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

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)

<Table>

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from
to
</Table>

Commission File Number 0-27030

INFINIUM SOFTWARE, INC.
(Exact name of registrant as specified in its charter)

<Table>

Massachusetts 04-2734036
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
</Table>

25 Communications Way, Hyannis, MA 02601
(Address of principal executive offices, including Zip Code)

(508) 778-2000
(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 12 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO ___

The number of shares outstanding of the registrant's Common Stock on July 31,
2002, was 13,532,580.

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

INFINIUM SOFTWARE, INC.

INDEX

<Table>
<Caption>
PAGE
----

PART I -- FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited)
3
Consolidated Balance Sheet at June 30, 2002 and September
30, 2001....................................................
4
Consolidated Statement of Operations for the three and nine
months ended June 30, 2002 and 2001.........................
5
Consolidated Statement of Cash Flows for the nine months
ended June 30, 2002 and 2001................................
6
Notes to Consolidated Financial Statements..................
ITEM 2. Management's Discussion and Analysis of Financial Condition 13
and Results of Operations...................................
ITEM 3. Quantitative and Qualitative Disclosures About Market 23
Risk........................................................
PART II -- OTHER INFORMATION
ITEM 1. Legal Proceedings........................................... 24
ITEM 2. Changes in Securities....................................... 24
ITEM 3. Defaults Upon Senior Securities............................. 24
ITEM 4. Submission of Matters to a Vote of Security Holders......... 24
ITEM 5. Other Information........................................... 24
ITEM 6. Exhibits and Reports on Form 8-K............................ 24
SIGNATURE........................................................................ 25
</Table>

PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INFINIUM SOFTWARE, INC.
CONSOLIDATED BALANCE SHEET

<Table>
<Caption>
JUNE 30, SEPTEMBER 30,
2002 2001
----------- -------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE AMOUNTS)

ASSETS
Current assets:
Cash and cash equivalents................................. $ 19,564 $ 13,210
Marketable securities at fair market value................ 951 2,076
Accounts receivable, less allowance for doubtful accounts
of $597 and $1,876 at June 30, 2002 and September 30,
2001, respectively..................................... 7,631 6,841
Prepaid expenses and other current assets................. 1,979 2,499
Net current assets of discontinued operations............. -- 233
-------- --------
Total current assets.............................. 30,125 24,859
Property and equipment, net................................. 5,641 6,958
Capitalized software development costs, net................. 507 1,122
Other assets................................................ 2,630 2,358
-------- --------
Total assets...................................... $ 38,903 $ 35,297
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 3,000 $ 4,345
Accrued expenses.......................................... 9,057 12,505
Current liabilities of discontinued operations............ -- 1,094
Income taxes payable...................................... 284 282
Lease obligations, short-term portion..................... 257 239
Deferred revenue.......................................... 26,634 27,588
-------- --------
Total current liabilities......................... 39,232 46,053
Lease obligations, long-term portion........................ 339 524
Deferred revenue............................................ 1,345 1,400
-------- --------
Total liabilities................................. 40,916 47,977
-------- --------
Common stock, $0.01 par value; authorized 40,000,000 shares,
issued 13,662,000 and 13,365,000 shares at June 30, 2002
and September 30, 2001, respectively...................... 137 134
Additional paid-in capital.................................. 39,504 38,936
Deferred stock-based compensation........................... (234) (297)
Accumulated deficit......................................... (41,099) (51,362)
Accumulated other comprehensive loss........................ (168) (69)
-------- --------
(1,860) (12,658)
Less: treasury stock at cost, 114,000 and 171,000 shares at
June 30, 2002 and September 30, 2001, respectively........ (153) (22)
-------- --------
Total stockholders' deficit....................... (2,013) (12,680)
-------- --------
Total liabilities and stockholders' deficit....... $ 38,903 $ 35,297
======== ========
</Table>

The accompanying notes are an integral part of the consolidated financial
statements.
3

INFINIUM SOFTWARE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS

<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
2002 2001 2002 2001
-------- --------- -------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

REVENUE:
Software license fees.............................. $ 2,982 $ 1,319 $ 8,042 $ 8,096
Services revenue................................... 13,675 15,231 42,271 50,821
------- -------- ------- --------
Total revenue.............................. 16,657 16,550 50,313 58,917
------- -------- ------- --------
OPERATING COSTS AND EXPENSES:
Cost of software license fees...................... 407 4,782 1,214 7,429
Cost of services................................... 3,912 5,605 12,808 17,756
Research and development........................... 2,390 4,689 7,775 12,555
Sales and marketing................................ 4,355 6,992 13,131 22,187
General and administrative......................... 1,904 8,161 5,775 13,462
------- -------- ------- --------
Total operating costs and expenses......... 12,968 30,229 40,703 73,389
------- -------- ------- --------
Income (loss) from operations........................ 3,689 (13,679) 9,610 (14,472)
Other income (loss), net............................. 66 (12) 49 298
Gain on sale of subsidiary........................... -- -- 337 --
------- -------- ------- --------
Income (loss) from continuing operations before
provision for (benefit from) income taxes.......... 3,755 (13,691) 9,996 (14,174)
Provision for (benefit from) income taxes............ (267) (817) (267) (817)
------- -------- ------- --------
Income (loss) from continuing operations............. 4,022 (12,874) 10,263 (13,357)
DISCONTINUED OPERATIONS:
Loss from operations of ASP segment.................. -- (1,066) -- (4,428)
------- -------- ------- --------
NET INCOME (LOSS).................................... $ 4,022 $(13,940) $10,263 $(17,785)
======= ======== ======= ========
Basic income (loss) per share from continuing
operations......................................... $ 0.31 $ (1.00) $ 0.78 $ (1.04)
======= ======== ======= ========
Diluted income (loss) per share from continuing
operations......................................... $ 0.27 $ (1.00) $ 0.72 $ (1.04)
======= ======== ======= ========
Basic and diluted loss per share from ASP segment.... $ -- $ (0.08) $ -- $ (0.34)
======= ======== ======= ========
Basic income (loss) per share........................ $ 0.31 $ (1.08) $ 0.78 $ (1.38)
======= ======== ======= ========
Diluted income (loss) per share...................... $ 0.27 $ (1.08) $ 0.72 $ (1.38)
======= ======== ======= ========
Weighted average shares outstanding -- basic......... 13,158 12,950 13,094 12,920
======= ======== ======= ========
Weighted average shares outstanding -- diluted....... 14,856 12,950 14,250 12,920
======= ======== ======= ========
</Table>

The accompanying notes are an integral part of the consolidated financial
statements.
4

INFINIUM SOFTWARE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS

<Table>
<Caption>
NINE MONTHS ENDED
JUNE 30,
------------------
2002 2001
------- --------
(UNAUDITED)
(IN THOUSANDS)

