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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

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

[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the Fiscal Year Ended December 31, 2002

[  ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Commission File No. 000-30389

EXE TECHNOLOGIES, INC.

Delaware
(State or other jurisdiction of incorporation or organization)

75-1719817
(I.R.S. Employer Identification No.)

8787 Stemmons Freeway
Dallas, Texas 75247
(Address of principal executive offices)

(214) 775-6000
(Registrant’s telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $0.01 par value

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

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes   [  ]   No   [X]

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The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of common stock as of the last business day of the registrant’s most recently completed second fiscal quarter as reported on the NASDAQ National Market, was approximately $25.6 million.

As of March 14, 2003, the Registrant had 6,665,681 outstanding shares of common stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive Proxy Statement for the 2003 Annual Meeting of Stockholders, which will be filed with the Securities and Exchange Commission within 120 days of the Registrant’s fiscal year end, are incorporated by reference into Part III hereof.

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Form 10-K

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Special Note Regarding Forward-Looking Statements

     In addition to historical information, this Annual Report on Form 10-K contains forward-looking statements. Any statements contained herein (including, without limitation, statements to the effect that EXE or its management “believes,” “expects,” “anticipates,” “plans,” “estimates,” “predicts,” “seeks,” “intends” and similar expressions) that relate to future events or conditions should be considered forward-looking statements. The forward-looking statements are made pursuant to safe-harbor provisions of the Private Securities Reform Act of 1995. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in these forward-looking statements. Factors that might cause such a difference include, but are not limited to; those discussed in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Certain Factors That May Affect Future Results” and in subsequently and previously filed reports. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s opinions only as of the date hereof. We undertake no obligations to revise or publicly release the results of any revision to these forward-looking statements, whether as a result of new information, future events or otherwise.

PART I

ITEM 1. BUSINESS

Overview

     EXE Technologies, Inc. (the “Company”) provides software that drives customers’ supply chain execution processes, including fulfillment, warehousing, distribution and inventory management. Our software allows companies to efficiently manage and control the flow of inventory throughout the supply chain. Companies use our software to increase revenue, reduce distribution costs, manage inventory across the supply chain and improve customer loyalty and satisfaction. We provide global service and support for our software from established facilities in North America, Europe, the Middle East, Asia, Australia and through partners in Latin America. Revenue from our international operations for the year ended December 31, 2002 was approximately $38.4 million, or 52.2% of our total revenue, and for the year ended December 31, 2001 was approximately $45.4 million, or 46.6% of our total revenue.

     We sell our software worldwide through a direct sales force and through strategic alliances with complementary software vendors, resellers and consulting organizations. We target companies in industries characterized by large product selections, high transaction volumes and increasing demands for customer-specific order processing, including traditional and direct-to-consumer retailers, manufacturers and outsourced logistics providers.

     We began operations as a Delaware corporation under the name EXE Technologies, Inc. following the acquisition of Dallas Systems Corporation (Dallas Systems) by Neptune Systems, Inc. (Neptune) in September 1997. For accounting purposes, the acquisition was accounted for as a purchase of Dallas Systems by Neptune. Prior to the acquisition, Neptune was focused on delivering packaged supply chain execution software solutions primarily for manufacturing and third party logistics companies. Dallas Systems was focused on the development and sale of supply chain execution software solutions, primarily for retail companies, capable of operating in complex business environments. Dallas Systems also provided implementation and consulting services.

     In response to our declining revenues over the past two years, we have implemented several plans to reduce our costs. In 2001, we reduced our global headcount by over 17% and abandoned certain excess leased facilities. Additionally, during the last half of 2002, we took a number of actions to further reduce our cost structure to more closely align with our current levels of revenue. These actions included, among other things, the closure of our Philadelphia office, consolidation of our North American professional services and development operations in Dallas and expanding our lower cost offshore

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development activities. Our global headcount was lowered an additional 17% in 2002. Also, several changes to our executive management team were made during the year. Our new Chief Financial Officer, Kenneth R. Vines, was hired in May, we eliminated the Chief Operating Officer position in October and our new Chief Executive Officer, Joseph L. Cowan, was hired in November 2002. The former Chief Executive Officer, Raymond R. Hood, retained his position as Chairman of the Board of Directors.

