JDA Software (JDAS) 8-K/A Financial statements and exhibits

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 8-K/A

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event report) September 7, 2001

JDA SOFTWARE GROUP, INC.

(Exact name of registrant as specified in charter)

Delaware	0-27876	86-0787377
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

14400 North 87th Street, Scottsdale, Arizona	85260-3649
(Address of principle executive offices)	(Zip Code)

Registrant’s telephone number, including area code (480) 308-3000

(Former name or former address, if changed since last report)

ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.

(a)	Financial statements of business acquired.
(b)	Pro forma financial information.
(c)	Exhibits

2.1	Agreement and Plan of Reorganization dated as of September 7, 2001, by and among JDA Software Group, Inc., E3 Acquisition Corp., E3 Corporation and certain shareholders of E3 Corporation.*
4.1	Registration Rights Agreement dated as of September 7, 2001, by and among JDA Software Group, inc. and the former E3 shareholders.*
99.1	Press release issued September 10, 2001.*
	* Incorporated by reference to the same numbered exhibit to the Company’s current report on Form 8-K dated September 7, 2001 filed with the Security and Exchange Commission on September 21, 2001.

SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

JDA Software Group, Inc.

Date: November 19, 2001 By : /s/ Kristen L. Magnuson
Kristen L. Magnuson
Senior Vice President, Chief Financial
Officer, Secretary and Treasurer

Consolidated Financial Statements
E3 Corporation
Years ended December 31, 1998, 1999, and 2000
with Report of Independent Auditors

E3 Corporation

Consolidated Financial Statements

 
Years ended December 31, 1998, 1999 and 2000

Contents

Report of Independent Auditors	2
Audited Consolidated Financial Statements
Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Shareholders’ Equity (Deficit) Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements	3 5 6 7 9

Report of Independent Auditors

The Board of Directors and Shareholders
E3 Corporation

We have audited the accompanying consolidated balance sheets of E3 Corporation as of December 31, 1999 and 2000, and the related consolidated statements of operations, shareholders’ equity (deficit) and cash flows for the years ended December 31, 1998, 1999, and 2000. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of E3 Corporation at December 31, 1999 and 2000, and the consolidated results of its operations and its cash flows for the years ended December 31, 1998, 1999, and 2000, in conformity with accounting principles generally accepted in the United States.

The accompanying financial statements have been prepared assuming that E3 Corporation will continue as a going concern. As more fully described in Note 1, the Company has not complied with certain covenants of loan agreements with a bank and has entered into a forbearance agreement with the bank. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

September 5, 2001
Atlanta, Georgia

2

E3 Corporation

Consolidated Balance Sheets

		December 31
		1999			2000
Assets
Current assets:
	Cash and cash equivalents	$	2,411,112		$	2,561,909
	Accounts receivable, net of allowances of $533,000 and $466,000 in 1999 and 2000, respectively		13,358,881			11,668,256
	Accounts receivable from employees		31,412			34,974
	Prepaid expenses and other current assets		631,659			781,406
	Deferred income taxes		6,958,254			7,303,041
Total current assets			23,391,318			22,349,586
Property and equipment:
	Furniture and equipment		3,326,550			3,997,010
	Software		857,839			1,333,255
	Leasehold improvements		1,317,883			1,346,126
			5,502,272			6,676,391
	Less accumulated depreciation and amortization		(2,789,771	)		(3,803,102	)
			2,712,501			2,873,289
Deferred income taxes			5,352,900			6,760,970
Other assets			252,388			379,714
Intangible assets, net of accumulated amortization of $146,292 in 2000			–			633,930
Total assets		$	31,709,107		$	32,997,489

3

E3 Corporation

Consolidated Balance Sheets

		December 31
		1999			2000
Liabilities and shareholders’ equity (deficit)
Current liabilities:
	Accounts payable	$	1,155,279		$	1,792,734
	Accrued expenses		1,648,486			2,011,258
	Accrued compensation		1,929,960			1,458,636
	Line of credit		260,949			3,351,741
	Current portion of long–term debt		7,500,000			5,416,670
	Note payable		–			173,500
	Income taxes payable		1,561,262			215,785
	Deferred revenue		17,911,209			19,692,872
Total current liabilities			31,967,145			34,113,196
Other long-term liabilities			12,736			9,838
Long-term deferred revenue			14,800,733			17,713,353
Shareholders’ equity (deficit):
	Preferred stock, $0.01 par value, 50,000,000 shares authorized, none issued and outstanding		–			–
	Common stock, $0.05 par value, 100,000,000 shares authorized, 15,135,064 shares issued and outstanding at December 31, 1999 and 2000, respectively		756,753			756,753
	Additional paid-in capital		–			240,800
	Accumulated deficit		(15,556,161	)		(19,254,339	)
	Foreign currency translation adjustments		(272,099	)		(582,112	)
Total shareholders’ equity (deficit)			(15,071,507	)		(18,838,898	)
Total liabilities and shareholders’ equity (deficit)		$	31,709,107		$	32,997,489

See accompanying notes.

4

E3 Corporation

Consolidated Statements of Operations

		Year ended December 31
		1998			1999			2000
Revenues:
	Software license fees	$	14,414,763		$	16,492,714		$	20,249,521
	Services and support fees		13,931,580			19,213,834			21,007,563
Total revenues			28,346,343			35,706,548			41,257,084
Expenses:
	Costs of services and support fees		8,204,369			12,252,610			12,905,025
	Sales and marketing		10,859,152			13,794,585			16,529,057
	General and administrative		7,439,875			7,262,396			8,253,387
	Product development		3,083,977			3,785,496			7,232,160
Total expenses			29,587,373			37,095,087			44,919,629
Operating loss			(1,241,030	)		(1,388,539	)		(3,662,545	)
Other income (expenses):
	Interest income		280,139			65,655			128,471
	Interest expense		—			(529,810	)		(904,033	)
	Other income (expense)		1,583			(183,412	)		122
			281,722			(647,567	)		(775,440	)
Loss before income taxes			(959,308	)		(2,036,106	)		(4,437,985	)
Provision (benefit) for income taxes			(250,594	)		(607,566	)		(739,807	)
Net loss		$	(708,714	)	$	(1,428,540	)	$	(3,698,178	)

See accompanying notes.

