<PAGE>

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
--------------------------------------------------------------------------------

                                   FORM 10 - Q


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

                For the quarterly period ended DECEMBER 31, 2001

                                       OR

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934


                        Commission File Number 000-31011

                              TALARIAN CORPORATION
                              --------------------
             (Exact Name of Registrant as specified in its charter)


               DELAWARE                                    33-0323810
               --------                                    ----------
      (State or other jurisdiction of                   (I.R.S. Employer
      incorporation or organization)                 Identification Number)


                                333 DISTEL CIRCLE
                           LOS ALTOS, CALIFORNIA 94022
                           ---------------------------
                    (Address of principal executive offices)

                                 (650) 965-8050
                                 --------------
              (Registrant's telephone number, including area code)


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

        The number of shares outstanding of the registrant's common stock, par
value $.001 per share, as of December 31, 2001, was 19,303,203.


<PAGE>

                              TALARIAN CORPORATION

                          QUARTERLY REPORT ON FORM 10-Q
                         QUARTER ENDED DECEMBER 31, 2001

                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                        PAGE NO.
--------------------------------------------------------------------------------
<S>                                                                     <C>
PART I         FINANCIAL INFORMATION

Item 1.        Financial Statements

               Condensed Consolidated Balance Sheets -
                  As of December 31, 2001 and September 30, 2001              3

               Condensed Consolidated Statements of Operations -
                  Three months ended December 31, 2001 and 2000               4

               Condensed Consolidated Statements of Cash Flows -
                  Three months ended December 31, 2001 and 2000               5

               Notes to Condensed Consolidated Financial Statements           6

Item 2.        Management's Discussion and Analysis of
               Financial Condition and Results of Operations                  11

Item 3.        Quantitative and Qualitative Disclosures About Market Risk     26


--------------------------------------------------------------------------------
PART II        OTHER INFORMATION

Item 1.        Legal Proceedings                                              27

Item 2.        Changes in Securities and Use of Proceeds                      27

Item 3.        Defaults upon Senior Securities                                28

Item 4.        Submission of Matters to a Vote of
                 Security Holders                                             28

Item 5.        Other Information                                              28

Item 6.        Exhibits and Reports on Form 8-K                               28


--------------------------------------------------------------------------------
SIGNATURES                                                                    29

--------------------------------------------------------------------------------
</TABLE>







<PAGE>

                          PART I: FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS


                       TALARIAN CORPORATION AND SUBSIDIARY

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                 DECEMBER 31,   SEPTEMBER 30,
                                                                     2001           2001
                                                                 ------------   -------------
<S>                                                              <C>            <C>
                                     ASSETS

Current assets:
  Cash and cash equivalents                                       $  32,065       $  24,461
  Short-term investments                                             18,600          28,041
  Accounts receivable, less allowance for doubtful accounts           5,279           3,380
  Prepaid expenses and other assets                                     948           1,438
                                                                  ---------       ---------
      Total current assets                                           56,892          57,320

  Property and equipment, net                                         1,797           2,021
  Goodwill and other intangible assets, net                           1,771           2,150
  Other long-term assets                                                266             363
                                                                  ---------       ---------
      Total assets                                                $  60,726       $  61,854
                                                                  =========       =========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                                                $     215       $     270
  Accrued payroll and related expenses                                1,747           1,464
  Other accrued expenses                                              1,954           2,063
  Current portion of deferred revenue                                 4,334           3,135
                                                                  ---------       ---------
      Total current liabilities                                       8,250           6,932
Deferred rent                                                           204             173
Deferred revenue, less current portion                                  760             792
                                                                  ---------       ---------
      Total liabilities                                               9,214           7,897
                                                                  ---------       ---------

Stockholders' equity:
  Common stock                                                           19              19
  Additional paid-in capital                                        105,574         105,619
  Treasury stock                                                       (114)           (102)
  Deferred stock compensation                                        (2,578)         (3,411)
  Note receivable from stockholder                                     (100)           (100)
  Accumulated deficit                                               (51,358)        (48,217)
  Accumulated other comprehensive income:
    Unrealized gain on investments                                       69             149
                                                                  ---------       ---------
      Total stockholders' equity                                     51,512          53,957
                                                                  ---------       ---------
      Total liabilities and stockholders' equity                  $  60,726       $  61,854
                                                                  =========       =========
</TABLE>


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




                                       3
<PAGE>

                       TALARIAN CORPORATION AND SUBSIDIARY

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                       THREE MONTHS ENDED
                                                           DECEMBER 31,
                                                     -----------------------
                                                       2001           2000
                                                     --------       --------
<S>                                                  <C>            <C>
Revenue:
  Licenses                                           $  2,760       $  2,022
  Maintenance                                           1,599            839
  Professional services                                   289            556
                                                     --------       --------
    Total revenue                                       4,648          3,417
                                                     --------       --------

Cost of revenue:
  Licenses                                                 77             18
  Maintenance                                             342            370
  Professional services                                   244            236
  Amortization of deferred stock compensation             110            288
                                                     --------       --------
    Total cost of revenue                                 773            912
                                                     --------       --------
    Gross profit                                        3,875          2,505
                                                     --------       --------

Operating expenses:
  Sales and marketing                                   2,739          3,473
  Research and development                              2,222          2,792
  General and administrative                              925            971
  Amortization of deferred stock compensation:
      Sales and marketing                                 131            810
      Research and development                            334            723
      General and administrative                          210            468
 Direct costs relating to acquisition (Note 10)           480           --
 Amortization of goodwill and intangible assets           379            608
                                                     --------       --------
      Total operating expenses                          7,420          9,845
                                                     --------       --------
      Loss from operations                             (3,545)        (7,340)
Interest income and other, net                            404          1,118
                                                     --------       --------
      Net loss                                       $ (3,141)      $ (6,222)
                                                     ========       ========

Basic and diluted net loss per share                 $  (0.17)      $  (0.34)
                                                     ========       ========
Shares used in computing basic and diluted net
  loss per share                                       18,933         18,168
                                                     ========       ========
</TABLE>


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




                                       4
<PAGE>

                       TALARIAN CORPORATION AND SUBSIDIARY

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                       THREE MONTHS ENDED
                                                                           DECEMBER 31,
                                                                     -----------------------
                                                                       2001           2000
                                                                     --------       --------
<S>                                                                  <C>            <C>
Cash flows from operating activities:
  Net loss                                                           $ (3,141)      $ (6,222)
  Adjustments to reconcile net loss to net cash used in
      operating activities:
      Depreciation and amortization                                       243            189
      Amortization of goodwill and other intangible assets                379            608
      Amortization of deferred stock compensation                         785          2,289
      Change in allowance for doubtful accounts                            85             60
      Changes in operating assets and liabilities:
         Accounts receivable                                           (1,984)          (124)
         Prepaid expenses and other assets                                587           (260)
         Accounts payable                                                 (55)          (288)
         Accrued payroll and related expenses                             283            349
         Other accrued expenses                                          (109)          (191)
         Deferred rent                                                     31             --
         Deferred revenue                                               1,167            (47)
                                                                     --------       --------
            Net cash used in operating activities                      (1,729)        (3,637)
                                                                     --------       --------
Cash flows from investing activities:
  Sale and maturity of short-term investments                          12,911             --
  Purchases of short-term investments                                  (3,550)        (1,591)
  Purchases of property and equipment                                     (18)          (348)
                                                                     --------       --------
            Net cash provided by (used in) investing activities         9,343         (1,939)
                                                                     --------       --------
Cash flows from financing activities:
  Proceeds from sale of common stock, net of issuance cost                  3              5
  Repurchase of common stock                                              (13)            (9)
                                                                     --------       --------
            Net cash used in financing activities                         (10)            (4)
                                                                     --------       --------
Net increase (decrease) in cash and cash equivalents                    7,604         (5,580)
Cash and cash equivalents at beginning of period                       24,461         35,144
                                                                     --------       --------
Cash and cash equivalents at end of period                           $ 32,065       $ 29,564
                                                                     ========       ========
Supplemental disclosures of cash flow information:
Additional IPO costs accrued                                         $     --       $    175
                                                                     ========       ========
Deferred stock compensation on stock option cancellations            $    (48)      $   (301)
                                                                     ========       ========
</TABLE>


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




                                       5
<PAGE>

                       TALARIAN CORPORATION AND SUBSIDIARY

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)



NOTE 1  BASIS OF PRESENTATION

   The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance, not only with accounting principles generally
accepted in the United States of America for interim financial information but
also with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all information and footnotes necessary for a
complete presentation of the financial statements in conformity with accounting
principles generally accepted in the United States of America. In the opinion of
management, the accompanying unaudited condensed consolidated financial
statements include all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the Company's financial
position as of December 31, 2001, and the results of its operations and cash
flows for the interim periods ended December 31, 2001 and 2000. These financial
statements should be read in conjunction with the Company's audited financial
statements as of September 30, 2001 and 2000 and for each of the years in the
three-year period ended September 30, 2001, including notes thereto, included in
the Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission on December 21, 2001. The condensed consolidated balance sheet at
September 30, 2001 has been derived from the audited financial statements as of
that date.

   The results of operations for the interim periods ended December 31, 2001 and
2000 are not necessarily indicative of results that may be expected for any
other interim period or for the full fiscal year ending September 30, 2002.

NOTE 2  COMPREHENSIVE INCOME (LOSS)

   Total comprehensive loss includes, in addition to net loss, unrealized gains
and losses excluded from the consolidated and combined statements of operations
that are recorded directly into a separate section of stockholders' equity
(deficit) on the consolidated balance sheets. These unrealized gains and losses
are referred to as other comprehensive income (loss). The Company's accumulated
other comprehensive income shown on the consolidated balance sheets consists of
unrealized investment holding gains and losses which are not adjusted for income
taxes. For the quarters ended December 31, 2001 and 2000, the Company had
$69,000 and $149,000 of other comprehensive income (loss) which was recorded as
a component of stockholders' equity.

NOTE 3  CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

   Cash and cash equivalents consist of cash and highly liquid investments with
remaining maturities of less than 90 days at the date of purchase. The Company
is exposed to credit risk in the event of default by the financial institutions
or the issuers of these investments to the extent of the amounts recorded on the
balance sheet in excess of amounts that are insured by the Federal Deposit
Insurance Corporation. As of December 31, 2001 and September 30, 2001, cash
equivalents consisted primarily of money market accounts and auction rate
instruments.

   The Company classifies its investments in debt securities as
available-for-sale and as such these investments are classified as short-term
investments. Any unrealized gains or losses are recorded as a component of other
comprehensive income/loss as a component of stockholders' equity.




