<PAGE>
                                                        Exhibit 13.1

                           PROBUSINESS SERVICES, INC.

                           FINANCIAL REPORTING INDEX


<TABLE>
<S>                                                           <C>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
  AND RESULTS OF OPERATIONS.................................  Page 2

CONSOLIDATED FINANCIAL STATEMENTS:

  Consolidated Balance Sheets...............................  Page F-1

  Consolidated Statements of Operations.....................  Page F-2

  Consolidated Statements of Stockholders' Equity...........  Page F-3

  Consolidated Statements of Cash Flows.....................  Page F-4

  Notes to Consolidated Financial Statements................  Page F-5

  Report of Ernst & Young, LLP, Independent Auditors........  Page F-17

QUARTERLY FINANCIAL DATA....................................  Page 27
</TABLE>


                                       1
<PAGE>
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

       The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto of ProBusiness appearing
elsewhere in this Annual Report. The following discussion contains
forward-looking statements. The Company's actual results may differ
significantly from those projected in the forward-looking statements. Factors
that might cause future results to differ materially from those projected in
the forward-looking statements include, but are not limited to, those
discussed in "Risk Factors" and elsewhere in this Annual Report.

OVERVIEW

    ProBusiness is a leading provider of comprehensive outsourced administrative
services for large employers nationwide. The Company's primary service offerings
are payroll processing, payroll tax filing, benefits administration services,
human resources software, Shared Services and Web-based self-service. The
Company's proprietary PC-based payroll system offers the cost-effective benefits
of outsourcing and high levels of client service, while providing the
flexibility, control, customization and integration of an in-house system.

    The Company derives its revenue from fees charged to clients for services
and income earned from investing payroll tax funds. Since 1998, the Company has
experienced significant growth of its revenue, client base and average client
size. Revenue increased from $46.5 million in fiscal 1998 to $104.1 million in
fiscal 2000. From June 30, 1998 to June 30, 2000, the client base for payroll
processing services increased from 517 clients to approximately 600 clients,
while the average size of the Company's payroll clients increased from
approximately 1,169 employees to approximately 1,965 employees. The number of
checks that the Company processed for its payroll clients increased from
5.8 million to 8.2 million for the quarters ended June 30, 1999 and 2000,
respectively. As of June 30, 2000, the Company provided services to
approximately 2,000 clients. The Company's revenue growth is primarily due to
continued growth in its client base, the introduction of its payroll tax service
in fiscal 1996, an increase in the average number of employees of its clients,
the introduction of new features and other services and a high retention rate of
existing payroll clients (approximately 90% for fiscal 2000). The Company does
not anticipate it will sustain this rate of growth in the future.

    The establishment of new client relationships involves lengthy and extensive
sales and implementation processes. The sales process generally takes three to
twelve months or longer, and the implementation process generally takes an
additional three to nine months or longer. The Company has experienced
significant operating losses since its inception and expects to incur
significant operating losses in the future due to continued client acquisition
costs, investments in research and development and costs associated with
expanding sales efforts, service offerings and operations in new geographic
regions. As of June 30, 2000, the Company had an accumulated deficit of
$61.8 million. There can be no assurance that the Company will achieve or
sustain profitability in the future.

    The Company's cost of providing services consists primarily of ongoing
account management, tax and benefits administration operations and production
costs. General and administrative expenses consist primarily of personnel costs,
professional fees and other overhead costs for finance and corporate services
and information technology. Research and development expenses consist primarily
of personnel costs. Client acquisition costs consist of sales and implementation
expenses and, to a lesser extent, marketing expenses.

    In April 1999, the Company acquired Conduit Software, Inc. ("Conduit"), a
provider of employee relationship management applications. The acquisition
was accounted for using the pooling of interests method of accounting and as
such the Company's historical financial results have been restated to reflect
the acquisition. In connection with the acquisition, the Company issued
1,714,973 shares of its common stock to Conduit stockholders in exchange for
all of the outstanding capital stock of Conduit. All outstanding options and
warrants to purchase Conduit capital stock were converted into options and
warrants to purchase 82,987 shares of ProBusiness common stock. The
historical financial statements of ProBusiness for prior periods have been
restated to include the consolidated financial position and results of
operations of Conduit. (See Note 11 of Notes to Consolidated Financial
Statements.)

                                       2
<PAGE>

RESULTS OF OPERATIONS

    The following table sets forth certain items reflected in the consolidated
statements of operations expressed as a percentage of revenue:

<TABLE>
<CAPTION>
                                                               YEAR ENDED JUNE 30,
                                                       ------------------------------------
                                                         1998          1999          2000
                                                       --------      --------      --------
<S>                                                    <C>           <C>           <C>
Revenue:
  Service fees.......................................    75.2%         72.1%         71.5%
  Interest income from payroll tax funds invested....    24.8%         27.9%         28.5%
                                                        -----         -----         -----
Total revenue........................................   100.0%        100.0%        100.0%

Operating expenses:
  Cost of providing services.........................    51.7%         49.2%         47.5%
  General and administrative.........................    15.7%         15.3%         15.1%
  Research and development...........................    13.6%         14.1%         11.6%
  Client acquisition costs...........................    40.4%         42.6%         42.0%
  Merger costs.......................................      --           5.0%           --
                                                        -----         -----         -----
Total operating expenses.............................   121.4%        126.2%        116.2%
Loss from operations.................................   (21.4)%       (26.2)%       (16.2)%
Interest expense.....................................    (1.3)%        (1.0)%        (0.5)%
Interest income and other, net.......................     1.6%          4.2%          3.3%
                                                        -----         -----         -----
Net loss.............................................   (21.1)%       (23.0)%       (13.4)%
                                                        -----         -----         -----
                                                        -----         -----         -----
</TABLE>

REVENUE

    Service fee revenue increased 47.1% in fiscal 2000 and increased 44.4% in
fiscal 1999, primarily due to increases in the number and average size of the
Company's payroll and tax clients. Interest income from payroll tax funds
invested increased 51.6% in fiscal 2000 and 70.1% in fiscal year 1999. These
increases were primarily due to higher average daily payroll tax funds invested.

COST OF PROVIDING SERVICES

    Cost of providing services increased 43.1% in fiscal 2000 and 43.5% in
fiscal 1999 and decreased as a percentage of total revenue to 47.5% in fiscal
2000, compared with 49.2% in fiscal 1999 and 51.7% in fiscal 1998. The increases
in absolute dollars were primarily due to increased personnel in operations and
account management resulting from an increase in the client base. The decreases
as a percentage of revenue were primarily due to the economies of scale realized
from servicing larger average size clients.

GENERAL AND ADMINISTRATIVE

    General and administrative expenses increased 45.8% in fiscal 2000 and
46.7% in fiscal 1999 and decreased as a percentage of total revenue to 15.1%
in fiscal 2000, compared with 15.3% in fiscal 1999 and 15.7% in fiscal 1998.
The increases in absolute dollars were primarily attributable to increased
investment in the Company's information technology infrastructure, the hiring
of additional management and administrative personnel to support the
Company's growth and to costs associated with the Company's administrative
services. The decreases as a percentage of total revenue were primarily due
to the economies realized from relatively constant fixed costs as compared to
the higher revenue.

RESEARCH AND DEVELOPMENT

    Research and development expenses increased 21.9% in fiscal 2000 and
56.9% in fiscal 1999 and decreased as a percentage of total revenue to 11.6%
in fiscal 2000, compared with 14.1% in fiscal 1999 and 13.6% in fiscal 1998.
The increases in absolute dollars were primarily a result of additional
personnel and, to a lesser extent, the development of enhancements and new
features to the Company's existing services. The decrease as a percentage of
total revenue in fiscal 2000 from fiscal 1999 was due to higher revenues
combined with increased capitalization of costs associated with the Company's
next generation application platform "Golden Gate." The increase as a
percentage of total revenue in fiscal 1999 from fiscal 1998 was due primarily
to a decrease in the percent of expenses capitalized. Capitalized software
development costs were $6.5 million, $4.1 million and $3.9 million in fiscal
2000, 1999 and 1998, respectively.


                                       3
<PAGE>

CLIENT ACQUISITION COSTS

    Client acquisition costs increased 46.5% in fiscal 2000 and increased
58.6% in fiscal 1999. Client acquisition costs decreased as a percentage of
total revenue to 42.0% in fiscal 2000 compared with 42.6% in fiscal 1999, and
increased as a percentage of total revenue compared with 40.4% in fiscal
1998. The increases in absolute dollars in fiscal 2000 and fiscal 1999 were
primarily due to the expanded sales and implementation force for payroll and
national tax and, to a lesser extent, to expenses related to marketing.

MERGER COSTS

    In 1999, the Company charged to operations one-time costs related to the
acquisition of Conduit of $3.5 million. These costs consisted primarily of
investment banking and professional fees and other direct costs associated
with the acquisition.

INTEREST EXPENSE

    Interest expense decreased 25.3% in fiscal 2000 and increased 11.7% in
fiscal 1999 and decreased as a percentage of total revenue to 0.5% in fiscal
2000 compared to 1.0% in fiscal 1999 and 1.3% in fiscal 1998.

INTEREST INCOME AND OTHER, NET

    Other income decreased as a percentage of total revenue to 3.3% in fiscal
2000 compared to 4.2% in fiscal 1999, and increased as a percentage of total
revenue compared to 1.6% in fiscal 1998. The decrease of other income as a
percentage of total revenue in fiscal 2000 compared to fiscal 1999 was due to
lower cash and investment balances. The increase of other income as a
percentage of total revenue in fiscal 1999 compared to fiscal 1998 was due to
higher cash and investment balances resulting from the Company's secondary
public offering in September 1998.

LIQUIDITY AND CAPITAL RESOURCES

    Since inception, the Company has financed its operations primarily
through a combination of sales of equity securities, private debt and bank
borrowings. The Company raised approximately $27.0 million from its initial
public offering in September 1997 and approximately $80.7 million from its
secondary public offering in September 1998.

    At June 30, 2000, the Company had approximately $27.6 million of cash and
cash equivalents, $13.3 million of short-term investments and $2.0 million of
long-term investments, as well as a $20.0 million secured revolving line of
credit, which expires in December 2000. At June 30, 2000, the Company had no
outstanding borrowings under the line of credit. (See Note 3 of Notes to
Consolidated Financial Statements.)

    Net cash used in operating activities for fiscal 2000 and 1999 was
$6.5 million and $1.1 million respectively, and net cash provided by operating
activities for fiscal 1998 was $1.7 million. The increase in net cash used in
operating activities in fiscal 2000 compared to fiscal 1999 was primarily the
result of a decrease in accrued liabilities and an increase in net accounts
receivable, partially offset by increases in deferred revenue and depreciation
and amortization and a decrease in net loss. Net cash used in operating
activities in fiscal 1999 compared to net cash provided by operating activities
in fiscal 1998 was primarily the result of increases in net loss, other assets
and net accounts receivable, partially offset by increases in depreciation and
amortization, deferred revenue and accounts payable.

    Net cash used in investing activities was $40.9 million, $28.7 million and
$14.4 million for fiscal 2000, 1999 and 1998, respectively. The increase in net
cash used in investing activities in fiscal 2000 resulted primarily from the
purchase of securities, partially offset by decreases in capital expenditures
for equipment, furniture and fixtures. The increase in net cash used in
investing activities in fiscal 1999 resulted primarily from the addition of
leasehold improvements related to a new research and development facility in
Pleasanton, California, a new benefits administration facility in Bothell,
Washington, the purchase and development of a comprehensive client relationship
management and knowledge base systems and capital expenditures for equipment,
furniture and fixtures to support the Company's increased personnel. In
addition, the Company capitalized software development costs of $6.5 million,
$4.1 million and $3.9 million in fiscal 2000, 1999 and 1998, respectively. The
Company expects to make additional capital expenditures for furniture, equipment
and fixtures to support the continued growth of its operations. In addition, the
Company anticipates that it will continue to expend funds for software
development in the future.