5

E3 Corporation

Consolidated Statements of Shareholders’ Equity (Deficit)

											Foreign Currency
						Additional Paid-in		Retained Earnings			Translation			Total Shareholders'
			Common Stock			Capital		(Deficit)			Adjustments			Equity (Deficit)
Balances at January 1, 1998			$	782,468		$	—	$	(6,168,112	)	$	(180,719	)	$	(5,566,363	)
	Comprehensive loss:
		Net loss		—			—		(708,714	)		—			(708,714	)
		Other comprehensive income, net of $74,848 deferred taxes		—			—		—			121,952			121,952
		Comprehensive loss		—			—		—			—			(586,762	)
	Dividends			—			—		(76,510	)		—			(76,510	)
Balances at December 31, 1998				782,468			—		(6,953,336	)		(58,767	)		(6,229,635	)
	Comprehensive loss:
		Net loss		—			—		(1,428,540	)		—			(1,428,540	)
		Other comprehensive loss, net of $130,752 deferred taxes		—			—		—			(213,332	)		(213,332	)
		Comprehensive loss		—			—		—			—			(1,641,872	)
	Repurchase and retirement of
		common stock		(25,715	)		—		(7,174,285	)		—			(7,200,000	)
Balances at December 31, 1999				756,753			—		(15,556,161	)		(272,099	)		(15,071,507	)
	Comprehensive loss:
		Net loss		—			—		(3,698,178	)		—			(3,698,178	)
		Other comprehensive loss, net of $189,954 deferred taxes		—			—		—			(310,013	)		(310,013	)
		Comprehensive loss		—			—		—			—			(4,008,191	)
	Issuance of 200,000 options for common stock in connection with acquisition			—			240,800		—			—			240,800
Balances at December 31, 2000			$	756,753		$	240,800	$	(19,254,339	)	$	(582,112	)	$	(18,838,898	)

See accompanying notes.

6

E3 Corporation

Consolidated Statements of Cash Flows

			Year ended December 31
			1998			1999			2000
Operating activities
Net loss			$	(708,714	)	$	(1,428,540	)	$	(3,698,178	)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
	Depreciation and amortization			633,574			1,078,421			1,390,257
	Loss (gain) on disposition of assets			8,675			400			(2,253	)
	Provision for (benefit of) deferred doubtful accounts			89,262			183,138			(67,000	)
	Provision for (reduction in) allowance for deferred income taxes			(1,637,662	)		(2,605,266	)		(1,752,857	)
	Changes in operating assets and liabilities, net of effects of purchase of businesses:
		Accounts receivable		(1,177,480	)		(5,967,671	)		1,722,625
		Accounts receivable from employees		(561,261	)		546,226			(3,561	)
		Prepaid expenses and other current assets		(269,325	)		(150,154	)		(149,747	)
		Other assets		(70,211	)		(144,920	)		(127,327	)
		Accounts payable		860,681			(4,740	)		637,455
		Accrued expenses		(252,638	)		345,164			330,388
		Accrued compensation		(94,859	)		791,170			(471,324	)
		Income taxes payable		(138,773	)		1,184,266			(1,345,477	)
		Deferred revenue		1,067,623			6,285,919			4,694,283
		Other long-term liabilities		17,395			(4,659	)		(2,898	)
Net cash provided by (used in) operating activities				(2,233,713	)		108,754			1,154,386
Investing activities
Payment for purchase of businesses, less cash acquired				–			–			(96,334	)
Purchases of furniture and equipment				(2,297,035	)		(916,675	)		(1,350,457	)
Proceeds from the sale of equipment				19,528			19,013			2,253
Net cash provide by (used in) investing activities				(2,277,507	)		(897,662	)		(1,444,538	)

7

E3 Corporation

Consolidated Statements of Cash Flows (continued)

	Year ended December 31
	1998			1999			2000
Financing activities
Proceeds from line of credit, notes payable and long-term debt		–			7,760,949			10,806,079
Repayment on line of credit, notes payable and long-term debt		–			(7,200,000	)		(10,055,117	)
Payment of dividends		(76,510	)		–			–
Net cash (used in) provided by financing activities		(76,510	)		560,949			750,962
Effect of exchange rate fluctuations on cash		121,952			(213,332	)		(310,013	)
Increase (decrease) in cash		(4,465,778	)		(441,291	)		150,797
Cash and cash equivalents at beginning of year		7,318,181			2,852,403			2,411,112
Cash and cash equivalents at end of year	$	2,852,403		$	2,411,112		$	2,561,909
Supplemental disclosure of cash flow information
Cash paid during the year for interest	$	–		$	529,810		$	897,437
Cash paid during the year for income taxes	$	1,431,696		$	500,544		$	726,262
Supplemental disclosure of non-cash financing activities
Issuance of note payable for acquired businesses	$	–		$	–		$	430,000

See accompanying notes.

8

E3 Corporation

Notes to Consolidated Financial Statements

December 31, 2000

1. Description of Business and Basis of Presentation

E3 Corporation (the “Company”) develops and markets inventory management software and provides related consulting, education and support services in the United States and internationally through its subsidiaries in France, Germany, Sweden, Norway, Denmark, Finland, the United Kingdom, Italy, Spain and Australia.

