~within ~~effective~~the tax ~~rate~~provision ~~was~~included ~~40.2%~~in ~~and~~the ~~39.0%~~Condensed ~~for~~Consolidated ~~the~~Statements ~~three~~of ~~months~~Operations. ~~ended~~As ~~November~~of November 30, 2005 ~~2004~~ and ~~2003~~May 31, 2005, ~~respectively.~~the ~~The~~Condensed Consolidated ~~increase~~Balance inSheets ~~the~~include ~~effective~~net deferred tax ~~rate~~ ~~was~~assets ~~primarily~~in ~~due to~~ the ~~impact~~amount of $30.6 million ~~changes~~and in$30.7 million, ~~actual~~respectively. ~~and~~We ~~forecasted permanent~~have ~~book~~evaluated toand determined ~~tax~~that ~~differences.~~no Weadditional ~~review~~adjustment, ~~our~~positive ~~effective~~or ~~tax~~negative, ~~rate~~is onrequired ato ~~quarterly~~the ~~basis~~valuation ~~and~~allowance ~~make~~as ~~necessary~~of ~~changes~~November 30, 2005.

~~Six~~Our ~~Months~~methodology ~~Ended~~for ~~November~~determining 30the realization of our deferred tax assets involves estimates of future taxable income from our core business, ~~2004~~the ~~Compared~~estimated Toimpact ~~Six~~of ~~Months~~future stock option deductions from the ~~Ended~~exercise ~~November~~of 30outstanding stock options, ~~2003~~and the expiration dates and amounts of state, federal and foreign net operating losses and other carryforwards in addition to various tax credits. These estimates are projected through the life of the related deferred tax assets based on assumptions that management believes to be reasonable and consistent with current operating results.

~~Total~~Although ~~Revenues. Total~~we ~~revenues~~had ~~decreased~~cumulative topre-tax ~~$165.7 million~~income for financial reporting purposes for the ~~six~~twelve ~~months~~cumulative quarters ended November 30, 2005, ~~2004~~we did not pay any significant income taxes during that period because tax deductions from ~~$172~~the exercise of stock options granted prior to our initial public offering generated tax operating losses.3 ~~million~~ In ~~for~~assessing the ~~six~~future ~~months~~realization ~~ended~~of ~~November~~our deferred tax assets as of November 30, ~~2003~~ 2005, ~~representing~~we aconsidered ~~decrease~~both ofpositive 3and negative evidence regarding our ability to generate sufficient future taxable income to realize our deferred tax assets.~~8%.~~ The evidence considered included the cumulative tax operating loss for the past ~~$6.6~~three ~~million~~years; ~~decline~~the incumulative ~~total~~pre-tax ~~revenue~~income ~~was~~for ~~attributed~~financial toreporting purposes for the past twelve cumulative quarters; a ~~$13.5~~one ~~million~~year ~~decline~~income look back; the estimated inimpact ~~license~~of ~~fees~~future ~~that~~tax ~~was~~deductions ~~partially~~from ~~offset~~the byexercise aof ~~$6.9~~stock ~~million~~options ~~increase~~outstanding as inof November 30, 2005; and the estimated future taxable income ~~services~~based on historical operating results.

~~License~~We ~~Fees. Revenues from~~estimate, ~~license~~based ~~fees~~largely ~~decreased~~on tohistorical ~~$26.4 million for the six months ended November 30~~income, that ~~2004~~it ~~from~~may ~~$40.0~~take ten ~~million~~years ~~for~~or ~~the~~more ~~six~~before ~~months~~we ~~ended~~fully ~~November~~utilize ~~30,~~our ~~2003, representing~~current ~~a decrease of 33~~U.8%S. ~~The~~ based ~~$13.5~~deferred ~~million~~tax ~~decline~~assets inassociated ~~license~~with ~~fees~~the ~~was~~tax ~~primarily~~loss ~~due to our lower business activity~~ and ~~longer~~tax ~~customer~~credit ~~decision cycles~~carryforwards. ~~This~~After ~~was~~giving aconsideration ~~result~~to ofthese ~~issues~~factors, ~~impacting~~we usconcluded ~~related~~that toit ~~the~~was ~~prospect of~~more ~~industry~~likely ~~consolidation~~than ~~and~~not ~~priorities~~that ~~such~~tax asloss ~~Sarbanes-Oxley~~carryforwards ~~compliance~~and ~~by public~~other ~~companies~~tax ~~reducing~~credit ~~capital~~carryforwards that ~~spending~~expire onwithin ~~software. The~~the ~~average~~next ~~overall~~ten ~~selling~~years ~~price~~will ofnot ~~our licensing~~be ~~transactions~~utilized. ~~for~~For the three and six months ended November 30, ~~2004~~ 2005, ~~decreased 16.9%~~we ~~while~~determined ~~the~~that ~~number~~there ofwas ~~licensing transactions decreased 14.6% as compared to~~no ~~the~~additional ~~same~~valuation ~~six~~allowance ~~month~~or ~~period~~reversal of ~~fiscal~~valuation ~~2004. Revenues~~allowance ~~from license fees as a percentage of total revenues for the six months ended November 30, 2004 and 2003 were 16~~required.~~0% and 23.2%, respectively.~~

~~Services. Revenues from~~We ~~services~~also ~~increased~~concluded tothat ~~$139.2 million~~it ~~for~~was ~~the~~more ~~six~~likely ~~months~~than ~~ended November~~not ~~30,~~that ~~2004~~the ~~from~~net deferred tax assets of $~~132~~30.36 million ~~for~~as ~~the~~of ~~six months ended~~ November 30, ~~2003~~ 2005, ~~representing~~ anas ~~increase~~well ofas ~~5.2%. The~~the ~~$6.9~~estimated ~~million increase~~future intax ~~services~~deductions ~~was~~from ~~due~~the toexercise aof ~~$8.0~~stock options ~~million~~outstanding ~~increase~~as inof ~~support~~November 30, 2005, ~~revenue offset~~would bybe autilized ~~$1.1~~prior to ~~million~~expiring ~~decrease~~ in ~~consulting~~greater ~~revenue.~~than ~~The~~ten $8years.0 ~~million increase~~Based inon ~~support~~this ~~revenue~~conclusion, ~~was~~we ~~primarily~~would require ~~due~~approximately ~~to a~~ $5115.8 1 million ~~increase~~ in ~~revenue~~ ~~earned~~cumulative onfuture ~~support~~taxable ~~contracts~~income to ~~purchased~~be ingenerated ~~April 2004. The~~at ~~$1.1~~various ~~million~~times ~~decrease~~over inthe ~~consulting revenue~~next istwenty ~~consistent~~years ~~with~~to ~~lower~~realize ~~business~~the related ~~activity~~net indeferred ~~product~~tax ~~sales~~assets ~~that directly~~of ~~impacts consulting revenue~~$30.6 ~~Services~~million as ~~a percentage~~ of ~~total~~November 30, 2005, as ~~revenues~~well ~~for~~as the ~~six~~estimated ~~months~~future ~~ended November~~tax ~~30,~~deductions ~~2004~~from ~~and~~the ~~2003~~exercise ~~were~~of ~~84.0%~~stock options ~~and~~outstanding ~~76.8%,~~as ~~respectively~~of November 30, 2005.

2018

~~Cost~~In the event that we adjust estimates of ~~Revenues~~future taxable income or tax deductions from the exercise of stock options, or our stock price changes significantly without a corresponding change in taxable income, we may need to establish an additional valuation allowance or reverse some or all of the existing valuation allowance, which could materially impact our financial position and results of operations.

~~Cost of License Fees~~Contingencies. ~~Cost~~ We ofare ~~license~~subject ~~fees decreased~~ to ~~$5.3 million for~~ the ~~six~~possibility ~~months ended November 30, 2004 from $8.1 million for the six months ended November 30, 2003, representing a decrease~~ of ~~34.7%. The $2.8~~various ~~million~~loss ~~decrease~~contingencies ~~was primarily due to a 33.8% decline~~ in ~~license~~the ~~fees as~~normal ~~well~~course ~~as a decline in the proportion~~ of ~~third-party product sales in our revenue mix~~business. ~~Cost~~We ofaccrue ~~license fees as a percentage of total revenues~~ for ~~the~~loss ~~six~~contingencies ~~months ended~~when ~~November 30,~~a ~~2004~~loss ~~and~~is ~~2003 were 3.2% and 4.7%, respectively. Gross~~estimatable ~~margin on revenue from license fees was 80.0%~~ and 79probable.~~8% for the six months ended November 30, 2004 and 2003, respectively.~~

~~Cost~~Results of ~~Services. Cost of~~ services increased to $73.5 million for the six months ended November 30, 2004 from $65.8 million for the six months ended November 30, 2003, representing an increase of 11.7%. The $7.7 million increase in cost of services was primarily due to a $3.4 million increase in third-party consulting costs as a result of a higher proportion of third-party services in our revenue mix; a $2.4 million increase in employee related costs, with annual salary increases being the largest single contributing factor; a $2.0 million increase in amortization related to support contracts purchased in April 2004; and a $0.6 million increase in third-party maintenance costs. These increases were partially offset by a $0.3 million reduction in our sales reward program; and a $0.2 million decrease related to general cost containment activities. Cost of services as a percentage of total revenues for the six months ended November 30, 2004 and 2003 were 44.4% and 38.2%, respectively. Gross margin on services revenues were 47.2% and 50.2% for the six months ended November 30, 2004 and 2003, respectively.Operations

~~Operating~~The ~~Expenses~~following table sets forth certain line items in our Condensed Consolidated Statements of Operations as a percentage of total revenues for the periods indicated:

Research and Development. Research and development expenses increased to $31.3 million for the six months ended November 30, 2004 from $30.2 million for the six months ended November 30, 2003, representing an increase of 3.7%. The $1.1 million increase in research and development was primarily due to $2.1 million in costs associated with corporate initiatives, including $1.1 million related to the third-party offshore software support services agreement we entered into in February 2004; and a $0.6 million increase in employee related costs, with annual salary increases being the largest single contributing factor. These increases were partially offset by a $1.2 million decrease in incentive compensation; and a $0.4 million favorable impact from restructuring activities. Research and development expenses as a percentage of total revenues for the six months ended November 30, 2004 and 2003 were 18.9% and 17.5%, respectively.

	Three Months Ended				Six Months Ended				Percent of Dollar Change 2005 vs. 2004
	November 30,				November 30,						Year-
	2005		2004		2005		2004		Quarter		to-Date

Revenues:
License fees	20.4	%	15.9	%	20.8	%	16.0	%	37.3	%	38.9	%
Services	79.6		84.1		79.2		84.0		1.6		0.7
Total revenues	100.0		100.0		100.0		100.0		7.3		6.8

Cost of revenues:
Cost of license fees	3.1		3.5		2.9		3.2		(4.5	)	(1.6	)
Cost of services	38.1		44.6		37.7		44.4		(8.5	)	(9.3	)
Total cost of revenues	41.2		48.1		40.6		47.6		(8.2	)	(8.8	)

Gross margin	58.8		51.9		59.4		52.4		21.6		21.0

Operating expenses:
Research and development	15.8		18.9		16.2		18.9		(10.2	)	(8.8	)
Sales and marketing	21.9		23.6		21.7		24.4		(0.6	)	(5.2	)
General and administrative	11.2		9.5		15.2		9.8		26.9		66.5
Restructuring	0.0		6.6		0.0		3.3		—		—
Amortization of acquired intangibles	0.4		0.5		0.4		0.4		(7.0	)	(4.9	)
Total operating expenses	49.3		59.1		53.5		56.8		(10.4	)	0.5

Operating income (loss)	9.5		(7.2	)	5.9		(4.4	)	242.0		244.5

Other income	2.6		1.1		2.6		0.9		163.2		202.5
Income (loss) before income taxes	12.1		(6.1	)	8.5		(3.5	)	313.5		364.6
Provision (benefit) for income taxes	4.7		(2.5	)	2.4		(1.4	)	308.2		292.8
Net income (loss)	7.4	%	(3.6	)%	6.1	%	(2.1	)%	317.1	%	412.3	%

~~Sales~~Three ~~and~~Months ~~Marketing. Sales~~Ended ~~and marketing expenses decreased to $40.5 million for the six months ended~~ November 30, ~~2004~~ ~~from $44.5 million~~2005 ~~for~~Compared ~~the~~With ~~six~~Three Months ~~months~~Ended ~~ended~~ November 30, ~~2003, representing a decrease of 8.9%.~~2004

The $4.0 million decrease in sales and marketing expenses was primarily due to a $2.5 million decrease in incentive compensation; a $2.4 million decrease in employee related costs driven primarily by reductions in headcount and favorable impacts resulting from restructuring activities; a $1.3 million favorable impact related to general cost containment activities; a $0.2 million decrease in sales reward program costs; and a $0.5 million decrease in other costs, primarily rent. These decreases were partially offset by a $3.0 million increase in costs primarily associated with marketing initiatives, including event spending, public relations costs and industry analyst costs. Sales and marketing expenses as a percentage of total revenues for the six months ended November 30, 2004 and 2003 were 24.4% and 25.9%, respectively.Revenues

~~General~~Total ~~and Administrative~~Revenues. ~~General~~ We license software under non-cancelable license agreements and ~~administrative~~provide ~~expenses~~related professional ~~decreased~~services including consulting, training, and implementation toservices, as well as ongoing customer support. Total revenues increased to $1689.20 million for the ~~six~~three months ended November 30, ~~2004~~2005 from $1983.3 0 million for the ~~six~~three months ended November 30, ~~2003~~2004, representing a ~~decrease of 16~~7.3% increase. The $6.0 million increase in total revenues was attributed to a $4.9 million increase in license fees and a $1.1 million increase in services.

The $3.1 million decrease in general and administrative expenses was primarily due to a $2.3 million decrease in legal related costs; a $1.4 million decline in bad debt expense reflecting a general decrease in accounts receivable; and a $1.3 million reduction in incentive compensation. These decreases were partially offset by a $0.8 million increase due to corporate initiatives designed to increase efficiencies; a $0.6 million increase in fees and expenses related to the SEC's informal investigation; and $0.4 million in costs associated with Sarbanes-Oxley compliance initiatives. General and administrative expenses as a percentage of total revenues for the six months ended November 30, 2004 and 2003 were 9.8% and 11.2%, respectively.19

21License Fees. Revenues from license fees increased to $18.1 million for the three months ended November 30, 2005 from $13.2 million for the three months ended November 30, 2004, representing a 37.3% increase. The $4.9 million increase from the prior year period resulted from a 71.1% increase in the average selling price of our licensing transactions, offset by a 16.1% decrease in the number of licensing transactions. During the three months ended November 30, 2005, we closed six licensing transactions greater than $1 million each as compared to two closed licensing transactions greater than $1 million each during the prior year period. This increase in large transactions was the primary factor for the increase in license fee revenues during the quarter. The size and number of licensing transactions varies each quarter and as a result, the 71.1% increase in average selling price may not be indicative of future performance.

~~Restructuring. During the~~Revenues ~~six~~from ~~months~~license ~~ended~~fees ~~November 30,~~include ~~2004,~~transactions wewith new ~~recorded~~clients ~~$5.5~~and ~~million~~existing ofclients. The ~~restructuring~~number ~~charges~~of ~~related~~licensing totransactions ~~corporate~~with ~~restructuring~~new ~~initiatives~~clients ~~designed to~~increased ~~enhance~~by ~~operating~~38.1% ~~effectiveness~~over ~~and~~the prior ~~profitability~~year period. ~~Partially~~Of ~~offsetting~~the ~~these~~six ~~charges~~licensing transactions ~~was~~greater than $1 million each, the ~~reversal~~majority were with new clients offor $0the three months ended November 30, 2005.08 The ~~million~~increase ofin ~~restructuring~~new ~~charges~~client ~~recorded~~sales is due in ~~previous~~part ~~periods~~because ~~that~~Lawson weis being ~~determined~~selected ~~would~~more ~~not~~frequently beto ~~incurred.~~bid ~~During~~on potential transactions. Before the ~~six~~Oracle/Peoplesoft ~~months~~merger ~~ended~~was completed ~~November 30~~a year ago, ~~2003,~~ we ~~recorded~~were ~~$2.3~~encountering ~~million~~uncertainty ofin ~~restructuring~~the ~~charges~~market place. Since ~~related~~our toaverage ~~corporate~~sales cycle is ~~restructuring~~nine ~~initiatives~~months, ~~designed~~deals tothat ~~enhance~~were ~~operating~~started ~~effectiveness~~after ~~and profitability. Partially~~the ~~offsetting~~merger was completed are ~~these~~beginning ~~charges~~to ~~was~~be reflected in the ~~reversal~~first ofand $0second quarter fiscal 2006 results.~~04 million~~ In addition, most of ~~restructuring~~our ~~charges~~targeted ~~recorded~~public incompany ~~previous~~clients ~~periods~~have ~~that~~completed wetheir ~~determined~~initial ~~would~~year ~~not~~of beSarbanes-Oxley compliance, ~~incurred. For~~which ~~additional~~has ~~information~~freed ~~related~~up totheir ~~our restructuring~~time ~~initiatives~~and ~~refer~~resources to facilitate some of the ~~above~~increase ~~discussion~~in ~~regarding~~sales ~~Restructuring~~activity. Revenues from ~~under~~license ~~our~~fees ~~summary~~as ofa ~~results~~percentage of ~~operations~~total revenues for ~~Three~~ ~~Months~~the ~~Ended~~three months ended November 30, ~~2004~~2005 ~~Compared~~and To2004 ~~Three~~were ~~Months~~20.4% ~~Ended~~and ~~November 30~~15.9%, ~~2003~~respectively.

~~Cash~~Services. Revenues from ~~payments~~services ~~for~~increased ~~the 2004~~to ~~restructuring~~$70.9 million ~~plans~~for ~~(Phase~~the Ithree ~~and~~months ~~II)~~ended ~~were~~November 30, 2005 from $269.3 8 million~~. The~~ ~~remaining~~for ~~cash~~the ~~payments~~three ~~for~~months ~~the~~ended November 30, 2004, ~~restructuring~~representing ~~plans~~a ~~are~~1.6% ~~expected~~increase. The to$1.1 million beincrease ~~completed~~in ~~during~~services ~~fiscal~~includes ~~2005~~a $1. ~~Although~~7 ~~the~~million ~~restructuring~~increase ~~plans~~in ~~for fiscal~~customer ~~2003~~support ~~and~~revenue ~~2002~~that ~~have~~was ~~been~~partially ~~fully~~offset ~~executed,~~by wea ~~continue~~$0.5 tomillion ~~make~~decrease ~~cash payments for~~in ~~continuing~~consulting ~~lease~~revenue. ~~and~~The ~~employee related costs~~$1.7 ~~During~~million ~~the~~increase ~~six~~in ~~months~~customer ~~ended~~support ~~November 30,~~revenue was ~~2004,~~primarily wedue ~~made~~to ~~cash~~general ~~payments~~price ~~totaling~~increases. The $0.15 million. ~~During~~decrease in consulting revenue was primarily due to the ~~six~~decline ~~months~~in ~~ended~~fiscal ~~November 2003,~~year 2005 license wecontracting ~~made~~activity ~~cash~~as ~~payments~~compared ~~totaling~~to ~~$2.7~~the ~~million. The~~fiscal ~~remaining~~year ~~cash~~2004, ~~payments~~which ~~for~~resulted in fewer consulting opportunities during the second quarter of fiscal ~~2003~~2006. As ~~and~~contracting ~~2002~~volumes ~~restructuring~~continue to increase, ~~plans~~service revenues are expected to beshow ~~completed~~growth ~~during~~in ~~fiscal~~subsequent ~~2006~~quarters. Service revenues as a percentage of total revenues for the three months ended November 30, 2005 and 2004 were 79.6% and 84.1%, respectively.

~~Amortization~~Cost of ~~Acquired~~ Intangibles. Amortization of acquired intangibles increased to $0.8 million for the six months ended November 30, 2004 from $0.6 million for the six months ended November 30, 2003. The $0.2 million increase in amortization expense is primarily due to increases in amortization of intangibles associated with companies acquired since the prior year period. The companies acquired include, Numbercraft Limited acquired in July 2003, Closedloop Solutions, Inc. acquired in September 2003 and Apexion Technologies, Inc. acquired in October 2003.Revenues

~~Other~~Cost ~~Income~~of License Fees. Cost of license fees includes royalties to third parties, ~~Net~~amortization of acquired software and software delivery expenses. Our software solutions may include embedded components of third-party vendors, for which a fee is paid to the vendor upon sale of our products. In addition, we resell third-party products in conjunction with the license of our software solutions. The cost of license fees is higher when we resell products of third-party vendors. As a result, gross profits may vary depending on the proportion of third-party product sales in our revenue mix.

~~Other~~Cost ~~income, net, which is primarily comprised~~ of ~~interest~~license ~~income~~fees ~~earned from cash, marketable securities and long-term investments~~ decreased to $12.5 8 million for the ~~six~~three months ended November 30, ~~2004~~ 2005 from $12.69 million for the ~~six~~three months ended November 30, ~~2003. The~~2004, ~~$0.1~~despite ~~million~~an ~~decrease~~increase in ~~interest income~~license isfees, ~~due~~primarily toas ana ~~approximate~~result ~~$28~~of ~~million~~a ~~decrease~~significant decline in ~~average~~the ~~invested~~proportion ~~balances~~of ~~compared~~third-party tosales ~~the~~in ~~same~~our ~~prior~~revenue ~~year~~mix. Cost ~~period~~of ~~partially~~license ~~offset~~fees byas ana ~~increase~~percentage inof total revenues for the three ~~average~~months ~~yield~~ended November 30, 2005 and 2004 were 3.1% and 3.5%, respectively. Gross margin on ~~investments~~revenue from license fees was 84.7% and 78.0% for the three months ended November 30, 2005 and 2004, respectively.

~~(Benefit)~~Cost ~~Provision~~of Services. Cost of services includes the salaries, employee benefits and related travel and overhead costs for ~~Income~~providing ~~Taxes~~consulting, training, implementation and support services to customers as well as intangible asset amortization on support contracts purchased in April 2004. Cost of services decreased to $33.9 million for the three months ended November 30, 2005 from $37.0 million for the three months ended November 30, 2004, representing an 8.5% decrease. The $3.1 million decrease in cost of services was primarily due to a $2.6 million decrease in employee costs resulting from workforce reductions primarily related to restructuring initiatives, and a $0.3 million decrease in depreciation expenses as a result of efforts to maintain capital expenditures. Cost of services as a percentage of total revenues for the three months ended November 30, 2005 and 2004 was 38.1% and 44.6%, respectively. Gross margin on services revenues was 52.2% and 46.9% for the three months ended November 30, 2005 and 2004, respectively.

