<SUBMISSION>
<ACCESSION-NUMBER>0001181431-05-042743
<TYPE>8-K
<PUBLIC-DOCUMENT-COUNT>2
<PERIOD>20050729
<ITEMS>2.02
<ITEMS>9.01
<FILING-DATE>20050729
<DATE-OF-FILING-DATE-CHANGE>20050729
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>PEGASYSTEMS INC
<CIK>0001013857
<ASSIGNED-SIC>7374
<IRS-NUMBER>042787865
<STATE-OF-INCORPORATION>MA
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>8-K
<ACT>34
<FILE-NUMBER>001-11859
<FILM-NUMBER>05982684
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>101 MAIN ST
<CITY>CAMBRIDGE
<STATE>MA
<ZIP>02142-1590
<PHONE>6173749600
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>101 MAIN ST
<CITY>CAMBRIDGE
<STATE>MA
<ZIP>02142-1590
</MAIL-ADDRESS>
</FILER>
<DOCUMENT>
<TYPE>8-K
<SEQUENCE>1
<FILENAME>rrd86750.htm
<DESCRIPTION>PRESS RELEASE, DATED JULY 29, 2005, ISSUED BY PEGASYSTEMS INC.
<TEXT>


<html><head>
<title>Prepared By R.R. Donnelley Financial -- Form 8-K</title>
</head>
<body Bgcolor="white">

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<b>UNITED STATES </b></font></div>

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<b>SECURITIES AND EXCHANGE COMMISSION </b></font></div>

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<b>Washington D.C., 20549 </b></font></div>

<div><font Size="1">&nbsp;</font></div>

<div Align="center"><font Face="times New Roman" Size="5" Color="#000000">
<b>Form 8-K </b></font></div> <div><font Size="1">&nbsp;</font></div>

<div Align="center"><font Face="times New Roman" Size="4" Color="#000000">
<b>Current Report </b></font></div>

<div Align="center"><font Face="times New Roman" Size="4" Color="#000000">
<b>Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 </b></font></div>

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<div Align="center"><font Face="times New Roman" Size="3" Color="#000000">
<b>Date Of Report (Date Of Earliest Event Reported):&nbsp;&nbsp;07/29/2005 </b></font></div>




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<div Align="center"><font Face="times New Roman" Size="5" Color="#000000">
<b>Pegasystems Inc. </b></font></div>

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<b>(Exact Name of Registrant as Specified in its Charter)</b></font></div>

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<b>Commission File Number:&nbsp;&nbsp;1-11859 </b></font></div>

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<div Align="center"><font Face="times New Roman" Size="3" Color="#000000"><b>Massachusetts </b></font>
</div>
</td>
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</td>
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<div Align="center"><font Face="times New Roman" Size="3" Color="#000000"><b>04-2787865 </b></font>
</div>
</td>
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<tr>
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<div Style="margin-left:2%; Text-indent:-2%" Align="center"><font Face="times New Roman" Size="2" Color="#000000">
<b>(State or Other Jurisdiction of</b></font>
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</td>
<td Valign="bottom" Align="center" Width="59%">
<div Align="center"><font Face="times New Roman" Size="2" Color="#000000"><b>(I.R.S. Employer</b></font>
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<div Style="margin-left:2%; Text-indent:-2%" Align="center"><font Face="times New Roman" Size="2" Color="#000000">
<b>Incorporation or Organization)</b></font>
</div>
</td>
<td Valign="bottom" Width="3%"><font Face="times New Roman" Size="1">&nbsp;&nbsp;</font>
</td>
<td Valign="bottom" Align="center" Width="59%">
<div Align="center"><font Face="times New Roman" Size="2" Color="#000000">
<b>Identification No.)</b></font>
</div>
</td>
</tr>

</table></div>

<div><font Size="1">&nbsp;</font></div>

<div Align="center"><font Face="times New Roman" Size="3" Color="#000000">
<b>101 Main Street, Cambridge, Massachusetts 02142 </b></font></div>


<div Align="center"><font Face="times New Roman" Size="2" Color="#000000">
<b>(Address of Principal Executive Offices, Including Zip Code)</b></font>
</div>

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<div Align="center"><font Face="times New Roman" Size="3" Color="#000000">
<b>617-374-9600  </b></font>
</div>

<div Align="center"><font Face="times New Roman" Size="2" Color="#000000">
<b>(Registrant&#146;s Telephone Number, Including Area Code) </b></font>
</div>



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<b>Not Applicable </div><div Align="center"> </b></font>
</div>

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<b>(Former name or former address, if changed since last report) </b></font>
</div>


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</div>




<div Align="left"><font Face="times New Roman" Size="2" Color="#000000">
<b>Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:<BR><BR>
</b></font>


</div>



<div Align="left"><font Face="times New Roman" Size="2" Color="#000000">
<b>[&nbsp;&nbsp;]&nbsp;&nbsp;
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)<BR><BR>

[&nbsp;&nbsp;]&nbsp;&nbsp;
Soliciting material pursuant to Rule 14a-12 under the Exchange Act(17CFR240.14a-12)<BR><BR>


[&nbsp;&nbsp;]&nbsp;&nbsp;
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act(17CFR240.14d-2(b))<BR><BR>


[&nbsp;&nbsp;]&nbsp;&nbsp;
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act(17CFR240.13e-4(c))
</b>

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</div>

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Items to be Included in this Report</b>
</font>





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<b>Item 2.02.&nbsp;&nbsp;&nbsp;&nbsp;Results of Operations and Financial Condition</b></font>
</div>

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</div>

<div  align="left" Style="text-indent:4%"><font Face="times New Roman" Size="2" Color="#000000">
On July 29, 2005, Pegasystems Inc. (the "Registrant") issued a press release announcing its financial results for the second quarter and the first half of 2005. A copy of such press release of the Registrant is attached as Exhibit 99.1 to this Current Report on Form 8-K and is incorporated herein by reference in its entirety.</div><div align="left" style="text-indent:4%"> <p>The information, including the exhibit attached hereto, in this Current Report on Form 8-K shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as otherwise expressly stated in such filing.</font>
</div>

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<b>Item 9.01.&nbsp;&nbsp;&nbsp;&nbsp;Financial Statements and Exhibits</b></font>
</div>

<div><font Size="1">&nbsp;</font>
</div>

<div  align="left" Style="text-indent:4%"><font Face="times New Roman" Size="2" Color="#000000">
c)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Exhibits<p> </div><div align="left" style="text-indent:4%">99.1&nbsp;&nbsp;&nbsp; Press Release, dated July 29, 2005, issued by Pegasystems Inc.</font>
</div>

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<p Align="center"><font Size="2">&nbsp;</font>
<div Align="center"><font Face="times New Roman" Size="2" Color="#000000">
<b>Signature(s) </b></font>
</div>

<div><font Size="1">&nbsp;</font></div>

<div align="left" Style="text-indent:4%"><font Face="times New Roman" Size="2" Color="#000000">
Pursuant to the Requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the Undersigned hereunto
duly authorized. </font>
</div>

<div><font Size="1">&nbsp;</font></div>

<div><table Cellspacing="0" Cellpadding="0" Width="100%" Border="0">




<tr>
	<td Valign="top" Colspan="3" Width="53%"> <div Style="margin-left:2%; Text-indent:-2%"><font Face="times New Roman" Size="2" Color="#000000"></font>
	</div>
	</td>
	<td Valign="bottom" Width="3%"><font Face="times New Roman" Size="1">&nbsp;</font>
	</td>
	<td> <font Size="1">&nbsp;</font>
	</td>
	<td Valign="bottom" Width="3%"><font Face="times New Roman" Size="1">&nbsp;</font>
	</td>	<td Valign="top" Align="center" Width="3%">
	<div Align="center"><font Face="times New Roman" Size="2" Color="#000000">
	</font>
	</div>
	</td>
	<td Valign="bottom" Width="3%"><font Face="times New Roman" Size="1">&nbsp;</font></td>
	<td Valign="top" Width="53%">
	<div Style="margin-left:2%; Text-indent:-2%"><font Face="times New Roman" Size="2" Color="#000000">
	Pegasystems Inc.</font>
	</div>	</td>
</tr>
<tr><td>&nbsp;</td></tr>
<tr><td>&nbsp;</td></tr>
<tr>
	<td Valign="top" Colspan="3" Width="53%"> <div Style="margin-left:2%; Text-indent:-2%"><font Face="times New Roman" Size="2" Color="#000000">
	Date: July 29, 2005.</font>
	</div>
	</td>
	<td Valign="bottom" Width="3%"><font Face="times New Roman" Size="1">&nbsp;</font>
	</td>
	<td> <font Size="1">&nbsp;</font>
	</td>
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	</td>	<td Valign="top" Align="center" Width="3%">
	<div Align="center"><font Face="times New Roman" Size="2" Color="#000000">
	By:</font>
	</div>
	</td>
	<td Valign="bottom" Width="3%"><font Face="times New Roman" Size="1">&nbsp;</font></td>
	<td Valign="top" Width="53%">
	<div Style="margin-left:2%; Text-indent:-2%"><font Face="times New Roman" Size="2" Color="#000000">
	/s/&nbsp;&nbsp;&nbsp;&nbsp;Shawn S. Hoyt</font>
	</div>
	<hr Noshade Align="left" Color="#000000">
	</td>
</tr>