Industry Background

     In recent years, supply chain operations have come under pressure from a variety of market and economic factors. The sales channels deployed by most companies have grown in both number and complexity. Companies who previously sold to a single class of customers now sell to multiple classes of customers through multiple distribution channels, including traditional retail, direct-to-consumer, through partners and others. Competition has intensified as customers have more options for purchasing goods and services and higher expectations for immediate availability at an attractive price. Furthermore, companies now buy supplies and sell products to customers around the world, requiring more elaborate logistics frameworks, including multiple modes of travel and the requirement to comply with international customs regulations. To address these new challenges, companies are opening up their systems to their suppliers, customers and partners, requiring the capability to communicate with industry standard technologies that is not present in existing legacy systems.

     The ability to manage inventory is a key element in determining a company’s financial performance and its ability to satisfy customer demands. Over the years businesses have deployed various technologies to reduce inventory levels, improve inventory turns and ensure that products available for sale are aligned with customer purchasing requirements. Warehouse management systems have traditionally been deployed to manage resources within a distribution center, including space, labor, equipment tasks and material flows.

     More recently, the Internet emerged as a powerful global commerce and communications medium, creating opportunities for companies to conduct business and interact directly with their suppliers and customers. We believe that the rise of the Internet has established a common platform and standards, creating the opportunity to bring increased efficiency to supply chain operations. However, the new relationships created between buyer and seller are driving a fundamental change in order execution and fulfillment, requiring increased synchronization and collaboration among the parties. Since competitive information is easily accessible over the Internet, companies are finding it increasingly difficult to differentiate their offerings solely on product, location or price. Accordingly, we believe that companies must distinguish their product and service offerings by providing reliable delivery and value-added services during the fulfillment process according to the consumers’ individual preferences.

     We believe the challenges of modern supply chain execution are more complex than those in the past. These challenges include:

	•		managing complex fulfillment processes across the supply chain;
	•		facilitating visibility of inventory, delivery and order status to both customers and suppliers;
	•		accurately forecasting demand and planning inventory and replenishment;
	•		providing personalized service during fulfillment, including value-added services such as customer-specific marketing, product assembly and product configuration;
	•		developing global fulfillment capabilities;
	•		processing orders from multiple media, including the Internet, facsimile, electronic data interchange and telephone;
	•		handling significant and rapid increases in the volume of transactions;

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	•		determining optimal locations from which to ship and optimal methods of how to ship inventory; and
	•		controlling reverse logistics functions such as product recall and product returns.

     In addition to these challenges, companies are faced with the task of rapidly developing their new supply chain capabilities in response to the increased competition for customers.

     Traditionally, supply chain execution systems have been highly customized, difficult to upgrade and have required costly and lengthy implementations. Moreover, many companies that implemented traditional systems have found that their existing systems do not readily support the proliferation of trading partners and sales channels and do not allow them to provide value added, customer-specific order completion on a global scale. In addition, legacy systems are unable to provide the real-time access to supply chain data to interact with newer supply chain planning, optimization, procurement and commerce applications. As a result, we believe many companies must invest in and deploy new supply chain execution software to satisfy their customers, to remain competitive and to achieve optimal operating efficiency and financial performance.

The EXE Technologies Solution

     Our software provides control over fulfillment processes both inside the four walls and yard operations of logistics centers and across a company’s entire supply chain network. It manages the fulfillment of orders initiated through both traditional and direct-to-consumer sales channels. Our software gives customers and suppliers a real-time view of customer fulfillment and provides the basis for developing improved inventory management, demand planning, replenishment planning, procurement, logistics and distribution processes and personalized customer-specific order fulfillment. In addition, we complement our software with a global professional services organization, which facilitates implementation, integration and modification of our software to meet the specific needs of our customers.

     We provide the following benefits to our customers:

	•		Reduced Costs and Improved Efficiency. We believe our software offers customers the opportunity to reduce operating costs by automating and streamlining many of the labor-intensive processes in both traditional and direct-to-consumer related logistics, distribution and inventory management operations. Our software allows companies to implement industry best practices to reduce inventory handling and obsolescence, increase inventory turnover and optimize labor requirements.
	•		Increased Revenue Through Reduced Time to Enter New Markets. We believe our software provides all of the functionality necessary for fulfillment in a single, packaged solution. Our easy-to-install applications reduce the time it takes for companies to launch new products, enter new geographic markets, or enhance direct-to-consumer initiatives, while simultaneously automating their traditional supply chains.
	•		Supply Chain Wide Process Management. Our software enables companies to exercise control over processes that span the supply chains of both their suppliers and customers. These processes may include product recall, returns processing, and merge-in-transit. By automating these workflows and combining them with execution capability, companies are able to maximize the utilization of their supply chain network to reduce costs and improve revenue.
	•		Customer-Specific Fulfillment. Our software allows companies to treat each transaction individually by automating and coordinating complex fulfillment, assembly, product configuration and customer-specific marketing campaigns across multiple sales channels.