                                       6
<PAGE>

NOTE 4  NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS

   Basic net loss per share attributable to common stockholders is computed
using the weighted-average number of outstanding shares of common stock
excluding shares of restricted stock subject to repurchase. Diluted net loss per
share attributable to common stockholders is computed using the weighted-average
number of shares of common stock outstanding plus, when dilutive, potential
shares of restricted common stock subject to repurchase and common stock from
exercise of options and warrants, using the treasury stock method, and from
convertible securities on an "as if converted" basis. The following potential
shares of common stock have been excluded from the computation of diluted net
loss per share attributable to common stockholders for all periods presented
because the effect would have been antidilutive:

<TABLE>
<CAPTION>
                                                DECEMBER 31,
                                           --------------------
                                             2001         2000
                                           -------      -------
<S>                                        <C>          <C>
Shares issuable under stock options .      935,756      563,820
Shares of restricted stock subject to
repurchase ..........................      338,530      732,994
Shares issuable pursuant to warrants
to purchase common stock ............       17,367       97,367
</TABLE>

   The weighted-average exercise price of stock options outstanding was $3.07
and $3.95 as of December 31, 2001 and 2000, respectively. The weighted-average
purchase price of restricted stock subject to repurchase was $0.37 and $0.41 as
of December 31, 2001 and 2000, respectively. The weighted-average exercise price
of outstanding warrants to purchase common stock was $0.90 and $0.67 as of
December 31, 2001 and 2000, respectively.

NOTE 5  RECENT ACCOUNTING PRONOUNCEMENTS

   On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business
Combinations," and Statement of Financial Accounting Standards No. 142, ("SFAS
142"), "Goodwill and Other Intangible Assets." SFAS No. 141 addresses the
accounting for and reporting of business combinations.

   SFAS 141 requires that all business combinations be accounted for using the
purchase method of accounting for acquisitions, and eliminates the use of the
pooling-of-interests method. SFAS 141 is effective for all business combinations
initiated after June 30, 2001. The Company believes SFAS No. 141 will not have a
material effect on its consolidated financial statements.

     SFAS 142 addresses financial accounting and reporting for acquired goodwill
and other intangible assets. SFAS 142 changes the accounting for goodwill from
an amortization method to an impairment-only method. The amortization of
goodwill, including goodwill recorded in past business combinations, will cease
upon adoption of the SFAS 142. SFAS 142 is effective for all fiscal years
beginning after December 15, 2001. Goodwill and intangible assets acquired after
June 30, 2001, will be subject to immediate adoption of SFAS 142. As of December
31, 2001, the Company had recorded goodwill and intangibles of $1.8 million. The
Company believes SFAS No. 142 will not have a material effect on its
consolidated financial statements.

     On August 16, 2001, the FASB issued Statement of Financial Accounting
Standards No. 143 ("SFAS 143"), "Accounting for Asset Retirement Obligations."
SFAS 143 addresses financial accounting requirements for retirement obligations
associated with retirement of tangible long-lived assets and for the associated
asset retirement costs. SFAS 143 requires a company to record the fair value of
an asset retirement obligation in the period in which it is incurred. When the
retirement obligation is initially recorded, the Company also records a
corresponding increase to the carrying amount of the related tangible long-lived
asset and depreciates that cost over the useful life of the tangible long-lived
asset. The retirement obligation is increased at the end of each period to
reflect the passage of time and changes in the estimated future cash flows
underlying the initial fair value measurement. Upon settlement of the retirement
obligation, the Company either settles the retirement obligation for its
recorded amount or incurs a gain or loss upon settlement. SFAS 143 is effective
for fiscal years beginning after June 15, 2002 with




                                       7
<PAGE>

earlier application encouraged. Accordingly, SFAS 143 will be effective for the
Company beginning October 1, 2002. The Company is currently in the process of
evaluating the impact, if any, SFAS 143 will have on its financial position or
results of operations.

   On October 3, 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, ("SFAS 144") Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS 144 supercedes Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
Assets to be Disposed of", and the accounting and reporting provisions of
Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations
-- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS
144 establishes a single accounting model for impairment or disposal by sale of
long-lived assets. SFAS 144 is effective for fiscal years beginning after
December 15, 2001. Accordingly, SFAS 144 will be effective for the Company
beginning October 1, 2002. The Company is currently evaluating the potential
impact, if any, the adoption of SFAS 144 will have on its financial position and
results of operations.

NOTE 6  IMPAIRMENT OF LONG LIVED ASSETS

     The Company evaluates its long-lived assets, including goodwill and certain
identifiable intangibles, for impairment whenever events or changes in
circumstances indicate that the carrying amount of these assets may not be
recoverable. Recoverability of an asset to be held and used is measured by a
comparison of the carrying amount of the asset to future net cash flows expected
to be generated by the asset. If assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.

NOTE 7  BALANCE SHEET COMPONENTS

   Intangible Assets

   On March 13, 2000, the Company acquired WhiteBarn, Inc. for total
consideration of approximately $4.9 million. Approximately $4.4 million of the
purchase price was allocated to intangible assets including goodwill. The
goodwill and intangible assets acquired in connection with the acquisition of
WhiteBarn are being amortized on a straight-line basis over their estimated
useful lives of between two and three years.

NOTE 8  SEGMENT INFORMATION

   The Company has adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for the
reporting by public business enterprises of information about operating
segments, products and services, geographic areas, and major customers. The
method for determining what information to report is based on the way that
management organizes segments within the Company for making operating decisions
and assessments of financial performance.

   The Company's chief operating decision maker is considered to be the
Company's Chief Executive Officer (CEO). The CEO reviews financial information
presented on a consolidated basis for purposes of making operating decisions and
assessing financial performance. The consolidated financial information reviewed
by the CEO is identical to the information presented in the accompanying
condensed consolidated statements of operations. The Company has determined that
it operates in a single operating segment: real-time infrastructure software.

   The Company maintains significant operations in the United States, with
direct sales and marketing offices located in the United Kingdom, Germany and
Japan. The Company does not measure revenue by geographical area, and,
accordingly, no analysis has been provided. There were no significant assets
maintained by the Company outside the United States as of December 31, 2001 or
2000. Revenue from sales made to customers outside the United States aggregated
12% and 20% of our total revenue for the three months ended December 31, 2001
and 2000, respectively. Customers were primarily concentrated in the United
Kingdom, Germany, Australia and Japan.




                                       8
<PAGE>

   Significant customer information is as follows:

<TABLE>
<CAPTION>
                               PERCENTAGE OF TOTAL    PERCENTAGE OF
                                     REVENUE          TOTAL ACCOUNTS
                               THREE MONTHS ENDED        RECEIVABLE
                                   DECEMBER 31,         DECEMBER 31,
                               ------------------     --------------
                                2001         2000           2001
                                ----         ----           ----
        <S>                     <C>          <C>      <C>
        Customer A               11%          --             12%
</TABLE>

NOTE 9  LEGAL ACTIONS

     On January 8, 2002, an action, Robert Mathiason v. Talarian Corporation, et
al. was filed in the Superior Court of the State of California for the County of
Santa Clara. In this action, the plaintiff named as defendants the Company and
the Company's directors. The complaint purports to assert claims on behalf of
all of the Company's public stockholders who are similarly situated with the
plaintiff. The complaint alleges, among other things, that the Company and the
members of the Company's board of directors have breached their fiduciary duties
to the Company's stockholders in approving the merger with TIBCO, that the
directors engaged in self-dealing in connection with their approval of the
merger and that the directors failed to take steps to maximize the value of the
Company to the Company's stockholders. The complaint seeks class certification
and certain forms of equitable relief, including enjoining the consummation of
the merger. The Company believes that the allegations are without merit and
intends to vigorously contest the action. There can, however, be no assurance
that the Company or the other defendants will be successful in the defense of
the action.

     On August 10, 2001 a stockholder class action complaint was filed in the
United States District Court for the Southern District of New York against the
Company, certain of the Company's officers and directors, and three underwriters
of the Company's initial public offering. The complaint was brought on behalf of
purchasers of the Company's common stock between July 20, 2000 and December 6,
2000. The complaint has been brought as a purported stockholder class action
under Sections 11 and 15 of the Securities Act and Section 10(b) of the
Securities Exchange Act. The complaint alleges, among other things, that the
Company and the individual defendants named in the complaint violated the
federal securities laws by issuing and selling the Company's common stock in the
Company's initial public offering without disclosing to investors that certain
of the underwriters in the offering allegedly solicited and received excessive
and undisclosed commissions from certain investors. The Company is also aware
that a similar lawsuit has been filed on September 25, 2001 in the United States
District Court for the Southern District of New York against the Company.
Similar complaints have been filed against a number of other companies that had
initial public offerings in 1999 and 2000. The Company have not yet responded to
these lawsuits, and no discovery has been conducted. The Company believes that
the allegations in this action are without merit, and the Company intends to
defend against these actions vigorously, but the Company cannot give any
assurance that it will not have a material adverse effect on the Company.

NOTE 10  SUBSEQUENT EVENTS

     As of January 4, 2002, the Company entered into an Agreement and Plan of
Merger with TIBCO Software Inc. and Panther Acquisition Corp., a wholly owned
subsidiary of TIBCO. Pursuant to the merger agreement, the Company and Panther
Acquisition will merge, and the surviving corporation will become a wholly owned
subsidiary of TIBCO, subject to customary closing conditions, including the
approval of the Company's stockholders. In connection with the merger, each
share of the Company's outstanding common stock will be converted into the right
to receive $2.65 in cash and a fraction of a share of TIBCO common stock equal
to the exchange ratio. The exchange ratio will be determined by dividing $2.65
by the average of the closing sale prices for one share of TIBCO common stock as
reported on the Nasdaq National Market for the 10 consecutive trading days
ending with and including one day prior to the closing date of the merger,
provided that if this average trading price is greater than $16.21, or less than
$12.16, then for purposes of calculating the exchange ratio the average trading
price will be deemed to be $16.21 if it is greater than $16.21, or $12.16 if it
is less than $12.16. The merger is subject to various terms, conditions and
covenants, and this summary is necessarily incomplete. A copy of the Agreement
and Plan of Merger has been filed with the Securities and Exchange Commission
through a filing on Form 8-K that the Company made on January 8, 2002. The
Company has expensed approximately $480,000 of direct costs (professional
service fees) incurred in connection with this transaction in the three months
ended December 31, 2001.




                                       9
<PAGE>

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

   This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements can generally be identified by the use of words such
as "may," "might," "will," "should," "could," "expects," "intends," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential" or "continue,"
the negative of these terms, and other comparable terminology. These
forward-looking statements may include, among other things, our contemplated
acquisition by TIBCO Software Inc., anticipated trends in our revenue (including
maintenance) and expenditures, expectations regarding our products and
customers, our anticipated growth strategies, and anticipated trends in our
business. These forward-looking statements involve risks and uncertainties that
may cause actual results to differ materially from the forward-looking
statements. These risks and uncertainties include, but are not limited to, those
discussed under "Factors That May Affect Operating Results," below, and other
risks discussed in our filings with the Securities and Exchange Commission. We
do not assume any obligation to update any of these forward-looking statements.

