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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2003

OR

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

For the transition period from ____________ to ____________

Commission File Number: 0-27491

DALEEN TECHNOLOGIES, INC.
(Exact name of registrant as specified in Its charter)

|                                              |  |                    
|--------------------------------------------- |  | -------------------
|Delaware                                      |  | 65-0944514         
|(State or other Jurisdiction of incorporation |  | (I.R.S. Employer   
|or organization)                              |  | Identification No.)
|                                              |  |                    
|902 Clint Moore Road, Suite 230               |  |                    
|Boca Raton, Florida                           |  | 33487              
|(Address of principal executive offices)      |  | (Zip Code)         

Registrants Telephone Number, Including Area Code: (561) 999-8000

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

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).   Yes o   No þ

As of July 31, 2003, the Registrant had outstanding 45,828,912 shares of common
stock.





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TABLE OF CONTENTS



|                                              |                                                                                                |                                                                |  |  |  |  |  | 
|--------------------------------------------- | ---------------------------------------------------------------------------------------------- | -------------------------------------------------------------- |  |  |  |  |  | 
|PART I                                       
|FINANCIAL INFORMATION                        
|                                              | Item 1. Financial Statements.                                                                 
|                                              |                                                                                                | Condensed Unaudited Consolidated Balance Sheets               
|                                              |                                                                                                | Condensed Unaudited Consolidated Statements of Operations     
|                                              |                                                                                                | Condensed Unaudited Consolidated Statements of Cash Flows     
|                                              |                                                                                                | Notes to Condensed Unaudited Consolidated Financial Statements
|                                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
|                                              | Item 3. Quantitative And Qualitative Disclosures About Market Risk.                           
|                                              | Item 4. Controls and Procedures.                                                              
|PART II                                      
|OTHER INFORMATION                            
|                                              | Item 1. Legal Proceedings                                                                     
|                                              | Item 4. Submission of Matters to a Vote of Security Holders.                                  
|                                              | Item 6. Exhibits And Reports On Form 8-K.                                                     
|                                              |                                                                                                | SIGNATURES                                                    
|EX-10.1 LEASE DATED SEPTEMBER 16, 1999       
|EX-10.2 AMENDMENT NO.1 TO REGISTRATION RIGHTS
|EX-31.1 SECTION 302 CERTIFICATION OF PEO     
|EX-31.2 SECTION 302 CERTIFICATION OF PFO     
|EX-32.1 SECTION 906 CERTIFICATION OF PEO     
|EX-32.2 SECTION 906 CERTIFICATION OF PEO     



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DALEEN TECHNOLOGIES, INC. AND SUBSIDIARIES
FORM 10-Q

QUARTER ENDED JUNE 30, 2003

TABLE OF CONTENTS

|        |  |                                                                                                                            |  |  |    |      |  | 
|------- |  | -------------------------------------------------------------------------------------------------------------------------- |  |  | -- | ---- |  | 
|        |  |                                                                                                                            |  |  |    | PAGE
|        |  |                                                                                                                            |  |  |    |     
|        |  | PART I  FINANCIAL INFORMATION                                                                                             |  |  |    |     
|Item 1. |  | Financial Statements.                                                                                                      |  |  |    |     
|        |  |                                                                                                                            |  |  |    |      |  | 
|        |  | Condensed Unaudited Consolidated Balance Sheets as of December 31, 2002 and June 30, 2003                                  |  |  | 3  |     
|        |  |                                                                                                                            |  |  |    |      |  | 
|        |  | Condensed Unaudited Consolidated Statements of Operations for the three months and six months ended June 30, 2002 and 2003 |  |  | 4  |     
|        |  |                                                                                                                            |  |  |    |      |  | 
|        |  | Condensed Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and 2003                  |  |  | 5  |     
|        |  |                                                                                                                            |  |  |    |      |  | 
|        |  | Notes to Condensed Unaudited Consolidated Financial Statements                                                             |  |  | 6  |     
|        |  |                                                                                                                            |  |  |    |      |  | 
|Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations.                                     |  |  | 16 |     
|        |  |                                                                                                                            |  |  |    |      |  | 
|Item 3. |  | Quantitative and Qualitative Disclosures about Market Risk                                                                 |  |  | 32 |     
|        |  |                                                                                                                            |  |  |    |      |  | 
|Item 4. |  | Controls and Procedures                                                                                                    |  |  | 33 |     
|        |  |                                                                                                                            |  |  |    |      |  | 
|        |  | PART II  OTHER INFORMATION                                                                                                |  |  |    |     
|        |  |                                                                                                                            |  |  |    |      |  | 
|Item 1. |  | Legal Proceedings                                                                                                          |  |  | 34 |     
|        |  |                                                                                                                            |  |  |    |      |  | 
|Item 4. |  | Submission of Matters to a Vote of Security Holders                                                                        |  |  | 35 |     
|        |  |                                                                                                                            |  |  |    |      |  | 
|Item 6. |  | Exhibits and Reports on Form 8-K                                                                                           |  |  | 35 |     
|        |  |                                                                                                                            |  |  |    |      |  | 
|        |  | Signatures                                                                                                                 |  |  | 37 |     

2



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PART I




FINANCIAL INFORMATION




|        |  |                     
|------- |  | --------------------
|Item 1. |  | Financial Statements




DALEEN TECHNOLOGIES, INC. AND SUBSIDIARIES

Condensed Unaudited Consolidated Balance Sheets

|                                       |                                                                                                                                                                                                            |                                            |       |                                     |        |          |       |          |        | 
|-------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ----- | ----------------------------------- | ------ | -------- | ----- | -------- | ------ | 
|                                       |                                                                                                                                                                                                            |                                            |       | December 31,                        |        | June 30,
|                                       |                                                                                                                                                                                                            |                                            |       | 2002                                |        | 2003    
|                                       |                                                                                                                                                                                                            |                                            |       |                                     |        |         
|                                       |                                                                                                                                                                                                            |                                            |       | (In thousands, except share and per
|                                       |                                                                                                                                                                                                            |                                            |       | share data)                        
|ASSETS                                 |                                                                                                                                                                                                            |                                            |       |                                     |        |          |       |         
|Current assets:                        |                                                                                                                                                                                                            |                                            |       |                                     |        |          |       |         
|                                       | Cash and cash equivalents                                                                                                                                                                                  |                                            | $     | 6,589                               |        |          | $     | 4,682    |       
|                                       | Restricted cash                                                                                                                                                                                            |                                            |       | 30                                  |        |          |       | 30       |       
|                                       | Accounts receivable, less allowance for doubtful accounts of $3,976 at December 31, 2002 and $1,918
at June 30, 2003                                                                                       |                                            |       | 2,558                               |        |          |       | 1,953    |       
|                                       | Cost in excess of billings                                                                                                                                                                                 |                                            |       |                                    |        |          |       | 380      |       
|                                       | Unbilled revenue                                                                                                                                                                                           |                                            |       | 203                                 |        |          |       | 329      |       
|                                       | Other current assets                                                                                                                                                                                       |                                            |       | 1,022                               |        |          |       | 407      |       
|                                       |                                                                                                                                                                                                            |                                            |       |                                     |        |          |       |         
|                                       |                                                                                                                                                                                                            | Total current assets                       |       |                                     | 10,402 |          |       |          | 7,781  | 
|Notes receivable                       |                                                                                                                                                                                                            |                                            | 77    |                                     |        |          | 37    |         
|Property and equipment, net            |                                                                                                                                                                                                            |                                            | 1,824 |                                     |        |          | 1,381 |         
|Goodwill                               |                                                                                                                                                                                                            |                                            | 5,086 |                                     |        |          | 5,086 |         
|Other assets                           |                                                                                                                                                                                                            |                                            | 1,400 |                                     |        |          | 401   |         
|                                       |                                                                                                                                                                                                            |                                            |       |                                     |        |          |       |         
|                                       |                                                                                                                                                                                                            | Total assets                               |       | $                                   | 18,789 |          |       | $        | 14,686 | 
|                                       |                                                                                                                                                                                                            |                                            |       |                                     |        |          |       |         
|LIABILITIES AND STOCKHOLDERS EQUITY   |                                                                                                                                                                                                            |                                            |       |                                     |        |          |       |         
|Current liabilities:                   |                                                                                                                                                                                                            |                                            |       |                                     |        |          |       |         
|                                       | Accounts payable                                                                                                                                                                                           |                                            | $     | 368                                 |        |          | $     | 329      |       
|                                       | Accrued payroll and other accrued expenses                                                                                                                                                                 |                                            |       | 2,576                               |        |          |       | 2,033    |       
|                                       | Current portion of capitalized lease                                                                                                                                                                       |                                            |       | 164                                 |        |          |       | 78       |       
|                                       | Billings in excess of costs                                                                                                                                                                                |                                            |       | 616                                 |        |          |       | 474      |       
|                                       | Deferred revenue                                                                                                                                                                                           |                                            |       | 1,279                               |        |          |       | 875      |       
|                                       | Other current liabilities                                                                                                                                                                                  |                                            |       | 53                                  |        |          |       | 16       |       
|                                       |                                                                                                                                                                                                            |                                            |       |                                     |        |          |       |         
|                                       |                                                                                                                                                                                                            | Total current liabilities                  |       |                                     | 5,056  |          |       |          | 3,805  | 
|Long term portion of capitalized lease |                                                                                                                                                                                                            |                                            | 26    |                                     |        |          | 2     |         
|Other noncurrent liabilities           |                                                                                                                                                                                                            |                                            |      |                                     |        |          | 5     |         
|                                       |                                                                                                                                                                                                            |                                            |       |                                     |        |          |       |         
|                                       |                                                                                                                                                                                                            | Total liabilities                          |       |                                     | 5,082  |          |       |          | 3,812  | 
|Stockholders equity:                  |                                                                                                                                                                                                            |                                            |       |                                     |        |          |       |         
|                                       | Series F Convertible Preferred Stock, $.01 par value; 588,312 shares authorized; 458,224 issued and
outstanding at December 31, 2002 and June 30, 2003, respectively ($110.94 per share
liquidation value) |                                            |       | 27,656                              |        |          |       | 27,656   |       
|                                       | Common stock, $.01 par value; 200,000,000 shares authorized; 46,848,876 shares issued and 45,847,865
and 45,828,912 outstanding at December 31, 2002 and June 30, 2003, respectively                       |                                            |       | 469                                 |        |          |       | 469      |       
|                                       | Additional paid-in capital                                                                                                                                                                                 |                                            |       | 196,649                             |        |          |       | 196,649  |       
|                                       | Accumulated deficit                                                                                                                                                                                        |                                            |       | (210,918                            | )      |          |       | (213,749 | )     
|                                       | Treasury stock at cost; 1,001,011 and 1,019,964 shares at December 31, 2002 and June 30, 2003,
respectively                                                                                                |                                            |       | (149                                | )      |          |       | (151     | )     
|                                       |                                                                                                                                                                                                            |                                            |       |                                     |        |          |       |         
|                                       |                                                                                                                                                                                                            | Total stockholders equity                 |       |                                     | 13,707 |          |       |          | 10,874 | 
|                                       |                                                                                                                                                                                                            |                                            |       |                                     |        |          |       |         
|                                       |                                                                                                                                                                                                            | Total liabilities and stockholders equity |       | $                                   | 18,789 |          |       | $        | 14,686 | 
|                                       |                                                                                                                                                                                                            |                                            |       |                                     |        |          |       |         

See accompanying notes to condensed unaudited consolidated financial statements.

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DALEEN TECHNOLOGIES, INC. AND SUBSIDIARIES

Condensed Unaudited Consolidated Statements of Operations

|                                                                        |                                              |                          |        |                                       |       |                  |        |       |       |      |        |       |       |  |        |       |       | 
|----------------------------------------------------------------------- | -------------------------------------------- | ------------------------ | ------ | ------------------------------------- | ----- | ---------------- | ------ | ----- | ----- | ---- | ------ | ----- | ----- |  | ------ | ----- | ----- | 
|                                                                        |                                              |                          |        | Three months ended                    |       | Six months ended
|                                                                        |                                              |                          |        | June 30,                              |       | June 30,        
|                                                                        |                                              |                          |        |                                       |       |                 
|                                                                        |                                              |                          |        | 2002                                  |       | 2003             |        | 2002  |       | 2003
|                                                                        |                                              |                          |        |                                       |       |                  |        |       |       |     
|                                                                        |                                              |                          |        | (in thousands, except per share data)
|Revenue:                                                                |                                              |                          |        |                                       |       |                  |        |       |       |      |        |       |       |  |        |      
|                                                                        | Professional services and other              |                          | $      | 1,290                                 |       |                  |        | 3,982 |       |      |        | 2,983 |       |  |        | 7,809 |      
|                                                                        | License fees                                 |                          |        | 753                                   |       |                  |        | 231   |       |      |        | 963   |       |  |        | 475   |      
|                                                                        |                                              |                          |        |                                       |       |                  |        |       |       |      |        |       |       |  |        |      
|                                                                        |                                              | Total revenue            |        |                                       | 2,043 |                  |        |       | 4,213 |      |        |       | 3,946 |  |        |       | 8,284 | 
|                                                                        |                                              |                          |        |                                       |       |                  |        |       |       |      |        |       |       |  |        |      
|Cost of revenue:                                                        |                                              |                          |        |                                       |       |                  |        |       |       |      |        |       |       |  |        |      
|                                                                        | Professional services and other              |                          |        | 608                                   |       |                  |        | 1,109 |       |      |        | 1,614 |       |  |        | 2,165 |      
|                                                                        | License fees                                 |                          |        | 63                                    |       |                  |        | 165   |       |      |        | 98    |       |  |        | 468   |      
|                                                                        |                                              |                          |        |                                       |       |                  |        |       |       |      |        |       |       |  |        |      
|                                                                        |                                              | Total cost of revenue    |        |                                       | 671   |                  |        |       | 1,274 |      |        |       | 1,712 |  |        |       | 2,633 | 
|                                                                        |                                              |                          |        |                                       |       |                  |        |       |       |      |        |       |       |  |        |      
|Gross margin                                                            |                                              |                          | 1,372  |                                       |       |                  | 2,939  |       |       |      | 2,234  |       |       |  | 5,651  |      
|                                                                        |                                              |                          |        |                                       |       |                  |        |       |       |      |        |       |       |  |        |      
|Operating expenses:                                                     |                                              |                          |        |                                       |       |                  |        |       |       |      |        |       |       |  |        |      
|                                                                        | Sales and marketing                          |                          |        | 1,083                                 |       |                  |        | 831   |       |      |        | 2,233 |       |  |        | 1,732 |      
|                                                                        | Research and development                     |                          |        | 1,054                                 |       |                  |        | 1,602 |       |      |        | 2,386 |       |  |        | 3,284 |      
|                                                                        | General and administrative                   |                          |        | 1,250                                 |       |                  |        | 1,517 |       |      |        | 2,583 |       |  |        | 3,129 |      
|                                                                        | Impairment of long lived assets              |                          |        |                                      |       |                  |        | 500   |       |      |        |      |       |  |        | 500   |      
|                                                                        | Restructuring charges                        |                          |        | 745                                   |       |                  |        |      |       |      |        | 745   |       |  |        |      |      
|                                                                        |                                              |                          |        |                                       |       |                  |        |       |       |      |        |       |       |  |        |      
|                                                                        |                                              | Total operating expenses |        |                                       | 4,132 |                  |        |       | 4,450 |      |        |       | 7,947 |  |        |       | 8,645 | 
|                                                                        |                                              |                          |        |                                       |       |                  |        |       |       |      |        |       |       |  |        |      
|Operating loss                                                          |                                              |                          | (2,760 | )                                     |       |                  | (1,511 | )     |       |      | (5,713 | )     |       |  | (2,994 | )    
|Other Income:                                                           |                                              |                          |        |                                       |       |                  |        |       |       |      |        |       |       |  |        |      
|                                                                        | Interest income and nonoperating income, net |                          |        | 118                                   |       |                  |        | 99    |       |      |        | 268   |       |  |        | 163   |      
|                                                                        | Gain on sale of subsidiary                   |                          |        | 391                                   |       |                  |        |      |       |      |        | 391   |       |  |        |      |      
|                                                                        |                                              |                          |        |                                       |       |                  |        |       |       |      |        |       |       |  |        |      
|                                                                        |                                              | Total other income, net  |        |                                       | 509   |                  |        |       | 99    |      |        |       | 659   |  |        |       | 163   | 
|                                                                        |                                              |                          |        |                                       |       |                  |        |       |       |      |        |       |       |  |        |      
|Net loss applicable to common stockholders                              |                                              | $                        | (2,251 | )                                     |       |                  | (1,412 | )     |       |      | (5,054 | )     |       |  | (2,831 | )    
|                                                                        |                                              |                          |        |                                       |       |                  |        |       |       |      |        |       |       |  |        |      
|Net loss applicable to common stockholders per share -basic and diluted |                                              | $                        | (0.10  | )                                     |       |                  | (0.03  | )     |       |      | (0.22  | )     |       |  | (0.06  | )    
|                                                                        |                                              |                          |        |                                       |       |                  |        |       |       |      |        |       |       |  |        |      
|Weighted average shares outstanding- basic and diluted                  |                                              |                          | 23,532 |                                       |       |                  | 45,829 |       |       |      | 22,882 |       |       |  | 45,829 |      
|                                                                        |                                              |                          |        |                                       |       |                  |        |       |       |      |        |       |       |  |        |      

