`====================================================================================================

                                 SECURITIES AND EXCHANGE COMMISSION
                                        Washington, DC 20549

                                          FORM 10-K/A  No. 2

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

(Mark One)
   [X]      Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
            For fiscal year ended December 31, 2001

                                                or

   [ ]      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 : 0-21041


                                         EXCELON CORPORATION
                       ------------------------------------------------------
                       (Exact Name of Registrant as Specified in Its Charter)


                    Delaware                                                   02-0424252
------------------------------------------------                ------------------------------------
(State or Other Jurisdiction of Incorporation or                (I.R.S. Employer Identification No.)
                  Organization)

              25 Mall Road
        Burlington, Massachusetts                                                01803
---------------------------------------                                        ----------
(Address of Principal Executive Offices)                                       (Zip Code)


                                           (781) 674-5000
                        ----------------------------------------------------
                        (Registrant's Telephone Number, Including Area Code)

                     Securities registered pursuant to Section 12(b) of the Act:

     Title of Each Class                                 Name of Each Exchange on Which Registered
     -------------------                                 -----------------------------------------
            None                                                            None


Securities registered pursuant to Section 12(g) of the Act:   Common Stock, $.001 par value

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

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

The aggregate market value of voting stock held by  non-affiliates  of the Registrant,  based on the
closing  price of the Common Stock on February 28, 2002 as reported by the Nasdaq  National  Market,
was approximately  $62,594,116.  For purposes of the foregoing calculation,  the Company has assumed
that  each  director,  executive  officer  and  holder  of 10% or more of the  voting  stock  of the
Registrant is an affiliate.  This  determination of affiliate status is not necessarily a conclusive
determination for other purposes.

The Registrant had 57,804,560 shares of Common Stock outstanding as of February 28, 2002.

                                 DOCUMENTS INCORPORATED BY REFERENCE

Certain  portions of our Definitive  Proxy Statement for our 2001 Annual Meeting of Stockholders are
incorporated by reference into Part III of this Annual Report on Form 10-K. Exhibit index is located
on page 45.

====================================================================================================================================


PART I

ITEM 1.  BUSINESS

OVERVIEW

We are a leading  provider of data  management  software  designed to accelerate the  performance of
distributed  applications  that are built using Extensible Markup Language ("XML") and Java and that
are deployed on market-leading  software platforms.  Our core products,  the eXtensible  Information
Server ("XIS"),  ObjectStore and Javlin,  enhance the speed,  flexibility,  scalability and run-time
availability  of Web services and  distributed  applications,  which can generate  substantial  cost
savings and significant  competitive  advantage for large and mid-sized  enterprises.  Our customers
include leaders in their  respective  industries,  such as Philips,  Amazon.com,  Swiss Re: Life and
Health and NTT DoCoMo.

Our products  operate in the middle tier of today's leading  software  architectures,  complementing
platforms and architectural approaches from leading software vendors like, Sun Microsytems,  Hewlett
Packard  and BEA  Systems.  These  software  platforms  rely on  technologies  like  XML and Java 2,
Enterprise  Edition  ("J2EE") to build  applications  that automate  processes,  reduce  information
latency and build the real-time enterprise.


XML PRODUCTS

Our refocused product strategy centers around providing products designed to power industry business
solutions.  At the core of this strategy is our XIS product,  a native XML database that manages XML
at the node level and allows  enterprises  to fully  capitalize on XML's  inherent  flexibility.  We
believe that we are positioned for growth as XML becomes a more  mainstream  technology  across many
vertical markets in 2002. The insurance, telecommunications, financial services, retail distribution
and  manufacturing  industries are in the vanguard of industries  building the real-time  enterprise
using XML.

The XIS plays a crucial role for organizations seeking to deploy a distributed  architecture for Web
services and loosely-coupled applications.  Companies embracing XML need to manage their data in new
ways, since they are working in concert with partners and combining business  applications to create
new business  opportunities  and drive down costs. We believe that XML is the optimal  technology to
achieve these goals, and our products are designed to deliver best-in-class  performance,  value and
ease of use in this environment.

The XIS is designed to satisfy three primary  technology  requirements  pertaining to XML databases:
operational data storage supporting the direct needs of a distributed or Web services application; a
common information model supporting  integration  infrastructures that demand constant change; and a
content repository supporting real-time dynamic delivery of XML-based content.

In addition to the XIS, we offer two other XML-based products.  Our Business Process Manager ("BPM")
product  is built on the XIS and  allows  companies  to go further  with  their XML  deployments  by
supporting the definition,  automation,  and  measurement of business  processes using XML. The BPM,
which uses leading XML  standards  such as BPMi and ebXML,  allows  businesses  to model and execute
transactions  between  applications  and among people,  both within and outside the enterprise.  Our
third XML product,  Stylus Studio,  is an integrated  development tool for creating,  validating and
debugging XSL style sheets and XML-to-XML mappings. Stylus Studio can be used to extend the benefits
that customers receive from our XIS and BPM products.


OBJECTSTORE PRODUCTS

We continue to generate the majority of our revenues from sales of our  ObjectStore  product  suite,
which  includes  ObjectStore,  Javlin  and  related  development  tools.  ObjectStore  is a scalable
operational  data store that enables  customers to reach high levels of  performance by serving as a
middle-tier  cache that  transfers  and  synchronizes  data  stored in multiple  databases  across a
distributed   application.   ObjectStore  allows  corporate  system  engineers  to  deploy  powerful
distributed architectures on low-cost hardware quickly and efficiently.

Our Javlin product is designed to improve the performance of database  management  systems when used
in the middle tier with leading  application  servers.  Javlin improves  application  performance by
storing,   managing  and  delivering   application-ready   data  in  highly-distributed   deployment
environments. Developers can achieve these performance benefits through standard J2EE interfaces.

                                                 2


In addition to our core software  products,  we provide  services to help  customers  derive maximum
value from our products through knowledge transfer and reduced implementation times.

RECENT DEVELOPMENTS

On  September  19, 2001 we  acquired  all of the  outstanding  capital  stock of  C-bridge  Internet
Solutions,  Inc.  ("C-bridge") by merging a wholly-owned  subsidiary  into C-bridge.  The merger was
intended to qualify as a tax-free,  stock-for-stock  exchange and is being  accounted  for using the
purchase  method of accounting in accordance  with SFAS No. 141. In the merger we issued  27,138,734
shares of our common stock and assumed options to purchase 15,910,045 shares of our common stock.

In December 2001, we reorganized our business  operations by consolidating our former Object Design,
C-bridge and eXcelon businesses.  The reorganization  enables us to focus more precisely on our core
products, to use our personnel more efficiently and to streamline our decisionmaking. Following this
reorganization  we use one sales,  marketing  and support group to support the sales of our products
worldwide.  However, when discussing the results of the prior year, we may refer to the XML division
and the Object Design division.

Headquartered in Burlington, Massachusetts, we were founded in 1988 and completed our initial public
offering as Object Design, Inc. in July 1996. We have more than 4,000 customers worldwide, including
market leaders in key industries such as telecommunications, financial services, retail/distribution
and  manufacturing.  We market our solutions globally through direct sales,  value-added  resellers,
system integrators and consulting firms. For more information,  please visit the eXcelon Web site at
www.exln.com.


Products & Services

We operate in a single industry segment (computer  software and related  services),  within which we
have two major  product  lines.  Our  XML-based  products  include  our XIS,  BPM and Stylus  Studio
products.  Our  ObjectStore  product  suite  includes  ObjectStore,   our  object-oriented  database
management  software,  Javlin, our integrated data server for Java-based  application  servers,  and
related development tools.

XML PRODUCTS

XIS

Our XIS product is a mature and robust native XML database that  leverages  XML's  extensibility  to
simplify the  development and deployment of XML-based  software  applications  without  compromising
their performance, scalability or reliability. Customers can use the XIS to deploy applications that
natively  store XML in order to  facilitate  communications  with  partners  or  employees,  improve
customer  service,  reduce cycle time and lower  transaction  costs.  The XIS enables  content to be
aggregated  from a wide variety of sources,  including  external  partner  business  information and
existing  internal  enterprise  systems using XML standards.  This content can be  personalized  and
delivered to devices,  applications and browsers. Because XIS uses robust caching technology, it can
also make applications run faster.

Our XIS product  builds upon on our XML  expertise and has been used by  organizations  to develop a
wide range of distributed services and Web service applications that integrate data and content from
partners and customers, shorten the time to create new applications and reduce the time to bring new
partners on-line.

BPM

Our BPM product is a business process engine that automates, monitors and audits business processes.
The BPM is XML-based  and can support BPMi,  ebXML and other  protocols to enable  organizations  to
create automated  processes that can be used internally or shared between companies.  The BPM models
business  process  workflows as a series of XML software  documents  that are stored  centrally in a
business  process  repository.  This  enables  the  customer  to  monitor,  audit and  report on the
performance of business processes as they are executed.  The BPM's ability to store XML documents is
based on the data management  capabilities  that it shares with the XIS and allows for long-duration
transactions over hours or months. For example, a customer can use the BPM to model and automate the
steps associated with placing orders through a Web site, including  automatically checking inventory
levels,  triggering  bids for  additional  supplies,  managing  approvals and making  annotations to
business documents - all without using the telephone, checking voicemail or sending a fax.

                                                 3


STYLUS STUDIO

Our Stylus Studio product is an integrated  development tool for creating,  validating and debugging
XSL style sheets and  XML-to-XML  mappings.  Stylus  Studio can be used to extend the benefits  that
customers receive from our XIS and BPM products.

OBJECTSTORE PRODUCTS

Our ObjectStore products and services include ObjectStore, Javlin and related development tools. All
of our ObjectStore products run on industry standard hardware and adhere to Internet-based  industry
standards for communications, programming interfaces and data exchange.

OBJECTSTORE

ObjectStore is an object-oriented database management system. ObjectStore is used extensively in the
telecommunications  industry in network  management  applications  and softswitch  systems,  and for
intelligent  networking and for call centers and real-time  event  handlers.  ObjectStore is used in
electronic business  ("e-business")  applications as a high-speed data cache for electronic commerce
("e-commerce"),  customer relation  management ("CRM") or other Web applications  having high-volume
transactions or complex data models.  Independent software vendors embed ObjectStore data management
systems in hundreds of packaged  software  applications.  ObjectStore is available for C++ and Java.
One of the attributes that makes  ObjectStore stand out from other database  management  products is
its patented Cache-Forward  architecture.  This architecture maximizes application performance while
reducing  network  traffic,  thus enabling  applications to scale up to serve large volumes of users
with minimal additional hardware investment.

JAVLIN

Javlin,  our Enterprise  Java Beans ("EJB") data server,  is a Java-based  data server  designed for
e-business  scalability  demands.  Javlin  accelerates the  performance of EJB application  servers,
particularly BEA Systems' WebLogic Server and IBM's Websphere,  by providing distributed caching and
persistent  data  management  in the middle tier.  Javlin  eliminates  the  bottleneck of retrieving
information  from one or more legacy  systems by caching it and  managing it inside the  application
server.  Javlin customers benefit by dramatically  decreasing their time to market, while increasing
the performance and scalability of their applications.


COMPETITION

The markets in which we compete are intensely  competitive and rapidly  changing,  and are likely to
see more  entrants and new  technologies.  While none of our  competitors  or potential  competitors
currently offers a product set that is identical to our XML solutions,  we do encounter  competition
from software vendors with XML solutions or product lines such as Asera, Webmethods,  TIBCO, Vitria,
Seebeyond,  Software AG,  Ipedo and  NeoCore.  We also expect to see  competition  from  large-scale
software  companies  such as BEA Systems,  Oracle,  IBM and  Microsoft,  which have broader  product
offerings than we do. Specifically, IBM has announced that it will introduce an XML database product
in the next year, and Microsoft already sells a business process management product.

We encounter  competition  for our  ObjectStore  product suite from companies  offering a variety of
database management solutions, including the following: object-oriented database management products
available from Computer Associates, Versant and Objectivity; relational database management products
available  from  Computer   Associates,   IBM,   Informix,   Microsoft,   Oracle  and  Sybase;   and
extended-relational and object-relational  database management products available from IBM, Informix
and Oracle.

We expect  additional  competition from existing  competitors,  from new competitors that may result
from acquisitions or consolidations involving one or more of our existing competitors and from other
companies  that may enter our  existing  and  future  markets.  This  additional  competition  could
adversely affect our business,  results of operations and financial  condition.  Some of our current
and potential  competitors have substantially  greater financial,  marketing and technical resources
than we have.


PRODUCT DEVELOPMENT

During 2001 we made substantial investments in research and development, primarily aimed at our XML-
based products and our ObjectStore product suite. Our product research and development organizations
are divided into teams consisting of development engineers,  quality assurance,  testing and porting
engineers and technical  writers.  We design our products based on requirements  and  specifications
gathered from existing and prospective customers and from our technical support,  product management
and engineering  groups.  As of December 31, 2001, we had 85 employees on our combined  research and
development  staff.  Research and  development  expenditures  during 2001,  2000 and 1999 were $13.1
million,  $12.9 million and $10.3 million,  respectively,  and  represented  27%, 18% and 17% of our
total revenues in those years,  respectively.  We expect to continue to commit significant resources
to research and development in the future. All research and development  expenditures are charged to
operations as incurred.

                                                 4


SERVICES

We offer a  comprehensive  suite of business  and  technical  consulting  services  for  evaluating,
designing and  deploying  overall  e-business  solutions.  These  services are designed to provide a
methodical  approach to defining and building  distributed  applications.  As a result of our merger
with C-bridge, our resources in providing these services have grown. As of December 31, 2001, we had
151 employees in professional  services and support,  up from 120 at the end of 2000. As a result of
this increased staffing,  services revenue related to our XML business increased in 2001 as compared
to 2000.

TRAINING AND CONSULTING.  We hold training courses at our various  locations around the world and at
customer  sites.  We also  provide  fee-based  consulting  services to our  customers in the form of
project-based, on-site services designed to provide assistance at key points in a customer's product
development cycle.

SUPPORT SERVICES.  We offer maintenance and support contracts with the initial software license, and
these contracts are typically renewable on an annual basis.  Maintenance and support fees are set as
a fixed  percentage  of the current list price of the licensed  software  product.  Maintenance  and
support  services  include  maintenance of our software  products in accordance with  specifications
contained in the user's guide for such products and access to technical support personnel.


SALES AND MARKETING

We employ a multi-channel sales and marketing  strategy,  using direct sales,  systems  integrators,
independent software vendors, distributors and other channel partners to address our global market.

DIRECT SALES.  We rely  principally  on direct sales of our  products.  During 2001 we had two sales
forces,  one for our XML products and one for our  ObjectStore  product suite. In January 2002 these
sales forces were merged.  Our direct  sales force is organized in teams  consisting  of field sales
representatives  and technical  sales support  representatives.  As of December 31, 2001, our direct
sales force included 96 employees in 16 locations worldwide.

CHANNEL PARTNER PROGRAMS.  We have relationships with a variety of systems integrators,  independent
software  vendors and  resellers  that  complement  our direct sales force and broaden the worldwide
distribution of our products.

INTERNATIONAL  DISTRIBUTORS.  In certain international markets, we use third-party  distributors and
resellers that are supported by our sales  organizations.  Approximately  3%, 6% and 2% of our total
revenues were derived from sales to international distributors in 2001, 2000 and 1999, respectively.

In support of our sales and marketing efforts, we conduct sales training courses, targeted marketing
programs including direct mail, trade shows, public relations, advertising and seminars, and ongoing
customer and third-party communications programs. We also seek to stimulate interest in our products
and services through speaking engagements,  white papers, technical notes and other publications. We
maintain a Web site at  http://www.exln.com  where potential  customers can obtain information about
our products.


CUSTOMERS

Our customers  represent a broad spectrum of enterprises within diverse  industries,  including high
technology, financial services,  manufacturing,  telecommunications,  insurance, retail distribution
and XML  marketplaces.  No customer  accounted for 10% or more of total revenues during the years of
2001, 2000 and 1999.


BACKLOG

We maintain no material  backlog of software  sales because we typically ship product and book sales
in the same  quarter.  As a result of the  C-bridge  acquisition,  we have a backlog of  undelivered
services in our professional  services business.  Our consulting backlog was $2.7 million and $0 for
the years ending 2001 and 2000, respectively.

                                                 5


PROPRIETARY RIGHTS

We rely  primarily  on a  combination  of trade  secret,  copyright,  patent and  trademark  law and
contractual provisions to protect our proprietary rights in our software products. These protections
may not be  adequate  in certain  circumstances.  As of March 2002,  we have three  issued  patents,
expiring  between 2011 and 2015,  covering the Cache Forward  architecture  used in our  ObjectStore
database  management  software,   and  other  aspects  of  software   technology.   Competitors  may
independently develop technologies that are substantially  equivalent or superior to our technology.
In  addition,  patent,  copyright,  trademark  and trade secret  protection  for our products may be
unavailable or unreliable in certain foreign  countries.  As the number of software  products in the
industry and the number of software patents increase, we believe that software developers may become
increasingly subject to infringement claims.

While no significant  infringement  claims have been asserted  against us, there can be no assurance
that such claims will not be asserted against us with respect to existing or future products or that
we would prevail against any such claims that were asserted.  If a lawsuit of this type is filed, it
could result in  significant  expense to us and divert the efforts of our technical  and  management
personnel,  whether or not we ultimately prevail. While we believe that our products do not infringe
other parties' patents, copyrights, trade secrets, trademarks or other proprietary rights, we cannot
be  certain  that our  products  are not  doing  so.  Infringement  of  valid  third-party  patents,
copyrights,  trade secrets,  trademarks or other proprietary  rights could have an adverse effect on
our business and results of  operations.  With respect to an increasing  number of our products,  we
rely on  "shrink-wrap"  and  "click-wrap"  licenses  not  signed  by the  licensee  to  protect  our
proprietary rights.  "Shrink-wrap" and "click-wrap"  licenses may be unenforceable under the laws of
certain jurisdictions.


EMPLOYEES

As of  December  31,  2001,  we employed  412  full-time  employees,  including  85 in research  and
development, 133 in sales and marketing, 151 in professional services and customer support and 43 in
finance and  administration.  None of our employees is represented by a labor union, and we consider
our employee relations to be good.


ITEM 2.  PROPERTIES

Our corporate  headquarters  are located in Burlington,  Massachusetts,  consisting of approximately
64,000  square feet of office  space under a lease  expiring in February  2003.  We also lease sales
offices  in 16  locations  worldwide.  We believe  that our  existing  facilities  and  offices  and
additional space available to us are adequate to meet our requirements over the next twelve months.


ITEM 3.  LEGAL PROCEEDINGS

We are subject to various legal  proceedings  and claims that have arisen in the ordinary  course of
business. These claims include the matters listed below.

o    On June 20, 2001, Lending  Technologies  Services Pty. Ltd. ("LTS"),  filed a complaint against
     our  Australian  subsidiary  in the  Supreme  Court of Victoria at  Melbourne,  Australia.  The
     complaint  asserts  various causes of action  relating to alleged  deficiencies in our products
     purchased by LTS. LTS's complaint demands damages of approximately $5 million.

o    On November 21, 2001,  Navidec,  Inc., a former customer,  filed a complaint  against us in the
     United States District Court in Denver, Colorado, alleging that we misrepresented the nature of
     our  ObjectStore  product in connection  with a business  project  undertaken  by Navidec.  The
     complaint  asserts  various  causes  of action in the  nature  of  misrepresentation  and seeks
     unspecified damages.

o    On January 11, 2002, our former Chief Operating  Officer initiated an arbitration claim against
     us for amounts that he alleges we owe him under the  employment  agreement that we entered into
     with him. His notice of arbitration  seeks damages  consisting of payment of one year of salary
     and bonus and the reinstatement of various stock options that were cancelled upon his departure
     from eXcelon.