   As of January 4, 2002, we entered into an Agreement and Plan of Merger with
TIBCO Software Inc. and Panther Acquisition Corp., a wholly owned subsidiary of
TIBCO. Pursuant to the merger agreement, we and Panther Acquisition will merge,
and the surviving corporation will become a wholly owned subsidiary of TIBCO,
subject to customary closing conditions, including the approval of our
stockholders. In connection with the merger, each share of our outstanding
common stock will be converted into the right to receive $2.65 in cash and a
fraction of a share of TIBCO common stock equal to the exchange ratio. The
exchange ratio will be determined by dividing $2.65 by the average of the
closing sale prices for one share of TIBCO common stock as reported on the
Nasdaq National Market for the 10 consecutive trading days ending with and
including one day prior to the closing date of the merger, provided that if this
average trading price is greater than $16.21, or less than $12.16, then for
purposes of calculating the exchange ratio the average trading price will be
deemed to be $16.21 if it is greater than $16.21, or $12.16 if it is less than
$12.16. The merger is subject to various terms, conditions and covenants, and
this summary is necessarily incomplete. A copy of the Agreement and Plan of
Merger has been filed with the Securities and Exchange Commission through a
filing on Form 8-K that we made on January 8, 2002.

GENERAL OVERVIEW

   We develop and market infrastructure software products that allow our
customers to distribute and share information in real time within and across
organizations. Our products enable distributed computer applications to
communicate quickly, reliably and securely across virtually any type of network,
including the Internet.

     We were incorporated in November 1988. From inception through 1996, we
derived a substantial portion of our revenue from a suite of software products
used primarily in connection with mission-critical command and control
operations in industries such as aerospace. In 1997, leveraging our technology
developed for mission-critical command and control operations, we refocused our
business strategy to provide infrastructure software for applications relying
heavily upon the use of real-time, distributed systems. Our operating activities
during 1997 and 1998 related primarily to developing our SmartSockets messaging
infrastructure product line and directing our sales and marketing efforts to
increase market awareness of our SmartSockets product in industries such as
finance, telecommunications and computer hardware and services. In 1999, we
launched SmartMQ, a message queuing product that provides complementary storage,
backup and audit capabilities to SmartSockets. We also added Internet-related
applications and industries, such as business-to-business e-commerce, to our
sales and marketing focus and began a concerted effort to market our product to
third-party partners such as original equipment manufacturers and value-added
resellers. Additionally in 1999, we began incorporating reliable multicast
capabilities into our SmartSockets product line.

     As part of our overall multicast initiative, we acquired substantially all
of the assets of GlobalCast Communications, Inc. in September 1999, and acquired
WhiteBarn, Inc. in March 2000. Later in 2000, we launched our SmartPGM IP
multicast product suite based on our implementation of reliable multicast
protocol known as Pragmatic General Multicast, or PGM, that was originally
specified by Cisco Systems. Our multicast product suite launched in 2000
included SmartPGM and SmartPGM FX, which simplifies the setup and management of
file transfers from a single sender to multiple receivers over an IP multicast
and PGM-capable network. In 2000, we also launched two products as add-on
products to SmartSockets, SmartSocket SSL, which provides private, secure
connections between SmartSockets processes, and SmartSockets Gateway, which
extends the message functionality of SmartSockets.




                                       10
<PAGE>

   In 2001, we introduced two new SmartSockets add-on products, SmartSockets
Multicast and SmartSockets LiveDB, and we extended our SmartPGM product line
with SmartPGM Propagator for Oracle. Additionally in 2001, in part as a response
to overall adverse economic conditions, we made a concerted effort to optimize
our organizational structure and applied more aggressive cost containment
programs. As a result, we closed remote offices in areas that were not providing
adequate returns on our investments. Additionally, we began to focus our sales,
marketing, and engineering resources primarily on the finance and aerospace
industries, which we believed had the potential for the greatest, and most
immediate, returns. We also continued our efforts toward third-party partners
such as original equipment manufacturers and value-added resellers, primarily in
the computer hardware and software services markets.

   Our revenue consists principally of license fees generated from our
SmartSockets product line and, to a lesser extent, revenue from maintenance,
support, and professional services related to our SmartSockets and SmartPGM
product lines. We license our products to end users to deploy in their networks
and, to a lesser extent, to software application providers to embed in their
products. For end users, we typically ship products with a shrink-wrap license
agreement and recognize revenue from software license fees upon delivery of the
software to the customer, provided that the fees are fixed and determinable and
that collection is probable. For software application providers and increasingly
with our end-users, we enter into signed license agreements. All of our original
equipment manufacturer and value-added reseller customers enter into signed
agreements with us. For customers using a signed license agreement, revenue is
recognized after all conditions above have been met and we have received the
signed agreement. We recognize software license revenue ratably over the term of
the license if the license requires us to deliver unspecified additional
software products during its term.

   Maintenance and support revenue consists of fees for providing software
updates and technical support for software products. We recognize revenue from
maintenance and support fees ratably over the period of the maintenance and
support agreement, typically twelve months. Payments for maintenance and support
are typically paid in advance and are nonrefundable.

   Professional services revenue consists of fees for services, including
product and application development, implementation and installation of software
products, integration of software, on-site support, consulting and training. We
generally recognize revenue from professional services as the services are
performed.

   Payments received in advance of revenue recognition are recorded as deferred
revenue. As of December 31, 2001, we had $5.1 million of deferred revenue. Of
this amount, $760,000 was classified as long-term deferred revenue, relating
primarily to software licenses that require us to deliver software over an
extended period and, to a lesser extent, to maintenance and support agreements
that have a term in excess of one year.

   We market our products primarily through our direct sales force and, to a
lesser extent, through indirect channels. We also derive revenue from indirect
channel relationships with distributors, original equipment manufacturers,
value-added resellers and systems integrators. Our third-party relationships
have typically been with companies that embed our product within their product,
for which we receive a license fee and, in some cases, future royalties based on
our reseller's product revenue. We expanded our international presence by
opening a sales and support office in London, England in 1998, and added sales
offices in Tokyo, Japan and Frankfurt, Germany in 2000. Due to the overall
economic slowdown that began in 2001, we have focused our direct international
efforts solely in our London offices, augmented through international
distributors. We plan to prudently increase our current sales force, focusing
our efforts on industry verticals and geographies that provide us the highest
return on investment, and continue current campaigns for the market awareness of
our company and our products. As a result, we expect to incur only moderate
increases in expenditures related to programs designed to achieve those goals.

   In September 1999, we acquired substantially all of the assets of GlobalCast,
a provider of reliable multicast technology, for our common stock with an
aggregate value of $3.6 million. The acquisition was accounted for using the
purchase method of accounting in accordance with Accounting Principles Board
Opinion No. 16, and $300,000 of the purchase price was allocated to in-process
research and development and expensed at the time of the acquisition. Also, in
connection with the GlobalCast acquisition, we recorded intangible assets of
$2.9 million. During the quarter ended June 30, 2001, we recorded a charge of
$1.2 million, representing the balance of the GlobalCast intangible assets, to
reflect the impairment of intangibles and other assets, primarily related to our
goodwill associated with our acquisition of GlobalCast.




                                       11
<PAGE>

   In March 2000, we acquired WhiteBarn, a professional services and software
development company focused on reliable multicast and network protocols with
cash, stock and options to purchase our common stock that had an aggregate value
of $4.9 million. The transaction was accounted for as a purchase. In this
acquisition, the acquired technology included existing technology, but not
in-process research and development. In connection with the WhiteBarn
acquisition, we recorded intangible assets of $4.4 million and are amortizing
them over a two to three year period.

   We have incurred significant losses recently as we have spent substantial
amounts to develop and enhance our products and have invested heavily in our
sales and marketing organizations. Recent economic conditions have also served
to slow customers' spending decisions. We believe our success is dependent upon
our ability to continue to expand our customer base and enhance our technology.

   In connection with the granting of stock options to our employees through
July 20, 2000, we recorded deferred stock compensation totaling approximately
$22.6 million. This amount represents the difference between the exercise price
and the deemed fair value of our common stock for accounting purposes on the
date these stock options were granted. This amount is included as a component of
stockholders' equity and is being amortized on an accelerated basis by charges
to operations over the vesting period of the options consistent with the method
described in Financial Accounting Standards Board Interpretation No. 28. The
stock options, or restricted stock purchased pursuant to these options,
generally vest at a rate of 12.5% upon the six-month anniversary of the option
grant date and 2.083% each month thereafter for the next 42 months. Amortization
of the December 31, 2001 balance of deferred stock compensation will result in
charges to operations of $1.62 million, $886,000, and $72,000 for the fiscal
years 2002, 2003 and for the nine months ended June 30, 2004, respectively.

   We have recorded a $50,000 provision for state and foreign franchise taxes
for the period ending September 30, 2001. We have not recorded a provision for
federal income taxes for any period since our inception as we have incurred
losses in each period. As of September 30, 2001, we had net operating loss
carryforwards for federal income tax purposes of approximately $21.1 million and
for California income tax purposes of approximately $1.6 million, available to
offset income in future years. The federal net operating loss carryforwards
expire from 2007 through 2021. The California net operating loss carryforwards
expire from 2001 through 2006.

RESULTS OF OPERATIONS

   The following table sets forth the results of operations for the three months
ended December 31, 2001 and 2000 expressed as a percentage of total revenue.

<TABLE>
<CAPTION>
                                                   THREE MONTHS ENDED
                                                      DECEMBER 31,
                                                   ------------------
                                                    2001        2000
                                                    ----        ----
<S>                                                 <C>         <C>
Revenue:
  Licenses                                            59%         59%
  Maintenance                                         35          25
  Professional services                                6          16
                                                    ----        ----
    Total revenue                                    100         100
                                                    ----        ----

Cost of revenue:
  Licenses                                             2           1
  Maintenance                                          7          11
  Professional services                                5           7
  Amortization of deferred stock compensation          2           8
                                                    ----        ----
    Total cost of revenue                             16          27
                                                    ----        ----
    Gross profit                                      84          73
                                                    ----        ----

Operating expenses:
  Sales and marketing                                 59         101
</TABLE>




                                       12
<PAGE>

<TABLE>
<S>                                                 <C>         <C>
  Research and development                            48          82
  General and administrative                          20          28
  Amortization of deferred stock compensation:
      Sales and marketing                              3          24
      Research and development                         7          21
      General and administrative                       5          14
  Acquisition cost                                    10           0
  Amortization and impairment of goodwill and
    intangible assets                                  8          18
                                                    ----        ----
      Total operating expenses                       160         288
                                                    ----        ----
      Loss from operations                           (76)       (215)
Interest income and other, net                         9          33
                                                    ----        ----
      Net loss                                       (67)%      (182)%
                                                    ====        ====
</TABLE>


REVENUE

   Total revenue increased by $1.2 million, or 36%, to $4.6 million in the three
months ended December 31, 2001, from $3.4 million in the three months ended
December 31, 2000. Licenses and associated maintenance revenue represented 94%
and 84% of total revenue for the three months ended December 31, 2001 and 2000,
respectively. The increase in total revenue for the three month period was due
equally to increases in software licenses and associated maintenance revenue,
offset in part by a decrease in professional services revenue. During the twelve
months ended September 30, 2001, we saw a significant decrease in the overall
demand for our products and services that resulted in lower than anticipated
license revenue and greater than anticipated net loss. We believe that this
decrease in demand was primarily due to general and industry economic
conditions. The revenue for the quarter ended December 31, 2001 was affected by
this decrease in demand. While we continue to be adversely impacted by the
decline in overall economic conditions, our focus on the financial services and
aerospace industries and the resulting increase in revenue from those sectors,
has helped mitigate the impact of such conditions relative to the year-ago
period. One customer accounted for more than 10% of our total revenue in the
three months ended December 31, 2001. No customers accounted for more than 10%
of our total revenue in the three months ended December 31, 2000. International
revenue decreased by $63,000, or 10%, to $552,000 for the three months ended
December 31, 2001, from $615,000 in the three months ended December 31, 2000.
International revenue was 12% and 18% of our total revenue in the three months
ended December 31, 2001 and 2000, respectively.