Basis of Presentation

These financial statements have been prepared assuming that E3 Corporation will continue as a going concern. The Company has not complied with certain covenants of loan agreements with a bank and has entered into a forbearance agreement with the bank (see Note 5). Management is attempting to raise additional capital in order to either comply with the existing loan covenants or comply with the terms of the forbearance agreement while at the same time considering other strategic alternatives for the Company and attempting to improve operating cash flow. If the Company is not successful in complying with the bank’s requirements, the bank will have the right to demand payment of the loans after December 31, 2001. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

9

E3 Corporation

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements of E3 Corporation include the accounts of E3 Corporation and its wholly owned subsidiaries, E3 North America, E3 Norden AB (Norway, Sweden, Denmark and Finland), E3 (Deutschland) GmbH, E3 France S.A., E3 United Kingdom Ltd., E3 Espana S.A., E3 Mexico S.A. de C.V., E3 Italia S.R.L. and E3 Australia Pty Ltd., collectively “E3,” and Inventory Management Institute, Inc. (“IMI”), all collectively referred to as the “Company”. All significant intercompany accounts and transactions have been eliminated. The Company had total revenue of $10,468,592 and $12,178,240 from foreign operations for the years ended December 31, 1999 and 2000. The Company also had a deficiency in net assets related to foreign operations of $(3,238,834) and $(5,408,176) as of December 31, 2000 and 1999.

Use of Estimates

The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements.

Revenue Recognition

The Company earns revenue principally from the licensing and support of internally produced software and related implementation and support services. The Company recognized revenues in accordance with AICPA Statement of Position (“SOP”) 97-2Software Revenue Recognition(“SOP 97-2”),as amended. The Company’s typical arrangement includes an initial one-time license fee, on-going monthly license fees (support) based on a percentage of the initial license fee, and implementation and education services. The Company typically commits to supporting products for a three-year period. The Company does not recognize software license revenue until a contract is executed, software which is functional without significant modification for the customer’s purpose has been delivered, and payment of the license fee is fixed and determinable and considered probable of collection.

10

E3 Corporation

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Fees for the initial license, which is typically cancelable for non-payment of monthly license fees, are recognized on a straight-line basis over the expected post-contract support period, generally three years, and are classified as software license fees in the statement of operations.

Monthly license fees, which entitle customers to product support and upgrades, are recognized as services are rendered and are classified as services and support fees in the statement of operations. If a customer fails to pay monthly license fees, the customer not only will not receive support and upgrades but loses the right to use the software product.

Implementation service and education revenues are recognized at their fair value as earned over the service periods.

When the Company receives payment in advance of recognizing license fees or other service revenue for implementation services, educational classes, or support, such payments are recorded as deferred revenue. The total of current and long-term deferred revenue at December 31, 1999 and 2000 includes $30,867,563 and $28,613,971, respectively, related to deferred license fee revenues.

Computer Software

Research and development costs are expensed as incurred. Capitalization of software development costs does not commence until technological feasibility of the product is established and ceases when the product is available for general release to customers. Software development costs qualifying for capitalization under Financial Accounting Standard No. 86 have been insignificant and, therefore, the Company has not capitalized such costs.

Cash and Cash Equivalents

The Company considers all liquid investments with maturity of three months or less when purchased to be cash equivalents. Cash equivalents are stated at cost, which approximates fair market value.

11

E3 Corporation

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Property and Equipment

Property and equipment is stated at cost. Depreciation is provided over the estimated useful lives of the related assets (furniture and equipment – 5 years, purchased software – 3 years, leasehold improvements – life of lease) using the straight-line method for financial reporting purposes.

Intangible Assets

Intangible assets acquired in business combinations (see Note 4) accounted for by the purchase method of accounting are capitalized and amortized over their expected useful lives as a non-cash charge against future results of operations. The Company amortizes intangible assets, which includes goodwill, customer base, non-compete agreements and acquired workforce, on a straight-line basis over 5 years. The realizability of goodwill and other intangibles is evaluated periodically to determine the recoverability of carrying amounts. The evaluation, based on various analyses including cash flow and profitability projections, addresses the impact on the existing Company business. The evaluation necessarily involves significant management judgment.

Advertising Expense

Advertising costs are expensed as incurred. The Company incurred approximately $581,000, $627,000 and $393,000 in advertising costs during 1998, 1999 and 2000, respectively.

Stock Based Compensation

The Company grants stock options to certain employees with an exercise price equal to or greater than the fair value of the shares at the grant date. The Company accounts for stock option grants in accordance with APB Opinion No. 25,Accounting for Stock Issued to Employees(“APB 25”), and related interpretations and, accordingly, recognizes no compensation expense for stock options with fixed terms and exercise prices equal to or greater than fair value at the date of grant.

12

E3 Corporation

Notes to Consolidated Financial Statements (continued)

3. Summary of Significant Accounting Policies (continued)

Recently Issued Accounting Standards

In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133,Accounting for Derivative Investment and Hedging Activities(“SFAS 133”). SFAS 133 establishes a new model for accounting for derivatives and hedging activities and supercedes several existing standards. SFAS 133, as amended by SFAS 137 and SFAS 138, is effective for fiscal years beginning after June 15, 2000. The Company does not expect that the adoption of SFAS 133, effective January 1, 2001, will have a material impact on its financial statements.

In June 2001, the FASB issued SFAS No. 141, “Business Combinations” (“SFAS 141”). SFAS 141 eliminates the pooling of interest method for business combinations except for qualifying business combinations that were executed before July 1, 2001. SFAS 141 also further clarifies the requirement of recognizing intangible assets separately from goodwill. The requirements of SFAS 141 are effective for any business combination that is effective after June 30, 2001. The Company does not expect that the adoption of SFAS 141 will have a material impact on its financial statements.

In June 2001, the FASB issued SFAS No. 142, “Goodwill and Other Intangible Assets”, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statement. Other intangible assets will continue to be amortized over their useful lives.