See accompanying notes to condensed unaudited consolidated financial statements.

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DALEEN TECHNOLOGIES, INC. AND SUBSIDIARIES

Condensed Unaudited Consolidated Statements of Cash Flows

|                                                      |                                                                             |                                                   |                                            |                                       |       |                  |        |          |       |      |        |  
|----------------------------------------------------- | --------------------------------------------------------------------------- | ------------------------------------------------- | ------------------------------------------ | ------------------------------------- | ----- | ---------------- | ------ | -------- | ----- | ---- | ------ | -
|                                                      |                                                                             |                                                   |                                            |                                       |       | Six Months Ended
|                                                      |                                                                             |                                                   |                                            |                                       |       |                 
|                                                      |                                                                             |                                                   |                                            |                                       |       | June 30,         |        | June 30,
|                                                      |                                                                             |                                                   |                                            |                                       |       | 2002             |        | 2003    
|                                                      |                                                                             |                                                   |                                            |                                       |       |                  |        |         
|                                                      |                                                                             |                                                   |                                            |                                       |       | (In thousands)  
|Cash flows from operating activities:                 |                                                                             |                                                   |                                            |                                       |       |                  |        |         
|                                                      | Net loss                                                                    |                                                   | $                                          | (5,054                                | )     |                  | $      | (2,831   | )    
|                                                      | Adjustments to reconcile net loss to net cash used in operating activities: |                                                   |                                            |                                       |       |                  |        |          |      
|                                                      |                                                                             | Depreciation and amortization                     |                                            |                                       | 1,307 |                  |        |          | 2,311 |     
|                                                      |                                                                             | Amortization of deferred stock compensation       |                                            |                                       | 68    |                  |        |          |      |     
|                                                      |                                                                             | Loss on disposal of property and equipment        |                                            |                                       | 13    |                  |        |          | 14    |     
|                                                      |                                                                             | Bad debt expense                                  |                                            |                                       | 320   |                  |        |          | 96    |     
|                                                      |                                                                             | Impairment of long-lived assets                   |                                            |                                       |      |                  |        |          | 500   |     
|                                                      |                                                                             | Interest income on stockholders notes receivable |                                            |                                       | (58   | )                |        |          | (2    | )   
|                                                      |                                                                             | Gain on sale of subsidiary                        |                                            |                                       | (391  | )                |        |          |      |     
|                                                      |                                                                             | Changes in assets and liabilities                 |                                            |                                       |       |                  |        |          |       |     
|                                                      |                                                                             |                                                   | Accounts receivable                        |                                       |       | 345              |        |          |       | 589  |       
|                                                      |                                                                             |                                                   | Costs in excess of billings                |                                       |       | (51              | )      |          |       | (380 | )     
|                                                      |                                                                             |                                                   | Unbilled revenue                           |                                       |       | 443              |        |          |       | (126 | )     
|                                                      |                                                                             |                                                   | Other current assets                       |                                       |       | (109             | )      |          |       | (583 | )     
|                                                      |                                                                             |                                                   | Other assets                               |                                       |       | 17               |        |          |       | (4   | )     
|                                                      |                                                                             |                                                   | Accounts payable                           |                                       |       | (223             | )      |          |       | 60   |       
|                                                      |                                                                             |                                                   | Accrued payroll and other accrued expenses |                                       |       | (1,595           | )      |          |       | (387 | )     
|                                                      |                                                                             |                                                   | Billings in excess of costs                |                                       |       | (478             | )      |          |       | (142 | )     
|                                                      |                                                                             |                                                   | Deferred revenue                           |                                       |       | (308             | )      |          |       | (407 | )     
|                                                      |                                                                             |                                                   | Other current liabilities                  |                                       |       |                 |        |          |       | (44  | )     
|                                                      |                                                                             |                                                   |                                            |                                       |       |                  |        |         
|                                                      |                                                                             |                                                   |                                            | Net cash used in operating activities |       |                  | (5,754 | )        |       |      | (1,336 | )
|                                                      |                                                                             |                                                   |                                            |                                       |       |                  |        |         
|Cash flows used in financing activities:              |                                                                             |                                                   |                                            |                                       |       |                  |        |         
|                                                      | Payment of capital lease                                                    |                                                   |                                            |                                      |       |                  |        | (110     | )    
|                                                      | Payment of deferred offering costs                                          |                                                   |                                            | (28                                   | )     |                  |        |         |      
|                                                      |                                                                             |                                                   |                                            |                                       |       |                  |        |         
|                                                      |                                                                             |                                                   |                                            | Net cash used in financing activities |       |                  | (28    | )        |       |      | (110   | )
|                                                      |                                                                             |                                                   |                                            |                                       |       |                  |        |         
|Cash flows used in investing activities:              |                                                                             |                                                   |                                            |                                       |       |                  |        |         
|                                                      | Issuance of stockholders notes receivable                                  |                                                   |                                            | 1                                     |       |                  |        |         |      
|                                                      | Proceeds from sale of fixed assets                                          |                                                   |                                            | 1                                     |       |                  |        |         |      
|                                                      | Net proceeds from sale of subsidiary                                        |                                                   |                                            | 69                                    |       |                  |        |         |      
|                                                      | Repayment of stockholders notes receivable                                 |                                                   |                                            | 12                                    |       |                  |        | 30       |      
|                                                      | Payments related to the acquisition of Abiliti                              |                                                   |                                            |                                      |       |                  |        | (262     | )    
|                                                      | Capital expenditures                                                        |                                                   |                                            | (151                                  | )     |                  |        | (205     | )    
|                                                      |                                                                             |                                                   |                                            |                                       |       |                  |        |         
|                                                      |                                                                             |                                                   |                                            | Net cash used in investing activities |       |                  | (68    | )        |       |      | (437   | )
|                                                      |                                                                             |                                                   |                                            |                                       |       |                  |        |         
|Effect of exchange rates on cash and cash equivalents |                                                                             |                                                   | (39                                        | )                                     |       |                  | (24    | )       
|Net decrease in cash and cash equivalents             |                                                                             |                                                   | (5,889                                     | )                                     |       |                  | (1,907 | )       
|Cash and cash equivalents-beginning of period         |                                                                             |                                                   | 13,092                                     |                                       |       |                  | 6,589  |         
|                                                      |                                                                             |                                                   |                                            |                                       |       |                  |        |         
|Cash and cash equivalents-end of period               |                                                                             | $                                                 | 7,203                                      |                                       |       | $                | 4,682  |         
|                                                      |                                                                             |                                                   |                                            |                                       |       |                  |        |         

See accompanying notes to condensed unaudited consolidated financial statements.

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Daleen Technologies, Inc. and Subsidiaries
Notes to Condensed Unaudited Consolidated Financial Statements
June 30, 2003

(1)     Basis of Presentation

The accompanying condensed unaudited consolidated financial statements for
Daleen Technologies, Inc. and subsidiaries (collectively referred to as
Daleen or the Company) have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these
financial statements do not include all of the information and footnotes
necessary for a fair presentation of financial position, results of operations
and cash flows in conformity with generally accepted accounting principles. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation of the results for the
periods presented have been included. The condensed unaudited consolidated
balance sheet at December 31, 2002 has been derived from the Companys audited
consolidated financial statements at that date. These condensed unaudited
consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto for the year ended
December 31, 2002, included in the Companys annual report on Form 10-K as of
and for the year ended December 31, 2002, filed with the Securities and
Exchange Commission (the SEC) on March 28, 2003.

The results of operations for the three or six months ended June 30, 2003
are not necessarily indicative of results that may be expected for any other
interim period or for the full fiscal year.

(2)     Principles of Consolidation

The accompanying financial statements include the accounts and operations
of Daleen Technologies, Inc. and its subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.

On October 3, 2002 the Company formed a wholly-owned subsidiary DSI, Inc.
and a wholly-owned subsidiary of DSI, Inc., Daleen Solutions, Inc. (Daleen
Solutions). These entities were formed for the purpose of purchasing the
assets and assuming certain liabilities of Abiliti Solutions, Inc. (Abiliti)
on December 20, 2002 (the Abiliti Acquisition). The operations of Daleen
Solutions are included for the three and six months ended June 30, 2003. See
Note 9 for proforma results of operations for the three and six months ended
June 30, 2002.

The accounts and operations of the Company for the three and six months
ended June 30, 2002 included PartnerCommunity, Inc. (PartnerCommunity), a
subsidiary of the Company. The Company sold this subsidiary on June 24, 2002.

On July 4, 2003 the Company formed a branch office in Bogotá, Colombia,
Daleen Technologies Surcursal Colombia. This branch was formed for the purpose
of doing business with a customer in Bogotá, Colombia.

(3)     Basic and Diluted Net Loss Per Share

Basic and diluted net loss per share was computed by dividing net loss
applicable to common stockholders by the weighted average number of shares of
common stock outstanding for each period presented. Common stock equivalents
were not considered since their effect would be antidilutive. Common stock
equivalents amounted to 56,262,532 shares and 56,179,467 shares for the three
and six months ended June 30, 2003, respectively. Common stock equivalents
were 28,697,699 shares and 28,717,699 shares for the three and six months ended
June 30, 2002, respectively.

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(4)     Liquidity

The Company had an accumulated deficit of $213.7 million at June 30, 2003
and although the Company continued to experience operating losses during the
six months ended June 30, 2003, the losses have improved from the same period
in 2002 and have remained consistent with the first quarter of 2003. Cash used
from operations was $1.3 million during the six months ended June 30, 2003
compared to cash used in operations of $5.8 million during the six months ended
June 30, 2002. Cash and cash equivalents at June 30, 2003 were $4.7 million.

The Company believes the cash and cash equivalents at June 30, 2003 may be
sufficient to fund operations for the foreseeable future due to the Companys
2003 anticipated revenue, including the revenue stream associated with the
Abiliti Acquisition and due to the cash received from customers subsequent to
June 30, 2003. However, the telecommunications and software industries are
still faced with many challenges. In addition, there is a high business
concentration risk with Allegiance Telecom, Inc. (Allegiance), the Companys
largest outsourcing service customer. If this customer were to terminate its
agreement or be unable to fulfill its contractual obligations it would severely
impact the Companys operations. The Company provides outsourcing services to
this customer pursuant to a contract expiring at the end of December 2003.
Allegiance filed for relief under Chapter 11 of the U.S. Bankruptcy Code in May
2003. As a critical vendor, the Company was paid by Allegiance in June and July
2003 an agreed amount for all pre-petition amounts due. The Company continues
to provide services pursuant to its contract with this customer and the
customer is current on all post-petition amounts due. If this customer were to
cease doing business with the Company for any reason, the Company may be
required to reduce operations and/or seek additional public or private equity
financing or financing from other sources or consider other strategic
alternatives, including a possible merger, sale of assets, or other business
combination or restructuring transactions. There can be no assurances that
additional financing or strategic alternatives will be obtainable on terms
acceptable to the Company or that any additional financing would not be
substantially dilutive to existing stockholders. If this customer were to cease
to do business with Daleen and the Company failed to obtain additional
financing or failed to engage in one or more strategic alternatives it may have
a material adverse affect on the Companys ability to continue to operate as a
going concern. See business concentration risk in Note 10. The condensed
unaudited consolidated financial statements have been prepared assuming the
Company will continue as a going concern, and do not include any adjustments
that might result from the outcome of this uncertainty.

(5)     Revenue Recognition

The Company recognizes revenue related to outsourcing services under
Emerging Issues Task Force Issue 00-21, Accounting for Revenue Arrangements
with Multiple Deliverables(EITF 00-21). EITF 00-21 relates to accounting
for multiple-deliverable arrangements and specifies circumstances under which a
revenue arrangement should be separated into different revenue-generating
deliverables or units of accounting and how the revenue arrangement should be
allocated to the different deliverables or units of accounting.