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			Through the personalization of each customer order, companies are able to enhance customer interaction and maximize customer retention.
	•		Flexibility and Reliability. Our software has the flexibility to be deployed across most major computer systems and can operate in a hosted environment. Our software is expandable to meet growing client needs, which is increasingly critical in direct-to-consumer fulfillment environments, as well as in broader enterprise environments that support multiple sales channels. Our software has been proven reliable in high volume businesses that distribute through retail stores or sell directly to customers.
	•		Visibility. Our software provides a real-time view of customer fulfillment activities and order status across multiple channels and platforms. This allows suppliers to track orders and to implement targeted marketing campaigns at strategic times during the fulfillment cycle.
	•		Global Capability. Our software currently operates in 23 languages and is designed to accommodate rapid translations of product upgrades. In addition, we and/or our partners provide local service and support from established facilities in North America, Europe, the Middle East, Asia and Australia. We believe that our global presence benefits our customers by providing localized service and global customer support.
	•		Adaptability for Complex New Business Models. Our software is designed to handle complex logistics situations. This adaptability is increasingly critical for third-party logistics providers and exchanges where the ability to handle products owned by multiple companies is fundamental to their success.

Strategy

     Our goal is to be the leading global provider of supply chain execution software. To achieve this goal, we plan to:

	•		Take Advantage of Our Experience and Established Market Position. We intend to continue to leverage our market position, our strategic relationships and our brand recognition from the traditional warehouse management and distribution market to increase our share of the supply chain execution market. We intend to concentrate our efforts in the high volume retail and third party logistics market segments where we have a proven track record and deep domain knowledge.
	•		Use Our International Infrastructure to Gain Global Market Share. We believe there continues to be significant demand for our software solutions in international markets and have established a global infrastructure to target leading businesses worldwide. We provide sales, service and support from locations in North America, Europe, the Middle East, Asia and Australia. We intend to expand our global partner channels. Our software is installed in over 35 countries and currently operates in 23 languages, including English, Chinese, French, German, Japanese and Spanish. We intend to leverage our infrastructure to meet the needs of international organizations that have global supply chain requirements.
	•		Expand Our Strategic Alliances. We have established strategic alliances with industry-leading consultants and software systems implementers to supplement our direct sales force and professional services organization. These alliances help extend our market coverage and provide us with new business leads and access to trained implementation personnel, which we believe are crucial to the deployment of complex software solutions. We also have alliances with complementary software vendors that allow us to offer a comprehensive fulfillment and supply

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			chain execution solution. We intend to continue to seek to expand the number of companies with which we work to further penetrate our global market.
	•		Enhance Our Solutions. We intend to focus on offering solutions linking our customers’ operational results to financial improvements. We also have enhanced our products by releasing upgrades and introducing value-added modular components. We believe our customers will continue to demand greater breadth and depth from our solutions, and we intend to broaden our product offerings to integrate additional functionality and new technologies such as voice data capture, radio frequency identification and web services. Our ability to easily add software modules allows us to rapidly introduce new product features and functionality and to penetrate accounts that are in various stages of developing and implementing their business strategies. Our feature-rich products mean fewer customizations and simpler, less costly implementations.
	•		Expand Our Addressable Market Opportunity within Supply Chain Execution. We intend to extend our product suite to address more of the business processes related to supply chain execution outside the four walls and yard operations of a distribution center. We plan to leverage the EXceed AIM product, our adaptive inventory management solution, to provide better inventory management along the entire supply chain from the retail store to the distribution center to the factory warehouse. Our SNx product, based on agent technology, offers a unique capability in supply chain process execution that allows applications and systems from different vendors throughout the complete supply chain to interact and optimize performance.
	•		Provide Real-time Visibility of the entire Supply Chain. Visibility by management into what is happening on a real-time throughout their supply chain is key to future success for our customers. Our EXceed SNx, Analyze, Portals and Data Exchange products are the foundation for expanding our ability to give customers management information that provides complete control over their supply chains.

EXE Software

     Our EXceed software allows companies to deploy integrated fulfillment solutions across multiple distribution centers utilizing multiple computer systems and the Internet. The software includes functionality for:

	•		operating high-volume fulfillment centers;
	•		creating customer-specific fulfillment services;
	•		integrating fulfillment centers to web sites and planning engines;
	•		optimizing fulfillment center layouts;
	•		connecting multiple centers with each other and other e-commerce and enterprise systems;
	•		managing inventory including demand forecasting and replenishment planning; and
	•		controlling supply chain wide processes through software agents.