The Company will apply the new rules on accounting for goodwill and other intangible assets beginning the first quarter of 2002. During 2002, the Company will apply the non-amortization provisions and perform the first of the required impairment tests of goodwill and indefinite lived intangible assets as of January 1, 2002. The Company has not yet determined what effect the statement will have on the earnings and financial position of the Company.

13

E3 Corporation

Notes to Consolidated Financial Statements (continued)

3. Financial Instruments

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents, trade accounts receivable and short-term debt.

Approximately $11,000 and $234,000 at December 31, 1999 and 2000, respectively, of cash is deposited in one United States financial institution. Credit risk is subject to the financial security of the institution. In addition, approximately $2,394,000 and $2,328,400 of the December 31, 1999 and December 31, 2000 cash and cash equivalents balance, respectively, is held in financial institutions in western Europe and Australia and is subject to the financial security of the institutions.

Accounts receivable are unsecured and due under stated terms. Credit risk with respect to trade accounts receivable is subject to the financial security of each customer. The Company does not require collateral. Receivables generally are due within 30 days, and management records estimates of expected credit losses and returns of products sold.

In addition, the foreign subsidiaries carry their cash, accounts receivable and accounts payable in foreign currencies.

Fair Value

The carrying amount reported in the balance sheet approximates the fair value for cash and cash equivalents and accounts receivable. The carrying amount reported in the balance sheet for short-term debt approximates its market value.

14

E3 Corporation

Notes to Consolidated Financial Statements (continued)

4. Acquisitions of Businesses

On March 30, 2000 the Company acquired Market Data Solutions and E-Millennium, which specialized in demographic marketing and inventory management information. The companies were purchased under asset purchase agreements whereby the assets were exchanged for $45,000 in cash, $430,000 in notes payable, stock options to purchase 200,000 shares of the Company’s common stock and assumption of liabilities totaling $32,384. Also, the Company incurred $51,334 of expenses in connection with the acquisitions. These acquisitions have been accounted for as a purchase and the results of operations have been included from the date of acquisition.

5. Debt

At December 31, 2000, the Company had $3,351,741 outstanding under a revolving line of credit with a bank that allows the Company to borrow up to $5,000,000 at the bank’s prime rate plus .50% or the LIBOR market index rate plus 2.00%, at the Company’s option (applicable rate of 8.5613% at December 31, 2000). The revolving line of credit is due May 31, 2001. The Company also had $5,416,670 outstanding under a three-year term loan with the same bank with interest at the bank’s prime rate plus .25% or the LIBOR market index rate plus 2.75%, at the Company’s option (applicable rate of 9.3113% at December 31, 2000). The term note is due May 31, 2003. These agreements are guaranteed by substantially all of the Company’s tangible assets. The Company also had $173,500 outstanding under a note payable related to the businesses acquired during 2000, which is due January 1, 2001.

The Company’s debt agreements contain various covenants which, among other things, require the maintenance of certain financial ratios related to tangible net worth, funded debt to earnings before income taxes, depreciation and amortization and fixed charges. At December 31, 2000 the Company was not in compliance with these covenants.

15

E3 Corporation

Notes to Consolidated Financial Statements (continued)

5. Debt (continued)

The Company has obtained a forbearance agreement from the bank until December 31, 2001. The bank has agreed not to accelerate any of the loans, require payment of interest at the default rate, and exercise any other remedies as previously agreed to in previous loan documents. The forbearance agreement amended certain provisions of the loan agreement and requires the Company to meet certain financial covenants such as a minimum amount of cash on hand and available under the line of credit, minimum revenues for the quarter ending September 30, 2001, and minimum earnings before interest, taxes, depreciation and amortization for the quarter ending September 30, 2001.

6. Leases

The Company leases certain office space and certain office equipment under noncancellable operating leases with initial or remaining terms of one year or more. Rent expense under all operating leases was approximately $1,734,000, $2,472,000 and $2,917,769, in 1998, 1999 and 2000, respectively.

Future minimum annual rental payments at December 31, 2000 under these non-cancelable leases are as follows:

	U.S.		Europe		Total
2001	$	2,516,484	$	717,902	$	3,234,386
2002		2,151,430		532,783		2,684,213
2003		2,072,316		502,366		2,574,682
2004		2,089,294		493,798		2,583,092
2005		2,134,686		443,510		2,578,196
Thereafter		438,674		485,341		924,015
	$	11,402,884	$	3,175,700	$	14,578,584

16

E3 Corporation

Notes to Consolidated Financial Statements (continued)

7. Income Taxes

The Company accounts for income taxes using the liability method required by FASB Statement No. 109. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

The components of the provision (benefit) for income taxes are as follows for the years ended December 31:

		1998			1999			2000
Current:
	Foreign expense (benefit)	$	218,252		$	(50,390	)	$	502,237
	Domestic expense		1,167,432			1,881,320			320,859
			1,385,684			1,830,930			823,096
Deferred:
	Foreign expense (benefit)		(406,939	)		(210,152	)		(1,291,456	)
	Domestic expense (benefit)		(1,229,339	)		(2,228,344	)		(271,447	)
			(1,636,278	)		(2,438,496	)		(1,562,703	)
		$	(250,594	)	$	(607,566	)	$	(739,807	)

17

E3 Corporation

Notes to Consolidated Financial Statements (continued)

8. Income Taxes (continued)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s net deferred tax assets at December 31, 1999 and 2000 are as follows:

		1999			2000
Assets:
	Allowance for doubtful accounts	$	190,000		$	167,200
	Deferred revenue		11,774,873			13,157,466
	Accrued liabilities		109,522			249,230
	Depreciation and amortization		69,989			133,391
	Unrealized foreign currency translation		166,770			356,724
	Foreign operating loss carryforwards		43,650			887,054
Total deferred tax assets			12,354,804			14,951,065
Valuation allowance for net deferred tax assets			(43,650	)		(887,054	)
Net deferred tax assets		$	12,311,154		$	14,064,011