We intend to defend each of the foregoing  actions  vigorously,  but there can be no assurances that
the resolution of these matters or other pending legal matters will not,  either  individually or in
the aggregate, have a material adverse impact on our financial condition or results of operations.

                                                 6


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

No matters were submitted to a vote of our  stockholders  during the three months ended December 31,
2001.

PART II

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

Our common stock trades on the Nasdaq Stock Market ("NASDAQ") under the symbol "EXLN." The following
table sets forth,  for the periods  indicated,  the high and low sale prices for our common stock as
reported by NASDAQ.


2001                                                 High              Low
----                                                 ----              ---
First Quarter                                      $ 4.59           $ 1.31
Second Quarter                                       3.64             1.17
Third Quarter                                        1.48             0.25
Fourth Quarter                                       1.25             0.40


2000                                                 High              Low
----                                                 ----              ---
First Quarter                                      $27.50           $ 9.19
Second Quarter                                      12.25             6.00
Third Quarter                                       15.63             5.56
Fourth Quarter                                      12.63             1.03

At December 31,  2001,  there were 341 holders of record of our common  stock.  This number does not
include beneficial owners for whom shares were held in a "nominee" or "street" name. We believe that
there are at least 400 beneficial  owners of our common stock.  We have never paid cash dividends on
our common  stock.  The current  policy of our Board of  Directors is to retain all earnings for our
continued growth.



ITEM 6.  SELECTED FINANCIAL DATA

The following table summarizes certain selected historical consolidated financial data, which should
be read in  conjunction  with our  consolidated  financial  statements  and related  notes  included
elsewhere herein.

                                                           SELECTED FINANCIAL DATA
                                                   (IN THOUSANDS, EXCEPT PER SHARE DATA)

                                           2001         2000         1999         1998        1997
Statement of Operations Data:
Revenues                                $ 49,191     $ 70,347     $ 60,810     $ 62,358     $ 47,265
Operating income (loss)                  (82,276)     (12,379)      (8,218)       4,380         (436)
Net income (loss)                        (81,558)     (11,011)      (7,144)       4,823          800
Net income (loss) per share:
   Basic                                   (2.14)       (0.38)       (0.25)        0.17         0.03
   Diluted                                 (2.14)       (0.38)       (0.25)        0.17         0.03

Balance Sheet Data:
Working capital                         $ 20,538     $ 12,530     $ 16,130     $ 25,897     $ 23,968
Total assets                              52,630       40,746       47,405       48,992       38,878
Long-term obligations                          -            -            -           18          236
Total stockholders' equity                31,433       21,300       29,513       34,751       28,819


                                                 7


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

We develop,  sell and support software from our XML family of products and our ObjectStore family of
object-oriented  database  management  software  products.  Our  XML  products  consist  of the  XIS
(eXtensible  Information  Server), the BPM (Business Process Manager) and Stylus Studio. Using these
XML products,  companies are able to create distributed  XML-based  applications that can run on the
Internet  or an  intranet,  that can be targeted  to  customers,  suppliers,  channel  partners  and
employees and that enable companies to transact  business more efficiently and effectively,  improve
customer service and responsiveness and lower transaction costs. Our ObjectStore family of products,
consisting of our flagship  product  ObjectStore as well as Javlin,  have been used  extensively for
over 12 years by companies  in the  telecommunications  and finance  industries  and by  independent
software vendors,  and for over 5 years in e-business  applications with demanding  requirements for
high-performance and scalable data management solutions.  Until 1999, we derived 100% of our revenue
from our  ObjectStore  family of  products.  However,  during the past three years we have  invested
substantial money and effort in introducing and establishing our XML software product line.  Revenue
from our XML products and services grew  substantially in 1999 and 2000 but declined in 2001. During
2001, sales of our XML family of products and services accounted for $17.7 million, or approximately
36%, of our total revenue,  as compared to $20.0 million, or approximately 28%, of our total revenue
in 2000,  as  compared  to 5% of our total  revenue in 1999.  Despite the growth of this new revenue
source,  we have derived the majority of our revenues  from our  ObjectStore  products and expect to
continue to do so in 2002.

During 2001, revenues from both our product families declined from the prior year as a result of the
general economic slow down, reduced information technology ("IT") spending in the telecommunications
sector and the virtual disappearance of new business from dot.com and  business-to-business  ("B2B")
companies. As a result, we had an operating loss of $27.9 million for the year (before our write-off
of goodwill in the fourth quarter of 2001) and decided to restructure  the Company.  We took a total
of $2.4  million of  restructuring  charges  in 2001,  the  majority  of which was  associated  with
reductions  of redundant  personnel  following  our  acquisition  of  C-bridge.  In addition we also
eliminated  consulting  personnel  that were  non-productive  as a result of a decline in C-Bridge's
consulting backlog.  C-bridge's revenue had been declining for two quarters prior to the merger as a
result of the slow down in IT  purchases  in  general  and the  reduction  in  demand  for  Internet
consulting  services  specifically.  After  completing  the merger and reducing our expense run rate
through  restructuring,  we believed that revenues would exceed expenses in the short term, allowing
the newly-combined  company to return to profitability.  However, our revenues declined again in the
fourth quarter,  resulting in a larger-than-expected  operating loss of $4.9 million for the quarter
before our write-off of goodwill in the quarter.  We also ended 2001 with lower consulting  bookings
than we forecasted.  We announced an additional  restructuring  on January 9, 2002 to further reduce
expenses and in particular to reduce significantly our personnel related to the traditional C-bridge
consulting business. This restructuring triggered a revaluation of the goodwill that has been on our
balance sheet relating to the C-bridge  acquisition.  We performed a test based on the  undiscounted
expected  cashflows  of the  business  acquired at the time of the  merger,  as a result of which we
determined that our goodwill was impaired. The charge taken in the fourth quarter for the impairment
of goodwill was $54.4 million.

Another element of our January 2002  restructuring  was the consolidation of our XML and ObjectStore
divisions in an effort to reduce  expenses and  personnel  and  increase  efficiency.  We expect our
January 2002 restructuring to reduce our operating  expenses going forward from approximately  $18.7
million in the fourth quarter of 2001 to $14.0 million in the second quarter of 2002. We are focused
on reducing operating expenses in future periods in an effort to return to profitability.

We expended  $9.2 million in cash in the fourth  quarter of 2001 to end the year with a cash balance
of $25.8 million. This cash expenditure was largely due to our operating loss of $4.9 million in the
fourth quarter of 2001,  excluding our write-off of goodwill in the quarter. We used $6.2 million of
cash  in the  fourth  quarter  of  2001,  of  which  $3.9  million  was  expended  for  merger-  and
restructuring-related  expenses.  We expect that our cash utilization will decline in future periods
as a result of our  expected  reductions  in total  expenses.  We estimate  that the majority of our
merger- and restructuring-related cash expenses will be paid by December 31, 2002.


CRITICAL ACCOUNTING POLICIES

Our significant  accounting policies are described in Note A of Notes to the Consolidated  Financial
Statements  elsewhere in this Report.  However,  certain of our accounting policies are particularly
important to the  portrayal of our  financial  position  and results of  operations  and require the
application of significant judgment by our management;  as a result, they are subject to an inherent
degree of uncertainty. In applying these policies, our management makes estimates and judgments that
affect the reported amounts of assets,  liabilities,  revenues and expenses and related disclosures.
Those  estimates  and  judgments  are based on our  historical  experience,  the  terms of  existing
contracts, our observation of trends in the industry,  information that we obtain from our customers
and outside sources and various other  assumptions  that we believe to be reasonable and appropriate
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.  Our  significant
accounting policies include the following:

                                                 8


REVENUE RECOGNITION:  We derive our revenue from sales of software licenses,  software royalties and
professional  consulting,   training,  maintenance  and  support  services.  Significant  management
judgments and estimates must be made and used in connection with the economic conditions that led to
a reduction in software purchased in 2001 by  Internet-related  businesses and a general slowdown in
IT spending. We expect purchases of our XML-based products to increase with a rebound in IT software
purchases and with broader  acceptance of XML technology.  This,  paired with our increased focus on
sales and marketing of our  XML-based  products is expected to grow this source of revenue in future
quarters. ObjectStore software revenues decreased 43.9%, to $17.0 million in 2001 from $30.2 million
in 2000. The decrease in software  revenues for the  ObjectStore  product line was  attributable  to
decreased technology  purchases,  as well as generally smaller purchases per sales engagement,  as a
result  of   uncertain   general   economic   conditions   that  have   particularly   affected  the
telecommunications  industry,  which  historically  has been one of the  principal  markets  for our
ObjectStore products.  To the extent that there is a rebound in IT software purchases,  particularly
within the  telecommunications  industry,  we expect that this would modestly  increase our revenues
from our sales of ObjectStore products in future quarters.

When we sell software separately,  or together with other services that are not considered essential
to the functionality of the software product,  we recognize revenue in accordance with the Statement
of Position 97-2,  "Software Revenue  Recognition" ("SOP 97-2").  Pursuant to SOP 97-2, we recognize
software license revenue upon delivery of the software product,  provided  persuasive evidence of an
arrangement exists, no significant  obligations with regard to installation or implementation of the
software remain, our fees are fixed or determinable, collection of receivables is reasonably assured
and customer acceptance, when applicable, has been obtained.

For arrangements  with multiple  obligations  (including,  for example,  obligations for undelivered
maintenance and support  services),  we allocate revenue to each component of the arrangement  using
the  residual  value  method  based  on  the  vendor-specific  objective  evidence  ("VSOE")  of the
undelivered  elements.  VSOE of ongoing  maintenance  obligations  is based upon  separate  sales of
renewals to other  customers or upon  substantive  renewal  rates quoted in the  contracts.  VSOE of
ongoing services obligations,  such as training or consulting, is based upon separate sales by us of
these services to other  customers.  If evidence of VSOE for each element of an arrangement does not
exist,  all revenue for an  arrangement  is deferred  until such time as evidence of fair value does
exist or until all elements of the arrangement are delivered.

When we sell software  licenses  together with other  services,  and those  services are  considered
essential to the functionality of the software  product,  we recognize both software license revenue
and services revenue using the percentage of completion  method in accordance with the provisions of
Statement of Position 81-1,  "Accounting for Performance of Construction Type and Certain Production
Contracts"  ("SOP  81-1").  Pursuant to SOP 81-1, we recognize  revenue under a particular  contract
based upon costs incurred as a percentage of the total estimated costs for that contract. Provisions
for estimated losses on uncompleted contracts are recorded in the period in which such losses become
probable based on the current contract cost estimates.

We also sell consulting services  separately from sales of our software products.  We generally bill
these services on a time-and-materials  basis, and we generally recognize revenue for these services
as they are performed. However, if the consulting agreement is a fixed-fee arrangement, we recognize
services revenue using the percentage of completion  method in accordance with the provisions of SOP
81-1, as described above.

We recognize revenue for maintenance  services ratably over the contract term. Our training services
are billed at hourly  rates,  and we  generally  recognize  revenue  for these  services as they are
performed.

ALLOWANCE  FOR  DOUBTFUL  ACCOUNTS:  We must make  estimates of the  collectibility  of our accounts
receivables  in  evaluating  the adequacy of our  allowance  for doubtful  accounts.  In making this
evaluation,  management  specifically  analyzes accounts receivable,  historical bad debts, customer
creditworthiness,  current economic trends and changes in our customer payment terms. As of December
31, 2001, our accounts  receivable balance was $8.9 million,  net of allowance for doubtful accounts
of $0.8 million.

VALUATION OF GOODWILL AND INTANGIBLE ASSETS: As described in Note E of the Notes to the Consolidated
Financial  Statements,  we recorded  $54.8  million of  goodwill  and  intangible  assets in 2001 in
connection  with our acquisition of C-bridge.  We assess the impairment of  identifiable  intangible
assets and goodwill whenever events or changes in circumstances  indicate that the carrying value of
the  relevent  asset may not be  recoverable.  Management's  judgment  regarding  the  existence  of
impairment  is based on  indicative  factors  such as the  following:  significant  underperformance
relative to historical or projected future operating results;  significant  changes in the manner of
our use of the acquired assets or our overall business  strategy;  significant  negative industry or
economic  trends;  significant  declines in our stock price for a sustained  period;  and our market
capitalization  relative to net book value. Due to a significant  change in the manner of our use of
these acquired assets as well as a change in our overall business strategy,  after December 31, 2001
management performed a review of our goodwill and determined that the sum of the expected cash flows
(undiscounted and without interest) was less than the carrying amount of the goodwill.  Management's
analysis was based on the  guidance  provided in SFAS No. 121,  "Accounting  for the  Impairment  of
Long-lived Assets for Long-lived Assets to be Disposed of." As a result of this analysis  management
recorded an impairment charge of $54.4 million in the fourth quarter of 2001.

                                                 9


LITIGATION:  Our current estimate of our potential  liability  relating to our pending litigation is
based on claims for which our  management can estimate the outcome and the amount of loss. We record
the minimum estimated  liability related to those claims where there is a range of loss.  Because of
the uncertainty of both the outcome and the amount of loss of our pending litigation,  management is
unable to make a reasonable estimate of the liability that could result from our pending litigation.
As additional  information  becomes available,  we will reassess,  in conjunction with outside legal
counsel,  our  potential  liability  under our  pending  litigation  and  revise  our  estimates  as
appropriate.  Revisions of our estimates of our potential  liability could have a material impact on
our results of operations and financial position.


ACCOUNTING  FOR INCOME  TAXES:  Significant  management  judgment  is required  in  determining  our
provision  for income taxes,  our deferred tax assets and  liabilities  and our valuation  allowance
recorded against our net deferred tax assets.  Our income tax expense  includes  applicable U.S. and
international  income taxes. Certain items of income and expense are not reported in tax returns and
financial  statements in the same year. The tax effects of these reporting  differences are recorded
as  deferred  tax assets and  liabilities.  Deferred  tax assets are  recognized,  net of  valuation
allowances,  for the estimated future tax effects of deductible  temporary  differences  between the
amounts of income and expense  that are  reported  in our tax  returns and that are  reported in our
financial  statements  and of tax operating loss and credit  carryforwards.  Changes in deferred tax
assets and  liabilities  are  recorded  in the  provision  for  income  taxes in our  statements  of
operations.

We have recorded a valuation allowance of $48.4 million against our net deferred tax assets of $48.4
million as of December 31, 2001 based upon the management's conclusion,  that it is more likely than
not that none of these deferred tax assets will be realized.  This  valuation  allowance is based on
our estimates of our taxable  income in the  jurisdictions  in which we operate and the periods over
which our deferred tax assets will be recoverable.  We evaluate the  recoverability  of our deferred
tax assets and the level of our valuation allowance on a quarterly basis.

The following  table sets forth certain  revenue and cost data as a percentage of our total revenues
for each of the three years ended December 31, 2001.

                                                     2001          2000         1999
                                                 ----------    ----------   -----------
Revenues:
  Software                                            44.2%         61.3%         60.2%
  Services                                            55.8          38.7          39.8
                                                 ----------    ----------   -----------
    Total revenues                                   100.0         100.0         100.0
                                                 ----------    ----------   -----------
Cost of revenues:
  Cost of software                                     2.2           4.2           3.9
  Cost of services                                    33.2          25.6          21.3
                                                 ----------    ----------   -----------
    Total cost of revenues                            35.4          29.8          25.2
                                                 ----------    ----------   -----------
Gross profit                                          64.6          70.2          74.8
Operating expenses:
  Selling and marketing                               68.7          59.3          59.9
  Research and development                            26.6          18.3          16.9
  General and administrative                          21.0          10.2          10.0
  Restructuring                                        5.0             -           1.5
  Impairment of intangibles                          110.6             -             -
                                                 ----------    ----------   -----------
    Total operating expenses                         231.9          87.8          88.3
                                                 ----------    ----------   -----------
Operating loss                                      (167.3)        (17.6)        (13.5)
Other income, net                                      1.5           1.9           1.8
                                                 ----------    ----------   -----------
Net loss                                            (165.8)        (15.7)        (11.7)
                                                 ----------    ----------   -----------


2001 COMPARED TO 2000

On September 19, 2001 we completed our acquisition of C-bridge. The acquisition was accounted for as
a purchase. Under purchase accounting rules we are combining operating results for the two companies
only for the post-merger period. The principal impact on the twelve-month period ending December 31,
2001 of including  C-bridge's  operating  results was an increase in XML consulting  revenue of $5.8
million and an increase in expenses of $6.3 million.

                                                 10


SOFTWARE REVENUES. Software revenues decreased 49.6%, to $21.7 million in 2001 from $43.1 million in
2000. XML software revenues decreased 63.0%, to $4.7 million in 2001 from $12.9 million in 2000. The
decrease in XML software  revenues was due primarily to a decreased  adoption of new technologies by
companies  as a result of the  economic  downturn  and  specifically  a fall off of demand for these
technologies  from  internet-related  businesses.  We expect purchases of our XML-based  products to
increase  with a rebound in IT software  purchases and with broader  acceptance  of XML  technology.
This,  paired with our increased focus on sales and marketing of our XML-based  products is expected
to grow this source of revenue in future quarters.  ObjectStore  software revenues decreased 43.9% ,
to $17.0  million in 2001 from $30.2  million in 2000.  The  decrease in software  revenues  for the
ObjectStore product line was attributable to decreased  technology  purchases,  as well as generally
smaller  purchases per sales engagement,  as a result of uncertain general economic  conditions that
have particularly affected the telecommunications  industry,  which historically has been one of the
principal markets for our ObjectStore products. To the extent that there is a rebound in IT software
purchases,  particularly within the telecommunications  industry, we expect that this would modestly
increase our revenues from our sales of ObjectStore products in future quarters.

SERVICES REVENUES.  Services revenues increased 0.8%, to $27.4 million in 2001 from $27.2 million in
2000. XML services  revenues  increased  80.8%,  to $12.9 million in 2001 from $7.1 million in 2000.
This  increase was  primarily  due to the  inclusion of the results of C-bridge for the  post-merger
period, which added $5.8 million in consulting revenues and higher maintenance revenues from our XML
products,  reflecting  growth in our installed  base.  Going forward,  we expect that our consulting
revenues will not grow as quickly and may decline as a result of our  restructuring  in January 2002
in which we reduced the number of our consulting  personnel in line with expected future  consulting
bookings. ObjectStore services revenues decreased 27.6%, to $14.5 million in 2001 from $20.1 million
in 2000. This decrease  reflected a decline in our consulting  services  relating to our ObjectStore
product and was primarily  due to a slowdown in customer  deployments  and a decline in  maintenance
revenues, which was a result of fewer new customers and a slightly smaller installed base. We expect
that our consulting  services revenues from our ObjectStore  product may increase modestly in future
quarters in line with ObjectStore software license revenue growth.