Revenue related to outsourcing services consists of (1) discovery work and
(2) monthly processing fees generated from the Companys provision of billing
and event management services. These two deliverables are considered separate
units of accounting because these elements can and have been sold separately
and they create stand-alone value for the customer. The revenue associated
with discovery work is recognized on a time and materials basis as the work is
performed. The monthly processing fees are recognized as the related services
are rendered and are billed monthly based on transaction volume processed,
percentage of revenue billed on behalf of customers or monthly minimum charges
per contractual arrangements.

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The Company primarily recognizes revenue related to site license and
services agreements under Statement of Position 98-9, Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions(SOP
98-9). SOP 98-9 requires recognition of revenue using the residual method
when (1) there is vendor-specific objective evidence (VSOE) of the fair
values of all undelivered elements in a multiple-element arrangement that is
not accounted for using long-term contract accounting, (2) VSOE of fair value
does not exist for one or more of the delivered elements in the arrangement,
and (3) all revenue recognition criteria in Statement of Position 97-2,
Software Revenue Recognition(SOP 97-2) other than the requirement for VSOE
of the fair value of each delivered element of the arrangement are satisfied.

The following elements could be included in the Companys software license
arrangements with its customers:



| |  |  | Software license                             
| | - |  | ---------------------------------------------
|
| |  |  | Maintenance and support                      
|
| |  |  | Professional services                        
|
| |  |  | Third party software licenses and maintenance
|
| |  |  | Training                                     

VSOE exists for all of these elements except for the software license.
The software license is delivered upon the execution of the license agreement.
Based on this delivery and the fact that VSOE exists for all other elements,
the Company recognizes revenue under SOP 98-9 as long as all other revenue
recognition criteria in SOP 97-2 are satisfied.

Under SOP 98-9, the arrangement fee is recognized as follows: (1) the
total fair value of the undelivered elements, as indicated by VSOE, is deferred
and subsequently recognized in accordance with the relevant sections of SOP
97-2 and as described below and (2) the difference between the total
arrangement fee and the amount deferred for the undelivered elements is
recognized as revenue related to the delivered elements.

Revenue related to delivered elements of the arrangement is recognized
when persuasive evidence of an arrangement exists, the software has been
delivered, the fee is fixed and determinable and collectibility is probable.

Revenue related to undelivered elements of the arrangement is valued by
the price charged when the element is sold separately and is recognized as
follows:



| |  |  | Revenue related to customer maintenance agreements is
deferred and recognized ratably using the straight-line method
basis over the applicable maintenance period. The VSOE of
maintenance is determined using the rate at which maintenance is
renewed each year and is dependent on the amount of the license
fee as well as the type of maintenance the customer chooses.                                                                                                                                                                                                                                                                                                     
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Professional service fees are recognized separately from
the license fee since the services are not considered significant
to the functionality of the software and the software does not
require significant modification, production or customization. In
instances when the services performed in conjunction with certain
contracts are significant to the functionality of the software and
the software requires significant modification and customization
at the customers site, the Company recognizes the total license
and services amount together. There are two types of service
contracts that are entered into with customers: fixed fee and time
and materials.



| |  |  | The Company recognizes revenue from fixed fee contracts using
the percentage of completion method, based on the ratio of
total hours incurred to date to total estimated labor hours.
Changes in job performance, job conditions, estimated
profitability and final contract
| |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | settlement may result in revisions to costs and income and are
recognized in the period in which the revisions are determined.
Contract costs include all direct material and labor costs and
those indirect costs related to contract performance, such as
indirect labor and supplies. These costs are readily
determinable since the Company uses the costs that would have
been charged if the contract was a time and materials contract.
Provisions for estimated losses on uncompleted contracts are
recorded in the period in which losses are determined. Amounts
billed in excess of revenue recognized to date are classified
as Billings in excess of costs, whereas revenue recognized in
excess of amounts billed are classified as Costs in excess of
billings in the accompanying condensed unaudited consolidated
balance sheets.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Revenue under a time and materials arrangement is recognized as
services are performed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               



| |  |  | Third party software is recognized when delivered to the
customer. The value of third party software is based on the
Companys acquisition cost plus a reasonable margin and is readily
determinable since the Company frequently sells these licenses
separate of the other elements.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Training revenue is recognized when training is provided
to customers and is based on the amount charged for training when
it is sold separately.                                                                                                                                     

The Company typically receives 25 percent of the license fee as a down
payment and the balance is typically due between three and nine months from
contract execution. In limited situations, the Company enters into extended
payment terms with certain customers if the Company believes it is a good
business opportunity. When it enters into these arrangements, the Company
evaluates each arrangement individually to determine whether collectibility is
probable and the fees are fixed and determinable. An arrangement fee is not
presumed to be fixed and determinable if payment of a significant portion of
the license fee is due after the normal and customary terms usually offered to
customers by the Company. Revenue related to arrangements containing extended
payment terms where the fees are not considered fixed and determinable is
deferred until payments are due.

In order to ensure that collectibility is probable, the Company performs
credit reviews on each customer. If collectibility is determined to not be
probable upon contract execution, revenue is recognized when cash is received.

(6)     Restructuring Activities

During 2001, the Company performed various restructuring activities. For
the year ended December 31, 2001, the Company recorded $11.8 million of
restructuring charges related to restructuring activities that were announced
on January 5, 2001 (the January 2001 Restructuring), April 10, 2001 (the
April 2001 Restructuring), and October 17, 2001 (the October 2001
Restructuring). For the year ended December 31, 2002 the Company recorded a
$745,000 restructuring charge related to restructuring activities announced on
May 14, 2002 (the 2002 Restructuring). Management started to implement these
actions immediately following the announcements. Such charges included the
estimated costs related to workforce reductions, closing and downsizing of
facilities, asset writedowns and other costs.

At December 31, 2002, an accrual remained on the condensed unaudited
consolidated balance sheet related to the January 2001 Restructuring and 2002
Restructuring in the amount of $144,000.

Amounts charged against the restructuring accrual for the six months ended
June 30, 2003 were as follows (in thousands):

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|                                       |  |               |    |               |  |       |    |  |  |   |    | 
|-------------------------------------- |  | ------------- | -- | ------------- |  | ----- | -- |  |  | - | -- | 
|                                       |  | January 2001  |    | 2002          |  |       |    | 
|                                       |  | Restructuring |    | Restructuring |  | Total
|                                       |  |               |    |               |  |      
|Employee termination benefits          |  | $             |   |               |  | $     | 79 |  |  | $ | 79 | 
|Facility costs/rent on idle
facilities |  |               | 20 |               |  |       |   |  |  |   | 20 | 
|                                       |  |               |    |               |  |       |    |  |  |   |    | 
|                                       |  | $             | 20 |               |  | $     | 79 |  |  | $ | 99 | 
|                                       |  |               |    |               |  |       |    |  |  |   |    | 

As of June 30, 2003, an accrual in the amount of $45,000 remains on the
condensed unaudited consolidated balance sheets in accrued payroll and other
accrued expenses related to the January 2001 Restructuring consisting of
facility costs and rent on idle facilities in Atlanta, Georgia.

(7)     Goodwill

At December 31, 2002 and June 30, 2003, goodwill represents the excess of
costs over the fair value of assets related to the Abiliti Acquisition (See
Note 9). The Company follows the provisions of Statement of Financial
Accounting Standards No. 142, Goodwill and Other Intangible Assets(SFAS No.
142). Goodwill and other intangible assets acquired in a purchase business
combination and determined to have an infinite useful life are not amortized,
but instead tested for impairment at least annually in accordance with the
provisions of SFAS No. 142. SFAS No. 142 also requires that intangible assets
with estimable useful lives be amortized over their respective estimated useful
lives to their estimated residual values, and reviewed for impairment in
accordance with SFAS No. 144, Accounting for Impairment or Disposal of
Long-Lived Assets. There has been no impairment to date related to the
goodwill recorded in connection with the Abiliti Acquisition.

(8)     Impairment Charges

The Company recorded an impairment charge of $500,000 in the three and six
months ended June 30, 2003 related to an investment in a third party technology
company due to a decline in fair value which was other than temporary. As a
result of an assessment performed by management, the Company determined that
the asset was impaired, and this investment was written off, in full, during
the three and six months ended June 30, 2003.

(9)     Abiliti Acquisition and 2002 Private Placement

On December 20, 2002, pursuant to an Asset Purchase Agreement dated
October 7, 2002, Daleen Solutions, a wholly-owned subsidiary of Daleen,
consummated the Abiliti Acquisition. Abiliti was a provider of carrier-class
telecommunications billing, rating and event management solutions. As
consideration for the Abiliti Acquisition, Daleen issued to Abiliti 11,406,284
shares of common stock, 115,681 shares of Series F convertible preferred stock
and warrants to purchase 5,666,069 additional shares of common stock at an
exercise price of $0.9060 per share. The fair value of these warrants was
calculated using the Black Scholes Model. The total consideration for the
Abiliti Acquisition amounted to $6.1 million.

Concurrently with the consummation of the Abiliti Acquisition, on December
20, 2002, pursuant to an Investment Agreement dated October 7, 2002, Daleen
completed its private placement of 10,992,136 shares of common stock, 115,681
shares of Series F preferred stock, warrants to purchase 5,666,069 additional
shares of common stock at an exercise price of $0.9060 per share, and warrants
to purchase 500,000 additional shares of common stock at an exercise price of
$0.17 per share, for total proceeds of $5.015 million in cash (the 2002
Private Placement). The purchasers in the 2002 Private Placement were Behrman
Capital II L.P. and Strategic Entrepreneur Fund II, L.P., which are related
entities and stakeholders of Abiliti. The proceeds of the 2002 Private
Placement are being used for working capital and general corporate purposes.

10



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The Abiliti Acquisition was accounted for as a purchase transaction and
accordingly, the acquisition price was allocated to the acquired assets and
assumed liabilities based on their estimated fair value as of the acquisition
date. The excess of the consideration paid over the estimated fair value of net
assets and purchase in-process research and development acquired was recorded
as goodwill. The preliminary purchase price was allocated as follows (in
thousands):

|                                             |  |   |       | 
|-------------------------------------------- |  | - | ----- | 
|Purchase in-process research and development |  | $ | 104   | 
|Net assets                                   |  | $ | 921   | 
|Goodwill                                     |  | $ | 5,086 | 
|                                             |  |   |       | 
|                                             |  | $ | 6,111 | 
|                                             |  |   |       | 

The following unaudited proforma results of operations of the Company for
the six months ended June 30, 2002 assumes the Abiliti Acquisition occurred as
of January 1, 2002. The proforma results have been prepared for comparative
purposes only and do not purport to indicate the results of operations that
would have actually occurred had the combinations been in effect on the dates
indicated, or which may occur in the future. The unaudited proforma results of
operations are as follows (in thousands):

|                                                                       |  |                    |        |                  |  |   |        |  
|---------------------------------------------------------------------- |  | ------------------ | ------ | ---------------- |  | - | ------ | -
|                                                                       |  | Three Months Ended |        | Six Months Ended
|                                                                       |  | June 30, 2002      |        | June 30, 2002   
|                                                                       |  |                    |        |                 
|Total Revenue                                                          |  | $                  | 5,116  |                  |  | $ | 9,813  |  
|                                                                       |  |                    |        |                  |  |   |        |  
|Net loss applicable to common stockholders                             |  | $                  | (2,299 | )                |  | $ | (5,353 | )
|                                                                       |  |                    |        |                  |  |   |        |  
|Net loss applicable to common stockholders per
share basic and diluted |  | $                  | (0.05  | )                |  | $ | (0.12  | )
|                                                                       |  |                    |        |                  |  |   |        |  
|Weighted average outstanding shares                                    |  |                    | 44,623 |                  |  |   | 45,366 |  
|                                                                       |  |                    |        |                  |  |   |        |  

The proforma revenue amount for the three months ended June 30, 2002
includes a high business concentration risk due to three customers amounting to
approximately 68.5 percent of proforma revenues for such period. The proforma
amount for the six months ended June 30, 2002 includes a high business
concentration risk due to two customers amounting to approximately 54.3 percent
of proforma revenues for such period.

(10)     Business and Credit Concentrations

During the three months ended June 30, 2003, 64.4 percent of the Companys
total revenue was attributed to three customers. Sales to these three customers
accounted for 40.7 percent, 13.0 percent and 10.7 percent of the total revenue
for the three months ended June 30, 2003. During the three months ended June
30, 2002, 36.1 percent of the Companys total revenue was attributed to one
customer.

During the six months ended June 30, 2003, 69.7 percent of the Companys
total revenue was attributed to three customers. Sales to these customers
accounted for 44.1 percent, 12.9 percent and 12.7 percent of the total revenue
for the six months ended June 30, 2003. During the six months ended June 30,
2002, 33.2 percent of the Companys total revenue was attributed to two
customers. Sales to these customers accounted for 18.7 percent and 14.5 percent
of the revenue for the six months ended June 30, 2002.

See unaudited proforma business concentration risk in Note 9.

Three customers accounted for 74.2 percent and 68.4 percent of total
accounts receivable at June 30, 2003 and December 31, 2002, respectively.

11



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##### Table of Contents



(11)     Related Party Transactions

Science Applications International Corporation (SAIC) through its
subsidiary SAIC Venture Capital Corporation, is a significant stockholder of
the Company. Revenue related to SAIC for the three and six months ended June
30, 2003 was $35,000 and $49,000, respectively. Revenues related to SAIC for
the three and six months ended June 30, 2002 was $21,000 and $66,000,
respectively. SAIC owns 44 percent of the voting stock of Danet, Inc. (Danet)
and 100 percent of the voting stock of Telcordia Technologies, Inc.
(Telcordia) and Intesacol. Danet is a customer and a subcontractor of the
Companys product. There was no revenue recognized related to Danet for the
three and six months ended June 30, 2003 and 2002. In the three and six months
ended June 30, 2003, we paid Danet $75,000 and $178,000, respectively, related
to professional services. There were no payments made to Danet for the three
and six months ended June 30, 2002. The Company has a strategic alliance
relationship and an Original Equipment Manufacturer Agreement with Telcordia.
Revenue related to Telcordia for the three and six months ended June 30, 2003,
was $0 and $4,000, respectively. Revenue related to Telcordia for the three and
six months ended June 30, 2002 was $143,000 and $608,000, respectively.

Intesacol became a subcontractor of the Company for services in Bogotá,
Colombia in June 2003. In the three and six months ended June 30, 2003 the
Company did not make any payments to Intesacol for professional services.

(12)     Legal Proceedings

Fazari v. Daleen Technologies, Inc.