<tr>
	<td> <font Size="1">&nbsp;</font></td>
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	<td Valign="bottom" Width="3%"><font Face="times New Roman" Size="1">&nbsp;</font></td>
	<td Valign="bottom" Width="53%">
	<div Style="margin-left:2%; Text-indent:-2%"><font Face="times New Roman" Size="2" Color="#000000">
	Shawn S. Hoyt</font>
	</div>
	</td>
</tr>

<tr>
	<td> <font Size="1">&nbsp;</font></td>
	<td Valign="bottom" Width="3%"><font Face="times New Roman" Size="1">&nbsp;</font></td>
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	<td Valign="bottom" Width="3%"><font Face="times New Roman" Size="1">&nbsp;</font></td>
	<td Valign="bottom" Width="53%">
	<div><font Face="times New Roman" Size="2" Color="#000000">Vice President and General Counsel </font>
	</div>
</td>
</tr>
<tr><td>&nbsp;</td></tr>
<tr><td>&nbsp;</td></tr>



</table></div>





<p Style='page-break-before:always'>
<hr  Size="3" Color="#cceeff" Width="100%" Align="center">

<p Align="center"><font Size="2">&nbsp;</font>
<div Align="center"><font Face="times New Roman" Size="3" Color="#000000">
<b>Exhibit Index </b></font>
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<table Cellspacing="0" Cellpadding="0" Width="100%" Border="0">




<tr>
	<td Valign="top" Align="left">
	<div Align="left"><font Face="times New Roman" Size="2" Color="#000000">
	<b>Exhibit&nbsp;No.</b></font>
	</div>
		<hr Size="2" Noshade Width="48" Color="#000000">
	</td>
	<td Valign="top" Width="3%" Align="left"><font Face="times New Roman" Size="2">&nbsp;&nbsp;</font></td>
	<td Valign="top" Width="100%" Align="left">
	<div><font Face="times New Roman" Size="2" Color="#000000">
	<b>Description</b></font>
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	</td>
</tr>




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	<td Valign="top" Align="left">
	<div Align="top"><font Face="times New Roman" Size="1" Color="#000000">
	EX-99.1</font>
	</div>

	</td>
	<td Valign="top" Width="3%" Align="left"><font Face="times New Roman" Size="2">&nbsp;&nbsp;</font></td>
	<td Valign="top" Width="100%" Align="left">
	<div><font Face="times New Roman" Size="2" Color="#000000">
	Press Release, issued July 29, 2005 by Pegasystems Inc.</font>
	</div>
		</td>
</tr>





</div></table>



</body></html>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>2
<FILENAME>rrd86750_7097.htm
<DESCRIPTION>PRESS RELEASE, ISSUED JULY 29, 2005 BY PEGASYSTEMS INC.
<TEXT>



<HTML>


<HEAD>








<TITLE> </TITLE>


</HEAD>


<BODY LINK="#0000ff">





<B><I><FONT SIZE=3><P>FOR IMMEDIATE RELEASE</P>


</B></I></FONT><FONT SIZE=2>


</FONT><B><I><FONT SIZE=3><P>For information, contact:</B> </P>


</I><P>Chris Sullivan </P>


<P>Chief Financial Officer</P>


<P>Pegasystems Inc.</P>


<P>(617) 866-6020&#9;&#9;&#9;&#9;&#9;&#9;&#9;</P>


<P>chris.sullivan@pega.com </P>





<P>&nbsp;</P>


<P>&nbsp;</P>


<P>Beth Lewis</P>


<P>Director, Public and Investor Relations</P>


<P>Pegasystems Inc</P>


<P>617) 866-6077</P>


<P>beth.lewis@pega.com</P>





</FONT><FONT SIZE=2><P>&#9;&#9;</P>


</FONT><FONT SIZE=3>


</FONT><B><FONT SIZE=4><P ALIGN="CENTER">Pegasystems Reports Second Quarter Results</P>


</FONT><I><P ALIGN="CENTER"></P>


<P ALIGN="CENTER">Nine New Clients Include Leading Biotech, Healthcare and Insurance Companies</P>


</I><P ALIGN="CENTER"></P>


<P>CAMBRIDGE, Mass., July 28, 2005</B> <B>--</B> Pegasystems today announced its 2005 second quarter results, reporting revenue of $23.8 million, pre-tax profits of $0.5 million and earnings per share of $0.01.</P>


<B><U><FONT SIZE=2><P>Financial Performance</P></B></U></FONT>


<P ALIGN="CENTER"><CENTER><TABLE CELLSPACING=0 BORDER=0 CELLPADDING=7 WIDTH=478>


<TR><TD WIDTH="55%" VALIGN="TOP" COLSPAN=2>&nbsp;</TD>


<TD WIDTH="45%" VALIGN="BOTTOM" COLSPAN=3>


<B><U><FONT SIZE=2><P ALIGN="CENTER">Quarter</B></U></FONT></TD>


</TR>


<TR><TD WIDTH="55%" VALIGN="TOP">


<FONT SIZE=1><P ALIGN="JUSTIFY">(In millions, except per share data and percentages)</FONT></TD>