REVENUES  FROM  INTERNATIONAL  OPERATIONS.   Revenues  from  the  operations  of  our  international
subsidiaries  decreased  32.0%,  to $22.7 million in 2001 from $33.4 million in 2000.  International
revenues as a percentage of total revenues were 46.1% in 2001, compared with 47.4% in 2000. While we
expect that  international  revenues will continue to be a large part of our revenues in 2002, it is
difficult  to predict the  percentage  that they will  represent.  In  particular,  Asia Pacific has
historically  represented  over 10% of our total  revenues.  However,  due to a  particularly  acute
economic slow down in Japan and our  dependence  upon the  distribution  channel in that region,  we
expect revenue  contributions  from Asia Pacific to decline in the coming year. This may result in a
reduction in the overall contribution from international revenues as a percent of total revenues.

COST OF SOFTWARE  REVENUES.  Cost of software revenues decreased 62.5%, to $1.1 million in 2001 from
$2.9 million in 2000, and decreased as a percentage of software  revenues to 5.0% from 6.8% for such
years,  respectively.  The decreases in the dollar amount  resulted  primarily  from lower  software
sales,  and to a lesser extent,  lower  amortization  costs for software  purchased from third-party
vendors,  primarily in our XML product  line. In 2000,  we wrote off  approximately  $0.8 million of
purchased technology due to our decision to discontinue the use of that technology.

COST OF SERVICES  REVENUES.  Cost of services revenues decreased 9.6%, to $16.3 million in 2001 from
$18.1 million in 2000,  and  decreased as a percentage of services  revenues to 59.5% from 66.3% for
such  years,  respectively.  The  decrease  in the dollar  amount was  primarily  attributable  to a
reduction,  by 30  employees,  of our  consulting  personnel  (before  giving effect to the C-bridge
acquisition)  and related  expenses as a result of our  restructurings  in 2001. The decrease in the
dollar amount was partially  offset by the inclusion of costs  attributable  to C-bridge  consulting
personnel for the post-merger  period. The decrease in the percentage of services revenues reflected
higher  utilization  of our remaining  consulting  personnel.  We do not expect our cost of services
revenues to increase significally in 2002.

SELLING AND MARKETING  EXPENSE.  Selling and marketing  expense decreased 19.0%, to $33.8 million in
2001 from $41.7 million in 2000, and increased as a percentage of total revenues to 68.7% from 59.3%
for such years, respectively. The decrease in the dollar amount was primarily due to a reduction, by
61  employees,  of  our  sales  and  marketing  personnel  and  related  costs  as a  result  of our
restructurings  in 2001,  as well as lower  commission  expense  related  to  lower  revenues  and a
reduction in marketing  programs,  and was  partially  offset by a non-cash  charge in the amount of
approximately  $705,000  recorded in the quarter ended March 31, 2001 for  amortization  of unearned
compensation  relating to the acceleration of vesting of certain  employee stock options.  We do not
expect our sales and marketing expenses to increase in 2002.

RESEARCH AND DEVELOPMENT EXPENSE.  Research and development expense increased 1.8%, to $13.1 million
in 2001 from $12.9 million in 2000,  and  increased as a percentage of total  revenues to 26.6% from
18.3% for such  years,  respectively.  The  increase  in the dollar  amount was  primarily  due to a
non-cash charge in the amount of approximately $422,000 recorded in the quarter ended March 31, 2001
for  amortization  of  unearned  compensation  relating  to the  acceleration  of vesting of certain
employee stock options, which was partially offset by a reduction,  by 20 employees, of our research
and development  personnel and related expenses as a result of our restructurings in 2001. We do not
expect future research and development expenses to increase in 2002.

GENERAL AND ADMINISTRATIVE  EXPENSE.  General and  administrative  expense increased 44.6%, to $10.4
million in 2001 from $7.2 million in 2000,  and increased as a percentage of total revenues to 21.0%
from 10.2% for such  years,  respectively.  This  increase  in dollar  amount was  primarily  due to
increased   compensation  costs  associated  with  a  reorganization  of  our  various  general  and
administrative  groups as well as the expenses relating to the C-bridge business,  and was partially
offset by a reduction,  by 14  employees,  of our general and  administrative  personnel and related
expenses as a result of our restructurings in 2001. We expect general and administrative  expense to
decrease in 2002.

                                                 11


RESTRUCTURING.  In 2001,  we  recorded  a  restructuring  charge in the amount of $2.4  million,  in
connection with the merger with C-bridge and the repositioning of the company for future growth. The
charge was composed of severance  costs for 125 employees and costs  relating to the closure of four
of our office locations.  As of December 31, 2001,  approximately $0.5 million of these costs remain
to be paid. We expect these remaining costs to be paid by December 31, 2002.

IMPAIRMENT  OF  INTANGIBLE  ASSETS.  We recorded a $54.4 million  impairment  charge  related to the
goodwill acquired in the C-bridge acquisition.

OTHER INCOME (NET). Other income (net) decreased 46.5%, to $0.7 million in 2001 from $1.4 million in
2000.  The decrease was primarily due to the lower cash balances in 2001,  (before  giving affect to
the increase in our cash balances  resulting from the C-bridge merger),  resulting in lower interest
earned on our investments.


2000 COMPARED TO 1999

SOFTWARE REVENUES. Software revenues increased 17.7%, to $43.1 million in 2000 from $36.6 million in
1999.  The  increase was  primarily  due to increased  volume of XML software  license  sales offset
partially by a decrease in sales of our ObjectStore  products.  XML software revenues were $12.9 and
$2.1 million while ObjectStore software revenues were $30.2 and $34.5 million for the years 2000 and
1999, respectively.

SERVICES REVENUES. Services revenues increased 12.6%, to $27.2 million in 2000 from $24.2 million in
1999. The increase was due to higher demand for our  consulting  services  attributable  to customer
deployments of applications built using our software,  and higher maintenance  revenues,  reflecting
continued  growth in our  installed  base of  customers.  XML services  revenues  were $7.1 and $0.8
million  while  ObjectStore  services  revenues  were $20.1 and $23.4 million for the years 2000 and
1999, respectively.

REVENUES  FROM  INTERNATIONAL  OPERATIONS.   Revenues  from  the  operations  of  our  international
subsidiaries  increased  $9.9  million in 2000 as  compared  to 1999.  International  revenues  as a
percentage of total  revenues were 47.4% in 2000 compared with 38.5% in 1999. The increase in dollar
amount and percentage  contribution of our international  revenues is primarily the result of strong
XML license revenues in Japan and the UK.

COST OF SOFTWARE  REVENUES.  Cost of software revenues increased 22.7%, to $2.9 million in 2000 from
$2.4 million in 1999, and increased as a percentage of software  revenues to 6.8% from 6.5% for such
years,  respectively.  The increase in absolute dollars and as a percentage of software revenues was
due to  additional  purchases  of  technology  in the  amount of $0.3  million  and an  increase  in
write-offs of old technology from $0.5 million in 1999 to $0.8 million in 2000.

COST OF SERVICES REVENUES.  Cost of services revenues increased 39.7%, to $18.1 million in 2000 from
$12.9  million in 1999 and  increased as a percentage  of services  revenues to 66.3% from 53.5% for
such years,  respectively.  The increase in dollar amount reflected the growth in staffing necessary
to generate and support  increased  worldwide  service  revenues and provide customer support to our
growing  installed  base.  The increase in cost of services as a percentage  of service  revenues is
primarily due to lower  utilization of consulting  personnel in 2000 as compared to 1999 as a result
of expanding staff in the XML division in anticipation of revenue growth in XML products, as well as
a direct write off of purchased  technology no longer being utilized by our services  organizations.
By hiring consulting staff ahead of demand we caused our average utilization to decline.

SELLING AND MARKETING  EXPENSE.  Selling and marketing  expense increased 14.6%, to $41.7 million in
2000 from $36.4 million in 1999, and decreased as a percentage of total revenues to 59.3% from 59.9%
for such years,  respectively.  The increase in dollar amount resulted  primarily from the hiring of
additional  marketing and sales personnel and increased  spending on marketing programs primarily to
launch our XML products.

RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense increased 24.9%, to $12.9 million
in 2000 from $10.3 million in 1999, and increased as a percentage of total revenues to 18.3% in 2000
from 16.9% for 1999. The increase was due principally to the addition of personnel,  depreciation of
capital  equipment and related  overhead for the  development of new XML products and enhancement to
existing ObjectStore products.

GENERAL AND  ADMINISTRATIVE  EXPENSE.  General and  administrative  expense increased 18.2%, to $7.2
million in 2000 from $6.1 million in 1999,  and increased as a percentage of total revenues to 10.2%
in 2000 compared to 10.0% in 1999. The increase in dollar amount  reflected the increased  staffing,
investments in information  technology,  professional  expenses and other costs  associated with our
expanding operations.

                                                 12


RESTRUCTURING.  In 1999 we recorded a  restructuring  charge in the amount of $945,000 in connection
with  repositioning  the Company for future growth.  The charge was composed of severance  costs for
eleven  employees,  closure costs of some office space, and cancellation  costs of certain marketing
initiatives. All of the restructuring charges were paid in 2000.

OTHER INCOME (NET). Other income (net) increased 22.5%, to $1.4 million in 2000 from $1.1 million in
1999. The increase was largely the result of some movement to longer-term investments that yielded a
higher rate of return as well as gains from transactions with our foreign subsidiaries.

PROVISION  FOR INCOME  TAXES.  In 1999,  we paid only  certain  foreign  income taxes due to our net
losses.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2001,  our principal  sources of liquidity  included  $28.9 million of cash and cash
equivalents  and  $309,000  of  short-term  marketable  securities.  $3.1  million  of cash and cash
equivalents  is restricted  and is being held with Silicon  Valley Bank as  collateral  for security
deposits on various office locations leased by us.

We had an accumulated deficit of approximately $127.6 million at December 31, 2001 and a net loss of
$81.6  million  (inclusive  of the $54.4 million  charge for the  impairment  of purchased  goodwill
relating  to the  C-bridge  merger) for the year then ended.  Our main  source of  liquidity  is our
current balance of cash and cash  equivalents.  Our balance of cash and cash equivalents was reduced
by  approximately  $16.8  million  (exclusive  of the cash and cash  equivalents  we acquired in the
C-bridge merger) in the year ended December 31, 2001 and $6.8 million in the year ended December 31,
2000. We believe that our cash and cash  equivalents,  short-term  marketable  securities  and funds
generated from operations, if any, will provide adequate liquidity to meet our capital and operating
requirements for the next twelve months. However, changes in current or expected customer demand for
our products and services, a decrease in our revenues without a corresponding reduction of expenses,
or adverse changes in current economic forecasts could change management's  judgment of the adequacy
of our current liquidity.

Our  operating  activities  used net cash of  $19.3  million  and  $5.6  million  in 2001 and  2000,
respectively. The increase in the use of cash from operations was primarily the result of a net loss
(exclusive of the $54.4 million charge for purchased goodwill  impairment) of $27.2 million in 2001,
offset by an increase of working capital of approximately  $7.4 million and non-cash charges of $0.5
million (exclusive of the goodwill impairment charge of $54.4 million).

Our  investing  activities  provided net cash of $37.5  million in 2001 and used $3.5 million of net
cash in 2000.  The increase in net cash provided was  primarily  attributed  to our  acquisition  of
C-bridge on September 19, 2001. (See Note E of the Notes to the Consolidated Financial Statements.)

Our  financing  activities  provided  net cash of $0.7  million and $2.2 million for the years ended
December 31, 2001 and 2000,  respectively.  The cash provided from  financing  activities  consisted
mainly of cash proceeds from the exercise of stock options.

We do not maintain any off balance sheet financing arrangements.

The table below  summarizes  our total  contractual  obligations  and  commercial  commitments as of
December 31, 2001 (in  thousands).  See Note D to the  Consolidated  Financial  Statements  included
elsewhere in this Report for a discussion of these obligations and commitments.

                                                       Less than     1-3        3-5          After 5
                                             Total     1 year        years      years         years
                                           ---------------------------------------------------------
Operating lease obligations                $ 11,786     $ 3,377     $ 4,388     $ 3,037       $  984
Employee severance obligations                  769         769           -           -            -
Office closure obligations                    3,510       1,078       2,432           -            -
                                           --------     -------     -------     -------      -------
     Total contractual cash obligations    $ 16,065     $ 5,224     $ 6,820     $ 3,037       $  984


As a result of our acquisition of C-bridge,  we assumed an obligation  under an investment  contract
with William Blair New World  Ventures,  L.P.  ("the Fund").  The contract has a total  subscription
commitment of  $1,000,000.  At the date of the merger,  C-bridge had invested  $290,000 in the Fund.
During the period from  September  19, 2001 through  December 31,  2001,  we invested an  additional
$105,000 in the Fund.

                                                 13


TRADING ACTIVITIES

We are not involved in any trading activities involving non-exchange traded contracts.


TRANSACTIONS WITH RELATED PARTIES

On April 6, 2001,  C-bridge advanced $1.0 million to a former officer of C-bridge and, following the
C-bridge merger, of the Company. This loan bears interest at an annual rate of 5.11%. As of December
31, 2001,  the loan balance,  including  accrued  interest,  was $1,038,688 and is included in other
assets on the balance sheet.  The promissory  note  evidencing  this loan is presently  secured by a
second mortgage on the former officer's principal residence.  The promissory note is due and payable
in full in August 2002.

NEW ACCOUNTING STANDARDS

In July 2001, the FASB issued SFAS No. 141, "Business  Combinations" and SFAS No. 142, "Goodwill and
Other  Intangible  Assets."  SFAS No. 141 requires that all business  combinations  be accounted for
under the purchase method only and that certain acquired intangible assets in a business combination
be recognized as assets apart from  goodwill.  SFAS No. 142 requires  that ratable  amortization  of
goodwill be replaced with periodic tests of the goodwill's  impairment  and that  intangible  assets
other than goodwill be amortized  over their useful  lives.  SFAS Nos. 141 and 142 are effective for
all business combinations  initiated after June 30, 2001 and for all business combinations accounted
for by the purchase  method for which the date of  acquisition is after June 30, 2001. We will adopt
SFAS  No.  142  during  the  first  quarter  of 2002.  As  discussed  in Note E of the  Notes to the
Consolidated  Financial  Statements,  we recorded an impairment  charge related to goodwill of $54.4
million in the fourth  quarter  2001.  Because that entire  goodwill  balance was written off in the
fourth  quarter of 2001,  our  adoption  of SFAS No. 142 is not  expected to  materially  impact our
financial results in future periods.

In October  2001,  the FASB issued  SFAS No.  144,  "Accounting  for the  Impairment  or Disposal of
Long-Lived  Assets." SFAS 144 supersedes  FASB Statement No. 121,  "Accounting for the Impairment of
Long-Lived  Assets and for Long-Lived  Assets to Be Disposed of." SFAS 144 applies to all long-lived
assets  (including  discontinued  operations) and consequently  amends  Accounting  Principles Board
Opinion No. 30 (APB 30),  "Reporting  Results of Operations - Reporting the Effects of Disposal of a
Segment of a  Business."  SFAS 144 is effective  for  financial  statements  issued for fiscal years
beginning after December 15, 2001, and will thus be adopted by us, as required,  on January 1, 2002.
Management  is  currently  determining  what  effect,  if any,  SFAS 144 will have on our  financial
position and results of operations.


CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

From time to time,  information  provided by us,  statements  made by our  employees or  information
included in our filings with the Securities and Exchange Commission may contain statements which are
not  historical  facts  but  which  are  "forward  looking   statements"  which  involve  risks  and
uncertainties. The words "expect",  "anticipate",  "internal", "plan", "believe," "seek", "estimate"
and similar  statements  are intended to identify such forward  looking  statements.  In particular,
statements  in  "Management's  Discussion  and  Analysis  of  Financial  Condition  and  Results  of
Operations" relating to our products,  competition,  future development,  revenue and expense levels
and  profitability,  as well as the  adequacy  of our  capital to meet  working  capital and capital
expenditure  requirements,  may be  forward-looking  statements.  Our  disclosures  in  Item  7A,  "
Quantitative  and  Qualitative  Disclosures  About  Market  Risk," also  constitute  forward-looking
statements. This Report also contains other forward-looking statements, including without limitation
statements  regarding the market opportunity for our products,  our competitors,  the development of
our products, the capabilities of our product lines,  anticipated increases in revenues from our XML
products, the percentage of revenues from our international  operations,  our outlook with regard to
costs and expenses, the effects of our recent  restructurings,  our outlook with respect to our cash
utilization,  the effects of recently-announced  accounting standards,  the adequacy of our existing
office  facilities  to meet our  requirements  over the next twelve  months and the  adequacy of our
liquidity to meet our capital and operating requirements for the next twelve months. Such statements
are not guarantees of future  performance,  but are based on  assumptions  and  expectations  of our
management at the time such  statements  are made,  and involve  certain  risks,  uncertainties  and
assumptions  that could cause our future results to differ  materially  from those  expressed in any
forward-looking  statements.  Important  factors that could cause our actual  results to differ from
those forward-looking statements include those set forth below. We disclaim any intent or obligation
to update publicly any forward-looking  statements,  whether in response to new information,  future
events or otherwise.

OUR RECENT  LOSSES AND THE RECENT  RESTRUCTURINGS  OF OUR BUSINESS MAKE IT DIFFICULT TO EVALUATE OUR
PROSPECTS FOR FUTURE SUCCESS.

                                                 14


We  incurred  substantial  losses  in  1999,  2000  and  2001.  We had  an  accumulated  deficit  of
approximately $127.6 million at December 31, 2001 and we expect that we will continue operating at a
loss in the near term.  In January 2001 we  restructured  our business by dividing it into  separate
divisions,  one  focusing  on  XML-based  products  and the  other on our  ObjectStore  object  data
management product, and reorganizing our sales and marketing, professional services and research and
development staffs into separate organizations.  In January 2002, after our acquisition of C-bridge,
we  decided to  recombine  our two  divisions  and to  consolidate  our  sales,  marketing,  product
development,  customer support,  professional  services and administrative  functions.  In September
2001, in connection with the C-bridge acquisition,  Joe Bellini replaced Robert Goldman as our chief
executive officer, and in connection with the subsequent consolidation of our operations, Philip Lee
replaced Mark Cosway as our  President.  Because of the recent  changes in our business,  our recent
historical  results of operations  may not give you an accurate  indication of our future results of
operations or prospects. As a result, we do not have an established history of profitable operations
under our present  management  team from which you can judge the prospects for future success of our
current business operations.

OUR FUTURE SUCCESS IS SUBSTANTIALLY  DEPENDENT ON INCREASED  MARKET  ACCEPTANCE OF OUR NEW XML-BASED
PRODUCTS.

Our business plans and our prospects of achieving  profitability in the near term are  substantially
dependent on increased market acceptance of our new XML-based  products and, in particular,  our XIS
product.  If revenues  attributable to sales of the XIS and, to a lesser extent, our other XML-based
products do not  increase  substantially  over the next  several  quarters,  our  planned  levels of
expenditures  will be  unsustainable,  and we could be required to take more sweeping cost reduction
measures,  dispose of assets or product lines, or otherwise readjust our business objectives. Any of
those  occurrences  could have a material adverse effect on our business and the price of our common
stock.

OUR BUSINESS MAY BE SIGNIFICANTLY HARMED IF WE ARE UNABLE TO IMPROVE OUR SALES AND MARKETING EFFORTS.

In order to achieve broad market acceptance of our products,  including our XML-based  products,  we
must improve the  effectiveness  of our sales and marketing  efforts by enhancing our reputation and
strengthening our brand,  increasing the market reach and effectiveness of our distribution  channel
partners,  and  increasing  the  productivity  of our sales force,  which has been  disrupted by our
acquisition  of C-bridge  and our recent  restructurings.  We cannot  assure you that our efforts to
improve our sales and marketing  performance  will be successful.  If we are  unsuccessful  in these
efforts, our sales revenues may decrease and our business and operating results may be significantly
harmed.