     Our EXceed software is designed to run on the most widely used hardware, operating system and database platforms, offering a unified architecture and creating a consistent display of the data to all concurrent users. Depending on our customers’ specific needs, EXceed software can be deployed on the

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UNIX environments, Windows NT/2000, IBM O/S 390 and AS 400 operating systems with Oracle, SQL Server, Informix or DB2 as the database engine.

			Our EXceed software products include:
	•		EXceed Fulfill — provides the base functionality for managing and controlling operations within the fulfillment center, including receiving, stocking, picking, replenishment, product configuration, packing, shipping, radio frequency support, quality assurance, inventory control, reporting and tax management. Our EXceed Fulfill modules include:

	•		Value - Automates customer-specific marketing activities and other more complex make-to-order operations.
	•		Crossdock - Merges inbound products shipped directly from suppliers with inventoried products in a high speed fashion.
	•		Billing - Generates activity-based charges for storage and labor to charge to customers or divisions.
	•		Optimize - Simulates and optimizes the attributes of a fulfillment center.
	•		Appointment - Schedules and coordinates shipping and receiving functions with transportation.
	•		Labor - Enables labor management and control by time and attendance measurement, assignment monitoring, reasonable expectancies and engineered labor standards.
	•		Yard - Automates and manages tasks associated with trailers within the property boundaries of a distribution center.
	•		Analyze - Provides industry and process specific key performance indicators for analyzing foundation data repository.
	•		Data Exchange - Highly configurable package that easily enables integration requirements across a full suite of exchange protocols and can be configured easily to exchange business data with enterprise partners.
	•		Warehouse Planner - Optimizes the fulfillment process for outbound shipments to maximize the utilization of existing resources.
	•		Voice – Enables voice-directed order picking to enable hands-free data and order collection.

•

EXceed Collaborate — allows users, suppliers and customers to manage workflows and share information across our applications, third party applications and networks of fulfillment centers. Our component products include:

	•		Sentinel - Automates quality processes, enables product traceability, tracks and manages shelf life and expiration dates, and facilitates product recall activities.
	•		Portals - Enables third-party software to link customers and suppliers to fulfillment centers over the Internet, allowing them to view, update and modify inventory levels and status.

	•		EXceed AIM (Adaptive Inventory Manager) — is a decision support tool for buyers and planners to forecast demand, generate purchase orders, size orders, allocate product and perform other functions necessary to support the inventory decision-making process.
	•		EXceed SNx (Supply Network Execution) – is a visibility and business process management solution designed to continuously monitor and coordinate execution in complex supply networks. The system continuously monitors supply chain processes, analyzes supply chain events and projects future events and requirements. The software automatically adapts execution plans and coordinates the flow of goods to resolve exceptions inherent in the real world execution within the supply network.

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EXE Product Packaging and Pricing

     We offer a variety of packaging options for our software. These options allow us to market our technology to companies in various stages of executing their fulfillment strategies. For example, customers seeking an enterprise fulfillment solution may license our EXceed Fulfill and Collaborate products, including all associated components. Companies pursuing less comprehensive initiatives may license single components as stand alone applications, with additional software components to be added later. Flexible packaging options allow our customers to make investments in our technology without necessarily committing to a larger enterprise platform.

     We offer a variety of pricing options that allow our customers to purchase our software for a defined number of users at a single site, a business unit or an entire enterprise. License fees for our products typically range from approximately fifty thousand dollars to several million dollars. We have recently introduced additional pricing options that we believe will allow us to expand our market presence with small to medium-sized companies.

Professional Services

     We offer a range of professional services that help facilitate the successful implementation and integration of our software with our customers’ existing systems. Our professional services include implementation project management, interfacing to existing systems, on-site software training, operational engineering, industrial engineering, software modification and supply chain consulting. Our professional services are billed on a time and material basis or, when requested, on a fixed fee basis.

     Our internally developed Global Execution Methodology, or GEM, is a nine step uniform process for implementing our software. GEM is supported by a globally deployed software application that aids in planning, change management and quality control during the implementation process. The application allows our professional services staff, customers and alliance companies to access project information on a global basis. Our professional services group is ISO 9001 certified.

     Our professional services personnel have extensive experience in the deployment of fulfillment systems. We assist companies in the implementation of our software and we help them determine how to use our technology in a way that fits their individual fulfillment strategy. We can, if requested, adapt the software to specific customer business practices.