    Net cash provided by financing activities was $1.4 million, $89.4 million
and $21.6 million for fiscal 2000, 1999 and 1998, respectively. Net cash
provided by financing activities for fiscal 2000 related primarily to
$6.2 million of net proceeds from the issuance of common stock under the
Company's employee stock purchase plan, partially offset by a $4.6 million
pledge, reported as restricted cash, deposited with a secured party in relation
to the Company's purchase of derivative based products. Net cash provided by
financing activities for fiscal 1999 related primarily to $80.7 million of net
proceeds from the Company's secondary public offering of common stock in
September 1998. Net cash provided by financing activities for fiscal 1998 was
primarily a result of $27.0 million of net proceeds from the Company's initial
public offering in September 1997, partially offset by net repayments under the
Company's line of credit and payments made to subordinated debt holders.


                                       4
<PAGE>

    On August 1, 2000, the Company authorized, issued and sold 1,132,075 shares
of 6.9% Senior Convertible Preferred Stock at $26.50 per share raising
approximately $30 million. (See "Recent Events".)

    The Company believes that existing cash and cash equivalent balances,
amounts available under its current credit facility and anticipated cash
flows from operations will be sufficient to meet its working capital and
capital expenditure requirements for at least the next 12 months. The Company
may also utilize cash to acquire or invest in complementary businesses or to
obtain the right to use complementary technologies, although the Company does
not have any pending plans to do so. The Company may also sell additional
equity or debt securities or obtain additional credit facilities.

RECENT EVENTS

On August 1, 2000, the Company sold 1,132,075 shares of 6.9% Senior
Convertible Preferred Stock ("Convertible Preferred Stock") for an aggregate
purchase price of $30 million to affiliates of General Atlantic Partners LLC
at $26.50 per share. The investors consisted of General Atlantic Partners,
70, L.P., GAP Coinvestment Partners II, L.P. and GapStar, LLC (together,
"GAP"). David Hodgson, a managing member of General Atlantic Partners LLC, is
a member of the Company's Board of Directors.

The Convertible Preferred Stock ranks senior to ProBusiness common stock. The
holders of the Convertible Preferred stock are entitled to receive cumulative
dividends at an annual rate of 6.9% in the form of additional shares of
Convertible Preferred Stock. Dividends are payable quarterly on the first day
of October, January, April and July, commencing October 1, 2000. The holders
of the Convertible Preferred Stock are entitled to be paid an amount equal to
$26.50 per share before any amounts are paid to holders of ProBusiness common
stock in the event of a merger, acquisition or liquidation of the Company.
The Convertible Preferred Stock may be converted at any time by the holder
into shares of ProBusiness common stock at a rate of one share of common
stock for each share of Convertible Preferred Stock, subject to adjustment.
The Company has the option to convert all of the Convertible Preferred Stock
to common stock on August 1, 2005, if the then current market price of
ProBusiness common stock is $26.50 or more per share, at a rate of one share
of common stock for each share of Convertible Preferred Stock. If, after
August 1, 2003, the market price of ProBusiness common stock is $39.00 or
more per share, the Company may redeem any or all of the outstanding
Convertible Preferred Stock at $26.50 per share. The conversion rates and
dollar amounts in the Convertible Preferred Stock terms are subject to
adjustment for ProBusiness stock splits, stock dividends, and
recapitalizations, among other things, after the issue date of the
Convertible Preferred Stock.

The holders of the Convertible Preferred Stock vote with the Company's common
shareholders as a single class, except that as long as GAP or other
affiliates of General Atlantic Partners LLC own a majority of the Convertible
Preferred Stock, the holders of Convertible Preferred Stock are entitled to
elect one director to the Company's Board of Directors.

NEW ACCOUNTING PRONOUNCEMENTS

    In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133") and in June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative and Hedging Activities--Deferral of the Effective Date of FASB
Statement No. 133" ("SFAS 137"). SFAS 133 established methods of accounting
for derivative financial instruments and hedging activities related to those
instruments as well as other hedging activities. SFAS 137 deferred for one
year effective date of SFAS 133. The Company is required to adopt SFAS 133 in
fiscal 2001. (See Note 1 of Notes to Consolidated Financial Statements.)

    In December 1999, the Securities and Exchange Commission ("SEC") staff
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"). SAB 101 summarizes certain of the SEC staff's views
in applying generally accepted accounting principles to revenue recognition
in financial statements. Aspects of SAB 101 relevant to the Company primarily
concern the timing of the recognition of revenue and certain expenses related
to arrangements that involve the receipt of nonrefundable, up-front frees.
SAB 101 requires that in particular situations, the nonrefundable fees and
certain associated costs be recognized over the contractual term or average
life of the underlying arrangement. SAB 101 will be effective for ProBusiness
in the fourth quarter of fiscal year 2001. The Company believes that SAB 101
would not have a material impact on the Company's historical financial
condition or results of operations; however, there can be no assurance that
SAB 101 would not have a material impact on revenue recognition for future
services.

ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS

OPERATING LOSSES; NEED TO COMMIT TO EXPENSE IN ADVANCE OF REVENUES.  The
Company has experienced significant operating losses since its inception and
expects to incur significant operating losses in the future due to continued
client acquisition costs, investments in research and development and costs
associated with expanding its sales efforts, service offerings and operations
to new geographic regions. As of June 30, 2000, the Company had an
accumulated deficit of $61.8 million. The establishment of new client
relationships involves lengthy and extensive sales and implementation
processes. The sales process generally takes three to twelve months or
longer, and the implementation process generally takes an additional three to
nine months or longer. In connection with the acquisition of each new client,
the Company incurs substantial client acquisition costs, which consist
primarily of sales and implementation expenses and, to a lesser extent,
marketing expenses. In connection with the expansion of new service
offerings, the Company incurs substantial operating costs associated with
hiring the management and operational infrastructure. These costs are
incurred in advance of revenues and are not scalable until the growth of
clients utilizing such services. The Company's ability to achieve
profitability will depend in part upon its ability to attract and retain new
clients, offer new services and features and achieve market acceptance of new
services. There can be no assurance that the Company will achieve or sustain
profitability in the future. Failure to achieve or sustain profitability in
the future could have a material adverse effect on the Company's business,
financial condition and consolidated results of operations.

SEASONALITY; FLUCTUATION IN QUARTERLY RESULTS.  The Company's business is
characterized by significant seasonality. As a result, the Company's revenue
has been subject to significant seasonal fluctuations, with the largest
percentage of annual revenue being realized in the third and fourth fiscal
quarters, primarily due to new clients beginning services in the beginning of
the tax year (the Company's third fiscal quarter) and higher interest income
earned on payroll tax funds invested. Further, the Company's operating
expenses are typically higher as a percentage of revenue in the first and
third fiscal quarters as the Company increases personnel to acquire new
clients and to implement and provide services to such new clients, a large
percentage of which begin services in the third quarter.

    The Company's quarterly operating results have in the past varied and will
in the future vary significantly depending on a variety of factors, including
the number and size of new clients starting services, the decision of one or
more clients to delay or cancel implementation or ongoing services, interest
rates, seasonality, the ability of the Company to design, develop and introduce
new services and features for existing services on a timely basis, costs
associated with strategic acquisitions and alliances or investments in
technology, the success of any such strategic acquisition, alliance or
investment, costs to transition to new technologies, expenses incurred for
geographic expansion, risks associated with payroll tax, benefits administration
and Shared Services, price competition, a reduction in the number of employees
of its clients and general economic factors. Revenue from new clients typically
represents a significant portion of quarterly revenue in the third and fourth
fiscal quarters. A substantial majority of the Company's operating expenses,
particularly personnel and related costs, depreciation and rent, are relatively
fixed in advance of any particular quarter. The Company's agreements with its
clients generally contain penalties for cancellation. However, any decision by a
client to delay or cancel implementation of the Company's services or the
Company's underutilization of personnel may cause significant variations in
operating results in a particular quarter and could result in losses for such
quarter. As the Company secures larger clients, the time required for
implementing the Company's services increases, which could contribute to larger
fluctuations in revenue. Interest income


                                       5
<PAGE>

earned from investing payroll tax funds, which is a significant portion of
the Company's revenue, is vulnerable to fluctuations in interest rates. In
addition, the Company's business may be affected by shifts in the general
condition of the economy, client staff reductions, strikes, acquisitions of
its clients by other companies and other downturns. There can be no assurance
that the Company's future revenue and results of operations will not vary
substantially. It is possible that in some future quarter the Company's
results of operations will be below the expectations of public market
analysts and investors. In either case, the market price of the Company's
common stock could be materially adversely affected.

RISKS ASSOCIATED WITH STRATEGIC ACQUISITIONS AND INVESTMENTS.  The Company
has no current agreements or negotiations underway other than those
described above with respect to any acquisition of, or investment in,
businesses that provide complementary services or technologies to those of
the Company. The Company has in the past and intends in the future to make
additional acquisitions of, and investments in, such businesses. In addition,
future acquisitions could result in the issuance of dilutive equity
securities, the incurrence of debt or contingent liabilities. Furthermore,
there can be no assurance that any strategic acquisition or investment will
succeed. Any future acquisitions or investments could have a material adverse
effect on the Company's business, financial condition and results of
operations.

RISKS ASSOCIATED WITH PAYROLL TAX SERVICE, BENEFITS ADMINISTRATION SERVICE
AND SHARED SERVICES.  The Company's payroll tax filing service is subject to
various risks resulting from errors and omissions in filing client payroll
tax returns and paying tax liabilities owed to tax authorities on behalf of
clients. The Company's clients transfer to the Company contributed employer
and employee payroll tax funds. The Company processes the data received from
the client and remits the funds along with a payroll tax return to the
appropriate tax authorities when due. Tracking, processing and paying such
payroll tax liabilities is complex. Errors and omissions have occurred in the
past and may occur in the future in connection with such service. The Company
is subject to large cash penalties imposed by tax authorities for late
filings or underpayment of taxes. To date, such penalties have not been
significant. However, there can be no assurance that any liabilities
associated with such penalties will not have a material adverse effect on the
Company's business, financial condition and results of operations. There can
be no assurance that the Company's reserves or insurance for such penalties
will be adequate. In addition, failure by the Company to make timely or
accurate payroll tax return filings or pay tax liabilities when due on behalf
of clients may damage the Company's reputation and could adversely affect its
relationships with existing clients and its ability to gain new clients.

    The Company's payroll tax filing service is also dependent upon government
regulations, which are subject to continual changes. Failure by the Company to
implement these changes into its services and technology in a timely manner
would have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, since a significant portion of
the Company's revenue is derived from interest earned from investing on
collected but unremitted payroll tax funds, changes in policies relating to
withholding federal or state income taxes or reduction in the time allowed for
taxpayers to remit payment for taxes owed to government authorities would have a
material adverse effect on the Company's business, financial condition and
results of operations.

    The Company's benefits administration services are subject to various risks
resulting from errors and omissions in processing and filing COBRA or other
benefit plan forms in accordance with governmental regulations and the
respective plans. The Company processes data received from employees and
employers and is subject to penalties for any late or misfiled plan forms. There
can be no assurance the Company's reserves or insurance for such penalties will
be adequate. In addition, failure to properly file plan forms would have a
material adverse effect on the Company's reputation, which could adversely
affect its relationships with existing clients and its ability to gain new
clients. The Company's benefits administration services are also dependent upon
government regulations, which are subject to continuous changes that could
reduce or eliminate the need for benefits administration services. The Company
has access to confidential information and to client funds. As a result, the
Company is subject to potential claims by its clients for the actions of the
Company's employees arising from damages to the client's business or otherwise.
There can be no assurance that the Company's insurance will be adequate to cover
any such claims. Such claims could have a material adverse effect on the
Company's business, financial condition and results of operations.

    The Company's Shared Services offering is subject to various risks resulting
from errors and omissions in processing the data for a client's payroll. The
Company processes data received from employees and employers. Failure by the
Company to process this data accurately could result in an errors or omissions
in filing the clients payroll tax returns and paying tax liabilities owed to tax
authorities on behalf of clients.

    The Company has access to confidential information and to client funds. As a
result, the Company is subject to potential claims by its clients for the
actions of the Company's employees arising from damages to the client's business
or otherwise. There can be no assurance that the Company's fidelity bond and
errors and omissions insurance will be adequate to cover any such claims. Such
claims could have a material adverse effect on the Company's business, financial
condition and results of operations.