WeOperating recognized an income tax (benefit) of $2.3 million for the six months ended November 30, 2004 compared to an income tax provision of $1.3 million for the six months ended November 30, 2003. Our income tax (benefit) provision is based on pretax (loss) income and consists primarily of federal and state income taxes. Our effective tax rate was 39.9% and 39.0% for the six months ended November 30, 2004 and 2003, respectively. The decrease in the effective tax rate was primarily due to the impact of changes in actual and forecasted permanent book to tax differences. We review our effective tax rate on a quarterly basis and make necessary changes.Expenses

~~Liquidity~~Research and Development. Research ~~Capital~~and development ~~Resources~~expenses consist primarily of salaries, employee benefits, related overhead costs and consulting fees relating to product development, enhancements, upgrades, testing, quality assurance and documentation. Research and development expenses decreased to $14.1 million for the three months ended November 30, 2005 from $15.7 million for the three months ended November 30, 2004, representing a 10.2% decrease. The $1.6 million decrease in research and development was primarily due to a $0.7 million decrease in employee and related costs resulting from workforce reductions, a $1.1 million decrease related to a planned reduction in contract personnel and a $0.2 million decrease in depreciation expenses as a result of efforts to maintain capital expenditures. The decreases were partially offset by a $0.7 million increase in outsourcing to the recently established off-shore third-party relationship resulting in overall productivity improvements. Research and development expenses as a percentage of total revenues for the three months ended November 30, 2005 and 2004 were 15.8% and 18.9%, respectively.

As of November 30, 2004, we had $208.9 million in cash, cash equivalents and marketable securities and $170.8 million in working capital. Our most significant source of operating cash flows is derived from license fees and services to our clients. Days sales outstanding, which is calculated as net receivables at period end divided by revenue for the quarter times 90 days in the quarter, was 52 and 59 as of November 30, 2004 and May 31, 2004, respectively. The decrease was due primarily to a decrease in net receivables as a result of focused collection efforts for the three months ended November 30, 2004 compared to the fourth quarter of fiscal 2004. Our primary uses of cash from operating activities are for employee costs, third-party costs for licenses and services and facilities.20

WeSales ~~believe~~and ~~that~~Marketing. Sales and ~~cash~~marketing expenses consist primarily of salaries and incentive compensation, ~~cash~~employee ~~equivalents~~benefits and travel and overhead costs related to our ~~marketable~~sales ~~securities~~and ~~will~~marketing bepersonnel, ~~sufficient~~as well as trade show activities and advertising costs. Sales and marketing expenses decreased to ~~meet~~$19.5 ~~our~~million ~~cash~~for ~~requirements~~the three months ended November 30, 2005 from $19.6 million for the three months ended November 30, 2004, ~~working~~representing ~~capital~~a 0.6% decrease. The $0.1 million decrease in sales and marketing expenses was due to a $0.6 million reduction in marketing initiatives, ~~capital~~a ~~expenditures~~$0.5 million reduction in consulting fees, a $1.2 million decrease in employee and related ~~investments~~costs ~~for~~due atto ~~least~~workforce reductions primarily related to restructuring initiatives, and a $0.4 million decline in travel expenses due to lower headcount. These decreases were partially offset by a $2.1 million increase in incentive compensation primarily due to increased license revenue and a $0.4 million increase in costs related to the ~~next~~pending ~~twelve~~merger with Intentia. Sales and marketing expenses as a percentage of total revenues for the three months ended November 30, 2005 and 2004 were 21.9% and 23.6%, respectively.

~~Cash~~General ~~flows~~and Administrative. General and administrative expenses consist primarily of salaries, employee benefits and related overhead costs for administrative employees, as well as legal and accounting expenses, consulting fees, bad debt expense and corporate insurance policies, including property and casualty, general liability and other insurance. General and administrative expenses increased to $10.0 million for the three months ended November 30, 2005 from ~~operating~~$7.9 million ~~activities:~~for the three months ended November 30, 2004, representing a 26.9% increase. The $2.1 million increase in general and administrative expenses was primarily due to a $1.3 million increase in employee related costs including bonus and severance costs, a $0.9 million increase for contract personnel primarily for finance and a $0.9 million increase in costs for the pending merger with Intentia a portion of which is included in contract personnel. The increases in costs were partially offset by a $0.7 million decrease in bad debt expense primarily driven by improved aging of receivables due to strong collection efforts and lower specific reserves and $0.2 million decrease in management consulting fees. General and administrative expenses as a percentage of total revenues for the three months ended November 30, 2005 and 2004 were 11.2 % and 9.5%, respectively.

~~Net cash provided by operating activities was $5~~Restructuring.9 During ~~million for~~ the ~~six~~three months ended November 30, ~~2004~~2005 ~~compared~~we ~~with~~recorded ~~cash used~~a ~~in operating activities of~~ $0.8 01 million ~~for~~reversal of the ~~six months~~restructuring ~~ended~~charge ~~November 30,~~compared ~~2003.~~with ~~Our~~a ~~net loss of~~ $35.4 5 million ~~was more~~restructuring ~~than~~charge ~~offset~~for bythe ~~noncash~~three ~~charges~~months ~~resulting~~ended inNovember 30, ~~$12~~2004. See Note 7 ~~million~~ of ~~cash from~~Notes ~~operations~~to ~~before~~Condensed ~~working~~Consolidated ~~capital~~Financial ~~changes.~~Statements ~~The~~for ~~net~~a ~~working~~summary ~~capital changes~~ of ~~$6.8~~ ~~million~~activity ~~reduced the overall cash provided~~ for year-to-date ~~$5.9 million.~~fiscal ~~The~~2006.

22Amortization of Acquired Intangibles. Amortization of acquired intangibles of $0.4 million for the three months ended November 30, 2005 was consistent with the three months ended November 30, 2004.

~~significant~~Other ~~activity in cash flows from working capital changes for the six months ended November 30~~Income, 2004 primarily related to a $16.1 million increase in cash from trade accounts receivable that was offset by an $8.1 million decrease in accrued expenses and an $8.8 million decrease in deferred revenue and client deposits.Net

~~The~~Other ~~$16.1~~income, ~~million~~net, ~~increase~~which inis ~~cash from trade~~primarily ~~accounts~~comprised ~~receivable was due to focused collection efforts. The $8.1 million decrease in accrued expenses was due to the payment~~ of ~~fiscal~~interest ~~2004~~income ~~incentive~~earned ~~compensation~~from ~~in the first quarter fiscal 2005. The $8.8 million decrease in deferred revenue and client deposits was primarily due to a decrease in~~ cash, ~~received~~marketable onsecurities ~~support billings as a result of a change in client billing cycles~~ and ~~other delayed collections.~~ long ~~The~~term ~~change~~investments inincreased ~~client billing cycles resulted in initially smaller client invoices due~~ to ~~pro-rata billings in an effort to get individual multiple client support billings to a common renewal date~~$2.4 Inmillion for the ~~first~~three ~~quarter~~months ~~of fiscal~~ended ~~2005~~November 30, 2005 wefrom ~~experienced an approximately~~ $~~18.~~0.9 million ~~decrease~~for ~~in deferred maintenance as a result of~~ the ~~pro-rata~~three ~~billings~~months ~~and~~ended ~~other~~November 30, ~~delayed collections~~2004. InThe ~~the second quarter of fiscal 2005, we experienced a~~ $91.45 million ~~recovery~~increase in ~~deferred maintenance. The~~interest ~~recovery~~ income was due primarily to ~~the catch~~a up$64.8 onmillion ~~delayed~~increase ~~collections~~in ~~for~~average ~~the~~invested ~~first~~balances ~~quarter fiscal 2005 billings~~ and ~~collections~~an ~~for~~increase ~~the~~in ~~third~~average ~~quarter~~yields, ~~fiscal~~which ~~2005 billings that~~ were ~~offset~~3.8% ~~by the impacts of regular amortization~~ and ~~the~~1.8% ~~impacts from pro-rata billings~~ for the ~~second~~ ~~quarter~~three ~~fiscal 2005. The cash collections generated by the pro-rata~~months ~~billings~~ended ~~will~~November 30, ~~fluctuate~~2005 ~~according~~and to2004, ~~renewal periods identified by our clients~~respectively.

~~Cash~~Provision ~~flows~~(Benefit) ~~from investing~~for ~~activities:~~Income Taxes

~~Net~~We ~~cash~~recorded ~~provided~~a ~~by investing activities was~~ $384.12 million ~~for~~income tax provision for the ~~six~~three months ended November 30, ~~2004~~2005 compared with a $102.30 million income tax benefit for the ~~six~~three months ended November 30~~, 2003~~ 2004. ~~The~~Our ~~increase~~income ~~in cash~~tax ~~from~~provision ~~investing~~(benefit) ~~activities~~is ~~for~~based ~~the~~on ~~six~~pretax ~~months~~income ~~ended~~(loss) ~~November 30, 2004~~and consists primarily ~~related to $39.7 million~~ of ~~cash~~federal ~~received~~and ~~from~~state ~~net maturities~~income ~~of marketable securities~~taxes. ~~A portion~~The ofquarterly ~~the~~tax ~~cash~~expense ~~from~~is ~~maturities~~measured ofusing an ~~securities~~estimated ~~was~~annual ~~used~~tax torate ~~invest~~for inthe ~~shorter~~period. ~~term~~At ~~investments~~November 30, ~~that~~2005, ~~are~~the ~~included~~Company’s inestimated ~~cash~~annual ~~equivalents~~tax atrate ~~November 30, 2004~~is 39.7%. ~~The~~Our ~~remaining~~effective ~~proceeds~~tax ~~from~~rate ~~the maturities~~was 39.2% and ~~sales~~40.2% offor ~~marketable~~the ~~securities~~three ~~were~~months ~~used~~ended toNovember 30, 2005 ~~augment~~and ~~cash~~2004, ~~flows~~respectively. We review ~~from~~our ~~operations~~reported ~~and~~effective totax ~~fund~~rate ~~capital~~on ~~expenditures,~~a ~~share~~quarterly ~~repurchases,~~basis and ~~to repay~~make ~~debt~~any necessary changes.

~~Cash~~Six ~~flows~~Months ~~from~~Ended November 30, 2005 Compared With Six ~~financing~~Months ~~activities:~~Ended November 30, 2004

Net cash used in financing activities was $4.3 million for the six months ended November 30, 2004 compared with $11.8 million for the six months ended November 30, 2003. The decrease in cash used in financing activities for the six months ended November 30, 2004 primarily related to $10.0 million in cash used to fund the repurchase of common stock that was offset by $3.8 million in cash received from the exercise of stock option, and $2.4 million in cash received from employee contributions to our employee stock purchase plan.Revenues

~~Repurchase~~Total ofRevenues. We license ~~Common~~software ~~Shares~~under non-cancelable license agreements and provide related professional services including consulting, training, and implementation services, as well as ongoing customer support. Total revenues increased to $177.0 million for the six months ended November 30, 2005 from $165.7 million for the six months ended November 30, 2004, representing a 6.8% increase. The $11.3 million increase in total revenues was attributed to a $10.3 million increase in license fees and a $1.0 million increase in services.

In June 2003, our Board of Directors authorized us to repurchase, from time to time, up to $50.0 million of our common shares. Shares were repurchased as market conditions warranted either through open market transactions, block purchases, private transactions or other means. During the three months ended August 31, 2004, we completed the authorized stock repurchase plan by purchasing 1.4 million shares for $10.0 million in cash. Cash proceeds obtained from maturities of marketable securities, the exercise of employee stock options and contributions to the employee stock purchase plan largely funded the share repurchases. The repurchased shares, which remain in treasury, will be used for general corporate purposes.21

~~New~~License ~~Accounting~~Fees. Revenues ~~Pronouncements~~from license fees increased to $36.7 million for the six months ended November 30, 2005 from $26.4 million for the six months ended November 30, 2004, representing a 38.9% increase. The $10.3 million increase from the prior year period resulted from a 55.5% increase in the average selling price of our licensing transactions, offset by a 13.4% decrease in the number of licensing transactions. Revenues from license fees include transactions with new clients and existing clients. The number of licensing transactions with new clients increased from the prior year period. The increase in new client sales is due in part because Lawson is being selected more frequently to bid on potential transactions. Before the Oracle/Peoplesoft merger was completed a year ago, we were encountering uncertainty in the market place. Since our average sales cycle is nine months, deals that were started after the merger was completed are beginning to be reflected in the first and second quarter fiscal 2006 results. In addition, most of our targeted public company clients have completed their initial year of Sarbanes-Oxley compliance, which has freed up their time and resources to facilitate some of the increase in sales activity. Revenues from license fees as a percentage of total revenues for the six months ended November 30, 2005 and 2004 were 20.8% and 16.0%, respectively.

~~In December 2004 the Financial~~Services. Revenues ~~Accounting~~from ~~Standards~~services ~~Board~~increased ~~(FASB)~~to ~~issued~~$140.2 million ~~Statement~~for ofthe ~~Financial~~six ~~Accounting Standard~~months ~~No.~~ended ~~123 (revised 2004)~~November 30, ~~Share-Based~~ ~~Payment~~2005 ~~(SFAS~~from No$139.2 million ~~123(R)).~~for ~~SFAS~~the ~~No.~~six ~~123(R)~~months ~~requires~~ended ~~compensation cost~~November 30, ~~relating to unvested share-based payment transactions that are outstanding~~2004, asrepresenting ofa ~~the~~0.7% ~~effective date and newly issued transactions to be recognized in the financial statements~~increase. The ~~That cost will be measured based on the fair value of the~~$1.0 ~~equity~~million orincrease ~~liability~~in ~~instruments~~services ~~issued.~~includes ~~SFAS~~a No$4.6 ~~123(R)~~million ~~covers~~increase ain ~~wide~~customer ~~range of~~support ~~share-based~~revenue ~~compensation~~that ~~arrangements~~was ~~including~~partially ~~share~~offset ~~options,~~by ~~restricted~~a ~~share plans,~~$3.6 ~~performance-based~~million ~~awards,~~decrease ~~share~~in ~~appreciation rights and employee share~~consulting ~~purchase plans~~revenue. ~~SFAS~~The No$4.6 ~~123(R)~~million ~~replaces~~increase ~~SFAS~~in ~~No.~~customer ~~123,~~support ~~Accounting~~revenue ~~for~~was ~~Stock-Based Compensation (SFAS No. 123), and supersedes~~primarily ~~Accounting~~due ~~Principles~~to ~~Board~~general ~~Opinion~~price Noincreases. The ~~25, Accounting~~$3.6 ~~for~~million ~~Stock~~decrease ~~Issued~~in toconsulting ~~Employees~~revenue ~~(Opinion~~was ~~25).~~primarily ~~SFAS~~due ~~No.~~to ~~123,~~a asdecline ~~originally issued~~ in ~~1995,~~ ~~established a fair-value-based method of accounting for share-based~~fiscal ~~payment~~2005 ~~transactions~~license ~~with~~contracting ~~employees. However~~activities, ~~that~~which ~~Statement~~resulted ~~permitted entities the option of continuing to apply the guidance~~ in ~~Opinion~~fewer ~~25,~~consulting opportunities asduring ~~long as~~ the ~~footnotes~~ tofirst ~~financial~~and ~~statements~~second ~~disclosed~~quarters ~~what~~of ~~net~~fiscal ~~income would have been had the fair-value-based method been used~~2006. As ~~disclosed~~contracting involumes ~~footnote~~continue 2to increase, service werevenues ~~elected~~are ~~the~~expected ~~option~~to ofshow ~~disclosure~~growth ~~only under~~in ~~SFAS~~subsequent Noquarters. ~~123.~~ ~~Public~~Service ~~entities~~revenues ~~will be~~as ~~required~~a topercentage ~~apply SFAS No. 123(R) as~~ of ~~the first interim or annual~~total ~~reporting~~revenues ~~period~~for ~~that~~the ~~begins~~six ~~after~~months ~~June~~ended November 1530, 2005, ~~which~~and is2004 ~~effective~~were ~~with our second quarter of fiscal 2006~~79. ~~Based on our significant amount of unvested share-based~~2% ~~payment~~and ~~awards~~84.0%, respectively.

23Cost of Revenues

~~the~~Cost ~~adoption~~of License Fees. Cost of ~~this~~license ~~statement~~fees isincludes ~~anticipated~~royalties to ~~have~~third parties, amortization of acquired software and software delivery expenses. Our software solutions may include embedded components of third-party vendors, for which a ~~material~~fee ~~impact~~is paid to the onvendor ~~our~~upon ~~results~~sale of ~~operations~~our products. In addition, ~~however~~we resell third-party products in conjunction with the license of our software solutions. The cost of license fees is higher when we ~~are~~resell ~~currently~~products ~~evaluating~~of third-party vendors. As a result, gross profits may vary depending on the ~~impact~~proportion of third-party product sales ~~this~~in ~~statement~~our revenue mix.

InCost ~~November 2003~~of ~~and~~license ~~March 2004,~~fees remained ~~the~~consistent ~~Emerging~~for ~~Issues~~the ~~Task~~six ~~Force~~months ~~(EITF)~~ended ~~reached a consensus on EITF Issue No. 03-01~~November 30, ~~“The~~2005 ~~Meaning of Other-Than-Temporary Impairment~~ and ~~Its~~2004, ~~Application~~despite ~~to Certain Investments.” The consensus reached requires companies to apply new guidance for evaluating whether~~ an ~~investment is other-than-temporarily~~ ~~impaired~~increase ~~and~~in ~~also~~license ~~requires quantitative and qualitative disclosures of debt and equity securities~~fees, ~~classified~~primarily as ~~available-for-sale~~a orresult ~~held-to-maturity,~~of ~~that are~~a ~~determined~~significant todecline bein ~~only temporarily impaired at~~ the ~~balance sheet date. We~~ ~~incorporated~~proportion ~~the~~of ~~required~~third-party ~~disclosures~~sales ~~for~~in ~~investments~~our ~~accounted~~revenue ~~for under SFAS No~~mix. Cost ~~115,~~of ~~“Accounting~~license ~~for~~fees ~~Certain~~as ~~Investments~~a inpercentage ~~Debt~~of ~~and Equity Securities,” as~~total ~~required~~revenues infor the ~~fourth~~six ~~quarter~~months ofended ~~fiscal year 2004~~November 30, 2005 and ~~chose~~2004 towere ~~early~~2.9% ~~adopt~~and ~~the~~3.2%, ~~guidance related to evaluating other-than-temporary impairment~~respectively. ~~Disclosures for~~Gross ~~all~~margin ~~investments~~on ~~outside~~revenue ~~the~~from ~~scope~~license offees ~~SFAS~~was No85.9% ~~115 (cost~~ and ~~equity method~~ ~~investments),~~80.0% offor ~~which we have none, are required in~~ the ~~fourth~~six ~~quarter~~months ~~of fiscal~~ended November 30, 2005. ~~Adoption~~and ~~of EITF Issue No. 03-01 will not have an impact on our statements of consolidated operations~~2004, ~~financial position or cash flows~~respectively.

~~Disclosures~~Cost ~~about~~of Services. Cost of ~~Contractual~~services ~~Obligations~~includes the salaries, employee benefits and ~~Commercial~~related ~~Commitments~~travel and overhead costs for providing consulting, training, implementation and support services to customers as well as intangible asset amortization on support contracts purchased in April 2004. Cost of services decreased to $66.6 million for the six months ended November 30, 2005 from $73.5 million for the six months ended November 30, 2004, representing a 9.3% decrease. The $6.9 million decrease in cost of services was primarily due to a $5.0 million decrease in employee costs resulting from workforce reductions primarily related to restructuring initiatives and attrition that occurred since the prior year period, a $0.7 million reduction in travel expenses and $0.6 million reduction in depreciation expense as a result of efforts to maintain capital expenditures. Cost of services as a percentage of total revenues for the six months ended November 30, 2005 and 2004 was 37.7% and 44.4%, respectively. Gross margin on services revenues was 52.5% and 47.2% for the six months ended November 30, 2005 and 2004, respectively.

~~The~~Operating following summarizes our contractual obligations at November 30, 2004, and the effect these contractual obligations are expected to have on our liquidity and cash flows in future periods (in thousands): Expenses

	Total		1 Year or Less		1-3 Years		3 –5 Years		More than 5 Years
Operating leases	$	77,785	$	9,094	$	15,819	$	15,929	$	36,943
Debt	2,155		2,155		—		—		—
Purchase obligations (1)	9,765		6,701		2,896		168		—
Total	$	89,705	$	17,950	$	18,715	$	16,097	$	36,943

Research and Development. Research and development expenses consist primarily of salaries, employee benefits, related overhead costs and consulting fees relating to product development, enhancements, upgrades, testing, quality assurance and documentation. Research and development expenses decreased to $28.6 million for the six months ended November 30, 2005 from $31.3 million for the six months ended November 30, 2004, representing an 8.8% decrease. The $2.7 million decrease in research and development was primarily due to a $1.3 million decrease in employee costs resulting from workforce reductions primarily related to restructuring initatives, a $2.1 million decrease related to a planned reduction in contract personnel and a $0.3 million decrease in depreciation expense as a result of efforts to maintain capital expenditures. The decreases were partially offset by a $1.2 million increase in outsourcing to the recently established off-shore third-party relationship resulting in overall productivity improvements. Research and development expenses as a percentage of total revenues for the six months ended November 30, 2005 and 2004 were 16.2% and 18.9%, respectively.

(1) Our purchase obligations represent those commitments greater than $50,000. Included in Purchase obligations is $1.6 million of fees and expenses incurred in relation to the informal SEC investigation. We have incurred approximately $2.2 million of fees and expenses, of which $0.6 million was incurred during the second quarter fiscal 2005.22

~~Factors~~Sales ~~That~~and ~~May~~Marketing. Sales and ~~Affect~~marketing ~~Future~~expenses ~~Results~~consist orprimarily of salaries and incentive compensation, employee benefits and travel and overhead costs related to our sales and marketing personnel, as well as trade show activities and advertising costs. Sales and marketing expenses decreased to $38.4 million for the ~~Market~~six ~~Price~~months ended November 30, 2005 from $40.5 million for the six months ended November 30, 2004, representing a 5.2% decrease. The $2.1 million decrease in sales and marketing expenses was due to a $2.2 million reduction in advertising costs, a $0.9 million reduction in consulting fees and a $0.5 million reduction in marketing initiatives. In addition, there was a $2.7 million decrease in employee and related costs due to workforce reductions primarily related to restructuring initiatives, a $1.0 million reduction for travel expenses due to lower headcount and a $0.5 million reduction in facility costs. These decreases were partially offset by a $4.0 million increase in incentive compensation primarily due to increased license revenue, a $0.9 million increase in costs related to the pending merger with Intentia and a $0.5 million increase in other costs primarily consisting of training. Sales ~~Our~~and ~~Stock~~marketing expenses as a percentage of total revenues for the six months ended November 30, 2005 and 2004 were 21.7% and 24.4%, respectively.