<TD WIDTH="14%" VALIGN="BOTTOM" COLSPAN=2>


<B><U><FONT SIZE=2><P ALIGN="JUSTIFY">Q2 2005</B></U></FONT></TD>


<TD WIDTH="16%" VALIGN="BOTTOM">


<B><U><FONT SIZE=2><P ALIGN="JUSTIFY">Q1 2005</B></U></FONT></TD>


<TD WIDTH="15%" VALIGN="BOTTOM">


<B><U><FONT SIZE=2><P ALIGN="JUSTIFY">Q2 2004</B></U></FONT></TD>


</TR>


<TR><TD WIDTH="55%" VALIGN="TOP">


<FONT SIZE=2><P ALIGN="JUSTIFY">Total Revenue&#9;</FONT></TD>


<TD WIDTH="14%" VALIGN="BOTTOM" COLSPAN=2>


<FONT SIZE=2><P ALIGN="RIGHT">$ 23.8</FONT></TD>


<TD WIDTH="16%" VALIGN="BOTTOM">


<FONT SIZE=2><P ALIGN="RIGHT">$ 24.2</FONT></TD>


<TD WIDTH="15%" VALIGN="BOTTOM">


<FONT SIZE=2><P ALIGN="RIGHT">$24.0</FONT></TD>


</TR>


<TR><TD WIDTH="55%" VALIGN="TOP">


<FONT SIZE=2><P ALIGN="JUSTIFY">License Revenue&#9;</FONT></TD>


<TD WIDTH="14%" VALIGN="BOTTOM" COLSPAN=2>


<FONT SIZE=2><P ALIGN="RIGHT">$  8.0</FONT></TD>


<TD WIDTH="16%" VALIGN="BOTTOM">


<FONT SIZE=2><P ALIGN="RIGHT">$ 10.9</FONT></TD>


<TD WIDTH="15%" VALIGN="BOTTOM">


<FONT SIZE=2><P ALIGN="RIGHT">$11.7</FONT></TD>


</TR>


<TR><TD WIDTH="55%" VALIGN="TOP">


<FONT SIZE=2><P ALIGN="CENTER">% of Total Revenue</FONT></TD>


<TD WIDTH="14%" VALIGN="BOTTOM" COLSPAN=2>


<FONT SIZE=2><P ALIGN="RIGHT">34%</FONT></TD>


<TD WIDTH="16%" VALIGN="BOTTOM">


<FONT SIZE=2><P ALIGN="RIGHT">45%</FONT></TD>


<TD WIDTH="15%" VALIGN="BOTTOM">


<FONT SIZE=2><P ALIGN="RIGHT">49%</FONT></TD>


</TR>


<TR><TD WIDTH="55%" VALIGN="TOP">


<FONT SIZE=2><P ALIGN="JUSTIFY">Services Revenue&#9;</FONT></TD>


<TD WIDTH="14%" VALIGN="BOTTOM" COLSPAN=2>


<FONT SIZE=2><P ALIGN="RIGHT">$ 15.8</FONT></TD>


<TD WIDTH="16%" VALIGN="BOTTOM">


<FONT SIZE=2><P ALIGN="RIGHT">$   13.3</FONT></TD>


<TD WIDTH="15%" VALIGN="BOTTOM">


<FONT SIZE=2><P ALIGN="RIGHT">$ 12.4</FONT></TD>


</TR>


<TR><TD WIDTH="55%" VALIGN="TOP">


<FONT SIZE=2><P ALIGN="CENTER">% of Total Revenue</FONT></TD>


<TD WIDTH="14%" VALIGN="BOTTOM" COLSPAN=2>


<FONT SIZE=2><P ALIGN="RIGHT">66%</FONT></TD>


<TD WIDTH="16%" VALIGN="BOTTOM">


<FONT SIZE=2><P ALIGN="RIGHT">55%</FONT></TD>


<TD WIDTH="15%" VALIGN="BOTTOM">


<FONT SIZE=2><P ALIGN="RIGHT">51%</FONT></TD>


</TR>


<TR><TD WIDTH="55%" VALIGN="TOP">


<FONT SIZE=2><P ALIGN="JUSTIFY">Pre-tax Income&#9;</FONT></TD>


<TD WIDTH="14%" VALIGN="BOTTOM" COLSPAN=2>


<FONT SIZE=2><P ALIGN="RIGHT">$   0.5</FONT></TD>


<TD WIDTH="16%" VALIGN="BOTTOM">


<FONT SIZE=2><P ALIGN="RIGHT">$   0.2</FONT></TD>


<TD WIDTH="15%" VALIGN="BOTTOM">


<FONT SIZE=2><P ALIGN="RIGHT">$ 3.3</FONT></TD>


</TR>


<TR><TD WIDTH="55%" VALIGN="TOP">


<FONT SIZE=2><P ALIGN="JUSTIFY">Provision for income taxes&#9;</FONT></TD>


<TD WIDTH="14%" VALIGN="BOTTOM" COLSPAN=2>


<FONT SIZE=2><P ALIGN="RIGHT">$   0.1</FONT></TD>


<TD WIDTH="16%" VALIGN="BOTTOM">


<FONT SIZE=2><P ALIGN="RIGHT">$   0.1</FONT></TD>


<TD WIDTH="15%" VALIGN="BOTTOM">


<FONT SIZE=2><P ALIGN="RIGHT">$ 1.2</FONT></TD>


</TR>


<TR><TD WIDTH="55%" VALIGN="TOP">


<FONT SIZE=2><P ALIGN="JUSTIFY">Net Income&#9;</FONT></TD>


<TD WIDTH="14%" VALIGN="BOTTOM" COLSPAN=2>


<FONT SIZE=2><P ALIGN="RIGHT">$   0.4</FONT></TD>


<TD WIDTH="16%" VALIGN="BOTTOM">


<FONT SIZE=2><P ALIGN="RIGHT">$   0.1</FONT></TD>


<TD WIDTH="15%" VALIGN="BOTTOM">


<FONT SIZE=2><P ALIGN="RIGHT">$ 2.1 </FONT></TD>


</TR>


<TR><TD WIDTH="55%" VALIGN="TOP">


<FONT SIZE=2><P ALIGN="JUSTIFY">Earnings Per Share, Basic and Diluted&#9;</FONT></TD>


<TD WIDTH="14%" VALIGN="BOTTOM" COLSPAN=2>


<FONT SIZE=2><P ALIGN="RIGHT">$ 0.01</FONT></TD>


<TD WIDTH="16%" VALIGN="BOTTOM">


<FONT SIZE=2><P ALIGN="RIGHT">$ 0.00</FONT></TD>


<TD WIDTH="15%" VALIGN="BOTTOM">


<FONT SIZE=2><P ALIGN="RIGHT">$0.06</FONT></TD>


</TR>


<TR><TD WIDTH="55%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="14%" VALIGN="BOTTOM" COLSPAN=2>&nbsp;</TD>


<TD WIDTH="16%" VALIGN="BOTTOM">&nbsp;</TD>


<TD WIDTH="15%" VALIGN="BOTTOM">&nbsp;</TD>


</TR>


</TABLE>


</CENTER></P>





<FONT FACE="Helvetica" SIZE=3>


</FONT><P>&nbsp;</P>


<P ALIGN="JUSTIFY">Alan Trefler, Chairman and CEO commented, "We signed nine new customers during the second quarter, a record number for Pegasystems, in industries including biotech, healthcare and insurance.  Our evolving BPM sales strategy is to target leading organizations with initial licenses that have shortened implementation cycles, providing customers a quicker route to value. The successful implementation of these initial licenses promotes follow-on sales opportunities for PegaRULES Process Commander as the customers experience the agility and power SmartBPM can provide.  This "quick value" selling strategy results in smaller initial license value and, as such, license revenue for the first half of 2005 is lower than a year ago.  We are encouraged, however, with the improvement in the number of new customer wins based on this quick value strategy.  Importantly, customers representing the world's leaders in their industries are deciding to use SmartBPM to implement a wide range of business processes.</P>


<P ALIGN="JUSTIFY"></P>


<P ALIGN="JUSTIFY">"A global biotech customer will be using Pegasystems SmartBPM to manage clinical trials documentation; a large auto insurer for a policy administration legacy transformation project; one of the larger P&amp;C insurance carriers for personal lines underwriting; a leading healthcare payer for call center support of Medicare Part D, the new Federal prescription drug subsidy program; a high-end charter jet provider for scheduling and provisioning flights; a global telecommunications company for project management tracking; an Australian insurance company for internal operations; and an on-line Pharmacy Benefit Manager also in support of Medicare Part D.</P>


<P ALIGN="JUSTIFY"></P>


<P ALIGN="JUSTIFY">"We are also encouraged by the fact that we extended relationships with five of our current customers.  The five include a leading Internet service provider which expanded a significant customer process management contract; a leading provider of trust and custody services which chose PegaRULES Process Commander to drive operational efficiencies; and a leading insurance company which was a new customer last year and is now expanding its initial usage into new areas. </P>


<P ALIGN="JUSTIFY"></P>


<P ALIGN="JUSTIFY">"Customers increasingly understand the benefits of a unified rules and process engine which provide unparalleled results.  In head-on competition, Pegasystems has demonstrated the advantages of unified Smart BPM."  </P>


<P ALIGN="JUSTIFY"></P>


<P ALIGN="JUSTIFY">Chris Sullivan, CFO, commented, "Our new license signings improved somewhat from the first quarter, both in the number of new customers and in the total value of the new license signings. However, the aggregate value of new license signings in the first half of 2005 was significantly less than in the first half of 2004. Accordingly,  we now expect full year revenue to be between $94 and $105 million.  The broad range of our revenue estimate is attributable to a small number of large value license opportunities in the second half of the year.  Given that services revenue in the second half of 2005 is likely to be higher than the first half of 2005, we expect the proportion of services revenue to be well above 50%.  We are committed to becoming the leader in BPM software and, as previously discussed, are increasing our investment in sales and marketing in 2005.  We believe this investment will better position Pegasystems to achieve accelerated growth in future years, but we also anticipate it will result in lower profit before tax in 2005 compared to 2004.  As a result, we now expect full-year 2005 earnings per diluted share to be between $0.01 and $0.15.   Cash flow from operations is expected to be in the range of $16 to $22 million.&quot;  </P>


<FONT FACE="Tms Rmn"><P ALIGN="JUSTIFY"></P>


<P ALIGN="JUSTIFY">The Company will be hosting a conference call and live Webcast associated with this announcement at 9:00 a.m. ET on Friday, July 29, 2005.  Dial-in information is as follows:  800-250-4434 (domestic) or 706-634-0667 (international), passcode 7989260.  </P>


<P ALIGN="JUSTIFY"></P>


<P ALIGN="JUSTIFY">If interested in listening to the Webcast, log onto www.pega.com at least 5 minutes prior to the event's broadcast, and click on the Webcast icon in the Investor Relations section.  A replay of the call will also be available on www.pega.com in the Investor Relations section, Audio Archives link.</P>