THE FAILURE OF THE XML STANDARD TO ACHIEVE BROAD MARKET ACCEPTANCE,  DELAY IN SUCH ACCEPTANCE OR THE
INTRODUCTION OF A COMPETING STANDARD PERCEIVED TO BE SUPERIOR IN THE MARKET COULD HARM OUR BUSINESS.

Extensible  Markup  Language,  or XML, is an emerging  standard for sharing data over the  Internet.
While we anticipate that XML will achieve broad market acceptance in the near future, the acceptance
of XML has been slower than  expected.  If a competing  standard  for sharing data over the Internet
were perceived to be superior to XML, the market may not continue to accept XML-based products. If a
new standard were perceived to be superior to XML, our software might not be compatible with the new
standard or we might not be able to develop  products using this standard in a timely manner,  which
could materially harm our revenues, results of operation and financial condition.

OUR  EXPENSE  REDUCTION  PROGRAM  MAY  DISRUPT  OUR  BUSINESS  AND  ADVERSELY  AFFECT OUR RESULTS OF
OPERATIONS AND OUR ABILITY TO ACHIEVE OUR BUSINESS OBJECTIVES.

During the past year we have  implemented  expense  reduction  programs  in response to a decline in
market demand for Internet-related products and services. Since January 1, 2001, we have reduced our
workforce by approximately 33% (without taking into account changes in our workforce relating to the
C-bridge  acquisition).  In January  2002,  in  connection  with the  consolidation  of our business
operations,  we further reduced our workforce by approximately  18%. We anticipate that we will make
further  workforce  reductions  as  we  continue  to  consolidate  our  facilities  and  operations.
Restructuring  charges  associated with these expense reduction  programs will negatively affect our
results of  operations in the near term.  Also,  the effect of these  reductions  in personnel,  and
uncertainty created by the possibility of future reductions,  could disrupt our operations,  make it
more  difficult for us to retain key personnel and recruit new personnel,  and adversely  affect our
ability to achieve our business objectives.

WE HAVE MADE AND MAY CONTINUE TO MAKE ACQUISITIONS, WHICH INVOLVE RISKS.

We acquired  C-bridge in September  2001.  Although we have no current plans or arrangements to make
additional  acquisitions,  we may do so if we  identify  companies,  technologies  or assets that we
believe  would  complement  our  business.  Acquisitions  involve  risks that could cause our actual
results to differ from our expectations. For example:

                                                 15


o    We may be unable to  integrate  acquired  businesses  successfully  and to realize  anticipated
     economic,  operational  and other  benefits  in a timely  manner.  Integration  of an  acquired
     business  is  especially  difficult  when we  acquire a  business  in a market in which we have
     limited or no expertise or a business with a corporate  culture  different from ours. If we are
     unable to successfully integrate acquired businesses, we may incur substantial costs and delays
     or other operational, technical or financial problems.

o    Acquisitions may divert  management's  attention from our existing  business and may damage our
     relationships  with our key  clients  and  employees.  For  example,  in  recent  quarters  the
     productivity of our sales and marketing efforts has been adversely  affected by the distraction
     of our sales force and by customer uncertainty attributable to the C-bridge merger.

o    In  future  acquisitions,  we may  issue  equity  securities  that  could  be  dilutive  to our
     shareholders. In those acquisitions, we also may incur additional debt and amortization expense
     related to goodwill and other intangible assets. This additional debt and amortization  expense
     may materially and adversely affect our business and operating results.

REVENUES  DERIVED  FROM OUR  OBJECTSTORE  PRODUCT  OFFERING  MAY  CONTINUE TO  DECLINE,  WHICH COULD
SIGNIFICANTLY HARM OUR BUSINESS, FINANCIAL RESULTS AND PROSPECTS.

The majority of our revenues to date has been derived from our  ObjectStore  object data  management
product.  Revenues from our ObjectStore  product have declined in recent years.  Our future revenues
from our  ObjectStore  product  offering will depend to a substantial  degree on our ability both to
keep our  existing  customers  and to  attract  and  retain  new  customers  for these  products.  A
significant  portion of our revenues to date has been derived from sales of our ObjectStore  product
to customers in a limited number of industries,  such as the  telecommunications  industry,  some of
which have been decreasing their rate of capital expenditures,  including  expenditures for products
such as ObjectStore. We cannot assure you that we will be able to maintain demand for ObjectStore in
the  telecommunications  industry or other  vertical  markets in which  ObjectStore  has been widely
implemented.

If revenues from sales to customers in our  traditional  markets decline and we are unable to create
increased demand for ObjectStore in new markets,  our revenues could decline, our ability to support
the levels of  expenditure  we believe are necessary to support the growth of our business  could be
impaired, and the our business and prospects could be significantly harmed.

OUR REVENUES AND RESULTS OF OPERATIONS MAY FLUCTUATE  SIGNIFICANTLY  ON A QUARTERLY OR ANNUAL BASIS,
WHICH COULD SERIOUSLY HARM OUR BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS AND STOCK PRICE.

Our revenues and results of operations have fluctuated significantly in the past, and we expect that
they will continue to fluctuate  significantly from quarter to quarter and from year to year. If our
revenues  or net  income for any  period  fall below the  expectations  of  securities  analysts  or
investors,  the market price of our common  stock could fall  significantly.  Our future  results of
operations in any period may fluctuate for many reasons, including:

o    The rate of market acceptance of our new products;

o    changes in the level of demand for our products;

o    the accuracy of our estimates of our revenues;

o    seasonal factors;

o    our ability to attract, retain and motivate qualified personnel;

o    the number, timing and significance of new products introduced by our competitors;

o    the length of the sales cycles associated with our offerings of products;

o    our ability to develop, market and introduce new and enhanced products on a timely basis;

o    the level of price competition;

o    the timing of collection of our accounts receivable;

o    changes in operating expenses;

                                                 16


o    changes in the percentages of our revenue that we receive from different products; and

o    general economic conditions.

Many of these factors are outside of our control.  Moreover,  because a  substantial  portion of our
operating expenses, such as rent, employee compensation, marketing programs and overhead, are fixed,
any of these  factors  could cause  significant  variations  in our  quarterly or annual  results of
operations.

THE TIMING OF OUR RECEIPT OF SOFTWARE  REVENUES  WILL CAUSE OUR TOTAL  REVENUES TO BE  DIFFICULT  TO
PREDICT.

Historically,  our revenues have been  difficult to predict  because we typically  have received the
majority  of our  revenues  from  sales of  software  in the  last  month  of each  quarter,  with a
concentration  of  revenues  in the latter  half of that  month.  We expect  this  revenue  trend to
continue.  This  pattern,  common to many  software  companies,  makes it  difficult to forecast our
revenues  accurately,  increasing the possibility that we will fail to achieve quarterly revenue and
income  targets.  Our inability to obtain orders in large volume or to make  shipments in the period
immediately  before the end of the quarter  may cause our results for that  quarter to fall short of
revenue and income targets. For these reasons, we believe that you should not rely on our historical
results of operations as an indication of our future performance.

WE FACE  INTENSE  COMPETITION  AND MAY LOSE  BUSINESS  TO OUR  COMPETITORS,  MANY OF WHOM  HAVE MORE
EXPERIENCE AND RESOURCES THAN WE DO.

The  markets  for our  products  are  highly  competitive  and  subject to rapid  change.  We expect
competition to intensify as the number of new technologies and entrants into our markets  increases.
Asera, Webmethods, TIBCO, Vitria, Seebeyond and Software AG all offer products that compete with our
XML-based products.  We also expect BEA Systems,  Oracle, IBM and Microsoft to release products that
compete  with our  XML-based  products.  ObjectStore  competes  with  products  offered by  Computer
Associates,  Ipedo, Neocore, Versant,  Objectivity, IBM, Informix, Microsoft and Oracle. Many of our
competitors and potential competitors have more experience in developing software,  larger technical
staffs, larger customer bases, more established distribution channels, greater brand recognition and
greater  financial,  research and  development,  marketing  and other  resources  than we have.  Our
competitors  may be able to develop  products  that are  superior  to ours or that  achieve  greater
customer  acceptance.  Our  competitors  may be  able  to  respond  more  quickly  to  technological
developments  and changes in customers'  needs. In addition,  negotiating and maintaining  favorable
customer and strategic  relationships  is critical to our business.  Our  competitors may be able to
negotiate strategic relationships on more favorable terms than we are able to negotiate. Many of our
competitors  may  also  have  well-established  relationships  with  our  existing  and  prospective
customers.  Increased  competition may result in reduced margins,  loss of sales or decreased market
share, which could harm our business,  operating results and financial  condition.  Our inability to
compete effectively could significantly harm our business.

OUR SOFTWARE IS COMPLEX AND MAY CONTAIN DEFECTS.

Our software is complex and may contain known and undetected  errors or performance  problems.  Many
serious defects are frequently  found during the period  immediately  following  introduction of new
software or  enhancements  to existing  software.  Although we attempt to resolve all errors that we
believe would be considered  serious by our customers,  our software is not  error-free.  Undetected
errors or  performance  problems may be  discovered  in the future.  Our customers may perceive such
errors to be serious.  This could result in lost revenue or delays in customer  acceptance and would
be detrimental to our  reputation,  which could harm our business,  operating  results and financial
condition.

WE MAY NOT BE ABLE TO SUCCESSFULLY  DEVELOP FUTURE ENHANCEMENTS TO OUR SOFTWARE PRODUCTS IN A TIMELY
AND EFFICIENT MANNER.

Because our software  products are complex,  internal quality  assurance testing or customer testing
may reveal  product  performance  issues or desirable  feature  enhancements  that could cause us to
postpone  releasing  new  versions of our  software.  In  addition,  the  reallocation  of resources
associated with any postponement  could delay the development and release of future  enhancements to
our currently available  software.  Our failure to complete future enhancements of our software in a
timely and efficient manner could harm our revenues and results of operations.

WE MUST KEEP PACE WITH RAPID TECHNOLOGICAL CHANGES,  EVOLVING INDUSTRY STANDARDS AND CHANGING CLIENT
REQUIREMENTS.

                                                 17


Our success will depend, in part, on its ability to keep pace with:

o        rapidly changing technology;

o        evolving industry standards and practices;

o        frequent new product introductions and enhancements; and

o        changing user and client requirements and preferences.

To be  successful,  we must  adapt to our  rapidly  changing  market by  continually  improving  the
performance,  features and reliability of our software products. We depend on our ability to produce
innovative products to remain  competitive.  We could incur substantial costs to modify our software
products  in order to adapt to  changes  in our  market.  Our  business  could be harmed if we incur
significant  costs to adapt to these changes but do not generate  increased  revenues to cover these
costs,  or if we are  unable to adapt  rapidly  to these  changes.  Any delay in the  release of our
products or failure of released  products to meet market  expectations  regarding  functionality and
features could undermine our competitive position.

WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, WHICH COULD SERIOUSLY HARM OUR BUSINESS.

Our business depends, in part, on our intellectual  property rights and our ability to protect those
rights. If we are unable to prevent our clients and others from obtaining and using our technologies
without our permission,  our business could suffer serious harm. Currently,  we have few patents and
patent applications. Existing trade secret and copyright laws afford only limited protection for our
intellectual  property rights. Third parties may attempt to disclose,  obtain or use our software or
technologies without our permission, particularly in foreign countries where laws or law enforcement
practices may not protect our proprietary rights as fully as in the United States. We may not detect
infringement or misappropriation of our intellectual property,  which would result in lost revenues.
If third  parties  develop  technologies  that are  similar  or  superior  to ours,  we may not have
sufficient rights to prevent the use of their  technologies,  which could seriously limit the market
for our products.

OUR BUSINESS MAY INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES.

Third parties may have or obtain patents,  copyrights or other intellectual property rights relating
to technologies that are used in our products.  These third parties may assert  infringement  claims
against us. If we are unsuccessful in any intellectual  property litigation,  we may be forced to do
one or more of the following:

o    cease selling or using products that incorporate the challenged intellectual property;

o    obtain a  license,  which may not be  available  on  reasonable  terms,  if at all,  to use the
     relevant technology;

o    reconfigure our products to avoid using the relevant technology;

o    refund license fees or other payments that we have previously received; and

o    pay substantial damages for previous infringement.

We generally indemnify our clients against any third-party  intellectual  property claims. The award
of one or more large  claims for  damages  against us or for which we have  indemnified  our clients
could adversely affect our financial condition and results of operations.

We may need additional financing to remain competitive.

     We may need to raise additional funds in the future if we:

o    continue to generate substantial operating losses;

o    seek to expand faster than currently planned;

o    decide to accelerate our development of new or enhanced products ahead of schedule;

o    need to reduce our prices in response to competitive pressures; or

o    decide to acquire complementary products, businesses or technologies.


                                                 18


If we  cannot  raise the  funds we need,  we may be  unable  to  engage in these or other  necessary
business  activities,  which could seriously harm our competitive  position.  Factors such as market
conditions or our operating performance could impair our ability to obtain financing,  and we may be
unable to raise funds on terms we find acceptable, if at all. If we raise funds by selling equity or
convertible debt securities,  the sale may dilute your ownership  interest.  Moreover,  we may issue
securities that have rights,  preferences and privileges senior to yours. The terms of any financing
may include  restrictive  financial and operating  covenants that could limit our ability to compete
and expand.

OUR INTERNATIONAL OPERATIONS MAY EXPOSE US TO ADDITIONAL RISKS.

We derive a  significant  portion of our  revenues  from sales by our  foreign  subsidiaries  and to
distributors  outside the United  States.  Managing our  international  operations  can be difficult
because of distance, as well as language and cultural differences. We cannot assure you that we will
be able to  successfully  market and deliver,  or maintain or increase  demand for, our products and
services in foreign markets.

Other risks related to our international operations include:

o    fluctuations in currency exchange rates;

o    difficulties arising from staffing and managing foreign operations;

o    longer payment cycles and problems in collecting accounts receivable;

o    reduced protection for intellectual property rights in certain countries;

o    restrictions on the import and export of sensitive U.S. technologies, such as data security and
     encryption technologies that we may wish to use in solutions we develop for foreign customers;

o    legal and regulatory requirements of different countries,  such as differing tax or labor laws;
     and

o    potential political and economic instability.

OUR FUTURE SUCCESS WILL DEPEND  SIGNIFICANTLY  UPON OUR ABILITY TO ATTRACT AND RETAIN HIGHLY SKILLED
TECHNICAL, MANAGERIAL, SALES AND MARKETING PERSONNEL.

In order to achieve our business  objectives,  we must attract and retain highly skilled  technical,
managerial,  sales and  marketing  personnel,  particularly  personnel  with  skills  related to the
Internet and its rapidly changing technologies.  The loss of a significant number of personnel could
impair our ability to complete existing projects, bid for new projects,  complete the development or
enhancement  of our  existing  products  or develop new  products.  Uncertainty  about our  business
prospects or workforce  requirements  may make it more difficult for us to retain our key personnel.
Competition for personnel in the high technology  industry is intense,  and many competing employers
are able to offer their employees significantly greater compensation and benefits or more attractive
lifestyle choices, career paths, or geographic locations than we can provide.

LEGAL PROCEEDINGS AGAINST US MAY ADVERSELY AFFECT OUR FINANCIAL CONDITION.

We are subject to various legal  proceedings  and claims that have arisen in the ordinary  course of
business  and  generally  relate to the  performance  of our  products  or involve  claims of former
employees.  Although we do not believe that any of these legal proceedings or claims are material to
our  business,  there can be no  assurance  that  resolving  these  matters will not have a material
adverse impact on our financial condition or results of operations.

OUR BUSINESS IS DEPENDENT ON THE CONTINUED GROWTH IN USE OF THE INTERNET.

Our  business  will be  adversely  affected  if use of the  Internet  and the market for  enterprise
commerce  management  solutions  do not  continue to develop or develop  more slowly than  expected.
Internet usage may be inhibited for a number of reasons, including:

o    inadequate Internet infrastructure;

o    security concerns;

                                                 19


o    inconsistent quality of service; or

o    unavailability of cost-effective, high-speed access services.

Demand and  market  acceptance  for  recently  introduced  products  are  subject to a high level of
uncertainty.  Our future success will depend, in part, upon our ability to provide products that are
accepted by existing and future clients as an integral part of their business models.

If use of the Internet  grows,  the Internet  infrastructure  may not be able to support the demands
placed on it and the  performance  and  reliability  of the Internet  may  decline.  Many web sites,
including those of our clients,  have  experienced a variety of  interruptions in their service as a
result of outages and other delays  occurring  throughout the Internet  network  infrastructure.  If
these outages or delays occur  frequently in the future,  use of the Internet could grow more slowly
than anticipated or decline.

GOVERNMENT REGULATION OF, AND LEGAL UNCERTAINTIES SURROUNDING, THE INTERNET COULD HARM OUR BUSINESS.

Any new law or regulation  pertaining to the  Internet,  or the  application  or  interpretation  of
existing  laws,  could  increase our cost of doing  business or otherwise  materially  and adversely
affect our business,  results of operations and financial  condition.  Laws and regulations directly
applicable to Internet  communications,  commerce and advertising  are becoming more prevalent.  The
laws governing the Internet,  however, remain largely unsettled,  even in areas where there has been
some  legislative  action.  It may take years to determine  whether and how existing laws  governing
intellectual  property,  copyright,  privacy,  obscenity,  libel and taxation apply to the Internet.
Uncertainty in the application of existing laws may reduce demand for our products. In addition, the
growth and development of e-commerce may prompt calls for more stringent  consumer  protection laws,
both in the United States and abroad.

OUR COMMON STOCK IS LIKELY TO  EXPERIENCE  SUBSTANTIAL  PRICE AND VOLUME  FLUCTUATIONS,  WHICH COULD
ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK.

The market prices and trading  volumes of our common stock have been highly  volatile and subject to
wide  fluctuations.  We expect  that the market  price and trading  volume of our common  stock will
continue to experience substantial  fluctuations in price and volume. As a result, you may be unable
to sell your shares at or above the price at which you acquired your them.  These  fluctuations  may
arise from many factors, including the following:

o    actual or anticipated variations in our quarterly operating results;

o    additions or departures of key personnel;

o    our level of operating expenses;

o    changes  in  securities  analysts'  recommendations  or  predictions  of our  future  financial
     performance;

o    announcements by us or our competitors of technological innovations, new products, acquisitions
     or strategic partnerships;

o    changes in business or regulatory conditions that affect us;

o    trading of our common stock;

o    developments with respect to intellectual property rights;

o    conditions and trends in the database, XML-based software and other industries;

o    changes in the market valuations of other companies in these industries;

o    adoption of new accounting standards affecting the industries in which we participate; and

o    general economic, political and market conditions unrelated to our operating performance,  such
     as recessions or international currency fluctuations.


                                                 20


Many of these factors are beyond our control. In addition, the stock market has recently experienced
extreme price and volume  fluctuations that have  particularly  affected the market prices of equity
securities  of many  companies  in the  database,  internet-related  software  and other  technology
industries.  These  fluctuations  have often been  unrelated or  disproportionate  to the  operating
performance of these companies.  These market  fluctuations may adversely affect the market price of
our common stock.  Following  periods of volatility in the market price of a security,  stockholders
have often instituted  securities class action litigation against the issuer of the security. If any
of our stockholders  were to institute a lawsuit against us, we would likely incur substantial costs
defending the lawsuit. A stockholder lawsuit could also divert the time,  attention and resources of
our management and result in substantial settlement or damages payments by us.