WeGeneral ~~operate~~and inAdministrative. General aand administrative ~~rapidly~~expenses ~~changing environment~~consist ~~that~~primarily ~~involves~~of ~~numerous~~salaries, ~~uncertainties~~employee benefits and related ~~risks. Investors~~overhead ~~evaluating~~costs ~~our~~for ~~company~~administrative ~~and~~employees, ~~its~~as well as legal and ~~business~~accounting ~~should~~expenses, ~~carefully~~consulting ~~consider~~fees, ~~the~~bad ~~factors~~debt ~~described~~expense ~~below~~and corporate insurance policies, including property and ~~all~~casualty, general liability and other ~~information~~insurance. General ~~contained~~and inadministrative expenses ~~this~~increased ~~report~~to ~~on Form 10-Q~~$26.9 million ~~This~~for ~~section~~the six months ended November ~~should~~30, be2005 ~~read~~from in$16.2 million ~~conjunction~~for ~~with~~ the ~~Condensed~~six ~~Consolidated~~months ~~Financial~~ended ~~Statements~~November 30, ~~and~~2004, ~~Notes~~representing ~~thereto~~a ~~and~~66.5% ~~Management’s~~increase. ~~Discussion~~The ~~and~~$10.8 ~~Analysis~~million ofincrease ~~Financial~~in ~~Condition~~ general and administrative ~~Results~~expenses ofwas ~~Operations~~primarily ~~included~~due to $7.3 million in ~~this~~costs ~~report~~associated with onthe ~~Form 10-Q. Any~~departure of the ~~following~~former ~~factors~~president ~~could~~and ~~materially~~CEO. These costs included a $6.3 million ~~harm~~non-cash ~~our~~charge ~~business,~~for ~~operating~~stock ~~results~~option expense and ~~financial~~a ~~condition~~$1.0 ~~Additional~~million cash payment ~~factors~~resulting ~~and~~from ~~uncertainties~~a ~~not~~negotiated ~~currently~~separation ~~known~~agreement. The toremaining usincrease orwas ~~that~~due weprimarily ~~currently~~to a ~~consider~~$1.3 ~~immaterial~~million ~~could~~increase ~~also~~in ~~harm~~incentive ~~our~~compensation ~~business,~~and ~~operating~~related ~~results~~taxes, ~~and financial~~a ~~condition~~$1.7 million Weincrease ~~may~~in ~~make~~costs ~~forward-looking~~for ~~statements~~the ~~from~~pending ~~time~~merger towith ~~time~~Intentia, a $1.2 million ~~both~~increase ~~written~~in ~~and~~contractor ~~oral~~spending primarily in finance, $0.8 Wemillion ~~undertake~~in noother severance ~~obligation~~costs toand ~~revise~~$0.3 ormillion ~~publicly~~for ~~release the~~placement ~~results~~fees offor ~~any~~new ~~revisions~~employees. The toincreases ~~these~~in ~~forward-looking~~costs ~~statements~~were ~~based~~partially onoffset ~~circumstances~~by ora ~~events~~$2.1 ~~which~~million ~~occur~~decrease in ~~the~~bad ~~future.~~debt ~~The~~expense ~~actual~~primarily ~~results~~driven ~~may~~by improved ~~differ~~aging ~~materially~~of ~~from~~receivables ~~those~~due ~~projected~~to instrong ~~any~~collection ~~such~~efforts ~~forward-looking~~and ~~statements~~lower specific ~~due~~reserves. General toand administrative expenses as a ~~number~~percentage of ~~factors,~~total ~~including~~revenues ~~those~~for ~~set~~the ~~forth~~six ~~below~~months ended November 30, 2005 and ~~elsewhere~~2004 ~~in this~~were ~~report~~15.2% onand ~~Form 10-Q~~9.8%, respectively.

~~Economic~~Restructuring. During the six months ended November 30, ~~political~~2005 ~~and~~we ~~market~~recorded ~~conditions~~a $0.01 million restructuring ~~can~~charge ~~adversely~~compared ~~affect~~with ~~our~~a ~~revenue~~$5.4 ~~growth~~million ~~and~~restructuring ~~operating~~charge, ~~results~~for the six months ended November 30, 2004. See Note 7 of Notes to Condensed Consolidated Financial Statements for a summary of activity for year-to-date fiscal 2006.

~~Our~~Amortization ~~revenue and profitability depend on the overall~~of ~~demand~~Acquired ~~for computer software, support and services, particularly in the~~Intangibles. Amortization ~~industries~~of inacquired ~~which~~intangibles ~~we sell our products and services. Demand~~ for ~~enterprise~~the ~~software~~six ~~and~~months ~~demand~~ended ~~for our solutions are affected by general economic conditions~~November 30, ~~competition,~~2005 ~~product~~of ~~acceptance and technology lifecycles~~$0.7 ~~Regional~~million ~~and~~was ~~global~~primarily ~~changes~~consistent inwith the economy, governmental budget deficits and political instability in certain geographic areas have resulted in companies, government agencies and educational institutions reducing their spending for technology projects generally and delaying or reconsidering potential purchases of our products and related services$0.8 ~~The~~million uncertainty posed by the long-term effects of the war in the Middle East, terrorist activities and related uncertainties and risks and other geopolitical issues may impact the purchasing decisions of current or potential customers. Because of these factors, we believe the level of demand for ~~our products and services, and projections of future revenue and operating results, will continue to be difficult to predict. During fiscal 2005 and~~ the ~~prior three fiscal~~six ~~years,~~months weended ~~took measures to realign our projected expenses with anticipated revenue~~November 30, ~~and incurred restructuring charges for severance and related benefits, facility closure or consolidation charges~~2004. There is no assurance that these cost reduction measures will be sufficient to offset any future revenue declines. Future declines in demand for our products and/or services could adversely affect our revenues and operating results.

AOther ~~number~~Income, ~~of our competitors are well-established software companies that have advantages over us.~~Net

WeOther ~~face~~income, ~~competition~~net, ~~from~~which ais ~~number~~primarily comprised of ~~software~~ ~~companies~~interest ~~that~~income ~~have~~earned ~~advantages~~from ~~over us due to their larger client bases~~cash, ~~greater~~marketable ~~name~~securities ~~recognition,~~and long term ~~operating~~investments ~~and~~increased ~~product~~to ~~development history,~~$4.6 ~~greater~~million ~~international~~for ~~presence~~the ~~and~~six ~~substantially~~months ~~greater~~ended ~~financial~~November 30, ~~technical~~2005 ~~and~~from ~~marketing resources~~$1.5 ~~These~~million ~~competitors~~for ~~include~~the ~~well-established companies~~six ~~such~~months asended ~~Oracle Corporation~~November 30, ~~PeopleSoft, Inc~~2004. The ~~and SAP AG, all of which have larger installed client bases~~$3.1 Ifmillion ~~clients~~increase orin ~~prospects~~interest ~~want to~~income ~~reduce~~was ~~the~~due ~~number~~primarily ~~of their software vendors, they may elect~~ to ~~purchase competing~~a ~~products~~$59.6 ~~from~~million ~~Oracle,~~increase ~~PeopleSoft~~in oraverage ~~SAP~~invested ~~since~~balances ~~those larger vendors~~and ~~offer~~an aincrease ~~wider~~in ~~range~~average ~~of products.~~yields, ~~When~~which ~~completed,~~were ~~Oracle’s~~3.5% ~~pending~~and ~~acquisition~~1.6% offor ~~PeopleSoft will further increase~~ the ~~size~~ ~~and~~six ~~scope~~months ofended ~~Oracle’s business.~~November ~~Furthermore~~30, ~~Oracle~~2005 isand ~~capable~~2004, respectively, ofand ~~bundling~~$0.4 ~~its~~million ~~software~~in ~~with~~interest ~~its database~~income ~~applications,~~received ~~which~~on ~~underlie~~ a ~~significant~~tax ~~portion of our installed applications~~refund.

InProvision ~~addition,~~(Benefit) wefor ~~compete~~Income ~~with a variety of more specialized software and services vendors, including:~~Taxes

24We recorded a $4.4 million income tax provision for the six months ended November 30, 2005 compared with a $2.3 million income tax benefit for the six months ended November 30, 2004. Our income tax provision (benefit) is based on pretax income (loss) and consists primarily of federal and state income taxes. The quarterly tax expense is measured using an estimated annual tax rate for the period. At November 30, 2005, the Company’s estimated annual tax rate is 39.7%. Our effective tax rate was 29.1% and 39.9% for the six months ended November 30, 2005 and 2004, respectively. The decreased effective tax rate was primarily the result of releasing $1.6 million of tax reserves in the first quarter of fiscal 2006. We review our reported effective tax rate on a quarterly basis and make any necessary changes.

~~• Internet (on demand) software vendors;~~23

~~• single-industry~~Liquidity ~~software~~and ~~vendors;~~Capital Resources

• emerging enterprise resource optimization software vendors;

	As of and for the Six Months Ended November 30,
(in millions, except %)	2005		2004			Change
Working capital	$	210.3	$	170.8		23.1	%
Cash and cash equivalents and marketable securities	$	260.8	$	208.9		24.8	%
Cash provided by operating activities	$	23.4	$	5.9		294.4	%
Cash used in investing activities	$	44.7	$	27.7		61.6	%
Cash provided by (used in) financing activities	$	6.3	$	(4.3	)	246.9	%

~~• human~~As ~~resource~~of ~~management~~November 30, ~~software~~2005 ~~vendors;~~we had $260.8 million in cash, cash equivalents and marketable securities and $210.3 million in working capital. Our most significant source of operating cash flows is derived from license fees and services to our customers. Days sales outstanding, which is calculated on net receivables at period end divided by revenue for the quarter times 90 days in the quarter, was 49 and 45 as of November 30, 2005 and May 31, 2005, respectively. The increase is reflective of a $6.0 million increase in accounts receivable associated with the increased sales during the second quarter of fiscal 2006 versus the fourth quarter of fiscal 2005. Our primary uses of cash from operating activities are for employee costs, third-party costs for licenses and services, and facilities.

~~• financial~~We ~~management~~believe ~~software~~that ~~vendors~~cash flows from operations, together with our cash, cash equivalents and marketable securities, will be sufficient to meet our cash requirements for working capital, capital expenditures and investments for the foreseeable future. As part of our business strategy we may acquire companies or products from time to time to enhance our product lines. On June 2, 2005 we entered into an agreement to combine with Stockholm, Sweden-based Intentia International AB. We intend this to be an all-stock transaction; however we may utilize cash to acquire certain shares as well as to fund acquisition related costs. We are estimating these acquisition related costs to be in the range of $115 million to $130 million, which includes approximately $10 million to $15 million of costs to close the transaction, approximately $25 million to $35 million of integration costs once the transaction is completed, approximately $40 million for the pay-off of loans and approximately $40 million if all the Intentia shares are not tendered and we are required to purchase them for cash. We believe we have sufficient cash to fund this business transaction. For additional information refer to Note 5, “Pending Business Combination” in the Notes to the Condensed Consolidated Financial Statements.

~~• merchandising~~Cash ~~software~~flows ~~vendors;~~from operating activities:

~~• services~~Net ~~automation~~cash ~~software~~provided ~~vendors;~~by operating activities was $23.4 million for the six months ended November 30, 2005 compared with $5.9 million for the six months ended November 30, 2004. Our net income of $10.7 million was increased by $14.7 million in non-cash charges before working capital changes. Non-cash charges primarily consist of a $6.4 million stock compensation charge related to a negotiated separation agreement with the Company’s former president and chief executive officer and $7.3 million of depreciation and amortization. The $2.0 million in net working capital changes decreased the overall cash provided to $23.4 million.

~~• outsourced~~The ~~services~~activity ~~providers~~in working capital changes for fiscal 2006 primarily relates to a $6.7 million net decrease in cash used for prepaid expenses and other assets and an increase in income taxes payable related to the increase earnings that was offset by an increase in accounts receivable related to the increased sales and a $3.6 million net decrease in cash received on customer support billings that is reflected as a decrease in deferred revenue. The net decrease in cash used for prepaid expenses and other assets is primarily due to an $8.8 million federal tax refund, including interest, received during the first quarter of fiscal 2006. The $3.6 million decrease in deferred revenue was primarily due to a decrease in deferred revenue associated with customer support. The decrease is a result of the timing of some customer collections that occurred in December rather than November.

AsCash aflows ~~result, the market for enterprise~~from ~~software~~investing applications has been and continues to be intensely competitive. Some competitors are increasingly aggressive with their pricing, payment terms and/or issuance of contractual warranties, implementation terms or guarantees. We may be unable to continue to compete successfully with new and existing competitors without lowering prices or offering other favorable terms. We expect competition to persist and intensify, which could negatively impact our operating results and market share.activities:

WeNet ~~may~~cash beused ~~unable~~in toinvesting ~~retain~~activities ~~or attract~~was ~~clients~~$44.7 ifmillion wefor dothe ~~not~~six ~~develop~~months ~~new~~ended ~~products~~November 30, ~~and~~2005 ~~enhance~~compared ~~our~~with $27.7 ~~current~~million ~~products~~for ~~in response~~the tosix ~~technological~~months ~~changes~~ended ~~and~~November ~~competing~~30, ~~products~~2004. The decrease in cash from investing activities for the six

As a software company, we have been required to migrate our products and services from mainframe to client-server to web-based environments. In addition, we have been required to adapt our products to emerging standards for operating systems, databases and other technologies. We will be unable to compete effectively if we are unable to:24

~~• maintain~~months ~~and~~ended ~~enhance~~November 30, 2005 ~~our~~primarily ~~technological~~related to $41.2 million of cash used in net purchases of ~~capabilities~~marketable securities as well as $2.4 million of cash paid in conjunction with the acquisition of Intentia. Refer to Note ~~correspond~~5 “Pending Business Combination” in the Notes to ~~these~~the ~~emerging~~Condensed ~~environments~~Consolidated Financial ~~and~~Statements ~~standards;~~for additional information.

~~• develop~~We have made reclassifications to our Condensed Consolidated Statement of Cash Flows for fiscal 2005 to reflect the gross purchases and ~~market~~gross ~~products~~sales of Dutch auction rate securities as investing activities rather than as a component of cash and ~~services~~cash ~~that~~equivalents. Refer to ~~meet~~Note 1, ~~changing~~“Basis ~~client~~of ~~needs;~~Presentation” orin the Notes to the Condensed Consolidated Financial Statements.

~~• anticipate~~Cash orflows ~~respond to technological~~from ~~changes~~financing ~~on a cost-effective and timely basis.~~activities:

ANet ~~substantial~~cash ~~portion~~provided ofby ~~our~~financing ~~research~~activities was ~~and~~$6.3 ~~development~~million ~~resources~~for isthe ~~devoted~~six tomonths ~~product~~ended ~~upgrades~~November 30, ~~that~~2005 ~~address regulatory~~compared ~~and~~with ~~support requirements~~$4.3 million ~~Only~~net ~~the~~cash ~~remainder~~used ofin ~~our~~financing ~~limited~~activities ~~research and development resources is available~~ for ~~new~~the ~~products.~~six ~~New~~months ~~products~~ended ~~require significant development~~November 30, ~~investment~~2004. ~~That~~The ~~investment~~financing isactivities ~~further constrained~~for ~~because of~~ the ~~added costs of developing new products that work~~ ~~with~~six ~~multiple~~months ~~operating~~ended ~~systems or databases.~~November We30, ~~face~~2005 ~~uncertainty~~primarily ~~when~~related ~~we develop or acquire new products because~~to ~~there~~$5.7 ismillion noin ~~assurance~~cash ~~that~~received afrom ~~sufficient~~the ~~market~~exercise ~~will~~of ~~develop~~stock ~~for~~options ~~those products~~and $1. If5 wemillion ~~do not attract sufficient client interest~~ in ~~those~~cash ~~products,~~received wefrom ~~will~~employee ~~not~~contributions ~~realize~~to ~~a return on~~ our ~~investment~~employee ~~and our~~stock ~~operating~~purchase ~~results will be adversely affected~~plan.

OurRepurchase core technologies face competition from new or revised technologies that may render our existing technology less competitive or obsolete, reducing the demand for our solutions. As a result, we must continually redesign our products to incorporate these new technologies and to adapt our software products to operate on, and comply with evolving industry standards for hardware and software platforms. Maintaining and upgrading our products to operate on multiple hardware and database platforms reduces our resources for developing new products. Because of theCommon increased costs of developing and supporting software products across multiple platforms, we may need to reduce the number of those platforms. In addition, conflicting new technologies present us with difficult choices of which new technologies to adopt. If we fail to anticipate the most popular platforms or fail to respond adequately to technological developments, or experience significant delays in product development or introduction, our business and operating results will be negatively impacted.Shares

In ~~addition,~~June 2003 our Board of Directors authorized us to ~~the~~repurchase ~~extent~~up weto ~~determine that~~$50.0 ~~new~~million ~~technologies~~of ~~and~~our ~~equipment~~common ~~are~~shares. ~~required~~Shares were repurchased from time to ~~remain~~time ~~competitive,~~as ~~the~~market conditions warranted either ~~development~~through open market transactions, ~~acquisition~~block ~~and~~purchases, ~~implementation~~private oftransactions ~~such~~or other ~~technologies~~means. During ~~may~~the ~~require~~six usmonths ended toNovember 30, ~~make~~2004, ~~significant~~we ~~capital~~completed ~~investments.~~the Weauthorized ~~may~~stock ~~not~~repurchase beplan ~~able~~by purchasing tothe ~~obtain~~remaining ~~capital for~~1.4 ~~these~~million ~~purposes~~shares ~~and~~for ~~investments~~$10.0 million in ~~new~~cash. Cash ~~technologies~~proceeds ~~may~~obtained ~~not~~from ~~result~~maturities inof ~~commercially~~marketable ~~viable~~securities, ~~technological~~the ~~products.~~exercise ~~The~~of ~~loss~~employee ofstock ~~revenue~~options and ~~increased~~contributions ~~costs~~ to usthe ~~from~~employee ~~such~~stock ~~changing~~purchase ~~technologies~~plan ~~would~~largely ~~adversely~~funded ~~affect~~the ~~our~~share ~~business~~repurchases. The repurchased shares, which remain in ~~and~~treasury, ~~operating~~will ~~results~~be used for general corporate purposes.

25Disclosures about Contractual Obligations and Commercial Commitments

~~Our~~The ~~earnings~~following ~~may~~summarizes beour ~~impacted~~contractual obligations byat November 30, 2005, and the ~~new~~effect these contractual ~~accounting~~obligations ~~pronouncement~~are ~~requiring~~expected ~~expensing~~to ofhave ~~equity~~on ~~instruments~~our ~~issued~~liquidity toand cash flows in future ~~employees.~~periods (in thousands):

We currently account for the issuance of stock options under APB Opinion No. 25, “Accounting for Stock Issued to Employees”. The FASB has issued SFAS No. 123(R), “Share-Based Payment” that changes the accounting treatment for grants of options, sale of shares under our employee stock purchase plan and other equity instruments issued to employees. The provisions of SFAS No. 123(R) require us to value equity instruments issued to employees and liability-classified awards at grant date fair value or based upon certain valuation methods that approximate grant date fair value, and to record those values as compensation expense in our statement of operations. We will be required to expense all outstanding non-vested stock options as of September 1, 2005 and stock options and other applicable equity instruments issued to employees on or after September 1, 2005. Due to the significant number of outstanding unvested stock options as of September 1, 2005, we expect to incur material compensation expense after September 1, 2005 as those options vest or in the event we decide to accelerate vesting. We may decide to change our stock based compensation plan strategy for future grants. This could affect our ability to retain existing employees and attract qualified candidates, and also could increase the cash compensation. Note 2 of Notes to the Condensed Consolidated Financial Statements describes the pro forma impact of a change to fair value accounting on earnings and earnings per share for the three and six months ended November 30, 2004 and 2003.

	Total		1 Year or Less		1-3 Years		3-5 Years		More than 5 Years
Balance Sheet Contractual Obligations:
Debt	$	1,048	$	1,048	$	—	$	—	$	—
Strategic partner commitments (2) (3)	1,200		1,200		—		—		—
Total	$	2,248	$	2,248	$	—	$	—	$	—
Other Contractual Obligations:
Operating leases	$	69,512	$	8,220	$	16,321	$	15,970	$	29,001
Purchase obligations (1)	12,508		8,967		3,394		147		—
Total	$	82,020	$	17,187	$	19,715	$	16,117	$	29,001

Total Contractual Obligations	$	84,268	$	19,435	$	19,715	$	16,117	$	29,001

~~Because~~(1) Our ~~our~~purchase obligations ~~clients~~represent ~~are~~those ~~concentrated~~commitments ~~in targeted~~greater ~~service~~than ~~industries~~$50,000 ~~our~~and ~~operating results may be adversely affected by~~consist ~~adverse~~primarily ~~changes~~of incommitments ~~one~~for ormarketing ~~more of these industries~~activities.

As(2) Under athe ~~result~~Agreement ofwith ~~our~~Hackett ~~focus~~that oncommenced ~~targeted service industries~~May 9, ~~our financial results depend~~2005, inwe paid ~~significant~~$1.1 ~~part,~~million ~~upon~~during ~~economic and~~the ~~market~~six ~~conditions~~months inended ~~the healthcare~~November 30, ~~retail~~2005, ~~government~~ and ~~education and~~are ~~financial~~contractually ~~services~~committed ~~industries.~~to ~~Because~~pay ~~the~~an ~~healthcare~~additional ~~marketplace~~$1.0 ~~for~~million ~~our products~~within isthe ~~maturing,~~next twelve wemonths. We ~~need~~will topay ~~expand~~additional fees ~~our~~when ~~product~~sales ~~offerings~~volumes tomeet ~~achieve long-term~~established ~~revenue~~criteria ~~growth.~~throughout ~~Many~~the ~~state~~term ~~and~~of ~~local~~the contract. The ~~governments~~Agreement ~~are~~identifies ~~facing budget~~joint ~~shortfalls~~programs ~~and~~in ~~are~~which ~~reducing~~Hackett ~~capital~~will ~~spending,~~provide ~~including~~the ~~spending~~Company ~~on software~~ and ~~services. In~~its ~~addition,~~customers ~~we must~~and ~~continue~~prospects ~~to develop industry specific functionality for our solutions~~with, ~~which satisfies~~among ~~the~~other ~~changing~~things, ~~specialized~~access ~~requirements~~to ofHackett ~~prospective~~benchmark ~~clients~~tools, inbest-practices ~~our~~research ~~target~~and ~~industries.~~business ~~This~~advisory ~~need~~services. See Note 9 is“Commitments ~~becoming~~and ~~more~~Contingencies” ~~prevalent~~to as the ~~marketplace~~ ~~for~~Condensed ~~our~~Consolidated Financial ~~traditional~~Statements ~~products~~for isadditional ~~maturing~~information.