<P ALIGN="JUSTIFY"></P>


</FONT><B><FONT SIZE=3><P ALIGN="JUSTIFY">About</B></FONT><FONT SIZE=2> </FONT><B><FONT SIZE=3>Pegasystems  </P>


</B><P ALIGN="JUSTIFY">Pegasystems Inc. (Nasdaq: PEGA) provides software to automate complex, changing business processes.&nbsp;&nbsp;Our Business Process Management (BPM) solutions provide organizations with the agility critical to managing&nbsp;growth, productivity and compliance.&nbsp;Our solution&nbsp;unifies&nbsp;pure-play BPM software with a sophisticated Business Rules Engine&nbsp;to drive business effectiveness.&nbsp; This patented technology enables organizations to "build for&nbsp;change" and&nbsp;overcome the execution gap that&nbsp;occurs as&nbsp;evolving&nbsp;business objectives&nbsp;outpace the ability of business systems to respond.&nbsp; </P>


<P ALIGN="JUSTIFY">&nbsp;</P>


<P ALIGN="JUSTIFY">Pegasystems'&nbsp;BPM suite offers&nbsp;standards-based technology built in a rapid-solution development environment.&nbsp;&nbsp;Our BPM solution combines the capability&nbsp;to&nbsp;solve a full range of business process challenges&nbsp;with the opportunity&nbsp;to leverage existing&nbsp;technology investments.&nbsp;&nbsp;By enabling business process responsiveness, Pegasystems makes it easier for people and systems to work together. &nbsp;</P>


<P ALIGN="JUSTIFY">&nbsp;</P>


<P ALIGN="JUSTIFY">Pegasystems'&nbsp;award-winning&nbsp;BPM suite is complemented with best-practice solution frameworks&nbsp;based on more than 20 years of experience helping Fortune&nbsp;500&nbsp;and other leading corporations in the&nbsp;financial services, insurance, healthcare,&nbsp;manufacturing&nbsp;and government markets.&nbsp;</P>


<P ALIGN="JUSTIFY">&nbsp;</P>


<P ALIGN="JUSTIFY">Headquartered in Cambridge, MA, Pegasystems&nbsp;has regional offices in&nbsp;North America, Europe and the Pacific Rim.&nbsp;For more information, visit www.pega.com.&nbsp;</P>


</FONT>


<P>&nbsp;</P>


<B><FONT SIZE=3><P ALIGN="JUSTIFY">Forward-Looking Statements</B> <BR>


Certain statements contained in this press release may be construed as &quot;forward-looking statements&quot; as defined in the Private Securities Litigation Reform Act of 1995 including without limitation our financial guidance with respect to 2005 revenue, services revenue as a percentage of total revenue, profit before tax, earnings per diluted share and cash from operations. The words &quot;believe,&quot; &quot;expect,&quot;  &quot;anticipate,&quot; &quot;likely,&quot; &quot;estimate&quot; and similar expressions, among others, identify forward-looking statements, which speak only as of the date the statement was made.  The Company does not undertake and specifically disclaims any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.   These statements are based on current expectations and assumptions and involve various risks and uncertainties, which could cause the Company's actual results to differ from those expressed in such forward-looking statements. These risks and uncertainties include volatility of our quarterly operating results, changes in estimates, judgments, positions and assumptions relative to our income tax provisions, difficulty in predicting the completion of product implementations and consequently the timing of our license revenue recognition, our ability to develop new products and evolve existing ones, the impact on our business of the ongoing consolidation in the financial services market, historically our core market, our ability to attract and retain key employees, reliance on certain key third-party relationships, and other risks and uncertainties. Further information regarding these and other factors which could cause the Company's actual results to differ materially from any forward-looking statements contained in this press release is contained in the Company's most recent report on form 10-Q or 10-K and other recent filings on file with the Securities and Exchange Commission.  The forward-looking statements contained in this press release represent the Company's views as of July 28, 2005.  Investors are cautioned not to place undue reliance on such forward-looking statements and there are no assurances that the matters contained in such statements will be achieved.  Although subsequent events may cause the Company's view to change, the Company does not undertake and specifically disclaims any obligation to publicly update or revise these forward-looking statements whether as the result of new information, future events or otherwise.  The statements should therefore not be relied upon as representing the Company's view as of any date subsequent to July 28, 2005.   </P>


</FONT>


<B><FONT SIZE=2><P>PEGASYSTEMS INC.</B></FONT><FONT SIZE=1>&nbsp;</P>


</FONT><B><FONT SIZE=2><P>Condensed Consolidated Balance Sheets</P>


<P>(in thousands, except share-related data)</P>


</B></FONT><FONT SIZE=1 COLOR="#808000"><P>&nbsp;</P></FONT>


<TABLE CELLSPACING=0 BORDER=0 WIDTH=666>


<TR><TD WIDTH="77%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="11%" VALIGN="TOP">


<B><FONT SIZE=2><P ALIGN="CENTER">June 30,</B></FONT></TD>


<TD WIDTH="13%" VALIGN="TOP">


<B><FONT SIZE=2><P ALIGN="CENTER">December 31,</B></FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="11%" VALIGN="TOP">


<B><U><FONT SIZE=2><P ALIGN="CENTER">2005</B></U></FONT></TD>


<TD WIDTH="13%" VALIGN="TOP">


<B><U><FONT SIZE=2><P ALIGN="CENTER">2004</B></U></FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<B><U><FONT SIZE=2><P ALIGN="CENTER">                                                ASSETS                                               &nbsp;</B></U></FONT></TD>


<TD WIDTH="11%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="13%" VALIGN="TOP">&nbsp;</TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>Current assets:</FONT></TD>


<TD WIDTH="11%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="13%" VALIGN="TOP">&nbsp;</TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP"><DIR>





<FONT SIZE=2><P>Cash and cash equivalents&#9;</DIR>


</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">


<B><FONT SIZE=2><P>&#9;$ 29,115</B></FONT></TD>


<TD WIDTH="13%" VALIGN="BOTTOM">


<FONT SIZE=2><P>&#9;$  20,905&nbsp;</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP"><DIR>





<FONT SIZE=2><P>Short-term investments &#9;</DIR>


</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">


<B><U><FONT SIZE=2><P>&#9;80,665</B></U></FONT></TD>


<TD WIDTH="13%" VALIGN="BOTTOM">


<U><FONT SIZE=2><P>&#9;76,455</U></FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP"><DIR>


<DIR>





<FONT SIZE=2><P>Total cash and short-term investments&#9;</DIR>


</DIR>


</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">


<FONT SIZE=2><P>&#9;<B>109,780</B></FONT></TD>


<TD WIDTH="13%" VALIGN="BOTTOM">


<FONT SIZE=2><P>&#9;97,360</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="11%" VALIGN="BOTTOM">&nbsp;</TD>


<TD WIDTH="13%" VALIGN="BOTTOM">&nbsp;</TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>Trade accounts receivable, net of allowance for doubtful accounts</P>


<P>of $365 in 2005 and 2004&#9;.</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">


<B><FONT SIZE=2><P>&#9;  17,824</B></FONT></TD>


<TD WIDTH="13%" VALIGN="BOTTOM">


<FONT SIZE=2><P>&#9;15,528&nbsp;</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>Short-term license installments&#9;</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">


<B><FONT SIZE=2><P>&#9;28,367</B></FONT></TD>


<TD WIDTH="13%" VALIGN="BOTTOM">


<FONT SIZE=2><P>&#9;31,358</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>Prepaid expenses and other current assets&#9;</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">


<B><U><FONT SIZE=2><P>&#9;1,468</B></U></FONT></TD>


<TD WIDTH="13%" VALIGN="BOTTOM">


<U><FONT SIZE=2><P>&#9;1,236</U></FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="11%" VALIGN="BOTTOM">&nbsp;</TD>


<TD WIDTH="13%" VALIGN="BOTTOM">&nbsp;</TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP"><DIR>


<DIR>





<FONT SIZE=2><P>Total current assets&#9;</DIR>


</DIR>


</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">


<B><FONT SIZE=2><P>&#9;157,439</B></FONT></TD>


<TD WIDTH="13%" VALIGN="BOTTOM">


<FONT SIZE=2><P>&#9;145,482&nbsp;</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="11%" VALIGN="BOTTOM">&nbsp;</TD>


<TD WIDTH="13%" VALIGN="BOTTOM">&nbsp;</TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>Long-term license installments, net of unearned interest income&#9;</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">


<B><FONT SIZE=2><P>&#9;32,534</B></FONT></TD>


<TD WIDTH="13%" VALIGN="BOTTOM">


<FONT SIZE=2><P>&#9;44,344&nbsp;</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>Equipment and improvements, net of accumulated depreciation and amortization&#9;</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">