OUR COMMON STOCK MAY NOT  CONTINUE TO TRADE ON THE NASDAQ  NATIONAL  MARKET,  WHICH COULD REDUCE THE
VALUE OF YOUR INVESTMENT AND MAKE YOUR SHARES MORE DIFFICULT TO SELL.

In order for our common stock to trade on the Nasdaq National  Market,  we must continue to meet the
listing standards of that market.  Among other things, those standards require that our common stock
maintain a minimum  closing bid price of at least $1.00 per share.  Recently,  our common  stock has
traded at prices near and below $1.00.  If we do not continue to meet  Nasdaq's  applicable  minimum
listing  standards,  Nasdaq is likely to remove us from the Nasdaq National Market. Our removal from
the Nasdaq  National  Market could hinder your ability to sell, or obtain an accurate  quotation for
the price of, your shares of our common stock.  Removal could also  adversely  affect the perception
among investors of us and our prospects, which could lead to further declines in the market price of
our common stock.  Removal would also make it more  difficult and expensive for us to raise capital.
In  addition,  removal  might  subject us to a SEC rule that could  adversely  affect the ability of
broker-dealers  to sell or make a market in our common stock,  thus  hindering  your ability to sell
your shares.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We face exposure to certain market risks,  primarily  adverse movements in foreign currency exchange
rates and changes in interest  rates.  We have not invested in derivative  instruments or derivative
commodity  instruments.  (We believe that the fair value of other financial instruments reflected in
our  consolidated  balance sheets does not represent a significant  market risk due to the nature of
these instruments and their short-term maturities.  We also do not believe that our future earnings,
fair  values  and/or  cash flows are  subject to risk of  material  near term loss due to changes in
market rates or prices that we consider to be reasonably  possible in the near term.)  However,  our
exposure to market  risk may change over time as our  business  practices  evolve,  and could in the
future materially  adversely affect our financial  condition and results of operations.  Our primary
exposure  has been  related to local  currency  revenue  and  operating  expenses  in Europe and the
Asia/Pacific region.


FINANCIAL RISK MANAGEMENT

The carrying  amounts  reflected in the consolidated  balance sheets for cash and cash  equivalents,
accounts receivable and accounts payable approximate fair value at the balance sheet date due to the
short maturities of these instruments.

Our exposure to market rate risk for changes in interest  rates relates  primarily to our investment
portfolio.  We  have  not  used  derivative  financial  instruments  in  our  investment  portfolio.
Information  about our investment  portfolio is set forth in Note C of the Notes to the Consolidated
Financial Statements included elsewhere in this Report and is incorporated herein by reference.

We maintain investment portfolio holdings of various issuers, types and maturities. These securities
are  classified as available for sale, and  consequently,  are recorded on the balance sheet at fair
value with  unrealized  gains or losses  included  in  stockholders'  equity.  To date,  we have not
experienced  material losses on our investments.  We place our investments with high-quality issuers
and, by policy,  limit the amount of credit exposure to any one issuer.  Given the short  maturities
and  investment-grade  quality of our  portfolio  holdings at  December  31,  2001,  a sharp rise in
interest  rates  should  not have a  material  adverse  impact on the fair  value of our  investment
portfolio.


FOREIGN CURRENCY RISK

Fluctuations  in  exchange  rates can  adversely  affect our  results of  operations  and  financial
position.  The  financial  statements of our  international  subsidiaries,  all of whose  functional
currencies are the local currency,  are translated  using exchange rates in effect at the end of the
period for assets and  liabilities  and  average  exchange  rates  during the period for  results of
operations.  Foreign  currency  translation  adjustments  are  recorded as a separate  component  of
stockholders'  equity,  and also are included in reporting  comphrensive  income.  We also engage in
transactions denominated in foreign currencies.  Gains and losses from these transactions,  which to
date have been immaterial, are reflected in the results of operations. The impact of future exchange
rate  fluctuations  on our results of  operations  and  financial  condition  cannot  accurately  be
predicted. We do not engage in foreign currency hedging activities.

                                                 21



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following statements are filed as part of this Annual Report on Form 10-K:

ITEM                                                                           PAGE NO.

Report of Independent Accountants                                               23

Consolidated Balance Sheets as of December 31, 2001 and 2000                    24

Consolidated Statements of Operations for the three
years ended December 31, 2001, 2000 and 1999                                    25

Consolidated Statements of Stockholders' Equity for the three
years ended December 31, 2001, 2000 and 1999                                    26

Consolidated Statements of Cash Flows for the three
years ended December 31, 2001, 2000 and 1999                                    27

Notes to Consolidated Financial Statements                                      28

Report of Independent Accountants on Financial
Statement Schedule                                                              43

Schedule II - Valuation and Qualifying Accounts                                 44



                                                 22


                                  Report of Independent Accountants

To the Board of Directors and Stockholders of eXcelon Corporation:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements
of operations,  stockholders'  equity, and cash flows present fairly, in all material respects,  the
financial  position of eXcelon  Corporation and its  subsidiaries at December 31, 2001 and 2000, and
the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting  principles  generally accepted in the United States
of America.  These financial  statements are the  responsibility  of the Company's  management;  our
responsibility  is to express  an opinion on these  financial  statements  based on our  audits.  We
conducted our audits of these statements in accordance with auditing standards generally accepted in
the United States of America,  which require that we plan and perform the audit to obtain reasonable
assurance  about  whether  the  financial  statements  are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the amounts  and  disclosures  in the
financial  statements,  assessing the accounting  principles used and significant  estimates made by
management, and evaluating the overall financial statement presentation.  We believe that our audits
provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

Boston, Massachusetts
March 29, 2002



                                                 23


eXcelon Corporation
Consolidated Balance Sheets
(in thousands except for per share amounts)
                                                                        ----------------------------
                                                                                December 31,
                                                                             2001          2000
                                                                        ------------- --------------
Assets

Current assets:
     Cash and cash equivalents                                               $25,765         $6,848
     Restricted cash and cash equivalents                                      3,100            200
     Short-term investments                                                      309          9,012
     Accounts receivable, net of allowance for
     doubtful accounts of $857 in 2001 and $1,066 in 2000
                                                                               8,908         13,767
     Prepaid expenses and other current assets                                 3,106          1,826
                                                                        ------------- --------------
Total current assets                                                          41,188         31,653

Property and equipment, net                                                    7,942          6,233
Marketable securities                                                              -            610
Intangibles, net                                                                 970          1,118
Other assets                                                                   2,530          1,132

                                                                        ------------- --------------
Total assets                                                                 $52,630        $40,746
                                                                        ------------- --------------

Liabilities and stockholders' equity

Current liabilities:
     Accounts payable                                                        $ 5,789        $ 4,418
     Accrued expenses                                                          3,187          3,006
     Accrued restructuring and exit costs                                      4,279              -
     Accrued compensation                                                      1,708          3,511
     Deferred revenue (current portion)                                        5,687          8,188
                                                                        ------------- --------------
Total current liabilities                                                     20,650         19,123

Deferred revenue (net of current portion)                                        547            323

Commitments and contingencies (Notes D and M )
                                                                                   -              -
Stockholders' equity:
  Preferred stock, $.01 par value;                                                 -              -
  authorized 5,000 shares; no shares issued or outstanding                      58             30
  Common stock, $.001 par value; authorized 200,000 shares;
  57,728  and 29,551 shares issued and outstanding in 2001 and
  2000, respectively
  Additional paid-in capital                                                 161,119         70,929
  Unearned compensation                                                            -         (1,127)
  Accumulated deficit                                                       (127,623)       (46,065)
  Accumulated other comprehensive loss                                        (2,121)        (1,894)
  Advances to stockholders                                                         -           (573)
                                                                        ------------- --------------
Total stockholders' equity                                                    31,433         21,300
                                                                        ------------- --------------
Total liabilities and stockholders' equity                                   $52,630        $40,746
                                                                        ------------- --------------


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


                                                 24


eXcelon Corporation
Consolidated Statements of Operations
(in thousands, except per share data)


-------------------------------------------------------------------------------------------------
                                                             Year Ended December 31,
                                                    2001                2000               1999
-------------------------------------------------------------------------------------------------
Revenues:
   Software                                        $21,744             $43,118           $ 36,623
   Services                                         27,447              27,229             24,187
--------------------------------------------------------------------------------------------------
   Total revenues                                   49,191              70,347             60,810
Cost of revenues:
   Cost of software                                  1,096               2,921              2,380
   Cost of services                                 16,322              18,059             12,931
--------------------------------------------------------------------------------------------------
   Total cost of revenues                           17,418              20,980             15,311

Gross profit                                        31,773              49,367             45,499

Operating expenses:
   Selling and marketing                            33,783              41,730             36,426
   Research and development                         13,091              12,859             10,292
   General and administrative                       10,352               7,157              6,054
   Restructuring                                     2,442                   -                945
   Impairment of intangibles                        54,381                   -                  -
--------------------------------------------------------------------------------------------------
   Total operating expenses                        114,049              61,746             53,717
--------------------------------------------------------------------------------------------------
Operating loss                                     (82,276)            (12,379)            (8,218)
Other income, net                                      718               1,368              1,117
--------------------------------------------------------------------------------------------------
Loss before income taxes                           (81,558)            (11,011)            (7,101)
Provision for income taxes                               -                   -                 43
--------------------------------------------------------------------------------------------------
Net loss                                         $ (81,558)          $ (11,011)           $(7,144)
--------------------------------------------------------------------------------------------------

Net loss per share - basic and diluted             $ (2.14)             $(0.38)            $(0.25)

Weighted average number of
common shares outstanding - basic and diluted       38,086              29,348             28,362
--------------------------------------------------------------------------------------------------



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


                                                 25


eXcelon Corporation
Consolidated Statements of Stockholders' Equity
(in thousands)


                                                                                              Accumulated
                                                    Additional                                  Other
                                            Common   Paid-In   Unearned  Treasury Accumulated Comprehensive Advances to      Comprehensive
                                            Stock    Capital Compensation  Stock    Deficit     (Loss)     Stockholders  Total   (Loss)
------------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998                 $   28  $ 65,139   $  (162)  $ (251) $(27,910)   $(1,406)      $ (687)    $34,751
                                            -----------------------------------------------------------------------------------
 Purchase of treasury stock shares                                          (247)                                         (247)
 Issued for employee stock plan and
  option plans                                    1     1,526                498                                         2,025
 Unearned compensation related to
  option grants                                         1,125    (1,125)                                                     0
 Amortization of unearned compensation                              228                                                    228
 Forgiveness of stockholder loan                                                                               114        114
 Net unrealized loss on marketable                                                                (67)                     (67)      (67)
  securities
 Foreign currency translation adjustment                                                         (147)                    (147)     (147)
 Net loss                                                                           (7,144)                             (7,144)   (7,144)
                                                                                                                                ----------
 Comprehensive loss                                                                                                             $ (7,358)
                                                                                                                                ----------
                                            -----------------------------------------------------------------------------------
Balance at December 31, 1999                     29    67,790    (1,059)       -   (35,054)    (1,620)        (573)    $29,513
                                            -----------------------------------------------------------------------------------
 Purchase of treasury stock shares
 Issued for employee stock plan and
  option plans                                    1     2,224                                                            2,225
 Unearned compensation related to
  option grants                                           915      (915)                                                     -
 Amortization of unearned compensation                              847                                                    847
 Net unrealized gain on marketable                                                                 73                       73       73
  securities
 Foreign currency translation adjustment                                                         (347)                    (347)    (347)
 Net loss                                                                          (11,011)                            (11,011) (11,011)
                                                                                                                               ----------
 Comprehensive loss                                                                                                            $(11,285)
                                            --------------------------------------------------------------------------------------------
Balance at December 31, 2000                 $   30  $ 70,929 $  (1,127)   $   - $ (46,065)  $ (1,894)      $ (573)   $ 21,300
                                            -----------------------------------------------------------------------------------
 Issued for employee stock plan and
  option plans                                    1       718                                                              719
 Amortization of unearned compensation                            1,127                                                  1,127
 Net unrealized gain on marketable
  securities                                                                                     (168)                    (168)    (168)
 Foreign currency translation adjustment                                                          (59)                     (59)     (59)
 Forgiveness of  Stockholder Debt                                                                              573         573
 Issuance of stock and options related
  to purchase of C-Bridge Internet
  Solutions, Inc.                                27    89,472                                                           89,499
 Net loss                                                                          (81,558)                            (81,558) (81,558)
                                                                                                                               ----------
 Comprehensive loss                                                                                                            $(81,785)
                                           ----------------------------------------------------------------------------------------------
Balance at December 31, 2001                  $  58  $161,119       $ -     $  - $(127,623)  $ (2,121)         $ -    $ 31,433
                                           ----------------------------------------------------------------------------------------------



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



                                                 26


eXcelon Corporation
Consolidated Statements of Cash Flows
(in thousands)

-------------------------------------------------------------------------------------------------------------
                                               Year Ended December 31,
                                                                          2001           2000         1999
-------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
   Net loss                                                          $ (81,558)     $ (11,011)      $ (7,144)
   Adjustments to reconcile net loss to net
     cash provided by (used for) operating activities:
     Depreciation and amortization                                       4,094          4,578          3,285
     Amortization of unearned compensation                               1,127            847            228
     Bad debt expense                                                      375            587          1,007
     Loss on forgiveness of loan                                           785              -              -
     Loss on impairment of intangibles                                  54,381              -              -
     Other                                                                  91              -            276
Changes in operating assets and liabilities - net of business
acquired
     Accounts receivable                                                 9,104          (365)            679
     Prepaids and other current assets                                     379        (1,208)          (200)
     Other assets                                                          329          (112)          (286)
     Accounts payable and accrued expenses                             (8,208)            124          1,415
     Accrued restructuring costs                                         4,279              -              -
     Deferred revenue                                                   (4,432)           946          2,344
-------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) operating activities                   (19,254)        (5,614)         1,604
-------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
     Capital expenditures                                                 (925)        (3,722)        (3,027)
     Purchased software                                                      -           (370)        (1,151)
     Cash acquired, net                                                 29,096              -              -
     Purchases of marketable securities                                 (1,399)       (21,235)       (13,048)
     Proceeds from maturities and sales of
        marketable securities                                           10,733         21,833         12,898
-------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities                    37,505         (3,494)        (4,328)
-------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
     Proceeds from exercise of stock options                               719          2,225          2,025
     Purchase of treasury stock                                              -              -           (247)
     Principal payments on borrowings                                      (19)           (17)           (13)
-------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                  700          2,208          1,765
-------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash                                    (34)           101            (40)
Net change in cash and cash equivalents                                 18,917         (6,799)          (999)
Cash and cash equivalents, beginning of year                             6,848         13,647         14,646
-------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year                                 $25,765        $ 6,848       $ 13,647
-------------------------------------------------------------------------------------------------------------

SUPPLEMENTAL CASH FLOW INFORMATION:
     Interest paid                                                       $   2         $    -          $   6
     Income taxes paid                                                      15             14             95
-------------------------------------------------------------------------------------------------------------


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


                                                 27


EXCELON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BUSINESS

We are a leading  provider of data  management  software  designed to accelerate the  performance of
distributed  applications  that are built using Extensible Markup Language ("XML") and Java and that
are deployed on market-leading  software platforms.  Our core products,  the eXtensible  Information
Server ("XIS"),  ObjectStore and Javlin,  enhance the speed,  flexibility,  scalability and run-time
availability  of Web services and  distributed  applications,  which can generate  substantial  cost
savings and significant  competitive  advantage for large and mid-sized  enterprises.  Our customers
include leaders in their  respective  industries,  such as Philips,  Amazon.com,  Swiss Re: Life and
Health and NTT DoCoMo.  Our products are marketed and sold worldwide through our direct sales force,
systems  integrators,  independent  software vendors,  international  distributors and other channel
partners.  We operate in a single  industry  segment:  computer  software and related  services.  In
January 2000, we changed our legal name from Object Design, Inc. to eXcelon Corporation.


BASIS OF PRESENTATION

The consolidated  financial  statements  include the accounts of parent company and its wholly-owned
subsidiaries,  including our operations outside the United States.  The financial  statements at and
for the period ending December 31, 2001 reflect our acquisition of C-bridge Internet Solutions, Inc.
("C-bridge") on September 19, 2001 and include the assets and liabilities of the acquired company at
December 31, 2001 and the results of its  operations  from  September 19, 2001 through  December 31,
2001. All significant  intercompany  balances and transactions have been eliminated in the financial
statements.  Certain  reclassifications have been made for consistent  presentation.  We prepare our
financial  statements  under  accounting  principles  generally  accepted in the United  States that
require  management  to make  estimates  and  assumptions  that affect the amounts  reported and the
related disclosures. Actual results could materially differ from these estimates.


USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted accounting  principles
requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities  and  disclosures  of  contingent  assets and  liabilities  at the date of the financial
statements  and the reported  amounts of revenue and expenses  during the reporting  period.  Actual
results could differ from those estimates.


REVENUE RECOGNITION

We derive our revenue from sale of software licenses,  software royalties,  professional consulting,
training, maintenance and support services.

When we sell software separately,  or together with other services that are not considered essential
to the functionality of the software product,  we recognize revenue in accordance with the Statement
of Position 97-2,  "Software  Revenue  Recognition" ("SOP 97-2"). Pursuant to SOP 97-2, we recognize
software license revenue upon delivery of the software product,  provided  persuasive evidence of an
arrangement exists, no significant  obligations with regard to installation or implementation of the
software remain, fees are fixed or determinable, collection of receivables is reasonably assured and
customer acceptance, when applicable, has been obtained.

For  arrangements  with multiple  obligations  (including for example,  obligations  for undelivered
maintenance and support  services),  we allocate revenue to each component of the arrangement  using
the  residual  value  method  based  on  the  vendor-specific  objective  evidence  ("VSOE")  of the
undelivered  elements.  VSOE of the ongoing maintenance  obligations is based upon separate sales of
renewals to other  customers or upon  substantive  renewal  rates quoted in the  contracts.  VSOE of
services,  such as training or  consulting,  is based upon separate sales by us of these services to
other customers. If evidence of VSOE for each element of the arrangement does not exist, all revenue
for the  arrangement  is deferred  until such time as evidence of fair value does exist or until all
elements of the arrangement are delivered.

When we sell software  licenses  together with other  services,  and those  services are  considered
essential to the  functionality  of the software  product,  we recognize  both software  revenue and
services  revenue using the  percentage of completion  method in accordance  with the  provisions of
Statement of Position 81-1,  "Accounting for Performance of Construction Type and Certain Production
Contracts"  ("SOP  81-1").  Pursuant to SOP 81-1, we recognize  revenue under a particular  contract
based upon costs incurred as a percentage of total estimated costs for that contract. Provisions for
estimated  losses on  uncompleted  contracts  are recorded in the period in which such losses become
probable based on the current contract estimates.

                                                 28


We also sell consulting services  separately from sales of our software products.  We generally bill
these  services are  generally  billed on a time and  materials  basis,  and we generally  recognize
revenue as these  services  are  performed.  However,  if the  consulting  agreement  is a fixed fee
arrangement,  we recognize  services revenue using the percentage of completion method in accordance
with the provisions of SOP 81-1, as described above.