We(3) In ~~may~~fiscal ~~experience~~2005, ~~fluctuations~~the inCompany ~~quarterly~~and International ~~revenue~~Business Machines Corporation (IBM) entered into an OEM Software Agreement that was ~~could~~modified ~~adversely~~in ~~impact~~the ~~our~~second ~~stock~~quarter ~~price~~of fiscal 2006, and a Master Relationship Agreement (MRA). Under these agreements, we are reselling our ~~operating~~business applications ~~results~~in conjunction with IBM’s open standards-based software, and the companies will jointly market these software solutions. The MRA governs

Our actual revenues in a quarter could fall below expectations, which could lead to a decline in our stock price. Our revenues and operating results are difficult to predict and may fluctuate substantially from quarter to quarter. Revenues from license fees in any quarter depend substantially upon our licensing activity and our ability to recognize revenues in that quarter in accordance with our revenue recognition policies. Our quarterly license and services revenue may fluctuate and may be difficult to forecast for a variety of reasons, including the following:25

• the joint marketing activities and has a ~~significant~~three-year ~~number~~term. During the term of ~~our~~the modified OEM Software Agreement, we will pay royalties to IBM for the licensing of IBM programs to each applicable existing and new customer of the Company, ~~prospective~~and ~~clients’~~will ~~decisions~~also ~~regarding~~pay ~~whether~~IBM toannual ~~enter~~maintenance ~~into~~fees ~~license~~for each applicable ~~agreements~~customer. The royalty and maintenance payments to IBM are based on transactions with each applicable Lawson customer. The modified OEM Software Agreement has an initial term of three years commencing September 2005 and may be extended by us ~~are~~for ~~made~~two ~~within~~additional one-year terms. During the ~~last~~initial ~~few~~three-year term, ~~weeks~~we orhave agreed to pay certain minimum quarterly and annual royalties to IBM. Total commitments under the modified OEM Software Agreement approximate $9.5 million over the three-year term. We may elect to terminate the OEM Software Agreement for convenience upon 90 days advance notice to IBM. If we elect early termination at any time during the initial three-year term, we would pay IBM any unpaid minimum royalties through the date of ~~each~~termination ~~quarter;~~plus a prorated share of the guaranteed annual minimum payment due for the year in which the termination occurred. We have made cash payments of $1.7 million according to the terms of the modified OEM Software Agreement during the six months ended November 30, 2005. In addition, we recorded $0.2 million as other accrued liabilities on the November 30, 2005 Condensed Consolidated Balance Sheet, representing the prorated portion of the $0.6 million annual minimum owed in the initial year of the contract. See Note 9 “Commitments and Contingencies” to the Condensed Consolidated Financial Statements for additional information.

~~• we~~Off-Balance-Sheet have historically had a higher concentration of licensing activities in the second half of our fiscal year due to the nature of our sales personnel compensation programs, but there is no assurance that this pattern will or will not continue;Arrangements

~~• the~~We ~~size~~do not use off-balance-sheet arrangements with unconsolidated entities, related parties or other forms of ~~license~~off-balance-sheet arrangements ~~transactions~~such ~~can~~as ~~vary~~research and development arrangements. Accordingly, our ~~significantly;~~liquidity and capital resources are not subject to off-balance-sheet risks from unconsolidated entities. As of November 30, 2005, we did not have any off-balance-sheet arrangements, as defined in Item 303(a) (4) (ii) of SEC Regulation S-K.

~~• a~~We ~~decrease~~have inentered ~~license~~into ~~fee~~operating ~~revenue~~leases ~~may~~for ~~likely~~most U.S. ~~result~~and international sales and support offices and certain equipment in the normal course of business. These arrangements are often referred to as a ~~decrease~~form inof off-balance-sheet ~~services~~financing. ~~revenue~~As inof November 30, 2005, we leased facilities and certain equipment under non-cancelable operating leases expiring between 2006 and 2017. Rent expense under operating leases for the ~~same~~three ormonths ~~subsequent~~ended ~~quarters;~~November 30, 2005 and 2004 was $3.3 million and $3.5 million, respectively. Rent expense under operating leases for the six months ended November 30, 2005 and 2004 was $6.9 million. Future minimum lease payments under our operating leases as of November 30, 2005 are included above in “Disclosures about Contractual Obligations and Commercial Commitments”.

~~• clients may~~Recent ~~unexpectedly~~Accounting ~~postpone or cancel projects due to changes in their strategic priorities, project objectives, budget or personnel;~~Pronouncements

• In December 2004 the ~~uncertainty~~Financial ~~caused~~Accounting Standards byBoard ~~potential~~(FASB) ~~business~~issued Statement of Financial Accounting Standard No. 123 ~~combinations~~(revised 2004), Share-Based Payment (“SFAS No. 123(R)”). SFAS No. 123(R) requires compensation cost relating to unvested share-based payment transactions that are outstanding as of the effective date and newly issued transactions to be recognized in the financial ~~software~~statements. ~~industry~~The ~~may~~cost ~~cause~~will ~~clients~~be measured based on the fair value of the equity or liability instruments issued. SFAS No. 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights and ~~prospective~~employee ~~clients~~share purchase plans. SFAS No. 123(R) supersedes SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”), and supersedes Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to ~~cancel~~Employees (“Opinion 25”). SFAS No. 123, ~~postpone~~as originally issued in 1995, established a fair-value-based method of accounting for share-based payment transactions with employees. However, SFAS No. 123 permitted entities the option of continuing to apply the guidance in Opinion 25, as long as the footnotes to financial statements disclosed what net income would have been had the fair-value-based method been used. We elected the option of disclosure only under SFAS No. 123. In our disclosures, we have historically used the Black-Scholes option pricing model to determine the fair value of its share based compensation arrangements. Upon the adoption of SFAS No. 123(R), we will determine whether it will continue to utilize the Black-Scholes model or adopt ~~reduce~~some ~~capital~~other ~~spending~~acceptable ~~projects~~model. Public entities are required to apply SFAS No. 123(R) as of the first annual reporting period that begins after June 15, 2005, which is effective with our first quarter of fiscal 2007. Based on ~~software;~~the significant amount of our unvested share-based payment awards, the adoption of this statement is anticipated to have a material impact on our Consolidated Statements of Operations, however we are currently evaluating the impact. Historically, had compensation costs for the Company’s stock options been recognized based on the fair value at the grant date consistent with the provisions of SFAS No. 123, the Company’s diluted earnings per share would have been reduced by $0.06, $0.05, and $0.05, respectively, for the years ended May 31, 2005, May 31, 2004, and May 31, 2003, as disclosed in the Company’s Annual Report on Form 10-K and Form 10-K/A filed for the fiscal year ended May 31, 2005.

~~• client~~In ~~evaluations~~May 2005, the FASB issued SFAS No 154, “Accounting Changes and ~~purchasing~~Error ~~processes~~Corrections — A replacement of APB Opinion No 20 and FASB ~~vary~~Statement ~~significantly~~No. 3” ~~from~~(“SFAS ~~company~~154”). SFAS 154 tochanges ~~company,~~the requirement for the accounting for and reporting of a ~~client’s~~change ~~internal~~in accounting ~~approval~~principle. This statement ~~and~~applies ~~expenditure~~to ~~authorization~~all ~~process~~voluntary ~~can~~changes bein ~~difficult~~accounting principles and ~~time~~changes ~~consuming~~required by toan accounting pronouncement in the unusual instance that the pronouncement does not include

~~complete,~~specific transition ~~even~~provisions. The ~~after~~provisions ~~selection~~in SFAS 154 are effective for accounting changes and correction of aerrors ~~vendor;~~made in fiscal years beginning after December 15, 2005, which is effective with our first quarter of fiscal 2007.

~~• the~~ITEM ~~number,~~3. ~~timing~~QUALITATIVE ~~and~~AND ~~significance~~QUANTITATIVE ~~of software~~DISCLOSURES ~~product~~ABOUT ~~enhancements~~MARKET ~~and new software product announcements;~~RISK

~~• existing~~There ~~clients~~were ~~may~~no ~~decline~~material tochanges ~~renew~~in ~~support~~market risk for ~~our~~the ~~products,~~Company ~~and~~in ~~market~~the ~~pressures~~period ~~may~~covered ~~limit~~by ~~our~~this ~~ability~~report. toSee ~~increase~~the ~~support~~Company’s Annual ~~fees~~Report oron ~~require~~Forms ~~clients~~10-K toand ~~upgrade~~10-K/A ~~from~~for ~~older~~the ~~versions~~fiscal year ended May 31, 2005 for a discussion of ~~our~~market ~~products;~~risk for the Company.

~~• prospective~~ITEM ~~clients~~4. ~~may~~CONTROLS ~~decline~~AND ~~or defer the purchase of new products or releases if we do not have sufficient client references for those products; or~~PROCEDURES

• (a) Evaluation of Disclosure Controls and Procedures – Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we ~~may~~evaluated ~~have~~the toeffectiveness ~~defer~~of ~~revenues~~the ~~under~~design and operation of our disclosure controls and procedures (as defined in Rule ~~revenue~~13a-15(e) ~~recognition~~under ~~policies~~the Securities Exchange Act of 1934 (the “Exchange Act”)). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective.

~~Fluctuation~~(b) Changes in ~~our quarterly revenues~~Internal ~~may~~Control ~~adversely~~Over ~~affect~~Financial ~~our~~Reporting ~~operating~~– ~~results.~~There Inwere ~~each~~no ~~fiscal~~changes ~~quarter~~in our ~~expense~~internal ~~levels,~~control ~~operating~~over ~~costs~~financial ~~and~~reporting ~~hiring~~identified ~~plans~~in ~~are~~connection ~~based~~with onour ~~projections of future~~evaluation ~~revenues~~during ~~and~~the ~~are~~quarter ~~relatively~~ended ~~fixed.~~November If30, ~~our~~2005, ~~actual~~which ~~revenues~~have ~~fall~~materially ~~below~~affected, or ~~expectations~~are wereasonably ~~could~~likely ~~experience~~to amaterially ~~reduction~~affect, inour ~~operating~~internal ~~results~~control over financial reporting.

~~Our lengthy and variable sales cycle makes it difficult to predict our operating results.~~27

It is difficult for us to forecast the timing and recognition of revenues from sales of our products because our existing and prospective clients often take significant time evaluating our products before licensing themPART II. ~~The period between initial client contact and a~~OTHER purchase by a client may vary from nine months to more than one year. During the evaluation period, prospective clients may decide not to purchase or may scale down proposed orders of our products for various reasons, including:INFORMATION

~~• reduced~~ITEM ~~demand~~1. ~~for~~LEGAL ~~enterprise software solutions;~~PROCEEDINGS

~~• introduction~~We are, and from time to time may become, involved in litigation in the normal course of business concerning our products byand services. While the outcome of these claims cannot be predicted with certainty, we do not believe that the outcome of any one of these legal matters will have a material adverse effect on our consolidated financial position, ~~competitors;~~results of operations or cash flows. However, depending on the amount and the timing, an unfavorable resolution of some or all of these matters could materially affect our future results of operations or cash flows in a particular period.

~~• lower~~ITEM ~~prices~~1A. ~~offered~~RISK ~~by our competitors;~~FACTORS

~~• changes~~Factors inThat ~~budgets~~May Affect ~~and~~Our ~~purchasing~~Future ~~priorities;~~Results ~~and~~or the Market Price of our Stock

~~• reduced~~We ~~need~~operate in a rapidly changing environment that involves numerous uncertainties and risks. Investors evaluating our company and its business should carefully consider the factors described below and all other information contained in this report on Form 10-Q. This section should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this report on Form 10-Q. Any of the following factors could materially harm our business, operating results and financial condition. Additional factors and uncertainties not currently known to ~~upgrade~~us ~~existing~~or that we currently consider immaterial could also harm our business, ~~systems~~operating results and financial condition. We may make forward-looking statements from time to time, both written and oral. We undertake no obligation to revise or publicly release the results of any revisions to these forward-looking statements based on circumstances or events which occur in the future. The actual results may differ materially from those projected in any such forward-looking statements due to a number of factors, including those set forth below and elsewhere in this report on Form 10-Q.

~~Our~~Risks ~~existing~~Relating ~~and~~to ~~prospective~~the ~~clients~~Proposed ~~routinely~~Business ~~require education regarding~~Combination ~~the~~between ~~use~~Lawson and ~~benefits~~Intentia ofInternational ~~our products. This may also lead to delays in receiving clients’ orders.~~AB

~~Our~~On ~~future~~June 2, 2005 ~~revenue~~we isannounced ~~dependent~~an agreement to combine Lawson with Intentia International AB in ~~part~~an all-stock transaction referred to as an “Exchange Offer”. If the transaction is completed, Lawson will issue approximately 81 million shares of Lawson common stock pursuant to the terms of the Exchange Offer. If the Exchange Offer is accepted and the transaction is completed, each Series A share of Intentia stock will be entitled to receive 0.5061 newly issued shares of Lawson common stock; each Series B share of Intentia stock will be entitled to receive 0.4519 newly issued shares of Lawson common stock; and each Warrant for the purchase of Intentia stock will be entitled to receive 0.2157 newly issued shares of Lawson common stock. These exchange ratios will not change based on the fluctuations in the market price of our ~~installed~~common ~~client~~stock. ~~base~~The ~~continuing~~closing toof ~~renew~~the ~~support~~Exchange ~~agreements~~Offer and business combination with Intentia is subject to several conditions, ~~license~~including ~~additional~~regulatory ~~products~~review, approval by our stockholders and ~~purchase~~sufficient tender of shares by Intentia security holders. Our efforts to close the business combination and integrate our two businesses will create several additional ~~professional~~risks ~~services~~and uncertainties.

~~Our~~The ~~installed~~exchange ~~client~~ratios ~~base~~are ~~has~~fixed ~~traditionally generated~~and ~~additional~~will ~~support,~~not ~~license~~be oradjusted ~~professional~~based ~~service revenues. In~~on ~~future~~fluctuations ~~periods,~~in ~~clients~~our ~~may~~stock ~~not necessarily make these purchases~~price. ~~Support~~ isAs ~~generally renewable annually at~~ a ~~client’s option~~result, ~~and~~the ~~there~~specific ~~are~~dollar novalue ~~mandatory~~of ~~payment obligations or~~our ~~obligations~~common tostock ~~license~~that ~~additional~~Intentia ~~software.~~shareholders Ifand ~~our~~warrant ~~clients~~holders ~~decide~~will ~~not~~receive ~~to renew~~upon ~~their~~completion ~~support~~of ~~agreements~~the ortransaction ~~license~~will ~~additional~~depend ~~products~~on ~~or contract for additional services, or if they reduce~~ the ~~scope~~market value of ~~the support agreements,~~ our common ~~revenues~~stock ~~could~~at ~~decrease~~that ~~and our operating results could be adversely affected~~time.

WeLawson’s stock price has been volatile in the past and may ~~need~~continue to be volatile in the future. If the transaction is completed, Lawson will issue approximately 81 million shares of Lawson common stock pursuant to the terms of the Exchange Offer. If the Exchange Offer is accepted and the transaction is completed, each holder of a Series A share will be entitled to receive 0.5061 of a newly issued share of Lawson common stock; each holder of a Series B share will be entitled to receive 0.4519 of a newly issued share of Lawson common stock; and each holder of a Warrant will be entitled to receive 0.2157 of a newly issued share of Lawson common stock. These exchange ratios will not change based ~~our~~on ~~pricing~~the ~~models~~fluctuations in the market price of Lawson common stock. As a result, the specific dollar value of Lawson common stock that holders of Shares and Warrants will receive upon completion of the transaction will depend on the market value of Lawson common stock at that time. The market price of Lawson common stock upon the completion of the transaction will likely vary from the market price as of the date of this 10-Q Report and the date that the Exchange Offer is made to holders of Shares and Warrants. Any reduction in Lawson’s ~~compete~~stock ~~successfully~~price will result in holders of Shares and Warrants receiving less value at the time of the closing of the transaction. Conversely, any increase in Lawson’s stock price will result in holders of Intentia’s Shares and Warrants receiving greater value at the time of the closing of the transaction.

~~The intensely competitive markets in~~Variations ~~which~~in wethe ~~compete~~market ~~can~~price ~~put~~of ~~pressure~~Lawson oncommon usstock tomay ~~reduce~~be ~~our~~caused ~~prices. If~~by ~~our~~a ~~competitors~~number ~~offer deep discounts on~~of ~~certain~~factors, ~~products~~including, oramong ~~services~~others, changes in anthe ~~effort~~businesses, tooperations ~~recapture~~ or ~~gain market share or~~ toprospects ~~sell~~of ~~other~~Lawson ~~products~~ and/or ~~services~~Intentia, wethe ~~may~~timing ~~need~~of tothe ~~lower~~transaction, ~~prices or offer other~~regulatory ~~favorable~~considerations ~~terms~~and ingeneral ~~order~~market, tosoftware ~~compete~~industry ~~successfully. Any such changes would be likely to reduce margins~~ and ~~could~~economic ~~adversely affect operating results~~conditions.

27We may not be able to achieve the anticipated financial and strategic benefits of our proposed combination with Intentia.

AAmong ~~reduction~~the infactors considered by our ~~licensing~~Board ~~activity~~of ~~may~~Directors ~~result~~ in ~~reduced~~connection ~~services~~with ~~revenues~~its inapproval ~~future~~of ~~periods.~~the Exchange Offer were

Our ability to maintain or increase service revenue primarily depends on our ability to increase the number of our licensing agreements. Variances or slowdowns in licensing activity may adversely impact our consulting, training and support service revenues in future periods.28

~~While~~the weanticipated ~~believe~~financial weand ~~currently~~strategic ~~have~~benefits ~~adequate~~of ~~internal~~the ~~control~~combination of ~~over~~Lawson ~~financial~~and ~~reporting~~Intentia, weincluding ~~are~~the ~~required~~opportunities tofor ~~evaluate~~cost ~~our~~savings ~~internal~~from operational ~~control~~efficiencies ~~over financial~~and ~~reporting~~the ~~under~~anticipated ~~Section~~increase ~~404~~in ofsales resulting from the ~~Sarbanes-Oxley~~combined ~~Act~~efforts of ~~2002~~both businesses and ~~any~~the combined sales channels. We are ~~adverse~~not ~~results~~able ~~from~~to ~~such~~guarantee ~~evaluation~~that ~~could~~these ~~result~~savings inwill abe ~~loss~~realized ofwithin ~~investor~~the time ~~confidence~~periods incontemplated ~~our~~or ~~financial~~that ~~reports~~they will be realized at all. We are not able to guarantee that the combination of Lawson and ~~have~~Intentia anwill ~~adverse~~result ~~effect~~in onthe realization ~~our~~of ~~stock~~the full benefits, including increased sales anticipated by the ~~price~~businesses.

~~Pursuant~~The ~~to Section~~reconciliation ~~404~~ of ~~the Sarbanes-Oxley Act of 2002 (Section 404), beginning with our~~Intentia’s ~~Annual~~historical ~~Report~~financial onstatements ~~Form~~from ~~10-K~~Swedish ~~for~~GAAP ~~the fiscal year ending May 31, 2005, we will be required~~ to ~~furnish~~United aStates ~~report~~GAAP ~~by our management on our internal control over financial reporting. That report~~ will ~~contain,~~result ~~among~~in other matters, an assessment of the effectiveness of our internal control over financial reporting as of the end of our fiscal year, including a statement as to whether or not our internal control over financial reporting is effective. This assessment must include disclosure of any material ~~weaknesses in our internal control over financial reporting identified by management~~differences. ~~That report must also contain a statement that our auditors have issued an attestation report on management’s assessment of such internal controls.~~

~~The~~Intentia ~~Committee~~has ~~of Sponsoring~~informed ~~Organizations~~us ofthat ~~the~~its ~~Treadway~~historical ~~Commission~~financial statements ~~(COSO)~~have ~~provides~~been aprepared ~~framework for~~based ~~companies~~on togenerally ~~assess~~accepted ~~and~~accounting ~~improve~~principles in ~~their~~Sweden, ~~internal~~referred ~~control~~to ~~systems. Auditing~~as ~~Standard~~Swedish NoGAAP. 2Because ~~provides~~of the differences between ~~professional~~Swedish ~~standards~~GAAP and ~~related~~U.S. ~~performance~~GAAP, ~~guidance~~including, for ~~auditors to attest to~~example, ~~and~~differences ~~report~~in onsoftware revenue recognition, ~~management~~Intentia’s ~~assessment~~historical offinancial ~~the~~results ~~effectiveness~~under ofU.S. ~~internal~~GAAP ~~control~~will ~~over~~show ~~financial~~material ~~reporting~~differences ~~under~~for ~~Section~~each ~~404. Management’s assessment~~ of ~~internal~~the ~~controls over~~respective ~~financial~~periods, ~~reporting~~as ~~requires~~compared with ~~management~~Swedish toGAAP. ~~make~~As ~~subjective~~a ~~judgments and~~result, ~~particularly~~ ~~because~~the ~~Auditing~~Intentia ~~Standard~~financial Nostatements reconciled to U.S. 2GAAP ismay ~~just~~not ~~recently~~be ~~effective,~~indicative ~~some~~ of the ~~judgments~~results ~~will~~of operations to be expected in future ~~areas~~periods. ~~that~~In ~~may~~addition, bea ~~open~~substantial toportion ~~interpretation~~of ~~and~~Intentia’s deferred ~~therefore~~revenue ~~the~~under ~~report~~U.S. ~~may~~GAAP bewill ~~uniquely~~not ~~difficult~~be torecognizable ~~prepare~~in ~~and~~the ~~our~~future ~~auditors~~under ~~may~~U.S. GAAP ~~not~~due ~~agree~~to ~~with~~the ~~our~~impact ~~assessments.~~of purchase accounting.

~~While~~Our ~~we currently~~investment ~~believe~~in ~~our~~goodwill ~~internal control over financial reporting is effective, we are still performing the system~~ and ~~process documentation and evaluation~~intangibles ~~needed~~from ~~to comply with Section 404, which is both costly and challenging. During this process, if~~ our ~~management identifies~~acquisitions one or more material weaknesses in our internal control over financial reporting, we will be unable to assert such internal control is effective. If we are unable to assert that our internal control over financial reporting is effective as of May 31, 2005 (or if our auditors are unable to attest that our management’s report is fairly stated or they are unable to express an opinion on the effectiveness of our internal controls), we could ~~lose~~become ~~investor confidence in the accuracy and completeness of our financial reports, which would have an adverse effect on our stock price~~impaired.