     We believe that the use of outside consulting and service providers is an important component of our strategy to expand our professional services business and support the growth in our software license revenue. We currently intend to expand our relationships with, and reliance on, strategic alliance companies and consultants. We also believe this will allow us to manage the growth of our own professional services group without affecting other parts of our business.

     We provide a comprehensive upgrade and support program through which our customers, should they choose to participate, can receive upgrades to our licensed products and access to our support center. These services are typically offered under annual upgrade and support contracts. Our support center is open year round, seven days per week and twenty-four hours per day. Our support center can remotely access the customers’ systems and provide on-line assistance, diagnostics and software upgrades.

     We also offer an intensive education and training program for our customers, employees and third party service providers, either at our offices or at the customer’s site, through our EXE University. Students who are certified by EXE University are qualified to implement our software. EXE University also offers an accreditation program for those wishing to train others. We currently offer training in North America, Europe, Asia and Australia.

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Sales and Marketing

     We have multi-disciplined sales teams that consist of sales, technical, and sales support professionals. Our senior management also takes an active role in our sales efforts. We market and sell our software through our direct sales force, which is located in North America, Europe, the Middle East, Asia and Australia, and through our strategic alliances. In North America, our sales organization is focused on targeted vertical markets and geographic regions, with resources assigned to retail, manufacturing and third-party logistics. In Europe and Asia, our sales organization is deployed by geographic region, but targets the same vertical markets as in North America.

     We have sales offices in the Dallas, London, Paris, Amsterdam, Munich, Dubai, Tokyo, Seoul, Hong Kong, Singapore, Kuala Lumpur, Melbourne and Shanghai metropolitan areas. We also supplement our sales organization with our Alliance Sales Program. We use this program to sell to companies around the world that we do not service directly and to supplement our sales initiatives in certain overseas markets.

     Our marketing organization uses a variety of programs to support our sales efforts, including:

	•		market and product research and analysis;
	•		product and strategy updates with industry analysts;
	•		public relations activities and speaking engagements;
	•		Internet-based and direct mail marketing programs;
	•		seminars and trade shows;
	•		brochures, data sheets and white papers; and
	•		web site marketing.

     Financial information regarding our operating segments and foreign and domestic operations is presented in Note 18 of the Notes to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.

Strategic Alliances and Relationships

     Another key element of our growth strategy is the formation of strategic relationships with industry leaders whose business offerings complement our own. We believe that these relationships will allow us to scale our business rapidly and effectively by enabling the expansion of our:

	•		global brand;
	•		qualified sales opportunities;
	•		capacity to effectively implement our software offerings for new and existing customers; and
	•		ability to deliver enhanced value to our customers.

     We have established relationships with large, international systems integrators and consulting services companies, including Cap Gemini Ernst & Young and IBM Global Services. Under these relationships, we provide referrals for services work or subcontract work to these companies in connection with the installation of our software. These companies may provide referrals of potential licensees to us. In general, the relationships are governed by short-term, non-exclusive, renewable written or oral contracts, with limited or no up-front financial commitments. Some of the contracts provide for compensation to the referring party, typically in the form of a commission or finder’s fee upon conclusion of a transaction.

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     During 2002, we expanded our relationship with IBM. We granted IBM warrants to purchase 142,857 shares of common stock of the Company. Under the agreement, IBM warrants vest based on predetermined quarterly software license revenue that we achieve over a three-year period from our relationship with IBM.

     We intend to expand these relationships and add new relationships to increase our capacity to sell and implement our products on a global basis. Our existing alliances have been aligned to coincide with our target vertical markets. We intend to continue to pursue relationships that enhance our strategy in industry-specific marketplaces.

     We also have relationships with vendors of complementary software including IBM, Microsoft and Oracle. In general, the relationships are governed by short-term, non-exclusive, renewable contracts, with limited or no up-front financial commitments. These relationships typically involve reseller or marketing arrangements, or both, under which the vendor compensates the reseller or marketer in the form of discounts or commissions. We intend to pursue additional relationships with vendors of complementary software to increase our ability to deliver enhanced value to our customers.

     We also have alliance relationships with hardware vendors such as Hewlett-Packard, IBM, Intermec, Sun Microsystems and Symbol Technologies. We act as a marketer or reseller, or both, of their server and radio frequency hardware. In general, the relationships are governed by short-term, non-exclusive, renewable written or oral contracts, with limited or no up-front financial commitments. We receive discounts or commissions as compensation for sales under some of these relationships. We intend to pursue additional technology relationships that we believe will increase our value to potential customers, expand our ability to offer integrated enterprise solutions and increase our market opportunities.