   Licenses. License revenue increased by $738,000, or 37%, to $2.8 million in
the three months ended December 31, 2001, from $2.0 million in the three months
ended December 31, 2000. The increase in license revenue was equally due to an
increase in the number of SmartSockets software licenses and new product
software licenses that were not offered in the year ago quarter such as
SmartCache and SmartSockets JMS. As a percentage of total revenue, license
revenue represented 59% in each of the three months ended December 31, 2001 and
2000.

   Maintenance. Maintenance revenue increased by $760,000, or 91%, to $1.6
million in the three months ended December 31, 2001, from $839,000 for the three
months ended December 31, 2000. Approximately $701,000 of the increase in
maintenance is due to customers whose maintenance periods had previously expired
and had re-initiated their maintenance programs and agreed to pay for lapsed
maintenance during the quarter. The increase in maintenance revenues was due in
part to an aggressive campaign to re-initiate maintenance programs for our
customers whose maintenance had expired. The balance of the increase in
maintenance revenue was due to a larger installed base of customers receiving
ongoing maintenance. We believe that the majority of our customers requiring
maintenance are now on a current maintenance program and thus future maintenance
revenue will reflect ongoing maintenance renewals that are recognized over their
maintenance period, typically one year. Accordingly, we expect maintenance
revenue to be $1.0 million to $1.2 million for the quarter ending March 31,
2002. As a percentage of total revenue, maintenance revenue represented 35% and
25% in the three months ended December 31, 2001 and 2000, respectively.

   Professional services. Professional services revenue decreased by $267,000,
or 48%, to $289,000 in the three months ended December 31, 2001, from $556,000
in the three months ended December 31, 2000. The decrease in professional
services revenue during the three months ended December 31, 2001 was primarily a
result of services delivered during the quarter under a fixed price contract
that requires customer acceptance, which is expected next




                                       13
<PAGE>

quarter. As a result, revenue associated with such services has been deferred
until final acceptance is received from the customer. In addition, the decline
in professional services revenue reflected both a stronger focus on higher
margin software sales and the continuing effects of the previously announced
reallocation of much of the professional services staff to internal product
development and to pre-sales support activities. As a percentage of total
revenue, professional services revenue represented 6% and 16% in the three
months ended December 31, 2001 and 2000, respectively.

COST OF REVENUE

   In the three months ended December 31, 2001, cost of revenue decreased by
$139,000, or 15%, to $773,000, from $912,000 in the three months ended December
31, 2000. The decrease in cost of revenue for the three months ended December
31, 2001, was primarily a result of a $178,000 decrease in amortization of
deferred stock compensation associated with terminated employees, offset in part
by an increase in cost of licenses and maintenance revenue commensurate with the
increase in revenue from those elements. As a percentage of total revenue, cost
of revenue represented 16% and 27% in the three months ended December 31, 2001
and 2000, respectively. Not including amortization of deferred stock
compensation, as a percentage of total revenue, cost of revenue was 14% and 18%
in the three months ended December 31, 2001 and 2000, respectively.

   Licenses. Cost of license revenue includes royalties due for technology
licensed from third parties, product packaging, manuals and documentation, and
software media. In the three months ended December 31, 2001, cost of license
revenue increased by $59,000, or 328%, to $77,000 from $18,000 in the three
months ended December 31, 2000. The increase in cost of license revenue was
attributable to an increase in overall license revenue, particularly license
revenue from royalty-bearing products. We anticipate the cost of license revenue
to fluctuate in absolute dollar amount and as a percentage of total license
revenue as the related license revenue, and the mix of license revenue among
various products, fluctuates. As a percentage of license revenue, cost of
license revenue represented 3% and 1% in the three months ended December 31,
2001 and 2000, respectively.

   Maintenance. Cost of maintenance revenue consists of compensation and related
expenses for our technical support organization. Cost of maintenance revenue
decreased by $28,000, or 8%, to $342,000 in the three months ended December 31,
2001, from $370,000 in the three months ended December 31, 2000. The decrease in
cost of maintenance revenue was due to cost containment efforts implemented
during the second half of our fiscal year ended September 30, 2001. As a
percentage of maintenance revenue, cost of maintenance revenue represented 21%
and 44% in the three months ended December 31, 2001 and 2000, respectively. The
decrease in percentage is due to the one-time increase in maintenance revenue of
$701,000 for customers that caught up on lapsed maintenance.

   Professional services. Cost of professional services revenue consists of
compensation and related overhead expense for personnel and third-party
contractors we use in performing consulting, implementation and training
services for our customers. Cost of professional services revenue increased by
$8,000, or 3%, to $244,000 in the three months ended December 31, 2001, from
$236,000 in the three months ended December 31, 2000. The increase in cost of
professional services revenue for the three months ended December 31, 2001 was a
result of an increase in professional services management, personnel and
supporting infrastructure. As a percentage of professional services revenue,
cost of professional services revenue represented 84% and 42% in the three
months ended December 31, 2001 and 2000, respectively. The increase in the cost
of professional services revenue as a percentage of professional services
revenue was a result of increasing the management, personnel and other
supporting infrastructure associated with delivering our professional services.

   Amortization of deferred stock compensation. Amortization of deferred stock
compensation in cost of revenue decreased by $178,000, to $110,000 in the three
months ended December 31, 2001 from $288,000 in the three months ended December
31, 2000 due to cancelled options of terminated employees.

OPERATING EXPENSES

   Sales and marketing. Sales and marketing expenses include costs of sales and
marketing personnel and related overhead, commissions, field office expenses,
advertising and promotion expenses, travel and entertainment expenses and other
selling and marketing costs. Sales and marketing expenses decreased by $734,000,
or 21%, to $2.7 million in the three months ended December 31, 2001, from $3.5
million in the three months ended December 31, 2000. The decrease in sales and
marketing expenses was due to the continued application of cost containment
efforts originally implemented during the second half of our fiscal year ended
September 30, 2001, including a




                                       14
<PAGE>

reduction in marketing programs and overall headcount associated with sales and
marketing. As a percentage of total revenue, sales and marketing expenses
represented 59% and 101% in the three months ended December 31, 2001 and 2000,
respectively.

   Research and development. Research and development expenses consist of costs
of research and development personnel and associated overhead, and costs of
short-term independent contractors required in connection with development of
new products, enhancements to existing products, technical documentation, and
quality assurance. Costs incurred, under our current engineering processes, the
establishment of technological feasibility and general release substantially
coincide. As a result, no software development costs have been capitalized to
date. Research and development expenses decreased by $570,000, or 20%, to $2.2
million in the three months ended December 31, 2001, from $2.8 million in the
three months ended December 31, 2000. The decrease in research and development
expenses was due to the continued application of cost containment efforts
originally implemented during the second half of our fiscal year ended September
30, 2001, including a reduction in overall headcount. As a percentage of total
revenue, research and development expenses represented 48% and 82% in the three
months ended December 31, 2001 and 2000, respectively.

   General and administrative. General and administrative expenses include
personnel costs for finance, administration, information systems and general
management, as well as professional fees, legal expenses, bad debt expense and
other general corporate expenses. General and administrative expenses decreased
by $46,000, or 5%, to $925,000 in the three months ended December 31, 2001, from
$971,000 in the three months ended December 31, 2000. The decrease is due to the
continued application of cost containment efforts originally implemented during
the second half of our fiscal year ended September 30, 2001, including a
reduction in overall headcount associated with general and administrative
functions. As a percentage of total revenue, general and administrative expenses
represented 20% and 28% in the three months ended December 31, 2001 and 2000,
respectively.

   Amortization of deferred stock compensation. During the three months ended
December 31, 2001, we recorded $675,000 of amortization of deferred stock
compensation in operating expenses, representing $131,000 of additional sales
and marketing expenses, $334,000 of additional research and development expenses
and $210,000 of additional general and administrative expenses. During the three
months ended December 31, 2000, we recorded $2.0 million of amortization of
deferred stock compensation.

   Direct costs relating to acquisition. During the three months ended December
31, 2001, we recorded $480,000 of legal and professional fees related to the
pending acquisition by TIBCO Software.

   Amortization of goodwill and intangible assets. Amortization of goodwill and
intangible assets was $379,000 and $608,000 in the three months ended December
31, 2001 and 2000, respectively. This amount represents the amortization of
goodwill and other intangible assets acquired in connection with our acquisition
of WhiteBarn in March 2000.

INTEREST INCOME AND OTHER, NET

   Interest income and other, net consists of interest income, net of interest
expense, income taxes and losses on foreign currency transactions. Interest
income and other, net resulted in income of $404,000 and $1.1 million for the
three months ended December 31, 2001 and 2000, respectively. The decrease is
attributable to lower interest income related to lower cash balances versus the
year-ago period.

LIQUIDITY AND CAPITAL RESOURCES

   Prior to our initial public offering, we funded our operations through
private sales of redeemable convertible preferred stock, internal operations,
and, to a lesser extent, through our credit facilities. In February 2000, we
raised $9.9 million through a private sale of redeemable convertible preferred
stock. On July 20, 2000, we completed an initial public offering of 4.2 million
shares of our common stock at $16.00 per share. Net proceeds from this offering
were $60 million, net of underwriters' commissions and offering expenses.

   Net cash used in operating activities was $1.7 million and $3.6 million for
the three months ended December 31, 2001 and 2000, respectively. For the three
months ended December 31, 2001, substantially all of net cash used in operating
activities was attributable to our net loss of $3.1 million, and an increase in
accounts receivable of $2.0 million offset in part by $1.5 million in non-cash
charges, and an increase in deferred revenue. For the three months




                                       15
<PAGE>

ended December 31, 2000, substantially all of net cash used in operating
activities was attributable to our net loss of $6.2 million, offset in party by
$2.9 million in non-cash charges.

   Net cash provided by investing activities was $9.3 million for the three
months ended December 31, 2001 and net cash used in investing activities was
$1.9 million for the three months ended December 31, 2000. For the three months
ended December 31, 2001, net cash provided by investing activities was primarily
related to the sale and purchase of short-term investments. For the three months
ended December 31, 2000, net cash used in investing activities was primarily
related to the purchase of short-term investments, and, to a lesser extent, the
purchase of property and equipment.

   Net cash used in financing activities was $10,000 and $4,000 for the three
months ended December 31, 2001 and 2000, respectively. Net cash used in
financing activities was primarily attributable to the repurchase of common
stock.