INVESTMENT RISKS.  The Company invests funds, including payroll tax funds
transferred to it by clients in short-term, top tier, high quality financial
instruments such as overnight U.S. government direct and agency obligations,
commercial paper and institutional money market funds, which are subject to
credit risks and interest rate fluctuations. (See Note 1 of Notes to
Consolidated Financial Statements.) These investments are exposed to several
risks, including credit risks from the possible inability of the borrowers to
meet the terms of their obligations under the financial instruments. The Company
would be liable for any losses on such investments. Interest income earned from
the investment of client payroll tax funds represents a significant portion of
the Company's revenues. As a


                                       6
<PAGE>

result, the Company's business, financial condition and results of operations
are significantly impacted by interest rate fluctuations. The Company enters
into interest rate swap agreements to minimize the impact of interest rate
fluctuations. There can be no assurance, however, that the Company's swap
agreements will protect the Company from all interest rate risks. Under
certain circumstances, if interest rates rise, the Company would have payment
obligations under its interest rate swap agreements, which may not be offset
by interest earned by the Company on deposited funds. A payment obligation
under the Company's swap agreements could have a material adverse effect on
the Company's business, financial condition and results of operations. A
default by the Company under its swap agreements could result in acceleration
and setoff by the bank of all outstanding contracts under the swap agreement
and could result in cross-defaults of other debt agreements of the Company,
any of which could have a material adverse effect on the Company's business,
financial condition and results of operations.

MANAGEMENT OF GROWTH.  The Company's business has grown significantly in size
and complexity over the past five years. This growth has placed, and is
expected to continue to place, significant demands on the Company's
management, systems, internal controls and financial and physical resources.
In order to meet such demands, the Company intends to continue to hire new
employees, open new offices to attract clients in new geographic regions,
increase expenditures on research and development, and invest in new
equipment and make other capital expenditures. In addition, the Company
expects that it will need to develop further its financial and managerial
controls and reporting systems and procedures to accommodate any future
growth. Failure to expand any of the foregoing areas in an efficient manner
could have a material adverse effect on the Company's business, financial
condition and results of operations.

SUBSTANTIAL COMPETITION.  The market for the Company's services is intensely
competitive, subject to rapid change and significantly affected by new
service introductions and other market activities of industry participants.
The Company primarily competes with several public and private payroll
service providers, such as Automatic Data Processing, Inc. and Ceridian
Corporation, as well as smaller, regional competitors. Many of these
companies have longer operating histories, greater financial, technical,
marketing and other resources, greater name recognition and a larger number
of clients than the Company. In addition, certain of these companies offer
more services or features than the Company and have processing facilities
located throughout the United States. The Company also competes with in-house
employee services departments and, to a lesser extent, banks and local
payroll companies. With respect to benefits administration services, the
Company competes with insurance companies, benefits consultants and other
local benefits outsourcing companies. The Company may also compete with
marketers of related products and services that may offer payroll or benefits
administration services in the future. The Company has experienced, and
expects to continue to experience, competition from new entrants into its
markets. Increased competition, the failure of the Company to compete
successfully, pricing pressures, loss of market share and loss of clients
could have a material adverse effect on the Company's business, financial
condition and results of operations.

RISK ASSOCIATED WITH THE DEVELOPMENT AND INTRODUCTION OF NEW OR ENHANCED
SERVICES.  The technologies in which the Company has invested to date are
rapidly evolving and have short life cycles, which requires the Company to
anticipate and rapidly adapt to technological changes. In addition, the
Company's industry is characterized by increasingly sophisticated and varied
needs of clients, frequent new service and feature introductions and emerging
industry standards. The introduction of services embodying new technologies
and the emergence of new industry standards and practices can render existing
services obsolete and unmarketable. The Company's future success will depend,
in part, on its ability to develop or acquire advanced technologies, enhance
its existing services with new features, add new services that address the
changing needs of its clients, and respond to technological advances and
emerging industry standards and practices on a timely and cost-effective
basis. Several of the Company's competitors invest substantially greater
amounts in research and development than the Company, which may allow them to
introduce new services or features before the Company. Even if the Company is
able to develop or acquire new technologies in a timely manner, it may incur
substantial costs in developing or acquiring such technologies and in
deploying new services and features to its clients, including costs
associated with acquiring in-process technology, amortization expenses
related to intangible assets and costs of additional personnel. If the
Company is unable to develop or acquire and successfully introduce new
services and new features of existing services in a timely or cost-effective
manner, the Company's business, financial condition and results of operations
could be materially adversely affected.

    The Company has spent, and will continue to spend significant time and
expense in the development of its next generation application platform,
Golden Gate. The Company cannot be certain that Golden Gate will be
successfully developed. Even if it is successfully developed, the Company
cannot be certain that Golden Gate will be accepted by new or existing
clients. In addition, prior to the roll-out of Golden Gate new clients may
postpone their purchase of the Company's existing products and services in
anticipation of the new technology platform. If the Company is unable to
timely and successfully introduce, market and deploy the Golden Gate
application platform, the Company's business, financial condition and results
of operations could be materially adversely affected.

DEPENDENCE ON THIRD-PARTY PROVIDERS.  The Company depends on third-party
courier services to deliver paychecks to clients. The Company does not have
any formal written agreements with any of the courier services that it uses.
Such courier services have been in the past and may be in the future unable
to pick up or deliver the paychecks from the Company to its clients in a
timely manner for a variety of reasons, including employee strikes, storms or
other adverse weather conditions, earthquakes or other natural disasters,
logistical or mechanical failures or accidents. Failure by the Company to
deliver client paychecks in a timely manner could damage the Company's
reputation and have a material adverse effect on the Company's business,
financial condition and results of operations.

DISASTER RECOVERY; RISK OF LOSS OF CLIENT DATA.  The Company currently
conducts substantially all of its payroll and payroll tax processing at the
Company's headquarters in Pleasanton, California, and divides the payroll
printing and finishing between its Pleasanton and Irvine, California
facilities. The Irvine facility serves both as an alternative processing
center and a back-up payroll

                                       7
<PAGE>

center. The Company's Shared Services are conducted solely in Bothell,
Washington, and no benefits administration back-up facility exists. The
Company establishes for each payroll client a complete set of payroll data at
the Pleasanton processing center, as well as at the client's site. In the
event of a disaster in Pleasanton, clients would have the ability to process
payroll checks based on the data they have on site, if necessary. In addition,
the Company has developed business continuity plans for each of the Company's
mission critical business units. There can be no assurance that the Company's
disaster recovery procedures are sufficient or that the payroll data
recovered at the client site would be sufficient to allow the client to
calculate and produce payroll in a timely fashion.

    The Company's operations are dependent on its ability to protect its
computer systems against damage from a major catastrophe (such as an earthquake
or other natural disaster), fire, power loss, security breach,
telecommunications failure or similar event. No assurance can be given that the
precautions that the Company has taken to protect itself from or minimize the
impact of such events will be adequate. Any damage to the Company's data
centers, failure of telecommunications links or breach of the security of the
Company's computer systems could result in an interruption of the Company's
operations or other loss that may not be covered by the Company's insurance. Any
such event could have a material adverse effect on the Company's business,
financial condition and results of operations.

DEPENDENCE ON KEY PERSONNEL.  The Company's success will depend on the
performance of the Company's senior management and other key employees. The
loss of the services of any senior management or other key employee could
have a material adverse effect on the Company's business, financial condition
and results of operations. If one or more of the Company's key employees
resigns from the Company to join a competitor or to form a competitor, the
loss of such personnel and any resulting loss of existing or potential
clients to any such competitor could have a material adverse effect on the
Company's business, financial condition and results of operations. In the
event of the loss of any key personnel, there can be no assurance that the
Company would be able to prevent the unauthorized disclosure or use of its
technical knowledge, practices, procedures or client lists by a former
employee or that such disclosure or use would not have a material adverse
effect on the Company's business, financial condition and results of
operations.

NEED TO ATTRACT AND RETAIN EXPERIENCED PERSONNEL.  The Company's success
depends to a significant degree on its ability to attract and retain
experienced employees. There is substantial competition for experienced
personnel, which the Company expects to continue. Many of the companies with
which the Company competes for experienced personnel have greater financial
and other resources than the Company. The Company has in the past and may in
the future experience difficulty in recruiting sufficient numbers of
qualified personnel. In particular, the Company's ability to find and train
implementation employees is critical to the Company's ability to achieve its
growth objectives. The inability to attract and retain experienced personnel
as required could have a material adverse effect on the Company's business,
financial condition and results of operations.

RISK ASSOCIATED WITH GEOGRAPHIC EXPANSION.  A substantial majority of the
Company's revenue historically has been derived from clients located in the
western United States. The Company's ability to achieve significant future
revenue growth will in large part depend on its ability to gain new clients
throughout the United States. Growth and geographic expansion have resulted
in new and increased responsibilities for management personnel and have
placed and continue to place a strain on the Company's management and
operating and financial systems. The Company will be required to continue to
implement and improve its systems on a timely basis and in such a manner as
is necessary to accommodate the increased number of transactions and clients
and the increased size of the Company's operations. Any failure to implement
and improve the Company's systems or to hire and retain the appropriate
personnel to manage its operations would have a material adverse effect on
the Company's business, financial condition and results of operations.

LIMITATIONS ON PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS.
The Company's success is dependent in part upon its proprietary software
technology. The Company has no patents, patent applications or registered
copyrights. The Company relies on a combination of contract, copyright and
trade secret laws to establish and protect its proprietary technology. The
Company distributes its services under software license agreements that grant
clients licenses to use the Company's services and contain various provisions
protecting the Company's ownership and the confidentiality of the underlying
technology. The Company generally enters into confidentiality and/or license
agreements with its employees and existing and potential clients and limits
access to and distribution of its software, documentation and other
proprietary information. There can be no assurance that the steps taken by
the Company in this regard will be adequate to deter misappropriation or
independent third-party development of the Company's technology. There can be
no assurance that the Company's services and technology do not infringe any
existing patents, copyrights or other proprietary rights of others, or that
third parties will not assert infringement claims in the future. If any such
claims are asserted and upheld, the costs of defense could be substantial and
any resulting liability to the Company could have a material adverse effect
on the Company's business, financial condition and results of operations.

POSSIBLE VOLATILITY OF STOCK PRICE.  The market price of the Company's common
stock is likely to be highly volatile and could be subject to wide
fluctuations in response to quarterly variations in operating results,
announcements of technological innovations or new services by the Company or
its competitors, market conditions in the information services industry,
changes in financial estimates by securities analysts or other events or
factors, many of which are beyond the Company's control. In addition, the
stock market has experienced significant price and volume fluctuations that
have particularly affected the market prices of equity securities of many
technology and services companies and that often have been unrelated to the
operating performance of such companies. These broad market fluctuations may
adversely affect the market price of the Company's common stock.

RISK ASSOCIATED WITH CONTROL BY PRINCIPAL STOCKHOLDERS. As of September
12, 2000, the Company's directors and executive officers, and its principal
stockholders, together controlled approximately 32.0% of the Company's voting
stock. If these stockholders acted or voted together, they would have the power
to exercise a significant influence over the election of the Company's directors
and other matters requiring stockholder approval, including the approval of
significant corporate transactions. In addition, this concentration of ownership
may delay or prevent a change in control of the Company, even when a change may
be in the best interests of its stockholders. In addition, the interests of
these stockholders may not always coincide with the interest of the Company or
the interests of other stockholders.

RISK ASSOCIATED WITH CONVERTIBLE PREFERRED STOCK. In August 2000 the Company
sold 1,132,075 shares of 6.9% Senior Convertible Preferred Stock. The holders
of the Convertible Preferred Stock are entitled to be paid $26.50 per share
before any amounts may be paid to holders of ProBusiness common stock in the
event of a merger, acquisition or liquidation of the Company. The holders of
the Convertible Preferred Stock are entitled to receive cumulative dividends
at an annual rate of 6.9% in the form of additional shares of Convertible
Preferred Stock. Therefore, the longer the Convertible Preferred Stock are
outstanding, the more dilution will be experienced by holders of the
Company's common stock.

RISK ASSOCIATED WITH CHARTER DOCUMENTS AND DELAWARE LAW. Provisions of
the Company's certificate of incorporation, bylaws, and Delaware law could make
it more difficult for a third party to acquire the Company, even if doing so
would be of benefit to its stockholders. In particular, the Company's
certificate of incorporation provides for three classes of directors. Each
director in each class is elected for a three year term, and a different class
is elected each year. These provisions make it difficult for a third party to
gain control of the Company's board of directors.