On December 5, 2001, a class action complaint was filed in the United
States District Court for the Southern District of New York. On April 22, 2002
an amended complaint was filed by two plaintiffs purportedly on behalf of
persons purchasing the Companys common stock between September 20, 1999 and
December 6, 2000. The complaint is styled as Angelo Fazari, on behalf of
himself and all others similarly situated, vs. Daleen Technologies, Inc.,
BancBoston Robertson Stephens Inc., Hambrecht & Quist LLC, Salomon Smith Barney
Inc., James Daleen, David B. Corey and Richard A. Schell. The individual
defendants, Messrs. Corey, Schell and Daleen, have entered into tolling
agreements with the plaintiffs resulting in their dismissal from the case
without prejudice. The remaining defendants include us and certain of the
underwriters in the Companys initial public offering (IPO). More than 300
similar class action lawsuits filed in the Southern District of New York
against numerous companies and their underwriters have been consolidated for
pretrial purposes before one judge under the caption In re Initial Public
Offering Securities Litigation.

The complaint includes allegations of violations of (i) Section 11 of the
Securities Act of 1933 by all named defendants, (ii) Section 15 of the
Securities Act of 1933 by the individual defendants and (iii) Section 10(b) of
the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by
the underwriter defendants. Specifically, the plaintiffs allege in the
complaint that, in connection with the IPO, the defendants failed to disclose
excessive commissions purportedly solicited by and paid to the underwriter
defendants in exchange for allocating shares of the Companys common stock in
the IPO to the underwriter defendants preferred customers. Plaintiffs further
allege that the underwriter defendants had agreements with preferred customers
tying the allocation of shares sold in the IPO to the preferred customers
agreements to make additional aftermarket purchases at pre-determined prices.
Plaintiffs further allege that the underwriters used their analysts to issue
favorable reports about the Company to further inflate the Companys share
price following the IPO. Plaintiffs claim that the defendants knew or should
have known of the underwriters actions and that the failure to disclose these
alleged arrangements rendered the prospectus included in the Companys
registration statement on Form S-1 filed with the SEC in September 1999
materially false and misleading. Plaintiffs seek unspecified damages and other
relief.

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In June 2003, the Company approved the terms of a proposed settlement
involving the plaintiffs, the insurance companies and numerous issuers,
including the Company and the individual defendants, that includes a waiver by
the insurance companies of any retention amounts under the policies. Court
approval of the settlement will be required. Under the terms of the proposed
settlement, there would be no liability to be recorded by the Company other
than legal fees incurred in the initial defense of the action, which are
immaterial. There is no assurance that a settlement with the plaintiffs will be
finalized. In the event that the settlement is not finalized and approved by
the court, the Company intends to defend vigorously against the plaintiffs
claims. The Company believes that it is entitled to indemnification by the
underwriters under the terms of the underwriting agreements. The Company has
notified the underwriters of the action, but the underwriters have not yet
agreed to indemnify the Company. The lead underwriter, BancBoston Robertson
Stephens Inc., has ceased doing business and there is no assurance it will have
the financial resources to provide indemnification. Currently a loss cannot be
determined because the lawsuit is in its initial stages.

General litigation

The Company is involved in a number of other lawsuits and claims
incidental to its ordinary course of business. Management does not believe the
outcome of any of these other activities would have a material adverse effect
on the Companys financial position or results of operations.

(13)     Capital and Operating Leases

The Company has previously entered into agreements to lease office
facilities and certain equipment in Boca Raton, Florida; Atlanta, Georgia;
Chesterfield, Missouri; and Toronto, Ontario, Canada. These operating leases
expire on various dates through August 2004. The facilities in Atlanta and
Toronto are currently being sublet.

Property, plant and equipment includes certain computer hardware and
furniture and equipment that are under capital leases which expire on various
dates through August 2004. The gross amount of the leased equipment and
related accumulated amortization recorded under capital leases are as follows
(in thousands):

|                              |  |   |        |  
|----------------------------- |  | - | ------ | -
|Furniture and Equipment       |  | $ | 1,515  |  
|Less accumulated amortization |  |   | (1,446 | )
|                              |  |   |        |  
|                              |  | $ | 69     |  
|                              |  |   |        |  

Future minimum lease payments under non cancelable operating leases (with
initial or remaining lease terms in excess of one year) and future minimum
capital lease payments as of June 30, 2003 are as follows (in thousands):

|                                                                     |  |                |    |                  |  |   |       | 
|-------------------------------------------------------------------- |  | -------------- | -- | ---------------- |  | - | ----- | 
|Year Ending December 31:                                             |  | Capital Leases |    | Operating Leases
|                                                                     |  |                |    |                 
|2003                                                                 |  | $              | 58 |                  |  | $ | 836   | 
|2004                                                                 |  |                | 27 |                  |  |   | 718   | 
|                                                                     |  |                |    |                  |  |   |       | 
|Total minimum lease payments                                         |  |                | 85 |                  |  |   | 1,554 | 
|                                                                     |  |                |    |                  |  |   |       | 
|Less amount representing interest                                    |  |                | 5  |                  |  |   |       | 
|                                                                     |  |                |    |                  |  |   |       | 
|Present value of minimum capital lease payments                      |  | $              | 80 |                  |  |   |       | 
|Less current installment of obligations under
capital lease payments |  |                | 78 |                  |  |   |       | 
|                                                                     |  |                |    |                  |  |   |       | 
|Obligation under capital leases, excluding
current installment       |  | $              | 2  |                  |  |   |       | 
|                                                                     |  |                |    |                  |  |   |       | 

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The Company subleases some office space in Toronto and in Atlanta. The
amounts of minimum operating lease payments reflected in the above table are
offset by future minimum rental receipts from sub lessee of $117,000 and
$132,000 in years 2003 and 2004, respectively.

(14)     Stock-Based Compensation

The Company applies the intrinsic-value based method of accounting
prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employeesand related interpretations including Financial
Accounting Standards Board (FASB) Interpretation No. 44 Accounting for Certain
Transactions Involving Stock Compensation, an Interpretation of APB No. 25,
issued in March 2000, to account for its fixed plan stock options. Under this
method, compensation expense is recorded on the date of the grant only if the
current price of the underlying stock exceeds the exercise price. Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation,(SFAS No. 123) established accounting and disclosure
requirements using a fair-value-based method of accounting for stock-based
employee compensation plans. As allowed by SFAS No. 123, the Company has
elected to continue to apply the intrinsic-value-based method of accounting
described above, and has adopted only the disclosure requirements of SFAS No.
123. The fair value of each option granted to employees is estimated on the
date of grant using the Black Scholes option pricing model with the following
assumptions:

|                        |  |                             |        |                           |  |         |        |         |  |  |        |   |  |  |        |  
|----------------------- |  | --------------------------- | ------ | ------------------------- |  | ------- | ------ | ------- |  |  | ------ | - |  |  | ------ | -
|                        |  | Three Months Ended June 30, |        | Six Months Ended June 30,
|                        |  |                             |        |                          
|                        |  | 2002                        |        | 2003                      |  | 2002    |        | 2003   
|                        |  |                             |        |                           |  |         |        |        
|Expected life           |  | 5 years                     |        | 5 years                   |  | 5 years |        | 5 years
|Risk-free interest rate |  |                             | 4.09   | %                         |  |         | 2.46   | %       |  |  | 4.09   | % |  |  | 2.46   | %
|Volatility              |  |                             | 131.48 | %                         |  |         | 141.14 | %       |  |  | 131.48 | % |  |  | 141.14 | %
|Dividends               |  | None                        |        | None                      |  | None    |        | None   

Had compensation expense for the Companys plans been determined
consistent with SFAS No. 123, the Companys net loss and let loss per share
would have been increased to proforma amounts indicated below (in thousands):

|                                                                                                                                                     |                                 |   |                      |      |                    |  |        |      |      |   |        |      |   |   |        |      |  
|---------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------- | - | -------------------- | ---- | ------------------ |  | ------ | ---- | ---- | - | ------ | ---- | - | - | ------ | ---- | -
|                                                                                                                                                     |                                 |   | For the Three Months |      | For the Six Months | 
|                                                                                                                                                     |                                 |   | Ended June 30,       |      | Ended June 30,    
|                                                                                                                                                     |                                 |   |                      |      |                   
|                                                                                                                                                     |                                 |   | 2002                 |      | 2003               |  | 2002   |      | 2003
|                                                                                                                                                     |                                 |   |                      |      |                    |  |        |      |     
|Net loss, as reported                                                                                                                                |                                 | $ | (2,251               | )    |                    |  | (1,412 | )    |      | $ | (5,054 | )    |   | $ | (2,831 | )   
|Deduct: Additional
stock-based employee
compensation expense
determined under the
fair value based method
for all awards, net of
related tax effects |                                 |   | (674                 | )    |                    |  | (822   | )    |      |   | (1,871 | )    |   |   | (1,618 | )   
|                                                                                                                                                     |                                 |   |                      |      |                    |  |        |      |      |   |        |      |   |   |        |     
|Pro forma net loss                                                                                                                                   |                                 | $ | (2,925               | )    |                    |  | (2,234 | )    |      | $ | (6,925 | )    |   | $ | (4,449 | )   
|                                                                                                                                                     |                                 |   |                      |      |                    |  |        |      |      |   |        |      |   |   |        |     
|Loss per share:                                                                                                                                      |                                 |   |                      |      |                    |  |        |      |      |   |        |      |   |   |        |     
|                                                                                                                                                     | Basic and diluted  as reported |   | $                    | (.10 | )                  |  | $      | (.03 | )    |   | $      | (.22 | ) |   | $      | (.06 | )
|                                                                                                                                                     | Basic and diluted  pro forma   |   | $                    | (.12 | )                  |  | $      | (.05 | )    |   | $      | (.30 | ) |   | $      | (.10 | )

(15)     New Accounting Pronouncements

In June 2001, the FASB Issued Statement of Financial Accounting Standards
No. 143, Accounting for Asset Retirement Obligations(SFAS No. 143). SFAS
No. 143 requires a company to record the fair value of an asset retirement
obligation as a liability in the period in which it incurs a legal obligation
associated with the retirement of tangible long-lived assets. A company also
records a corresponding asset that is depreciated over the life of the asset.

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Subsequent to the initial measurement of the asset retirement obligation,
the obligation will be adjusted at the end of each period to reflect the
passage of time and changes in the estimated future cash flows underlying the
obligation. The Company was required to adopt SFAS No. 143 on January 1, 2003.
The Company does not have asset retirement obligations and the adoption of SFAS
No. 143 did not have an impact on the Companys financial statements.

On April 30, 2002, the FASB issued Statement of Financials Accounting
Standards No. 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment
of FASB Statement No. 13, and Technical Corrections (SFAS No. 145). Through
this rescission, SFAS No. 145 eliminates the requirement that gains and losses
from the extinguishment of debt be aggregated and, if material, classified as
an extraordinary item, net of the related income tax effect. In addition, SFAS
No. 145 requires sale-leaseback accounting treatment for certain lease
modifications that have economic effects that are similar to sales-leaseback
transactions. SFAS No. 145 also makes several other technical corrections to
existing pronouncements that may change accounting practice. SFAS No. 145 is
effective for fiscal years beginning after May 15, 2002. The adoption of SFAS
No. 145 did not have an impact on the Companys consolidated financial
statements.

In July 2002, the FASB issued a Statement of Financial Accounting
Standards No. 146, Accounting for Exit or Dismissal Activities (SFAS No.
146). SFAS No. 146 is effective for disposal activities initiated by the
Company after December 31, 2002. The Company has not initiated any exit or
dismissal activities in 2003 and therefore the adoption of SFAS No. 146 did not
have an impact on the Companys consolidated financial statements.

In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others,(FIN No. 45) an interpretation of FASB
Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34.
This Interpretation elaborates on the disclosures to be made by a guarantor in
its interim and annual financial statements about its obligations under
guarantees issued. The Interpretation also clarifies that a guarantor is
required to recognize, at inception of a guarantee, a liability for the fair
value of the obligation undertaken. The initial recognition and measurement
provisions of the Interpretation are applicable to guarantees issued or
modified after December 31, 2002. The Company does not have guarantees falling
under the requirements of FIN No. 45 and as a result the adoption of this
interpretation did not have an effect on the Companys consolidated financial
statements.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock Based
Compensation  Transition and Disclosure, an amendment of SFAS No. 123.This
Statement amends SFAS No. 123, to provide alternative methods of transition for
a voluntary change to the fair value method of accounting for stock based
employee compensation. In addition, this Statement amends the disclosures in
both annual and interim financial statements. The Company is currently using
the provisions of APB No. 25 and has included the disclosure modifications in
Note 14.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity
(SFAS No. 150). SFAS No. 150 establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics of
both liabilities and equity. SFAS No. 150 applies specifically to a number of
financial instruments that companies have historically presented within their
financial statements either as equity or between the liabilities section and
the equity section, rather than as liabilities. SFAS 150 is effective for
financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003. The adoption of SFAS No. 150 did not have an impact on
the Companys consolidated financial statements.

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| |         |  |                                                                                      
| | ------- |  | -------------------------------------------------------------------------------------
| | Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations

The following should be read in conjunction with the condensed unaudited
consolidated financial statements, and the related notes thereto, included
elsewhere in this Quarterly Report on Form 10-Q. In addition, reference should
be made to our audited consolidated financial statements and notes thereto, and
related Managements Discussion and Analysis of Financial Condition and Results
of Operations included in our Annual Report on Form 10-K for the year ended
December 31, 2002.

Forward-Looking Statements

This report contains forward-looking statements within the meaning of the
Securities Act of 1933 and the Securities Exchange Act of 1934, as amended by
the Private Securities Litigation Reform Act of 1995. These forward-looking
statements are not historical facts but are the intent, belief or current
expectations, of our business and industry, and the assumptions upon which
these statements are based. Words such as anticipates, expects, intends,
will, could, would, should, may, plans, believes, seeks,
estimates and variations of these words and the negatives thereof and similar
expressions are intended to identify forward-looking statements. These
statements are not guarantees of future performance and are subject to risks,
uncertainties, and other factors, some of which are beyond our control, are
difficult to predict, and could cause actual results to differ materially from
those expressed or forecasted in the forward-looking statements. These risks
and uncertainties include those described in Risk Factors and Managements
Discussion and Analysis of Financial Condition and Results of Operations and
elsewhere in this report and in the Companys Annual Report on Form 10-K for
the year ended December 31, 2002 filed with the SEC. Forward-looking
statements that were true at the time made may ultimately prove to be incorrect
or false. Readers are cautioned to not place undue reliance on forward-looking
statements, which reflect our managements view only as of the date of this
report. We undertake no obligation to update or revise forward-looking
statements to reflect changed assumptions, the occurrence of unanticipated
events or changes to future operating results.

You should be aware that some of these statements are subject to known and
unknown risks, uncertainties and other factors, including those discussed in
the section of this report entitled Risk Factors, that could cause the actual
results to differ materially from those suggested by the forward-looking
statements.