<B><FONT SIZE=2><P>&#9;1,878</B></FONT></TD>


<TD WIDTH="13%" VALIGN="BOTTOM">


<FONT SIZE=2><P>&#9;1,586&nbsp;</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>Acquired technology, net of accumulated amortization&#9;</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">


<B><FONT SIZE=2><P>&#9;204</B></FONT></TD>


<TD WIDTH="13%" VALIGN="BOTTOM">


<FONT SIZE=2><P>&#9;379&nbsp;</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>Other assets&#9;&#9;</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">


<B><FONT SIZE=2><P>&#9;116</B></FONT></TD>


<TD WIDTH="13%" VALIGN="BOTTOM">


<FONT SIZE=2><P>&#9;118&nbsp;</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT FACE="Times" SIZE=2><P>Goodwill&#9;</FONT><FONT SIZE=2>&#9;</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">


<B><U><FONT SIZE=2><P>&#9;2,346</B></U></FONT></TD>


<TD WIDTH="13%" VALIGN="BOTTOM">


<U><FONT SIZE=2><P>&#9;2,346</U>&nbsp;</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="11%" VALIGN="BOTTOM">&nbsp;</TD>


<TD WIDTH="13%" VALIGN="BOTTOM">&nbsp;</TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP"><DIR>


<DIR>





<FONT SIZE=2><P>Total assets&#9;</DIR>


</DIR>


</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">


<B><U><FONT SIZE=2><P>&#9;$ 194,517</U>&nbsp;</B></FONT></TD>


<TD WIDTH="13%" VALIGN="BOTTOM">


<U><FONT SIZE=2><P>&#9;$ 194,255</U>&nbsp;</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="11%" VALIGN="BOTTOM">&nbsp;</TD>


<TD WIDTH="13%" VALIGN="BOTTOM">&nbsp;</TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<B><U><FONT SIZE=2><P ALIGN="CENTER">                       LIABILITIES AND STOCKHOLDERS' EQUITY                      &nbsp;</B></U></FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">&nbsp;</TD>


<TD WIDTH="13%" VALIGN="BOTTOM">&nbsp;</TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="11%" VALIGN="BOTTOM">&nbsp;</TD>


<TD WIDTH="13%" VALIGN="BOTTOM">&nbsp;</TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>Current liabilities:</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">&nbsp;</TD>


<TD WIDTH="13%" VALIGN="BOTTOM">&nbsp;</TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;Accrued payroll related expenses&#9;</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">


<B><FONT SIZE=2><P>&#9;$  5,840</B></FONT></TD>


<TD WIDTH="13%" VALIGN="BOTTOM">


<FONT SIZE=2><P>&#9;$  7,888&nbsp;</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;Accounts payable and accrued expenses&#9;</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">


<B><FONT SIZE=2><P>&#9;7,986</B></FONT></TD>


<TD WIDTH="13%" VALIGN="BOTTOM">


<FONT SIZE=2><P>&#9;9,502&nbsp;</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;Deferred revenue&#9;</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">


<B><FONT SIZE=2><P>&#9;14,616</B></FONT></TD>


<TD WIDTH="13%" VALIGN="BOTTOM">


<FONT SIZE=2><P>&#9;9,114</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;Current portion of capital lease obligation&#9;</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">


<B><U><FONT SIZE=2><P>&#9;100</B></U></FONT></TD>


<TD WIDTH="13%" VALIGN="BOTTOM">


<U><FONT SIZE=2><P>&#9;98</U></FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="11%" VALIGN="BOTTOM">&nbsp;</TD>


<TD WIDTH="13%" VALIGN="BOTTOM">&nbsp;</TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;&#9;&#9;Total current liabilities&#9;</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">


<B><FONT SIZE=2><P>&#9;28,542</B></FONT></TD>


<TD WIDTH="13%" VALIGN="BOTTOM">


<FONT SIZE=2><P>&#9;26,602&nbsp;</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="11%" VALIGN="BOTTOM">&nbsp;</TD>


<TD WIDTH="13%" VALIGN="BOTTOM">&nbsp;</TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>Long-term deferred income taxes&#9;</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">


<B><FONT SIZE=2><P>&#9;1,493</B></FONT></TD>


<TD WIDTH="13%" VALIGN="BOTTOM">


<FONT SIZE=2><P>&#9;1,480  &nbsp;</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>Capital lease obligation, net of current portion&#9;</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">


<B><FONT SIZE=2><P>&#9;     115</B></FONT></TD>


<TD WIDTH="13%" VALIGN="BOTTOM">


<FONT SIZE=2><P>&#9;     165&nbsp;</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>Other long-term liabilities&#9;</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">


<B><U><FONT SIZE=2><P>&#9;     1,002</B></U></FONT></TD>


<TD WIDTH="13%" VALIGN="BOTTOM">


<U><FONT SIZE=2><P>&#9;     808</U>&nbsp;</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="11%" VALIGN="BOTTOM">&nbsp;</TD>


<TD WIDTH="13%" VALIGN="BOTTOM">&nbsp;</TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;&#9;&#9;Total liabilities&#9;</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">


<B><U><FONT SIZE=2><P>&#9;31,152</B></U></FONT></TD>


<TD WIDTH="13%" VALIGN="BOTTOM">


<U><FONT SIZE=2><P>&#9;29,055</U>&nbsp;</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="11%" VALIGN="BOTTOM">&nbsp;</TD>


<TD WIDTH="13%" VALIGN="BOTTOM">&nbsp;</TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>Commitments and contingencies </FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">&nbsp;</TD>


<TD WIDTH="13%" VALIGN="BOTTOM">&nbsp;</TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="11%" VALIGN="BOTTOM">&nbsp;</TD>


<TD WIDTH="13%" VALIGN="BOTTOM">&nbsp;</TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>Stockholders' equity:</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">&nbsp;</TD>


<TD WIDTH="13%" VALIGN="BOTTOM">&nbsp;</TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;Preferred stock, $.01 par value, 1,000,000 shares authorized; no shares issued and</P>


<P>&#9;&#9;&#9;outstanding&#9;</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">


<B><FONT SIZE=2>


<P>&#9;--    &nbsp;</B></FONT></TD>


<TD WIDTH="13%" VALIGN="BOTTOM">


<FONT SIZE=2>


<P>&#9;--    &nbsp;</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;Common stock, $.01 par value, 70,000,000 shares authorized; 35,774,458 shares and</P>


<P>            36,076,649 shares issued and outstanding in 2005 and 2004, respectively&#9;</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">


<B><FONT SIZE=2><P>&#9;358</B></FONT></TD>


<TD WIDTH="13%" VALIGN="BOTTOM">


<FONT SIZE=2><P>&#9;361&nbsp;&nbsp;</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;Additional paid-in capital&#9;</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">


<B><FONT SIZE=2><P>&#9;120,334</B></FONT></TD>


<TD WIDTH="13%" VALIGN="BOTTOM">


<FONT SIZE=2><P>&#9;122,152&nbsp;</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;Stock warrant&#9;</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">


<B><FONT SIZE=2><P>&#9;249</B></FONT></TD>


<TD WIDTH="13%" VALIGN="BOTTOM">


<FONT SIZE=2><P>&#9;249&nbsp;&nbsp;</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;Retained earnings&#9;</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">


<B><FONT SIZE=2><P>&#9;41,718</B></FONT></TD>


<TD WIDTH="13%" VALIGN="BOTTOM">


<FONT SIZE=2><P>&#9;41,289&nbsp;</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;Accumulated other comprehensive income (loss):</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">


<B><FONT SIZE=2><P>&nbsp;</B></FONT></TD>


<TD WIDTH="13%" VALIGN="BOTTOM">


<FONT SIZE=2><P>&nbsp;</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP"><DIR>


<DIR>





<FONT SIZE=2><P>&#9;&#9;Net unrealized loss on investments available-for-sale&#9;</DIR>


</DIR>


</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">


<B><FONT SIZE=2><P>        (443)&nbsp;</B></FONT></TD>


<TD WIDTH="13%" VALIGN="BOTTOM">


<FONT SIZE=2><P>        (267)&nbsp;</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP"><DIR>


<DIR>





<FONT SIZE=2><P>&#9;&#9;Foreign currency translation adjustments&#9;</DIR>


</DIR>


</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">


<B><U><FONT SIZE=2><P>&#9;1,149</B></U></FONT></TD>


<TD WIDTH="13%" VALIGN="BOTTOM">


<U><FONT SIZE=2><P>&#9;1,416</U></FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;&#9;&#9;Total stockholders' equity&#9;</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM">