Cash flows from operating activities:
Net income (loss)......................................... $10,263 $(17,785)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Loss from discontinued operations...................... -- 4,428
Depreciation and amortization.......................... 2,374 9,490
Write-down of goodwill and intangibles................. -- 3,590
Write-down of marketable securities.................... 8 --
Allowance for doubtful accounts........................ 357 350
Loss on disposal of fixed assets....................... -- 546
Non-cash compensation.................................. 212 411
Gain on sale of subsidiary............................. (337) --
Changes in operating assets and liabilities, net of
effects from the disposition of business:
Accounts receivable.................................. (1,529) 7,840
Prepaid expenses and other current assets............ 531 2,090
Other assets......................................... (350) --
Accounts payable..................................... (475) (2,792)
Accrued expenses and other long-term liabilities..... (3,264) (1,183)
Income taxes payable................................. 31 179
Deferred revenue..................................... (589) (4,404)
------- --------
Net cash provided by continuing operations........ 7,232 2,760
Net cash used in discontinued operations.......... (1,647) (4,233)
------- --------
Net cash provided by (used in) operating
activities....................................... 5,585 (1,473)
------- --------
Cash flows from investing activities:
Proceeds from sale of subsidiary.......................... 5 --
Purchase of marketable securities......................... -- (3,633)
Sale and maturities of marketable securities.............. 1,084 4,025
Purchase of property and equipment........................ (263) (632)
Capitalized software...................................... (91) (2,075)
------- --------
Net cash provided by (used in) investing
activities....................................... 735 (2,315)
------- --------
Cash flows from financing activities:
Payments on capitalized lease obligations................. (167) (62)
Purchase of treasury stock................................ (154) --
Proceeds from exercise of stock options and employee stock
purchase plan.......................................... 445 69
------- --------
Net cash provided by financing activities......... 124 7
------- --------
Effect of foreign exchange rate changes on cash............. (90) --
------- --------
Net increase (decrease) in cash and cash equivalents........ 6,354 (3,781)
------- --------
Cash and cash equivalents, beginning of period.............. 13,210 17,665
------- --------
Cash and cash equivalents, end of period.................... $19,564 $ 13,884
======= ========
Supplemental disclosure on non-cash investing and financing
activities:
Issuance of restricted stock.............................. $ 234 $ 859
Assets acquired under capital leases...................... $ -- $ 298
</Table>

The accompanying notes are an integral part of the consolidated financial
statements.
5

INFINIUM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)

1. BASIS OF PRESENTATION

The information at June 30, 2002 and for the three and nine months ended
June 30, 2002 and 2001 are unaudited, but includes all adjustments (consisting
only of normal recurring entries) which the Company's management believes to be
necessary for the fair presentation of the financial position, results of
operations, and changes in cash flows for the periods presented. The
accompanying interim consolidated financial statements should be read in
conjunction with the consolidated financial statements and related notes
included in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 2001. Certain information and notes normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the Securities and Exchange
Commission rules and regulations. Interim results of operations for the three
and nine month periods ended June 30, 2002 are not necessarily indicative of
operating results for the full fiscal year.

Certain reclassifications have been made to the prior period financial
statements to conform to the current period presentation.

2. COMPREHENSIVE INCOME (LOSS)

The table below sets forth comprehensive income and loss as defined by
Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income, for the three and nine months ended June 30, 2002 and
2001:

<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------- ------------------
2002 2001 2002 2001
------- --------- ------- --------

Net income (loss)............................. $4,022 $(13,940) $10,263 $(17,785)
Other comprehensive income (loss):
Foreign currency translation adjustments...... (129) 31 (130) 59
Unrealized gain (loss) on investments, net of
related tax effect:......................... (26) 31 31 (490)
------ -------- ------- --------
Comprehensive income (loss)................. $3,867 $(13,878) $10,164 $(18,216)
====== ======== ======= ========
</Table>

3. NET INCOME (LOSS) PER COMMON SHARE

The Company computes basic and diluted earnings per share in accordance
with SFAS No. 128, Earnings per Share. The following table reconciles the
numerator and denominator of the basic and diluted earnings (loss) per share
computations shown in the Consolidated Statement of Operations.

In accordance with accounting principles generally accepted in the United
States of America, the computation of net income (loss) per share is based on
the weighted average basic and diluted shares

INFINIUM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

outstanding. The computation of basic and diluted earnings (loss) per share for
the three and nine months ended June 30, 2002 and 2001 is as follows:

BASIC AND DILUTED INCOME (LOSS) PER SHARE:
Numerator:
Net income (loss):........................... $ 4,022 $(13,940) $10,263 $(17,785)
======= ======== ======= ========
Denominator:
Weighted average common shares
outstanding -- basic....................... 13,158 12,950 13,094 12,920
Dilutive options............................. 1,424 -- 948 --
Dilutive unvested restricted stock........... 274 -- 208 --
------- -------- ------- --------
Weighted average common shares
outstanding -- diluted..................... 14,856 12,950 14,250 12,920
======= ======== ======= ========
Basic income (loss) per share................ $ 0.31 $ (1.08) $ 0.78 $ (1.38)
======= ======== ======= ========
Dilutive income (loss) per share............. $ 0.27 $ (1.08) $ 0.72 $ (1.38)
======= ======== ======= ========
</Table>

Weighted average common stock equivalents related to stock options and
unvested restricted stock of 3,184,000 and 3,011,000 shares have been excluded
from the calculation of diluted net loss per share for the three and nine month
periods ended June 30, 2001, respectively, as their inclusion would have been
anti-dilutive due to the net loss for those periods. Weighted average common
stock equivalents related to stock options of 114,000 and 2,784,000 shares have
been excluded from the calculation of diluted net loss per share for the three
and nine month periods ended June 30, 2002, respectively, due to the fact that
the weighted average exercise price of these options was greater than the
weighted average fair value of the underlying shares during the period. Total
options outstanding were 2,449,000 and 2,774,000 at June 30, 2002 and 2001,
respectively.

4. SEGMENT INFORMATION AND GEOGRAPHIC AREAS

The following table presents a summary of operating information for the
three and nine month periods ended June 30, 2002 and 2001:

<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
2002 2001 2002 2001
------- -------- ------- --------

Revenue:
North American operations:
Infinium................................ $14,969 $ 13,833 $44,535 $ 48,684
Cort payroll unit....................... 560 1,081 2,131 4,497
------- -------- ------- --------
Total North American operations......... 15,529 14,914 46,666 53,181
International operations................... 1,128 1,636 3,647 5,736
------- -------- ------- --------
Total................................... $16,657 $ 16,550 $50,313 $ 58,917
======= ======== ======= ========
</Table>

INFINIUM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ------------------
2002 2001 2002 2001
------- -------- ------- --------

Income (loss) from operations:
North American operations:
Infinium................................ $ 3,598 $(10,213) $ 8,830 $ (9,466)
Cort payroll unit....................... (90) (565) 64 (903)
------- -------- ------- --------
Total North American operations......... 3,508 (10,778) 8,894 (10,369)
International operations................... 181 (2,901) 716 (4,103)
------- -------- ------- --------
Total................................... $ 3,689 $(13,679) $ 9,610 $(14,472)
======= ======== ======= ========
</Table>

Application Service Provider ("ASP") revenues were $802 and $1,816 for the
three and nine months ended June 30, 2001, respectively, which is included in
the loss from operations of ASP segment in the Statement of Operations.