Overview

Daleen Technologies, Inc. (Daleen or the Company) is a global provider
of advanced billing, customer care, event management, and revenue assurance
outsourcing services and software for traditional and next generation
communication service providers and other technology solutions providers. Our
solutions leverage the latest open Internet technologies to enable providers to
enhance their operational efficiency while driving maximum revenue from their
products and services. Our RevChain® billing and customer management and
Asuriti event management and revenue assurance products deliver proven
interoperability with other legacy billing systems and other downstream
operational support systems (OSS) applications, and have a high degree of
flexibility and scalability, making the software highly adaptable and ready for
the future. RevChain and Asuriti can be purchased as part of a turn-key
solution through BillingCentral® or as licensed software applications.

The Company acquired the assets and assumed certain liabilities of Abiliti
Solutions, Inc. (the Abiliti Acquisition) in December 2002. The
BillingCentral operation was acquired in the Abiliti Acquisition.
BillingCentral is a carrier-class operation staffed by billing and
telecommunications experts with an intimate knowledge of our applications that
has the capacity to provide multiple levels of comprehensive outsourcing
services to customers of all sizes. The BillingCentral operation added a
significant revenue stream in the six months ended June 30, 2003 and is
expected to continue to be a significant part of our revenue in future periods.
These outsourced billing, event management and revenue assurance services are
billed and revenue is recognized

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on a monthly basis as services are rendered, which provides more stability
and greater visibility into future performance. Together with our licensed
software applications which derive revenues primarily from licensed software
sales and complementary services, the revenue from our BillingCentral operation
results in a more balanced business model that supports our goals of becoming
cash flow positive and reaching sustainable profitability.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of
operations included herein are based upon our consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires us to make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going basis, we
evaluate our estimates, including those related to our allowance for doubtful
accounts, investments, goodwill impairment, income taxes, restructuring,
long-term service contracts, contingencies and litigation. We base our
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions.

We believe that the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.

Revenue Recognition

Revenue related to outsourcing services consists of (1) discovery work and
(2) monthly processing fees generated from the Companys provision of billing
and event management services. These two deliverables are considered separate
units of accounting because these elements can and have been sold separately
and they create stand alone value for the customer. The revenue associated
with discovery work is recognized on a time and materials basis as the work is
performed. The monthly processing fees are recognized as the related services
are rendered and are billed monthly based on transaction volume processed,
percentage of revenue billed on behalf of customers or monthly minimum charges
per contractual arrangements.

Revenue from site license fees is based on the size of the customers
authorized system, such as number of authorized users and computer processors,
revenue billed through the system, or other factors. We receive license fees
from our customers upon signing of the license agreement. In some cases we
expect to receive additional license fees as our customers grow and add
additional subscribers, or increase their revenue billed through the system.
We also derive license fee revenue from existing customers who purchase
additional products from us to increase the functionality of their current
system. We expect to receive recurring license fees from these activities in
the future.

Revenue from license fees is recognized when persuasive evidence of an
arrangement exists, the software is shipped, the fee is fixed and determinable
and collectibility is probable. An arrangement fee is generally not presumed
to be fixed or determinable if payment of a significant portion of the license
fee is not due until after expiration of the license or due after the normal
and customary terms usually given to our customers. At times, we enter into
extended payment terms with certain customers if we believe it is a good
business opportunity. Revenue related to arrangements containing extended
payment terms where the fees are not considered fixed and determinable is
deferred until payments are due. Granting extended payment terms results in a
longer collection period for accounts receivable and slower cash inflows from
operations. If collectibility is not considered probable, revenue is
recognized when the fee is collected.

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Professional service fees are primarily recognized separately from the
license fee since the services are not considered significant to the
functionality of the software and the software does not require significant
modification, production or customization. In instances when the services
performed in conjunction with certain contracts are significant to the
functionality of the software and the software requires significant
modification and customization at the customer site, the Company recognizes the
total license and services amount together. There are two types of service
contracts that are entered into with customers: fixed fee and time and
materials.

We recognize revenue on fixed fee contracts using the percentage of
completion method. The percentage of completion method relies on estimates of
total expected contract revenue and costs. We follow this method since
reasonably dependable estimates of the revenue and costs can be made.
Recognized revenues and profits are subject to revisions as the contract
progresses to completion. Revisions in profit estimates are charged to income
in the period in which the facts that give rise to the revision become known.
We recognize revenue related to professional services under a time and
materials arrangement as services are performed.

Revenue related to customer maintenance agreements is deferred and
recognized ratably on a straight-line basis over the maintenance period.
Maintenance is renewable annually and we expect to receive annual maintenance
fees from these activities in the future.

Accounts Receivable

We maintain an allowance for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments. We
continuously monitor collections and payments from our customers and the
allowance for doubtful accounts is based on historical experience and any
specific customer collection issues that we have identified. If the financial
condition of our customers were to continue to deteriorate resulting in an
impairment of their ability to make payments, additional allowances may be
required. Where an allowance for doubtful accounts has been established with
respect to customer receivables, as payments are made on such receivables or if
the customer goes out of business with no chance of collection, the allowances
will decrease with a corresponding adjustment of accounts receivable as deemed
appropriate.

Accounting for Income Taxes

We record a valuation allowance to reduce our deferred tax assets to the
amount that is more likely than not to be realized. We believe that it is more
likely than not that the deferred tax assets will not be realized and therefore
we have established a valuation allowance for the entire deferred tax assets,
net of deferred tax liabilities. While we have considered future taxable
income and ongoing prudent and feasible tax planning strategies in assessing
the need for the valuation allowance, in the event we were to determine that we
would be able to realize its deferred tax assets in the future in excess of its
net recorded amount, an adjustment to the deferred tax asset would increase
income in the period such determination was made.

Goodwill

In 2002, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 142 Goodwill and Other Intangible Assets.Goodwill
is no longer amortized but tested for impairment at least annually. At December
31, 2002 and June 30, 2003 the goodwill balance was related to the Abiliti
Acquisition.

At December 31, 2002 we evaluated goodwill for impairment and determined
that goodwill was not impaired. In performing this impairment assessment,
management made judgments regarding the anticipated future cash flows from the
Abiliti Acquisition. Different assumptions in this assessment could have led
to a different result, which could have had a material effect on our reported
earnings. The conditions that could trigger an impairment

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write-down in the future include a significant downward trend in our
operating results or cash flow, a decrease in demand for our products, a change
in the competitive environment and other economic factors.

Results of Operations

The accounts and operations for the three and six months ended June 30,
2002 included PartnerCommunity, Inc. (PartnerCommunity). We sold this
subsidiary on June 24, 2002 and therefore the results of operations for the
three months and six months ended June 30, 2003 do not include any results from
PartnerCommunity.

The Abiliti Acquisition has created an increased revenue stream and helped
position us to be a long standing competitor in the marketplace. In addition
to licensing our software, we now offer a comprehensive outsourcing solution
which was significant to our operations for the three months and six months
ended June 30, 2003.

As a result of the Abiliti Acquisition and the savings we have realized as
a result of our cost reduction plans in 2001 and 2002, we have reduced our cost
structure throughout the Company. We have reduced our costs and use of cash
over the past six months and we continue to focus on achieving growth through
sales to our existing customers as well as maintaining a direct sales force and
alliance partners.

As a result of the Abiliti Acquisition, the Company formed a wholly owned
subsidiary DSI, Inc., and a wholly owned subsidiary of DSI, Inc., Daleen
Solutions, Inc. (Daleen Solutions). For the three months and six months
ended June 30, 2003, the results of operations include the operating results of
Daleen Solutions. The results of operations for the three and six months ended
June 30, 2002 do not include any results of Daleen Solutions.

Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002

Total Revenue.Total revenue, which includes professional services and
other revenue and license revenue, increased $2.2 million, or 106.3% to $4.2
million in the three months ended June 30, 2003, from $2.0 million for the same
period in 2002. The primary reason for the increase in revenue is related to
the outsourcing services revenue stream related to the Abiliti Acquisition.

Professional Services and Other.Our professional services and other
revenue consists of revenue from professional consulting services, training,
maintenance and support, and third-party software fulfillment, all related to
the software products we develop. In addition, these revenues include the
BillingCentral outsourcing operation. Consulting services are offered on a
fixed fee basis and on a time and materials basis. Third-party software
fulfillment is offered on a cost plus basis. Outsourced services are billed
monthly and recognized as services are rendered. Professional services and
other revenue increased $2.7 million, or 208.7%, to $4.0 million in the three
months ended June 30, 2003 from $1.3 million for the same period in 2002. The
increase was primarily related to revenue earned by our outsourcing services.
Professional services and other revenue increased to 94.5% of total revenue in
the three months ended June 30, 2003, compared to 63.2% in the same period in
2002. The increase in the percentage of total revenue is due to a reduction in
license revenue in the three months ended June 30, 2003.

License Fees.Our license fees are derived from licensing our software
products. License fees decreased $522,000, or 69.3%, in the three months ended
June 30, 2003 to $231,000, from $753,000 for the same period in 2002. In the
three months ended June 30, 2002, one customer exceeded contractually specified
billed revenues resulting in additional license fees of $700,000. In the three
months ended June 30, 2003 we recognized additional license fees from an
existing customer related to the licensing of our Asuriti product and an
additional license fee from an existing customer exceeding contractually billed
revenue levels in the amount of $90,000. License fees constituted 5.5% of total
revenue in the three months ended June 30, 2003, compared to 36.8% in the same
period

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in 2002. The decrease in license fees as a percentage of total revenue is
due to the increase in professional services and other revenue in the three
months ended June 30, 2003.

Cost of Revenue.Cost of revenue increased $603,000, or 89.9%, to $1.3
million in the three months ended June 30, 2003 from $671,000 in the same
period in 2002. The cost of revenue includes both cost of professional services
and other and cost of license fees. These components include the cost of direct
labor, benefits, third-party software license payments, third-party software
maintenance, overhead and materials associated with the fulfillment and
delivery of license products and related corporate overhead costs to provide
professional services to customers including the delivery of outsourcing
services. The total costs increased due to the increase in revenue, the
increase in labor costs for the three months ended June 30, 2003 related to the
Abiliti Acquisition and the recording of $145,000 related to a stamp tax that
was incurred upon execution of a license and services agreement in Bogotá
Columbia. The total cost of revenue as a percentage of total revenue decreased
to 30.2% in the three months ended June 30, 2003 from 32.8% in the same period
in 2002. The decrease as a percentage of total revenue is due to an increase in
total revenue in the three months ended June 30, 2003.

Cost of Professional Services and Other.Cost of professional services
and other includes cost of direct labor, benefits, third-party software
maintenance and related costs to provide professional services, maintenance and
training to our customers. Cost of professional services and other increased
$501,000, or 82.3%, to $1.1 million, in the three months ended June 30, 2003
from $608,000 in the same period in 2002 mainly due to the increase in labor
costs in the three months ended June 30, 2003 related to the Abiliti Acquisition
and due to the increase in professional services and other revenue. This
increase was offset by the cost reduction measures taken in May 2002. Cost of
professional services and other decreased to 27.8% of professional services and
other revenue in the three months ended June 30, 2003, compared to 47.1% for
the same period in 2002. The decrease as a percentage of professional services
and other revenue is due to the increase in professional services and other
revenue in the three months ended June 30, 2003.

Cost of License Fees.Cost of license fees includes direct cost of labor,
benefits, packaging material for fulfillment and shipment of our software
products and third-party software license payments. Cost of license fees
increased $102,000, or 164.0%, to $165,000 in the three months ended June 30,
2003 from $63,000 in the same period in 2002. The total costs increased
primarily due to $145,000 of stamp tax that was due upon execution of a license
and services agreement in Bogotá, Colombia. Cost of license fees as a
percentage of license revenue increased to 71.5% in the three months ended June
30, 2003, compared to 8.3% in the same period in 2002. This increase was due to
the stamp tax being recorded which was incurred upon execution of a license and
services in Bogotá, Columbia.

Sales and Marketing.Sales and marketing expenses consist primarily of
salaries, benefits and commissions earned by sales, marketing and partner
management personnel, travel and entertainment, trade show and marketing
program costs, promotional and related corporate overhead costs. These expenses
decreased $252,000, or 23.3%, to $831,000 in the three months ended June 30,
2003, compared to $1.1 million in the same period in 2002. These costs
decreased as a result of our cost reduction measures taken in May 2002 and a
corresponding decrease in our travel and entertainment and trade show costs.
In addition, the decrease is a result of the reduction in sales and marketing
activities due to the sale of PartnerCommunity in June 2002. As a percentage of
total revenue, these expenses decreased to 19.7% in the three months ended June
30, 2003 compared to the 53.0%, for same period in 2002.

Research and Development.Research and development expenses consist
primarily of salaries and benefits for software developers, product testing and
benchmarking, management and quality assurance personnel, subcontractor costs
and related corporate overhead costs. Our research and development expenses
increased $548,000, or 52.1%, to $1.6 million for the three months ended June
30, 2003, from $1.1 million in the same period in 2002. The increase was
primarily due to the increase in labor costs associated with the Abiliti

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Acquisition. As a percentage of revenue, these expenses decreased to 38.0%
in the three months ended June 30, 2003 compared to 51.6% in the same period in
2002. The decrease as a percentage of total revenue is due to the increase in
total revenue in the three months ended June 30, 2003.

General and Administrative.General and administrative expenses consist
primarily of salaries, benefits and related costs for our executive, finance
and accounting, administrative, facilities, human resources and information
systems personnel. Our general and administrative costs increased $267,000, or
21.4%, to $1.5 million in the three months ended June 30, 2003, from $1.3
million in the same period in 2002. This increase was primarily due to the
increase in labor costs associated with the Abiliti Acquisition and in 2003 we
began to pay compensation to our board of directors which amounted to $48,000
for the three months ended June 30, 2003. These increases were offset by the
decrease in labor costs and facility costs associated with the sale of
PartnerCommunity and our cost reduction measures taken in May 2002. In
addition, there was a decrease in our provision for bad debts from $201,000 in
the three months ended June 30, 2002 compared to a net recovery of $16,200 in
the three months ended June 30, 2003 due to receiving a payment for
pre-petition claims which were fully reserved from a customer who declared
bankruptcy in 2000. In addition, the provision for bad debt in the three
months ended June 30, 2002 was due to the uncertainty of collections of some of
our outstanding receivables from certain customers at June 30, 2002 which were
reserved during that period. As a percentage of total revenue, these expenses
decreased to 36.0% in the three months ended June 30, 2003 as compared to 61.2%
in the same period in 2002. The decrease as a percentage of total revenue is
due to the increase in total revenue in the three months ended June 30, 2003.