   As of December 31, 2001, we had approximately $50.7 million in cash, cash
equivalents, and short term investments, and working capital of $49 million. As
of that date, we also had a line of credit under which we could borrow up to
$2.0 million with a revolving maturity date of February 22, 2002, at an interest
rate of prime plus 0.25%. Any borrowing will be collateralized by accounts
receivable and other assets. We have no borrowings under this line of credit and
are in compliance with all required financial ratios, net loss levels, and other
financial covenants. Our commitments consist primarily of amounts due under our
operating leases. We have no material commitments for capital expenditures. For
the next twelve months, we expect our capital expenditures to be approximately
$500,000. We may use cash resources to fund acquisitions or investments in
complementary businesses or technologies. We believe that our current cash, cash
equivalents, and short-term investments will be sufficient to meet our working
capital and operating resource requirements for at least the next 12 months.

FACTORS THAT MAY AFFECT OPERATING RESULTS

   The Company's future operating results may differ materially from the results
discussed in, or implied by, forward-looking statements made by the Company.
Factors that may cause such differences include, but are not limited to, those
discussed below and elsewhere in this Report.

RISKS RELATED TO THE PROPOSED MERGER WITH TIBCO SOFTWARE INC.

FAILURE TO COMPLETE THE PROPOSED MERGER WITH TIBCO COULD ADVERSELY AFFECT OUR
STOCK PRICE AND FUTURE BUSINESS AND OPERATIONS.

   The merger is subject to the satisfaction of a number of closing conditions,
including the approval by our stockholders and regulatory agencies, and we
cannot assure you that the merger will be successfully completed. In the event
that the merger is not completed, we may be subject to a number of material
risks, including the following:

   -  We may be required to pay TIBCO a termination fee of $3,850,000;

   -  The price of our common stock may decline to the extent that the current
      market price for our common stock reflects a market assumption that the
      merger will be completed;

   -  Costs related to the proposed merger, such as legal, accounting, and some
      advisory fees, must be paid, even if the merger is not completed; and

   -  Restoring our business to our pre-announcement of merger value could take
      a substantial amount of time and resources, and may not occur.

   Further, if the merger is not completed and our board of directors determines
to seek another business combination, we may not be able to find a partner
willing to pay an equivalent or more attractive price than that which would have
been paid in the merger with TIBCO.




                                       16
<PAGE>

OUR BUSINESS COULD SUFFER IN RESPONSE TO THE ANNOUNCEMENT OF THE
MERGER WITH TIBCO.

   The announcement of the merger may have a negative impact on our ability to
sell our products and services, attract and retain key management, development
or other personnel, maintain and attract new customers, and maintain strategic
relationships with third parties. For example, we may experience cancellations
or a decline in the rate of orders for our products or services or a
deterioration in our customer relationships. In addition, our employees may
experience uncertainty about their future role with TIBCO. If the merger is not
completed, we could be harmed by these adverse changes in our business or the
expectation of these changes, and restoring our business to its pre-announcement
value could take a long time and be costly, and may not occur.

SINCE THE CLOSING TRADING PRICE OF THE COMMON STOCK OF TIBCO USED FOR
DETERMINING THE EXCHANGE RATIO IS SUBJECT TO CONTRACTUAL PRICE LIMITATIONS, THE
EXCHANGE RATIO MAY NOT FULLY REFLECT CHANGES IN THE MARKET VALUE OF TALARIAN
COMMON STOCK OR TIBCO COMMON STOCK BEFORE THE CLOSING OF THE MERGER AND
ACCORDINGLY, THE VALUE TO BE RECEIVED BY OUR STOCKHOLDERS WILL DECREASE IF THE
MARKET VALUE OF TIBCO COMMON STOCK FALLS BELOW $12.16.

   The exchange ratio to be used for calculating the consideration to be
received by our stockholders in the merger with TIBCO will be determined based
on the average closing trading price of TIBCO common stock during the 10
consecutive trading days ending the day prior to the closing date, provided that
if such average trading price is greater than $16.21 or less than $12.16, then
the average trading price for calculating the exchange ratio will be deemed to
be $16.21 or $12.16, respectively. Accordingly, the parties will not adjust the
exchange ratio if the market price of TIBCO common stock fluctuates above or
below these limits, or if the market price of our common stock appreciates in
value. As a result, the value of TIBCO common stock that our stockholders will
receive upon completion of the merger will depend on the closing trading price
of TIBCO common stock, and may be below $2.65 per share of our common stock. The
share prices of both our common stock and TIBCO common stock are subject to
price fluctuations in the market for publicly traded equity securities and have
each experienced significant volatility. We cannot predict the market prices for
either our common stock or TIBCO common stock at any time before the completion
of the merger or the market price for TIBCO common stock after the merger.

THE MARKET PRICE OF TIBCO COMMON STOCK IS HIGHLY VOLATILE AND MAY DECLINE AFTER
THE MERGER.

   In the past, TIBCO common stock has experienced substantial price volatility.
This volatility might occur in the future, which could cause the TIBCO common
stock to be worth less after the merger than before the merger. Volatility can
arise particularly in response to quarter-to-quarter variations in the actual or
anticipated financial results of TIBCO, its customers or competitors, and
announcements by TIBCO or its competitors regarding new product and service
introductions. The market price of TIBCO common stock can also fluctuate in
response to price and volume fluctuations in the stock market, particularly
those that affect the market prices of technology stocks.

   In addition, the market price of TIBCO common stock may decline as a result
of the merger if:

   -  the integration of TIBCO and our company is unsuccessful;

   -  TIBCO does not achieve the perceived benefits of the merger as rapidly as,
      or to the extent, anticipated by financial or industry analysts; or

   -  the effect of the merger on TIBCO's financial results is not consistent
      with the expectations of financial or industry analysts.

A PENDING CLASS-ACTION LAWSUIT, IF SUCCESSFUL, COULD PREVENT THE MERGER WITH
TIBCO.

    On January 8, 2002, a purported class action complaint was filed in the
Superior Court of the State of California for the County of Santa Clara against
our company and our directors. The complaint generally alleges that our company
and our board of directors have breached their fiduciary duties to our
stockholders in approving the merger with TIBCO, that the directors engaged in
self-dealing in connection with their approval of the merger and that the
directors failed to take steps to maximize the value of our company to our
stockholders. The complaint seeks class certification and certain forms of
equitable relief, including enjoining the consummation of the merger. We believe
that the allegations are without merit and intend to defend against the
complaint vigorously. We, however, cannot provide any assurance that we or the
other defendants will be successful. The defense of this lawsuit could result in




                                       17
<PAGE>

the diversion of the time and attention of our management away from the business
operations of our company and the completion of the merger, and could prevent
the consummation of the merger, which could harm our business. Negative
developments with respect to the lawsuit could cause our stock price to decline.
If we were required to pay amounts in connection with the resolution of the
lawsuit by settlement or otherwise, such a payment may reduce its cash reserves.

RISKS RELATED TO TALARIAN'S BUSINESS IF TALARIAN WERE TO REMAIN
AN INDEPENDENT COMPANY

WE HAVE A HISTORY OF LOSSES, WE EXPECT FUTURE LOSSES, AND WE MAY NEVER ACHIEVE
OR MAINTAIN PROFITABILITY.

   We have a history of losses, we expect future losses, and we do not expect to
achieve profitability in the near future. We incurred net losses of $3.5 million
in fiscal 1999, $15.0 million in fiscal 2000, and $23.4 million in fiscal 2001,
and $3.1 million in the three months ended December 31, 2001. As of December 31,
2001, we had an accumulated deficit of approximately $51 million. We cannot
assure you that our revenue will grow or that we will achieve or maintain
profitability in the future. While we intend to maintain controls on expenses at
approximately current levels, it may be necessary to increase our future product
development, sales and marketing, and administrative expenses. In any event, we
will need to increase our revenue substantially to achieve and maintain
profitability, which we may not be able to do.

ECONOMIC CONDITIONS MAY REDUCE DEMAND FOR OUR PRODUCTS AND SERVICES.

   Our revenue, and our ability to achieve and sustain profitability, depend on
the overall demand for the software products and services we offer. The general
economic slowdown in the world economy has caused many companies to defer
purchases of products and services and otherwise altered their purchasing
patterns. Capital spending in the information technology sector generally has
decreased over the past twelve to eighteen months, and many of our customers and
potential customers have experienced declines in their revenue and operations.
The terrorist acts of September 11, 2001 have increased the uncertainty in the
economic environment, and we cannot predict the impact of these events or
possible similar or related future events on our customers or our business. If
U.S. or global economic conditions worsen, it will likely have a material
adverse impact on our business, operating results, and financial conditions.

OUR OPERATING RESULTS ARE DIFFICULT TO PREDICT IN ADVANCE AND MAY FLUCTUATE
SIGNIFICANTLY, AND A FAILURE TO MEET THE REVENUE EXPECTATIONS OF SECURITIES
ANALYSTS OR INVESTORS MIGHT RESULT IN A DECLINE IN OUR STOCK PRICE.

   Our future operating results may vary significantly. If our operating results
are below the expectations of securities analysts or investors, our stock price
is likely to decline.

   Our revenue and operating results depend upon the volume and timing of
customer orders and payments and the date of product delivery. Historically, we
have had little backlog and our revenue in any quarter has been substantially
dependent upon orders booked in that quarter. In addition, more than 50% of our
license revenue in a given quarter has often been recorded in the third month of
that quarter, with a concentration of this revenue in the last two weeks of the
third month. Furthermore, more than 50% of our license revenue for a given
quarter has often been derived from fewer than 10 customers. For example, in the
quarter ended December 31, 2001, seven customers represented more than 50% of
total revenue. We expect these trends to continue and, therefore, any failure or
delay in the closing of orders could have a material adverse effect on our
quarterly operating results. Additionally, since our operating expenses are
based on anticipated revenue and because a high percentage of these expenses are
relatively fixed, a shortfall in anticipated revenue could have a significant
negative impact on our operating results.

   Other factors that may cause our revenue or operating results to fall short
of expectations include:

   -  the uncertainty of current economic conditions and their effect on
      customer purchase decisions;

   -  the amount and timing of sales and marketing expenses and other operating
      costs and capital expenditures relating to our business;




                                       18
<PAGE>

   -  changes in prices of, and the adoption of different pricing strategies
      for, our products and those of our competitors;

   -  changes in the demand for our products due to the announcement or
      introduction of new or enhanced products or services by us or our
      competitors;

   -  changes in the demand for our products due to the fact that many of our
      future customers are expected to be concentrated in early-stage
      industries, such as the Internet industry, and these customers are often
      capital constrained and have rapidly changing needs; and

   -  the capital and expense budgeting decisions of our customers;

   -  the impact of possible acquisitions both on our operations and on our
      reported operating results due to associated accounting charges.

VARIATIONS IN THE TIME IT TAKES US TO SELL OUR PRODUCTS MAY CAUSE FLUCTUATIONS
IN OUR OPERATING RESULTS.