The following table summarizes identifiable assets by business segment as
of June 30, 2002 and September 30, 2001:

<Table>
<Caption>
JUNE 30, SEPTEMBER 30,
2002 2001
-------- -------------

Identifiable assets:
North American operations:
Infinium............................................... $36,852 $31,794
Cort payroll unit...................................... 341 435
Net assets of discontinued operations.................. -- 233
------- -------
Total North American operations........................... 37,193 32,462
International operations.................................. 1,710 2,835
------- -------
Consolidated........................................... $38,903 $35,297
======= =======
</Table>

5. ISSUANCE OF RESTRICTED STOCK

On January 10, 2001, the Company instituted a Stock Option Exchange Program
(the Program). Under the provisions of the Program, employees were allowed to
exchange any of their stock options for shares of restricted stock on January
31, 2001, in general, at a rate of three options for each share of restricted
stock. At January 31, 2001, the Company issued approximately 179,000 shares and
cancelled approximately 537,000 options. At the close of business on January 31,
2001, the share price of the Company's stock was $2.13 per share. On February 9,
2001, additional restricted stock grants of 225,000 shares were awarded to
executive management and an additional 16,000 and 10,000 restricted stock grants
were awarded to other employees on January 22, 2001 and March 12, 2001,
respectively. The fair market value of the Company's stock was $1.50 per share
at the close of business on January 22, 2001 and $1.94 and $1.75 per share at
the close of business on February 9, 2001 and March 12, 2001, respectively. The
cost of the Program was $382, and the cost of the additional restricted stock
grants was $436 for the awards to executive management and $42 for the awards to
other employees. The combined cost of these events approximates $860, which will
be amortized over the vesting period of the restricted stock grants, which range
from 21 to 24 months. The Company recognized $52 and $165 in expense during the
three and nine month periods ended June 30, 2002, respectively. During the three
and nine months ended June 30, 2001, the Company recognized $70 and $144 in
expense, respectively.

On October 26, 2001, additional restricted stock grants of 296,000 shares
were awarded to executive management and other employees. The fair market value
of the Company's stock was $0.79 per share at the

INFINIUM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

close of business on October 26, 2001. The cost of these additional restricted
stock grants was $234 which will be amortized over 36 months. The Company
recognized $16 and $47 in expense during the three and nine month periods ended
June 30, 2002, respectively.

The Company repurchased 56,000 and 117,000 shares of restricted stock
during the three and nine month periods ended June 30, 2002, respectively. The
total amount paid for the restricted stock was $115 and $153 during the three
and nine month periods ended June 30, 2002, respectively.

6. RESTRUCTURING AND OTHER SPECIAL ITEMS

During fiscal 2001, the Company executed a plan to reduce its workforce as
part of a continued company-wide cost-cutting effort. As a result of this
action, 136 employees were involuntary terminated, representing 28 percent of
the Company's workforce. Severance costs and related employee termination
benefit costs of $2,212 associated with these terminations were recorded as a
restructuring charge in fiscal year 2001 ($1,813 and $399 in the third and
fourth quarters, respectively, of fiscal year 2001). These third quarter costs
have been included in the Company's consolidated statement of operations as
follows, based on employee function:

<Table>

Cost of services............................................ $ 384
Research and development.................................... 536
Sales and marketing......................................... 606
General and administrative.................................. 287
------
Total.................................................. $1,813
======
</Table>

During the nine months ended June 30, 2002, the Company did not make any
adjustments to the restructuring accrual. As of June 30, 2002 and September 30,
2001, the Company had accrued liability balances of $0 and $970, respectively,
relating to these severance costs.

In addition to the above amounts, during fiscal 2001 the Company recorded
severance and benefits costs of $1,073 associated with the termination of four
executives of the Company. In the third quarter of fiscal year 2001, the Company
recorded $873 of severance and benefit costs related to the termination of three
of the four executives. Of this total charge, $546 was recorded as sales and
marketing expense and $327 was recorded as general and administrative expense in
the third quarter of fiscal year 2001. As of June 30, 2002 and September 30,
2001, the Company had accrued liability balances of $156 and $668, respectively,
relating to these severance costs. The remaining balance will be paid out
through the end of fiscal year 2002.

As part of the restructuring plan, the Company consolidated certain
facilities in the third quarter of fiscal 2001. This consolidation led to the
write-off of fixed assets in the amount of $546 and the establishment of
additional reserves for future lease obligation payments totaling $841. These
charges have been recorded in general and administrative expense. Additionally,
$177 was recorded for miscellaneous costs associated with the restructuring. As
of June 30, 2002 and September 30, 2001, the Company had accrued liabilities of
$121 and $612, respectively, associated with the consolidation of these
facilities.

7. IMPAIRMENT OF LONG-LIVED ASSETS

The Company reviews long-lived assets, including goodwill for impairment
whenever events or changes in business circumstances indicate that the carrying
amount of the assets may not be fully recoverable or that the useful lives of
these assets are no longer appropriate. If an impairment is indicated, the asset
is written down to its estimated fair value. During the third quarter of fiscal
year 2001, in accordance with Financial Accounting Standards Board Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," ("SFAS No. 121"), the Company wrote down $4,684 of
impaired long-lived assets associated with the acquisition of Dexton, which was
comprised of $721 of goodwill, $2,345 of intangibles, and $1,618 of acquired
technology. Additionally, $525 of goodwill associated with the acquisition

INFINIUM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of iT-Soft was written off. Based on the declining historical and forecasted
operating results of Dexton and iT-Soft the estimated value of these assets to
the Company had decreased. Based on the Company's expectation of future
undiscounted net cash flows, these assets have been written down to their net
realizable value. All of the above charges have been recorded in general and
administrative expenses, with the exception of acquired technology, which has
been recorded in cost of software license fees.

8. CHANGE IN ESTIMATED USEFUL LIFE OF CAPITALIZED SOFTWARE

At the beginning of the third quarter of fiscal year 2001, the Company
determined that, because of a declining sales environment for certain of its
products and faster production of product updates, capitalized software
development costs of $5,741 on the balance sheet as of March 31, 2001 should be
amortized prospectively over 18 months as opposed to the three-year life
previously used. This resulted in additional amortization expense of $2,318 for
the three and nine months ended June 30, 2001.

9. DISCONTINUED OPERATIONS

In September 2001, due to continued historical operating losses from its
Application Service Provider ("ASP") business segment and the industry outlook
for the ASP business generally, the Company's management decided to discontinue
ASP by phasing out of the business segment over a period of six months. As a
result, this business segment is classified as a discontinued operation in the
consolidated statement of operations. The remaining net assets at September 30,
2001 related to the ASP segment consist of accounts receivable from customers
and current deferred revenue balances and accrued liabilities for the cost of
disposal. In connection with the discontinuance of ASP, the Company wrote off
$6,100 of leasehold improvements and computers and equipment associated with the
ASP business, determined to be unrecoverable in accordance with SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of (SFAS 121). This charge was classified within loss from
operations of ASP segment in the consolidated statement of operations for fiscal
year 2001.

During the three and nine months ended June 30, 2002, the ASP business
segment incurred charges of $126 and $1,094, respectively, which was offset
against the accrual of $1,094 originally booked in fiscal year 2001 for
estimated losses in accordance with APB Opinion No. 30, Reporting the Results of
Operations -- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions. As of
June 30, 2002, the accrual has been fully utilized and the Company does not
expect to incur any additional costs associated with the segment's
discontinuance.