~~While~~As of November 30, 2005 we ~~currently~~had ~~anticipate~~goodwill of ~~being~~$43.2 ~~able~~million toand ~~satisfy~~acquired ~~the~~intangibles of $27.5 million on our Condensed Consolidated ~~requirements~~Balance Sheet. Upon completion of ~~Section~~the pending ~~404~~merger inwith Intentia, we anticipate a ~~timely~~significant ~~fashion,~~increase in goodwill and acquired intangibles. To the extent that we ~~cannot~~do benot ~~certain~~generate assufficient cash flows to recover the ~~timing~~ ofnet ~~completion~~amount of ~~our~~the goodwill ~~evaluation~~and intangibles recorded, ~~testing~~the goodwill and ~~any~~intangibles ~~required~~could ~~remediation~~be ~~due~~subsequently inwritten-off. In ~~large~~such ~~part~~an event, toour ~~the~~results ~~fact~~of ~~that~~operations ~~there~~in isany nogiven ~~precedent~~period ~~available~~would bybe ~~which to~~negatively ~~measure~~impacted, ~~compliance~~and ~~with~~ the ~~new~~market ~~Auditing~~price ~~Standard~~of ~~No.~~our 2stock could decline.

WeThe integration ~~may~~of beLawson’s ~~required~~and toIntentia’s ~~delay~~businesses ~~revenue recognition~~will ~~into~~require ~~future~~significant focus ~~periods~~on staffing, ~~which~~training ~~could~~and ~~adversely~~compliance ~~impact~~procedures for our ~~operating~~internal control ~~results~~over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002.

WeAs ~~have~~a Swedish incompany, ~~the~~Intentia ~~past~~has not had to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 concerning the effectiveness of internal controls over financial reporting. Consequently, Intentia does not currently have the staff, experience, training or procedures to comply with these requirements. The integration of Lawson and Intentia will require significant focus on staffing and training to address these requirements. If we are unable to implement our compliance procedures and have a properly trained staff in ~~the~~place on a timely basis, we could encounter a significant deficiency or material weakness in our internal controls. If in the future ~~may~~we ~~have~~are unable to assert that our internal control over financial reporting is effective as of the end of the then current fiscal year or applicable quarter (or, ~~defer~~if ~~revenue~~our ~~recognition~~independent ~~for~~registered ~~license~~public ~~fees~~accounting ~~due~~firm is unable to ~~several~~attest that our management’s report is fairly stated or they are ~~factors~~unable to express an opinion on the effectiveness of our internal controls), ~~including~~we could lose investor confidence in the ~~following~~accuracy ~~situations:~~and completeness of our financial reports, which would have a negative market reaction.

~~• the~~We ~~license~~will ~~agreements~~encounter ~~include~~material ~~applications~~adverse ~~that~~consequences if we are ~~under~~unable ~~development~~to orprocess ~~have~~and ~~other~~report, ~~undelivered~~on ~~elements;~~a timely basis, the combined company’s financial results under U.S. GAAP and SEC requirements.

~~• we~~Because ~~must~~the ~~deliver~~merger ~~services~~with Intentia will significantly increase the complexity of our global operations, ~~including~~we will need to ~~significant~~develop ~~modifications~~and implement worldwide procedures designed for accurate and timely financial reporting under U.S. GAAP and SEC requirements. In addition, ~~customization~~we orwill ~~complex~~need ~~interfaces~~to train the staff of the combined company to comply with these requirements on a global basis. If we are unable to close our books and prepare financial reports on a timely basis, ~~which~~we would be required to seek a reporting extension under applicable SEC rules. A reporting extension could adversely impact ~~delay~~the ~~product~~trading ~~delivery~~of orour ~~acceptance;~~stock, erode investor confidence and result in other material adverse consequences.

~~• the~~We may ~~transaction~~not ~~includes~~be ~~acceptance~~able ~~criteria;~~to successfully integrate our business with the business of Intentia.

• This transaction involves the integration of two ~~transaction~~businesses ~~includes~~based ~~contingent~~in ~~payment~~different ~~terms~~countries orthat ~~fees;~~currently operate independently. This integration is a complex, costly and time-consuming process. Following the combination of Lawson and Intentia, we may encounter difficulties in integrating our operations, technology and personnel with those of Intentia and this

~~• a third-party vendor, whose technology is incorporated into our software products, delays delivery of the final software product to the client;~~29

~~• we~~may continue for some time. Lawson management has limited experience ~~are~~integrating ~~required~~operations toas ~~accept~~substantial aand ~~fixed-fee~~geographically ~~services~~diverse ~~contract;~~as those of Intentia. The combined company may not successfully integrate the operations of Lawson and Intentia in a timely manner, or at all. The failure to successfully integrate the two businesses’ operations could undermine the anticipated benefits and synergies of the combination, which could adversely affect our business, financial condition and results of operations. The anticipated benefits relate to greater economies of scale and revenue enhancement opportunities resulting from Lawson’s and Intentia’s complementary product offerings, geographic and industry specialties and technology platforms. However, these anticipated benefits are based on projections and assumptions, not actual experience, and assume a successful integration.

~~• we~~We ~~are~~may ~~required~~have todifficulties ~~accept~~adapting ~~extended~~Intentia’s ~~payment~~operations ~~terms~~to ofU.S. ~~more than one year or for~~regulatory ~~which we do not have adequate support of historical collectibility~~requirements.

~~Because~~As ofa ~~the~~company ~~factors~~governed ~~listed~~by ~~above~~Swedish laws and ~~other~~ ~~specific~~the ~~requirements under accounting principles generally accepted in~~rules of the ~~United~~Stockholm ~~States~~Stock ~~for software revenue recognition~~Exchange, weIntentia’s ~~must~~operations have ~~very~~not ~~precise terms~~been indesigned ~~our~~to comply ~~license~~with ~~agreements~~financial toreporting, ~~recognize~~disclosure ~~revenue~~controls ~~when~~and weinternal ~~initially deliver~~controls ~~software~~requirements orimposed ~~perform~~by ~~services.~~US ~~Negotiation~~GAAP ofand ~~mutually~~the ~~acceptable~~Sarbanes-Oxley ~~terms~~Act ~~and conditions~~of ~~can~~2002 ~~extend~~and ~~the~~other U.S. ~~sales~~securities ~~cycle,~~laws and ~~sometimes~~regulations. weThe doimplementation ~~not~~of ~~obtain~~the ~~terms and~~necessary ~~conditions~~controls ~~that~~systems ~~permit~~will ~~revenue~~be ~~recognition~~costly atand ~~the~~ time ofconsuming. ~~delivery~~If orLawson ~~even~~fails asto promptly ~~work~~implement onthese ~~the~~controls ~~project~~and issystems ~~completed. Furthermore,~~at ~~because~~Intentia’s ~~many~~operations, ~~contracts~~Lawson ~~within~~could fail ~~our~~to ~~verticles~~comply ~~including, government~~with ~~and~~U.S. ~~education~~regulatory ~~and healthcare~~requirements, ~~often~~which ~~include~~could ~~the~~adversely ~~terms summarized~~offset ~~above~~our business, ~~the~~financial ~~contracts~~condition ~~result~~and inresults ~~revenue~~of ~~deferrals~~operations.

~~If accounting interpretations relating to~~The ~~revenue~~market ~~recognition~~price ~~change,~~of our ~~reported~~common ~~revenues~~stock ~~could~~may decline oras wea ~~could~~result ~~be forced~~of tothe ~~make~~Exchange ~~changes in our business practices~~Offer.

~~The~~In ~~accounting~~connection ~~profession~~with ~~and~~the Exchange Offer, we could issue ~~regulatory~~as ~~agencies~~many ~~continue~~as 81 million shares of our common stock to ~~address~~the holders of shares and ~~discuss~~warrants ~~accounting~~if ~~standards~~all ~~and interpretations~~Intentia ~~covering~~securityholders ~~revenue~~elect ~~recognition~~to tender their shares or warrants in exchange for shares of our common stock. The shares of our common stock issued in the ~~software~~Exchange ~~industry~~Offer, ~~with~~subject to the contractual limitations on ~~objective~~those persons who executed the lock-up agreements, will be freely-tradable upon consummation of ~~providing~~the ~~additional~~Exchange ~~guidance~~Offer. onThe ~~their~~acquisition ~~application~~of our shares by Intentia securityholders who may not wish to hold shares in a U.S. ~~These~~company, as well as ~~discussions~~the ~~and~~increase in the ~~issuance~~outstanding number of ~~new~~shares ~~interpretations,~~of ~~once~~our ~~finalized~~common stock, ~~could~~may lead to ~~unanticipated~~sales ~~reductions~~of insuch ~~our~~shares ~~recognized~~or ~~revenue.~~the ~~They~~perception ~~could~~that ~~also~~such ~~drive~~sales may occur, either of ~~significant~~which ~~adjustments~~may toadversely affect the market for, and the market price of, our ~~business~~common stock. ~~practices~~In ~~which~~addition, ~~could~~the ~~result~~market inprice of our common stock may decline following ~~increased~~the ~~administrative~~closing ~~costs~~of the Exchange Offer for a number of reasons, ~~lengthened~~including ~~sales~~if ~~cycles~~the integration of Intentia’s business is unsuccessful or we do not achieve the anticipated financial and ~~other~~strategic ~~changes~~benefits ~~which~~of our combination with Intentia ~~could~~as ~~adversely~~rapidly ~~affect~~or to the extent anticipated by stock market analysts or investors. The closing price of our ~~reported~~common ~~revenues~~stock ~~and~~was ~~results~~$5.95 on June 1, 2005, the last day of ~~operations~~trading prior to the announcement of the proposed Exchange Offer. Since that date, our stock has fluctuated from a low of $5.02 to a high of $7.91. On January 5, 2006, the closing price of our common stock was $7.80.

28Our shareholders will suffer immediate and substantial dilution to their equity and voting interests as a result of the Exchange Offer.

~~Future~~In ~~adjustments~~connection inwith the Exchange Offer, we may issue as many as 81 million shares of our ~~net~~common ~~deferred~~stock ~~tax~~to the holders of Intentia shares or Intentia warrants if ~~assets~~all ~~may~~Intentia besecurityholders ~~materially~~elect ~~adverse~~to tender their Shares or Warrants in exchange for shares of our common stock. This means that the Intentia securityholders could own up to approximately 43.25% of the total number of shares of our outstanding ~~financial~~common ~~results~~stock following the Exchange Offer. Accordingly, the Exchange Offer will have the effect of substantially reducing the percentage of equity and voting interest held by each of our current stockholders.

~~On November 30, 2004, the~~The ~~condensed~~Intentia ~~consolidated~~securityholders ~~balance~~may ~~sheet includes net deferred tax assets in the amount of $27.5 million. Each quarter, we must assess the likelihood that our net deferred tax assets will~~ be ~~recovered~~able ~~from future taxable income and~~ to ~~the~~ ~~extent~~influence weour ~~believe~~company ~~that recovery is not likely, we must establish a~~significantly ~~valuation~~following ~~allowance. To~~ the ~~extent~~Exchange ~~we establish a valuation allowance, we must include an expense within the tax provision in the statement of operations~~Offer. For the year ended May 31, 2004, we recorded a valuation allowance of $1.2 million associated primarily with federal contribution carryforwards, state net operating loss carryforwards and certain federal tax credit carryforwards that are estimated to expire prior to utilization. No additional valuation allowance was determined to be necessary for the three and six months ended November 30, 2004.

InAfter the ~~event~~Exchange ~~that~~Offer, weformer ~~adjust~~Intentia securityholders ~~our~~could ~~estimates~~own approximately 43.25% of ~~future~~ ~~taxable~~the ~~income~~total ornumber ~~tax~~of ~~deductions~~shares ~~from~~of our common stock based on the ~~exercise~~treasury ofmethod. ~~stock~~Intentia’s ~~options;~~largest orshareholder, ~~our~~Symphony ~~stock~~Technology ~~price~~Group, ~~increases~~will ~~significantly~~own ~~without~~approximately a14% ~~corresponding~~of ~~increase~~Lawson’s incommon stock ~~taxable~~following ~~income,~~the wecombination. Symphony and Intentia securityholders as a group may ~~need~~be able to ~~establish~~exercise ansubstantial influence ~~additional~~on ~~valuation~~the ~~allowance,~~election ~~which could~~of ~~materially~~directors ~~adversely~~and ~~impact~~other matters submitted for approval by our ~~financial~~shareholders. ~~position~~This ~~and~~potential ~~results~~concentration of ~~operations.~~ Weownership ~~currently~~of ~~expect~~our ~~the~~common stock ~~second~~may ~~half~~make ofit ~~fiscal~~difficult ~~2005~~for our other shareholders to besuccessfully ~~profitable;~~approve ~~however~~or ifdefeat itmatters ~~were~~submitted ~~not~~for shareholder action. It may also have the effect of delaying, wedeterring ~~would~~or ~~likely~~preventing bea ~~required~~change toin ~~fully~~control ~~reserve~~of our company without ~~deferred~~the ~~tax~~consent ~~assets~~of Symphony or of the Intentia securityholders generally.

WeUnanticipated costs ~~may~~relating ~~experience~~to ~~fluctuations~~the inExchange ~~quarterly~~Offer ~~results~~and ~~that~~resulting ~~could adversely~~combination ~~impact~~of ~~our~~Intentia ~~annual~~and Lawson ~~effective~~could ~~tax~~reduce ~~rate~~our future earnings.

~~Our revenues~~We ~~and~~believe ~~operating~~that ~~results are difficult to predict and may fluctuate substantially from quarter to quarter. Since~~ we ~~must~~have ~~estimate~~reasonably ~~our~~estimated ~~annual~~the ~~effective tax rate each quarter based~~likely oncosts ~~a combination~~ of ~~actual~~integrating ~~results and forecasted results of subsequent quarters, any significant change in~~ our ~~actual~~operations ~~quarterly~~with ~~or forecasted annual results may adversely impact~~ the ~~computation~~operations of ~~the estimated effective tax rate for the year. Our estimated annual effective tax rate may fluctuate for a variety of reasons, including the following:~~

~~• changes in forecasted annual operating income;~~30

~~• changes~~Intentia and that such costs are estimated to be in excess of $25 million for the ~~valuation~~first ~~allowance~~12 onmonths ~~net~~following closing of the transaction. ~~deferred~~Our ~~tax~~objective ~~assets;~~is to minimize incremental costs of operating as a combined company and we believe that any incremental costs will be offset by cost savings of the combined company. It is possible that unexpected transaction costs, such as taxes, fees or professional expenses, or unexpected future operating expenses, such as increased personnel costs or unexpected severance costs, as well as other types of unanticipated developments, could adversely impact our business and profitability.

~~• changes~~The uncertainties associated with our combination with Intentia may cause our customers and Intentia’s customers to ~~actual~~delay or ~~forecasted~~defer ~~permanent~~decisions which may result ~~differences~~in ~~between~~the ~~book~~loss ~~and~~of ~~tax~~customers ~~reporting;~~and revenues.

~~• impacts~~Our ~~from~~customers ~~future~~and ~~tax~~Intentia’s ~~settlements~~customers ~~with~~may, in ~~state~~response to the announcement of the Exchange Offer and resulting combination of Lawson and Intentia, ~~federal~~and prior to its effectiveness, delay or ~~foreign~~defer ~~tax~~decisions concerning ~~authorities;~~business with either or both of the businesses. Any delay or deferral in those decisions by our respective customers could adversely affect our businesses. For example, either company could experience a decrease in expected revenue as a consequence of such delays or deferrals.

~~• impacts~~The uncertainties ~~from~~associated ~~tax~~with ~~law~~our ~~changes~~combination with Intentia may cause Intentia or us to lose key personnel.

~~Our~~Employees ~~stock~~of ~~price~~Lawson or Intentia may ~~remain~~perceive uncertainty ~~volatile~~about their future role with the combined company until strategies with regard to the combined company are announced or executed. Any uncertainty may affect either company’s ability to attract and retain key management, sales, marketing, technical and financial personnel. Our competitors might also attempt to hire our key personnel.

~~The trading price of our common stock~~Combination-related ~~has~~accounting ~~fluctuated~~charges ~~significantly~~may indelay ~~the past. Changes in our business, operations~~ or ~~prospects,~~reduce ~~regulatory considerations, general market and economic conditions, or other factors may affect the price of~~ our ~~common stock~~profitability. Many of these factors are beyond our control. The future trading price of our common stock is likely to be volatile and could be subject to wide price fluctuations in response to such factors, including:

~~• actual~~We orare ~~anticipated~~accounting ~~fluctuations~~for the combination with Intentia as a purchase following accounting principles generally accepted in the United ~~revenues~~States. orUnder ~~operating~~the ~~results~~purchase method of accounting, ~~including~~the ~~revenue~~purchase orprice ~~results~~of Intentia will be allocated to the fair value of ~~operations~~the identifiable tangible and intangible assets and liabilities that we acquire from Intentia. In addition, accounting for the combination of Intentia under the purchase method may require a decrease in deferred revenue to fair value. The excess of the purchase price ~~any~~over ~~quarter~~Intentia’s ~~failing~~tangible net assets will be allocated to goodwill and intangible assets. We are required to perform periodic impairment tests on goodwill and certain intangibles to evaluate whether the intangible assets and goodwill that we acquire from Intentia continue to have fair values that meet or exceed the ~~expectations~~amounts recorded on our balance sheet. If the fair values of such assets decline below their carrying value on our balance sheet, ~~published~~we may be required to recognize an impairment charge related to such decline. We cannot predict whether or ~~otherwise~~when there will be an impairment charge, or the amount of such charge, if any. However, if the charge is significant, it could cause the ~~investment~~market ~~community;~~price of our common stock to decline.

~~• developments~~If, as of the closing date, there are unknown liabilities in connection with Intentia’s business, and those liabilities are not reflected on the ~~pending~~closing ~~SEC~~date ~~investigation;~~balance sheet, we would be required to record a charge during each period when those liabilities became known, probable and estimable. Those charges, if material, could have an unanticipated and significant adverse effect on our financial results and stock price.

~~• announcements~~In addition, ofwe ~~technological~~will ~~innovations~~incur bytransaction and integration costs in our combination uswith orIntentia. As a result, we will incur accounting charges from the combination that may delay and reduce our profitability ~~competitors;~~in the accounting period in which the combination is consummated.

~~• developments~~We expect ~~with~~to ~~respect~~expend toa ~~our~~significant ~~intellectual property~~amount ~~rights,~~of ~~including~~cash ~~patents~~in the Exchange Offer, orwhich ~~those~~will partially ofreduce our ~~competitors;~~cash balance.

~~• fluctuations~~If inwe ~~demand~~acquire ~~for~~more ~~and~~than ~~sales~~90%, but fewer than all of ~~our~~the Intentia ~~products,~~securities ~~which~~in ~~will~~the ~~depend~~Exchange onOffer, ~~among~~we ~~other~~intend ~~things,~~to purchase the ~~acceptance~~remaining ofIntentia securities ~~our~~for cash, pursuant to compulsory acquisition proceedings under ~~products~~Swedish law. Assuming 90% of the Intentia securities are tendered in the Exchange ~~marketplace~~Offer and the ~~general~~price ~~level~~that is required to be paid pursuant to the Swedish compulsory acquisition proceedings for the remaining 10% of ~~spending~~the Intentia securities equals SEK 22.17 per Series A share and SEK 19.80 per Series B share, we could be obligated to pay approximately $41million (approximately SEK 333 million assuming a currency exchange rate of SEK 8.08 to $1.00 as of November 30, 2005), for the Intentia securities purchased in the ~~software~~compulsory acquisition. ~~industry;~~This cash expenditure would normally occur between one and three years after the closing of the Exchange Offer.

~~• rumors or dissemination of false and/or misleading information, particularly through Internet chat rooms, instant messaging and other means;~~31

~~• changes~~We estimate that the total cash closing expenses for Lawson and Intentia will be approximately $25 million, including investment banking fees, accounting and legal fees, printing, mailing and other out-of-pocket transaction costs. After payment of those expenses, we will have approximately $196 million in ~~management;~~available cash and cash equivalents, based on the amount of cash and cash equivalents that we and Intentia had as of November 30, 2005. It is anticipated that we may use an additional amount of approximately $40 million in connection with the Combination, excluding the compulsory acquisition procedures referenced above and integration related costs, within one to three years following the closing of the Exchange Offer. Included in this amount is a junior facility loan made by Tennenbaum to Intentia valued at $26.8 million and Notes valued at $9.9 million, which includes accrued interest of $0.1 million, as of September 30, 2005. The Tennenbaum loan matures in September 2009. However, pursuant to an agreement with Tennenbaum entered into in November 2005, Lawson intends to prepay the Tennenbaum loan following the closing of the Exchange Offer. Assuming current LIBOR interest rates until the prepayment date, the amount required to prepay the Tennenbaum loan in September 2006, calculated in accordance with the November 2005 agreement with Tennenbaum, is estimated to be $3.7 million.

~~• proposed~~Full integration ~~and~~of ~~completed~~our ~~acquisitions~~operations orwith ~~other~~Intentia’s operations may not be achieved if ~~significant~~we ~~transactions~~cannot bycompulsorily usacquire orall ~~our~~of ~~competitors;~~the issued and outstanding Shares.

~~• introduction~~Our obligation to consummate the Exchange Offer is subject to a condition that, before the end of the Exchange Offer period, there shall have been validly tendered and ~~success~~not properly withdrawn greater than 90% of each ~~new~~of ~~products~~the oroutstanding Shares (including Warrants) and voting power in ~~significant~~Intentia ~~client~~on ~~wins~~a orfully ~~losses~~diluted bybasis (including all shares issuable pursuant to outstanding warrants but excluding shares issuable pursuant to outstanding convertible securities). In addition, the compulsory acquisition proceedings may be time consuming. To effect the compulsory acquisition under Swedish law, we are required to have a beneficial interest in greater than 90% of all of the voting power of the Intentia securities. It is possible that, at the end of the Exchange Offer period, we will elect to waive the above condition and consummate the Exchange Offer if we hold at least 70% of the outstanding securities and voting power of Intentia, even though we do not hold more than 90% of the outstanding Intentia securities. As a result, we would not be able to effect a compulsory acquisition of the remaining outstanding securities and voting power of Intentia. This could prevent or delay us from realizing some or all of the anticipated financial and strategic benefits of our ~~competitors;~~combination with Intentia.