                                       8

<PAGE>

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS.  Forward-looking statements
contained in this annual report are subject to the safe harbor created by the
Private Securities Litigation Reform Act of 1995 and are highly dependent
upon a variety of important factors that could cause actual results to differ
materially from those reflected in such forward-looking statements. When used
in this document and documents referenced herein, the words "intend,"
"anticipate," "believe," "estimate" and "expect" and similar expressions as
they relate to the Company are included to identify such forward-looking
statements. These forward-looking statements include statements regarding the
demand for outsourcing employee administrative services; the Company's
expansion of its client base; the Company's intention to increase its direct
sales force; the development of a comprehensive and fully integrated suite of
employee administrative services; the Company's ability to offer additional
services; the initiation or completion of any strategic acquisition,
investment or alliance; the Company's ability to extend its technology
leadership; the Company's ability to attract and retain new clients; market
acceptance of any new services offered by the Company; the Company's ability
to minimize the impact of interest rate fluctuations; the Company's ability
to develop its financial and managerial controls and systems; the opening of
additional facilities; the sufficiency of the Company's back-up facilities
and disaster recovery procedures; the Company's ability to develop or acquire
new technologies; the Company's ability to attract and retain experienced
employees; the Company's ability to maintain a high payroll client retention
rate; the Company's ability to minimize the future impact of SAB 101 on the
Company's financial condition or results of operations and the Company's
ability to increase its national presence. These forward-looking statements
are based largely on the Company's current expectations and are subject to a
number of risks and uncertainties, including, without limitation, those
identified under "Additional Factors That May Affect Future Results" and
elsewhere in this annual report and other risks and uncertainties indicated
from time to time in the Company's filings with the Securities and Exchange
Commission. Actual results could differ materially from these forward-looking
statements. In addition, important factors to consider in evaluating such
forward-looking statements include changes in external market factors,
changes in the Company's business or growth strategy or an inability to
execute its strategy due to changes in its industry or the economy generally,
the emergence of new or growing competitors and various other competitive
factors. In light of these risks and uncertainties, there can be no assurance
that the forward-looking statements contained in this annual report will in
fact occur.


                                       9
<PAGE>

                           PROBUSINESS SERVICES, INC.
                          CONSOLIDATED BALANCE SHEETS
               (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                    JUNE 30,
                                                              ---------------------
                                                                1999        2000
                                                              --------   ----------
<S>                                                           <C>        <C>
                           ASSETS
Current Assets:
  Cash and cash equivalents.................................  $ 73,575   $   27,585
  Short-term investments....................................        --       13,336
                                                              --------   ----------
Total cash, cash equivalents and short-term investments.....    73,575       40,921
  Restricted cash...........................................        --        4,616
  Accounts receivable, net of allowances of $816 at June 30,
    1999, and $1,685 at June 30, 2000.......................     4,599       10,769
  Prepaid expenses and other current assets.................     3,777        5,304
                                                              --------   ----------
                                                                81,951       61,610
Payroll tax funds invested..................................   580,452    1,054,903
                                                              --------   ----------
Total current assets........................................   662,403    1,116,513
Long term investments.......................................        --        1,999
Equipment, furniture and fixtures, net......................    31,024       40,535
Other assets................................................    16,997       23,174
                                                              --------   ----------
Total assets................................................  $710,424   $1,182,221
                                                              ========   ==========

            LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Accounts payable..........................................  $  3,657   $    4,069
  Accrued liabilities.......................................    19,630       13,527
  Deferred revenue..........................................     1,944        3,377
  Current portion of capital lease obligations..............     1,110          458
                                                              --------   ----------
                                                                26,341       21,431
Payroll tax funds collected but unremitted..................   580,452    1,054,903
                                                              --------   ----------
Total current liabilities...................................   606,793    1,076,334
Deferred revenue, less current portion......................     3,553       13,061
Capital lease obligations, less current portion.............       548          376
Commitments
Stockholders' equity:
  Preferred stock, $.001 par value; authorized: 5,000,000
    shares: issued and outstanding: none at June 30, 1999
    and none at June 30, 2000...............................        --           --
  Common stock, $.001 par value; authorized: 60,000,000
    shares; issued and outstanding: 22,942,362 shares at
    June 30, 1999, and 23,584,027 at June 30, 2000..........        23           23
  Additional paid-in capital................................   148,284      154,528
  Accumulated deficit.......................................   (47,896)     (61,813)
  Notes receivable from stockholders........................      (881)        (288)
                                                              --------   ----------
Total stockholders' equity..................................    99,530       92,450
                                                              --------   ----------
Total liabilities and stockholders' equity..................  $710,424   $1,182,221
                                                              ========   ==========
</TABLE>

                            See accompanying notes.


                                       F-1
<PAGE>
                           PROBUSINESS SERVICES, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                   YEAR ENDED JUNE 30,
                                                              ------------------------------
                                                                1998       1999       2000
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Revenue:
  Service fees..............................................  $35,013    $ 50,553   $ 74,378
  Interest income from payroll tax funds invested...........   11,521      19,592     29,694
                                                              -------    --------   --------
Total revenue...............................................   46,534      70,145    104,072

Operating expenses:
  Cost of providing services................................   24,050      34,509     49,378
  General and administrative................................    7,326      10,750     15,673
  Research and development..................................    6,322       9,917     12,091
  Client acquisition costs..................................   18,820      29,862     43,762
  Merger costs..............................................       --       3,500         --
                                                              -------    --------   --------
Total operating expenses....................................   56,518      88,538    120,904

Loss from operations........................................   (9,984)    (18,393)   (16,832)
Interest expense............................................     (613)       (685)      (512)
Interest income and other, net..............................      757       2,969      3,427
                                                              -------    --------   --------

Net loss....................................................  $(9,840)   $(16,109)  $(13,917)
                                                              =======    ========   ========

Basic and diluted net loss per share........................             $  (0.77)  $  (0.60)
                                                                         ========   ========

Shares used in computing basic and diluted net loss per
  share.....................................................               21,033     23,229
                                                                         ========   ========

Pro forma net loss per share................................  $ (0.60)
                                                              =======

Shares used in computing pro forma net loss per share.......   16,535
                                                              =======
</TABLE>

                            See accompanying notes.


                                       F-2
<PAGE>

                           PROBUSINESS SERVICES, INC.
           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                              PREFERRED STOCK                        COMMON STOCK
                                     ----------------------------------   ----------------------------------
                                                             ADDITIONAL                           ADDITIONAL
                                                              PAID-IN                              PAID-IN     ACCUMULATED
                                       SHARES      AMOUNT     CAPITAL       SHARES      AMOUNT     CAPITAL       DEFICIT
                                     ----------   --------   ----------   ----------   --------   ----------   ------------
<S>                                  <C>          <C>        <C>          <C>          <C>        <C>          <C>
Balances at June 30, 1997..........   3,228,034       3        22,370      2,869,230       3          1,531       (21,947)
Issuance of common stock in
  connection with public offering,
  net of offering costs............          --      --            --      4,312,500       4         27,005            --
Conversion of preferred stock into
  common stock.....................  (3,228,034)     (3)      (22,370)     9,684,102      10         22,363            --
Conversion of redeemable
  convertible preferred stock into
  common stock.....................          --      --            --        320,060      --          1,571            --
Exercise of warrants...............          --      --            --        415,725       1            958            --
Exercise of common stock options...          --      --            --        236,998      --            317            --
Issuance of common stock under the
  employee stock purchase plan.....          --      --            --        170,114      --          1,060            --
Repayment of notes receivable from
  stockholders.....................          --      --            --             --      --             --            --
Issuance of common stock
  warrants.........................          --      --            --             --      --             49            --
Net loss and comprehensive loss....          --      --            --             --      --             --        (9,840)
                                     ----------     ---       -------     ----------     ---       --------      --------
Balances at June 30, 1998..........          --      --            --     18,008,729      18         54,854       (31,787)
                                     ----------     ---       -------     ----------     ---       --------      --------
Issuance of common stock in
  connection with public offering,
  net of offering costs............          --      --            --      3,191,250       3         80,708            --
Exercise of common stock
  warrants.........................          --      --            --        178,790      --            450            --
Exercise of common stock options...          --      --            --        342,562      --          1,062            --
Conversion of redeemable
  convertible preferred stock into
  common stock.....................          --      --            --        819,055       1          8,130            --
Issuance of common stock under the
  employee stock purchase plan.....          --      --            --        401,976       1          2,984            --
Repayment of notes receivable from
  stockholders.....................          --      --            --             --      --             --            --
Issuance of common stock
  warrants.........................          --      --            --             --      --             96            --
Net loss and comprehensive loss....          --      --            --             --      --             --       (16,109)
                                     ----------     ---       -------     ----------     ---       --------      --------
Balances at June 30, 1999..........          --      --            --     22,942,362     $23       $148,284      $(47,896)
                                     ----------     ---       -------     ----------     ---       --------      --------
Exercise of common stock
  warrants.........................          --      --            --             --      --            259            --
Exercise of common stock options,
  net of repurchased shares........          --      --            --        336,884                  2,460            --
Issuance of common stock under the
  employee stock purchase plan.....          --      --            --        304,781                  3,525            --
Repayment of notes receivable from
  stockholders.....................          --      --            --             --      --             --            --
Net loss and comprehensive loss....          --      --            --             --      --             --       (13,917)
                                     ----------     ---       -------     ----------     ---       --------      --------
Balances at June 30, 2000..........          --      --            --     23,584,027     $23       $154,528      $(61,813)
                                     ==========     ===       =======     ==========     ===       ========      ========

<CAPTION>

                                        NOTES           TOTAL
                                      RECEIVABLE    STOCKHOLDERS'
                                         FROM          EQUITY
                                     STOCKHOLDERS     (DEFICIT)
                                     ------------   -------------
<S>                                  <C>            <C>
Balances at June 30, 1997..........     (1,188)            772
Issuance of common stock in
  connection with public offering,
  net of offering costs............         --          27,009
Conversion of preferred stock into
  common stock.....................         --              --
Conversion of redeemable
  convertible preferred stock into
  common stock.....................         --           1,571
Exercise of warrants...............         --             959
Exercise of common stock options...         --             317
Issuance of common stock under the
  employee stock purchase plan.....         --           1,060
Repayment of notes receivable from
  stockholders.....................         13              13
Issuance of common stock
  warrants.........................         --              49
Net loss and comprehensive loss....         --          (9,840)
                                        ------        --------
Balances at June 30, 1998..........     (1,175)         21,910
                                        ------        --------
Issuance of common stock in
  connection with public offering,
  net of offering costs............         --          80,711
Exercise of common stock
  warrants.........................         --             450
Exercise of common stock options...         --           1,062
Conversion of redeemable
  convertible preferred stock into
  common stock.....................         --           8,131
Issuance of common stock under the
  employee stock purchase plan.....         --           2,985
Repayment of notes receivable from
  stockholders.....................        294             294
Issuance of common stock
  warrants.........................         --              96
Net loss and comprehensive loss....         --         (16,109)
                                        ------        --------
Balances at June 30, 1999..........     $ (881)       $ 99,530
                                        ------        --------
Exercise of common stock
  warrants.........................         --             259
Exercise of common stock options,
  net of repurchased shares........         --           2,460
Issuance of common stock under the
  employee stock purchase plan.....         --           3,525
Repayment of notes receivable from
  stockholders.....................        593             593
Net loss and comprehensive loss....         --         (13,917)
                                        ------        --------
Balances at June 30, 2000..........     $ (288)       $ 92,450
                                        ======        ========
</TABLE>

                            See accompanying notes.