10. LINE OF CREDIT

In October 2001, the Company entered into a line of credit with a financial
institution under which it can borrow up to $3,000, based on certain asset-based
balances. The agreement, which expires on December 31, 2002, contains certain
financial covenants including a prohibition against the payment of dividends as
well as minimum net deficit targets ranging from $19,000 in 2001 to $10,000 in
May 2002. The Company must also follow non-financial covenants including the
receipt of the financial institution's consent in the event of a merger or
consolidation with another entity and consent to acquire any assets or incur any
debts outside the normal course of business. The Company was in compliance with
all covenants at June 30, 2002. The Company has not borrowed under this line of
credit. The interest rate on any funds that are borrowed would be at the bank's
prime rate plus 1 percent.

11. DIVESTITURE OF SUBSIDIARY

On March 20, 2002, the Company sold the stock of its wholly owned
Netherlands subsidiary for proceeds of $5 in cash and the buyer's assumption of
net liabilities of $332. This transaction resulted in a gain of $337. As part of
the agreement, the Company retained certain intellectual property rights which
may give rise to

INFINIUM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

royalty revenue over the next 33 months. The Company has not recorded any
royalty revenue related to this license agreement. The subsidiary's results of
operations were not material compared to the Company's consolidated results of
operations, and therefore, pro forma results are not presented.

12. INCOME TAXES

During the third quarter of fiscal 2002, the Company recorded tax benefits
of $267 of which $295 is related to the enactment of the Job Creation and Worker
Assistance Act of 2002 offset by local taxes of $28. The Company will be able to
carryback the Company's 2001 net operating loss for U.S. federal purposes to tax
years 1996 to 1998.

13. RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 142 ("SFAS No. 142"), Goodwill and other Intangible Assets. SFAS No. 142
requires that goodwill and other intangible assets with indefinite lives no
longer be amortized, but instead be tested for impairment at least annually. In
addition, the standard includes provisions for the reclassification of certain
existing intangibles as goodwill and reassessment of the useful lives of
existing intangibles. The Company adopted SFAS No. 142 in the first quarter of
fiscal year 2002. SFAS No. 142 did not have a material impact on the
consolidated financial statements as the Company has no goodwill or intangible
assets related to prior acquisitions.

In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" and provides a single accounting model for long-lived
assets to be disposed of. This Statement is effective for fiscal years beginning
after December 15, 2001. SFAS No. 144 is effective for the Company on October 1,
2002 and the Company does not expect that adoption of this Statement will have a
significant effect on its financial position or its results of operations.

During the third quarter of fiscal 2002, the Company adopted EITF No.
01-14, "Income Statement Characterization of Reimbursements Received for
"Out-of-Pocket" Expenses Incurred." EITF Issue No. 01-14 requires reimbursements
received for out-of-pocket expenses to be reported as revenue in the statement
of operations. Prior to adoption of EITF Issue No. 01-14, the Company recorded
revenue and operating expenses net of reimbursable expenses. The Company's
financial results of operations for prior periods have been reclassified to
conform to the new presentation. In accordance with EITF Issue No. 01-14,
reimbursable expenses of $359 and $1,145 for the third quarter and first nine
months of fiscal 2002, respectively, and $630 and $2,089 for the third quarter
and first nine months of fiscal 2001, respectively, are now reflected as revenue
and cost of revenue. This change had no effect on operating income or net income
for any period presented.

In May 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statement
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections
as of April 2002," which is effective for certain transactions occurring after
May 15, 2002 and for financial statements issued on or after May 15, 2002. SFAS
No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of
Debt," and an amendment of that statement, SFAS No. 64, "Extinguishments of Debt
Made to Satisfy Sinking-Fund Requirements." SFAS No. 145 also rescinds SFAS No.
44, "Accounting for Intangible Assets of Motor Carriers." SFAS No. 145 amends
SFAS No. 13, "Accounting for Leases," to eliminate an inconsistency between the
required accounting for sale-leaseback transactions and the required accounting
for certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. This statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. The adoption
of SFAS No. 145 on May 15, 2002 did not have a material impact on the Company's
consolidated financial statements.

INFINIUM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal." This Statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring.)." This Statement
is effective for exit or disposal activities that are initiated after December
31, 2002, with early application encouraged. We are currently assessing the
impact that the adoption of FAS 146 will have on our financial statements and
plan to adopt this Standard January 1, 2003.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

All statements contained herein that are not historical facts, including
but not limited to, statements regarding anticipated future revenue and expense
levels and capital requirements, the Company's future product development and
marketing plans, the Company's ability to generate cash from operations, and the
Company's ability to attract and retain employees, are based on current
expectations. These statements are forward looking in nature, involve a number
of risks and uncertainties, as more fully described under "Factors Affecting
Future Performance" contained herein and in the Company's Annual Report on Form
10-K for the year ended September 30, 2001, and are made pursuant to the Private
Securities Litigation Reform Act of 1995. Actual results may differ materially
from those described in the forward-looking statements.

OVERVIEW

Infinium Software, Inc. ("Infinium", "the Company") develops, markets and
supports enterprise-level business software applications. Infinium offers Web
and server-based financial, human resources, supply chain management, process
manufacturing, business analytics and customer relationship management
solutions, services, support and deployment options to its customers.

During fiscal year 2001, under the leadership of a new Chief Executive
Officer and President hired in February 2001, the Company reassessed its
business and established short term goals for fiscal 2001, which included
stabilizing the Company, focusing on its core competencies, improving the
profitability of the Company and preserving the Company's cash. As a part of
these efforts, the Company significantly reduced the Company's costs in the
third and fourth quarters of fiscal 2001. As part of its cost reduction efforts,
in September 2001, due to continued historical operating losses from its
Application Service Provider ("ASP") business segment and because the ASP did
not present an opportunity for timely profitability, the Company's management
decided to discontinue the ASP by phasing out of the business segment over a
period of six months. As a result, this business segment is classified as a
discontinued operation in the consolidated statement of operations. During
fiscal 2001, the Company's headcount was reduced by 36 percent including
voluntary and involuntary terminations. The Company has realized significantly
reduced overhead expenses as a result of these restructuring efforts during the
first nine months of fiscal 2002.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's discussion and analysis of financial conditions and results
of operations are based upon the Company's consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States of America. The preparation of these financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, and disclosures of contingent assets
and liabilities, at the date of the financial statements and the reported
amounts of revenue and expense during the reporting period. Note 2 in the Notes
to the Consolidated Financial Statements in the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 2001, describes the Company's
significant accounting policies used in the preparation of the consolidated
financial statements. On an on-going basis, the Company evaluates its estimates,
including, but not limited to, those related to bad debts, income taxes and
contingencies. The Company bases its estimates on historical experience and on
various other assumptions that are believed 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 under different
assumptions or conditions.

The Company believes the critical accounting policies listed below affect
significant judgments and estimates used in the preparation of the consolidated
financial statements.