   Variations in the length of our sales cycles could cause our revenue to
fluctuate widely from period to period. The period between our initial contact
with a customer and the time when we recognize revenue from that customer varies
widely in length. Our sales cycles typically range from three to nine months.
For larger opportunities with new customers, these cycles can be longer.
Additionally, due to the mission-critical nature of many deployments of our
products, our customers may take a long time to evaluate our products, and many
individuals may be involved in the evaluation process. In addition, many of our
customers purchase our real-time infrastructure software as part of a
large-scale information technology project, which includes the purchase of many
products from a number of vendors. Changes in the scheduling of these projects,
or delays or problems caused by other vendors or their products, may cause
unexpected delays in our sales cycles.

COMPETITION IN THE MARKET FOR TALARIAN'S PRODUCTS IS INTENSE; MANY OF OUR
COMPETITORS AND POTENTIAL COMPETITORS ARE MUCH LARGER THAN WE ARE AND HAVE
SIGNIFICANTLY GREATER RESOURCES; WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY.

   The market for our products is intensely competitive, relatively new, rapidly
evolving, and subject to rapid technological change. We believe that competition
will become more intense in the future and may cause price reductions, reduced
gross margins, and loss of market share, any one of which could significantly
reduce our future revenue. Current and potential competitors include:

   -  enterprise application integration vendors such as TIBCO, webMethods,
      Sybase (Neon), Level 8, IONA, Mercatur, seeBeyond and Vitria Technology;

   -  infrastructure software and application server providers such as IBM,
      Microsoft, Oracle, Sun and BEA;

   -  vendors of widely used operating system software, including Microsoft and
      Sun Microsystems, which may integrate real-time integration functionality
      into future versions of their operating system software or introduce
      directly competing integration functionality; and

   -  information technology departments of potential customers which have
      developed or may develop systems that provide some or all of the
      functionality of Talarian's SmartSockets software and related products.

   Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, product development and
marketing resources, greater name recognition and larger customer bases than we
do. Our competitors may be able to develop products comparable or superior to
those we offer, adapt more quickly than we do to new technologies, evolving
industry trends or customer requirements, or devote greater resources to the
development, promotion and sale of their products than we do. Many of our
competitors also have well-established relationships with our existing and
prospective customers as well as companies that have significant influence in
the industry. Negotiating and maintaining favorable customer and strategic
relationships is critical to




                                       19
<PAGE>

our business, and our competitors may be able to negotiate strategic
relationships on more favorable terms than we are able to negotiate.

   Furthermore, a number of these competitors may merge or form strategic
relationships that would enable them to offer, or bring to market earlier,
products or services that are superior to our own in terms of features, quality,
pricing or other factors. We expect additional competition from other
established and emerging companies. The industry in which we compete is rapidly
evolving. We may not be able to compete effectively against current and
potential competitors, especially those with significantly greater resources.

SOME OF OUR COMPETITORS HAVE SIGNIFICANTLY BROADER PRODUCT OFFERINGS, AND WE MAY
NEED TO PARTNER WITH THIRD PARTIES TO PROVIDE A BROADER RANGE OF PRODUCTS AND
SERVICES.

   Our customers often purchase our real-time infrastructure software as part of
a large-scale information technology project requiring many products from many
vendors. Many of our competitors offer extended product lines, and some
customers may prefer to purchase products from vendors that are able to offer
broader functionality than can be provided by our products alone as part of the
customers' overall information technology project. For example, some of our
competitors offer a larger number of "adaptors" that facilitate connecting their
products with third-party applications, and some competitors have products that
contain a software feature, known as "business logic," that facilitates the
routing and delivery of information in a different manner than is used by our
products. In order to compete more effectively, we may need to expand the
breadth of our product offerings by partnering with companies offering
complementary products. We may not be able to enter into relationships of this
type, on reasonable terms or at all, and our failure to do so could adversely
affect our ability to sell our products and services.

THE REAL-TIME INFRASTRUCTURE SOFTWARE PRODUCTS MARKET IS IN AN EARLY STAGE OF
DEVELOPMENT, AND THESE PRODUCTS, INCLUDING OUR SMARTSOCKETS AND SMARTMULTICAST
SOFTWARE AND RELATED PRODUCTS, MAY NOT ACHIEVE MARKET ACCEPTANCE.

   The market for real-time infrastructure software products is relatively new
and rapidly evolving, and there are a variety of infrastructure methods
available. We do not know if customers in our target markets will widely adopt
and deploy real-time infrastructure software products such as our SmartSockets
software and related products. If real-time infrastructure software products are
not widely adopted by customers in our target markets, our revenue will not
increase substantially, if at all.

THE SUBSTANTIAL EXPENDITURES REQUIRED TO EDUCATE PROSPECTIVE CUSTOMERS AND
DEVELOP MARKET ACCEPTANCE FOR OUR PRODUCTS MAY NEVER BE OFFSET BY FUTURE
REVENUE.

   Due to the evolving nature of our market, we may have to devote substantial
resources to educate prospective customers about the benefits of infrastructure
software in general and our SmartSockets software and related products in
particular. Our efforts to educate potential customers may not result in our
products achieving market acceptance. In addition, many of these prospective
customers have made significant investments in internally developed or custom
systems and may incur significant costs in switching to third-party products
such as ours. Our target customers may not choose our products for technical,
cost, support, or other reasons. If the market for our products fails to grow or
grows more slowly than we anticipate, these substantial expenditures may not be
offset by incremental revenue.

WE DERIVE MORE THAN 85% OF OUR TOTAL REVENUE FROM OUR SMARTSOCKETS PRODUCT LINE,
AND IF DEMAND FOR SMARTSOCKETS DECREASES OR DOES NOT INCREASE, OUR TOTAL REVENUE
WILL NOT INCREASE AND MAY DECREASE.

   We currently derive more than 85% of our total revenue from licensing our
SmartSockets software product line and providing related consulting and
maintenance services. We expect to continue to derive a substantial portion of
our revenue from these sources for the foreseeable future. Accordingly, our
future operating results will depend on the demand for SmartSockets by future
customers. If our competitors release products that are superior to SmartSockets
in performance or price, if SmartSockets is not widely accepted by the market,
or if we fail to enhance SmartSockets and introduce new versions in a timely
manner, demand for this product may decrease or fail to increase. A decline in
demand for SmartSockets or a failure of demand to increase, as a result of
competition, technological change or other factors, would significantly and
adversely affect our business, financial condition and operating results.




                                       20
<PAGE>

IF WE DO NOT KEEP PACE WITH TECHNOLOGICAL CHANGE OR INDUSTRY STANDARDS, OUR
PRODUCTS MAY NOT BE COMPETITIVE AND OUR REVENUE AND OPERATING RESULTS MAY
SUFFER.

   Our industry is characterized by rapid technological change, frequent new
product introductions and enhancements, and evolving customer demands and
industry standards. Our products may not be competitive if we fail to introduce
new products or product enhancements that meet new customer demands, support new
standards, or integrate with new or upgraded versions of packaged applications.
The development of new products is complex, and there can be no assurance that
we will be able to complete development in a timely manner, or at all. There are
currently no widely accepted standards in various technical areas of importance
to us, including the areas of reliable multicast and business-quality messaging.
There can be no assurance that the proposed standards we support will prevail or
be widely adopted. We believe that we will need to continue to enhance our
products and develop new products to keep pace with competitive and
technological developments and evolving industry standards, and our failure to
do so on a timely basis, or to achieve market acceptance for our products, would
harm our revenue and operating results.

FAILURE TO DEVELOP AND MAINTAIN KEY STRATEGIC RELATIONSHIPS COULD CAUSE US TO
LOSE MARKET OPPORTUNITIES AND LIMIT OUR GROWTH.

   We believe that our success in penetrating our target markets depends in part
upon our ability to develop and maintain strategic relationships with key
original equipment manufacturers, systems integrators, distributors, and
independent software vendors. Relationships with these parties are also
important because they often influence a customer's decision on which
infrastructure software will be used for a project. We believe these
relationships will introduce our products to potential customers and provide us
with insights into new technologies to which we may not otherwise have access.
For example, a system integrator that is responsible for reengineering a network
may be heavily involved in analyzing and ultimately selecting the infrastructure
software to be used in the network. To date, we have informal working
relationships with several system integrators, and formal agreements with only a
limited number of system integrators. Some of our competitors have developed
more strategic relationships than we have. We cannot be certain that we will be
able to establish relationships with additional companies on a timely basis, or
at all, or that these companies will devote adequate resources to embedding,
promoting or selling our products. Potential conflicts between our direct sales
force and third-party reselling efforts could also limit our ability to develop
additional key strategic relationships. If we fail to develop these strategic
relationships, or if any of our current relationships with these types of
organizations is terminated, we might lose important revenue opportunities and
our growth might be limited.

IF WE FAIL TO CONTINUE TO PENETRATE KEY TARGET MARKETS, SUCH AS THE FINANCIAL
SERVICES MARKET, OR IF THESE MARKETS FAIL TO GROW AS ANTICIPATED, OUR REVENUE
GROWTH WILL BE IMPAIRED.

   We have recently begun to focus our engineering and sales and marketing
resources to penetrating the financial services, aerospace, and high technology
manufacturing (hardware and software original equipment manufacturers (OEMs) and
independent software vendors markets. If we fail to address the needs of these
key markets, our revenue growth will be impaired. In recent years, we have
directed our sales and marketing efforts toward companies in such diverse
industries as financial services, business-to-business e-commerce,
telecommunications, high technology manufacturers (hardware and software
companies), embedded operating systems, cable television, transportation, and
aerospace industries. In fiscal 2001, less than 20% of our revenue was derived
from customers in markets outside the financial services, aerospace, and high
technology manufacturing markets. While we will be focusing on the markets in
which we expect to derive a majority of our revenue, we will be more vulnerable
to economic downturns or other adverse conditions affecting these key markets.
Additionally, these markets are rapidly changing. Customers in these markets may
require us to change our product design or features, sales methods, support
capabilities or pricing policies. The costs of addressing these requirements, as
well as the failure to do so, could be substantial and could adversely affect
our operating results.

DOING BUSINESS OUTSIDE THE UNITED STATES INVOLVES NUMEROUS RISKS THAT COULD
NEGATIVELY AFFECT OUR FINANCIAL RESULTS.

   Approximately 12% of our revenue was derived from international sources in
the quarter ended December 31, 2001 and 18% of our revenue was derived from
international sources in fiscal 2001. To service the needs of these customers,
we must provide worldwide product support and services. International operations
require significant management attention and financial resources that could
adversely affect our operating margins and earnings. We may not be able to
maintain or increase international market demand for our products. If we do not,
our




                                       21
<PAGE>

international sales will be limited, and our business, operating results and
financial condition could be materially and adversely affected. In attempting to
conduct and expand business internationally, we are exposed to various risks
that could adversely affect our international operations and, consequently, our
operating results, including:

   -  difficulties and costs of staffing and managing international operations;

   -  fluctuations in currency exchange rates;

   -  unexpected changes in regulatory requirements, including imposition of
      currency exchange controls, applicable to our business or to the Internet;

   -  difficulties and additional costs of tailoring our products to meet the
      demands of foreign markets;

   -  political and economic instability; and

   -  potentially reduced protection for intellectual property rights.