• As a result of the ~~mix~~consummation of ~~products~~the ~~and~~Exchange ~~services~~Offer, ~~sold~~we bywill conduct more of our business internationally, which will expose us; to additional and increased risks.

• Although international revenues accounted for approximately 5% of our total revenues during fiscal year 2005, we will significantly increase our international operations upon consummation of the Exchange ~~timing~~Offer, particularly in Europe. There are many risks that currently impact, and will continue to impact our international business and multinational operations, which risks will increase upon consummation of ~~significant~~the Exchange ~~orders~~Offer. These byrisks ~~us;~~include the following:

• ~~conditions~~ compliance with multiple and ~~trends~~potentially conflicting regulations in ~~the~~Europe, ~~software~~Asia and North ~~industry~~America, orincluding ~~consolidation~~export ~~within~~requirements, ~~the~~tariffs, ~~technology~~import ~~industry~~duties ~~that~~and ~~may~~other ~~impact our~~trade ~~clients~~barriers, ~~partners,~~as ~~suppliers~~well oras ~~competitors~~health and safety requirements;

29• potential labor strikes, lockouts, work slowdowns and work stoppages at U.S. and international ports;

• ~~adoption~~ differences in ofintellectual ~~new~~property ~~accounting~~protections ~~standards affecting~~in ~~the~~Europe ~~software~~and ~~industry~~Asia;

• ~~acts~~ difficulties in ofstaffing ~~war~~and ormanaging ~~terrorism;~~foreign operations in Europe and Asia;

• ~~general~~ restrictions on ~~market~~downsizing ~~conditions.~~foreign operations in Europe and expenses and delays associated with any such activities;

~~We have adopted anti-takeover defenses that~~• longer ~~could~~accounts ~~make~~receivable itcollection ~~difficult~~cycles ~~for~~in ~~another~~Europe ~~company~~and ~~to acquire control of Lawson or limit the price investors might be willing to pay for our stock.~~Asia;

~~Provisions in our amended and restated~~• currency ~~certificate~~fluctuations ~~of incorporation~~ and ~~bylaws,~~resulting ~~our~~losses ~~stockholder~~on ~~rights~~currency plan and under Delaware law could make it more difficult for other companies to acquire us, even if doing so would benefit our stockholders. Our amended and restated certificate of incorporation and bylaws contain the following provisions, among others, which may inhibit an acquisition of our company by a third party:translations;

• ~~advance~~ economic ~~notification~~instability, ~~procedures~~including ~~for~~inflation ~~matters~~and tointerest berate ~~brought~~fluctuations, ~~before~~such ~~stockholder~~as ~~meetings~~those previously seen in South Korea and Brazil;

• a competition ~~limitation~~for onforeign-based ~~who~~suppliers ~~may~~in ~~call~~Asia ~~stockholder~~and ~~meetings~~Europe;

~~• a prohibition on stockholder action by written consent; and~~32

• ~~the~~ overlapping ~~ability~~or ofdiffering ~~our~~tax ~~board of directors to issue shares of preferred stock without a stockholder vote.~~structures;

~~The~~• cultural ~~issuance of stock under our stockholder rights plan could~~and ~~delay,~~language ~~deter~~differences oramong prevent a takeover attempt that stockholders might consider in their best interests. We are also subject to provisions of Delaware law that prohibit us from engaging in any business combination with any “interested stockholder,” meaning generally that a stockholder who beneficially owns more than 15% of our stock cannot acquire us for a period of three years from the ~~date~~United ~~this person became an interested stockholder unless various conditions are met~~States, ~~such~~Europe asand ~~approval~~Asia; ~~of the transaction by our board of directors. Any of these restrictions could have the effect of delaying or preventing a change in control.~~and

~~Changes~~• political ~~in the terms on which we license technologies from third-party vendors could result in the loss of potential revenues~~ or ~~increased costs or delays in the production and improvement of our~~ ~~products~~civil turmoil.

WeAny ~~license~~failure ~~third-party~~on ~~software products that we incorporate into, or resell with,~~ our ~~own~~part software products. For example, we incorporate Micro Focus International, Inc.’s software in many of our products and have reseller relationships with Business Software Incorporated, Business Objects, Hyperion Solutions Corporation and other companies that allow us to ~~resell~~manage ~~their technology with our products. These licenses and other technology licenses are subject to periodic renewal and may include minimum sales requirements. A failure to renew, or early termination of~~ these ~~licenses~~ ~~or other technology licenses could adversely impact our business. If~~risks ~~any~~effectively ofwould ~~the~~seriously ~~third-party~~reduce ~~software vendors change their product offerings or terminate~~ our ~~licenses,~~competitiveness we may lose potential revenues and may need to incur additional development costs and seek alternative third-party relationships. In addition, if the cost of licensing any of these third-party software products significantly increases, or if there is a change in the ~~relative mix of products we offer, our gross profits could significantly decrease. We rely on existing relationships with software vendors who are also competitors. If these vendors change their~~ business ~~practices, we may be compelled to find~~ ~~alternative~~applications ~~vendors with complementary~~ software, ~~which may not be available on attractive terms or at all, or may not be as widely accepted or as effective as the software provided by our existing vendors~~marketplace. ~~Our relationships with these and other third-party vendors are an important part of our business, and a deterioration of these relationships could adversely impact our business and operating results.~~

AAs a ~~deterioration~~result inof ~~our~~the ~~relationship~~consummation ~~with resellers,~~of ~~systems~~the ~~integrators~~Exchange ~~and~~Offer, ~~other~~we ~~third~~will ~~parties~~be ~~that~~a ~~market~~larger and broader ~~sell~~organization, and if our management is unable to manage the combination ~~products~~of ~~could~~our ~~reduce~~business with Intentia’s, our ~~revenues~~operating results will suffer.

~~Our~~As ~~ability~~a toresult ~~achieve~~of ~~revenue~~the ~~growth~~consummation of the Exchange Offer, we will ~~depend~~acquire the worldwide operations and approximately 2,100 employees of Intentia. Consequently, we will face challenges inherent in efficiently managing an increased number of employees over large ~~part~~geographic ondistances, ~~adding~~including ~~new~~the ~~partners~~need to ~~expand~~implement ~~our~~appropriate systems, ~~sales~~policies, ~~channels~~benefits and compliance programs. In addition, as ~~well~~we aswill ~~leveraging~~be ~~our~~exposed ~~relationships~~to risks associated with ~~existing~~the ~~partners~~translation of Intentia’s SEK-denominated financial results and balance sheet into U.S. Ifdollars. Our reporting currency will remain as the U.S. dollar; however, a portion of our consolidated financial obligations will ~~relationships~~arise ~~with~~in ~~these~~other ~~resellers~~currencies, ~~system~~including ~~integrators~~Euros, ~~and~~British ~~strategic~~Pounds and ~~technology~~ ~~partners~~SEK. ~~deteriorate~~In addition, orthe ~~terminate,~~carrying wevalue ~~may~~of ~~lose~~some ~~important~~of ~~sales~~our assets and liabilities will be ~~marketing~~affected ~~opportunities.~~by ~~Our~~fluctuations ~~reseller~~in ~~arrangements~~the ~~may~~value ~~from~~of ~~time~~the toU.S. ~~time~~dollar ~~give~~as compared with the ~~rise~~Euro, British Pound and SEK. Any inability to ~~disputes~~successfully ~~regarding~~manage ~~marketing~~the ~~strategy,~~geographically ~~sales~~more ofdiverse ~~competing~~and ~~products,~~substantially larger ~~exclusive~~combined ~~territories~~organization, ~~payment~~or ofany ~~fees~~significant ~~and~~delay ~~client~~in ~~relationships~~achieving successful management, ~~which~~ could ~~negatively~~ ~~affect~~have a material adverse effect on our ~~business~~results orof operations after the Exchange Offer is consummated and, as a result, inon ~~costly~~the ~~litigation~~market price of our common stock.

30The new management team might not be able to define or successfully implement a business plan for the combined businesses.

~~Our~~In ~~current~~June 2005, we appointed Harry Debes as our new president, chief executive officer, and ~~potential~~director. ~~clients~~Upon ~~often~~the completion of the ~~rely~~Exchange onOffer, ~~third~~we will appoint a new co-~~party~~chairman, ~~systems~~Romesh ~~integrators~~Wadhwani, towho ~~implement~~is currently the chairman of the board of Intentia, and ~~manage~~a new chief operating officer, Bertrand Sciard, the current president and chief executive officer of ~~existing~~Intentia. ~~applications~~While Mr. Wadhwani, ~~These~~Mr. Debes ~~systems~~and ~~integrators~~Mr. Sciard ~~may~~have extensive ~~increase~~experience ~~their~~in ~~promotion~~the software industry and managing software businesses and while Mr. Debes and Mr. Sciard have also managed large teams of people ~~competing~~at ~~enterprise~~other U.S. software ~~applications~~businesses, neither Mr. Debes nor Mr. Sciard has previously been chief executive or ~~may~~chief ~~otherwise~~operating ~~discontinue~~officer of a public ~~their~~company ~~relationships~~in ~~with~~the U.S. If this new management team is unable to adapt successfully to the demands of managing a U.S. public company or ~~support~~to define or execute our business plan, our results of usoperations may be adversely affected.

WeRisks ~~also~~Relating ~~may enter into joint arrangements with strategic partners~~ to ~~develop new software products or~~Lawson’s extensions, sell our software as part of integrated products or serve as an application service provider for our products. Our business may be adversely affected if these strategic partners change their business priorities or experience difficulties in their operations, which in either case causes them to terminate or reduce their support for the joint arrangements. Furthermore, the financial condition of our channel partners impacts our business. If our partners are unable to recruit and adequately train a sufficient number of consulting personnel to support the implementation of our software products, or they otherwise do not adequately perform implementation services, we may lose clients. Our relationships with resellers, systems integrators and other third-party vendors are an important part of our business, and a deterioration of these relationships could adversely impact our business and operating results.Business

Our ~~programs~~business ~~are deployed in large~~ and ~~complex~~ ~~systems~~company ~~and~~will ~~may~~continue ~~contain~~to ~~defects~~be ~~that are not detected until after our~~subject ~~programs~~to ~~have~~other ~~been~~risks ~~installed~~and uncertainties, ~~which~~regardless ~~could~~of ~~damage~~whether ~~our~~we ~~reputation~~complete ~~and cause us to~~the ~~lose~~proposed ~~clients~~business orcombination ~~incur~~with ~~liabilities~~Intentia.

~~Our~~Economic, ~~software~~political ~~programs are often deployed in large~~ and ~~complex computer~~market ~~networks.~~conditions ~~Because of the nature of these programs, they~~ can ~~only~~adversely beaffect ~~fully tested for reliability when deployed in networks for long periods of time. Our software programs may contain undetected defects when first introduced or as new versions are released, and~~ our ~~clients~~revenue ~~may~~growth discover defects in our products, experience corruption of their data or encounter performance or scaling problems only after our software programs have been deployed. As a consequence, from time to time we have received client complaints following installation of our products. We are currently a defendant in several lawsuits where clients have raised these types of issues with our products and ~~services. In~~ ~~addition,~~operating ~~our products are combined with products from other vendors~~results. As a result, should problems occur, it may be difficult to identify the source of the problem. Software and data security are becoming increasingly important because of regulatory restrictions on data privacy and the significant legal exposures and business disruptions stemming from computer viruses and other unauthorized entry or use of computer systems. These conditions increase the risk that we could experience, among other things:

~~• loss~~Our revenue and profitability depend on the overall demand for computer software, support and services, particularly in the industries in which we sell our products and services. Demand for enterprise software and demand for our solutions are affected by general economic conditions, competition, product acceptance and technology lifecycles. Regional and global changes in the economy, governmental budget deficits and political instability in certain geographic areas have resulted in businesses, government agencies and educational institutions reducing their spending for technology projects generally and delaying or reconsidering potential purchases of ~~clients;~~our products and related services. The uncertainty posed by the long-term effects of the war in the Middle East, terrorist activities, potential flu pandemics and related uncertainties and risks and other geopolitical issues may impact the purchasing decisions of current or potential customers. Because of these factors, we believe the level of demand for our products and services, and projections of future revenue and operating results, will continue to be difficult to predict. During fiscal 2005 and the prior three fiscal years, we took measures to realign our projected expenses with anticipated revenue, and incurred restructuring charges for severance and related benefits, facility closure or consolidation charges. There is no assurance that these cost reduction measures will be sufficient to offset any future revenue declines. Future declines in demand for our products and/or services could adversely affect our revenues and operating results.

~~• damage to our brand reputation;~~33

~~• failure~~A tonumber ~~attract~~of ~~new~~our ~~clients~~competitors ~~or achieve~~are ~~market~~well-established ~~acceptance;~~software businesses that have advantages over us.

~~• diversion~~We face competition from a number of software businesses that have advantages over us due to their larger customer bases, greater name recognition, long operating and product development history, greater international presence and ~~services~~substantially greater financial, technical and marketing resources;. These competitors include well-established businesses such as Oracle Corporation, and SAP AG, both of which have larger installed customer bases. If customers or prospects want to reduce the number of their software vendors, they may elect to purchase competing products from Oracle or SAP AG since those larger vendors offer a wider range of products. Furthermore, Oracle is capable of bundling its software with its database applications, which underlie a significant portion of our installed applications. When we compete with Oracle or SAP AG for new customers, we believe that both of those larger businesses often attempt to use their size and staying power as a competitive advantage against us. Oracle’s purchase of PeopleSoft, Inc., Retek Inc., Siebel Systems, and other consolidations in the software industry have fueled uncertainty among customer prospects.

~~• legal actions~~In byaddition, ~~our~~we ~~clients~~compete orwith ~~government~~a ~~regulators.~~variety of more specialized software and services vendors, including:

~~In addition, we may not be able to~~• Internet ~~avoid~~(on ordemand) ~~limit liability for disputes relating to product performance,~~ software ~~security~~ ~~or the provision of services. The occurrence of any one or more of the foregoing factors could cause us to experience losses, incur liabilities and adversely affect our operating results.~~vendors;

~~If our clients lose confidence in the~~• single-industry ~~security~~software ~~of data on the Internet, our revenues could be adversely affected.~~vendors;

~~Maintaining the security of computers~~• emerging ~~and~~enterprise ~~computer~~resource ~~networks~~optimization issoftware an issue of critical importance for our clients. Attempts by experienced computer programmers, or hackers, to penetrate client network security or the security of web sites to misappropriate confidential information are currently an industry-wide phenomenon that affects computers and networks across all platforms. Despite efforts to address these risks, actual or perceived security vulnerabilities in our products (or the Internet in general) could lead some clients to seek to reduce or delay future purchases or to purchase competitors’ products which are not Internet-based applications. Clients may also increase their spending to protect their computer networks from attack, which could delay adoption of new technologies. Any of these actions by clients could adversely affect our revenues.vendors;

31• human resource management software vendors;

~~We may be required to undertake a costly~~• financial ~~redesign~~management ~~of our products if third party~~ software ~~development tools become an industry standard or cause obsolescence of our toolsets.~~vendors;

~~While no industry standard exists for~~• merchandising software development tools, several companies have focused on providing software development tools and each of them is attempting to establish its own tools as the accepted industry standard. If a software product were to emerge as a clearly established and widely accepted industry standard or if rising expectations of toolsets of applications cause our toolsets to become obsolete, we may not be able to adapt our tools appropriately or rapidly enough to satisfy market demand. In addition, we could be forced to abandon or modify our tools or to redesign our software products to accommodate the new industry standard. This would be expensive and time consuming and may adversely affect results of operations and the financial condition of our business. Our failure to drive or adapt to new and changing industry standards or third party interfaces could adversely affect sales of our products and services.vendors;

~~We do not have substantial international~~• services ~~operations~~automation ~~and~~software ~~may~~vendors; ~~not be able to develop our international operations successfully.~~and

~~We have only limited international~~• outsourced ~~operations.~~services ~~Our products do not meet the requirements of Asia and many other local markets~~providers. ~~Factors that could have an adverse effect on our ability to develop our international operations include:~~

~~• lack~~As a result, the market for enterprise software applications has been and continues to be intensely competitive. Some competitors are increasingly aggressive with their pricing, payment terms and/or issuance of ~~experience~~contractual inwarranties, aimplementation ~~particular~~terms ~~geographic~~or guarantees. We may be unable to continue to compete successfully with new and existing competitors without lowering prices or offering other favorable terms to customers. We expect competition to persist and intensify, which could negatively impact our operating results and market; share.

~~• significant~~We ~~presence~~may ofbe unable to retain or attract customers if we do not develop new products and enhance our ~~competitors~~current products in ~~international~~response ~~markets;~~to technological changes and competing products.

~~• increased~~As ~~cost~~a ~~and~~software ~~development~~company, ~~time~~we ~~required~~have been required to ~~modify~~migrate our products and ~~translate~~services ~~our~~from mainframe to client-server to web-based environments. In addition, we have been required to adapt our products to emerging standards for ~~local~~operating ~~markets;~~systems, databases and other technologies. We will be unable to compete effectively if we are unable to:

• ~~inability~~maintain and toenhance ~~recruit~~our ~~personnel~~technological incapabilities ato ~~specific~~correspond to these emerging ~~country~~environments orand ~~region~~standards;

• ~~failure~~develop and tomarket ~~enter~~products ~~into~~and ~~relationships~~services ~~with local~~that ~~resellers,~~meet ~~systems~~changing ~~integrators~~customer ~~or other third-party vendors~~needs; or

• ~~differing~~anticipate or ~~foreign~~respond ~~technical~~to ~~standards;~~technological changes on a cost-effective and timely basis.

~~• regulatory, social, political, labor or economic conditions in a specific country or region.~~34

~~Our~~A ~~limited~~substantial ~~international~~portion ~~operations~~of our research ~~could~~and ~~become~~development ~~subject~~resources is devoted to ~~unexpected,~~product ~~uncontrollable~~upgrades that address regulatory and ~~rapidly~~support ~~changing~~requirements. ~~events~~Only the remainder of our limited research and ~~circumstances~~development inresources ~~addition~~is toavailable ~~those~~for ~~experienced~~new inproducts. New products require significant development investment. That investment is further constrained because of the ~~United~~added ~~States~~costs of developing new products that work with multiple operating systems or databases. ~~The~~We face uncertainty when we develop or acquire ~~following~~new ~~factors,~~products ~~among~~because ~~others~~there is no assurance that a sufficient market will develop for those products. If we do not attract sufficient customer interest in those products, ~~could~~we ~~have~~will annot ~~adverse~~realize ~~effect~~a return on our ~~business~~ investment and our operating results: will be adversely affected.

~~• operating~~Our core products face competition from new or revised technologies that may render our existing technology less competitive or obsolete, reducing the demand for our products. As a result, we must continually redesign our products to incorporate these new technologies and to adapt our software products to operate on, and comply with evolving industry standards for hardware and software platforms. Maintaining and upgrading our products to operate on multiple hardware and database platforms reduces our resources for developing new products. Because of the increased costs inof ~~many~~developing ~~countries~~and ~~are~~supporting ~~higher~~software products across multiple platforms, ~~than~~we inmay need to reduce the ~~United~~number ~~States;~~of those platforms. In addition, conflicting new technologies present us with difficult choices of which new technologies to adopt. If we fail to anticipate the most popular platforms or fail to respond adequately to technological developments, or experience significant delays in product development or introduction, our business and operating results will be negatively impacted.

~~• conducting~~In ~~business~~May 2005, inwe ~~currencies~~announced ~~other~~that ~~than~~we ~~United~~intend ~~States~~to ~~dollars~~produce ~~subjects~~new ussoftware products using a business application platform we are developing known as “Landmark.” The goals of Landmark are to ~~currency~~simplify software ~~controls~~development and ~~fluctuations~~improve inproduct quality. Because we have not yet ~~currency~~released ~~exchange~~any ~~rates;~~new products developed using Landmark, it is too early to confirm whether we will successfully achieve these goals.

• In addition, to the extent we determine that new technologies and equipment are required to remain competitive, the development, acquisition and implementation of such technologies may require us to make significant capital investments. We may not be ~~unable~~able to ~~hedge~~obtain ~~some~~capital for ~~transactions~~these purposes and investments in new technologies may not result in ~~because~~commercially ofviable ~~uncertainty~~technological orproducts. ~~the~~The ~~inability~~loss of revenue and increased costs to ~~reasonably~~us ~~estimate~~from such changing technologies would adversely affect our ~~foreign~~business ~~exchange~~and ~~exposure;~~operating results.

~~• we~~We may ~~hedge~~need ~~some~~to ~~anticipated~~change ~~transactions and~~our ~~transaction~~pricing ~~exposures,~~models ~~but could still experience losses due~~ to ~~exchange~~ ~~rate~~compete ~~fluctuations;~~successfully.

~~• laws,~~The ~~policies~~intensely ~~and~~competitive ~~other~~markets ~~regulatory~~in ~~requirements~~which ~~affecting~~we ~~trade~~compete ~~and~~can ~~investment~~put ~~including~~pressure ~~loss~~on us to reduce our prices. If our competitors offer deep discounts on certain products or ~~modification~~services ofin an effort ~~exemptions~~to ~~for~~recapture ~~taxes~~or ~~and~~gain ~~tariffs~~market share or to sell other products or services, ~~and~~we ~~import~~may need ~~and~~to ~~export~~lower ~~license~~prices ~~requirements;~~or offer other favorable terms in order to compete successfully. Any such changes would be likely to reduce margins and could adversely affect operating results.

~~• exposure~~If we are unable to attract and retain qualified personnel, specifically software engineers and sales personnel, we will be unable to develop ~~different~~new ~~legal~~products ~~standards~~and orincrease ~~risks~~our revenue.

32We are experiencing increased competition for attracting and retaining software engineers and sales personnel. If we are unable to attract, train and retain highly-skilled technical, managerial, sales and marketing personnel, we may be at a competitive disadvantage and unable to increase our revenue. Competition for personnel in the software industry is intense, and at times, we have had difficulty locating qualified candidates within desired geographic locations, or with certain industry-specific domain expertise. The failure to attract, train, retain and effectively manage employees could negatively impact our development and sales efforts and cause a degradation of our customer service. In particular, the loss of sales personnel or groups of sales personnel could lead to lost sales opportunities because it can take several months to hire and train replacement sales personnel. Uncertainty created by turnover of key employees could adversely affect our business, operating results and stock price.

WeOur earnings may be ~~unable~~impacted toby ~~identify~~the ~~or complete~~recent ~~suitable~~accounting ~~acquisitions~~pronouncement ~~and~~requiring ~~investments;~~expensing ~~and~~of ~~any~~equity ~~acquisitions~~instruments ~~and~~issued ~~investments we~~to ~~do complete may create business difficulties or dilute our stockholders~~employees.