The reconciliation of income tax computed at the U.S. Federal statutory tax rates to income tax expense is:

	1998			1999			2000
Tax benefit at U.S. statutory rates	$	(326,165	)	$	(692,276	)	$	(1,508,906	)
State taxes, net of federal		(38,372	)		(81,444	)		(218,057	)
Nondeductible expenses		140,118			69,253			70,520
Change in valuation allowance		–			43,650			843,404
R&D credit		(50,000	)		(45,000	)		–
Foreign tax rate differences		41,221			145,000			48,792
Other		(17,396	)		(46,749	)		24,440
Total tax benefit	$	(250,594	)	$	(607,566	)	$	(739,807	)

18

E3 Corporation

Notes to Consolidated Financial Statements (continued)

7. Income Taxes (continued)

During 1998, 1999 and 2000, the Company utilized approximately $111,000, $123,000 and $0, respectively, of foreign net operating loss carry forwards and carry backs to reduce taxable income in the respective tax jurisdictions. At December 31, 2000, the Company had approximately $3,067,000 of foreign net operating loss carry forwards, which begin to expire in 2003.

For financial reporting purposes, the Company has recorded a valuation allowance against deferred tax assets related to foreign operating loss carryforwards as management has determined that it is more likely than not that the deferred tax assets for which the allowance has been established will not be realized.

The income (loss) before income taxes for all of the foreign subsidiaries is as follows:

	1998			1999			2000
Foreign subsidiaries	$	(533,523	)	$	(1,034,866	)	$	(2,117,005	)

Provisions have not been made for U.S. income taxes or foreign withholding taxes on undistributed earnings of foreign subsidiaries, as the earnings are considered indefinitely reinvested. These earnings could become subject to U.S. incomes taxes and foreign withholding taxes (subject to a reduction for foreign tax credits) if they were remitted as dividends, were loaned to the Company or a U.S. subsidiary, or if the Company should sell its stock in the subsidiaries. However, the Company believes that U.S. foreign tax credits would largely eliminate any U.S. income tax and offset any foreign withholding tax that might otherwise arise.

19

8. Shareholders’ Equity

Capitalization

All shareholders are subject to a Shareholders’ Agreement which, among other things, gives the Company and the shareholders of the Company the right of first refusal to purchase their shares at one and one-half times book value, subject to certain adjustments, per share. The Shareholders’ Agreement expires upon the completion of an initial public offering of the Company’s common stock.

During 1999 the Company repurchased and retired 514,286 shares of its common stock at $14.00 per share. The $14.00 per share price was based upon management’s estimate of the fair value of the Company’s common stock at the date of repurchase. The repurchase of shares was allocated to shareholders on a pro rata basis and was financed through loans from a bank.

Stock Options

The Company adopted a Stock Incentive Plan effective January 1, 1997. The aggregate number of shares reserved for issuance under the Stock Incentive Plan is 3,000,000 shares. The purpose of the Stock Incentive Plan is to provide incentives for key employees, officers, consultants and directors to promote the success of the Company and to enhance the Company’s ability to attract and retain the services of such persons. Options granted under the Stock Incentive Plan may be either options intended to qualify as “incentive stock options” under Section 422 of the Internal Revenue Code of 1986, as amended, or nonqualified stock options.

As of December 31, 2000 options to purchase 1,907,469 shares of Common Stock were outstanding under the Stock Incentive Plan and no options granted under the Stock Incentive Plan have been exercised. In addition to options issued under the Stock Incentive Plan, as of December 31, 2000, the Company has outstanding options to purchase an aggregate of 286,266 shares of Common Stock granted outside of the Stock Incentive Plan. Options outstanding typically vest over the second, third, and fourth anniversaries of the grant date and have a term of ten years.

20

E3 Corporation

Notes to Consolidated Financial Statements (continued)

8. Shareholders’ Equity (continued)

Stock Options (continued)

A summary of the Company’s option activity and related information follows:

					Weighted Average
		Options			Exercise Price
Outstanding at December 31, 1997			841,273		$	9.55
	Granted		299,000		$	11.66
	Canceled		(14,198	)	$	(10.92	)
Outstanding at December 31, 1998			1,126,075		$	10.09
	Granted		364,150		$	13.95
	Canceled		(68,318	)	$	(11.61	)
Outstanding at December 31, 1999			1,421,907		$	11.01
	Granted		1,020,500		$	14.00
	Canceled		(248,672	)	$	(11.77	)
Outstanding at December 31, 2000			2,193,735		$	12.31

Exercise prices for options outstanding as of December 31, 2000 range from $9.10 to $14.00 per share. The following table sets forth by groups of option exercise price ranges, the number of shares, weighted average remaining contractual life of options outstanding, and the number and weighted average exercise price of options currently exercisable as of December 31, 2000.

			Options Outstanding						Options Exercisable
					Weighted Average
					Remaining
Range of					Contractual Life		Weighted Average				Weighted Average
Exercise Prices			Number of Shares		(Years)		Exercise Price		Number of Shares		Exercise Price
		$9.10		86,266		5.84	$	9.10		86,266	$	9.10
	$9.25 - $11.05			629,219		6.18	$	9.52		446,695	$	9.53
$11.25 - $13.00				191,600		7.32	$	11.66		78,200	$	11.66
$13.25 - $14.00				1,286,650		8.97	$	13.99		238,750	$	13.99
				2,193,735		7.90	$	12.31		849,911	$	10.94

21

E3 Corporation

Notes to Consolidated Financial Statements (continued)

8. Shareholders’ Equity (continued)

Stock Options (continued)

There were 58,477 options exercisable at a weighted average exercise price of $9.64 and 405,033 options exercisable at a weighted average exercise price of $9.82 at December 31, 1998 and 1999, respectively. At December 31, 2000, the Company had 1,092,531 shares available for future grant under the Stock Incentive Plan and has reserved 3,286,266 shares of common stock for future issuance upon exercise of stock options.