We recognize revenue for maintenance  services ratably over the contract term. Our training services
are billed on hourly rates, and we generally recognize revenue as these services are performed.


CASH EQUIVALENTS, MARKETABLE SECURITIES AND RESTRICTED CASH

Our  cash  is  invested  in  debt  instruments  of  financial  institutions,   government  entities,
corporations,  and money market funds. We have  established  guidelines  relative to credit ratings,
diversification and maturities that are intended to maintain low investment risk and liquidity. Cash
equivalents  include highly liquid  investments  with maturity  periods of three months or less when
purchased.  Short-term  investments  include those  investments  with  maturities in excess of three
months but less than one year. Long-term  marketable  securities are those with maturities in excess
of one year. Cash equivalents and short-term and long-term  marketable  securities are classified as
available  for sale and  reported  at fair  value  with  unrealized  gains and  losses  included  in
stockholders' equity. We have not had any significant realized losses related to our investments.

Restricted  cash in the  amounts of $3.1  million and $0.2  million at  December  31, 2001 and 2000,
respectively,  consists of certificates of deposits and treasury bills held for irrevocable  standby
letters of credit that are security  deposits  pursuant to operating  leases for premises located in
Massachusetts, California, and Michigan. The cash classified as short-term relates to leases that we
expect to terminate within the next twelve months.


PROPERTY AND EQUIPMENT

Our property and equipment are stated at cost. We provide for depreciation  using the  straight-line
method over the estimated useful lives of the assets as follows:

    ASSET CLASSIFICATION                        ESTIMATED USEFUL LIFE
    Computer equipment                               3-4 years
    Purchased computer software                      3-4 years
    Office equipment                                 3-4 years
    Furniture and fixtures                           3-5 years
    Leasehold improvements             Shorter of lease term or estimated useful life.

Maintenance and repairs are charged to expense as incurred. Upon retirement or sale, the cost of the
asset  disposed of and the related  accumulated  depreciation  are removed from the accounts and any
resulting gain or loss is credited or charged to other income.


FOREIGN CURRENCY

For our foreign operations,  the functional  currency is the local currency.  Assets and liabilities
are translated at rates in effect at the balance sheet date and translation adjustments are recorded
in  stockholders'  equity and are  included  as a  component  of  comprehensive  income or loss.  We
translate  statement of operations  amounts at average rates for the period.  Transaction  gains and
losses are recorded in other income and expense in the statement of  operations.  Transaction  gains
and losses were immaterial to date.


CONCENTRATIONS OF CREDIT RISK

The amounts  reflected in the consolidated  balance sheets for cash and cash  equivalents,  accounts
receivable  and  accounts  payable  approximate  their  fair  value due to their  short  maturities.
Financial  instruments that potentially subject us to concentration of credit risk consist primarily
of investments  and trade  receivables.  Our cash,  cash  equivalents  and investments are held with
financial institutions with high credit standings. We sell to a broad base of customers representing
various geographic locations and industries. We perform ongoing credit evaluations of our customers,
but do not require  collateral or other  security to support our customer  receivables.  We maintain
reserves for potential credit losses, and such losses have been within our expectations.


                                                 29


RESEARCH AND DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS

Research and development  costs are expensed as incurred.  Costs  associated with the development of
computer  software are expensed prior to  establishing  technological  feasibility,  and capitalized
thereafter  until  commercial  release of the  products.  Software  development  costs  eligible for
capitalization have not been material to date.


INCOME TAXES

Our income tax expense includes  applicable U.S. and  international  income taxes.  Certain items of
income and expense are not reported in tax returns and financial  statements  in the same year.  The
tax effects of these  differences are reported as deferred tax assets and liabilities.  Deferred tax
assets are  recognized,  net of  valuation  allowances,  for the  estimated  future  tax  effects of
deductible  temporary  differences  and tax  operating  loss and  credit  carryforwards.  Changes in
deferred tax assets and  liabilities  are recorded in the provision  for income  taxes.  We record a
valuation allowance against the net deferred tax assets if based upon the available evidence,  it is
more likely than not that some or all of the deferred  tax assets will not be realized.  We evaluate
the  recoverability  of the  deferred  tax  assets  and the level of the  valuation  allowance  on a
quarterly basis.


PURCHASED SOFTWARE

Purchased  software  includes  the  cost  of  purchased  third-party  software,  net of  accumulated
amortization.  Amortization is provided using the straight-line method over periods ranging from one
to five years.  Accumulated  amortization amounted to $4,002,251 and $3,917,679 at December 31, 2001
and 2000,  respectively.  Amortization  expense was $529,572,  $494,105 and $669,394 for the years
ending December 31, 2001, 2000 and 1999, respectively.

IMPAIRMENT OF LONG-LIVED ASSETS, INCLUDING GOODWILL

Upon  indication of possible  impairment,  we evaluate the  recoverability  of long-lived  assets by
measuring the carrying amount of the assets against the related estimated  undiscounted  future cash
flows.  When an evaluation  indicates that the future  undiscounted cash flows are not sufficient to
recover the carrying value of the asset,  the asset is adjusted to its estimated fair value. In 2000
and 1999 we wrote off $777,787 and  $552,222,  respectively,  of  purchased  technology  when it was
determined that the expected future cash flows resulting from these acquired  technologies  would be
immaterial. These charges are included in cost of software sold.

As  described in Note E, we recorded an  impairment  charge of $54.4  million in the quarter  ending
December 2001, relating to goodwill acquired in connection with the C-bridge acquisition.

ADVERTISING COSTS

Advertising costs are charged to operations as incurred.  Advertising costs were  approximately $1.3
million,  $3.1  million and $1.7  million in the years ending  December  31,  2001,  2000,  and 1999
respectively.


COMPREHENSIVE LOSS

Other  comprehensive loss includes certain changes in equity that are excluded from net loss such as
currency  translation  adjustments  and  unrealized  gains (losses) on  investments.  The individual
components of comprehensive loss are included in the consolidated statements of stockholder's equity
for the year ended December 31, 2001,  2000 and 1999. For the years ending  December 31, 2001,  2000
and  1999,  there  is no  income  tax  expense  or  benefit  allowable  to the  components  of other
comprehensive income.

STOCK-BASED COMPENSATION

We measure compensation expense for our employee stock-based  compensation using the intrinsic value
method and provide pro forma  disclosures  of net income (loss) as if the fair value method had been
applied in measuring  compensation  expense.  Under the  intrinsic  value method of  accounting  for
stock-based  compensation,  when the exercise price of options granted to employees is less than the
fair value of the underlying  stock on the grant date,  compensation  expense is recognized over the
applicable vesting period.

                                                 30


NET LOSS PER SHARE

Basic net income (loss) per share is computed by dividing net income (loss) by the  weighted-average
number of common shares outstanding for the period. Diluted (loss) per share is computed by dividing
net income (loss) by the sum of the  weighted-average  number of common shares  outstanding  for the
period plus the number of common shares issuable upon the assumed exercise of all dilutive potential
common shares, such as stock options. The following is a calculation of basic and diluted net income
(loss) per share:

(in thousands, except per share amounts):

BASIC AND DILUTED NET LOSS PER SHARE                   2001             2000               1999

Net loss                                            $ (81,558)       $ (11,011)          $(7,144)

Weighted average common shares outstanding             38,086           29,348            28,362

Basic net loss per share                              $ (2.14)         $ (0.38)          $ (0.25)


Options to purchase  22,933,472,  4,600,008 and 3,977,643,  shares of common stock were  outstanding
during  2001,  2000 and 1999,  respectively,  but were not included in the  computations  of diluted
earnings per share.

                                                 31


RECENT ACCOUNTING PRONOUNCEMENTS

In July 2001, the FASB issued SFAS No. 141, "Business  Combinations" and SFAS No. 142, "Goodwill and
Other  Intangible  Assets."  SFAS No. 141 requires that all business  combinations  be accounted for
under the purchase method only and that certain acquired intangible assets in a business combination
be recognized as assets apart from  goodwill.  SFAS No. 142 requires  that ratable  amortization  of
goodwill be replaced with periodic tests of the goodwill's  impairment  and that  intangible  assets
other than goodwill be amortized  over their useful  lives.  SFAS Nos. 141 and 142 are effective for
all business combinations  initiated after June 30, 2001 and for all business combinations accounted
for by the purchase  method for which the date of  acquisition is after June 30, 2001. We will adopt
SFAS No.  142  during  the first  quarter  of 2002.  As  discussed  in Note E, we have  recorded  an
impairment  charge  related to goodwill of $54.4 million in the fourth  quarter  2001.  Because that
entire goodwill  balance was written off in the fourth quarter of 2001, our adoption of SFAS No. 142
is not expected to materially impact our financial results in future periods.

In October  2001,  the FASB issued  SFAS No.  144,  "Accounting  for the  Impairment  or Disposal of
Long-Lived  Assets." SFAS 144 supersedes  FASB Statement No. 121,  "Accounting for the Impairment of
Long-Lived  Assets and for Long-Lived  Assets to Be Disposed of." SFAS 144 applies to all long-lived
assets  (including  discontinued  operations) and consequently  amends  Accounting  Principles Board
Opinion No. 30 (APB 30),  "Reporting  Results of Operations - Reporting the Effects of Disposal of a
Segment of a  Business."  SFAS 144 is effective  for  financial  statements  issued for fiscal years
beginning after December 15, 2001, and will thus be adopted by us, as required,  on January 1, 2002.
Management  is  currently  determining  what  effect,  if any,  SFAS 144 will have on our  financial
position and results of operations.


B. PROPERTY AND EQUIPMENT:

Our property and equipment consisted of the following, in thousands:


                                                         December 31,      December 31,
                                                             2001              2000
                                                      ----------------- -----------------
Computer and computer-related equipment                     $11,669           $ 9,895
Office equipment and furniture                                1,630             1,532
Purchased computer software                                   3,093             2,182
Leasehold improvements                                        2,522             2,609
                                                           --------           -------
                                                             18,914            16,218
Less accumulated depreciation and amortization              (10,972)           (9,985)
                                                           ---------          --------
                                                            $ 7,942           $ 6,233
                                                           =========          ========

Depreciation  expense was  $3,528,622,  $2,063,000  and  $1,897,000 for the years ended December 31,
2001, 2000 and 1999, respectively.


C. MARKETABLE SECURITIES:

The fair values of our investments  have been determined  through  information  obtained from market
sources.  We use the specific  identification  cost method to determine the gross realized gains and
losses on the sale of our  securities.  Realized  gains and losses on the sale of  investments  were
immaterial for all periods presented in the consolidated financial statements.  Net unrealized gains
and losses are recorded as accumulated  other  comprehensive  loss.  Marketable  securities  held as
available for sale can be summarized as follows, in thousands:

                                                                               GROSS      GROSS
DECEMBER 31, 2001                                     AMORTIZED              UNREALIZED UNREALIZED
                                                        COST     FAIR VALUE     GAINS     LOSSES
                                                      ---------  ----------  ---------- -----------
 U.S. Government obligations                          $ 20,222     $ 20,231        $ 9           -
 Corporate obligations                                     350          350          -           -
 Other                                                   2,863        2,863          -           -
                                                      --------     --------      -----        -----
      Total investments                               $ 23,435     $ 23,444        $ 9           -
                                                      ========     ========      =====        =====
Amounts included in:
Cash and cash equivalents                             $ 23,135      $23,135          -           -
Short-term investments                                     300          309          9           -
Marketable securities, non-current                           -            -          -           -
                                                      --------     --------      -----        -----
     Total                                            $ 23,435      $23,444        $ 9           -
                                                      ========     ========      =====        =====

                                                 32



DECEMBER 31, 2000

 U.S. Government obligations                          $  1,952     $  1,959       $  7        $  -
 Corporate obligations                                  10,505       10,507          6          (4)
 Other                                                     641          641          -           -
                                                      --------     --------       ----        -----
      Total investments                               $ 13,098     $ 13,107       $ 13        $ (4)
                                                      ========     ========       ====        =====
Amounts included in:
Cash and cash equivalents                              $ 3,485      $ 3,485        $ -        $  -
Short-term investments                                   9,010        9,012          6          (4)
Marketable securities, non-current                         603          610          7           -
                                                      --------     --------       ----        -----
     Total                                            $ 13,098     $ 13,107       $ 13        $( 4)
                                                      ========     ========       ====        =====

At December 31, 2001, the contractual  maturities of our short-term  investments  available for sale
ranged from over 3 months to 9 months.


D. COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

We lease office  facilities and certain  equipment under operating  leases expiring at various dates
through 2007. In addition to rent,  certain leases require us to pay directly for taxes,  insurance,
maintenance, and other operating expenses. Rent expense for properties and equipment currently being
used was approximately $4.6 million,  $3.8 million and $3.8 million for the years ended December 31,
2001, 2000 and 1999, respectively. Our Burlington office lease includes a rent escalation clause. In
connection with the  restructuring  and exit activities  described in Note H, the Company has exited
three  properties  whose  leases were  acquired  as part of the  C-bridge  acquisition.  These three
locations  currently cost  approximately $1.6 million per year in operating lease costs. At December
31, 2001, our future minimum lease payments under operating leases are as follows, in thousands:


                                                                     Operating
                                                                      Leases

           2002                                                          $ 4,240
           2003                                                            3,785
           2004                                                            2,580
           2005                                                            2,027
           2006                                                            1,010
           Thereafter                                                        984
                                                                        --------
           Total future minimum lease payments                          $ 15,296
                                                                        ========

INVESTMENTS

As a result of the acquisition of C-bridge,  we assumed an obligation  under an investment  contract
with William Blair New World Ventures,  L.P. ("the Fund"). Our total  subscription  commitment under
the contract is $1,000,000.  At the date of the merger,  C-bridge had invested $290,000 in the Fund.
From September 19, 2001 through  December 31, 2001, we invested  another  $105,000 in the Fund. This
amount is included in other assets on the balance sheet as of December 31, 2001.


E. ACQUISITION:  (IN THOUSANDS)

On September 19, 2001, eXcelon acquired all of the outstanding common stock of C-bridge,  by merging
a wholly-owned  subsidiary of eXcelon into C-bridge.  The results of C-bridge's operations have been
included in the consolidated financial statements since the acquisition date.

The purchase price of $93,332 is summarized as follows:

Common Stock (a)                    $64,319
Common Stock Options (b)             25,180
Transaction fees (c)                  3,833
                                    -------
Total Purchase Price                $93,332
                                    =======


                                                 33


(a)  eXcelon  issued  27,138,734  shares of common stock  (calculated  by using an exchange ratio of
     1.2517 of eXcelon stock for each share of C-bridge  stock)  multiplied  by the average  closing
     stock price at the time of the announcement of eXcelon stock of $2.37 per share.
(b)  eXcelon assumed all the outstanding  options to purchase C-bridge common stock using the number
     of C-bridge  stock options  outstanding  on the closing date and the exchange  ratio of 1.2517.
     eXcelon assumed options to purchase 15,910,045 shares of eXcelon stock. The fair value of these
     options was determined using the Black-Scholes model and the following assumptions: an expected
     option volatility of 130%, an average  risk-less rate of return of approximately  4.7% and zero
     expected dividend yield.
(c)  eXcelon incurred transaction fees of $3,833 consisting primarily of investment banking,  legal,
     accounting and printing fees.

The  acquisition  was accounted for as a purchase  business  combination in accordance with SFAS No.
141. Under this  accounting  treatment,  the purchase price is allocated to the assets  acquired and
liabilities  assumed based on the estimated  fair values on the date of  acquisition.  The following
table summarizes the allocation of the purchase price (in thousands):

Cash acquired (including restricted cash of $2.9 million)              $35,853
Other current assets                                                     6,703
Property, plant and equipment                                            4,907
Goodwill and other intangibles                                          54,812
Other assets                                                             3,217
                                                                       -------
   Total assets acquired                                               105,492
                                                                       -------
Current liabilities                                                     (6,377)
Exit costs of C-bridge                                                  (5,783)
                                                                       --------
Total liabilities assumed                                              (12,160)
                                                                       --------
Net assets acquired                                                    $93,332
                                                                       ========

$430,000 of the excess purchase price of $54.8 million has been allocated to identifiable intangible
assets in accordance  with SFAS No. 142 and is being  amortized  over their  estimated life which is
three years. Amortization expense for these intangible assets for the period from September 19, 2001
to December 31, 2001 was $36,000. In accordance with the transition  provisions of SFAS No. 142, the
remaining $54.4 million of goodwill is not subject to amortization.

Exit costs related to the C-bridge  acquisition  are  approximately  $5.8 million.  Included in this
amount is $1.5  million of severance  costs for former  C-bridge  employees  that were laid off as a
result of the merger and  approximately  $4.3  million in  expected  costs  associated  with  office
closures of former C-bridge  locations.  It is possible that within the next nine months we may need
to update  these exit costs.  At  December  31, 2001 $.7  million of  the  severance  costs and $3.1
million of office closure costs have yet to be paid. It is expected that these costs will be paid by
December 31, 2002.

After  completing  the merger and reducing our expense run rate through  restructuring,  we believed
that revenues would exceed expenses in the short term, allowing the newly-combined company to return
to  profitability.  However,  our  revenues  declined  again in the fourth  quarter,  resulting in a
larger-than-expected  operating  loss for the  quarter.  We also ended  2001 with  lower  consulting
bookings  than was  forecasted  and a made a decision  to cut back  significantly  on the  personnel
associated with the sale and delivery of the traditional C-bridge consulting business.

Due to these  events,  we  performed  a review of the  goodwill  in the  fourth  quarter of 2001 and
determined that an impairment existed.  Our analysis was based on the guidance provided in SFAS 121,
"Accounting for the Impairment of Long-lived Assets and for long-lived Assets to be Disposed of." As
a result of the sum of the expected cash flows  (undiscounted  and without  interest  charges) being
less than the carrying amount of the goodwill, an analysis was performed to determine impairment. We
determined  that the present  value of the sum of the  estimated  future cash flows of the  C-bridge
business  was low enough to require  the full $54.4  million  dollars of  purchased  goodwill  to be
written off.

The results of operations  of C-bridge  have been  included in our results of  operations  since the
September  19, 2001  acquisition  date.  The following  summary,  prepared on an unaudited pro forma
basis, presents the condensed consolidated results of operations for the twelve-month periods ending
December 31, 2001 and 2000,  respectively,  assuming  C-bridge had been acquired at the beginning of
the periods presented (in thousands, except per share data):


                                                 34


                                                           December 31,      December 31,
                                                               2001              2000
                                                           ------------      ------------
Revenue                                                       $ 83,109         $ 153,317
Net loss (including $54.4 million impairment charge)          (114,460)          (73,097)
Basic and diluted net loss per share                             (2.01)            (1.38)


F. STOCKHOLDERS' EQUITY:

PREFERRED STOCK

We are authorized to issue up to 5,000,000  shares of Preferred Stock,  $.01 par value,  with rights
and terms to be  determined  by our Board of  Directors  without  the need for  further  shareholder
approval.  As of December 31, 2001 and 2000, there were no issued or outstanding shares of Preferred
Stock.

STOCK REPURCHASE PROGRAM

In November  1998, our Board of Directors  authorized a stock  repurchase  program  whereby we could
purchase up to 2,000,000  shares of our Common  Stock to meet  requirements  of our  employee  stock
option and stock purchase  plans.  No minimum number or value of shares to be repurchased  was fixed
nor was a time limit as to the duration of the program  established.  During the year ended December
31,  1999 we  repurchased  37,000  shares  of our  Common  Stock  at a cost of  $247,000.  All  such
repurchased  shares were subsequently  reissued through employee stock option exercises during 1999.
During the years ending December 31, 2001 and 2000, there were no stock repurchases by the Company.