<B><U><FONT SIZE=2><P>&#9;163,365</B></U></FONT></TD>


<TD WIDTH="13%" VALIGN="BOTTOM">


<U><FONT SIZE=2><P>&#9;165,200</U></FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP" HEIGHT=6>


<FONT SIZE=2><P>&#9;&#9;&#9;&#9;Total liabilities and stockholders' equity&#9;</FONT></TD>


<TD WIDTH="11%" VALIGN="BOTTOM" HEIGHT=6>


<B><U><FONT SIZE=2><P>&#9;$194,517</B></U></FONT></TD>


<TD WIDTH="13%" VALIGN="BOTTOM" HEIGHT=6>


<U><FONT SIZE=2><P>&#9;$ 194,255</U>&nbsp;</FONT></TD>


</TR>


</TABLE>





<FONT SIZE=1><P>&nbsp;<A NAME="tx74007_2"></A></FONT><B><FONT SIZE=2> PEGASYSTEMS INC.</P>


<P>Condensed Consolidated Statements of Income</P>


<P>(in thousands, except per share amounts)</P></B></FONT>


<TABLE CELLSPACING=0 BORDER=0 WIDTH=660 ALIGN="LEFT" HSPACE=12>


<TR><TD WIDTH="63%" VALIGN="TOP">


<B><FONT SIZE=2><P ALIGN="CENTER">  </B></FONT></TD>


<TD WIDTH="19%" VALIGN="TOP" COLSPAN=2>


<B><FONT SIZE=2><P ALIGN="CENTER">Three months ended June 30, </B></FONT></TD>


<TD WIDTH="18%" VALIGN="TOP" COLSPAN=2>


<B><FONT SIZE=2><P ALIGN="CENTER">Six months ended June 30,</B></FONT></TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><U><FONT SIZE=2><P ALIGN="CENTER">2005</B></U></FONT></TD>


<TD WIDTH="9%" VALIGN="TOP">


<B><U><FONT SIZE=2><P ALIGN="CENTER">2004</U>&nbsp;</B></FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><U><FONT SIZE=2><P>2005</U>&nbsp;</B></FONT></TD>


<TD WIDTH="8%" VALIGN="TOP">


<B><U><FONT SIZE=2><P>2004</U>&nbsp;</B></FONT></TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">


<FONT SIZE=2><P>Revenue:</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="9%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="10%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="8%" VALIGN="TOP">&nbsp;</TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;Software license&#9;</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><FONT SIZE=2><P>&#9;$ 8,004</B></FONT></TD>


<TD WIDTH="9%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;$ 11,677</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><FONT SIZE=2><P>$ 18,884</B></FONT></TD>


<TD WIDTH="8%" VALIGN="TOP">


<FONT SIZE=2><P>$21,340</FONT></TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;Services&#9;</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><U><FONT SIZE=2><P>&#9;  15,784</B></U></FONT></TD>


<TD WIDTH="9%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;<U>   12,363</U></FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><U><FONT SIZE=2><P>   29,134</B></U></FONT></TD>


<TD WIDTH="8%" VALIGN="TOP">


<U><FONT SIZE=2><P>27,357</U></FONT></TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;&#9;&#9;Total revenue&#9;</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><U><FONT SIZE=2><P>&#9;  23,788</B></U></FONT></TD>


<TD WIDTH="9%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;<U>   24,040</U></FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><U><FONT SIZE=2><P> 48,018</B></U></FONT></TD>


<TD WIDTH="8%" VALIGN="TOP">


<FONT SIZE=2><P>   <U>48,697</U></FONT></TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">


<FONT SIZE=2><P>Cost of revenue:</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="9%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="10%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="8%" VALIGN="TOP">&nbsp;</TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;Cost of software license&#9;</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><FONT SIZE=2><P>&#9;87</B></FONT></TD>


<TD WIDTH="9%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;87&nbsp;</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><FONT SIZE=2><P>175</B></FONT></TD>


<TD WIDTH="8%" VALIGN="TOP">


<FONT SIZE=2><P>175&nbsp;</FONT></TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;Cost of services&#9;</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><U><FONT SIZE=2><P>&#9;  8,045</B></U></FONT></TD>


<TD WIDTH="9%" VALIGN="TOP">


<U><FONT SIZE=2><P>&#9;   6,028</U></FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><U><FONT SIZE=2><P>   15,592</B></U></FONT></TD>


<TD WIDTH="8%" VALIGN="TOP">


<U><FONT SIZE=2><P>12,680</U></FONT></TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;&#9;&#9;Total cost of revenue&#9;</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><U><FONT SIZE=2><P>&#9;  8,132</B></U></FONT></TD>


<TD WIDTH="9%" VALIGN="TOP">


<U><FONT SIZE=2><P>&#9;   6,115</U></FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><U><FONT SIZE=2><P>   15,767</B></U></FONT></TD>


<TD WIDTH="8%" VALIGN="TOP">


<U><FONT SIZE=2><P>12,855</U></FONT></TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="10%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="9%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="10%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="8%" VALIGN="TOP">&nbsp;</TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">


<FONT SIZE=2><P>Gross profit&#9;&#9;</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><U><FONT SIZE=2><P>   15,656</B></U></FONT></TD>


<TD WIDTH="9%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;<U>   17,925</U></FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><U><FONT SIZE=2><P>  32,251</B></U></FONT></TD>


<TD WIDTH="8%" VALIGN="TOP">


<FONT SIZE=2><P>   <U>35,842</U></FONT></TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="10%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="9%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="10%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="8%" VALIGN="TOP">&nbsp;</TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">


<FONT SIZE=2><P>Operating expenses:</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="9%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="10%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="8%" VALIGN="TOP">&nbsp;</TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;Research and development&#9;</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><FONT SIZE=2><P>&#9;4,876</B></FONT></TD>


<TD WIDTH="9%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;4,826</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><FONT SIZE=2><P>9,903</B></FONT></TD>


<TD WIDTH="8%" VALIGN="TOP">


<FONT SIZE=2><P>10,311</FONT></TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;Selling and marketing&#9;</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><FONT SIZE=2><P>&#9;7,920</B></FONT></TD>


<TD WIDTH="9%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;7,838</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><FONT SIZE=2><P>16,853</B></FONT></TD>


<TD WIDTH="8%" VALIGN="TOP">


<FONT SIZE=2><P>15,656</FONT></TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;General and administrative&#9;</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><U><FONT SIZE=2><P>&#9;  2,990</B></U></FONT></TD>


<TD WIDTH="9%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;<U>    2,754</U></FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><U><FONT SIZE=2><P> 6,327</B></U></FONT></TD>


<TD WIDTH="8%" VALIGN="TOP">


<U><FONT SIZE=2><P>    5,689</U></FONT></TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;&#9;&#9;Total operating expenses&#9;</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><U><FONT SIZE=2><P>&#9;15,786</B></U></FONT></TD>


<TD WIDTH="9%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;<U> 15,418</U></FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><U><FONT SIZE=2><P>  33,083</B></U></FONT></TD>


<TD WIDTH="8%" VALIGN="TOP">


<U><FONT SIZE=2><P>  31,656</U></FONT></TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="10%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="9%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="10%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="8%" VALIGN="TOP">&nbsp;</TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">


<FONT SIZE=2><P>Income (loss) from operations&#9;</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><FONT SIZE=2><P>&#9;(130)</B></FONT></TD>


<TD WIDTH="9%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;2,507</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><FONT SIZE=2><P>(832)</B></FONT></TD>


<TD WIDTH="8%" VALIGN="TOP">


<FONT SIZE=2><P>4,186</FONT></TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="10%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="9%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="10%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="8%" VALIGN="TOP">&nbsp;</TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">


<FONT SIZE=2><P>Installment receivable interest income&#9;</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><FONT SIZE=2><P>&#9;567</B></FONT></TD>


<TD WIDTH="9%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;680</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><FONT SIZE=2><P>1,131</B></FONT></TD>


<TD WIDTH="8%" VALIGN="TOP">


<FONT SIZE=2><P>1,387</FONT></TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">


<FONT SIZE=2><P>Other interest income, net&#9;</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><FONT SIZE=2><P>&#9;744</B></FONT></TD>


<TD WIDTH="9%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;466&nbsp;</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><FONT SIZE=2><P>1,370</B></FONT></TD>


<TD WIDTH="8%" VALIGN="TOP">


<FONT SIZE=2><P>769</FONT></TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">