Impairment of Long Lived Assets.Impairment charges increased $500,000 or
100%, to $500,000 in the three months ended June 30, 2003 from $0 for the same
period in 2002. Impairment charges consisted of an impairment of an investment
in a third party technology company due to decline in fair value which was
other than temporary. This investment was fully written off at June 30, 2003.

Restructuring Charges.Restructuring charges decreased $745,000 or 100%
to $0 in the three months ended June 30, 2003 from $745,000 for the same period
in 2002. Restructuring charges in the three months ended June 30, 2002 was a
result of the cost reduction measures taken in May 2002. There were no cost
reductions taken in the three months ended June 30, 2003.

Other Income.Other income decreased $410,000, or 80.6%, to $99,000 in
the three months ended June 30, 2003, from $509,000 for the same period in
2002. This was primarily attributable to the gain recorded of $391,000 related
to the sale of PartnerCommunity on June 20, 2002. In addition, the decrease was
a result of the decrease in our cash balance and a decrease in interest rates
in 2003.

Six Months Ended June 30, 2003 Compared To Six Months Ended June 30, 2002

Total Revenue. Total revenue, which includes professional services and
other revenue and license revenue, increased $4.3 million, or 110.0%, to $8.3
million in the six months ended June 30, 2003 from $3.9 million for the same
period in 2002. The primary reason for the increase in revenue is related to
the outsourcing services revenue stream acquired with the Abiliti Acquisition.

Professional Services and Other. Our professional services and other
consists of revenue from professional consulting services, training,
maintenance and support, and third-party software fulfillment, all related to
the software products we develop. In addition, these revenues include the
BillingCentral outsourcing operation. Consulting services are offered on a
fixed fee basis and on a time and materials basis. Third-party software
fulfillment is offered on a cost plus basis. Outsourced services are billed
monthly and recognized as services are rendered. Professional services and
other revenue increased $4.8 million, or 161.8%, in the six months ended June
30, 2003 to $7.8 million, compared to $3.0 million in the same period in 2002.
The increase was primarily related

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to revenue earned by our outsourcing services. Professional services and
other revenue constituted 94.3% of total revenue in the six months ended June
30, 2003, compared to 75.6% for the same period in 2002. The increase as a
percentage of total revenue is due to a reduction in license revenue in the six
months ended June 30, 2003.

License Fees. Our license fees are derived from licensing our software
products. License fees decreased $488,000, or 50.7%, in the six months ended
June 30, 2003 to $475,000 from $963,000 for the same period in 2002. In the six
months ended June 30, 2002 the decrease was primarily due to an existing
customer exceeding contractually billed revenue levels resulting in $700,000 of
additional license fees. License fees constituted 5.7% of total revenue in the
six months ended June 30, 2003, compared to 24.4% in the same period in 2002.

Cost of Revenue. Cost of revenue increased $921,000, or 53.8%, to $2.6
million in the six months ended June 30, 2003, from $1.7 million in the same
period in 2002. The cost of revenue includes both cost of professional services
and other and cost of license fees. These components include the cost of direct
labor, benefits, overhead and materials associated with the fulfillment and
delivery of licensed products, amortization expense related to prepaid
third-party licenses and related corporate overhead costs to provide
professional services to our customers. These costs increased due to (1) the
increase in total revenue, (2) the increase in labor costs related to the
Abiliti Acquisition (3) the write-off of $202,000 of prepaid third-party
software license costs because the contract expired and these products were no
longer available to be sublicensed to customers and (4) the recording of
$145,000 related to a stamp tax that was incurred upon execution of a license
and services agreement in Bogotá, Colombia. The total cost of revenue as a
percentage of total revenue decreased to 31.8% in the six months ended June 30,
2003, compared to 43.4% in the same period in 2002. This decrease in the cost
of revenue as a percentage of total revenue resulted from the increase in total
revenue in the six months ended June 30, 2003.

Cost of Professional Services and Other. Cost of professional services and
other includes cost of direct labor, benefits, third-party software and related
corporate overhead costs to provide professional services and training to our
customers. Cost of professional services and other increased $551,000, or
34.1%, to $2.2 million in the six months ended June 30, 2003, from $1.6 million
in the same period in 2002. These costs increased mainly due to the increase in
labor costs related to the Abiliti Acquisition. In addition, the revenue
related to professional services and other has increased. Cost of professional
services and other decreased to 27.7% of professional services and other
revenue in the six months ended June 30, 2003, compared to 54.1% for the same
period in 2002 due to the increase in professional services and other revenue.

Cost of License Fees.Cost of license fees includes direct cost of labor,
benefits and packaging material for fulfillment and shipment of our software
products and amortization expense related to prepaid third-party licenses. Cost
of license fees increased $370,000 or 378.8% to $468,000, in the six months
ended June 30, 2003, from $98,000 in the same period in 2002 due to the
$202,000 write-off of prepaid third-party software license costs in addition to
a stamp tax expense in Colombia related to a contract we signed in June 2003
discussed above in the Cost of Revenue. Cost of license fees increased to 98.5%
of license revenue in the six months ended June 30, 2003, compared to 10.2% for
the same period in 2002.

Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses earned by sales, marketing and partner
management personnel, travel and entertainment, trade show and marketing
program costs, promotional and related corporate overhead costs. These expenses
decreased $501,000, or 22.5%, to $1.7 million in the six months ended June 30,
2003, from $2.2 million for the same period in 2002. The decrease was a result
of our cost reduction measures taken in May 2002 with a corresponding decrease
in travel and entertainment costs and tradeshow costs. In addition, the
decrease is a result of the reduction in sales and marketing activities due to
the sale of PartnerCommunity in June 2002. As a percentage of total revenue,
these expenses decreased to 20.9% in the six months ended June 30, 2003
compared to 56.6% for the same period in 2002.

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Research and Development. Research and development expenses consist
primarily of salaries and benefits for software developers, product testing and
benchmarking, management and quality assurance personnel, subcontractor costs
and related corporate overhead costs. Our research and development expenses
increased $898,000, or 37.6%, to $3.3 million in the six months ended June 30,
2003, from $2.4 million for the same period in 2002. The increase was primarily
due to the increase in labor costs associated with the Abiliti Acquisition. As
a percentage of revenue, these expenses decreased to 39.6% in the six months
ended June 30, 2003 compared to 60.5% for the same period in 2002 mainly due to
the increase in total revenue.

General and Administrative. General and administrative expenses consist
primarily of salaries, benefits and related costs for our executive, finance
and accounting, facilities, human resources and information systems personnel,
and related corporate overhead costs. Our general and administrative expenses
increased $546,000, or 21.1%, to $3.1 million in the six months ended June 30,
2003, from $2.6 million in the same period in 2002. The increase was primarily
due to the increase in labor costs associated with the Abiliti Acquisition in
addition to the payment of $107,000 in compensation to our board of directors
during the six months ended June 30, 2003. The increase was offset by a
decrease in our provision for bad debt. In the six months ended June 30, 2003
there was a net recovery of $11,100 due to receiving a payment for pre-petition
claims which were fully reserved from a customer who declared bankruptcy in
2000 compared to a charge of $320,000 in the six months ended June 30, 2002.
The charge for the six months ended June 30, 2002 was due to certain customers
significantly reducing or liquidating their operations in 2002. As a percentage
of revenue, general and administrative expenses decreased to 37.8% in the six
months ended June 30, 2003 from 65.5% in the same period in 2002 due to the
increase in total revenue.

Impairment of Long-Lived Assets. Impairment charges increased $500,000, or
100%, to $500,000 in the six months ended June 30, 2003, from $0 for the same
period in 2002. Impairment charges consisted of the impairment of an investment
in a third-party technology company due to a decline in fair value which was
other than temporary. This investment was fully written off at June 30, 2003.

Restructuring Charges.Restructuring charges decreased $745,000, or 100%,
to $0 in the six months ended June 30, 2003 from $745,000 for the same period
in 2002. Restructuring charges in the six months ended June 30, 2002 was a
result of the cost reduction measures taken in May 2002. There were no cost
reduction measures taken in the six months ended June 30, 2003.

Other Income. Other income decreased $496,000 or 75.3%, to $163,000 in the
six months ended June 30, 2003 from $659,000 for the same period in 2002. This
was primarily attributable to recording a gain of $391,000 associated with the
sale of PartnerCommunity. In addition, the decrease in investment earnings was
due to the decrease in interest rates in 2003 compared to 2002.

Liquidity And Capital Resources

Net cash used in operating activities was $1.3 million for the six months
ended June 30, 2003, compared to $5.8 million for the six months ended June 30,
2002. During the second quarter of 2003, cash used in operations was
approximately $1.2 million compared to $0.1 million in the first quarter of
2003. The variation was principally due to the ordinary course fluctuation in
the timing of our cash receipts and disbursements that we experience from
quarter to quarter. The principal use of cash for all periods was to fund our
losses from operations.

Net cash used in financing activities was $110,000 for the six months
ended June 30, 2003 compared to net cash used in financing activities of
$28,000 for the six months ended June 30, 2002. In 2003, cash was used in
financing activities related to capital lease payments. In 2002, the cash used
in financing activities was for transaction costs related to the sale of Series
F convertible preferred stock (Series F preferred stock) in 2001.

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Net cash used in investing activities was $437,000 for the six months
ended June 30, 2003, compared to $68,000 for the six months ended June 30,
2002. The cash used in investing activities for the six months ended June 30,
2003 was primarily related to payments of expenses for transaction costs
related to the Abiliti Acquisition and 2002 Private Placement and capital
expenditures. The cash used in investing activities for the six months ended
June 30, 2002 was mainly related to capital expenditures offset by cash
received from the sale of PartnerCommunity.

We had an accumulated deficit of $213.7 million at June 30, 2003 and
although we continued to experience operating losses during the six months
ended June 30, 2003, the losses have improved from the same period in 2002 and
have remained consistent with the first quarter of 2003. Cash and cash
equivalents at June 30, 2003 were $4.7 million.

We believe the cash and cash equivalents at June 30, 2003, may be
sufficient to fund operations for the foreseeable future due to our 2003
anticipated revenue, including the revenue stream associated with the Abiliti
Acquisition. However, the telecommunications and software industries are still
faced with many challenges. In addition, there is a high business
concentration risk with Allegiance Telecom, Inc. (Allegiance), our largest
outsourcing service customer. If this customer were to terminate its agreement
or be unable to fulfill its contractual obligations it would severely impact
our operations. We provide outsourcing services to this customer pursuant to a
contract expiring at the end of December 2003. Allegiance filed for relief
under Chapter 11 of the U.S. Bankruptcy Code in May 2003. As a critical vendor,
we were paid by Allegiance in June and July 2003 an agreed amount for all
pre-petition amounts due. We continue to provide services pursuant to our
contract with this customer and the customer is current on all post-petition
amounts due. If this customer were to cease doing business with us for any
reason, we may be required to reduce operations and/or seek additional public
or private equity financing or financing from other sources or consider other
strategic alternatives, including a possible merger, sale of assets, or other
business combination or restructuring transactions. There can be no assurances
that additional financing or strategic alternatives will be obtainable on terms
acceptable to us or that any additional financing would not be substantially
dilutive to existing stockholders. If this customer were to cease to do
business with us and we failed to obtain additional financing or failed to
engage in one or more strategic alternatives it may have a material adverse
affect on our ability to continue to operate as a going concern. The condensed
unaudited consolidated financial statements have been prepared assuming that we
will continue as a going concern, and do not include any adjustments that might
result from the outcome of this uncertainty. See Risks Associated with Our
Business and Operating Results below.

New Accounting Pronouncements

See Note 15 to our condensed unaudited consolidated financial statements
in Part I Item 1 to this Form 10-Q for certain new accounting pronouncements.

RISKS ASSOCIATED WITH DALEENS BUSINESS AND FUTURE OPERATING RESULTS

Risk Factors

Our future operating results may vary substantially from period to period.
The price of our common stock will fluctuate in the future, and an investment
in our common stock is subject to a variety of risks, including but not limited
to the specific risks identified below. In addition to risk factors associated
with our business and operations, risk factors relating to our outstanding
Series F preferred stock are set forth below under the caption Risks
Associated with our Series F Preferred Stock. Inevitably, some investors in
our securities will experience gains while others will experience losses
depending on the prices at which they purchase and sell securities. Prospective
and existing investors are strongly urged to carefully consider the various
cautionary statements and

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risks set forth in this report as well as the risk factors described in
our annual report on Form 10-K for the year ended December 31, 2002.

Risks Associated with our Business and Operations



| |  | Our business relies in part on a limited number of customers and unfavorable
developments in relation to a major customer may adversely affect our
revenues, operating results and cash flows.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Three customers accounted for an aggregate of 69.7% of our total revenue
for the six months ended June 30, 2003. If an unfavorable development occurs
with respect to any significant customer, such as described below, it would
likely materially adversely impact our total revenues and financial results. We
provide services to our largest outsourcing service customer, Allegiance, pursuant to a
contract expiring at the end of December 2003. This customer filed for relief
under Chapter 11 of the U.S. Bankruptcy Code in May 2003. There can be no
assurance that we will achieve anticipated revenues from this customer for the
remainder of 2003, that we will be able to extend or replace the contract that
expires at the end of 2003, or that we will retain any business from this
customer.

In addition, we entered into a contract with Empresa De Telecomunicaciones
De Bogotá (ETB) in the second quarter of 2003 and we anticipate that ETB will
become a significant customer in the third quarter of 2003. ETB may terminate
its contract with us at anytime for any reason. If ETB terminates for any
reason other than our breach of the contract, ETB must pay the proportionate
fees for services performed and licenses provided prior to the date of
termination. The project is divided into phases and invoicing is tied to
performance milestones. The first significant payment is anticipated in the
fourth quarter and will continue periodically throughout 2004. There can be no
assurance that we will achieve anticipated revenues or payments from ETB for
2003 or 2004.



| |  | Additional capital and/or strategic alternatives may be required for us to
continue our operations and as a result, our independent public accountants
have expressed doubts over our ability to continue as a going concern.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We incurred net losses of approximately $2.8 million for the six months
ended June 30, 2003, and we had an accumulated deficit of approximately $213.7
million as of June 30, 2003. Our cash and cash equivalents at June 30, 2003
were $4.7 million. Cash used in operations for the six months ended June 30,
2003 was $1.3 million. As a result of our business concentration risk, our
past recurring losses from operations and our accumulated deficit, the
independent auditors report covering our December 31, 2002 consolidated
financial statements contains an explanatory paragraph that states that our
recurring losses from operations and accumulated deficit raised substantial
doubt about our ability to continue as a going concern.