Customers

     We have targeted and will continue to target selected vertical industries characterized by large product selections, high transaction volumes and increased demands for personalized fulfillment, including traditional and direct-to-consumer retailers, manufacturers and outsourced direct-to-consumer and third-party logistics providers.

     Our top five customers, in the aggregate, accounted for 15.8%, 13.4% and 19.3% of total revenues excluding reimbursable expenses, in the years ended December 31, 2000, 2001 and 2002, respectively. No single customer accounted for 10% or more of our revenue during any of the three years ended December 31, 2002.

     Our license agreements with our customers are typically perpetual in duration. Our support and upgrade services contracts ordinarily are annual contracts, subject to renewal. Our professional services agreements are relatively short in duration, lasting anywhere from a few months to a year, depending on the project requirements.

Research and Development

     Our research and development team is responsible for product planning and design, development of functionality within the EXceed Fulfill, Collaborate, AIM and SNx products and general release and quality assurance functions. Our research and development group is ISO 9001 certified.

     In October 2002, we signed a contract with a company in India to provide offshore development services at a significantly lower cost than in the United States. The agreement is for three years and at the end of 2002 there were 30 contract engineers working full time on our development projects.

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     We also use third-party resources to augment our own development efforts for specific projects from time to time. We believe this provides us access to a skilled labor pool, more rapid development cycles and a cost-effective solution to our research and development needs. In addition, we complement our product suite with certain specialized products developed by third parties including Boomi, C³ Solutions, St. Onge and Intellicyber. We distribute these products under the EXE name and pay a royalty to the vendor as these products are sold.

     During the years ended December 31, 2000, 2001 and 2002 we invested approximately $9.6 million, $14.6 million and $12.1 million, respectively, in research and development.

Competition

     The market for fulfillment solutions is intensely competitive, fragmented and subject to rapid technological change. The principal competitive factors in this market include:

	•		adherence to emerging technology standards;
	•		comprehensiveness of applications;
	•		adaptability and flexibility;
	•		immediate, interactive capability with customer and partner systems;
	•		financial viability;
	•		global capability;
	•		references from existing customers;
	•		industry domain experience and expertise;
	•		ability to support specific industry requirements;
	•		ease of application use and deployment;
	•		speed of implementation;
	•		customer service and support; and
	•		initial price and total cost of ownership.

     We believe that we compete favorably with competitors in terms of our technology, service and support, global presence, targeted vertical focus, and comprehensiveness of our solutions.

     Our competitors include companies or groups that:

	•		focus on providing fulfillment applications, such as Catalyst International, Inc., Highjump, Logility, LIS, Manhattan Associates, Optum, Inc., Red Prairie and Provia;
	•		offer enterprise platforms for order management, fulfillment and inventory management, such as Yantra, Oracle, JDA, Retek, and SAP; and
	•		service internal customers, such as internal information technology groups.

     There are a substantial number of other companies focused on providing Internet-enabled software applications for fulfillment or related supply chain functions that may offer competitive products in the future.

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     We expect competition to increase as a result of software industry consolidation. For example, a number of enterprise software companies have acquired point solution providers to expand their product offerings. Our competitors may also package their products in ways that may discourage users from purchasing our products. Current and potential competitors may establish alliances among themselves or with third parties or adopt aggressive pricing policies to gain market share. In addition, new competitors could emerge and rapidly capture market share.

Intellectual Property

     Our intellectual property rights are significant and are critical to our success and our ability to compete. We rely on intellectual property laws, including copyright, trademark, trade secret and other laws, confidentiality procedures and contractual provisions to protect our proprietary rights in our products and technology. Under the terms of our agreements with our customers, we usually own all modifications to our software that are implemented for a customer. We believe, however, that these steps to protect our intellectual property afford only limited protection to us, particularly on an international basis. We do not currently have any patents issued or patent applications pending. We give some of our customers, alliance companies, resellers and development partners access to our software program instructions, or source code, and other intellectual property in certain limited circumstances when necessary to facilitate a project. In addition, our source code is held in escrow to be released to customers on specific events such as bankruptcy or inability to provide contractually obligated support. Access to our source code may create a risk of disclosure or other inappropriate use. Despite our contractual protections, this access could enable a third party to use our intellectual property, including our source code, to wrongfully develop and manufacture competing products. In addition, policing unauthorized use of our products is difficult.