REVENUE RECOGNITION. The Company recognizes software license fee revenues
in accordance with the provisions of AICPA Statement of Position 97-2, Software
Revenue Recognition, AICPA Statement of Position 98-9, Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions (SOP 98-9)
and their related interpretations. The Company licenses software under
non-cancelable contractual license agreements and provides related professional
services, including support, training, consulting and
13

implementation. Revenue from software license fees is recognized when there is
evidence of an arrangement, the product has been delivered, fees are fixed or
determinable, and collection of the related receivable is deemed probable. The
Company does not generally offer rights of return, acceptance clauses and price
protection to its customers. Typically, the Company's software license fees are
due within a six-month period from the date of contract. Revenues from sales of
third party products are recorded net of royalties, in accordance with Emerging
Issue Task Force 99-19, Reporting Revenue Gross as a Principal versus Net as an
Agent. Generally, the Company's software products do not require significant
modification or customization. Installation of the products is normally routine
and is not essential to the functionality of the product. The Company's sales
frequently include maintenance contracts and professional services with the sale
of its software licenses. The Company has established vendor-specific objective
evidence of fair value (VSOE) for its maintenance contracts and professional
services, which is determined based upon the prices charged to customers when
these elements are sold separately. Maintenance revenues, including those sold
with the initial license fee, are deferred based on VSOE, typically determined
by the renewal rate of the annual maintenance contract, and recognized ratably
over the maintenance contract period. Consulting and training service revenues,
including those sold with license fees, are recognized as the services are
performed based on their established VSOE. The amount of revenue allocated to
the licenses sold with services and/or maintenance is determined using the
"residual method" of accounting. Under the residual method, the total value of
the arrangement is allocated first to the undelivered elements based on their
VSOE with the remainder being allocated to license fees.

ALLOWANCE FOR DOUBTFUL ACCOUNTS. The Company maintains allowances for
doubtful accounts for estimated losses resulting from the inability of the
Company's customers to make required payments. If the financial condition of
these customers were to deteriorate, resulting in an impairment of their ability
to make payments, additional allowances may be required or revenue could be
deferred until collectibility becomes probable. Management specifically analyzes
accounts receivable and analyzes historical bad debts, customer
credit-worthiness, current economic trends and changes in customer payment terms
when evaluating the adequacy of the allowance for doubtful accounts.

VALUATION OF LONG-LIVED AND INTANGIBLE ASSETS. The Company reviews
identifiable intangibles and other long-lived assets for impairment annually or
sooner if events or changes in circumstances indicate that the carrying amount
may not be recoverable. Factors the Company considers important which could
trigger the impairment review include:

- significant underperformance relative to historical or projected future
operating results;

- significant negative industry or economic trends;

- significant decline in our stock price for a sustained period;

- significant decline in our technological value as compared to the market;
and

- our market capitalization relative to net book value.

If such circumstances exist, the Company evaluates the carrying value of
long-lived assets to determine if impairment exists based upon estimated
undiscounted future cash flows over the remaining useful life of the assets and
comparing that value to the carrying value of the assets. If the carrying value
of the asset is greater than the estimated future cash flows, the asset is
written down to the estimated fair value. The Company determines the estimated
fair value of the assets on a projected discounted cash flow method using a
discount rate determined by management to be commensurate with the risk inherent
in the current business model. In determining expected future cash flows, assets
are grouped at the lowest level for which cash flows are identifiable and
independent of cash flows from other asset groups. Our cash flow estimates
contain management's best estimates, using appropriate and customary assumptions
and projections at the time.

INCOME TAXES. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their tax
bases. Deferred tax assets and liabilities are measured using enacted statutory
tax rates in effect in the year in which the differences are expected to
reverse. A deferred tax asset is established for the expected

future benefit of net operating loss and credit carry-forwards. Under Statement
of Financial Accounting Standards No. 109 ("SFAS No. 109"), Accounting for
Income Taxes, the Company cannot recognize a deferred tax asset for the future
benefit of its net operating losses, tax credits and temporary differences
unless the Company can establish that it is "more likely than not" that the
deferred tax asset would be realized. Due to the Company's history of net
losses, the Company has not recognized a tax asset and has recorded a full
valuation allowance against its otherwise recognizable deferred tax asset, in
accordance with SFAS No. 109. Future events could cause management to conclude
that it is more likely than not that the Company will realize a portion of the
deferred tax asset. Upon reaching such a conclusion, the valuation allowance
will be reduced and some or the entire deferred tax asset will be recognized.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001

The following table sets forth the Company's consolidated statement of
operations data expressed as a percentage of total revenue and the percentage of
dollar increase or decrease from period to period for the three months ended
June 30, 2002 and 2001:

<Table>
<Caption>
THREE MONTHS ENDED JUNE 30,
---------------------------------
% OF TOTAL
REVENUE % OF $
----------- INCREASE (DECREASE)
2002 2001 2001 TO 2002
---- ---- -------------------

REVENUE:
Software license fees................................ 18% 8% 126%
Services revenue..................................... 82 92 (10)
--- ---
Total revenue..................................... 100 100 1
--- ---
OPERATING COSTS AND EXPENSES:
Cost of software license fees........................ 3 29 (92)
Cost of services..................................... 24 34 (30)
Research and development............................. 14 29 (49)
Sales and marketing.................................. 26 42 (38)
General and administrative........................... 11 49 (77)
--- ---
Total operating costs and expenses................ 78 183 (57)
--- ---
Income (loss) from operations.......................... 22 (83) N/A
Other income (loss), net............................... -- -- N/A
Gain on sale of subsidiary............................. -- -- N/A
--- ---
Income (loss) from continuing operations before benefit
from income taxes.................................... 22 (83) N/A
Benefit from income taxes.............................. 2 5 67
--- ---
Income (loss) from continuing operations............... 24 (78) N/A
DISCONTINUED OPERATIONS:
Loss from operations of ASP segment.................... -- (6) N/A
--- ---
NET INCOME (LOSS)...................................... 24% (84)% N/A
=== ===
</Table>

REVENUE. Total revenue increased $107 thousand, or 1%, from $16.6 million
for the three months ended June 30, 2001 to $16.7 million for the three months
ended June 30, 2002. Software license fees increased from a Company low of $1.3
million for the three months ended June 30, 2001 to $3.0 million for the three
months ended June 30, 2002. Service revenue, comprised of maintenance fee
revenue and consulting services revenue declined 10%, from $15.2 million for the
three months ended June 30, 2001 to $13.7 million for the three

months ended June 30, 2002. This decrease was due primarily to a decrease in
demand for the Company's consulting service offerings. The components of service
revenue are as follows:

<Table>
<Caption>
THREE MONTHS ENDED JUNE 30,
------------------------------------
(IN THOUSANDS, EXCEPT
% DATA) % INCREASE
--------------------- (DECREASE)
2002 2001 2001 TO 2002
--------- --------- ------------

Maintenance fee revenue............................... $10,287 $ 9,814 5%
Consulting services revenue........................... 3,388 5,417 (37)%
------- -------
Total services revenue........................... $13,675 $15,231 (10)%
======= =======
</Table>

During the third quarter of fiscal 2002, the Company adopted EITF No.
01-14, "Income Statement Characterization of Reimbursements Received for
"Out-of-Pocket" Expenses Incurred." EITF Issue No. 01-14 requires reimbursements
received for out-of-pocket expenses to be reported as revenue in the statement
of operations. Prior to adoption of EITF Issue No. 01-14, the Company recorded
revenue and operating expenses net of reimbursable expenses. The Company's
financial results of operations for prior periods have been reclassified to
conform to the new presentation. In accordance with EITF Issue No. 01-14,
reimbursable expenses of $359 thousand and $1.1 million for the third quarter
and first nine months of fiscal 2002, respectively, and $630 thousand and $2.1
million for the third quarter and first nine months of fiscal 2001,
respectively, are now reflected as revenue and cost of revenue. This change had
no effect on operating income or net income for any period presented.