WE HAVE MADE AND MAY CONTINUE TO MAKE ACQUISITIONS, WHICH COULD PUT A STRAIN ON
OUR RESOURCES, CAUSE DILUTION TO OUR STOCKHOLDERS, AND ADVERSELY AFFECT OUR
FINANCIAL RESULTS.

   We have made and may continue to make acquisitions of other companies in
order to expand our business and services. For example, in September 1999 we
acquired the assets of GlobalCast, a provider of reliable multicast products and
services. In addition, in March 2000, we acquired WhiteBarn, a provider of
reliable multicast-related consulting services and developer of multicast
technology. Integrating newly acquired organizations and technologies into our
company could be expensive and time-consuming and may strain our resources. The
integration of WhiteBarn into our company is complete, however, we continue to
encounter challenges because its headquarters, near Chicago, Illinois, is
geographically distant from our own. We may not be successful in integrating
acquired businesses or technologies and may not achieve anticipated revenue and
cost benefits. In addition, future acquisitions could result in potentially
dilutive issuances of equity securities or the incurrence of debt, contingent
liabilities or amortization expenses related to goodwill and other intangible
assets, any of which could adversely affect our balance sheet or operating
results. For example, in connection with the acquisition of substantially all of
the assets of GlobalCast, we recorded approximately $2.7 million in goodwill and
other intangibles, which we have written off in 2001 and, in connection with the
acquisition of WhiteBarn, we recorded approximately $4.4 million in goodwill and
other intangibles, which are being amortized over a period of two to three
years. Moreover, we cannot make any assurances that we will be able to identify
future suitable acquisition candidates or, if we are able to identify suitable
candidates, that we will be able to make these acquisitions on commercially
reasonable terms or at all. Additionally, even if we identify suitable
acquisition candidates, we may not be able to consummate such acquisitions if
our stock price is low.

OUR FAILURE TO MANAGE GROWTH COULD ADVERSELY AFFECT OUR ABILITY TO INCREASE
REVENUE.

   Our ability to successfully offer products and services and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. Our business has evolved significantly in recent years,
placing a strain on our management systems and resources. To manage future
growth, we expect that we will need to continue to improve our financial and
managerial controls, reporting systems and procedures. We will also need to
train, and manage our workforce worldwide. Furthermore, we expect that we will
be required to manage an increasing number of relationships with various
customers and other third parties. If we do not manage our growth efficiently
and effectively, it could adversely affect our business, operating results and
financial condition.

THE LOSS OF KEY MANAGEMENT PERSONNEL, ON WHOSE KNOWLEDGE, LEADERSHIP, AND
TECHNICAL EXPERTISE WE RELY, WOULD ADVERSELY AFFECT OUR ABILITY TO EXECUTE OUR
BUSINESS PLAN.

   Our success depends heavily upon the continued contributions of our key
management personnel, whose knowledge, leadership, and technical expertise would
be difficult to replace. In particular, we rely upon the leadership of Paul A.
Larson, our President and Chief Executive Officer, and Thomas J. Laffey, our
Chief Technical Officer. If we were to lose the services of any of our key
personnel, the ability to execute our business plan would be adversely affected.
All of our executive officers and key personnel are employees at-will. We have
no




                                       22
<PAGE>

employment contracts and maintain no key person insurance other than a very
limited amount on Thomas J. Laffey and Paul A. Larson.

IF WE ARE UNABLE TO HIRE, TRAIN, AND RETAIN SALES, MARKETING, ENGINEERING AND
FINANCE PERSONNEL, OUR GROWTH WILL BE IMPAIRED.

   In order to grow our business successfully and maintain a high level of
quality and service, we will need to recruit, retain, and motivate additional
highly skilled sales, marketing, engineering and finance personnel. If we are
not able to hire, train, and retain a sufficient number of qualified employees,
our growth will be impaired. In particular, we will need to expand our sales
organization in order to generate increased revenue. In addition, as a company
focused on the development of complex software products, we will need to retain
and hire software developers and engineers, systems architects and project
managers of various experience levels in order to keep pace with technological
change and develop products that meet the needs of rapidly evolving markets.
Competition for skilled employees, particularly in the San Francisco Bay Area,
is intense. Furthermore, new employees require training, take time to achieve
full productivity and, in light of the high rate of turnover for these
employees, may be difficult to retain.

OUR SOFTWARE PRODUCTS MAY HAVE UNKNOWN DEFECTS, WHICH COULD HARM OUR REPUTATION,
DECREASE MARKET ACCEPTANCE OF OUR PRODUCTS, CAUSE US TO LOSE CUSTOMERS AND
REVENUE, AND RESULT IN LIABILITY TO US.

   Our products were created using highly complex software, both internally
developed and licensed from third parties. Highly complex software may contain
errors or defects, particularly when first introduced or when new versions or
enhancements are released. We may not discover software defects that affect our
current or future products or enhancements until after they are sold. Any
interruptions caused by unknown defects in our products could cause substantial
damage to our customers' businesses and could damage our reputation, cause our
customers to initiate product liability suits against us, increase our product
development costs, divert our product development resources, cause us to lose
revenue or delay market acceptance of our products.

WE COULD RECEIVE NEGATIVE PUBLICITY AND SUFFER INJURY TO OUR REPUTATION IF
WELL-KNOWN CUSTOMERS SUFFER SERVICE INTERRUPTIONS.

   Many of our customers, including financial exchanges, telecommunications
companies and large-scale independent software vendors, rely upon our
infrastructure software to provide widely used and highly publicized services.
If any of these customers were to suffer a service interruption, we could
receive negative publicity and suffer injury to our reputation even if these
interruptions were wholly unrelated to the performance of our products. The
degree of this injury could be grossly disproportionate to the actual
contribution of our products to the service interruption.

OUR CUSTOMERS WILL NOT BE ABLE TO REALIZE THE FULL EFFICIENCY BENEFITS OF OUR
INFRASTRUCTURE SOFTWARE UNLESS THE INTERNET IS ENHANCED TO ALLOW MULTICAST.

   As the volume of data transmitted across networks, particularly the Internet,
increases, it may be increasingly important for infrastructure software to make
efficient use of available network bandwidth. One of the potential competitive
advantages of our infrastructure software is that it enables more efficient use
of available network bandwidth. Our software achieves this benefit through an
efficient implementation of publish-subscribe architecture and is capable of
even greater efficiency using multicast technology. However, our customers will
not be able to realize the full efficiency benefits of our multicast
capabilities over the Internet unless the Internet is enhanced to allow
multicast. There can be no assurance that it will be.

OUR PRODUCTS MAY INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WHICH MAY
CAUSE US TO BECOME SUBJECT TO EXPENSIVE LITIGATION, CAUSE US TO INCUR
SUBSTANTIAL DAMAGES OR LICENSE FEES, OR PREVENT US FROM SELLING OUR PRODUCTS.

   We cannot be certain that our products do not and will not infringe issued
patents or other intellectual property rights of others. Historically, patent
applications in the United States have not been publicly disclosed until the
patent is issued, and we may not be aware of filed patent applications that
relate to our products or technology. If patents later issue on these
applications, we may be liable for infringement. We may also be subject to legal
proceedings and claims in the ordinary course of our business, including claims
of alleged infringement of the




                                       23
<PAGE>

patents, trademarks and other intellectual property rights of third parties by
us or our licensees in connection with their use of our products. Intellectual
property litigation is expensive and time-consuming, and could divert our
management's attention away from operating our business. If we discovered that
our products infringe the intellectual property rights of others, we would need
to obtain licenses from these parties or substantially reengineer our products
in order to avoid infringement. We might not be able to obtain the necessary
licenses on acceptable terms or at all, or to reengineer our products
successfully. Moreover, if we are sued for infringement and lose the suit, we
could be required to pay substantial damages or enjoined from licensing or using
the infringing products or technology. Any of the foregoing could cause us to
incur significant costs and prevent us from selling our products.

OUR INTELLECTUAL PROPERTY COULD BE USED BY OTHERS WITHOUT OUR CONSENT.

   We rely primarily on a combination of copyrights, trademarks, trade secret
laws, and contractual obligations with employees and third parties to protect
our proprietary rights. We do not currently own any issued patents, and other
protection of our intellectual property will not prevent third parties from
independently developing technology that is similar to or competes with our own.
Moreover, despite our efforts to protect our proprietary rights, unauthorized
parties may copy aspects of our products and obtain and use information that we
regard as proprietary. In addition, other parties may breach confidentiality
agreements or other protective contracts into which we have entered, and we may
not be able to enforce our rights in the event of these breaches. Furthermore,
we expect that we will increase our international operations in the future, and
the laws of many foreign countries do not protect our intellectual property
rights to the same extent as the laws of the United States.

OUR STOCK PRICE AND THOSE OF OTHER TECHNOLOGY COMPANIES HAVE EXPERIENCED EXTREME
PRICE AND VOLUME FLUCTUATIONS, AND ACCORDINGLY OUR STOCK PRICE MAY BE VOLATILE,
WHICH COULD ADVERSELY AFFECT YOUR INVESTMENT.

   The trading price of our common stock has fluctuated significantly since our
initial public offering in July 2000 and is significantly below the original
offering price of $16 per share. An active public market for our common stock
may not be sustained in the future. Many factors could cause the market price of
our common stock to rise and fall, including:

   -  variations in our quarterly results;

   -  announcements of technological innovations by us or by our competitors;

   -  introductions of new products or new pricing policies by us or by our
      competitors;

   -  acquisitions or strategic alliances by us or by our competitors;

   -  recruitment or departure of key personnel;

   -  the gain or loss of significant orders or customers;

   -  changes in the estimates of our operating performance or changes in
      recommendations by securities analysts; and

   -  market conditions in the industry and the economy as a whole.

   In addition, stocks of technology and Internet-related companies have
experienced extreme price and volume fluctuations that often have been unrelated
or disproportionate to these companies' operating performance. Public
announcements by companies in our industry concerning, among other things, their
performance, accounting practices or legal problems could cause fluctuations in
the market for stocks of these companies. These fluctuations could lower the
market price of our common stock regardless of our actual operating performance.

   In the past, securities class action litigation has often been brought
against a company following a period of volatility in the market price of its
securities. We have been, and may in the future be, the target of similar
litigation. On August 10, 2001 a stockholder class action complaint was filed in
the United States District Court for the Southern District of New York against
us, certain of our officers and directors, and three underwriters of our initial
public offering. The complaint alleges, among other things, that Talarian and
the individual defendants named in the complaint violated the federal securities
laws by issuing and selling our common stock in our initial public offering
without disclosing to investors that certain of the underwriters in the offering
allegedly solicited and




                                       24
<PAGE>

received excessive and undisclosed commissions from certain investors. We are
also aware that a similar lawsuit has been filed on September 25, 2001 in the
United States District Court for the Southern District of New York against us.
We believe that the allegations in these actions are without merit, and we
intend to defend against these actions vigorously, but we cannot give any
assurance that it will not have a material adverse effect on the Company.
Securities litigation such as this could result in substantial costs and divert
management's attention and resources, which could harm our operating results and
our business.