AsWe ~~part~~currently ofaccount ~~our~~for ~~business~~the ~~strategy,~~issuance weof stock ~~intend~~options tounder ~~pursue~~APB ~~strategic~~Opinion ~~acquisitions~~No. 25, WeAccounting for ~~may~~Stock beIssued ~~unable~~ to ~~identify suitable acquisitions or investment candidates~~Employees. ~~Even~~The ifFASB wehas ~~identify~~issued ~~suitable~~SFAS ~~candidates~~No. 123(R), weShare-Based ~~cannot~~Payment ~~provide assurance~~ that ~~we will be able to make acquisitions or~~changes ~~investments~~the onaccounting ~~commercially~~treatment ~~acceptable~~for ~~terms.~~grants Ifof ~~we acquire a company~~options, wesale ~~may incur losses in the operations~~ of ~~that~~shares ~~company~~under ~~and we may have difficulty~~our ~~integrating~~employee ~~its~~stock ~~products,~~purchase ~~personnel~~plan and ~~operations~~other ~~into~~equity ~~our~~instruments ~~business.~~issued ~~In addition, its key personnel may decide not~~ to ~~work for us~~employees. ~~We may also have~~ ~~difficulty~~The ~~integrating~~provisions ~~acquired~~of ~~businesses,~~SFAS ~~products, services and technologies into our operations~~No. 123(R) ~~These~~require ~~difficulties~~us ~~could~~to ~~disrupt~~value ~~our~~equity ~~ongoing business,~~instruments ~~distract~~issued ~~our~~to ~~management~~employees and ~~workforce,~~liability-classified ~~increase~~awards ~~our~~at ~~expenses~~grant ~~and~~date ~~adversely affect~~fair ~~our operating results. We may also incorrectly judge the~~ value or ~~worth~~ ofbased anupon ~~acquired~~certain ~~company~~valuation ormethods ~~business.~~that ~~Furthermore,~~approximate wegrant ~~may~~date ~~incur~~fair ~~significant debt~~value, orand ~~be required~~ to ~~issue~~record ~~equity~~those ~~securities~~values toas ~~pay~~compensation ~~for~~expense ~~future~~in ~~acquisitions~~our ~~or investments.~~statement ~~The issuance~~ of ~~equity securities may be dilutive to our~~ ~~stockholders~~operations. IfUpon the ~~products~~adoption of anSFAS ~~acquired~~No. 123(R), ~~company~~the ~~are~~Company ~~not successful, those~~will ~~remaining~~determine ~~assets~~whether ~~could~~it ~~become~~will ~~impaired,~~continue ~~which~~to ~~may~~utilize ~~result~~the inBlack-Scholes anmodel ~~impairment~~or ~~loss~~adopt ~~that~~some ~~could~~other ~~materially~~acceptable ~~adversely~~model. ~~impact~~We ~~our~~will ~~financial position and results of operations.~~be

~~We may be unable to compete effectively in the application service provider market.~~35

Werequired ~~act~~to expense all outstanding non-vested stock options as anof ~~application~~June 1, ~~service~~2006 and stock options and other ~~provider~~applicable ~~for~~equity ~~only~~instruments ~~portions~~issued ofto ~~our~~employees ~~products~~on ~~acquired~~or ~~through~~after ~~recent~~June 1, ~~acquisitions~~2006. ~~Revenues~~ ~~from~~Public ~~these arrangements~~entities are ~~not~~required ~~material. Some~~to ~~businesses~~apply ~~choose~~SFAS toNo. 123(R) ~~access~~as ~~enterprise~~of the ~~software~~first ~~applications~~annual ~~through~~reporting ~~application~~period ~~service~~that ~~providers,~~begins orafter ~~ASPs~~June 15, 2005, which ~~are~~ ~~businesses~~is ~~that~~effective ~~host~~with ~~applications~~the ~~and~~Company’s ~~provide~~first ~~access~~quarter toof ~~software~~fiscal on2007. aDue to the ~~subscription~~significant ~~basis.~~number ~~Although~~of weoutstanding ~~occasionally~~unvested ~~sell~~stock ~~our~~options ~~software~~anticipated toas ~~ASPs~~of June 1, 2006, we ~~have limited~~expect ~~experience~~to ~~selling~~incur ~~our~~material ~~solutions~~compensation toexpense ~~ASPs~~after ~~and~~June 1, ~~may~~2006 as ~~not~~those beoptions ~~successful~~vest or in ~~generating~~ ~~revenue~~the ~~from~~event ~~this~~we ~~distribution~~decide ~~channel~~to accelerate vesting. ~~Moreover,~~We ~~the~~may decide ~~use~~to ofchange ~~ASPs~~our ~~as a~~stock ~~distribution~~based ~~channel~~compensation ~~may~~plan ~~occur~~strategy ~~more~~for ~~rapidly~~future ~~than~~grants. This wecould ~~anticipate,~~affect ~~and~~our weability ~~may not~~to beretain ~~able~~existing toemployees ~~compete~~and ~~effectively~~attract qualified incandidates, ~~this~~and ~~environment~~also could increase cash compensation.

InBecause ~~the event~~ our ~~products~~customers ~~infringe~~are onconcentrated ~~the~~in ~~intellectual~~targeted ~~property~~service ~~rights of third parties~~industries, our ~~business~~operating results may ~~suffer~~be ifadversely weaffected by ~~are~~adverse ~~sued~~changes ~~for~~in ~~infringement~~one or ~~cannot~~more ~~obtain~~of ~~licenses to~~ these ~~rights on commercially acceptable terms~~industries.

WeAs ~~are~~a ~~subject~~result toof ~~the~~our ~~risk~~focus ofon ~~adverse~~targeted ~~claims~~service ~~and~~industries, ~~litigation~~our ~~alleging~~financial ~~infringement~~results bydepend, usin ofsignificant ~~the~~part, ~~intellectual property~~upon ~~rights~~economic ofand ~~others.~~market ~~Many~~conditions ~~participants~~ in the ~~technology~~healthcare, ~~industry~~retail, ~~have~~government ~~an increasing number of patents~~ and ~~patent applications and have frequently~~ ~~demonstrated~~education ~~a readiness to take legal action based on allegations of patent~~ and ~~other~~financial ~~intellectual~~services ~~property infringement~~industries. ~~Further,~~Because as the ~~number~~healthcare ~~and~~marketplace ~~functionality~~for of our products ~~increase~~is maturing, we ~~believe~~need ~~that~~to weexpand ~~may~~our ~~become increasingly~~product ~~subject~~offerings to achieve ~~the~~long-term ~~risk~~revenue ofgrowth. ~~infringement~~Many ~~claims.~~state Ifand ~~infringement~~local ~~claims~~ governments are ~~brought~~facing budget ~~against~~shortfalls ~~us,~~and ~~these~~are ~~assertions~~reducing ~~could~~capital ~~distract~~spending, ~~management~~including ~~and~~spending ~~we may~~on ~~have~~software toand ~~expend~~services. ~~potentially~~In ~~significant~~addition, ~~funds~~we ~~and~~must ~~resources~~continue to ~~defend~~develop ~~or settle~~industry ~~such~~specific ~~claims.~~functionality Iffor weour ~~are~~solutions, ~~found~~which tosatisfies ~~infringe~~the onchanging, specialized ~~the~~requirements ~~intellectual~~of ~~property~~prospective ~~rights~~customers ~~of others,~~in weour ~~could~~target beindustries. This ~~forced~~need tois ~~pay~~becoming ~~significant~~more ~~license~~prevalent ~~fees~~as orthe ~~damages~~marketplace for our traditional ~~infringement~~products is maturing.

AsWe ~~part~~may ofexperience ~~our~~fluctuations ~~standard~~in ~~license agreements, we agree~~quarterly torevenue ~~indemnify our clients for some types of infringement claims under the laws of the United States and some foreign jurisdictions~~ that may arise from the use of our products. If a claim against us were successful, we may be required to incur significant expense and pay substantial damages, as we are unable to insure against this risk. Even if we were to prevail, the accompanying publicity could adversely impact ~~the demand for~~ our ~~software.~~stock ~~Provisions attempting~~price toand ~~limit~~ our ~~liability~~operating ~~in our standard agreements may be invalidated by unfavorable judicial decisions or by federal, state, local or foreign laws or ordinances~~results.

ItOur ~~may~~actual ~~become~~revenues ~~increasingly~~in ~~expensive~~a quarter could fall below expectations, which could lead to a decline in our stock price. Our ~~obtain~~revenues and ~~maintain~~operating ~~liability~~results ~~insurance~~are difficult to predict and may fluctuate substantially from quarter-to-quarter. Revenues from license fees in any quarter depend substantially upon our licensing activity and our ability to recognize revenues in that quarter in accordance with our revenue recognition policies. Our quarterly license and services revenue may fluctuate and may be difficult to forecast for a variety of reasons, including the following:

~~We contract for insurance to cover~~• a ~~several,~~significant ~~but~~number ~~not~~of ~~all,~~our ~~potential~~existing ~~risks~~ and ~~liabilities.~~prospective Incustomers’ ~~the current market,~~decisions ~~insurance~~regarding ~~coverage~~whether isto ~~becoming~~enter ~~more~~into ~~restrictive,~~license ~~and,~~agreements ~~when~~with ~~insurance~~us ~~coverage is offered, the deductible for which we~~ are ~~responsible~~made iswithin ~~larger. In light of~~the ~~these~~last ~~circumstances,~~few itweeks ~~may become more difficult to maintain insurance coverage at historical levels,~~ or ifdays ~~such coverage is available, the cost to obtain or maintain it may increase substantially. This may result in our being forced to bear the burden~~ of aneach ~~increased portion of risks for which we have traditionally been covered by insurance, which could negatively impact our results of operations.~~quarter;

We • we have ~~limited~~historically ~~protection~~had a higher concentration of ~~our~~licensing activities in the ~~intellectual~~second ~~property~~half ~~and,~~of ifour wefiscal ~~fail~~year due to ~~adequately~~the ~~protect~~nature of our ~~intellectual~~sales personnel ~~property~~compensation programs; however, wethis ~~may~~pattern was not beas ~~able~~prominent toin ~~compete.~~fiscal 2005 as in prior years and there is no assurance that this pattern will or will not continue in the future;

~~We consider certain aspects of our internal~~• the ~~operations,~~size ~~software and documentation to be proprietary, and rely on a combination~~ of ~~contract,~~license ~~copyright,~~transactions ~~trademark~~can ~~and~~vary ~~trade secret laws to protect this information. In addition,~~significantly;

33• a decrease in license fee revenue may likely result in a decrease in services revenue in the same or subsequent quarters;

to• customers ~~date we hold one patent and have filed several patent applications. Outstanding applications~~ may ~~not~~unexpectedly ~~result~~postpone in issued patents and, even if issued, the patents may not provide any competitive advantage. Existing copyright laws afford only limited protection. Our competitors may independently develop technologies that are less expensive or ~~better~~cancel ~~than~~projects ~~our~~due ~~technology.~~to Inchanges ~~addition,~~in ~~when~~their ~~we license~~strategic ~~our products to clients~~priorities, weproject provide source code for many of our products. We may also permit clients to obtain access to our other source code through a source code escrow arrangement. This access to our source code may increase the likelihood of misappropriation or other misuse of our intellectual property. In additionobjectives, ~~the~~budget ~~laws of some countries in which our software products are~~ or ~~may be licensed do not protect our software products and intellectual property rights to the same extent as the laws of the United States. Defending our rights could be costly.~~personnel;

~~Business~~• the uncertainty ~~disruptions~~caused ~~may~~by ~~interfere~~potential ~~with~~business ~~our~~combinations in the software industry ~~ability~~may cause customers and prospective customers to ~~conduct~~cancel, ~~business.~~postpone or reduce capital spending projects on software;

~~Business disruptions could affect our~~• customer ~~future~~evaluations ~~operating results. Our operating results~~ and ~~financial~~purchasing ~~condition~~processes ~~could be~~vary ~~adversely~~significantly ~~affected~~from incompany ~~the event of a security breach, major fire, war, terrorist attack or other catastrophic event. Impaired access or significant damage~~ to ~~our data center at our headquarters in St. Paul~~ company, ~~Minnesota~~and ~~due to such an event could cause~~ a ~~disruption~~customer’s ofinternal ~~our~~approval ~~information,~~and ~~research~~expenditure ~~and~~authorization ~~development,~~process ~~and~~can ~~client~~be ~~support~~difficult ~~systems~~ and ~~loss~~time ofconsuming ~~financial~~to ~~data and certain client data~~complete, ~~which~~even ~~could~~after ~~adversely impact results~~ selection of ~~operations~~a ~~and business financial conditions.~~vendor;

~~Our~~• the number, ~~future~~timing ~~success~~and ~~depends~~significance onof ~~our~~software ~~ability~~product toenhancements ~~continue to retain~~ and new ~~attract~~software ~~qualified~~product ~~personnel.~~announcements;

We• existing ~~believe~~customers ~~that~~may ~~our~~decline ~~future~~to ~~success~~renew ~~depends~~support ~~upon~~for our ~~ability to continue to train~~products, ~~retain,~~ ~~effectively manage~~ and ~~attract~~market ~~highly skilled technical, managerial,~~pressures ~~sales~~may ~~and~~limit ~~marketing personnel. If~~ our ~~efforts~~ability into ~~these areas are not successful, our costs may~~ increase, ~~development~~support ~~and~~fees ~~sales~~or ~~efforts~~require ~~may~~customers ~~be hindered and our client service may be degraded. There is intense competition for personnel in the software industry. From time~~ to ~~time, we experience difficulties in~~upgrade ~~locating~~from ~~enough~~older ~~highly~~versions ~~qualified~~of ~~candidates~~our ~~in desired geographic locations, or with required product development or industry-specific expertise.~~products;

We• prospective customers ~~have~~may ~~limited~~decline ~~experience~~or ~~with~~defer ~~offshore~~the ~~outsourcing.~~purchase of new products or releases if we do not have

To help improve margins and gain operational efficiencies, many software companies have outsourced portions of their support or development efforts to companies located in India or other parts of the world. In February 2004, we entered into an offshore agreement with a third-party to provide certain software support services for our products. We have limited experience with this type of outsourcing and may be unable to achieve the anticipated economic efficiencies expected of this arrangement.36

~~There~~sufficient ~~are~~customer areferences ~~large~~for ~~number~~those ~~of shares~~products; ~~that may be sold in the market, which may depress our stock price.~~or

~~In October 2004,~~ • we ~~announced that~~ our Founder and Chairman had entered into a selling plan to sell up to 1,750,000 shares during the period October 2004 through August 2005. In October 2004, we also announced that our Chief Executive Officer and Chief Financial Officer had each entered into selling plans, to sell up to 400,000 and 219,000 shares, respectively, during the period January 2005 through October 2005. These executive officers may ~~also~~have ~~elect~~ to ~~sell~~ ordefer ~~transfer~~revenues ~~other~~under ~~shares apart from the selling plans. Other executive officers, directors or principal stockholders could also elect to sell their shares from time to time. A substantial number of shares of~~ our ~~common~~revenue ~~stock are~~recognition ~~held by our founders, their family members, a pre-initial public offering investor, current or former employees, officers or directors~~policies. Sale of a portion of these shares in the public market, or the perception that such sales are likely to occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities.

~~Control~~Fluctuation byin ~~existing~~our ~~shareholders~~quarterly ~~could~~revenues ~~significantly~~may ~~influence~~adversely ~~matters~~affect ~~requiring~~our ~~stockholder~~operating ~~approval~~results. In each fiscal quarter our expense levels, operating costs and hiring plans are based on projections of future revenues and are relatively fixed. If our actual revenues fall below expectations we could experience a reduction in operating results.

AsOur oflengthy ~~November 30, 2004, our executive officers, directors,~~ and ~~affiliated~~variable ~~entities,~~sales incycle ~~the aggregate,~~makes ~~beneficially~~it ~~owned~~difficult ~~18.7%~~to ofpredict our ~~outstanding~~operating ~~common stock~~results. These stockholders, if acting together, would be able to significantly influence all matters requiring approval by stockholders, including the election of directors and the approval of mergers or other business combinations.

~~Financial~~It ~~outlook~~is difficult for us to forecast the timing and recognition of revenues from sales of our products because our existing and prospective customers often take significant time evaluating our products before licensing them. The period between initial customer contact and a purchase by a customer may vary from nine months to more than one year. During the evaluation period, prospective customers may decide not to purchase or may scale down proposed orders of our products for various reasons, including:

~~From~~• reduced ~~time~~demand tofor ~~time in press releases and~~enterprise ~~otherwise,~~software we may publish forecasts or other forward-looking statements regarding our future results, including estimated revenues or net earnings. Any forecast of our future performance reflects various assumptions. These assumptions are subject to significant uncertainties, and as a mattersolutions;

34• introduction of products by our competitors;

~~of course,~~• lower ~~any~~prices ~~number~~offered ofby ~~them may prove to be incorrect. Further, the achievement of any forecast depends on numerous risks and other factors (including those described in this discussion), many of which are beyond~~ our ~~control. As a~~ result, we cannot provide assurance that our performance will be consistent with any management forecasts or that the variation from such forecasts will not be material and adverse. Current and potential stockholders are cautioned not to base their entire analysis of our business and prospects upon isolated predictions, but instead are encouraged to utilize our entire publicly available mix of historical and forward-looking information, as well as other available information affecting us, our products and services, and the software industry when evaluating our prospective results of operations.competitors;

~~ITEM~~• changes 3.in ~~QUALITATIVE AND~~budgets ~~QUANTITATIVE~~and ~~DISCLOSURES~~purchasing priorities; ~~ABOUT MARKET RISK~~and

~~There~~• reduced ~~were~~need noto ~~material~~upgrade ~~changes in market risk~~existing ~~for the Company in the period covered by this report~~systems. ~~See the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2004 for a discussion of market risk for the Company.~~

~~ITEM~~Our 4existing and prospective customers routinely require education regarding the use and benefits of our products. This ~~CONTROLS~~may ~~AND~~also ~~PROCEDURES~~lead to delays in receiving customers’ orders.

AsOur ~~required~~future byrevenue ~~Rule~~is ~~13a-15(b)~~dependent ~~under~~in ~~the~~part Securities Exchange Act of 1934, as amended we conducted an evaluation under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on ~~that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that~~ our ~~current disclosure controls and procedures~~installed ~~are~~customer ~~effective~~base incontinuing ~~ensuring that all information required~~ to berenew ~~disclosed~~support ~~in reports that we file or submit under the Exchange Act is recorded~~agreements, ~~processed, summarized~~license ~~and reported within the time periods specified in the Securities and~~additional ~~Exchange~~products, ~~Commission rules~~ and ~~forms.~~purchase ~~There~~additional ~~was~~professional no significant change in our internal control over financial reporting that occurred during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reportingservices.

~~PART~~Our IIinstalled client base has traditionally generated additional support, license or professional service revenues. ~~OTHER~~In ~~INFORMATION~~future periods, customers may not necessarily make these purchases. Support is generally renewable annually at a customer’s option, and there are no mandatory payment obligations or obligations to license additional software. If our customers decide not to renew their support agreements or license additional products or contract for additional services or if they reduce the scope of the support agreements, our revenues could decrease and our operating results could be adversely affected. If we do not license our products to enough customers each quarter to offset the number of existing customers who elect not to renew support, our total customer count will decline and, over time, our support revenue will likely decrease.

~~ITEM~~A 1.reduction ~~LEGAL~~in ~~PROCEEDINGS~~our licensing activity may result in reduced services revenues in future periods.

WeOur ~~are,~~ability ~~and from time~~ to ~~time~~ ~~may~~maintain ~~become,~~or ~~involved~~increase inservice ~~litigation~~revenue primarily independs ~~the~~on ~~normal course of business concerning~~ our ~~products~~ability ~~and~~to ~~services.~~increase ~~While~~ the ~~outcome~~number of ~~these~~our ~~claims cannot~~licensing beagreements. ~~predicted~~Variances ~~with~~or ~~certainty,~~slowdowns wein dolicensing ~~not~~activity ~~believe~~may ~~that~~adversely ~~the outcome of any one of~~impact ~~these legal matters will have a material adverse effect on~~ our ~~consolidated financial position~~consulting, ~~results~~training ~~of operations or cash flows. However, depending on the amount~~ and ~~the~~support ~~timing,~~service anrevenues ~~unfavorable~~in ~~resolution of some or all of these matters could materially affect our~~ future ~~results of operations or cash flows in a particular period~~periods.

~~ITEM~~The 2.interplay ~~UNREGISTERED~~between ~~SALES~~Lawson’s OFrevenue ~~EQUITY~~and ~~SECURITIES~~cost ~~AND~~structure ~~USE OF~~may ~~PROCEEDS~~negatively affect its earnings on a short term basis.

~~(b) Use~~A significant part of ~~Proceeds~~Lawson’s total cost base is attributed to fixed costs related to personnel. While Lawson’s license sales generate a substantial gross margin, reductions in license sales in the short term may have a substantial effect on earnings due to the fact that cost adjustments in the organization will not occur as quickly as the accompanying changes in revenue.

As of November 30, 2004, we held $119.6 million of net proceeds from our initial public offering in interest-bearing, investment grade securities. During the three months ended November 30, 2004, we used approximately $0.9 million for capital expenditures and $0.4 million for the repayment of debt.37

~~ITEM~~While 3.we ~~DEFAULTS~~believe ~~UPON~~we ~~SENIOR~~currently ~~SECURITIES~~have adequate internal control over financial reporting, we are required to evaluate on a continued basis our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 and any adverse results from such evaluation could have a negative market reaction.

~~None~~Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (Section 404), beginning with our Annual Report on Form 10-K for the fiscal year ended May 31, 2005, we were required to furnish a report by our management on our internal control over financial reporting. That report contained, among other matters, an assessment of the effectiveness of our internal control over financial reporting as of the end of the fiscal year, including a statement that our internal control over financial reporting was effective. This assessment included disclosure that the Company did not have any material weaknesses in our internal control over financial reporting identified by management. That report also contained a statement that our independent registered public accounting firm had issued an attestation report on management’s assessment of such internal controls. If in the future we are unable to assert that our internal control over financial reporting is effective as of the end of the then current fiscal year or applicable quarter (or, if our independent registered public accounting firm is unable to attest that our management’s report is fairly stated or they are unable to express an opinion on the effectiveness of our internal controls), we could lose investor confidence in the accuracy and completeness of our financial reports, which would have a negative market reaction.

35We may be required to delay revenue recognition into future periods, which could adversely impact our operating results.