COST OF SOFTWARE LICENSE FEES. Cost of software license fees consists
primarily of amortization expense related to capitalized software and the cost
of product media, manuals and shipping. Cost of software license fees decreased
92%, from $4.8 million for the three months ended June 30, 2001 to $407 thousand
for the three months ended June 30, 2002. This decrease in dollar amount is
mainly due to charges of $2.3 million associated with the change in the
estimated life of capitalized software and $1.6 million associated with the
write-off of purchased software during the third quarter of fiscal 2001.
Exclusive of these one-time charges, cost of software license fees decreased
52%, from $846 thousand for the quarter ended June 30, 2001 to $407 thousand for
the quarter ended June 30, 2002. This decrease is primarily due to less
capitalized software amortization expense of $335 thousand. Cost of software
license fees as a percentage of software license fee revenue decreased from 363%
for the three months ended June 30, 2001 to 14% for the three months ended June
30, 2002.

COST OF SERVICES. Cost of services consists of costs to provide product
support, implementation, consulting, related facilities overhead, computer and
communications overhead and training services to licensees. Cost of services
decreased 30%, from $5.6 million for the three months ended June 30, 2001 to
$3.9 million for the three months ended June 30, 2002. The decrease is due to a
decrease in third party consulting expenses of $636 thousand and a reduction in
personnel costs of $1.1 million associated with the Company's reduction-in-force
during fiscal year 2001. Cost of services as a percentage of service revenue
decreased from 37% for the three months ended June 30, 2001 to 29% for the three
months ended June 30, 2002.

Gross margins on services revenue were not impacted by the adoption of EITF
Issue No. 01-14. As described above, EITF No. 01-14 requires reimbursements
received for out-of-pocket expenses to be reported as revenue in the statement
of operations. Comparative financial statements for prior periods reflect the
reclassification of the reimbursements to conform to the current year
presentation.

severance costs recorded during the third quarter of fiscal 2001, offset by $322
thousand decrease in the capitalization of software development costs due to
increased focus on the Company's core products. Research and development expense
as a percentage of total revenue decreased from 29% for the three months ended
June 30, 2001 to 14% for the three months ended June 30, 2002.

SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions, travel, promotional expenses, facilities and computers
and communications costs for direct sales offices. Sales and marketing expenses
decreased 38%, from $7.0 million for the three months ended June 30, 2001 to
$4.4 million for the three months ended June 30, 2002. The decrease in dollar
amount was primarily due to $1.0 million related to personnel reductions
associated with the Company's reduction-in-force during fiscal year 2001, $803
thousand related to lower marketing and sales costs due to a company-wide
emphasis on expense reduction and $853 thousand related to severance costs
recorded during the third quarter of fiscal 2001. Sales and marketing expense as
a percentage of total revenue decreased from 42% for the three months ended June
30, 2001 to 26% for the three months ended June 30, 2002.

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries of executive and administrative personnel as well as
provisions for doubtful accounts, insurance, investor relations and professional
service fees. General and administrative expenses decreased 77%, from $8.2
million for the three months ended June 30, 2001 to $1.9 million for the three
months ended June 30, 2002. The decrease in dollar amount was primarily due to
one-time charges of $5.8 million recorded in the third quarter of fiscal year
2001, comprised of the following: $614 thousand associated with severance costs,
$3.6 million associated with the write-off of goodwill and intangibles, and $1.6
million associated with the write-off of fixed assets and the consolidation of
unutilized facilities. Exclusive of these one-time charges, general and
administrative expense decreased 20%, from $2.4 million for the quarter ended
June 30, 2001 to $1.9 million for the quarter ended June 30, 2002. This decrease
is primarily due to $494 thousand related to personnel reductions associated
with the Company's reduction-in-force during fiscal year 2001. General and
administrative expense as a percentage of total revenue decreased from 49% for
the three months ended June 30, 2001 to 11% for the three months ended June 30,
2002.

OTHER INCOME (LOSS), NET. Other income (loss), net consists of interest
income, interest expense, foreign currency exchange gain and losses and
marketable equity securities gains and losses. Other income (loss) increased $78
thousand, from a loss of $12 thousand for the three months ended June 30, 2001
to $66 thousand for the three months ended June 30, 2002. The loss of $12
thousand for the three months ended June 30, 2001 was primarily caused by a $144
thousand loss on marketable securities.

BENEFIT FROM INCOME TAXES. During the third quarter of fiscal 2002, the
Company recorded tax benefits of $267 thousand of which $295 thousand is related
to the enactment of the Job Creation and Worker Assistance Act of 2002 offset by
local taxes of $28 thousand. The Company will be able to carryback the Company's
2001 net operating loss for U.S. federal purposes to tax years 1996 to 1998.

NINE MONTHS ENDED JUNE 30, 2002 COMPARED TO NINE MONTHS ENDED JUNE 30, 2001

<Table>
<Caption>
NINE MONTHS ENDED JUNE 30,
---------------------------------
% OF TOTAL
REVENUE % OF $
----------- INCREASE (DECREASE)
2002 2001 2001 TO 2002
---- ---- -------------------

REVENUE:
Software license fees................................ 16% 14% (1)%
Services revenue..................................... 84 86 (17)
--- ---
Total revenue................................... 100 100 (15)
--- ---
OPERATING COSTS AND EXPENSES:
Cost of software license fees........................ 2 13 (84)
Cost of services..................................... 26 30 (28)
Research and development............................. 16 21 (38)
Sales and marketing.................................. 26 38 (41)
General and administrative........................... 11 23 (57)
--- ---
Total operating costs and expenses.............. 81 125 (45)
--- ---
Income (loss) from operations.......................... 19 (25) N/A
Other income (loss), net............................... 0 1 (84)
Gain on sale of subsidiary............................. 1 -- N/A
--- ---
Income (loss) from continuing operations before benefit
from income taxes.................................... 20 (24) N/A
Benefit from income taxes.............................. -- 1 67
--- ---
Income (loss) from continuing operations............... 20 (23) N/A
DISCONTINUED OPERATIONS:
Loss from operations of ASP segment.................... -- (7) N/A
--- ---
NET INCOME (LOSS)...................................... 20% (30)% N/A
=== ===
</Table>

REVENUE. Total revenue declined $8.6 million, or 15%, from $58.9 million
for the nine months ended June 30, 2001 to $50.3 million for the nine months
ended June 30, 2002. Software license fees declined $54 thousand, from $8.1
million for the nine months ended June 30, 2001 to $8.0 million for the nine
months ended June 30, 2002. Service revenue, comprised of maintenance fee
revenue and consulting services revenue declined 17%, from $50.8 million for the
nine months ended June 30, 2001 to $42.3 million for the nine months ended June
30, 2002. This decrease was due to a decrease in demand for the Company's
consulting service offerings. The components of service revenue are as follows:

<Table>
<Caption>
NINE MONTHS ENDED JUNE 30,
--------------------------------
(IN THOUSANDS, % INCREASE
EXCEPT % DATA) (DECREASE)
2002 2001 2001 TO 2002
------- ------- ------------

Maintenance fee revenue............................... $31,406 $30,968 1%
Consulting services revenue........................... 10,865 19,853 (45)
------- -------
Total services revenue........................... $42,271 $50,821 (17)%
======= =======
</Table>

During the third quarter of fiscal 2002, the Company adopted EITF No.
01-14, "Income Statement Characterization of Reimbursements Received for
"Out-of-Pocket" Expenses Incurred." EITF Issue

No. 01-14 requires reimbursements received for out-of-pocket expenses to be
reported as revenue in the statement of operations. Prior to adoption of EITF
Issue No. 01-14, the Company recorded revenue and operating expenses net of
reimbursable expenses. The Company's financial results of operations for prior
periods have been reclassified to conform to the new presentation. In accordance
with EITF Issue No. 01-14, reimbursable expenses of $359 thousand and $1.1
million for the third quarter and first nine months of fiscal 2002,
respectively, and $630 thousand and $2.1 million for the third quarter and first
nine months of fiscal 2001, respectively, are now reflected as revenue and cost
of revenue. This change had no effect on operating income or net income for any
period presented.