Although the Company has not adopted SFAS 123, pro forma information regarding net income (loss) is required to be disclosed as if the Company has accounted for its employee stock options granted under the fair value method. The fair value for these options was estimated at the date of grant using the “minimum value” option pricing model with the following weighted-average assumptions for 1998, 1999 and 2000 respectively; risk-free interest rates of 6.33%, 5.75% and 5.625%; dividend yield of 0%, no weighted average volatility factor and a weighted-average expected life of the options of 4 years. Calculated under SFAS 123, the options granted in 1998 were estimated to have no value and the weighted-average fair value for the options granted in 1999 and 2000 are estimated to have a value of $2.84 and $2.75 per share, respectively. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period. The Company’s pro forma net loss under FAS 123 approximated $1,542,911 and $4,329,848 for the years ended December 31, 1999 and December 31, 2000, respectively.

9. Benefit Plan

The Company has a defined contribution plan covering substantially all employees. Under the provisions of the plan, which qualifies under Section 401(k) of the Internal Revenue Code, participating employees may elect to contribute specified amounts of their salaries to a trust for investment. In 1998 the Company contributed an amount which was determined on an annual basis depending on profits, and approximately $113,000 was charged to expense under the plan in 1998. In 1999 the Company changed its 401(k).

22

E3 Corporation

Notes to Consolidated Financial Statements (continued)

9. Benefit Plan (continued)

Under the new plan, the Company matches up to 6% of the employees’ contributions to the plan. The maximum amount that an employee may contribute is $10,000 and $10,500 per year, in 1999 and 2000, respectively. The Company expensed approximately $629,000 and $1,130,000 in 1999 and 2000, respectively under this plan.

10. Related Party Transactions

During 1999, the Company received repayment on a loan of $500,000 made during 1998 to an employee of the Company who is also the son of the Chairman of the Board of Directors of the Company.

11. Subsequent Events

Effective July 31, 2000, the Company entered into a forbearance agreement related to its loan agreements. See Note 5.

On July 11, 2001, the Company signed a term sheet to be purchased by another company. The Company has not finalized the terms of the acquisition.

On September 5, 2001, the Company agreed to buy out options issued to the former shareholders of Market Data Solutions and E-Millennium. The Company has agreed to purchase the outstanding options for $949,400, payable immediately prior to closing the sale of the Company.

The Company has entered into employment agreements giving selected employees rights to termination pay in certain circumstances. Under one of the employment agreements, the Company promised to grant, subject to board approval, options to purchase 685,000 shares of common stock at $14.00 per share.

23

E3 CORPORATION
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

         The following unaudited consolidated balance sheet of E3 Corporation (“E3”) as of June 30, 2001, together with the unaudited consolidated statements of operations and cash flows for the six months ended June 30, 2001 and 2000 should be read in conjunction with the separate historical audited consolidated financial statements and note thereto of E3 Corporation as of December 31, 2000 and 1999, and the unaudited pro forma financial information and notes thereto, both of which are contained elsewhere herein.

         The unaudited balance sheet as of June 30, 2001, together with the unaudited statements of operations for the six months ended June 30, 2001 and 2000 have been prepared from the internal accounting records of E3. In the opinion of management, all adjustments and reclassifications considered necessary for a fair and comparable presentation, including the effect of those proposed in connection with the audit of the December 31, 2000 financial statements, have been included.

E3 CORPORATION

UNAUDITED CONSOLIDATED BALANCE SHEET

(in thousands)

				June 30,
				2001
			ASSETS
CURRENT ASSETS:
		Cash and cash equivalents		$	2,302
		Accounts receivable, net			10,349
		Income tax receivable			710
		Deferred income taxes			2,754
		Prepaid expenses and other current assets			381
			Total current assets		16,496
PROPERTY AND EQUIPMENT, net					3,056
DEFERRED INCOME TAXES					11,310
OTHER ASSETS					479
GOODWILL AND OTHER INTANGIBLES					536
			Total assets	$	31,877
			LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
	Accounts payable			$	873
	Accrued expenses and other liabilities				5,142
	Deferred revenue				20,040
	Note payable				5,026
	Current portion of long-term debt				241
			Total current liabilities		31,322
LONG TERM DEBT, NET OF CURRENT PORTION					2,169
LONG TERM DEFERRED REVENUE, NET OF CURRENT PORTION					21,119
OTHER LONG TERM LIABILITIES					8
STOCKHOLDERS’ DEFICIT:
		Common stock			757
		Additional paid in capital			241
		Accumulated deficit			(22,981	)
		Accumulated other comprehensive income			(758	)
			Total stockholders’ deficit		(22,741	)
			Total liabilities and stockholders’ deficit	$	31,877

E3 CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

			Six Months Ended June 30,
			2001			2000
REVENUES:
	Software licenses		$	10,342		$	9,440
	Consulting, maintenance and other services			12,428			10,292
		Total revenues		22,770			19,732
COST AND EXPENSES:
	Costs of consulting, maintenance and other services			8,019			5,636
	Product development			5,123			3,179
	Sales and marketing			8,906			7,759
	General and administrative			4,764			3,785
		Total costs and expenses		26,812			20,359
LOSS FROM OPERATIONS				(4,042	)		(627	)
	Other expense, net			(481	)		(441	)
LOSS BEFORE INCOME TAXES				(4,523	)		(1,068	)
	Income tax benefit			(796	)		(179	)
NET LOSS			$	(3,727	)	$	(889	)