<FONT SIZE=2><P>Other income (expense), net&#9;</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><U><FONT SIZE=2><P>&#9;(700)</B></U></FONT></TD>


<TD WIDTH="9%" VALIGN="TOP">


<FONT SIZE=2><P>   <U>     (371)</U></FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><U><FONT SIZE=2><P>  (1,015)</B></U></FONT></TD>


<TD WIDTH="8%" VALIGN="TOP">


<FONT SIZE=2><P>  <U>   (378)</U></FONT></TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">


<FONT SIZE=2><P>Income before provision for income taxes&#9;</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><FONT SIZE=2><P>&#9;481</B></FONT></TD>


<TD WIDTH="9%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;3,282</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><FONT SIZE=2><P>654</B></FONT></TD>


<TD WIDTH="8%" VALIGN="TOP">


<FONT SIZE=2><P>5,964</FONT></TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="10%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="9%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="10%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="8%" VALIGN="TOP">&nbsp;</TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">


<FONT SIZE=2><P>Provision for income taxes&#9;</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><U><FONT SIZE=2><P>&#9;    125</B></U></FONT></TD>


<TD WIDTH="9%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;<U>     1,160</U></FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><U><FONT SIZE=2><P>        225</B></U></FONT></TD>


<TD WIDTH="8%" VALIGN="TOP">


<U><FONT SIZE=2><P>    2,100</U></FONT></TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;&#9;&#9;Net income&#9;</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;<B><U>    $ 356</B></U>&nbsp;</FONT></TD>


<TD WIDTH="9%" VALIGN="TOP">


<U><FONT SIZE=2><P> &#9;$ 2,122</U></FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><U><FONT SIZE=2><P>$   429</B></U></FONT></TD>


<TD WIDTH="8%" VALIGN="TOP">


<U><FONT SIZE=2><P>$3,864</U>&nbsp; </FONT></TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="10%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="9%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="10%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="8%" VALIGN="TOP">&nbsp;</TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">


<FONT SIZE=2><P>Earnings per share:</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><FONT SIZE=2><P>&#9;</B></FONT></TD>


<TD WIDTH="9%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="8%" VALIGN="TOP">&nbsp;</TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;&#9;&#9;Basic&#9;</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><FONT SIZE=2><P>&#9;$ 0.01</B></FONT></TD>


<TD WIDTH="9%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;$ 0.06</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><FONT SIZE=2><P>$  0.01&nbsp;</B></FONT></TD>


<TD WIDTH="8%" VALIGN="TOP">


<FONT SIZE=2><P>$  0.11</FONT></TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;&#9;&#9;Diluted&#9;</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><FONT SIZE=2><P>&#9;$ 0.01</B></FONT></TD>


<TD WIDTH="9%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;$ 0.06</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><FONT SIZE=2><P>$  0.01&nbsp;</B></FONT></TD>


<TD WIDTH="8%" VALIGN="TOP">


<FONT SIZE=2><P>$ 0.10</FONT></TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="10%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="9%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="10%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="8%" VALIGN="TOP">&nbsp;</TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">


<FONT SIZE=2><P>Weighted average number of common shares outstanding, basic&#9;</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><FONT SIZE=2><P>&#9;35,881</B></FONT></TD>


<TD WIDTH="9%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;35,648</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><FONT SIZE=2><P>35,962</B></FONT></TD>


<TD WIDTH="8%" VALIGN="TOP">


<FONT SIZE=2><P>35,521</FONT></TD>


</TR>


<TR><TD WIDTH="63%" VALIGN="TOP">


<FONT SIZE=2><P>Weighted average number of common shares outstanding, diluted &#9;</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><FONT SIZE=2><P>&#9;36,455</B></FONT></TD>


<TD WIDTH="9%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;37,055</FONT></TD>


<TD WIDTH="10%" VALIGN="TOP">


<B><FONT SIZE=2><P>36,648</B></FONT></TD>


<TD WIDTH="8%" VALIGN="TOP">


<FONT SIZE=2><P>37,095</FONT></TD>


</TR>


</TABLE>





<FONT SIZE=1><P>&nbsp;</P>





<P>&nbsp;</P>


<P>&nbsp;</P>


<P>&nbsp;</P>


<P>&nbsp;</P>


<P>&nbsp;</P>


<P>&nbsp;</P>


<P>&nbsp;</P>


<P>&nbsp;</P>


<P>&nbsp;</P>


<P>&nbsp;</P>


<P>&nbsp;</P>


<P>&nbsp;</P>


<P>&nbsp;</P>


<P>&nbsp;</P>


<P>&nbsp;</P>


<P>&nbsp;</P>


<P>&nbsp;</P>


<P>&nbsp;</P>


<P>&nbsp;</P>


<P>&nbsp;</P>


<P>&nbsp;</P>


<P>&nbsp;</P>


</FONT><B><FONT SIZE=2><P>&nbsp;</P>


<P>PEGASYSTEMS INC.</B>&nbsp;</P>


<B><P>Condensed Consolidated Statements of Cash Flows</P>


<P>(in thousands)</P>


</B></FONT><FONT SIZE=1><P>&nbsp;</P></FONT>


<TABLE CELLSPACING=0 BORDER=0 WIDTH=624>


<TR><TD WIDTH="77%" VALIGN="TOP">


<B><FONT SIZE=2><P ALIGN="CENTER">  </B></FONT></TD>


<TD WIDTH="23%" VALIGN="TOP" COLSPAN=2>


<B><FONT SIZE=2><P ALIGN="CENTER">Six months ended June 30,   </B></FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="12%" VALIGN="TOP">


<B><U><FONT SIZE=2><P ALIGN="CENTER">    2005  &nbsp;</U>&nbsp;</B></FONT></TD>


<TD WIDTH="11%" VALIGN="TOP">


<B><U><FONT SIZE=2><P ALIGN="CENTER">    2004   &nbsp;</U>&nbsp;</B></FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>Cash flows from operating activities:</FONT></TD>


<TD WIDTH="12%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="11%" VALIGN="TOP">&nbsp;</TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;Net income</FONT></TD>


<TD WIDTH="12%" VALIGN="TOP">


<B><FONT SIZE=2><P>&#9;$ 429</B></FONT></TD>


<TD WIDTH="11%" VALIGN="TOP">


<FONT SIZE=2><P ALIGN="JUSTIFY">&#9;$3,864</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;Adjustment to reconcile net income to cash flows from</P>


<P>&#9;&#9;operating activities:</FONT></TD>


<TD WIDTH="12%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="11%" VALIGN="TOP">&nbsp;</TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;Stock option income tax benefits&#9;</FONT></TD>


<TD WIDTH="12%" VALIGN="TOP">


<B><FONT SIZE=2><P>&#9;51</B></FONT></TD>


<TD WIDTH="11%" VALIGN="TOP">


<FONT SIZE=2><P ALIGN="JUSTIFY">&#9;634</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;Deferred income taxes&#9;</FONT></TD>


<TD WIDTH="12%" VALIGN="TOP">


<B><FONT SIZE=2><P>&#9;13</B></FONT></TD>


<TD WIDTH="11%" VALIGN="TOP">


<FONT SIZE=2><P ALIGN="JUSTIFY">&#9;1,250 </FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;Depreciation, amortization and other non-cash items&#9;</FONT></TD>


<TD WIDTH="12%" VALIGN="TOP">


<B><FONT SIZE=1><P>&#9;</FONT><FONT SIZE=2>837</B></FONT></TD>


<TD WIDTH="11%" VALIGN="TOP">


<FONT SIZE=1><P ALIGN="JUSTIFY">&#9;</FONT><FONT SIZE=2>687</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;Loss on disposal of fixed assets&#9;</FONT></TD>


<TD WIDTH="12%" VALIGN="TOP">


<B><FONT SIZE=2><P>&#9;14</B></FONT></TD>


<TD WIDTH="11%" VALIGN="TOP">


<FONT SIZE=2><P ALIGN="JUSTIFY">           --</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;Change in operating assets and liabilities:</FONT></TD>


<TD WIDTH="12%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="11%" VALIGN="TOP">&nbsp;</TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;&#9;&#9;Trade accounts receivable and license installments&#9;</FONT></TD>


<TD WIDTH="12%" VALIGN="TOP">


<B><FONT SIZE=2><P>&#9;12,485</B></FONT></TD>


<TD WIDTH="11%" VALIGN="TOP">


<FONT SIZE=2><P ALIGN="JUSTIFY">&#9;3,915</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;&#9;&#9;Prepaid expenses and other current assets&#9;</FONT></TD>