COST OF SOFTWARE LICENSE FEES. Cost of software license fees consists
primarily of amortization expense related to capitalized software and the cost
of product media, manuals and shipping. Cost of software license fees decreased
84%, from $7.4 million for the nine months ended June 30, 2001 to $1.2 million
for the nine months ended June 30, 2002. The decrease in dollar amount is
primarily due to $810 thousand decrease in third party royalties, $1.4 million
decrease in capitalized software amortization, $2.3 million associated with the
change in the estimated life of capitalized software and $1.6 million associated
with the write-off of purchased software in the third quarter of fiscal 2001.
Exclusive of these one-time charges, cost of software license fees decreased 65%
from $3.5 million for the nine months ended June 30, 2001 to $1.2 million for
the nine months ended June 30, 2002. This decrease is primarily due to less
capitalized software amortization expense of $1.4 million. Cost of software
license fees as a percentage of software license fee revenue decreased from 92%
for the nine months ended June 30, 2001 to 15% for the nine months ended June
30, 2002.

COST OF SERVICES. Cost of services consists of costs to provide product
support, implementation, consulting, related facilities overhead, computer and
communications overhead and training services to licensees. Cost of services
decreased 28%, from $17.8 million for the nine months ended June 30, 2001 to
$12.8 million for the nine months ended June 30, 2002. The decrease is due to a
decrease in third party consulting expenses and a reduction in headcount
associated with the Company's reduction-in-force during fiscal year 2001. Cost
of services as a percentage of service revenue decreased from 35% for the nine
months ended June 30, 2001 to 30% for the nine months ended June 30, 2002.

RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of engineering personnel, related facilities overhead, computer and
communications overhead, and third party contractor costs. Research and
development costs are reduced by capitalized software development costs.
Research and development expenses decreased 38%, from $12.6 million for the nine
months ended June 30, 2001 to $7.8 million for the nine months ended June 30,
2002. The decrease in dollar amount was primarily due to $2.3 million related to
personnel reductions associated with the Company's reduction-in-force during
fiscal year 2001, $3.5 million related to general company-wide cost reduction
measures and $536 thousand related to severance costs recorded during the third
quarter of fiscal 2001, offset by a $2.0 million decrease in capitalized
software development costs due to increased focus on the Company's core
products. Research and development expense as a percentage of total revenue
decreased from 21% for the nine months ended June 30, 2001 to 16% for the nine
months ended June 30, 2002.

SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions, travel, promotional expenses, facilities and computers
and communications costs for direct sales offices. Sales and marketing expenses
decreased 41%, from $22.2 million for the nine months ended June 30, 2001 to
$13.1 million for the nine months ended June 30, 2002. The decrease in dollar
amount was primarily due to $3.7 million related to personnel reductions
associated with the Company's reduction-in-force during fiscal year 2001, $4.5
million related to lower marketing and sales costs due to a company-wide
emphasis on expense reduction and $853 thousand related to severance costs
recorded during the third quarter of fiscal 2001. Sales and marketing expense as
a percentage of total revenue decreased from 38% for the nine months ended June
30, 2001 to 26% for the nine months ended June 30, 2002.

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries of executive and administrative personnel as well as
provisions for doubtful accounts, insurance, investor relations and professional
service fees. General and administrative expenses decreased 57%, from $13.5
million for the nine months ended June 30, 2001 to $5.8 million for the nine
months ended June 30, 2002. The decrease in dollar amount was primarily due to
one-time charges of $5.8 million recorded in the third quarter of fiscal year
2001, comprised of the following: $614 thousand associated with severance costs,
$3.6 million associated with the write-off of goodwill and intangibles, and $1.6
million associated with the write-off of fixed assets and the consolidation of
unutilized facilities. Exclusive of these one-time charges, general and
administrative expense decreased 25% from $7.7 million for the nine months ended
June 30, 2001 to $5.8 million for the nine months ended June 30, 2002. This
decrease is primarily due to $1.5 million related to personnel reductions
associated with the Company's reduction-in-force during fiscal year 2001.
General and administrative expense as a percentage of total revenue decreased
from 23% for the nine months ended June 30, 2001 to 11% for the nine months
ended June 30, 2002.

OTHER INCOME (LOSS), NET. Other income (loss), net consists of interest
income, interest expense, foreign currency exchange gain and losses, and
marketable equity securities gains and losses. Other income (loss), net
decreased $249 thousand due primarily to lower interest income associated with
lower interest rates in fiscal 2002.

GAIN ON SALE OF SUBSIDIARY. On March 20, 2002, the Company sold the stock
of its wholly owned Netherlands subsidiary for proceeds of $5 thousand in cash
and the buyer's assumption of net liabilities of $332. This transaction resulted
in a gain of $337 thousand.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2002, the Company had cash, cash equivalents and marketable
securities of $20.5 million resulting from a net increase of cash, cash
equivalents and marketable securities of $5.2 million during the first nine
months of fiscal year 2002. For the nine months ended June 30, 2002, operating
activities provided $5.6 million, which included $1.6 million used in
discontinued operations. For the nine months ended June 30, 2001, operating
activities used $1.5 million, which included $4.2 million from discontinued
operations. Cash flows from operations for the nine months ended June 30, 2002
was mainly due to net income of $10.3 million and depreciation and amortization
of $2.4 million, offset by a decrease in accrued expenses of $3.3 million due to
payments for severance, bonuses and payroll and an increase in accounts
receivable of $1.5 million.

Cash flows provided by (used in) investing activities were $735 thousand
and ($2.3) million for the nine months ended June 30, 2002 and 2001,
respectively. Cash provided during the nine months ended June 30, 2002 included
$1.1 million from the sale of marketable securities and $5 thousand from the
proceeds from the sale of a subsidiary, partially offset by the purchase of
property and equipment of $263 thousand and capitalized software development
costs of $91 thousand.

Cash flows provided by financing activities were $124 thousand and $7
thousand for the nine months ended June 30, 2002 and 2001, respectively. Cash
provided during the nine months ended June 30, 2002 included payments of
capitalized lease obligations of $167 thousand and purchase of treasury stock of
$154 thousand, offset by the proceeds from the exercise of options and employee
stock purchase plan of $445 thousand.