                                       F-3
<PAGE>
                           PROBUSINESS SERVICES, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                   YEAR ENDED JUNE 30,
                                                              ------------------------------
                                                                1998       1999       2000
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
OPERATING ACTIVITIES
Net loss....................................................  $ (9,840)  $(16,109)  $(13,917)
  Adjustments to reconcile net loss to net cash provided by
    (used in) operating activities:
    Depreciation and amortization...........................     4,380      7,316     10,729
    Other...................................................       325         93         --
    Issuance of warrants....................................        30         96         --
    Changes in operating assets and liabilities:
      Accounts receivable, net..............................      (317)    (1,333)    (6,170)
      Prepaid expenses and other current assets.............    (1,544)    (1,534)    (1,527)
      Other assets..........................................     1,729       (777)      (840)
      Accounts payable......................................       589      1,725        412
      Accrued liabilities...................................     5,529      6,072     (6,103)
      Deferred revenue......................................       860      3,358     10,941
                                                              --------   --------   --------
Net cash provided by (used in) operating activities.........     1,741     (1,093)    (6,475)

INVESTING ACTIVITIES
Additional consideration paid in connection with the
  acquisition of BeneSphere Administrators, Inc.............    (1,127)    (2,367)        --
Purchase of securities......................................        --         --    (15,335)
Purchases of equipment, furniture and fixtures..............    (9,433)   (22,223)   (19,095)
Capitalization of software development costs................    (3,858)    (4,100)    (6,482)
                                                              --------   --------   --------
Net cash used in investing activities.......................   (14,418)   (28,690)   (40,912)

FINANCING ACTIVITIES
Increase in restricted cash.................................        --         --     (4,616)
Borrowings under line of credit agreements..................     6,874         --         --
Repayments of borrowings under line of credit agreements....   (11,632)        --         --
Proceeds from long-term debt and notes payable..............       820        451         --
Repayments under long-term debt and notes payable...........    (4,059)      (323)        --
Repayments under note payable to stockholder................      (250)        --         --
Principal payments on capital lease obligations.............    (1,036)    (1,263)      (824)
Proceeds from issuance of redeemable and convertible
  preferred stock...........................................     1,500      5,045         --
Proceeds from issuance of common stock......................    29,345     85,208      6,244
Repayment of notes receivable from stockholder..............        13        294        593
                                                              --------   --------   --------
Net cash provided by financing activities...................    21,575     89,412      1,397
                                                              --------   --------   --------
Net increase in cash and cash equivalents...................     8,898     59,629    (45,990)
Cash and cash equivalents, beginning of period..............     5,048     13,946   $ 73,575
                                                              --------   --------   --------
Cash and cash equivalents, end of period....................  $ 13,946   $ 73,575   $ 27,585
                                                              ========   ========   ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest....................  $    590   $    652   $    475
                                                              ========   ========   ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
  ACTIVITIES
Purchases of equipment under capital lease obligations......  $    738   $    365   $     --
                                                              ========   ========   ========
Issuances of warrants.......................................  $     49   $     --   $     --
                                                              ========   ========   ========
Issuance of preferred stock in satisfaction of notes
  payable...................................................  $    683   $    455   $     --
                                                              ========   ========   ========
Conversion of redeemable and convertible preferred stock to
  common stock..............................................  $ 22,373   $  8,131   $     --
                                                              ========   ========   ========
ACQUISITION OF BENESPHERE ADMINISTRATORS, INC.
BeneSphere contingent consideration.........................  $  2,208   $  2,519   $     --
                                                              ========   ========   ========
</TABLE>

                            See accompanying notes.


                                       F-4
<PAGE>
                           ProBusiness Services, Inc.
                    Notes to Consolidated Financial Statements

1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

OPERATIONS

    ProBusiness Services, Inc. (the "Company") provides outsourced integrated
employee administrative services for large employers nationwide. The Company's
primary service offerings are payroll processing, payroll tax filing, benefits
administration services, Shared Services, human resources software and
self-service applications.

    In January 1997, the Company acquired all of the outstanding capital stock
of BeneSphere Administrators, Inc. ("BeneSphere"), a Washington corporation. The
transaction was recorded under the purchase method of accounting, and the
results of operations of BeneSphere have been included in the financial
statements of the Company beginning January 2, 1997 (Note 11).

    In April 1999, the Company acquired all of the outstanding capital stock of
Clemco, Inc. ("Conduit Parent"), a Georgia corporation. Conduit Parent is the
parent and sole stockholder of Conduit Software, Inc., a provider of employee
relationship management applications. The transaction was recorded using the
pooling of interests method of accounting, and as such, all financial
information for all dates and periods prior to the acquisition has been restated
to reflect the acquisition (Note 11).

    On September 30, 1999, the Company formed a wholly-owned subsidiary,
ProBusiness Holding Company, Inc. ("ProBusiness Holdings") in order to meet the
requirements of certain customers associated with the transfer, investment and
distribution of payroll tax funds invested. All client payroll tax funds
transferred to Company are directed to, and maintained by, ProBusiness Holdings.
The obligations of ProBusiness Holdings are limited to the payment of all
payroll tax funds collected but unremitted and the transfer to the Company of
all interest income derived from such balances.

BASIS OF PRESENTATION

    The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. All significant intercompany transactions and
balances have been eliminated in consolidation.

BUSINESS ACTIVITIES

    Payroll Processing: The Company processes time and attendance data to
calculate and produce employee paychecks, direct deposits and reports for its
clients. Clients receive paychecks and reports within 24 to 48 hours of the
Company's receipt of the data electronically submitted from the client. In
addition, the Company offers features, including the automatic enrollment and
tracking of paid time off, proration of compensation for new hires and
integrated garnishment processing.

    Payroll Tax Filing: The Company collects contributed employer and employee
payroll tax funds from clients, deposits such funds with tax authorities when
due, files all payroll tax returns and reconciles the client's account. The
Company will also represent the client before tax authorities in disputes or
inquiries. Substantially all existing payroll clients utilize the Company's
payroll tax service.

    In connection with its payroll tax filing services, the Company collects
funds from clients for payment of payroll taxes, holds such funds in a
financial institution until payment is due (such funds being segregated from
the Company's other accounts and since October 1, 1999, maintained under a
subsidiary holding company--ProBusiness Holdings), remits such funds to the
appropriate taxing authorities and files related federal, state and local tax
returns, coupons or other required payroll tax data ("payroll tax filings").
The Company is subject to cash penalties imposed by tax authorities for late
filings or underpayment of taxes. To date, such penalties have not been
significant. At June 30, 1999 and 2000, the Company had accrued approximately
$3.3 million and $3.9 million, respectively, for potential tax penalties.


                                       F-5
<PAGE>
                           ProBusiness Services, Inc.
                    Notes to Consolidated Financial Statements
                                   (Continued)

    The Company records collected but unremitted payroll tax funds at cost
and invests them in various financial instruments, which consist of the
following (in thousands):


<TABLE>
<CAPTION>
                                                                    JUNE 30,
                                                              ---------------------
                                                                1999        2000
                                                              --------   ----------
<S>                                                           <C>        <C>
Overnight U.S. government, agency and mortgage backed
  repurchase agreements.....................................  $ 44,600   $       --
Money market funds..........................................   422,100      178,800
Commercial paper............................................    69,500      804,500
Variable rate instruments...................................    40,000       20,000
Certificates of deposit.....................................        --       45,000
Cash and cash equivalents...................................     4,252        6,603
                                                              --------   ----------
                                                              $580,452   $1,054,903
                                                              ========   ==========
</TABLE>

    As a result of the types of financial instruments in which the Company
invests, the carrying amount of such investments approximates fair value. The
Company's collected but unremitted payroll tax fund investments are held
primarily with one custodial financial institution.

    Benefits Administration: The Company's benefits administration services
include flexible benefits enrollment and processing, COBRA administration and
consolidated billing and eligibility tracking. These services include data
management, reconciliation, transaction processing, employee inquiry management
and client service.

    Shared Services: The Company's Shared Service center serves as an extension
of our client's business. The Company manages employee inquiries and
front-office services for payroll, HR and benefits, as well as our traditional
back-office processing services. Front-office administration is a service
offering whereby ProBusiness assumes the management of a client's transactional
administration, including recording and verifying time, issuing manual checks,
enrolling employees in flexible spending benefit programs and auditing and
balancing payroll.

    Human Resources Software: The Company's human resources software tracks and
reports general employee information, including compensation, benefits, skills,
performance, training, job titles and medical history. For clients that also use
the Company's payroll service, the human resources data can be transferred to
the payroll services system, thus eliminating the need for duplicate data entry.

    Self-Service Applications: The Company's self-service applications provide
employers with a complete range of employee relationship management
applications. Employers have a Web-based tool to facilitate HR and payroll
processes and to empower employees with self-directed administration services.
ProBusiness leads the industry with Web-based self-service, including its
Employees Service Portal and Client Services Portal.

INTEREST RATE MANAGEMENT

    During fiscal 1999 and 2000, the Company entered into various interest rate
swap agreements with a financial institution. The purpose of these agreements is
to convert a portion of the interest the Company earns from collected but
unremitted payroll tax funds from a variable to a fixed rate basis. The Company
considers these agreements to be for "other than trading purposes" and has
accounted for these agreements on an accrual basis, with each net payment or
receipt due or owed under each agreement recognized in revenue during the period
to which the payment or receipt relates, with no recognition on the balance
sheet of the fair value of the agreements. The aggregate fair value of these
agreements was negative $3.2 million and negative $5.8 million at June 30, 1999
and 2000, respectively.

    These agreements, with fixed interest rates between 4.76% and 6.96%, each
have a term of two years and expire at various dates through April 2002.
Interest is paid or received based upon the product of the contractual notional
balance multiplied by the difference in the fixed interest rate and the
contractual floating rate option. The contractual notional balance varies on a
monthly basis due to fluctuations in projected holdings of collected but
unremitted payroll tax funds. At June 30, 2000, the notional balance was
$471 million and the average monthly notional balance for the remaining term of
the agreements was $421 million. The agreements require collateral at the option
of the financial institution if interest rates increase and certain other
conditions are met as defined in the agreements.

    During fiscal 2000, the Company held various interest rate cap agreements.
The purposes of these financial products are to limit the collateral exposure
associated with the various interest rate swap agreements held by the Company.
As of June 30, 2000, the aggregate fair values of these agreements were positive
$219,000. As of June 30, 2000, the Company held two interest rate cap agreements
with expiration dates of December 2000 and April 2002 and cap rates of 7.75% and
8.0%, respectively.


                                       F-6
<PAGE>

                           ProBusiness Services, Inc.
                    Notes to Consolidated Financial Statements
                                   (Continued)

USE OF ESTIMATES

    The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities and the reported amounts of
revenues and expenses during the period. Such estimates include, but are not
limited to, provisions for doubtful accounts and penalties and interest relating
to payroll tax processing and estimates regarding the recoverability of
capitalized software. Actual results could differ from these estimates.

CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

    Investments, which are readily convertible to cash within three months of
purchase, are classified in the balance sheet as cash equivalents. Investments,
if any, with longer maturities are considered available-for-sale under SFAS 115
and reported in the balance sheet as short-term investments. At June 30, 2000,
short-term investments of $13.3 million consisted of the commercial paper and
certificates of deposit of $10.3 million and $3.0 million, respectively.

    As of June 30, 2000, the difference between the fair value and the amortized
cost of available-for-sale securities was not material. There were no material
gains or losses from sales of securities in the periods presented. Unrealized
gains and losses on investments were not material at June 30, 2000.

RESTRICTED CASH

    Restricted cash at June 30, 2000, consisted of $4.6 million of cash held as
collateral for the interest rate swap agreements. These funds are held with the
same financial institution as the interest rate swaps.

EQUIPMENT, FURNITURE AND FIXTURES

    Equipment, furniture and fixtures are stated at cost, net of accumulated
depreciation and amortization. Depreciation of equipment, furniture and fixtures
is computed using the straight-line method over the estimated useful lives of
the assets, which range from three to seven years. Leasehold improvements and
assets under capital leases are amortized over the shorter of the life of the
asset or the term of the lease.

REVENUE RECOGNITION

    Revenue from payroll processing and payroll tax filing services under client
contracts is recognized as the services are performed provided that no other
obligations are required to be performed. Deferred revenue is recorded when the
Company has future commitments to customers. Interest income earned on
unremitted payroll tax funds invested is recognized as earned.

    The Company's sales are primarily to customers in the United States. Credit
evaluations are performed as necessary, and the Company does not require
collateral from customers.