     We cannot be certain that others will not independently develop substantially equivalent or better intellectual property, gain access to our trade secrets or intellectual property, or disclose our intellectual property or trade secrets. We also conduct a substantial amount of business abroad, and the laws of many foreign countries do not protect our intellectual property to the same degree as the laws of the United States.

     Also, we may desire or be required to renew or to obtain licenses from others to enable us to develop and market commercially viable products and to run our internal software systems, including for financial reporting and other purposes. We can give no assurances that any necessary licenses will be available on reasonable terms in the future, if at all.

     From time to time, third parties may assert claims or initiate litigation against us or our alliance companies alleging that our products infringe their proprietary rights. As the number of fulfillment and supply chain execution applications in the industry increases and products overlap, we may become increasingly subject to claims of infringement or misappropriation of the intellectual property rights of others. In addition, we may in the future initiate claims or litigation against third parties for infringement of our proprietary rights to determine the scope and validity of our proprietary rights. Litigation claims, with or without merit, could be time-consuming and costly, divert management’s attention, cause product shipment delays, and require us to develop non-infringing technology or enter into royalty or licensing agreements. Royalty or licensing agreements, if required, may not be available on acceptable terms, if at all.

     We have received notices from five customers requesting defense and indemnification for patent claims in lawsuits brought or threatened against them by a third party with respect to the use of bar code technology. We are currently investigating these claims. We have become aware that several manufacturers of bar code scanning equipment are challenging the underlying patents in a separate lawsuit, and we continue to monitor the progress of this litigation. Based on our investigation to date, we do not believe that we have an obligation to defend or that we ultimately will have liability for the indemnification requests of customers. However, if the various disputes are resolved unfavorably to us,

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then they could have a material adverse effect on our business, operations and financial condition. For example, we may be required to modify our software, obtain additional licenses and defend and indemnify our customers. Furthermore, our future customers may be required to obtain additional licenses in order to use our software.

Employees

     As of December 31, 2002, we had a total of 431 employees, of which 90 were in research and development, 74 were in sales and marketing, 70 were in finance and administration, and 197 were in professional services and support. None of our employees are represented by a labor union. We have not experienced any work stoppages and consider our relations with our employees to be good. In January and February 2003, we reduced our headcount by approximately 50 additional employees as a part of our cost reduction activities discussed elsewhere herein.

Foreign Operations

     In 2000, 2001 and 2002 the revenues from our foreign operations were $47.0 million, $45.4 million, and $38.4 million, respectively. At December 31, 2000, 2001, and 2002, the assets, net of intercompany receivables and payables, from our foreign operations were $23.5 million, $22.5 million and $17.9 million, respectively. Financial information regarding our operating segments and foreign and domestic operations is presented in Note 18 of the Notes to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.

ITEM 2. PROPERTIES

     Our corporate headquarters occupy approximately 195,000 square feet in Dallas, Texas. Our lease for this facility expires in January 2015. We currently occupy approximately less than 50% of this leased facility. A substantial portion of the remaining space has been abandoned and we are currently attempting to sublease this space. In the last half of 2002, we terminated our facility lease for 21,000 square feet in Philadelphia, Pennsylvania and agreed to pay a termination fee of approximately $400,000. This fee was included in special charges provided in the Statement of Operations for 2002. We also lease offices in London, Paris, Amsterdam, Munich, Dubai, Tokyo, Seoul, Hong Kong, Kuala Lumpur, Singapore, Melbourne and Shanghai. We believe these facilities will be adequate to meet our needs for the next 12 months.

ITEM 3. LEGAL PROCEEDINGS

     We are engaged in legal proceedings incidental to the normal course of business. Although the ultimate outcome of our pending legal proceedings cannot be determined, we believe that the final outcome of these matters will not seriously harm our business. Information concerning asserted and potential claims regarding our intellectual property is discussed above under “Item 1. Business - Intellectual Property.”

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

     A Special Meeting of the stockholders was held on December 30, 2002. At the Special Meeting the stockholders voted on the following matter:

To approve six alternative amendments to the Company’s Second Amended and Restated Certificate of Incorporation which will effect a reverse split of the Company’s outstanding common stock at rations of 1:5, 1:7, 1:9, 1:11, 1:13 and 1:15, and authorize the Board of

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Directors to choose among these ratios and to abandon some or all of such amendments in its discretion.

     The stockholder-voting tally was as follows (all share data below reflects the one for seven stock split of our common stock effective January 2, 2003):

     A total of 5,726,974 shares were present in person or by proxy at the Special Meeting, each with one vote, out of 6,651,395 shares of record outstanding on December 4, 2002. On December 30, 2002, our Board of Directors approved a one for seven stock split to be executed on January 2, 2003.