We believe the cash and cash equivalents at June 30, 2003 may be
sufficient to fund operations in the foreseeable future due to our 2003
anticipated revenue, including the revenue stream associated with the Abiliti
Acquisition and due to cash received from customers subsequent to June 30,
2003. However, the telecommunications and software industries are still faced
with many challenges. In addition, there is a high business concentration risk
with Allegiance, our largest outsourcing service customer. If this customer
were to terminate their agreement or be unable to fulfill its contractual
obligations, it would severely impact our operations. We provide outsourcing
services to our largest customer pursuant to a contract expiring at the end of
December 2003. Allegiance filed for relief under Chapter 11 of the U.S.
Bankruptcy Code in May 2003. As a critical vendor, we were paid by Allegiance
in June and July 2003 an agreed amount for all pre-petition amounts due. We
continue to provide services pursuant to our contract with this customer and
the customer is current on all post-petition amounts due. If this customer were
to cease doing business with us for any reason, we may be required to reduce
operations and/or seek additional public or private equity financing or
financing from other sources or consider other strategic alternatives,
including a possible merger, sale of assets, or other business

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combination or restructuring transactions. There can be no assurances that
additional financing or strategic alternatives will be obtainable on terms
acceptable to us or that any additional financing would not be substantially
dilutive to existing stockholders. If this customer were to cease to do
business with us and we failed to obtain additional financing or failed to
engage in one or more strategic alternatives it may have a material adverse
effect on our ability to continue to operate as a going concern. See Risks
Associated with our Series F Preferred Stock  The holders of our Series F
preferred stock have rights that are senior to those of the holders of our
common stock in the event of the sale of our Company or in the event of our
liquidation, dissolution or winding up for a discussion of the terms of the
Series F preferred stock applicable in the event of a business combination,
liquidation event or issuance of equity securities.



| |  | There is no assurance that we can effectively implement our aggregation
strategy and even if we can, it might not be successful and could be dilutive
to our existing stockholders.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We intend to augment our growth through targeted aggregations, including
but not limited to mergers, acquisitions or other strategic transactions
pursuant to which we would combine some or all of our resources with other
billing and OSS companies. If we fail to properly evaluate and execute
aggregations, our business and prospects may be seriously harmed. To
successfully complete any particular aggregation transaction, we must properly
evaluate the technology; accurately forecast the financial impact of the
transaction, including accounting charges and transaction expenses; integrate
and retain personnel; combine potentially different corporate cultures; and
effectively integrate products and services, research and development, sales
and marketing and support operations. Pursuit of our aggregation strategy may
distract management from day-to-day operations and may be disruptive to our
ongoing business. Further, our ability to implement our aggregation strategy
may be limited by the availability of suitable candidates and our ability to
obtain sufficient additional capital to pursue this strategy. There can be no
assurance that we will be able to identify suitable candidates or have capital
available to us to complete any aggregation transactions, or that the terms of
any such transaction or additional capital will be acceptable to us.

Additionally, the terms of any aggregation transaction or capital raising
transaction may require us to issue additional shares of our common stock or
securities convertible into our common stock, which would be dilutive to our
existing stockholders, and which could materially and adversely affect the
market price of our common stock, or an aggregation may result in a change in
the character of your investment. Moreover, any aggregation transaction may
result in additional costs, expenses and other obligations, and could result in
additional ongoing capital needs, all of which could materially and adversely
affect our results of operations and financial condition.



| |  | We have not achieved profitability in the past and may continue to incur net
losses for at least the next several quarters.
| |  | ---------------------------------------------------------------------------------------------------------------------------

We incurred net losses of approximately $2.8 million for the six months
ended June 30, 2003. As of June 30, 2003 we had an accumulated deficit of
approximately $213.7 million. We have not achieved profitability to date and
may not do so in the foreseeable future.

In order to achieve profitability, we may need to further reduce our
operations, seek additional financing and/or pursue other strategic
alternatives. There are no assurances that we will achieve profitability in the
future and, even if we do, we may not be able to sustain or increase
profitability on a quarterly or annual basis.



| |  | Many of our customers and potential customers lack financial resources, and
if they cannot secure adequate financing, we may lose or fail to obtain their
business, which would adversely affect our revenues, operating results and
cash flows.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Many of our customers and potential customers lack significant financial
resources or are experiencing liquidity difficulties as a result of the
tightening of the financial markets and the weakening of the U.S. economy.
Further, this general economic weakness has resulted in delays or reductions in
expenditures for information technology, which has, and may continue to
adversely affect demand for our products and services.

The adverse conditions being experienced by customers for our products
could adversely affect their ability to purchase additional products, renew
maintenance and support agreements, obtain outsourcing services from us or meet
their financial obligations to us in a timely manner. Also, our business,
operating results, and cash flows may be adversely affected to the extent that
any of our customers seeks bankruptcy protection or cease operations, and by
the consolidation of companies within the technology sector. Any of these
factors may adversely affect our collections of accounts receivable from our
customers, and may affect the timing of our revenue recognition where we
provide financing to our customers. See Risk Factors -Our business relies in
part on a limited number of customers and unfavorable developments in relation
to a major customer may adversely affect our revenues, operating results and
cash flows.



| |  | Our expansion into select international markets may not succeed as a result
of legal, business and economic risks specific to international operations.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

Our expansion into select international markets is subject to risks
generally associated with international operations and our future international
operations might not succeed for a number of reasons, including but not limited
to dependence on third-party systems integrators; difficulties in staffing and
managing foreign operations; language barriers; difficulties in localizing
products and supporting customers in foreign countries; reduced protection for
intellectual property rights in some countries; greater difficulty in
collecting accounts receivable; local standards of contracting and doing
business, including performance bond requirements and penalty clauses, and
uncertainties inherent in transnational operations such as export and import
regulations and other local laws, taxation issues, tariffs, trade barriers and
fluctuations in currency conversion rates. To the extent that we are unable to
successfully manage expansion of our business into these international markets
due to any of the foregoing factors, our business could be adversely affected.



| |  | Our future success will depend in part upon our ability to continually
enhance our product and service offerings to meet the changing needs of our
customers, and if we are not able to do so, we will lose future business to
our competitors.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We believe that our future success will depend to a significant extent
upon our ability to enhance our product and service offerings to meet the
requirements of our customers in a rapidly developing and evolving market.
Since 2001, we have significantly reduced the amount of cash we utilize for
research and development. This reduction may make it more difficult to enhance
future product and service offerings. If we are unable to anticipate or respond
adequately to customer needs, our business and financial performance will be
adversely affected.



| |  | Design defects or software errors in our products could adversely affect our
business due to costly redesigns, production delays and customer
dissatisfaction.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------

Design defects or software errors in our products may result in costly
redesigns, cause delays in product introductions, or cause customer
dissatisfaction, any of which could seriously harm our business. Our software
products are highly complex and may, from time to time, contain design defects
or software errors that may be difficult to detect and correct. Although we
have license agreements with our customers that contain provisions designed to
limit our exposure to potential claims and liabilities arising from customer
problems, these provisions may not effectively protect us against all claims.
In addition, claims and liabilities arising from customer problems could
significantly damage our reputation and adversely affect our business and
results of operations.

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| |  | If we cannot continue to obtain or implement the third-party software that we
incorporate into our products, we may have to delay our product development
or redesign efforts, which could adversely affect our revenues and results of
operations.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our products involve integration with products and systems developed by
third parties. If any of these third-party products should become unavailable
for any reason, fail under operation with our products, or fail to be supported
by their vendors, it would be necessary for us to redesign our products. We
might encounter difficulties in accomplishing any necessary redesign in a
cost-effective or timely manner. We also could experience difficulties
integrating our products with other hardware and software. Furthermore, if new
releases of third-party products and systems occur before we develop products
compatible with these new releases, we could experience a decline in demand for
our products or services, which could adversely affect our business and
financial performance.



| |  | We permit certain third parties to sell and implement our products, and any
failure by these parties to successfully implement or support our products
may reflect negatively on our products.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Third parties such as systems integration firms and OEM partners help us
to market, sell, implement and support our products. If these third parties
discontinue their relationship with us, or fail to adequately implement and
support our products, we may experience increased difficulty in attracting and
retaining customers, or incur unanticipated costs and expenses necessary to
satisfy customer needs, and it may reflect negatively on our reputation in the
marketplace for our products.



| |  | We face significant competition from companies that have greater resources
than we do and the markets in which we compete are relatively new, intensely
competitive, highly fragmented and rapidly changing.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The market for our products and services is highly competitive. We
directly compete with both independent providers of products and services and
in-house systems developed by existing and potential clients. In addition, some
independent providers are entering into strategic alliances with other
independent providers, resulting in new competitors or competitors with greater
resources. Many of our current and potential competitors have significantly
greater financial, marketing, technical, and other competitive resources, many
with significant and well-established international operations. In addition,
our competitors may be able to adapt more quickly than we can to new or
emerging technologies and changes in customer needs, or to devote more
resources to promoting and selling their products. There can be no assurance
that we will be able to adapt to market demands or compete successfully with
existing and new competitors.



| |  | We may be unable to protect our proprietary technology, and our competitors
may infringe on our technology, or develop competitive technology, any one of
which could harm the value of our proprietary technology.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We regard a substantial portion of our software product as proprietary and
rely on a combination of patent, copyright, trademark and trade secret laws,
customer license agreements and employee and third-party agreements to protect
our proprietary rights. There can be no assurance, however, that these
protections will prevent misappropriation of our intellectual property,
particularly in foreign countries where intellectual property laws may not
protect proprietary rights as fully as the laws of the United States. If we
have to resort to legal proceedings to enforce our intellectual property
rights, the proceedings could be burdensome and expensive and the outcome
uncertain. Also, our competitors could independently develop similar or
superior technology without violating our proprietary rights. Any
misappropriation of our technology or development of competing technology could
seriously harm our business and could materially and adversely affect our
financial performance.

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| |  | Claims by others that we infringe their proprietary technology could be
costly and harm our business.
| |  | -----------------------------------------------------------------------------------------------------

Third parties could claim that our products or technology infringes on
their proprietary rights. An infringement claim against us could be costly
even if the claim is invalid, and could distract our management from the
operation of our business. Furthermore, a judgment against us could require us
to pay substantial damages and could also include an injunction or other court
order that could prevent us from selling our products. If we faced a claim
relating to proprietary technology, we may need to incur additional costs and
expenses to license such technology, or to develop non-infringing technology in
order to sell our affected products, which could adversely affect our financial
performance.



| |  | Loss of our senior management or other key personnel would harm our business
if we are unable to hire suitable replacements.
| |  | ----------------------------------------------------------------------------------------------------------------------------

Our future success depends to a significant extent on the continued
services of our senior management and other key personnel. If we lost the
services of our key employees and we were unable to hire suitable replacements,
it would harm our business. We have employment and non-compete agreements with
our executive officers. However, these agreements do not obligate them to
continue working for us. Our success also depends in large part on our ability
to motivate and retain highly skilled information technology professionals,
software programmers, and sales and marketing professionals. Our recent
restructurings and cost reductions may create uncertainties that could
adversely affect our ability to retain our employees. Significant turnover of
our personnel could hinder our ability to effectively serve our existing
customers and in competing for new business, either of which could adversely
affect our business and results of operations.



| |  | The delisting of our common stock from The Nasdaq SmallCap Market may make
trading more difficult and result in further declines in the share price.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

In December 2002, our common stock was delisted from The Nasdaq SmallCap
Market and subsequent to this event, our common stock has been quoted on the
Over the Counter Bulletin Board (OTCBB) service. The OTCBB is generally
considered less desirable and liquid than the market for securities quoted on
The Nasdaq SmallCap Market. This could make trading shares of our common stock
more difficult for investors, leading to increased volatility and potentially
further declines in the trading price of our common stock. It may also make it
more difficult for us to raise additional capital, and we may incur additional
costs under state blue sky securities laws if we choose to issue additional
equity securities.



| |  | The price of our common stock has been, and will continue to be volatile,
which increases the risk of an investment in our common stock.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------

The trading price of our common stock has been volatile due in part to the
volatility in the communications and technology areas of the equity securities
markets, and our results of operations. We anticipate that the trading price
for our common stock will continue to experience volatility in the future.
Factors that may affect the fluctuation in the trading price of our common
stock may include but are not limited to: quarter-to-quarter variations in our
operating results; our ability to raise additional capital and/or engage in
strategic alternatives; failure to meet market expectations of our performance;
announcements and technological innovations or new products by us or our
competitors; the projected level of business activity or perceived growth (or
the lack thereof) in the market; increased price competition; and general
conditions in the Internet, technology and the telecommunications industries.

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| |  | We are the target of a securities class action lawsuit and the volatility of
our stock price may lead to additional legal proceedings being brought
against us which could result in substantial costs and divert management
attention and resources.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In December 2001, a class action complaint was filed and is pending in the
United States District Court for the Southern District of New York against us
and certain of the underwriters of our initial public offering. The complaint
alleges that the defendants failed to disclose excessive commissions paid to
the underwriters in exchange for allocating shares to preferred customers, and
that the underwriters had agreements with preferred customers tying the
allocation of shares to the preferred customers agreements to make additional
aftermarket purchases at pre-determined prices. The complaint alleges that the
failure to disclose these alleged arrangements made our prospectus materially
false and misleading. Plaintiffs seek unspecified damages and other relief.

We have approved the terms of a proposed settlement involving the
plaintiffs, the insurance companies and numerous issuers, including us and the
individual defendants, that includes a waiver by the insurance companies of any
retention amounts under the policies. However, court approval of the
settlement will be required and there can be no assurance that the settlement
will be finalized. We intend to vigorously defend against the plaintiffs
claims if settlement discussions are unsuccessful. Any such defense may result
in substantial costs and divert managements attention, which may adversely
affect our business and results of operations. While we believe that we are
entitled to be indemnified by the underwriters under the terms of the
underwriting agreement, there can be no assurance that indemnification will be
available to us, or the amount of any such indemnification. Furthermore,
BancBoston Robertson Stephens Inc., the lead underwriter in our initial public
offering, has ceased doing business. See Part II Item 1-Legal Proceedings in
this report for a more complete discussion concerning this litigation.