    The Company generally requires its payroll tax outsourcing customers to
remit payroll tax liability funds to the Company in advance of the applicable
payroll due date, via electronic funds transfer. These funds are classified as
payroll tax funds invested in the accompanying balance sheets. Interest earned
on invested balances resulting from timing differences between the collection of
these funds from customers and the remittance of such funds to outside parties
is included in total revenues in the accompanying consolidated statements of
operations, as this interest income represents an integral part of the revenue
generated from the Company's services. Interest income generated from the
Company's cash and cash equivalent balance is included in other income in the
accompanying consolidated statements of operations, as this interest income does
not result from the Company's operating activities.

GOODWILL AND OTHER INTANGIBLE ASSETS

    Goodwill and other intangible assets are included in other assets and are
carried at cost less accumulated amortization. Amortization is provided on a
straight-line basis over the respective useful lives, which range from three to
twenty years. Management periodically reviews the carrying amounts of the
Company's intangible assets for indications of impairment.

SOFTWARE DEVELOPMENT COSTS


                                       F-7
<PAGE>

                           ProBusiness Services, Inc.
                    Notes to Consolidated Financial Statements
                                   (Continued)

    The Company accounts for software development costs in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the
Costs of Computer Software to Be Sold, Leased or Otherwise Marketed."

    The Company capitalizes software development costs incurred after
establishing technological feasibility of the product prior to the general
release of the service using the product. In accordance with SFAS No. 2,
"Accounting for Research and Development Costs," which establishes accounting
and reporting standards for research and development, costs incurred in
connection with the enhancement of the Company's existing products or after the
general release of the service using the product are expensed in the current
period and included in the research and development costs within the statement
of operations. The Company amortizes the capitalized software development costs
using the greater of the straight-line basis over the estimated product life,
which is generally a 36 month period, or the ratio of current revenue to the
total of current revenue and anticipated future revenue over the life of the
related product. Such amortization is included in cost of providing services
within the consolidated statements of operations.

    In connection with the Company's acquisition of Conduit Parent, the Company
accounted for various contracts as end-user funding arrangements. The Company
recorded the costs incurred under these arrangements as research and development
expense and the revenues earned as a reduction of research and development
expense. Research and development expense was reduced by $1,232,000 and
$1,072,000 for fiscal 1998 and 1999, respectively, for the revenues earned under
these arrangements.

INCOME TAXES

    The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires the use of the liability method.
Under SFAS No. 109, deferred tax assets and liabilities are measured based on
differences between the financial reporting and tax basis of assets and
liabilities using enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax assets to the net amounts
expected to be realized (Note 5).

ACCOUNTING FOR STOCK-BASED COMPENSATION

    The Company accounts for employee stock options in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and has adopted the "disclosure only" alternative as
described in SFAS No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123") (Note 7).

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS AND ACCOUNTING BULLETINS

    In June 1998, FASB issued SFAS No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging Activities," as amended, which is required to
be adopted in years beginning after June 15, 2000. The Company expects to adopt
SFAS 133 effective July 1, 2000. SFAS 133 requires the Company to recognize all
derivatives on the balance sheet at fair value. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of the
derivative will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. Any
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings and any derivatives that are not hedges must be adjusted
to fair value through income.

    Based on the Company's derivative positions at June 30, 2000, the Company
estimates that, upon adoption, it will report a liability of $5.6 million for
the fair value of its derivative portfolio and a corresponding offset in other
comprehensive income.

    In December 1999, the SEC staff issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 summarizes
certain of the SEC staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. Aspects of SAB 101
relevant to the Company primarily concern the timing of the recognition of
revenue and certain expenses related to arrangements that involve the receipt of
nonrefundable, up-front frees. SAB 101 requires that in particular situations
the nonrefundable fees and certain associated costs be recognized over the
contractual term or average life of the underlying arrangement. SAB 101 will be
effective for ProBusiness in the fourth quarter of fiscal year 2001. SAB 101
has not had a material impact on the Company's historical financial condition
or results of operations.

RECLASSIFICATIONS

    Certain prior year balances have been reclassified to conform to the current
year presentation.


                                       F-8
<PAGE>

                           ProBusiness Services, Inc.
                    Notes to Consolidated Financial Statements
                                   (Continued)

BASIC AND DILUTED NET LOSS PER SHARE (HISTORICAL AND PRO FORMA)

    Shares used in computing basic and diluted net income (loss) per share
are based on the weighted average shares outstanding in each period. Basic
net income (loss) per share excludes any dilutive effects of stock options.
Diluted net income (loss) per share includes the dilutive effect of the
assumed exercise of stock options using the treasury stock method. However,
the effect of outstanding stock options has been excluded from the
calculation of diluted net loss per share as their inclusion would be
antidilutive.

    Pro forma net loss per share has been computed as described above and
also gives effect, under SEC guidance, to the conversion of preferred stock
to common stock not included above, that automatically converted upon
completion of the Company's initial public offering, using the if-converted
method.

    A reconciliation of shares used in the calculation of historical and pro
forma basic and diluted net loss per share follows (in thousands except per
share information):

<TABLE>
<CAPTION>
                                                                    1998       1999       2000
                                                                  --------   --------   --------
    <S>                                                           <C>        <C>        <C>
    HISTORICAL:
    Net loss....................................................  $(9,840)   $(16,109)  $(13,917)
                                                                  -------    --------   --------
    Weighted average shares of common stock outstanding used in
      computing basic and diluted net loss per share............   14,410      21,033     23,229
                                                                  -------    --------   --------
    Basic and diluted net loss per share........................  $ (0.68)   $  (0.77)  $  (0.60)
                                                                  -------    --------   --------
    PRO FORMA:
    Net loss....................................................  $(9,840)
                                                                  -------
    Shares used in computing basic and diluted net loss per
      share (from above)........................................   14,410
    Pro forma adjustment to reflect the effect of the conversion
      of preferred stock from the date of issuance..............    2,125
                                                                  -------
    Weighted average shares used in computing pro forma basic
      and diluted net loss per share............................   16,535
                                                                  -------
    Pro forma basic and diluted net loss per share..............  $ (0.60)
                                                                  -------
</TABLE>

    If the Company had reported net income, the calculation of diluted earnings
per share (historical and pro forma) would have included the shares used in the
computation of historical and pro forma net loss per share as well as an
additional 1,193,000, 1,271,000 and 907,000 common equivalent shares related to
outstanding stock options and warrants not included above (determined using the
treasury stock method) for fiscal 1998, 1999 and 2000, respectively.

2. EQUIPMENT, FURNITURE AND FIXTURES

    Equipment, furniture and fixtures consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                          JUNE 30,
                                                                     -------------------
                                                                       1999       2000
                                                                     --------   --------
         <S>                                                         <C>        <C>
         Equipment and leasehold improvements......................  $39,655    $57,699
         Furniture and fixtures....................................    4,522      5,573
                                                                     -------    -------
                                                                      44,177     63,272
         Less accumulated depreciation and amortization............  (13,153)   (22,737)
                                                                     -------    -------
                                                                     $31,024    $40,535
                                                                     =======    =======
</TABLE>

    Equipment, furniture and fixtures include amounts for assets acquired
under capital leases, principally production, office and computer equipment,
of $4,167,000 at June 30, 1999 and 2000. Accumulated amortization of these
assets was $2,751,000 and $3,369,000 at June 30, 1999 and 2000, respectively.


                                       F-9
<PAGE>

                           ProBusiness Services, Inc.
                    Notes to Consolidated Financial Statements
                                   (Continued)

3. LONG-TERM DEBT

LINE-OF-CREDIT AGREEMENTS

    On June 30, 1998, the Company executed an Amended and Restated Loan and
Security Agreement with a financial institution. The agreement provides for
borrowings that are limited to the lesser of $20,000,000, or the sum of; five
times the Company's average monthly net collections, as defined in the
agreement; plus the lesser of five times the Company's average monthly
collections of the interest on tax investment funds as defined in the
agreement or $5,000,000; plus $1,500,000. The agreement superseded all
previous line-of-credit agreements.

    At June 30, 2000, no borrowings were outstanding under the agreement, and
the amount available for borrowing under the agreement was approximately
$20,000,000. Borrowings outstanding under the agreement bear interest at the
bank's prime rate plus 1% (9.5% at June 30, 2000) and are collateralized by
substantially all of the Company's assets not otherwise encumbered. The
financial covenants of the agreement require the Company to maintain minimum
net worth and earnings-to-debt service ratios. The agreement expires on
December 31, 2000, and is subject to automatic and continuous renewal unless
termination notice is given by either party in accordance with the agreement.

4. COMMITMENTS

    The Company leases its facilities and various equipment under
non-cancelable operating leases, which expire at various dates through 2015.
The facility leases generally require the Company to pay operating costs,
including property taxes, insurance and maintenance, and contain renewal
options and provisions adjusting the lease payments based upon changes in
operating costs or in fixed increments. Rent expense is reflected on a
straight-line basis over the terms of the related leases. The Company is also
obligated under a number of capital equipment leases expiring at various
dates through 2004.

    The future minimum lease payments under capital and operating leases
subsequent to June 30, 2000, are summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                      CAPITAL    OPERATING
                                                                       LEASES     LEASES
                                                                      --------   ---------
         <S>                                                          <C>        <C>
         Year ending June 30,
           2001.....................................................    $504      $ 4,494
           2002.....................................................     212        4,886
           2003.....................................................     180        4,770
           2004.....................................................      26        4,659
           2005.....................................................       0        4,642
           Thereafter...............................................       0       46,982
                                                                        ----      -------
         Total minimum lease payments...............................    $922      $70,433
                                                                                  =======
         Less amounts representing interest.........................      88
                                                                        ----
         Present value of net minimum capital lease obligations.....     834
         Less current portion.......................................     458
                                                                        ----
                                                                        $376
                                                                        ====
</TABLE>

    Rent expense was approximately $3,247,000, $4,543,000 and $5,013,000 for
fiscal 1998, 1999 and 2000, respectively.

    The Company is a party to routine litigation incidental to its business. In
the opinion of management such current or pending lawsuits, either individually
or in the aggregate, are not likely to have a material adverse effect on the
Company's financial condition, results of operations or cash flows.

5. INCOME TAXES

    As of June 30, 2000, the Company had federal net operating loss
carryforwards of approximately $38,500,000. Of this amount, approximately
$7,500,000 can be utilized only against the taxable income of one of the
Company's subsidiaries. The Company also had federal research and development
tax credit carryforwards of approximately $2,380,000. The federal net operating
loss and credit carryforwards will expire at various dates beginning with the
fiscal year ending 2004 through 2020, if not utilized.


                                       F-10
<PAGE>

                           ProBusiness Services, Inc.
                    Notes to Consolidated Financial Statements
                                   (Continued)

    Utilization of the net operating losses and credits may be subject to a
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code of 1986 and similar state provisions. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.

    Significant components of the Company's deferred tax assets and liabilities
are as follows (in thousands):

<TABLE>
<CAPTION>
                                                                    JUNE 30
                                                              -------------------
                                                                1999       2000
                                                              --------   --------
<S>                                                           <C>        <C>
Deferred tax assets:
  Net operating loss carryforwards..........................  $10,768    $13,226
  Research and development credit carryforwards.............    2,283      3,260
  Equipment, furniture and fixtures.........................    2,225      2,503
  Deferred Revenue..........................................    1,425      5,237
  Accruals..................................................    3,306      3,341
                                                              -------    -------
Gross deferred tax assets...................................   20,007     27,567
Less valuation allowance....................................  (17,829)   (23,476)
                                                              -------    -------
Deferred tax assets.........................................    2,178      4,091
Deferred tax liabilities:
Capitalized software development costs......................   (2,035)    (4,091)
Other.......................................................     (143)        --
                                                              -------    -------
Gross deferred tax liabilities..............................   (2,178)    (4,091)
Net deferred taxes..........................................  $    --    $    --
                                                              -------    -------
</TABLE>

    A valuation allowance has been established, and accordingly, no benefit has
been recognized for the Company's net operating losses and deferred tax assets.
The net valuation allowance increased by $5,647,000 during the year ended
June 30, 2000. The Company believes that, based on a number of factors, the
available objective evidence creates sufficient uncertainty regarding the
realizability of the deferred tax assets such that a full valuation allowance
has been recorded. These factors include the Company's history of net losses
since its inception and expected near-term future losses. The Company will
continue to assess the realizability of the deferred tax assets based on actual
and forecasted operating results.