Executive Officers of the Registrant

     The following table sets forth information regarding our current executive officers:

     Joseph L. Cowan has served as our President and Chief Executive Officer since November 2002. Prior to that Mr. Cowan was President and Chief Executive Officer of Invensys Automation and Information systems from June 2001 to November 2002. From September 2000 to June 2001 he served as President and Chief Executive Officer for Wonderware, a wholly owned subsidiary of Invensys. He had been with Wonderware as Senior Vice President, Sales and Marketing from 1995 to 2000 prior to the acquisition by Invensys in 1998.

     Kenneth R. Vines has served as our Senior Vice President, Chief Financial Officer and Treasurer since May 2002 and as Secretary since February 2003. From October 1998 until joining EXE, Mr. Vines was the Senior Vice President and Chief Financial Officer of Triton Network Systems, Inc. (Triton) and additionally, was appointed Chief Executive Officer and a member of the Board of Directors beginning in August 2001. On August 17, 2001 the Board of Directors of Triton approved, effective August 20, 2001, a complete plan of liquidation and dissolution of Triton, which plan was ratified and approved by the stockholders of Triton on October 29, 2001. Prior to joining Triton, Mr. Vines was the Vice President of Finance of DSC Communications Corporation.

     Mark R. Weaser has served as our President, Asian Operations since January 2003 and from July 2001 to December 2002 he served as Senior Vice President and Managing Director, Asia Pacific/Japan. From January 2000 to July 2001, Mr. Weaser served as our Senior Vice President, International Operations. From September 1997 to January 2000, Mr. Weaser served as our Managing Director of Asia Pacific and served in the same position for Neptune since August 1996. From July 1995 to July 1996, he was the Asia Vice President for Telxon Corporation.

     In November 2002, our Chief Executive officer resigned and was replaced by Joseph L. Cowan. The former Chief Executive Officer, Raymond R. Hood, retained his position as Chairman of the Board of Directors.

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PART II

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

     Our common stock began trading on the NASDAQ National Market on August 4, 2000 under the symbol “EXEE.” Prior to that time, there had been no market for our common stock. The following table sets forth the high and low sales price range information per share of our common stock on the NASDAQ National Market for the indicated periods. All share and per share data in this report reflect the one for seven stock split of our common stock effective January 2, 2003.

     The number of record holders of our common stock as of March 14, 2003 was 168. We believe that a larger number of beneficial owners hold shares of our common stock in depository or nominee form.

     We have never declared or paid cash dividends on our capital stock. We currently intend to retain any earnings for use in our business and do not anticipate paying any cash dividends in the foreseeable future. Our Board of Directors will determine future dividends, if any.

Use of Proceeds

     The Company completed its initial public offering of 1,142,857 shares of its common stock pursuant to a Registration Statement on Form S-1 (Registration No. 333-35106, effective August 3, 2000) on August 9, 2000. Total proceeds from the offering, including the exercise of the over-allotment option with respect to an additional 120,000 (as adjusted to reflect the one for seven stock split effective January 2, 2003) shares of common stock, were approximately $63.9 million, net of underwriting discounts and commissions of approximately $5.0 million and other fees and expenses of approximately $1.8 million.

     From the date of receipt through December 31, 2002, we have used the proceeds as follows:

     The remainder of the proceeds has been invested in investment grade corporate and government securities and money market funds. We intend to use the remaining proceeds for research and development activities; expenditures on sales and marketing, consulting services and general and administrative personnel; systems costs; and working capital and general corporate purposes, including possible acquisitions of, or investments in, businesses and technologies that are complementary to our

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business. None of the net proceeds of the offering were paid by us, directly or indirectly, to any director, officer or general partner of ours or any of their associates, or to any persons owning ten percent or more of any class of our equity securities, or any affiliate of ours.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

     The following selected consolidated financial data should be read in conjunction with our consolidated financial statements and the related notes and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this document. The statement of operations data for the years ended December 31, 2000, 2001 and 2002 and the balance sheet data as of December 31, 2001 and 2002 are derived from our audited consolidated financial statements included elsewhere in this document. The statement of operations data for the years ended December 31, 1998 and 1999 and the balance sheet data as of December 31, 1998, 1999 and 2000 are derived from our audited financial statements for the years then ended, which are not included in this document. All share and per share data has been adjusted to reflect a one for seven reverse stock split which was effective January 2, 2003 (see Note 15 of the Notes to the Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data).