EMPLOYEE STOCK PURCHASE PLAN

We offer an employee stock purchase plan for all eligible employees. Under the plan, up to 2,200,000
shares of our common  stock may be  purchased  at 85% of the lower of the fair  market  value of the
stock on the first day or the last day of each  six-month  offering  period.  Employees may elect to
have up to 6% of their base pay withheld and applied toward the purchase of shares in each offering,
up to a maximum of $25,000  withheld  in any year.  In 2001 and 2000,  we issued  569,417 and 89,208
shares pursuant to the plan at average purchase prices of $0.61 and $5.75, respectively. At December
31, 2001, 1,374,123 shares were reserved for future issuance under the plan.

STOCK OPTION PLANS

We have nine stock option plans  (including  five former C-bridge stock option plans that we assumed
in the C-bridge merger),  of which two stock option plans are currently in effect under which future
grants may be issued.  In total for all plans,  39,892,045  shares have been authorized for grant or
assumed  through the C-bridge  acquisition.  Our 1996 Incentive and  Nonqualified  Stock Option Plan
("1996 Plan") authorizes grants of options to purchase up to 7,700,000 shares. Our 1997 Nonqualified
Stock Option Plan ("1997  Plan")  authorizes  the grant to employees of the Company of  nonqualified
options to purchase up to,  7,500,000  shares.  Stock options  generally  have a maximum term of ten
years and vest over periods ranging from one to five years. At December 31, 2001,  total  authorized
but unissued  shares under our stock option plans were  27,466,580 of which  5,371,112  options were
available for grant.

Stock option activity for the years ended December 31, 2001, 2000 and 1999 is as follows:

                                                Year Ended December 31,
                                 2001                        2000                      1999
                                                                 Weighted
                          Number      Weighted         Number     Average        Number      Weighted
                            Of        Average            Of       Exercise         Of        Average
                         Options   Exercise Price      Options    Price          Options   Exercise Price
                         -------   --------------      -------    ---------      -------   --------------
Outstanding at
  Beginning  of year     10,040,487    $ 5.89         6,848,304     $ 4.32      4,675,344      $ 4.16
Granted                  22,867,823      4.33         4,383,050       8.17      5,111,050        4.75
Cancelled               (9,910,536)      6.72         (649,819)       7.12    (2,186,151)        5.74
Exercised                 (902,306)      0.41         (541,048)       3.16      (751,939)        2.04
Outstanding at           ----------                  ----------                 ---------
   End of year           22,095,468      4.12        10,040,487     $ 5.89      6,848,304      $ 4.32
                         ==========                  ==========                 =========
Exercisable               9,072,093    $ 4.30         3,791,240     $ 3.85      1,698,629      $ 3.57
                         ==========                  ==========                 =========

                                                 35


The following table summarizes information about stock options outstanding at December 31, 2001:

                   OPTIONS OUTSTANDING                                                  OPTIONS EXERCISABLE
--------------------------------------------------------------------------------  ----------------------------
                                           Weighted Avg.
Range of Exercise     Number of Shares       Remaining         Weighted          Number         Weighted Avg.
Prices                  Outstanding        Contract Life         Avg.         Exercisable       Exercise Price
                                                               Exercise
                                                                 Price
-----------------     ----------------     -------------       ----------      ------------      ---------------
 $ 0.01  -  $ 0.24        2,249,528            6.81            $ 0.23          2,168,509           $ 0.23
   0.25  -    0.39        1,367,700            9.71              0.39             92,700             0.39
   0.44  -    0.44        2,900,765            9.72              0.44                  -             0.00
   0.48  -    2.50        2,723,892            8.04              1.57          1,179,031             1.20
   2.53  -    3.06        1,624,955            8.17              2.86          1,040,025             2.74
   3.12  -    3.30        2,524,551            9.11              3.29            418,468             3.29
   3.31  -    4.79        2,644,317            7.91              4.29          1,289,056             4.25
   5.19  -    6.79        2,267,540            7.47              6.38          1,393,643             6.40
   6.87  -    9.99        2,218,124            8.34              8.56            886,394             8.57
  10.06  -   45.54        1,574,096            8.40             16.99            604,267            17.90
                         ----------            ----            ------          ---------           ------
                         22,095,468            8.35            $ 4.12          9,072,093           $ 4.30

VALUATION OF STOCK PLANS

As permitted by SFAS No. 123, we have chosen to continue to account for our stock-based compensation
plans using the intrinsic value method.  Accordingly,  we have recognized  compensation expense only
for options granted with exercise  prices less than fair market value on the dates of grant.  60,000
and  300,000  options  were  granted  to  employees  below  fair  market  value  in 2000  and  1999,
respectively.  Compensation expense of $1,127,000,  $847,000 and $228,000 was recorded in 2001, 2000
and  1999,  respectively.  The  amount  of  unamortized  compensation  expense  is  recorded  in the
stockholders'  equity  section.  For the years ending December 31, 2001, 2000 and 1999 the amount of
unamortized compensation was $0, $1,127,188 and $1,058,875,  respectively. Pursuant to SFAS No. 123,
had the fair value method of accounting  using the  Black-Scholes  pricing model been applied to our
stock plans, the pro forma impact would have been as follows, in thousands except per share amounts:


                                                          2001             2000            1999
      As Reported                                         ----             ----            ----
        Net loss                                       $(81,558)        $(11,011)        $(7,144)
        Net loss per share - basic                        (2.14)           (0.38)          (0.25)
        Net loss per share - diluted                      (2.14)           (0.38)          (0.25)
      Pro Forma
        Net loss                                        (89,190)         (22,265)        (12,407)
        Net loss per share - basic                        (2.34)           (0.76)          (0.44)
        Net loss per share - diluted                      (2.34)           (0.76)          (0.44)

The fair value of these options at the date of grant was estimated using the following assumptions:

                                                          2001             2000             1999
                                                          ----             ----             ----
        Risk free interest rate                            4.49%             6.0%            6.7%
        Dividend yield                                        0%               0%              0%
        Expected volatility                                 130%             120%            108%
        Expected life                                    5 years          5 years         5 years


The  weighted-average  fair value of the options  granted at fair market value during 2001, 2000 and
1999 was $1.39,  $6.95 and $4.02 per share,  respectively.  The  weighted-average  fair value of the
options  granted  with  exercise  prices below fair market value during 2000 and 1999 was $18.07 and
$4.40 per share,  respectively.  The fair value of the employee  stock  purchase  plan was estimated
using the following assumptions:  4.35% and 5.39%  weighted-average  risk-free interest rate in 2001
and 2000, respectively,  0% dividend yield in 2001 and 2000, respectively,  130% and 120% volatility
in 2001 and 2000,  respectively,  and a six-month expected life. The weighted-average  fair value of
the  purchase  rights in 2001 and 2000,  respectively  was $0.36 and $3.27 per share.  The pro forma
effect of applying SFAS No. 123 for prior years is not necessarily  representative  of the pro forma
effect to be expected in future years.


                                                 36


G. ADVANCES TO STOCKHOLDERS:

In 1996,  options to  purchase  2,760,000  shares of our Common  Stock  granted to two  officers  in
December 1995 were  accelerated,  and the officers  exercised  these options in exchange for cash of
$2,760 and full recourse promissory notes in the amount of $687,000 in the aggregate. The promissory
notes,  as  amended,  bear  interest  at 7.0% and were due on the  earlier  of April 1, 2002 or upon
termination of employment. In 1999, in connection with the employment termination of one officer, we
agreed to forgive his promissory note in the principal amount of $115,000,  plus accrued interest of
$6,000, totaling $121,000, which was included in a restructuring charge (See Note H).

On September 19, 2001, as a result of the acquisition of C-bridge,  we agreed with the other officer
to forgive the principal and accrued  interest of the remaining  promissory note. At the date of the
merger,   the  total  amount  forgiven  was  $791,965  which  included  $572,700  of  principal  and
approximately  $212,000 of accrued  interest.  The amount  forgiven  was  recorded as a component of
general and administrative expense in the quarter ending September 30, 2001.

On April 6, 2001,  C-bridge advanced $1.0 million to a former officer of C-bridge and, following the
C-bridge merger, of the Company. This loan bears interest at an annual rate of 5.11%. As of December
31, 2001,  the loan balance,  including  accrued  interest,  was $1,038,688 and is included in other
assets on the balance sheet.  The promissory  note  evidencing  this loan is presently  secured by a
second mortgage on the former officer's principal residence.  The promissory note is due and payable
in full in August 2002.

H. RESTRUCTURING AND EXIT COSTS:

In fiscal  2001,  we  implemented  a  restructuring  plan to realign our  operations  in response to
changing market  conditions.  The restructuring  costs of $2.4 million related to the elimination of
125 employees across the following  functions:  general and administrative  (14),  engineering (20),
marketing  (14),  sales (47) and services  (30).  These costs also include the  write-off of certain
assets no longer  required in operations  and costs related to closing four offices.  The total cash
impact of the restructuring will be approximately $2.4 million. As of December 31, 2001, $458,544 of
restructuring  costs have yet to be paid.  It is  expected  that  these  costs will be fully paid by
December 31, 2002. In addition,  as described in Note O, the Company announced another restructuring
in January 2002.

As discussed in Note E, estimated exit costs related to the C-bridge  acquisition are  approximately
$5.8  million.  These exit costs are not  charged to  operations,  but  instead  are  recorded  as a
liability in purchase accounting. Included in this amount is $1.5 million related to the elimination
of 168 employees across the following functions:  general and administrative (19), sales & marketing
(39), and services (110). these costs also include $4.3 million related to closing six offices.  The
total cash impact of the restructuring will be approximately $5.8 million.  As of December 31, 2001,
$3.8 million of these exit costs have yet to be paid.  It is expected that these costs will be fully
paid by  December  31,2002.  It is  possible  that within the next nine months we may need to update
these estimates of exit costs.

In September 1999 we recorded a restructuring  charge in connection  with a Company  re-positioning.
The restructuring  costs of $945,000 related to the elimination of 11 employees across the following
functions:  general and administrative (2), sales (7) and services (2). These costs also include the
write-off of certain assets no longer  required in  operations,  cancellation  of certain  marketing
programs and costs related to closing four offices.

The following table summarizes the restructuring and exit charges (in thousands):

                                                       Year Ended                  Year Ended
                                                    December 31, 2001           December 31, 1999

Charges to operations:
   Employee terminations                                  $ 1,982                       $ 811
   Asset write-offs                                            58                           -
   Marketing program cancellation                               -                          70
   Facility closings                                          402                          64
                                                          -------                      ------
     Total                                                 $2,442                         945

Purchase accounting liabilities:
   Employee terminations                                  $ 1,503                           -
   Facility closings                                        4,280                           -
                                                          -------
     Total                                                $ 5,783                           -

Costs incurred:
   Employee terminations                                    2,716                         811
   Asset write-offs                                            58                           -
   Marketing program cancellation                               -                          70
   Facility closings                                        1,172                          64
                                                           ------                       -----
     Total                                                  3,946                         945


                                                 37



Ending balance:
   Employee terminations                                      769                           -
   Facility closings                                        3,510                           -
                                                          -------                       -----
                                                          $ 4,279                           -

Cash expenditures:
   Employee terminations                                    2,716                         811
   Marketing program cancellation                               -                          70
   Facility closings                                        1,172                          64
                                                            -----                       -----
          Total                                            $3,888                        $945

Number of employee severances                                 293                          11


I. INCOME TAXES:

Our loss before income taxes is as follows, in thousands:

                                                  Year Ended December 31,
                                       ------------- ------------- -------------
                                            2001          2000          1999
                                       ------------- ------------- -------------
                  Domestic             $  (77,490)      $(11,157)      $(4,936)
                  Foreign                  (4,068)           146        (2,165)
                                       -----------      ---------     ---------
                                       $  (81,558)      $(11,011)      $(7,101)
                                       ===========      =========     =========

Our provision for income taxes consists of the following, in thousands:

                                               Year Ended December 31,
                                       -----------------------------------------
                                           2001         2000           1999
                                       -----------------------------------------
                  Foreign                  $ -         $   -         $   43
                  Federal                    -             -              -
                  State                      -             -              -
                                       -----------------------------------------
                                           $ -         $   -         $   43
                                       -----------------------------------------

The following is a reconciliation between the U.S. federal statutory rate and our effective tax rate:

                                                     Year Ended December 31,
                                               -----------------------------------------
                                                  2001            2000          1999
                                               -----------------------------------------
      U.S. federal statutory rate                (34.0)%         (34.0)%       (34.0)%
      State taxes, net of federal benefit         (2.2)           (5.9)            -
      Foreign rate differential                   (0.2)           (1.4)          2.3
      Non-deductible goodwill                     22.6             1.0           1.0
      Other                                       (0.4)              -             -
      Net change in valuation allowance           14.2            40.3          30.1
                                               ----------------------------------------
                                                   0.0%            0.0%         (0.6)%
                                               ========================================

                                                 38


The  significant  temporary  differences  that create  deferred tax assets and liabilities are shown
below, in thousands.

                                                                        December 31,
                                                               -----------------------------
                                                                      2001         2000
                                                               ---------------- ------------
         Deferred tax assets:
           Net operating loss carryforwards                         $30,702        $17,742
           Capitalized research and development                       8,623              0
           Tax credit carryforwards                                   5,695          4,656
           Depreciation and amortization                              1,156            216
           Reserves not currently deductible                            612            588
           Other                                                      1,590            497
                                                               ---------------- ------------
                                                                     48,378         23,699
         Valuation allowance                                        (48,378)       (23,699)
                                                               ---------------- ------------
         Net deferred tax assets                                    $     -        $     -
                                                               ---------------- ------------

As of December 31, 2001, we had federal net operating loss ("NOL") and research and  experimentation
credit  carryforwards  of  approximately  $69,292,000  and  $3,598,000  respectively,  which  may be
available to offset future federal income tax  liabilities and expire at various dates through 2021.
The NOLs  include a  deferred  tax asset of  approximately  $2,303,000  reflecting  the  benefit  of
deductions from the exercise of stock options.  The benefit from this $2,303,000  deferred tax asset
will be recorded as a credit to additional paid-in capital when realized.  Management of the Company
has evaluated the positive and negative  evidence bearing upon the realizability of its deferred tax
assets and has established a full valuation allowance of approximately  $48,378,000 for such assets,
which are comprised principally of net operating loss carryforwards and research and experimentation
credit carryforwards.

Ownership  changes,  as defined in the  Internal  Revenue  Code,  may have limited the amount of net
operating  loss  carryforwards  that can be  utilized  annually  to offset  future  taxable  income.
Subsequent ownership changes could further affect the limitation in future years.

As  of  December  31,  2001,  our  foreign  subsidiaries  had  NOL  carryforwards  of  approximately
$10,718,000, which expire over various periods.


J. RELATED PARTY TRANSACTIONS:


At December 31, 2001 we had business relationships with four related parties.  They are as follows:

A  Company  corporate  officer  is also the  owner and chief  executive  officer  of an  information
technology  company  that  provided  consulting  services  totaling  $80,190  during the period from
September 19, 2001 through December 31, 2001.

A brother of an officer of the Company is a partner at a law firm that  provides  legal  services to
the  company.  During the period  from  September  19,  2001  through  December  31,  2001,  we paid
approximately $108,000 in fees for services provided by this firm.

Insight Capital,  which has an equity interest in the Company,  also provides consulting services to
the Company.  In exchange for these  services,  on February 14, 2002, we granted options to purchase
100,000 shares of our common stock at the fair market value price ($1.28) of our common stock on the
date of grant. These options vested immediately.  We will record a compensation charge to operations
in the first quarter of 2002 related to this transaction.

On April 6, 2001,  C-bridge advanced $1.0 million to a former officer of C-bridge and, following the
C-bridge merger, of the Company. This loan bears interest at an annual rate of 5.11%. As of December
31, 2001,  the loan balance,  including  accrued  interest,  was $1,038,688 and is included in other
assets on the balance sheet.  The promissory  note  evidencing  this loan is presently  secured by a
second mortgage on the former officer's principal residence.  The promissory note is due and payable
in full in August 2002.


                                                 39


K.  401(K) PLAN:


We sponsor a defined  contribution plan under Section 401(k) of the Internal Revenue Code. This plan
covers all eligible (as defined) employees who were not originally employed by C-bridge. In 2001 and
2000, we matched 50% of the first 6% of eligible employees' contributions up to an annual maximum of
$2,000 per employee.  We have recorded an employee matching expense of $233,608 and $315,000 for the
years ending December 31, 2001 and 2000,  respectively.  No matching  contributions were made to the
Plan in 1999.

As a result of the C-bridge  merger we continue to maintain  C-bridge's  former  401(k) plan.  It is
expected  that by June 2002 this plan will be terminated  and merged into our existing  401(k) plan.
The former C-bridge plan covers all eligible (as defined) employees who were originally  employed by
C-bridge.  In 2001,  the  eligible  employees  received  a match of 25% of the first 6% of  eligible
employee's contributions. The eligible employees received contributions of $42,282 during 2001.


L. SEGMENT INFORMATION:

Operating  segments  are defined as  components  of an  enterprise  about which  separate  financial
information is available  that is evaluated  regularly by the chief  operating  decision  maker,  or
decision making group, in deciding how to allocate resources and in assessing performance. Our chief
operating decision-making group is our executive officers.

In January 2002, we decided to restructure our operations.  As a result, of this  restructuring,  we
consolidated our two business units (the eXcelon division and the Object Design  division).  We will
maintain one sales and marketing group and one engineering  group in the future.  As a direct result
of this corporate restructuring, we reduced our total world-wide workforce by 12 employees.

We operate within a single industry segment - computer  software and related  services.  We have two
major product categories within that one segment: (1) our XML product line of XML-based software and
(2) our Object Design product line of database management software.

On  January  8, 2001,  the chief  operating  decision-making  group  elected to divide our  business
operations into two separate operating units: the XML division (which includes the operations of the
former  C-bridge) and the Object Design  division.  During 2001 and 2002,  results of operations are
being presented as two separate business units.  Common corporate expenses are allocated between the
two business units mainly based on employee  headcounts of the two business  units.  The results for
the year ending 2000 have been  restated to reflect  the  results of the two  operating  units.  The
results for the year ending 1999 have not been restated  because the revenue  generated from the XML
divison was less than 5% of the total revenue.  Identifiable assets include accounts receivables and
third-party software specific to either the XML or Object Design product lines.