    Deferred tax assets relating to net operating loss carryforwards as of
June 30, 2000, include approximately $4,100,000 associated with stock option
activity for which any subsequently recognized tax benefits will be credited
directly to stockholder's equity.

6. CONVERTIBLE PREFERRED STOCK

    As indicated in Note 11, in connection with the Company's acquisition of
Conduit Parent, the Company restated its consolidated financial statements to
include the consolidated financial position and results of operations of Conduit
Parent.

    In November 1997, Conduit Parent sold 215,800 shares of Series B redeemable
convertible preferred stock for approximately $7.80 per share, resulting in net
proceeds to the Company of $1,000,000 and the cancellation of notes payable and
accrued interest totaling $683,000. The Company has reflected the accretion of
discount as a charge to accumulated deficit. In May 1998, Conduit Parent sold
46,980 shares of Series C redeemable convertible preferred stock for
approximately $11.01 per share, resulting in net proceeds to the Company of
$500,000. In December 1998, Conduit Parent sold 328,715 shares of Series D
redeemable convertible preferred stock for approximately $9.91 per share,
resulting in net proceeds to the Company of $2,795,000 and the cancellation of
notes payable and accrued interest totaling $455,000. In February 1999, Conduit
Parent sold 227,560 shares of Series D redeemable convertible preferred stock
for approximately $9.91 per share, resulting in net proceeds to the Company of
$2,250,000.

    Effective with the merger of Conduit Parent with ProBusiness, all shares of
redeemable convertible preferred stock were converted to Conduit Parent common
stock and were exchanged for 819,055 shares of ProBusiness common stock.

7. STOCKHOLDERS' EQUITY

    In September 1997, the Company completed its initial public offering of
common stock. The offering consisted of 3,750,000 shares of common stock
issued to the public at $7.33 per share. Upon the closing of the initial
public offering, all outstanding shares of preferred stock were converted
into common stock. In October 1997, the underwriters exercised an


                                       F-11
<PAGE>

                           ProBusiness Services, Inc.
                    Notes to Consolidated Financial Statements
                                   (Continued)

option to purchase an additional 562,500 shares of common stock at the
initial public offering price of $7.33 per share to cover over-allotments.

    In September 1998, the Company completed a secondary public offering of
common stock. The offering consisted of 2,775,000 shares of common stock issued
to the public at $27.00 per share. In September 1998, the underwriters exercised
an option to purchase an additional 416,250 shares of common stock at the price
of $27.00 per share to cover over-allotments.

WARRANTS

    The following table represents a summary of warrants outstanding as of
June 30, 2000:

<TABLE>
<CAPTION>
                                                                                 EXERCISE PRICE   NUMBER OF
         DATE ISSUED                                              EXPIRATION       PER SHARE       SHARES
         -----------                                            --------------   --------------   ---------
         <S>                                                    <C>              <C>              <C>
         November 1996........................................  September 2002        $2.65        67,500
         July 1997............................................  July 2002             $6.00        30,000
                                                                                                   ------
                                                                                                   97,500
                                                                                                   ======
</TABLE>

    In connection with the Company's initial public offering, the Company issued
367,288 shares of common stock upon the exercise of warrants, a portion of which
were exercised pursuant to a net exercise provision, for total proceeds of
$923,000. In addition, during fiscal 1998, the Company issued 48,437 shares of
common stock upon exercise of warrants, a portion of which were exercised
pursuant to net exercise provisions, for a total of $36,000. During fiscal 1999,
the Company issued 178,790 shares of common stock upon exercise of warrants, a
portion of which were exercised pursuant to net exercise provisions, for a total
of $450,000.

STOCK SPLIT

    On July 23, 1998, the Board of Directors approved a three-for-two split of
its $.001 par value common stock in the form of a 50% distribution to
stockholders of record as of July 31, 1998. As a result of the stock split,
authorized and outstanding common shares increased 50% and capital in excess of
par was reduced by the par value of the additional common shares issued. The
rights of the holders of these securities were not otherwise modified. All
references in the financial statements to number of shares, per share amounts,
stock option data and market prices of the Company's common stock have been
restated for the effect of the stock split.

8. STOCK OPTION AND STOCK PURCHASE PLANS

STOCK OPTION PLANS

    The Company's 1989 Stock Option Plan ("1989 Plan") provided for the
granting to employees (including officers and employee directors) of
"incentive stock options" within the meaning of the Internal Revenue Code of
1999, as amended (the "Code") and for the granting to employees, directors
and consultants of nonstatutory stock options. In February 1997, the Board of
Directors of the Company increased the shares available for future grants
under the 1989 Plan by 2,063,649 for a total of 4,480,872 shares. Options
granted under the 1989 Plan before the effective date of the amendment and
restatement to the 1996 Plan in September 1997, described below, remain
outstanding in accordance with their terms; however, no further options were
granted under the 1989 Plan after the effective date of the amendment and
restatement to the 1996 Plan.

    In 1996, the Company established the 1996 Executive Stock Option Plan
("Executive Plan"), which provides for stock options to employees and
consultants. Under the Executive Plan, the Board of Directors may grant
nonstatutory stock options to employees and consultants and incentive stock
options to employees only. The Company reserved 1,125,000 shares of common stock
for exercise of stock options under the Executive Plan. The grant of incentive
stock options to an employee who owns stock representing more than 10% of the
voting power of all classes of stock of the Company must be no less than 110% of
the fair market value per share on the date of grant. Fair market value is
determined by the Board of Directors. For all other employees the options must
be no less than 100% of the fair market value per share on the date of grant.
All nonstatutory stock options granted are at a price that is determined by the
Board of Directors. The options generally expire ten years from the date of
grant and are exercisable as determined by the Board of Directors.

    In November 1996, the Board of Directors and stockholders approved,
effective upon the initial public offering, an amendment and restatement of the
Executive Plan to rename the 1996 Executive Stock Option Plan to the 1996 Stock
Option Plan ("1996 Plan") and authorized an increase in the number of shares
reserved for issuance under the 1996 Plan of any unused or canceled shares under
the 1989 Plan, and an annual increase equal to the lesser of (a) 375,000 shares,
(b) 2%


                                       F-12
<PAGE>

                           ProBusiness Services, Inc.
                    Notes to Consolidated Financial Statements
                                   (Continued)

of the outstanding shares of common stock on such date or (c) a lesser amount
determined by the Board. The 1996 Plan provides for grants to employees
(including officers and employee directors) of incentive stock options and
for the granting to employees, directors and consultants of nonqualified
stock options. Notes receivable for the purchase of common stock are included
in stockholders' equity (deficit). In November 1998, the Company's
stockholders approved an amendment to the 1996 Plan to increase the number of
shares reserved for issuance by an additional 950,000 shares. In November
1999, an additional 1,500,000 shares were approved by the Company's
stockholders.

    In connection with the acquisition of Conduit Parent, as discussed in
Note 1, the Company converted options to purchase shares of Conduit Parent
common stock into options to purchase shares of the Company's common stock. The
number of shares of the Company's common stock issuable under each option and
the exercise price for each grant were adjusted by an exchange ratio. The
Company did not assume the Stock Incentive Plan ("Conduit Parent Plan") under
which the options had been originally granted. The Conduit Parent Plan was
terminated and no further options will be granted under the Conduit Parent Plan.
The converted options continue to be subject to the terms of the Conduit Parent
Plan. The Conduit Parent Plan provided for the granting of incentive stock
options as well as nonstatutory stock options. The exercise prices of all
options granted prior to the acquisition were determined by the Conduit Parent
Board of Directors and were not less than the fair market value per share on the
date of grant. The options generally expire ten years from the date of grant and
are exercisable as determined by the Conduit Parent Board of Directors at the
date of the grant.

    A summary of the activity under all plans is set forth below:

<TABLE>
<CAPTION>
                                                                      OUTSTANDING OPTIONS
                                                                  ----------------------------
                                                                              WEIGHTED AVERAGE
                                                                  NUMBER OF    EXERCISE PRICE
                                                                    SHARES        PER SHARE
                                                                  ---------   ----------------
    <S>                                                           <C>         <C>
    Outstanding at June 30, 1997................................  1,316,696        $ 2.62
      Granted...................................................    924,105         11.82
      Exercised.................................................   (236,998)         1.34
      Canceled..................................................   (187,157)         7.12
                                                                  ---------        ------
    Outstanding at June 30, 1998................................  1,816,646          7.21
      Granted...................................................  1,141,295         30.86
      Exercised.................................................   (342,562)         2.88
      Canceled..................................................   (111,519)        23.74
                                                                  ---------        ------
    Outstanding at June 30, 1999................................  2,503,860         17.81
      Granted...................................................  2,807,175         21.72
      Exercised.................................................   (357,978)         7.16
      Canceled..................................................   (608,251)        24.87
                                                                  ---------        ------
    Outstanding at June 30, 2000................................  4,344,606        $20.24
                                                                  =========        ======
</TABLE>

    As of June 30, 2000, options to purchase 1,017,084 shares of common stock
were vested and exercisable at an average exercise price of $14.75 per share and
options to purchase 1,243,965 shares were available for future grant. As of
June 30, 2000, options to purchase approximately 17,664 shares of common stock
had been exercised which are subject to repurchase.

    The weighted-average fair value of options granted during fiscal 1998, 1999
and 2000 was $6.98, $20.99 and $11.79 per share, respectively.

    The following table summarizes information concerning currently outstanding
and exercisable options at June 30, 2000:

<TABLE>
<CAPTION>
                                              OUTSTANDING OPTIONS                                   EXERCISABLE
                              ---------------------------------------------------         -------------------------------
                                             WEIGHTED AVERAGE
                                                REMAINING             WEIGHTED
                                             CONTRACTUAL LIFE         AVERAGE                            WEIGHTED AVERAGE
EXERCISE PRICE                 SHARES            (YEARS)           EXERCISE PRICE          SHARES         EXERCISE PRICE
---------------------         ---------      ----------------      --------------         ---------      ----------------
<S>                           <C>            <C>                   <C>                    <C>            <C>
$ 0.13-$14.00....               774,677            6.66                $ 5.27               572,554           $ 4.72
$14.08-$18.38....             1,564,487            9.23                $18.28                26,258           $15.01
$18.92-$26.81....               751,893            9.31                $23.76                56,880           $20.53
$26.88-$45.00....             1,253,549            8.76                $29.81               361,392           $29.70
                              ---------                                                   ---------
                              4,344,606                                                   1,017,084
                              =========                                                   =========
</TABLE>


                                       F-13
<PAGE>

                           ProBusiness Services, Inc.
                    Notes to Consolidated Financial Statements
                                   (Continued)

STOCK-BASED COMPENSATION

    As permitted under SFAS 123, the Company has elected to continue to follow
APB 25 in accounting for stock-based awards to employees. Under APB 25, the
Company has not recognized any compensation expense with respect to such awards,
since the exercise price of the stock options awarded are equal to the fair
market value of the underlying security on the grant date.