E3 CORPORATION

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

					Six Months Ended June 30,
					2001			2000
OPERATING ACTIVITIES:
	Net loss				$	(3,727	)	$	(889	)
	Adjustments to reconcile net loss to net cash provided by operating activities:
			Depreciation and amortization			708			635
			(Gain) loss on disposal of equipment			(4	)		1
			Provision for deferred income taxes			—			1,220
			Changes in operating assets and liabilities:
				Trade accounts receivable, net		1,319			875
				Prepaid expenses and other assets		361			(351	)
				Accounts payable and accrued expenses		309			(845	)
				Income taxes payable		(735	)		(3,683	)
				Deferred revenue		3,753			2,279
				Net cash provided by operating activities		1,984			(758	)
INVESTING ACTIVITIES:
		Acquisition of business, net of cash received				—			(96	)
		Purchases of equipment, furniture and fixtures				(883	)		(549	)
		Sale of equipment, furniture and fixtures				70			(1	)
				Net cash used in investing activities		(813	)		(646	)
FINANCING ACTIVITIES:
		Net (payments) borrowings on note payable				(1,255	)		1,265
				Net cash (used in) provided by financing activities		(1,255	)		1,265
EFFECT OF EXCHANGE RATE CHANGES ON CASH						(176	)		(248	)
INCREASE IN CASH AND CASH EQUIVALENTS						(260	)		(387	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD						2,562			2,411
CASH AND CASH EQUIVALENTS, END OF PERIOD					$	2,302		$	2,024
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
	Cash paid during the period for interest				$	366		$	466
	Options issued in acquisition of business				$	—		$	241
	Issuance of note payable in acquisition of business				$	—		$	430

Item 7(b). PRO FORMA FINANCIAL INFORMATION

         On September 7, 2001, JDA Software Group, Inc. (“JDA” or the Company) completed the acquisition (the “Acquisition”) of E3 Corporation (“E3”), a Georgia corporation, for a total of $48.4 million, including $19.8 million in cash and the exchange of 1,600,080 shares of the Company’s common stock for all of the outstanding common stock of E3 pursuant to an Agreement and Plan of Reorganization. The stock consideration was valued at $17.86833 per share, which represents the average closing price of the Company’s common stock for six consecutive trading days ending the day prior to closing. E3 is a leading global provider of inventory optimization systems, and provides related consulting, education and support services in the United States and internationally through its subsidiaries in France, Germany, Sweden, Norway, Denmark, Finland, the United Kingdom, Italy, Spain and Australia.

         The purchase price was determined through an arms-length negotiation between the parties, and was allocated to the underlying assets, namely the intellectual property and other intangibles, based on the Company’s estimate of fair values and remaining economic lives. The excess of the purchase price over the fair value of the assets is recorded as goodwill, and will be subject to annual impairment tests as prescribed by Statement of Financial Accounting Standard (SFAS) No. 142,Goodwill and Other Intangibles.

         The Acquisition has been accounted for in the pro forma consolidated financial information using the purchase method of accounting. A consolidated pro forma balance sheet is not presented herein as the Acquisition has been reflected in the condensed consolidated balance sheet filed by the Company in connection with its quarterly report on Form 10-Q for the quarter ended September 30, 2001. The unaudited consolidated pro forma statements of income (loss) combine the historical statements of income (loss) of JDA and E3 for the year ended December 31, 2000 and the nine months ended September 30, 2001, giving effect to the Acquisition as if it had occurred at the beginning of each period.

         The detailed assumptions used to prepare the pro forma consolidated financial information are contained in the notes to the unaudited consolidated pro forma financial information. Pro forma adjustments for the acquisition of E3 are based upon preliminary estimates, available information and certain assumptions that management of the Company deem appropriate. Final adjustments may differ from the pro forma adjustments presented herein. The unaudited consolidated pro forma financial information does not purport to represent the results of operations or the financial position of the Company that actually would have resulted had the Acquisition occurred as of the dates indicated, nor should it be taken as indicative of the future results of the operations or future financial position of the Company.

         The unaudited consolidated pro forma financial information should be read in conjunction with the separate historical financial statements and notes thereto reported by the Company in its annual report on Form 10-K for the year ended December 31, 2000 and in its quarterly report on Form 10-Q for the quarter ended September 30, 2001, and the financial statements of E3 Corporation for the years ended December 31, 2000 and 1999 (which are contained elsewhere herein).

JDA SOFTWARE GROUP, INC.

UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF INCOME (LOSS)
FOR THE YEAR ENDED DECEMBER 31, 2000
(in thousands, except per share data)

			Historical
								Pro Forma
			JDA		E3 Corp.			Adjustments			Pro Forma
REVENUES:
	Software licenses		$	62,640	$	20,249		$	(16,066	)(2)	$	66,823
	Maintenance services			30,380		21,008			(9,909	)(1)		41,479
		Product revenues		93,020		41,257			(25,975	)		108,302
	Consulting services			78,709		—			9,294	(1)		88,003
		Total revenues		171,729		41,257			(16,681	)		196,305
COSTS OF REVENUES:
	Cost of software licenses			2,947		—			—			2,947
	Cost of maintenance services			7,655		12,905			(10,415	)(1)		10,145
		Cost of product revenues		10,602		12,905			(10,415	)		13,092
	Cost of consulting services			64,965		—			9,152	(1)		74,117
		Total cost of revenues		75,567		12,905			(1,263	)		87,209
GROSS PROFIT				96,162		28,352			(15,418	)		109,096
OPERATING EXPENSES:
	Product development			28,840		7,232			—			36,072
	Sales and marketing			28,770		16,529			63	(1)		45,362
	General and administrative			20,761		8,254			439	(1)		29,454
	Amortization of intangibles			6,542		—			3,514	(1)(3)		10,056
	Purchased in-process research and development			200		—			—			200
	Restructuring and asset disposition charge			828		—			—			828
		Total operating expenses		85,941		32,015			4,016			121,972
OPERATING INCOME (LOSS)				10,221		(3,663	)		(19,434	)		(12,876	)
	Other income (expense), net			4,246		(775	)		(225	)(5)		3,246
INCOME (LOSS) BEFORE INCOME TAXES				14,467		(4,438	)		(19,659	)		(9,630	)
	Income tax provision (benefit)			5,599		(740	)		(8,518	)(6)		(3,659	)
NET INCOME (LOSS)			$	8,868	$	(3,698	)	$	(11,141	)	$	(5,971	)
BASIC EARNINGS(LOSS) PER SHARE			$	0.36							$	(0.23	)
DILUTED EARNINGS(LOSS) PER SHARE			$	0.35							$	(0.23	)
SHARES USED TO COMPUTE:
	Basic earnings per share			24,315								25,915
	Diluted earnings per share			25,431								25,915