OUR OFFICERS, DIRECTORS, AND AFFILIATED ENTITIES OWN A LARGE PERCENTAGE OF OUR
COMPANY AND COULD SIGNIFICANTLY INFLUENCE THE OUTCOME OF ACTIONS IN WAYS THAT
COULD ADVERSELY IMPACT OUR STOCK PRICE.

   As of December 31, 2001, our executive officers, directors, entities
affiliated with them and other five percent stockholders, in the aggregate,
beneficially owned approximately 39% of our outstanding common stock. These
stockholders, acting together, would be able to significantly influence all
matters requiring approval by our stockholders, including the election of
directors. These actions might be taken even if they are opposed by other
stockholders. This concentration of ownership may also have the effect of
delaying or preventing a change of control of our company, which could have a
material adverse effect on our stock price.

OUR CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW CONTAIN PROVISIONS
THAT COULD DISCOURAGE OR PREVENT A TAKEOVER, EVEN IF AN ACQUISITION WOULD BE
BENEFICIAL TO OUR STOCKHOLDERS.

   Provisions of our Amended and Restated Certificate of Incorporation and
Bylaws, as well as provisions of Delaware law, could make it more difficult for
a third party to acquire us, even if doing so would be beneficial to our
stockholders. These provisions include:

   -  establishing a classified board of directors requiring that not all
      members of the board may be elected at one time;

   -  providing that directors may only be removed "for cause" and only with the
      approval of 66 2/3% of our stockholders;

   -  authorizing the issuance of "blank check" preferred stock that could be
      issued by our board of directors to increase the number of outstanding
      shares and thwart a takeover attempt;

   -  limiting the ability of our stockholders to call special meetings of
      stockholders;

   -  prohibiting stockholder action by written consent, which requires all
      stockholder actions to be taken at a meeting of our stockholders;

   -  eliminating cumulative voting in the election of directors; and

   -  establishing advance notice requirements for nominations, election to the
      board of directors or for proposing matters that can be acted upon by
      stockholders at stockholder meetings.

   In addition, Section 203 of the Delaware General Corporation Law and the
terms of our stock option plans may discourage, delay, or prevent a change in
control.




                                       25
<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISK

     The following discusses our exposure to market risk related to changes in
interest rates, equity prices and foreign currency exchange rates. This
discussion contains forward-looking statements that are subject to risks and
uncertainties. Actual results could vary materially as a result of a number of
factors including those set forth in the section entitled "Factors That May
Affect Operating Results".

FOREIGN CURRENCY EXCHANGE RATE RISK

   To date, all of our recognized revenue has been denominated in U.S. dollars
and primarily from customers in the United States, and our exposure to foreign
currency exchange rate changes has been immaterial. We expect, however, that
future product license and services revenue may increasingly be derived from
international markets and may be denominated in the currency of the applicable
market. As a result, our operating results may become subject to fluctuations
based upon changes in the exchange rates of various currencies in relation to
the U.S. dollar. Furthermore, to the extent that we engage in international
sales denominated in U.S. dollars, an increase in the value of the U.S. dollar
relative to foreign currencies could make our products less competitive in
international markets. Although we will continue to monitor our exposure to
currency fluctuations, and, when appropriate, may use financial hedging
techniques in the future to minimize the effect of these fluctuations, we cannot
assure you that exchange rate fluctuations will not adversely affect our
financial results in the future.

INTEREST RATE RISK

   As of December 31, 2001, we had cash and highly liquid short-term investments
totaling $50.7 million. Declines of interest rates will reduce our interest
income from our investments. Based upon our balance of cash and investments at
December 31, 2001, a decrease in interest rates of 0.5% would cause a
corresponding decrease in our annual interest income of $253,000. To date, the
Company has not entered into any derivative or hedging activities and as of
December 31, 2001, we did not have any short-term or long-term debt outstanding.




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<PAGE>

                           PART II: OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS

   On January 8, 2002, an action, Robert Mathiason v. Talarian Corporation, et
al. was filed in the Superior Court of the State of California for the County of
Santa Clara. In this action, the plaintiff named as defendants Talarian and our
directors. The complaint purports to assert claims on behalf of all of our
public stockholders who are similarly situated with the plaintiff. The complaint
alleges, among other things, that our company and the members of our board of
directors have breached their fiduciary duties to our stockholders in approving
the merger with TIBCO, that the directors engaged in self-dealing in connection
with their approval of the merger and that the directors failed to take steps to
maximize the value of our company to our stockholders. The complaint seeks class
certification and certain forms of equitable relief, including enjoining the
consummation of the merger. We believe that the allegations are without merit
and intend to vigorously contest the action. There can, however, be no assurance
that we or the other defendants will be successful in the defense of the action.

   On August 10, 2001 a stockholder class action complaint was filed in the
United States District Court for the Southern District of New York against us,
certain of our officers and directors, and three underwriters of our initial
public offering. The complaint was brought on behalf of purchasers of our common
stock between July 20, 2000 and December 6, 2000. The complaint has been brought
as a purported stockholder class action under Sections 11 and 15 of the
Securities Act and Section 10(b) of the Securities Exchange Act. The complaint
alleges, among other things, that Talarian and the individual defendants named
in the complaint violated the federal securities laws by issuing and selling our
common stock in our initial public offering without disclosing to investors that
certain of the underwriters in the offering allegedly solicited and received
excessive and undisclosed commissions from certain investors. We are also aware
that a similar lawsuit has been filed on September 25, 2001 in the United States
District Court for the Southern District of New York against us. Similar
complaints have been filed against a number of other companies that had initial
public offerings in 1999 and 2000. We have not yet responded to these lawsuits,
and no discovery has been conducted. We believe that the allegations in these
actions are without merit, and we intend to defend against these actions
vigorously, but we cannot give any assurance that it will not have a material
adverse effect on the Company.

   In addition, from time to time, we may be involved in litigation relating to
claims arising out of our operations in the normal course of business. As of the
date of this quarterly report on Form 10-Q, except as described herein, we are
not engaged in any legal proceedings that are expected, individually or in the
aggregate, to have a material adverse effect on our business, financial
condition, operating results or cash flow.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

   Our Registration Statement on Form S-1 (File No. 333-34694) related to our
initial public offering was declared effective by the SEC on July 20, 2000. A
total of 4,200,000 shares of our common stock was registered with the SEC with
an aggregate registered offering price of $67.2 million, all of which shares
were registered on our behalf. The offering commenced on July 21, 2000 and all
shares of common stock being offered were sold for the aggregate registered
offering price through a syndicate of underwriters managed by Lehman Brothers,
Inc., SG Cowen Securities Corporation, Wit SoundView Corporation and Fidelity
Capital Markets, a division of National Financial Services Corporation.

   We paid to the underwriters underwriting discounts and commissions totaling
$4.7 million in connection with the offering. In addition, we incurred
additional expenses of approximately $2.5 million in connection with the
offering, which when added to the underwriting discounts and commissions paid by
us amounted to total estimated expenses of $7.2 million. Thus, the net offering
proceeds to us (after deducting underwriting discounts and commissions and
offering expenses) were approximately $60 million. From the effective date of
the registration statement through December 31, 2001, the proceeds from the
offering have been used to fund $16.7 million of working capital and general
corporate needs. In addition, we applied $47 million of the proceeds towards
short-term investments, and $2 million of the proceeds towards purchase and
installation of machinery and equipment. The remaining proceeds are held in cash
and cash equivalents. No offering expenses were paid directly or indirectly to




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<PAGE>

any of our directors or officers (or their associates), or persons owning ten
percent (10%) or more of any class of our equity securities or to any other
affiliates.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

        Not applicable.

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

        Not applicable.

ITEM 5. OTHER INFORMATION

     As of January 4, 2002, we entered into an Agreement and Plan of Merger with
TIBCO Software Inc. and Panther Acquisition Corp., a wholly owned subsidiary of
TIBCO. Pursuant to the merger agreement, we and Panther Acquisition will merge,
and the surviving corporation will become a wholly owned subsidiary of TIBCO,
subject to customary closing conditions, including the approval of our
stockholders. In connection with the merger, each share of our outstanding
common stock will be converted into the right to receive $2.65 in cash and a
fraction of a share of TIBCO common stock equal to the exchange ratio. The
exchange ratio will be determined by dividing $2.65 by the average of the
closing sale prices for one share of TIBCO common stock as reported on the
Nasdaq National Market for the 10 consecutive trading days ending with and
including one day prior to the closing date of the merger, provided that if this
average trading price is greater than $16.21, or less than $12.16, then for
purposes of calculating the exchange ratio the average trading price will be
deemed to be $16.21 if it is greater than $16.21, or $12.16 if it is less than
$12.16. The merger is subject to various terms, conditions and covenants, and
this summary is necessarily incomplete. A copy of the Agreement and Plan of
Merger has been filed with the Securities and Exchange Commission through a
filing on Form 8-K that we made on January 8, 2002.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

A. Exhibits

   None.

B. Reports on Form 8-K

   On January 8, 2002, we filed a report on Form 8-K under Item 5 announcing the
execution of an Agreement and Plan of Merger dated as of January 4, 2002 among
TIBCO Software Inc., Panther Acquisition Corp., a wholly owned subsidiary of
TIBCO, and Talarian Corporation in which TIBCO agreed to acquire Talarian in a
stock and cash transaction subject to customary closing conditions, including
the approval of the stockholders of Talarian. A copy of the Agreement and Plan
of Merger, the form of Voting Agreement executed by certain Talarian
stockholders who have agreed to vote in favor of the transaction with TIBCO and
the press release dated January 5, 2002 announcing the transaction were attached
as exhibits to the Form 8-K.

   On January 16, 2002, we filed a report on Form 8-K under Item 5 stating that
Talarian Corporation was served with a complaint on January 11, 2002 naming
Talarian and its current directors as defendants in a lawsuit filed in the
Superior Court of the State of California, County of Santa Clara (Case No.
CV804355). The complaint alleges, among other things, that Talarian and its
directors breached their fiduciary duties to Talarian's stockholders in
approving the merger with TIBCO Software Inc. and that the individual defendants
engaged in self-dealing in connection with their approval of the merger. The
complaint seeks class certification and certain forms of equitable relief,
including enjoining the consummation of the merger with TIBCO.




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<PAGE>

                                   SIGNATURES


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



                                           TALARIAN CORPORATION


DATE: January 31, 2002         SIGNATURE:  /s/ Paul A. Larson
      ------------------                   -------------------------------------
                                           Paul A. Larson
                                           President and Chief Executive Officer
                                           (Duly Authorized Officer)


DATE: January 31, 2002         SIGNATURE:  /s/ Michael A. Morgan
      ------------------                   -------------------------------------
                                           Michael A. Morgan
                                           Vice President, Finance and
                                           Administration and Chief
                                           Financial Officer
                                           (Principal Financial and
                                           Accounting Officer)




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