    Disclosure of information regarding net loss and net loss per share is
required by SFAS 123, which also requires that the information be determined
on an "as adjusted" basis as if the Company had accounted for its stock-based
awards to employees, under the fair value method of SFAS 123. The fair value
of the Company's stock-based awards to employees was estimated as of the date
of the grant using a Black-Scholes option pricing model. Limitations on the
effectiveness of the Black-Scholes option valuation model are that it was
developed for use in estimating the fair value of traded options that have no
vesting restrictions and are fully transferable and that the model requires
the use of highly subjective assumptions including expected stock price
volatility. Because the Company's stock-based awards to employees have
characteristics significantly different from those of traded options and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
stock-based awards to employees. The fair value of the Company's stock-based
awards to employees was estimated using the following weighted-average
assumptions:

<TABLE>
<CAPTION>
                                                                       YEAR ENDED JUNE 30,
                                                              --------------------------------------
                                                                1998           1999           2000
                                                              --------       --------       --------
<S>                                                           <C>            <C>            <C>
Expected life (in years)....................................       2              4              4
Expected volatility.........................................   0.746          0.907          0.628
Risk-free interest rate.....................................    5.50%          5.50%          6.30%
Expected dividend yield.....................................    0.00%          0.00%          0.00%
</TABLE>

    For disclosure purposes, the adjusted estimated fair value of the Company's
stock-based awards to employees is amortized over the vesting period for
options. The Company's adjusted information follows (in thousands, except for
per share information):

<TABLE>
<CAPTION>
                                                                   YEAR ENDED JUNE 30,
                                                              ------------------------------
                                                                1998       1999       2000
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Net loss, as reported.......................................  $ (9,840)  $(16,109)  $(13,917)
Net loss, as adjusted.......................................  $(10,792)  $(21,058)  $(21,913)
Historical net loss per share, as reported..................  $  (0.68)  $  (0.77)  $   (.60)
Historical net loss per share, as adjusted..................  $  (0.75)  $  (1.00)  $   (.94)
Pro forma net loss per share, as reported...................  $  (0.60)
Pro forma net loss per share, as adjusted...................  $  (0.65)
</TABLE>

1997 EMPLOYEE STOCK PURCHASE PLAN

    The Company's 1997 Employee Stock Purchase Plan ("Purchase Plan") was
adopted by the Board of Directors in November 1996 and amended in August
1997, for which employees who work a minimum of 20 hours per week at least
five months in any calendar year are eligible to participate in the Purchase
Plan. As of June 30, 2000, there were 1,425,000 shares of common stock
authorized for issuance under the Purchase Plan. Under the Purchase Plan
there is an annual increase to be added on each anniversary date of the
adoption of the Purchase Plan equal to the lesser of (a) 225,000 shares, (b)
1.5% of the outstanding shares on such date or (c) a lesser amount determined
by the Board of Directors. As of June 30, 2000, a total of 876,871 shares had
been issued under the Plan. Under the Purchase Plan, the Company's employees,
subject to certain restrictions, may purchase shares of common stock at the
lesser of 85% of the fair market value at either the beginning of each
two-year offering period or the end of each six-month purchase period within
the two-year offering period. Plan purchases are limited to 10% of each
employee's compensation for offering periods beginning on or prior to
November 1, 1999 and limited to 15% for offering periods beginning on or
after May 1, 2000.

9. EMPLOYEE BENEFIT PLAN

    The Company maintains a tax deferred savings plan under section 401(k) of
the Code (the "Plan"), for the benefit of certain qualified employees.
Employees may elect to contribute to the Plan, through payroll deductions of
up to 18% of their compensation, subject to certain limitations. The Company,
at its discretion, may make additional contributions. The Company did not
make any contributions to the Plan in fiscal 1998, 1999 or 2000.

                                       F-14
<PAGE>

                           ProBusiness Services, Inc.
                    Notes to Consolidated Financial Statements
                                   (Continued)

10. CONSOLIDATED BALANCE SHEET DETAIL

    Other assets consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                     JUNE 30,
                                                                -------------------
                                                                  1999       2000
                                                                --------   --------
    <S>                                                         <C>        <C>
    Capitalized software development costs, net...............  $ 8,744    $14,502
    Prepaid lease expense.....................................       93         54
    Notes receivable from employees...........................    1,113      1,719
    Goodwill and other intangible assets, net.................    6,048      6,105
    Deposits and other........................................      999        794
                                                                -------    -------
                                                                $16,997    $23,174
                                                                =======    =======
</TABLE>

    Accumulated amortization for capitalized software development costs was
approximately $1,148,000 and $1,817,000 at June 30, 1999 and 2000,
respectively. Accumulated amortization for goodwill and other intangible
assets was approximately $1,881,000 and 1,823,000 at June 30, 1999 and 2000,
respectively. The Company regularly reviews capitalized software development
costs to assess recoverability and impairments, if any, are recognized in
operating results in the period in which an impairment in value is determined
to exist.

    At June 30, 1999 and 2000, outstanding notes receivable from officers and
employees of the Company totaled $1,113,000 and $1,719,000, respectively.
These notes are full recourse and bear interest at various rates between
5.42% and 6.46%. Principal and accrued interest are due at various times from
January 2001 to December 2009.

    Accrued liabilities consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                     JUNE 30,
                                                                -------------------
                                                                  1999       2000
                                                                --------   --------
    <S>                                                         <C>        <C>
    Accrued expenses..........................................  $ 9,608    $ 2,470
    Accrued tax penalties.....................................    3,265      3,915
    Accrued payroll and related expenses......................    4,424      6,621
    Accrued BeneSphere contingent consideration (Note 11).....    1,233         --
    Other.....................................................    1,100        521
                                                                -------    -------
                                                                $19,630    $13,527
                                                                =======    =======
</TABLE>

11. BUSINESS COMBINATIONS

    In January 1997, the Company acquired all of the outstanding stock of
BeneSphere. The total purchase price of $7,832,000 million consisted of
$500,000 cash; warrants to purchase 75,000 shares of the Company's common
stock with a net fair market value of $160,000; and assumption of debt
including acquisition costs of $2,445,000 plus additional contingent
consideration of $4,727,000 based on BeneSphere's revenues in excess of
certain base amounts, as defined in the agreement.

    In January 1998 and 1999, the Company accrued an additional $2,208,000
and $2,519,000, respectively, of contingent consideration and recorded
goodwill in the same amount related to the BeneSphere acquisition as
described above. As of June 30, 2000, the Company had no remaining
outstanding balance for accrued contingent consideration in the accompanying
consolidated balance sheet. Goodwill arising from the acquisition is being
amortized on a straight-line basis over 20 years.

    In April 1999, the Company acquired Clemco, Inc. ("Conduit Parent"), the
parent and sole stockholder of Conduit Software, Inc., a provider of employee
relationship management applications. The merger was accounted for using the
pooling of interests method of accounting and as such the Company's
historical financial results for all dates and periods prior to the merger
have been restated to reflect the merger. In connection with the acquisition,
the Company issued 1,714,973 shares of its common stock to Conduit Parent's
stockholders in exchange for all of the outstanding common and preferred
stock of Conduit Parent. All outstanding options and warrants to purchase
Conduit Parent's capital stock were converted into options and warrants to
purchase 82,987 shares of ProBusiness common stock. In connection with the
acquisition, the Company incurred direct transaction costs of approximately
$3,500,000, which consisted primarily of fees for investment banking, legal
and accounting services incurred in conjunction with the acquisition. As of
June 30, 2000, the Company had no remaining outstanding balance for accrued
merger costs in the accompanying consolidated balance sheet. The Company's
consolidated results of operations include adjustments to conform the
presentation and accounting policies of Conduit Parent to ProBusiness'
accounting policies.

                                       F-15
<PAGE>

                           ProBusiness Services, Inc.
                    Notes to Consolidated Financial Statements
                                   (Continued)

12. SEGMENT INFORMATION

    The Company adopted SFAS 131, "Disclosures About Segments of an
Enterprise and Related Information," effective July 1, 1998. SFAS 131
establishes revised standards for public companies relating to the reporting
of financial information about operating segments. The Company has identified
one reportable operating segment based upon the provisions of SFAS 131. The
Company is a provider of employee administrative services for large employers.

    The Company's Chief Operating Decision Maker ("CODM"), who is the
President and Chief Executive Officer, evaluates performance based on a
measure of consolidated gross margin, operating profit before client
acquisition costs and profit or loss from operations. The accounting policies
of the reportable segment are the same as those described in the summary of
significant accounting policies. Based on the above, the Company's
consolidated statements of operations disclose the available financial
information of its reportable segment in accordance with SFAS 131 for fiscal
1998, 1999 and 2000.

13. SUBSEQUENT EVENT

    On August 1, 2000, the Company authorized, issued and sold 1,132,075
shares of 6.9% Senior Convertible Preferred Stock ("Preferred Stock") to
General Atlantic Partners ("GAP") and certain affiliates of GAP at $26.50 per
share. The Preferred Stock ranks senior to the Company's common stock
("Common Stock"). The holders of the Preferred Stock are entitled to receive
cumulative dividends at an annual rate of 6.9% in the form of additional
shares of Preferred Stock. Dividends are payable quarterly on the first day
of October, January, April and July, commencing October 1, 2000. Upon
ilquidation of the Company, the holders of the Preferred Stock are entitled
to be paid an amount equal to $26.50 per share. Any holder of Preferred Stock
has the right to convert such holder's shares of Preferred Stock into shares
of the Company's Common Stock at a rate of one share of Preferred Stock to
one share of the Company's Common Stock, subject to adjustments, as defined.
The Company has the option to convert all of the Preferred Stock to Common
Stock on August 1, 2005 if the then current market price of the Company's
Common Stock price is equal to or greater than $26.50 per share at a rate of
one share of Preferred Stock to one share of the Company's Common Stock,
subject to adjustments, as defined. If, as of any date after August 1, 2003,
the then current market price of the Company's Common Stock is equal to or
greater than $39.00 per share (adjusted for stock splits, dividends,
recapitalizations or otherwise), the Company may redeem any or all of the
then current outstanding Preferred Stock at $26.50 per share.

    The holders of the Preferred Stock vote, as a single class, with the
Company's common shareholders, except that as long as GAP owns a majority of
the Company's Preferred Stock, the holders of such Preferred Stock are
entitled to elect one director to the Company's Board of Directors. As of
June 30, 2000, a Partner of GAP is a member of the Company's current Board of
Directors.

                                       F-16
<PAGE>

               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
ProBusiness Services, Inc.

    We have audited the accompanying consolidated balance sheets of ProBusiness
Services, Inc. as of June 30, 1999 and 2000, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended June 30, 2000. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

    In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of ProBusiness Services, Inc. at June 30, 1999 and 2000, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended June 30, 2000, in conformity with accounting principles
generally accepted in the United States.

                                                          /s/ ERNST & YOUNG, LLP

Walnut Creek, California
August 1, 2000


                                       F-17
<PAGE>
                           PROBUSINESS SERVICES, INC.
                           QUARTERLY FINANCIAL DATA*
                                  (UNAUDITED)
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                        QUARTER ENDED
                                                                        -------------
                                                                 1999                  2000
                                                          -------------------   -------------------
                                                          SEPT. 30   DEC. 31    MARCH 31   JUNE 30
                                                          --------   --------   --------   --------
<S>                                                       <C>        <C>        <C>        <C>
Revenue.................................................  $20,954    $23,073    $30,018    $30,027

Operating expenses:
  Cost of providing services............................   11,148     11,938     12,918     13,374
  General and administrative............................    3,395      3,830      4,064      4,384
  Research and development..............................    3,353      2,496      3,194      3,048
  Client acquisition costs..............................   10,058     11,214     11,560     10,930
                                                          -------    -------    -------    -------
Total operating expenses................................   27,954     29,478     31,736     31,736
Loss from operations....................................   (7,000)    (6,405)    (1,718)    (1,709)
Interest expense........................................     (129)       (33)      (148)      (202)
Interest income and other, net..........................      969        783        838        837
                                                          -------    -------    -------    -------
Net loss................................................  $(6,160)   $(5,655)   $(1,028)   $(1,074)
                                                          -------    -------    -------    -------
</TABLE>

<TABLE>
<CAPTION>
                                                                        QUARTER ENDED
                                                                        -------------
                                                                 1998                  1999
                                                          -------------------   -------------------
                                                          SEPT. 30   DEC. 31    MARCH 31   JUNE 30
                                                          --------   --------   --------   --------
<S>                                                       <C>        <C>        <C>        <C>
Revenue.................................................  $14,255    $16,102    $19,959    $19,829

Operating expenses:
  Cost of providing services............................    7,711      8,325      9,150      9,323
  General and administrative............................    2,565      2,658      2,745      2,782
  Research and development..............................    1,916      2,353      2,981      2,667
  Client acquisition costs..............................    6,456      6,659      8,487      8,260
  Merger costs..........................................       --         --         --      3,500
                                                          -------    -------    -------    -------
Total operating expenses................................   18,648     19,995     23,363     26,532
Loss from operations....................................   (4,393)    (3,893)    (3,404)    (6,703)
Interest expense........................................     (230)       (16)      (288)      (151)
Interest income and other, net..........................      186        804      1,076        903
                                                          -------    -------    -------    -------
Net loss................................................  $(4,437)   $(3,105)   $(2,616)   $(5,951)
                                                          -------    -------    -------    -------
</TABLE>

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

*   All amounts for periods prior to the acquisition have been restated to
    include the consolidated results of operations of Conduit Parent.


                                       27