~~ITEM~~We 4.have ~~SUBMISSION~~in OFthe ~~MATTERS~~past TOhad Ato, ~~VOTE~~and OFin ~~SECURITY~~the future ~~HOLDERS~~may have to, defer revenue recognition for license fees due to several factors, including the following situations:

~~(a)~~• the ~~The~~license ~~Company~~agreements ~~held~~include ~~its~~applications ~~Annual Meeting~~that ofare ~~Stockholders~~under ondevelopment ~~October 28,~~or ~~2004.~~have other undelivered elements;

~~(b) Pursuant to the election of the seven directors~~• we ~~listed~~must ~~under~~deliver ~~Item 4 (c)(1)~~services, ~~John~~including J.significant ~~Coughlan~~modifications, ~~David~~customization ~~J. Eskra, David R. Hubers,~~or ~~Thomas~~complex ~~G. Hudson~~interfaces, ~~Richard~~which D.could ~~Kreysar,~~delay H.product ~~Richard~~delivery ~~Lawson,~~or ~~and Michael A. Rocca were each elected as directors for a term of one year.~~acceptance;

~~(c)~~• the ~~The~~transaction ~~Company’s~~includes ~~stockholders~~acceptance ~~voted on the following matters:~~ criteria;

~~(1) Election of seven directors. All directors~~• the ~~nominated~~transaction byincludes ~~the~~contingent ~~Board~~payment ofterms ~~Directors~~or ~~were elected.~~fees;

Nominee	Votes For	Votes Withheld
John J. Coughlan	92,075,547	3,699,862
David J. Eskra	92,209,352	3,566,057
David R. Hubers	90,912,190	4,863,219
Thomas G. Hudson	88,368,054	7,407,355
Richard D. Kreysar	92,214,522	3,560,887
H. Richard Lawson	90,998,806	4,776,603
Michael A. Rocca	89,686,215	6,089,194

• a third-party vendor, whose technology is incorporated into our software products, delays delivery of the final software product to the customer;

~~(2) The stockholders ratified the appointment of~~• we ~~PricewaterhouseCoopers~~are ~~LLP~~required asto ~~the~~accept ~~Company’s~~certain ~~independent~~fixed-fee ~~registered~~services ~~public accounting~~contracts; ~~firm for the fiscal year ending May 31, 2005, with 95,168,175 affirmative votes, 51,831 negative votes, and 554,864 votes abstaining.~~or

~~ITEM~~• we are 5.required ~~OTHER~~to ~~INFORMATION~~accept extended payment terms of more than one year or for which we do not have adequate support of historical collectibility.

~~None~~Because of the factors listed above and other specific requirements under accounting principles generally accepted in the United States for software revenue recognition, we must have very precise terms in our license agreements to recognize revenue when we initially deliver software or perform services. Negotiation of mutually acceptable terms and conditions can extend the sales cycle, and sometimes we do not obtain terms and conditions that permit revenue recognition at the time of delivery or even as work on the project is completed. Furthermore, because many contracts within our verticals, including government and education and healthcare, often include the terms summarized above, the contracts result in revenue deferrals.

~~ITEM~~If 6accounting interpretations relating to revenue recognition change, our reported revenues could decline or we could be forced to make changes in our business practices. The accounting profession ~~EXHIBITS~~and regulatory agencies continue to address and discuss accounting standards and interpretations covering revenue recognition for the software industry with the objective of providing additional guidance on their application. These discussions and the issuance of new interpretations, once finalized, could lead to unanticipated reductions in our recognized revenue. They could also drive significant adjustments to our business practices which could result in increased administrative costs, lengthened sales cycles and other changes which could adversely affect our reported revenues and results of operations.

(a)	Exhibits
	10.18	Form of Stock Option Agreement under 2001 Stock Incentive Plan
	10.19	Form of Stock Option Agreement under 2001 Stock Incentive Plan (with additional terms regarding acceleration of vesting)
	31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act- John J. Coughlan.
	31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act- Robert G. Barbieri.
	32.1	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act- John J. Coughlan.
	32.2	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act- Robert G. Barbieri.

36Future adjustments in our net deferred tax assets may materially impact our financial results.

~~SIGNATURES~~On November 30, 2005 the Condensed Consolidated Balance Sheet includes net deferred tax assets in the amount of $30.6 million. Each quarter, we must assess the likelihood that our net deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish or reverse all or a portion of the valuation allowance, we must include an expense or expense reversal within the tax provision in the statement of operations. For the fiscal year ended May 31, 2005, we updated our analysis to reflect the necessary changes in estimates and determined that an additional valuation allowance of $0.4 million was necessary. This increase was primarily due to additional federal contribution carryforwards and state operating loss carryforwards that expire within the next ten years. For the six months ended November 30, 2005 we determined that our valuation allowance did not need to be adjusted.

~~Pursuant~~In the toevent ~~the~~that ~~requirements~~we adjust our estimates of ~~the~~future taxable income or tax ~~Securities~~deductions ~~Exchange~~from ~~Act~~the exercise of ~~1934~~stock options; or our stock price increases significantly without a corresponding increase in taxable income, we may need to establish an additional valuation allowance, which could materially adversely impact our financial position and results of operations. With the expected ~~registrant~~closing ~~has~~of ~~duly~~the ~~caused~~merger ~~this~~with ~~report~~Intentia we will need to reassess the combined beU.S. ~~signed~~historical onresults for Lawson and Intentia as well as the combined U.S. deferred tax assets. Intentia’s U.S. operations are not material and therefore its ~~behalf~~deferred bytax assets are significantly less than Lawson’s. However, Intentia’s historical losses in the ~~undersigned~~U.S. ~~thereunto~~and ~~duly~~its ~~authorized~~added deferred tax assets will impact the assessment and are expected to increase the possibility of a future valuation allowance.

Date: January 7, 2005
	LAWSON SOFTWARE, INC.
	By:	/s/ ROBERT G. BARBIERI
		Robert G. Barbieri Executive Vice President and Chief Financial and Performance Officer (principal financial and accounting officer)

We may experience fluctuations in quarterly results that could adversely impact our annual effective tax rate.

37Our revenues and operating results are difficult to predict and may fluctuate substantially from quarter-to-quarter. Since we must estimate our annual effective tax rate each quarter based on a combination of actual results and forecasted results of subsequent quarters, any significant change in our actual quarterly or forecasted annual results may adversely impact the computation of the estimated effective tax rate for the year. Our estimated annual effective tax rate may fluctuate for a variety of reasons, including the following:

~~EXHIBIT~~• changes in ~~INDEX~~forecasted annual operating income;

EXHIBIT NUMBER		DESCRIPTION OF DOCUMENTS
10.18		Form of Stock Option Agreement under 2001 Stock Incentive Plan
10.19		Form of Stock Option Agreement under 2001 Stock Incentive Plan (with additional terms regarding acceleration of vesting)
31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act- John J. Coughlan.
31.2		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act- Robert G. Barbieri.
32.1		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act- John J. Coughlan.
32.2		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act- Robert G. Barbieri.

• changes to the valuation allowance on net deferred tax assets;

38• changes to actual or forecasted permanent differences between book and tax reporting;

• impacts from future tax settlements with state, federal or foreign tax authorities; or

• impacts from tax law changes.

Our stock price may remain volatile.

The trading price of our common stock has fluctuated significantly in the past. Changes in our business operations or prospects, regulatory considerations, general market and economic conditions, or other factors may affect the price of our common stock. Many of these factors are beyond our control. The future trading price of our common stock is likely to be volatile and could be subject to wide price fluctuations in response to such factors, including:

• actual or anticipated fluctuations in revenues or operating results, including revenue or results of operations in any quarter failing to meet the expectations, published or otherwise, of the investment community;

• announcements of technological innovations by us or our competitors;

• developments with respect to our intellectual property rights, including patents, or those of our competitors;

• fluctuations in demand for and sales of our products, which will depend on, among other things, the acceptance of our products in the marketplace and the general level of spending in the software industry;

• rumors or dissemination of false and/or misleading information;

• changes in management;

• proposed and completed acquisitions or other significant transactions by us or our competitors;

• introduction and success of new products or significant customer wins or losses by us or our competitors;

• the mix of products and services sold by us;

• the timing of significant orders by our customers;

• conditions and trends in the software industry, or consolidation within the technology industry that may impact our customers, partners, suppliers or competitors;

• adoption of new accounting standards affecting the software industry;

• acts of war or terrorism; and

• general market conditions.

We have adopted anti-takeover defenses that could make it difficult for another company to acquire control of Lawson or limit the price investors might be willing to pay for our stock.

Provisions in our amended and restated certificate of incorporation and bylaws, our stockholder rights plan and under Delaware law could make it more difficult for other businesses to acquire us, even if doing so would benefit our stockholders. Our amended and restated certificate of incorporation and bylaws contain the following provisions, among others, which may inhibit an acquisition of our company by a third-party:

• advance notification procedures for matters to be brought before stockholder meetings;

• a limitation on who may call stockholder meetings;

• a prohibition on stockholder action by written consent; and

• the ability of our board of directors to issue shares of preferred stock without a stockholder vote.

The issuance of stock under our stockholder rights plan could delay, deter or prevent a takeover attempt that stockholders might consider in their best interests. We are also subject to provisions of Delaware law that prohibit us from engaging in any business combination with any “interested stockholder,” meaning generally that a stockholder who beneficially owns more than 15% of our stock cannot acquire us for a period of three years from the date this person became an interested stockholder unless various conditions are met, such as approval of the transaction by our board of directors. Any of these restrictions could have the effect of delaying or preventing a change in control.

Changes in the terms on which we license technologies from third-party vendors could result in the loss of potential revenues or increased costs or delays in the production and improvement of our products.

We license third-party software products that we incorporate into, or resell with, our own software products. For example, we incorporate Micro Focus International, Inc.’s software in many of our products and have reseller and alliance relationships with IBM, Business Software Incorporated, Business Objects, Hyperion Solutions Corporation, The Hackett Group, Inc. and other businesses that allow us to resell their offerings with our products and services. These relationships and other technology licenses are subject to periodic renewal and may include minimum sales requirements. A failure to renew or early termination of these relationships or other technology licenses could adversely impact our business. If any of the third-party software vendors change their product offerings or terminate our licenses, we may lose potential revenues and may need to incur additional development costs and seek alternative third-party relationships. In addition, if the cost of licensing any of these third-party software products significantly increases, or if there is a change in the relative mix of products we offer, our gross profits could significantly decrease. We rely on existing relationships with software vendors who are also competitors. If these vendors change their business practices, we may be compelled to find alternative vendors with

complementary software, which may not be available on attractive terms or at all, or may not be as widely accepted or as effective as the software provided by our existing vendors. Our relationships with these and other third-party vendors are an important part of our business and a deterioration of these relationships could adversely impact our business and operating results.

A deterioration in our relationship with resellers, systems integrators and other third parties that market and sell our products could reduce our revenues.

Our ability to achieve revenue growth will depend in large part on adding new partners to expand our sales channels, as well as leveraging our relationships with existing partners. If our relationships with these resellers, system integrators and strategic and technology partners deteriorate or terminate, we may lose important sales and marketing opportunities. Our reseller arrangements may from time to time give rise to disputes regarding marketing strategy, sales of competing products, exclusive territories, payment of fees and customer relationships, which could negatively affect our business or result in costly litigation.

Our current and potential customers often rely on third-party systems integrators to implement and manage new and existing applications. These systems integrators may increase their promotion of competing enterprise software applications, or may otherwise discontinue their relationships with us.

We also may enter into joint arrangements with strategic partners to develop new software products or extensions, sell our software as part of integrated products or serve as an application service provider for our products. Our business may be adversely affected if these strategic partners change their business priorities or experience difficulties in their operations, which in either case causes them to terminate or reduce their support for the joint arrangements. Furthermore, the financial condition of our channel partners impacts our business. If our partners are unable to recruit and adequately train a sufficient number of consulting personnel to support the implementation of our software products, or they otherwise do not adequately perform implementation services, we may lose customers. Our relationships with resellers, systems integrators and other third-party vendors are an important part of our business, and a deterioration of these relationships could adversely impact our business and operating results.

Our programs are deployed in large and complex systems and may contain defects that are not detected until after our programs have been installed, which could damage our reputation and cause us to lose customers or incur liabilities.

Our software programs are often deployed in large and complex computer networks. Because of the nature of these programs, they can only be fully tested for reliability when deployed in networks for long periods of time. Our software programs may contain undetected defects when first introduced or as new versions are released, and our customers may discover defects in our products, experience corruption of their data or encounter performance or scaling problems only after our software programs have been deployed. As a consequence, from time to time we have received customer complaints following installation of our products. We are currently a defendant in several lawsuits where customers have raised these types of issues with our products and services. In addition, our products are combined with products from other vendors. As a result, should problems occur, it may be difficult to identify the source of the problem. Software and data security are becoming increasingly important because of regulatory restrictions on data privacy and the significant legal exposures and business disruptions stemming from computer viruses and other unauthorized entry or use of computer systems. These conditions increase the risk that we could experience, among other things:

• loss of customers;

• damage to our brand reputation;

• failure to attract new customers or achieve market acceptance;

• diversion of development and services resources; and

• legal actions by our customers or government regulators.

In addition, we may not be able to avoid or limit liability for disputes relating to product performance, software security or the provision of services. The occurrence of any one or more of the foregoing factors could cause us to experience losses, incur liabilities and adversely affect our operating results.

If our customers lose confidence in the security of data on the Internet, our revenues could be adversely affected.

Maintaining the security of computers and computer networks is an issue of critical importance for our customers. Attempts by experienced computer programmers, or hackers, to penetrate client network security or the security of web sites to misappropriate confidential information are currently an industry-wide phenomenon that affects computers and networks across all platforms. Despite efforts to address these risks, actual or perceived security vulnerabilities in our products (or the Internet in general) could lead some customers to seek to reduce or delay future purchases or to purchase competitors’ products which are not Internet-based applications. Customers may also increase their spending to protect their computer networks from attack, which could delay adoption of new technologies. Any of these actions by customers could adversely affect our revenues.

We may be required to undertake a costly redesign of our products if third- party software development tools become an industry standard or cause obsolescence of our toolsets.

Several businesses have focused on providing software development tools and each of them is attempting to establish its own tools as the accepted industry standard. If a software product were to emerge as a clearly established and widely accepted industry standard or if rising expectations of toolsets of applications cause our toolsets to become obsolete, we may not be able to adapt our tools appropriately or rapidly enough to satisfy market demand. In addition, we could be forced to abandon or modify our tools or to redesign our software products to accommodate the new industry standard. This would be expensive and time-consuming and may adversely affect results of operations and the financial condition of our business. Our failure to drive or adapt to new and changing industry standards or third-party interfaces could adversely affect sales of our products and services.

We may be unable to identify or complete suitable acquisitions and investments; and any acquisitions and investments we do complete may create business difficulties or dilute our stockholders.

As part of our business strategy, we intend to pursue strategic acquisitions. We may be unable to identify suitable acquisitions or investment candidates. Even if we identify suitable candidates, we cannot provide assurance that we will be able to make acquisitions or investments on commercially acceptable terms. If we acquire a company, we may incur losses in the operations of that company and we may have difficulty integrating its products, personnel and operations into our business. In addition, its key personnel may decide not to work for us. We may also have difficulty integrating acquired businesses, products, services and technologies into our operations. These difficulties could disrupt our ongoing business, distract our management and workforce, increase our expenses and adversely affect our operating results. We may also incorrectly judge the value or worth of an acquired company or business. Furthermore, we may incur significant debt or be required to issue equity securities to pay for future acquisitions or investments. The issuance of equity securities may be dilutive to our stockholders. If the products of an acquired company are not successful, those remaining assets could become impaired, which may result in an impairment loss that could materially adversely impact our financial position and results of operations.

We currently do not compete in the software “on demand” or application service provider markets.

Some businesses choose to access enterprise software applications through hosted “on demand” services or application service providers who distribute enterprise software through a hosted subscription service. We do not currently have our own “on demand” hosting program for our products and have had limited success with channel partners who serve as application service providers for customers. If these alternative distribution models gain popularity, we may not be able to compete effectively in this environment.

In the event our products infringe on the intellectual property rights of third parties, our business may suffer if we are sued for infringement or cannot obtain licenses to these rights on commercially acceptable terms.

We are subject to the risk of adverse claims and litigation alleging infringement by us of the intellectual property rights of others. Many participants in the technology industry have an increasing number of patents and patent applications and have frequently demonstrated a readiness to take legal action based on allegations of patent and other intellectual property infringement. Further, as the number and functionality of our products increase, we believe that we may become increasingly subject to the risk of infringement claims. If infringement claims are brought against us, these assertions could distract management and we may have to expend potentially significant funds and resources to defend or settle such claims. If we are found to infringe on the intellectual property rights of others, we could be forced to pay significant license fees or damages for infringement.

If one of our developers embedded open source components into one of our products, without our knowledge or authorization, our ownership and licensing of that product could be in jeopardy. Depending on the open source license terms, the use of an open source component could mean that all products delivered with that open source component become part of the open source community. In that case, we would not own those delivered products and could not charge license fees for those products. We currently take steps to train our developers and monitor the content of products in development, but there is no assurance that these steps will always be effective.

As part of our standard license agreements, we agree to indemnify our customers for some types of infringement claims under the laws of the United States and some foreign jurisdictions that may arise from the use of our products. If a claim against us were successful, we may be required to incur significant expense and pay substantial damages, as we are unable to insure against this risk. Even if we were to prevail, the accompanying publicity could adversely impact the demand for our software. Provisions attempting to limit our liability in our standard agreements may be invalidated by unfavorable judicial decisions or by federal, state, local or foreign laws or ordinances.

If the open source community expands into enterprise application software, our license fee revenues may decline.

The open source community is comprised of many different formal and informal groups of software developers and individuals who have created a wide variety of software and have made that software available for use, distribution and modification, often free of charge. Open source software, such as the Linux operating system, has been gaining in popularity among business users. If developers contribute enterprise application software to the open source community, and that software has competitive features and scale to support business users in our markets, we will need to change our product pricing and distribution strategy to compete.

It may become increasingly expensive to obtain and maintain liability insurance.

We contract for insurance to cover several, but not all, potential risks and liabilities. In the current market, insurance coverage is becoming more restrictive, and, when insurance coverage is offered, the deductible for which we are responsible is larger. In light of these circumstances, it may become more difficult to maintain insurance coverage at historical levels, or if such coverage is available, the cost to obtain or maintain it may increase substantially. This may result in our being forced to bear the burden of an increased portion of risks for which we have traditionally been covered by insurance, which could negatively impact our results of operations.

We have limited protection of our intellectual property and, if we fail to adequately protect our intellectual property, we may not be able to compete.

We consider certain aspects of our internal operations, software and documentation to be proprietary, and rely on a combination of contract, copyright, trademark and trade secret laws to protect this information. In addition, to date, we hold one patent and have filed several patent applications. Outstanding applications may not result in issued patents and, even if issued, the patents may not provide any competitive advantage. Existing copyright laws afford only limited protection. Our competitors may independently develop technologies that are less expensive or better than our technology. In addition, when we license our products to customers, we provide source code for many of our products. We may also permit customers to obtain access to our other source code through a source code escrow arrangement. This access to our source code may increase the likelihood of misappropriation or other misuse of our intellectual property. In addition, the laws of some countries in which our software products are or may be licensed do not protect our software products and intellectual property rights to the same extent as the laws of the United States. Defending our rights could be costly.

Business disruptions may interfere with our ability to conduct business.

Business disruptions could affect our future operating results. Our operating results and financial condition could be adversely affected in the event of a security breach, major fire, war, terrorist attack or other catastrophic event. Impaired access or significant damage to our data center at our headquarters in St. Paul, Minnesota due to such an event could cause a disruption of our information, research and development, and customer support systems and loss of financial data and certain customer data, which could adversely impact results of operations and business financial conditions.

We have limited experience with offshore outsourcing.

To help improve margins and gain operational efficiencies, many software businesses have outsourced portions of their software development and software services to businesses located in India or other parts of the world. In February 2004,

we entered into an offshore agreement with a third-party based in India to provide certain software support services for our products. We have recently expanded our efforts to use this third-party to assist us in providing lower cost implementation services for customers. We have limited experience with these types of outsourcing and may be unable to achieve the anticipated economic efficiencies expected of this arrangement.

There are a large number of shares that may be sold in the market, which may depress our stock price.

A substantial number of shares of our common stock are held by our founders, their family members, a pre-initial public offering investor, current or former employees, officers or directors. Sale of a portion of these shares in the public market, or the perception that such sales are likely to occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities.

Control by existing stockholders could significantly influence matters requiring stockholder approval.

As of November 30, 2005, our executive officers, directors, and affiliated entities, in the aggregate, beneficially owned 16.4% of our outstanding common stock. These stockholders, if acting together, would be able to significantly influence all matters requiring approval by stockholders, including the election of directors and the approval of mergers or other business combinations. Sale of a portion of these shares in the public market, or the perception that such sales are likely to occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. In addition, certain of our stockholders have agreed to irrevocable undertakings with Intentia International AB, under which those shareholders have given their proxy to affiliates of Intentia to vote an aggregate of 34,967,320 of our shares in favor of the proposed acquisition of Intentia.

Financial outlook.

From time to time in press releases and otherwise, we may publish forecasts or other forward-looking statements regarding our future results, including estimated revenues or net earnings. Any forecast of our future performance reflects various assumptions. These assumptions are subject to significant uncertainties, and as a matter of course, any number of them may prove to be incorrect. Further, the achievement of any forecast depends on numerous risks and other factors (including those described in this discussion), many of which are beyond our control. As a result, we cannot provide assurance that our performance will be consistent with any management forecasts or that the variation from such forecasts will not be material and adverse. Current and potential stockholders are cautioned not to base their entire analysis of our business and prospects upon isolated predictions, but instead are encouraged to utilize our entire publicly available mix of historical and forward-looking information, as well as other available information affecting us, our products and services, and the software industry when evaluating our prospective results of operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) Not applicable

(b) Use of Proceeds

As of November 30, 2005, we held $112.5 million of net proceeds from our initial public offering in interest-bearing, investment grade securities. During the three months ended November 30, 2005, we used approximately $0.7 million for capital expenditures and $1.3 million in capitalized costs for the pending business acquisition with Intentia.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

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

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

(a)	Exhibits


	31.1	Certification of President and Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act- Harry Debes.

	31.2	Certification of Executive Vice President and Chief Financial and Performance Officer Pursuant to Section 302 of the Sarbanes-Oxley Act- Robert G. Barbieri.

	32.1	Certification of President and Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act- Harry Debes.

	32.2	Certification of Executive Vice President and Chief Financial and Performance Officer Pursuant to Section 906 of the Sarbanes-Oxley Act- Robert G. Barbieri.

SIGNATURES

Pursuant to the requirements of the Securities E

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