In addition, in the past, other types of securities class action
litigation have often been brought against companies following periods of
volatility in the market price of its securities. We may in the future be the
target of similar litigation. While we are not aware of any other complaints
being filed against us, and we do not know of any facts and circumstances that
could give rise to such an action, any securities litigation may result in
substantial costs and divert managements attention and resources, which may
seriously harm our business.



| |  | Delaware law, our certificate of incorporation and our bylaws contain
anti-takeover provisions that may delay, deter or prevent a change of
control.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

Certain provisions of Delaware Law, our certificate of incorporation and
our bylaws contain provisions that could delay, deter or prevent a change of
control of Daleen. Our certificate of incorporation and bylaws, among other
things, provide for a classified board of directors, restrict the ability of
stockholders to call stockholders meetings, preclude stockholders from raising
new business for consideration at stockholder meetings unless the proponent has
provided us with timely advance notice of the new business, and limit business
that may be conducted at stockholder meetings to those matters properly
specified in notices delivered to us. Moreover, we have not opted out of
Section 203 of the Delaware General Corporation Law, which generally prohibits
mergers, sales of material assets and some types of self-dealing transactions
between a corporation and a holder of 15% or more of the corporations
outstanding voting stock for a period of three years following the date the
stockholder became a 15% holder. These provisions do not apply to the holders
of our Series F preferred stock.

Risks Associated with our Series F Preferred Stock



| |  | The holders of our Series F preferred stock have rights that are senior
to those of the holders of our common stock in the event of the sale of our
company or in the event of our liquidation, dissolution or winding up.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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The holders of the Series F preferred stock will have a claim against our
assets senior to the claim of the holders of our common stock in the event of
our liquidation, dissolution or winding up. The aggregate amount of that
senior claim will be at least $110.94 per share of Series F preferred stock
(the Preferential Amount), or approximately $50.8 million based on the number
of shares of Series F preferred stock outstanding at July 31, 2003.

Additionally, unless otherwise agreed by the holders of at least a
majority of the outstanding shares of Series F preferred stock, in the event of
a Sale of the Company, we are required to redeem all of the issued and
outstanding shares of Series F preferred stock for the Preferential Amount per
share. A Sale of the Company means, with certain limited exceptions: (i) the
acquisition by another entity by means of merger or consolidation resulting in
the exchange of at least 50% of the outstanding shares of our capital stock for
securities issued or other consideration paid by the acquiring entity or any
parent subsidiary thereof; or (ii) the sale or other disposition by us of
substantially all of our assets. As a result, in the event of a Sale of the
Company, the holders of the Series F preferred stock will be entitled to the
first $50.8 million of the transaction value based on the Series F preferred
stock outstanding July 31, 2003.



| |  | The holders of our Series F preferred stock have significant voting rights
that are senior to those of the holders of our common stock.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------

The holders of the Series F preferred stock have voting rights entitling
them to vote together with the holders of our common stock as a single class
and on the basis of 100 votes per share of Series F preferred stock held by
such holder, subject to certain anti-dilution adjustments. As of July 31,
2003, the voting power of the holders of the currently outstanding shares of
Series F preferred stock constitutes approximately 50.0% of the entire voting
class of common stock, without giving effect to the shares of our common stock
currently owned by the holders of the Series F preferred stock, or the exercise
of warrants to acquire our common stock and warrants to acquire our Series F
preferred stock (Series F Warrants) held by such holders, or approximately
55.31% if the warrant holders exercise their Series F Warrants.

Additionally, certain holders of our Series F preferred stock beneficially
own a significant number of shares of our outstanding common stock. When
combined with the shares of common stock that they beneficially own, the
holders of our outstanding shares of Series F preferred stock control
approximately 82.8% of the vote on any proposal submitted to the holders of our
common stock, or approximately 86.19% of the vote if the holders of the Series
F preferred stock exercise their Series F Warrants and their warrants to
purchase common stock. When considering both the Series F preferred stock and
shares of our common stock owned, the three largest beneficial owners of our
Series F preferred stock, the Behrman Funds, HarbourVest Partners V  Direct
Fund L.P. and HarbourVest VI  Direct Fund L.P. (collectively HarbourVest)
and SAIC Venture Capital Corporation control approximately 48.0%, 14.0% and
9.83%, respectively, or in the aggregate, approximately 71.83% of the voting
power on matters submitted to our common stockholders. This combined voting
power would generally give these stockholders the power to control the outcome
on most important corporate decisions, including but not limited to the
election of directors, mergers, acquisitions and other significant corporate
transactions and amendments to our certificate of incorporation, if such
beneficial owners act together or in common on any particular matter.

In the event that we seek stockholder approval of a transaction or action
involving the Sale of the Company and/or the liquidation, dissolution or
winding up of the Company, or other transaction, the holders of the Series F
preferred stock will control a majority of the vote and, as a result, would
control or significantly influence the outcome of a proposal with respect to
such a transaction or action, whether or not the holders of our common stock
support or oppose the proposal.

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In the event of conversion of the Series F preferred stock, the holders
are entitled to vote the number of shares of common stock issued upon
conversion. Each share of outstanding Series F preferred stock is currently
convertible into 122.4503 shares of common stock, or an aggregate of
approximately 56.1 million shares of common stock assuming the conversion of
all of the shares of Series F preferred stock outstanding as of July 31, 2003.

Additionally, the holders of the Series F preferred stock are entitled to
vote as a separate class on certain matters, including:



| |  |  | the authorization or issuance of any other class or series of
preferred stock ranking senior to or equal with the Series F preferred
stock as to payment of amounts distributable upon our dissolution,
liquidation or winding up;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the issuance of any additional shares of Series F preferred stock;                                                                                                                                                                
|
| |  |  | the reclassification of any capital stock into shares having
preferences or priorities senior to or equal with the Series F preferred
stock;                                                                                      
|
| |  |  | the amendment, alteration, or repeal of any rights of the Series F
preferred stock; and                                                                                                                                           
|
| |  |  | the payment of dividends on any other class or series of our capital
stock, including the payment of dividends on our common stock.                                                                                               



| |  | Our Series F preferred stock provides for anti-dilution adjustments to the
Series F preferred stock conversion price, which could result in a reduction
of the conversion price.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Subject to certain exceptions, the conversion price of the Series F
preferred stock will be reduced each time, if any, that we issue common stock,
convertible preferred stock, options, warrants or other rights to acquire
common stock at a price per share of common stock that is less than the
conversion price of the Series F preferred stock then in effect. A reduction
in the conversion price of the Series F preferred stock will increase the
number of shares of common stock issuable upon conversion of the Series F
preferred stock.



| |  | The Series F preferred stock is automatically convertible only in limited
circumstances and, as a result could be outstanding indefinitely.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------

The Series F preferred stock will convert automatically into common stock
only if the closing price of our common stock on The Nasdaq National Market or
a national securities exchange is at least $3.3282 per share for ten out of any
20 trading day period. Otherwise, the shares of Series F preferred stock are
convertible only at the option of the holder. Further, the Series F preferred
stock is not subject to automatic conversion if our common stock is not then
listed for trading on The Nasdaq National Market or a national securities
exchange. Each Series F Warrant is exercisable for Series F preferred stock in
whole or in part at any time during a five-year exercise period at the sole
discretion of the Series F Warrant holder and will not be convertible or
callable at our election. As a result of these provisions, the Series F
preferred stock may remain outstanding indefinitely.




Item 3. Quantitative And Qualitative Disclosures About Market Risk.

Our financial instruments consist of cash that is invested in
institutional money market accounts and less than 90-day securities invested in
corporate fixed income bonds. We do not use derivative financial instruments
in our operations or investments and do not have significant operations subject
to fluctuations in commodities prices or foreign currency exchange rates.

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Item 4. Controls and Procedures.

(a)     Evaluation of Disclosure Controls and Procedures.

Our management, under the supervision and with the participation of our
Chief Executive Officer (CEO) and Chief Financial Officer (CFO), performed an
evaluation of the effectiveness of our disclosure controls and procedures as of
the end of the period covered by this report on Form 10-Q. Based upon that
evaluation, the CEO and CFO concluded that our disclosure controls and
procedures were effective as of the end of such period.

(b)     Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting
identified in connection with the evaluation of such internal control that
occurred during our last fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.

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PART II




OTHER INFORMATION




Item 1. Legal Proceedings

On December 5, 2001, a class action complaint was filed in the United
States District Court for the Southern District of New York. On April 22, 2002
an amended complaint was filed by two plaintiffs purportedly on behalf of
persons purchasing the Companys common stock between September 20, 1999 and
December 6, 2000. The complaint is styled as Angelo Fazari, on behalf of
himself and all others similarly situated, vs. Daleen Technologies, Inc.,
BancBoston Robertson Stephens Inc., Hambrecht & Quist LLC, Salomon Smith Barney
Inc., James Daleen, David B. Corey and Richard A. Schell. The individual
defendants, Messrs. Corey, Schell and Daleen, have entered into tolling
agreements with the plaintiffs resulting in their dismissal from the case
without prejudice. The remaining defendants include us and certain of the
underwriters in the Companys initial public offering (IPO). More than 300
similar class action lawsuits filed in the Southern District of New York
against numerous companies and their underwriters have been consolidated for
pretrial purposes before one judge under the caption In re Initial Public
Offering Securities Litigation.

The complaint includes allegations of violations of (i) Section 11 of the
Securities Act of 1933 by all named defendants, (ii) Section 15 of the
Securities Act of 1933 by the individual defendants and (iii) Section 10(b) of
the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by
the underwriter defendants. Specifically, the plaintiffs allege in the
complaint that, in connection with our IPO, the defendants failed to disclose
excessive commissions purportedly solicited by and paid to the underwriter
defendants in exchange for allocating shares of our common stock in the IPO to
the underwriter defendants preferred customers. Plaintiffs further allege
that the underwriter defendants had agreements with preferred customers tying
the allocation of shares sold in our IPO to the preferred customers agreements
to make additional aftermarket purchases at pre-determined prices. Plaintiffs
further allege that the underwriters used their analysts to issue favorable
reports about us to further inflate our share price following the IPO.
Plaintiffs claim that the defendants knew or should have known of the
underwriters actions and that the failure to disclose these alleged
arrangements rendered our prospectus included in our registration statement on
Form S-1 filed with the SEC in September 1999 materially false and misleading.
Plaintiffs seek unspecified damages and other relief.

In June 2003, we approved the terms of a proposed settlement involving the
plaintiffs, the insurance companies and numerous issuers, including us and the
individual defendants, that includes a waiver by the insurance companies of any
retention amounts under the policies. Court approval of the settlement will be
required. Under the terms of the proposed settlement, there would be no
liability to be recorded by us other than legal fees incurred in the initial
defense of the action, which are immaterial. There is no assurance that a
settlement with the plaintiffs will be finalized. In the event that the
settlement is not finalized and approved by the court, we intend to defend
vigorously against the plaintiffs claims. We believe that we are entitled to
indemnification by the underwriters under the terms of the underwriting
agreements. We have notified the underwriters of the action, but the
underwriters have not yet agreed to indemnify us. The lead underwriter,
BancBoston Robertson Stephens Inc., has ceased doing business and there is no
assurance it will have the financial resources to provide indemnification.
Currently a loss cannot be determined because the lawsuit is in its initial
stages.

General Litigation

We are involved in a number of other lawsuits and claims incidental to our
ordinary course of business. We do not believe the outcome of any of this
litigation would have a material adverse impact on our financial position or
our results of operations.

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

We held our 2003 Annual Meeting of Stockholders on June 10, 2003 (the Annual
Meeting). At the Annual Meeting the stockholders of the Company voted on and
approved the following proposal:

Proposal One: To approve the election of Dennis Sisco, John S. McCarthy and
Ofer Nemirovsky as directors to serve for a term expiring at the 2006 Annual
Meeting of Stockholders.

The following list indicates the number of votes received by each nominee for
election to our Board of Directors:

|                 |  |     |            |          |  |        |        |  |  |          |  | 
|---------------- |  | --- | ---------- | -------- |  | ------ | ------ |  |  | -------- |  | 
|                 |  | For |            | Withheld |  | Result
|                 |  |     |            |          |  |       
|Dennis Sisco     |  |     | 83,522,060 |          |  |        | 93,338 |  |  | Approved
|John S. McCarthy |  |     | 83,546,905 |          |  |        | 68,493 |  |  | Approved
|Ofer Nemirovsky  |  |     | 83,538,723 |          |  |        | 76,675 |  |  | Approved




Item 6. Exhibits And Reports On Form 8-K.

(a)  Exhibit List

|        |  |                                                                                                                                                                                                 
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                 
|Number  |  | Description                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                 
|10.1    |  | Lease dated September 16, 1999 between Olympia Properties, L.L.C. and
Intertech Management Group, Inc. (subsequently assigned to Daleen
Solutions, Inc.) and Assignment of Lease filed herewith.
|        |  |                                                                                                                                                                                                 
|10.2    |  | Amendment No. 1 to Registration Rights Agreement dated March 30,
2001, dated as of June 3, 2003, filed herewith.                                                                                
|        |  |                                                                                                                                                                                                 
|31.1    |  | Certification of Principal Executive Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as amended,
filed herewith.                                                  
|        |  |                                                                                                                                                                                                 
|31.2    |  | Certification of Principal Financial Officer pursuant to Rule
13a-14(a) under the Securities Exchange Act of 1934, as amended,
filed herewith.                                                  
|        |  |                                                                                                                                                                                                 
|32.1    |  | Certification of Principal Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002 furnished herewith.                       
|        |  |                                                                                                                                                                                                 
|32.2    |  | Certification of Principal Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002 furnished herewith.                       

(b)  Reports on Form 8-K

Report on Form 8-K, items 7 and item 12 furnished under item 9, furnished
April 29, 2003 with respect to Daleens first quarter 2003 financial operating
results.

Report on Form 8-K, items 5 and 7, filed May 21, 2003 with respect to the
filing by Allegiance Telecom, Inc. and its affiliates for relief under Chapter
11 of the U.S. Bankruptcy Code.

Report on Form 8-K, items 5 and 7, filed June 4, 2003 with respect to an
update of the status of a payment by Allegiance Telecom, Inc.

Report on Form 8-K, items 5 and 7, filed June 10, 2003 with respect to the
Companys 2003 Annual Meeting of Stockholders.

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Report on Form 8-K, item 5, filed June 23, 2003 with respect to an update
of the status of a payment by Allegiance Telecom, Inc.

Report on Form 8-K, items 5 and 7, filed June 23, 2003 with respect to
entering into a contract with Empresa de Telecomunicaciones de Bogotá.

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SIGNATURES

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

|                      |                                             
|--------------------- | --------------------------------------------
|                      | DALEEN TECHNOLOGIES, INC                    
|                      |                                             
|                      | /s/ GORDON QUICK                            
|                      |                                             
|Date: August 14, 2003 | GORDON QUICK                                
|                      | President and Chief Executive Officer       
|                      | (Principal Executive Officer)               
|                      |                                             
|Date: August 14, 2003 | /s/ JEANNE PRAYTHER                         
|                      |                                             
|                      | Chief Financial Officer (Principal Financial
|                      | Officer and Principal Accounting Officer)   

37