<TD WIDTH="12%" VALIGN="TOP">


<B><FONT SIZE=2><P>&#9;(250)</B></FONT></TD>


<TD WIDTH="11%" VALIGN="TOP">


<FONT SIZE=2><P ALIGN="JUSTIFY">&#9;(396)</FONT><FONT SIZE=1>&nbsp;</FONT><FONT SIZE=2> </FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;&#9;&#9;Accounts payable and accrued expenses&#9;</FONT></TD>


<TD WIDTH="12%" VALIGN="TOP">


<B><FONT SIZE=2><P>&#9;(3,315)</B></FONT></TD>


<TD WIDTH="11%" VALIGN="TOP">


<FONT SIZE=2><P ALIGN="JUSTIFY">&#9;(3,258)</FONT><FONT SIZE=1>&nbsp;</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;&#9;&#9;Deferred revenue&#9;</FONT></TD>


<TD WIDTH="12%" VALIGN="TOP">


<B><FONT SIZE=2><P>&#9;5,501</B></FONT></TD>


<TD WIDTH="11%" VALIGN="TOP">


<FONT SIZE=2><P ALIGN="JUSTIFY">&#9;       (956)&nbsp;</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;&#9;&#9;Other long-term assets and liabilities&#9;</FONT></TD>


<TD WIDTH="12%" VALIGN="TOP">


<B><U><FONT SIZE=2><P>&#9;193</B></U></FONT></TD>


<TD WIDTH="11%" VALIGN="TOP">


<U><FONT SIZE=2><P ALIGN="JUSTIFY">&#9;17</U></FONT><FONT SIZE=1>&nbsp;</FONT><FONT SIZE=2>&nbsp;</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="12%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="11%" VALIGN="TOP">&nbsp;</TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP" HEIGHT=19>


<FONT SIZE=2><P>&#9;&#9;&#9;&#9;&#9;&#9;Cash flows from operating activities&#9;</FONT></TD>


<TD WIDTH="12%" VALIGN="TOP" HEIGHT=19>


<B><U><FONT SIZE=2><P>&#9;15,958</B></U></FONT></TD>


<TD WIDTH="11%" VALIGN="TOP" HEIGHT=19>


<U><FONT SIZE=2><P ALIGN="JUSTIFY">&#9;5,757</U></FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="12%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="11%" VALIGN="TOP">&nbsp;</TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>Cash flows from investing activities:</FONT></TD>


<TD WIDTH="12%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="11%" VALIGN="TOP">&nbsp;</TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;Purchase of investments &#9;</FONT></TD>


<TD WIDTH="12%" VALIGN="TOP">


<B><FONT SIZE=2><P>&#9;(21,163)</B></FONT></TD>


<TD WIDTH="11%" VALIGN="TOP">


<FONT SIZE=2><P ALIGN="JUSTIFY">&#9;(92,873)</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;Maturing and called investments&#9;</FONT></TD>


<TD WIDTH="12%" VALIGN="TOP">


<B><FONT SIZE=2><P>&#9;4,000</B></FONT></TD>


<TD WIDTH="11%" VALIGN="TOP">


<FONT SIZE=2><P ALIGN="JUSTIFY">&#9;9,350</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;Sale of investments&#9;</FONT></TD>


<TD WIDTH="12%" VALIGN="TOP">


<B><FONT SIZE=2><P>&#9;12,475</B></FONT></TD>


<TD WIDTH="11%" VALIGN="TOP">


<FONT SIZE=2><P ALIGN="JUSTIFY">&#9;27,224</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;Purchase of equipment, furniture and improvements&#9;</FONT></TD>


<TD WIDTH="12%" VALIGN="TOP">


<B><U><FONT SIZE=2><P>&#9;(791)</B></U></FONT></TD>


<TD WIDTH="11%" VALIGN="TOP">


<U><FONT SIZE=2><P ALIGN="JUSTIFY">&#9;(617)</U></FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="12%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="11%" VALIGN="TOP">&nbsp;</TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;&#9;&#9;&#9;&#9;Cash flows from investing activities&#9;</FONT></TD>


<TD WIDTH="12%" VALIGN="TOP">


<B><U><FONT SIZE=2><P>&#9;(5,479)</B></U></FONT></TD>


<TD WIDTH="11%" VALIGN="TOP">


<U><FONT SIZE=2><P ALIGN="JUSTIFY">&#9;(56,916)</U></FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="12%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="11%" VALIGN="TOP">&nbsp;</TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>Cash flows from financing activities:</FONT></TD>


<TD WIDTH="12%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="11%" VALIGN="TOP">&nbsp;</TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9; Payments under capital lease obligations&#9;</FONT></TD>


<TD WIDTH="12%" VALIGN="TOP">


<B><FONT SIZE=2><P>&#9;(48)</B></FONT></TD>


<TD WIDTH="11%" VALIGN="TOP">


<FONT SIZE=2><P ALIGN="JUSTIFY">           --</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>        Proceeds from sale of stock under Employee Stock Purchase Plan&#9;</FONT></TD>


<TD WIDTH="12%" VALIGN="TOP">


<B><FONT SIZE=2><P>&#9;240</B></FONT></TD>


<TD WIDTH="11%" VALIGN="TOP">


<FONT SIZE=2><P ALIGN="JUSTIFY">&#9;329</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;Exercise of stock options&#9;</FONT></TD>


<TD WIDTH="12%" VALIGN="TOP">


<B><FONT SIZE=2><P>&#9;240</B></FONT></TD>


<TD WIDTH="11%" VALIGN="TOP">


<FONT SIZE=2><P ALIGN="JUSTIFY">&#9;2,280</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>        Repurchase of common stock &#9;</FONT></TD>


<TD WIDTH="12%" VALIGN="TOP">


<B><U><FONT SIZE=2><P>&#9;(2,353)</B></U></FONT></TD>


<TD WIDTH="11%" VALIGN="TOP">


<FONT SIZE=2><P ALIGN="JUSTIFY"> <U>          --</U></FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="12%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="11%" VALIGN="TOP">&nbsp;</TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;&#9;&#9;&#9;&#9;Cash flows from financing activities&#9;</FONT></TD>


<TD WIDTH="12%" VALIGN="TOP">


<B><U><FONT SIZE=2><P>&#9;       (1,921)</B></U></FONT></TD>


<TD WIDTH="11%" VALIGN="TOP">


<U><FONT SIZE=2><P ALIGN="JUSTIFY">&#9;2,609</U></FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="12%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="11%" VALIGN="TOP">&nbsp;</TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>Effect of exchange rate on cash and cash equivalents&#9;</FONT></TD>


<TD WIDTH="12%" VALIGN="TOP">


<B><U><FONT SIZE=2><P>&#9;       (348)</B></U></FONT></TD>


<TD WIDTH="11%" VALIGN="TOP">


<U><FONT SIZE=2><P ALIGN="JUSTIFY">&#9;(182)</U></FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="12%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="11%" VALIGN="TOP">&nbsp;</TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>&#9;&#9;&#9;&#9;&#9;&#9;Net increase in cash and cash equivalents&#9;</FONT></TD>


<TD WIDTH="12%" VALIGN="TOP">


<B><FONT SIZE=2><P>&#9;8,210</B></FONT></TD>


<TD WIDTH="11%" VALIGN="TOP">


<FONT SIZE=2><P ALIGN="JUSTIFY">&#9;(48,732)</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="12%" VALIGN="TOP">&nbsp;</TD>


<TD WIDTH="11%" VALIGN="TOP">&nbsp;</TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>Cash and cash equivalents, beginning of period&#9;</FONT></TD>


<TD WIDTH="12%" VALIGN="TOP">


<B><FONT SIZE=2><P>&#9;<U>    20,905</B></U></FONT></TD>


<TD WIDTH="11%" VALIGN="TOP">


<U><FONT SIZE=2><P ALIGN="JUSTIFY">&#9; 67,989</U>&nbsp;</FONT></TD>


</TR>


<TR><TD WIDTH="77%" VALIGN="TOP">


<FONT SIZE=2><P>Cash and cash equivalents, end of period&#9;</FONT></TD>


<TD WIDTH="12%" VALIGN="TOP">


<B><FONT SIZE=2><P>&#9;<U>$  29,115</B></U></FONT></TD>


<TD WIDTH="11%" VALIGN="TOP">


<U><FONT SIZE=2><P ALIGN="JUSTIFY">&#9;$ 19,257</U></FONT></TD>


</TR>


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