See accompanying notes to unaudited consolidated pro forma financial information

JDA SOFTWARE GROUP, INC.

UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF INCOME (LOSS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(in thousands, except per share data)

			Historical
								Pro Forma
			JDA		E3 Corp.			Adjustments			Pro Forma
REVENUES:
	Software licenses		$	47,858	$	14,262		$	(12,419	)(2)	$	49,701
	Maintenance services			28,080		16,318			(6,653	)(1)		37,745
		Product revenues		75,938		30,580			(19,072	)		87,446
	Consulting services			70,507		—			6,362	(1)		76,869
		Total revenues		146,445		30,580			(12,710	)		164,315
COSTS OF REVENUES:
	Cost of software licenses			1,816		—			—			1,816
	Cost of maintenance services			7,650		10,852			(8,932	)(1)		9,570
		Cost of product revenues		9,466		10,852			(8,932	)		11,386
	Cost of consulting services			51,640		—			7,883	(1)		59,523
		Total cost of revenues		61,106		10,852			(1,049	)		70,909
GROSS PROFIT				85,339		19,728			(11,661	)		93,406
OPERATING EXPENSES:
	Product development			24,374		7,174			—			31,548
	Sales and marketing			26,030		11,215			581	(1)		37,826
	General and administrative			18,202		7,144			43	(1)		25,389
	Amortization of intangibles			5,780		—			2,407	(1)(3)		8,187
	Purchased in-process research and development			2,361		—			(2,200	)(4)		161
	Restructuring and asset disposition charge			749		—			—			749
		Total operating expenses		77,496		25,533			831			103,860
OPERATING INCOME (LOSS)				7,843		(5,805	)		(12,492	)		(10,454	)
	Other income (expense), net			2,223		(553	)		5	(5)		1,675
INCOME (LOSS) BEFORE INCOME TAXES				10,066		(6,358	)		(12,487	)		(8,779	)
	Income tax provision (benefit)			3,716		(1,305	)		(5,659	)(4)(6)		(3,248	)
NET INCOME (LOSS)			$	6,350	$	(5,053	)	$	(6,828	)	$	(5,531	)
BASIC EARNINGS(LOSS) PER SHARE			$	0.26							$	(0.21	)
DILUTED EARNINGS(LOSS) PER SHARE			$	0.25							$	(0.21	)
SHARES USED TO COMPUTE:
	Basic earnings per share			24,857								26,310
	Diluted earnings per share			25,236								26,310

See accompanying notes to unaudited consolidated pro forma financial information

JDA SOFTWARE GROUP, INC.

NOTES TO UNAUDITED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION
(in thousands)

The following explanations describe the assumptions used in determining the pro forma adjustments necessary to present pro forma consolidated statements of income (loss) of the Company for the year ended December 31, 2000 and the nine months ended September 30, 2001.

The Pro Forma Statement of Income (Loss) for the nine months ended September 30, 2001 includes the historical statement of income (loss) of E3 for the period from January 1, 2001 to September 7, 2001, the date of acquisition. The September operating results of E3 have been included in the historical financial statements of JDA Software Group, Inc. from the date of acquisition.

The pro forma consolidated statements of income for the year ended December 31, 2000 and nine months ended September 30, 2001 do not include the effect of a $2,200 one-time charge for purchased in-process technology. In-process technology includes the value of products acquired from E3 that were in the development stage and for which technological feasibility had not been established. The Company does not believe these products have any alternative future use.

1.	Entry records a reclassification of the revenues, costs and expenses reported in the E3 financial statements to conform with the JDA Software Group, Inc. presentation.
2.	Entry reverses the recognition of deferred software license revenue balances that would have been eliminated if the acquisition had occurred as of January 1, 2000 or 2001 and purchase accounting had been applied as of those dates.
3.	Entry records the increase in amortization expense arising from the purchase accounting adjustments as follows:

					Nine Months
	Amortization	Year Ended			Ended
	Period	12-31-00			9-30-01
Developed Software	7 Years	$	1,814		$	1,243
Customer List	13 Years		1,700			1,164
			3,514			2,407
Less amounts recorded in the historical financial statements of E3 for amortization of intangibles			(146	)		(134	)
		$	3,368		$	2,273

4.	Entry reverses the one-time charge for purchased in process technology and related income tax benefit recorded by JDA in connection with the Acquisition. The one-time charge is reflected in the historical operating results of JDA for the nine months ended September 30, 2001.
5.	Entry reverses interest charges shown in the E3 financial statements and records the opportunity costs related to interest that would be forfeited on invested cash balances used to effect the Acquisition as of January 1, 2000 and 2001, as appropriate.
6.	Entry records the income tax effect on the net loss of E3 and the purchase accounting adjustments at a blended rate of 38% and 37% for the year ended December 31, 2000 and nine months ended September 30, 2001, respectively.