In October 2001, the Company entered into a line of credit with a financial
institution under which it can borrow up to $3 million, based on certain
asset-based balances. The agreement, which expires on December 31, 2002,
contains certain financial covenants including a prohibition against the payment
of dividends as well as minimum net deficit targets ranging from $19 million in
2001 to $10 million in May 2002. The Company must also follow non-financial
covenants including the receipt of the financial institution's consent

in the event of a merger or consolidation with another entity and consent to
acquire any assets or incur any debts outside the normal course of business. The
Company was in compliance with all covenants at June 30, 2002. The Company has
not borrowed under this line of credit. The interest rate on any funds that are
borrowed would be at prime plus 1 percent.

The Company does not have any special purpose entities or off-balance sheet
financing arrangements. The Company's lease obligations were disclosed in the
Annual Report on Form 10-K for the fiscal year September 30, 2001. There have
been no significant changes to the lease obligations subsequent to the Company's
Annual Report on Form 10-K.

Due to the enactment of the Job Creation and Worker Assistance Act of 2002
on March 9, 2002, the Company was able to carryback the Company's 2001 net
operating loss for U.S. federal purposes to tax years 1996 to 1998. The Company
recorded a tax benefit of $295 thousand which is included in prepaid expenses
and other current assets at June 30, 2002.

Days sales outstanding ("DSO") increased to 41 days at June 30, 2002
compared to 36 days at September 30, 2001. The Company calculates DSO by
dividing the ending accounts receivable balance, net of allowances for doubtful
accounts, by the annualized revenue for the quarter, multiplied by 360. The
Company believes that this method of deriving DSO is indicative of actual
results due to the cyclical nature of software license and service transactions,
which are often consummated nearer the end of the quarter, as well as the
fluctuation of transactions from one quarter to the next. The Company's accounts
receivable balance at June 30, 2002, net of allowances for doubtful accounts was
$7.6 million versus $6.8 million as of September 30, 2001.

Deferred revenue decreased $1.0 million (includes $374 thousand decrease
related to sale of the Netherlands subsidiary), from $29.0 million at September
30, 2001 to $28.0 million at June 30, 2002. The decrease in deferred revenue
primarily resulted from a decrease in the deferred consulting services component
of revenue due to lower prepaid customer bookings during the first nine months
of fiscal 2002.

Prior to the first quarter of fiscal 2002, the Company had incurred net
operating losses in each of the last three fiscal years ended September 2001,
2000 and 1999, and generated a negative cash flow from operations in each of the
last two years. In addition, total revenues have decreased in each of the last
three fiscal years. However, for the nine months ended June 30, 2002, the
Company had net income of $10.3 million. As of June 30, 2002, the Company had a
working capital deficit of $9.1 million and a stockholders' deficit of $2.0
million. Included in the working capital deficit is $26.6 million of deferred
revenue.

During fiscal year 2001, under the leadership of a new Chief Executive
Officer and President hired in February 2001, the Company reassessed its
business and established short term goals for fiscal 2001, which included
stabilizing the Company, focusing on its core competencies, improving the
profitability of the Company and preserving the Company's cash. As a part of
these efforts, the Company significantly reduced the Company's costs in the
third and fourth quarters of fiscal 2001. As part of its cost reduction efforts,
in September 2001, due to continued historical operating losses from its
Application Service Provider ("ASP") business segment and because the ASP did
not present an opportunity for timely profitability, the Company's management
decided to discontinue the ASP by phasing out of the business segment over a
period of six months. As a result, this business segment is classified as a
discontinued operation in the consolidated statement of operations. During
fiscal 2001, the Company also reduced its headcount by 36 percent. The Company
has realized reduced overhead expenses as a result of these restructuring
efforts during the first nine months of fiscal 2002. The Company believes that
it has sufficient cash, cash equivalents and marketable securities on hand to
fund its operations through at least fiscal 2003.

While operating activities may provide cash in certain periods, to the
extent the Company anticipates growth in the future, the Company anticipates
that its operating and investing activities may use cash, and, consequently,
such growth may require the Company to obtain additional sources of financing.

The Company's working capital and other capital requirements may change
because of unanticipated changes in business conditions or delays in market
acceptance of new products. Other considerations such as further expansion of
operations or research and development activities, competitive and technological
21

developments, and possible future acquisitions of businesses and/or product
rights may also affect the Company's capital requirements. There is no assurance
that the Company will be able to raise sufficient debt or equity capital on
terms that it considers acceptable, if at all. Accordingly, there can be no
assurance that the Company may not experience liquidity problems as a result or
because of adverse market conditions or other unfavorable events.

RECENT ACCOUNTING PRONOUNCEMENTS

During the third quarter of fiscal 2002, the Company adopted EITF No.
01-14, "Income Statement Characterization of Reimbursements Received for
"Out-of-Pocket" Expenses Incurred." EITF Issue No. 01-14 requires reimbursements
received for out-of-pocket expenses to be reported as revenue in the statement
of operations. Prior to adoption of EITF Issue No. 01-14, the Company recorded
revenue and operating expenses net of reimbursable expenses. The Company's
financial results of operations for prior periods have been reclassified to
conform to the new presentation. In accordance with EITF Issue No. 01-14,
reimbursable expenses of $359 thousand and $1.1 million for the third quarter
and first nine months of fiscal 2002, respectively, and $630 thousand and $2.1
million for the third quarter and first nine months of fiscal 2001,
respectively, are now reflected as revenue and cost of revenue. This change had
no effect on operating income or net income for any period presented.

FACTORS AFFECTING FUTURE PERFORMANCE

The factors affecting the Company's future performance have not changed
significantly from those enumerated in the Company's Annual Report on Form 10-K
for the year ended September 30, 2001.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The following discussion about the Company's market risk involves
forward-looking statements. Actual results could differ materially from those
discussed in the forward-looking statements. The Company is exposed to market
risk related to changes in interest rates and foreign currency exchange rates.
The Company does not use derivative financial instruments for speculative or
trading purposes.

INTEREST RATE RISK

The Company is exposed to market risk from changes in interest rates
primarily through its investing and borrowing activities. The Company's
investing strategy to manage interest rate exposure is to invest in short-term,
highly liquid investments. The Company maintains a portfolio of highly liquid
cash equivalents and short-term investments (primarily in high grade municipal
notes). At June 30, 2002, the fair value of the Company's short-term investments
approximated market value.

FOREIGN CURRENCY RISK

The Company faces exposure to movements in foreign currency exchange rates.
These exposures may change over time as business practices evolve and could have
a material adverse effect on the Company's business, financial condition and
results of operations. The Company does not use derivative financial instruments
to hedge foreign currency exposures or for trading. Historically, the Company's
primary exposures have been related to the operations of its foreign
subsidiaries. In the nine month period ended June 30, 2002, the net impact of
foreign currency changes was not material.

PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Not applicable

ITEM 2. CHANGES IN SECURITIES

Not applicable

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable

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

Not applicable

ITEM 5. OTHER INFORMATION

Not applicable

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits
Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Exhibit 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30,
2002.

SIGNATURE

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

INFINIUM SOFTWARE, INC.

By: /s/ WILLIAM B. GERRAUGHTY JR.
------------------------------------
William B. Gerraughty Jr.
Chief Financial Officer

Dated: August 12, 2002