                                                              December 31,
                                                         2001              2000

Revenues:
   XML product line                                   $ 17,664          $ 20,015
   Object Design product line                           31,527            50,332
                                                      --------          --------
          Total revenues                              $ 49,191          $ 70,347
                                                      ========          ========

Operating Income (loss):
   XML product line                                   $(82,222)          (18,482)
   Object Design product line                              (54)            6,103
                                                      ---------         ---------
          Total operating loss                        $(82,276)         $(12,379)
                                                      =========         =========

Identifiable Assets:
   XML product line                                      6,432             3,571
   Object Design product line                            4,245            11,311
   General corporate assets                           $ 41,953          $ 25,864
                                                      --------          --------
          Total assets                                $ 52,630          $ 40,746
                                                      ========          ========


                                                 40


Sales and marketing  operations outside the United States are conducted  principally through foreign
sales  subsidiaries in Europe and the  Asia/Pacific  region.  Financial  information,  summarized by
geographic area, is as follows, in thousands:


                                        Year ended December 31,

                                      2001          2000          1999
    REVENUES                          ----          ----          ----
      North America                 $ 26,497       $36,991      $ 37,399
      United Kingdom                  11,053        13,842        10,761
      Rest of Europe                   3,706         7,289         4,356
      Asia Pacific                     7,935        12,225         8,294
                                    --------      --------      --------
       Total Revenues               $ 49,191      $ 70,347      $ 60,810
                                    ========      ========      ========

    OPERATING (LOSS)
      North America                 $(78,066)     $(12,312)     $ (6,039)
      United Kingdom                    (684)          883           (42)
      Rest of Europe                  (1,793)         (269)       (1,669)
      Asia/Pacific                    (1,733)         (681)         (468)
                                    ---------     ---------     ---------
       Total operating loss         $(82,276)     $(12,379)     $ (8,218)
                                    =========     =========     =========

    IDENTIFIABLE ASSETS
      North America                  $55,315       $37,657      $ 47,298
      United Kingdom                   4,148         6,306         4,843
      Rest of Europe                     998         3,385         1,860
      Asia/Pacific                     1,957         3,186         3,192
      Eliminations                    (9,788)       (9,788)       (9,788)
                                    ---------     ---------     ---------
       Total identifiable assets     $52,630      $ 40,746      $ 47,405
                                    ========      ========      ========



M. LEGAL PROCEEDINGS:

eXcelon is subject to various legal  proceedings  and claims that have arisen in the ordinary course
of business. These claims include the matters listed below:

On June 20, 2001,  Lending  Technologies  Services Pty. Ltd.  ("LTS") filed a complaint  against our
Australian  subsidiary  in the Supreme  Court of Victoria at  Melbourne,  Australia.  The  complaint
asserts various causes of action relating to alleged  deficiencies in our products purchased by LTS.
LTS's complaint demands damages of approximately $5 million.

On November 21, 2001, Navidec,  Inc., a former customer,  filed a complaint against us in the United
States  District  Court in  Denver,  Colorado,  alleging  that we  misrepresented  the nature of our
ObjectStore  product in connection  with a business  project  undertaken  by Navidec.  The complaint
asserts various causes of action in the nature of misrepresentation and seeks unspecified damages.

On January 11, 2002, our former Chief Operating  Officer  initiated an arbitration  claim against us
for amounts that he alleges we owe him under the employment agreement that we entered into with him.
His notice of  arbitration  seeks damages  consisting of payment of one year of salary and bonus and
the reinstatement of various stock options that were cancelled upon his departure from the Company.

We intend to defend each of the foregoing  actions  vigorously,  but there can be no assurances that
the resolution of these matters or other pending legal matters will not,  either  individually or in
the aggregate, have a material impact on our financial condition or results of operation.


                                                 41


N. QUARTERLY RESULTS OF OPERATIONS:

       (unaudited and in thousands, except per share amounts)


2001                                     First           Second             Third           Fourth
----                                    Quarter          Quarter           Quarter          Quarter
                                        -------          -------           -------          -------
Revenue                               $  15,112         $  9,319        $  10,938        $  13,822
Gross profit                             11,182            5,509            7,208            7,874
Operating loss                           (5,203)          (9,205)          (8,609)         (59,260)
Net loss                                 (5,002)          (8,920)          (8,577)         (58,998)
Net loss per share - basic                (0.17)           (0.30)           (0.26)           (1.03)
Net loss per share - diluted              (0.17)           (0.30)           (0.26)           (1.03)


2000                                     First           Second             Third           Fourth
----                                    Quarter          Quarter           Quarter          Quarter
                                        -------          -------           -------          -------
Revenue                               $  17,004         $ 19,069        $  18,809        $  15,465
Gross profit                             12,611           13,835           13,226            9,693
Operating loss                           (1,051)          (1,427)          (2,264)          (7,638)
Net loss                                   (710)          (1,070)          (1,849)          (7,382)
Net loss per share - basic                (0.02)           (0.04)           (0.06)           (0.25)
Net loss per share - diluted              (0.02)           (0.04)           (0.06)           (0.25)



O.  SUBSEQUENT EVENTS:

In January 2002, we decided to restructure our  operations.  As a result of this  restructuring,  we
consolidated our two business units (the eXcelon division and the Object Design  division).  We will
maintain one sales and marketing group and one engineering  group in the future.  As a direct result
of this  corporate  restructuring,  we reduced our total  world-wide  workforce by 12 employees.  We
expect to charge $280,000 of restructuring costs to operations in the first quarter of 2002.





                                                 42


                                  REPORT OF INDEPENDENT ACCOUNTANTS
                                   ON FINANCIAL STATEMENT SCHEDULE


To the Board of Directors of eXcelon Corporation:

Our audits of the consolidated  financial  statements referred to in our report dated March 29, 2002
of eXcelon  Corporation  also included an audit of the financial  statement  schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, the financial statement schedule presents fairly, in all
material  respects,  the  information  set forth therein when read in  conjunction  with the related
consolidated financial statements.

PricewaterhouseCoopers LLP

Boston, Massachusetts
March 29, 2002



                                                 43


eXcelon Corporation
Schedule II-Valuation and Qualifying Accounts
(in thousands)


                                                  Balance at         Charges to         Charges to         Balance at
                                                 Beginning of         Costs and            Other             End of
                                                    Period            Expenses           Accounts            Period
                                                ----------------  ------------------ ------------------  ----------------

Year end December 31, 2001:
     Allowance for doubtful accounts                $ 1,066            $   375           $  (584)          $   857
     Deferred tax asset valuation allowance         $23,699            $24,674                 -           $48,373

Year end December 31, 2000:
     Allowance for doubtful accounts                $ 1,232            $   587           $  (753)          $ 1,066
     Deferred tax asset valuation allowance         $17,621            $ 6,078                  -          $23,699

Year end December 31, 1999:                         $ 1,199            $ 1,143           $(1,110)          $ 1,232
     Allowance for doubtful accounts                $15,486            $ 2,135                 -           $17,621
     Deferred tax asset valuation allowance






                                                 44


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not Applicable


PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information set forth under the captions  "Directors and Executive  Officers" and "Section 16(a)
Beneficial Ownership Reporting  Compliance" in our Definitive Proxy Statement for the Annual Meeting
of Stockholders  to be held on June 13, 2002,  which is expected to be filed with the Securities and
Exchange Commission not later than 120 days after the end of our fiscal year ended December 31, 2001
(the "Definitive Proxy Statement"), is incorporated herein by reference.

ITEM 11.  EXECUTIVE COMPENSATION

The information set forth under the caption  "Remuneration  of Executive  Officers and Directors" in
the Definitive Proxy Statement is incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information set forth under the caption  "Security  Ownership of Certain  Beneficial  Owners and
Management" in the Definitive Proxy Statement is incorporated herein by reference.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information set forth under the caption "Certain Transactions" in the Definitive Proxy Statement
is incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  The following documents are filed as part of this Report:

    (1)  Financial Statements

         Report of Independent Accountants
         Consolidated Balance Sheets as of December 31, 2001 and 2000
         Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999
         Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999
         Consolidated Statements of Stockholders' Equity for the years ended December 31, 2001, 2000
         and 1999
         Notes to Consolidated Financial Statements

    (2)  Financial Statement Schedules

         Schedule II - Valuation and Qualifying Accounts
         Report of Independent Accountants on Financial Statement Schedule

         All other schedules are omitted because the required information is either inapplicable or
         presented in the Consolidated Financial Statements.

    (3)  Exhibits


                                                 45



EXHIBIT NO.                                              DESCRIPTION                                        REFERENCE

     2.1       Agreement  and Plan of  Reorganization  dated as of May 22, 2001,  among the Company,            Q
               Comet Acquisition Corp. and C-bridge Internet Solutions, Inc.
     3.1       Amended and Restated Certificate of Incorporation                                                A
     3.2       Certificate of Amendment to the Amended and Restated  Certificate of Incorporation of            G
               the Company (regarding change of corporate name).
     3.3       Amended and Restated By-Laws of the Company                                                      A
     4.1       Specimen certificate for Common Stock of the Company                                             A
    10.1       1989 Incentive and Nonqualified Stock Option Plan                                                A*
    10.2       1995 Nonqualified Stock Option Plan                                                              A*
    10.3       1996 Incentive and Nonqualified Stock Option Plan                                                A*
    10.4       1996 Employee Stock Purchase Plan                                                                A*
    10.12      Lease dated September 15, 1993 between the Company and 25 Mall Road Trust                        A
    10.13      First  Amendment  to Lease dated June 28,  1994  between the Company and 25 Mall Road            A
               Trust
    10.14      Second  Amendment  to Lease dated March 1, 1996  between the Company and 25 Mall Road            A
               Trust
    10.15      Employment  Agreement  dated  December  21,  1995  between  the Company and Robert N.            A*
               Goldman, as amended by Amendment to Employment Agreement dated May, 1996
    10.16      Employment  Agreement  dated  December  21,  1995  between  the Company and Justin J.            A*
               Perreault, as amended by Employment Agreement dated May, 1996
    10.17      Executive  Employment Agreement dated November 19, 1998 between the Company and Lacey            D*
               Brandt
    10.18      Executive  Employment  Agreement dated November 19, 1998 between the Company and Kirk            D*
               Bowman
    10.19      Executive  Employment Agreement dated November 19, 1998 between the Company and Brian            D*
               Otis
    10.20      Executive  Employment  Agreement  dated  November  19,  1998  between the Company and            D*
               Lawrence Alston
    10.21      Sixth Amended and Restated Stockholders' Agreement dated February 13, 1996, among the            A
               Company and certain of its stockholders
    10.22      Amended  and  Restated  IBM  Stockholders'  Agreement  dated May 14,  1993  among the            A
               Company,  International  Business  Machines  Corporation  ("IBM") and  certain  other
               stockholders of the Company,  as amended by a Second  Amendment dated March 31, 1994,
               by a Third Amendment dated June 10, 1994 and by a Fourth Amendment dated February 14,
               1996
    10.23      Amended and  Restated  Registration  Rights  Agreement  dated June 29, 1990 among the            A
               Company and certain of its stockholders,  as amended by Amendment No. 1 dated October
               1, 1990,  by Amendment  No. 2 dated July 29, 1991, by Amendment No. 3 dated March 12,
               1992, by Amendment No. 4 dated April 12, 1993, by Amendment No. 5 dated May 14, 1993,
               by  Amendment  No. 6 dated March 31, 1994 and by Amendment  No. 7 dated  February 13,
               1996
    10.25      Internal  Use and  Substrate  Agreement  dated April 10, 1993 between the Company and            A
               International Business Machines Corporation
    10.26      Break-Up Agreement dated April 10, 1993 between the Company and International Business           A
               Machines Corporation
    10.27      Escrow Agreement dated April 10, 1993 between the Company  and  International Business           A
               Machines Corporation
    10.28      Master Agreement dated April 10, 1993 between the Company  and  International Business           A
               Machines Corporation
    10.29      First  Amended  and  Restated  Agreement  Regarding  Confidential  Information  dated            A
               February 11, 1993 between Company and International Business Machines Corporation


                                                 46


    10.30      Loan and Security Agreement dated December 17, 1996 between the Company and Bank of              B
               Boston, as amended
    10.31      $2,000,000 Revolving Note dated December 17, 1996 payable by the Company to Bank of              B
               Boston, as amended
    10.32      1997 Nonqualified Stock Option Plan                                                              C*
    10.33      Third Amendment to Lease dated March 1, 1996 between the Company and 25 Mall Road Trust          C
    10.34      Third  Amendment to the Loan and Security Agreement and Second Amendment to the Revolving        D
               Note dated December 17, 1996 between the Company and Bank Boston
    10.35      Fourth Amendment to the Loan and Security Agreement and Third Amendment to the Revolving         D
               Note dated December 17, 1996 between the Company and Bank Boston
    10.36      Executive Employment Agreement dated November 19, 1998 between the Company and Robert            D*
               N. Goldman
    10.37      Executive Employment Agreement dated November 19, 1998 between the Company and Justin J.         D*
               Perreault
    10.38      Amended and Restated Executive Employment Agreement dated February 23, 1999 between the          D*
               Company and Justin J. Perreault
    10.39      Amended and Restated Executive Employment Agreement dated February 23, 1999 between the          D*
               Company and Robert N. Goldman
    10.40      Fourth Amendment to Lease dated March 1, 1996 between the Company and 25 Mall Road Trust         E
    10.41      Separation Agreement and General Release dated September 1, 1999 between the Company and         F*
               Justin J. Perreault
    10.42      Separation Agreement and General Release dated September 1, 1999 between the Company             F*
               and Kirk Bowman
    10.43      Amended and Restated Executive Employment Agreement dated September 2, 1999 between              F*
               the Company and Robert N. Goldman
    10.44      Executive  Employment Agreement dated September 1, 1999 between the Company and Ross             F*
               Hinchcliffe
    10.45      Executive Employment Agreement dated September 1, 1999 between the Company and Satish Maripuri   F*
    10.46      Executive Employment Agreement dated May 19, 1999 between the Company and Daniel E. O'Connor     F*
    10.47      Asset Purchase Agreement dated September 30, 1999 between the Company and Transformis LLC        F
    10.48      Loan and Security  Agreement  dated  September 30, 1999 between the Company and Silicon Valley   F
               Bank
    10.49      Fifth Amendment to Lease dated May 19, 2000 between the Company and 25 Mall Road Trust           H
    10.50      Executive Employment Agreement dated March 30, 2000 between the Company and Alan E. Gold         H*
    10.51      Separation Agreement and General Release dated January 22, 2001 between the Company and          H*
               Daniel E. O'Connor
    10.52      Separation Agreement and General Release dated January 22, 2001 between the Company and          H*
               Lawrence Alston
    10.53      Continuing Employment Agreement and General Release dated March 30, 2001 between the Company     H*
               and Brian Otis
    10.54      Outsourcing Agreement dated October 8, 1999 by and among CEE Incorporated, Cambridge             I
               Executive Enterprises, Inc. and C-bridge
    10.55      Non-Competition Agreement dated September 27, 1999 by and among CEE Incorporated, Cambridge      I
               Executive Enterprises, Inc. and C-bridge
    10.56      C-bridge 1997 Stock Incentive Plan, as amended                                                   I
    10.57      C-bridge 1999 Stock Incentive Plan                                                               I
    10.58      Employment Offer Letter dated January 5, 1999 to Joseph M. Bellini from C-bridge                 I
    10.59      Commercial Building Lease dated May 1, 1999 by and between Property Management Partners, Inc.    I
               and C-bridge

                                                 47


    10.60      Stock Purchase Agreement dated as of June 9, 1999 by and between Raymond J. Lane                 I
    10.61      Series A Convertible Preferred Stock Purchase Agreement dated as of October 7, 1999 by and       I
               among InSight Capital Partners III, L.P., InSight Capital Partners (Cayman) III, L.P.,
               InSight Capital Partners III--Co-Investors, L.P., H&D Investments 97, Oracle Corporation
               and C-bridge
    10.62      Stockholders Voting Agreement dated as of October 7, 1999 by and among InSight Capital           I
               Partners III, L.P., InSight Capital Partners (Cayman) III, L.P., InSight Capital Partners
               III--Co-Investors, L.P., H&D Investments 97, Oracle Corporation, Cambridge Technology
               Enterprises, Limited, Butterfield Trust (Bermuda) Limited, as Trustee of the Winsor
               Trust, Hamilton Trust Company Limited, as Trustee of the Willingdon Trust, Joseph M.
               Bellini, Richard O. Wester and C-bridge
    10.63      Investor Rights Agreement dated as of October 7, 1999 by and among InSight Capital Partners      I
               III, L.P., InSight Capital Partners (Cayman) III, L.P., InSight Capital Partners
               III--Co-Investors, L.P., H&D Investments 97, Oracle Corporation and C-bridge
    10.64      Right of First Offer and Co-Sale Agreement dated as of October 7, 1999 by and among Hamilton     I
               Trust Company Limited, as Trustee of the Willingdon Trust, Cambridge Technology
               Enterprises, Limited, Butterfield Trust (Bermuda) Limited, as Trustee of the Winsor
               Trust, InSight Capital Partners III, L.P., InSight Capital Partners (Cayman) III, L.P.,
               InSight Capital Partners III--Co-Investors, L.P., H&D Investments 97, Oracle Corporation
               and C-bridge
    10.64      Registration Rights Letter dated October 7, 1999 to Hamilton Trust Company Limited, as           I
               Trustee of the Willingdon Trust, Butterfield Trust (Bermuda) Limited, as Trustee of the
               Winsor Trust and Cambridge Technology Enterprises, Limited from C-bridge
    10.65      C-bridge 1999 Director Stock Option Plan                                                         I
    10.66      C-Bridge 1999 Employee Stock Purchase Plan                                                       I
    10.67      Loan Security Agreement dated as of September 29, 1998 and as amended by a Loan Modification     I
               Agreement dated as of January 27, 1999, a Second Loan Modification Agreement dated as of
               April 7, 1999 and a Third Loan Modification Agreement dated as of September 29, 1999 by
               and between Silicon Valley Bank and C-bridge
    10.68      Lease Agreement dated March 15, 2000 by and between C-bridge and EOP 150 -California Street,     J
               L.L.C. relating to office space located at 150 California St. San Francisco, California
    10.69      Lease Agreement dated February 28, 2000 by and between C-bridge and BRE/Southfield, L.L.C.       J
               relating to office space located at 3000 Town Center, Southfield, Michigan
    10.70      Lease Agreement dated February 16, 2000 by and between C-bridge and 40 Wall Street, L.L.C.       J
               relating to office space located at 40 Wall St. New York, New York
    10.71      Lease Agreement dated May 11, 2000 by and between C-bridge and Arden Realty Limited              K
               Partnership relating to office space located at Howard Hughes Tower, 6701 Center Drive
               West, Los Angeles, California
    10.72      Lease Agreement dated June 15, 2000, by and between C-bridge and 125 Summer Street               K
               Cornerstone L.L.C. relating to office space located at 125 Summer St., Boston,
               Massachusetts
    10.73      Lease Agreement dated July 1, 2000 between C-bridge and Waterways Authority relating to          L
               office space located at 207 Kent Street, Sydney, Australia
    10.74      Secured Promissory Note dated March 13, 2001 in favor of C-bridge executed by Mark Cosway        M
    10.75      Stock Pledge Agreement dated as of March 13, 2001 between Mark Cosway and C-bridge               M
    10.76      Separation Agreement and General Release dated April 17, 2001 between the Company and Ross       N
               Hinchcliffe
    10.77      Investor Rights Agreement dated June 12, 2001 between the Company and Insight Capital            O
               Partners III, L.P., Insight Capital Partners (Cayman) III, L.P. and Insight Capital
               Partners Co-Investors, L.P.
    10.78      Executive employment agreement dated May 22, 2001 between the Company and Robert N. Goldman      O*
    10.79      Executive employment agreement dated May 22, 2001 between the Company and Satish Maripuri        O*


                                                 48


    10.80      Executive employment agreement dated May 22, 2001 between the Company and Lacey P. Brandt        O*
    10.81      Executive Employment Agreement dated May 22, 2001 between the Company and Joseph M. Bellini      O*
    10.82      Executive Employment Agreement dated November 16, 2001 between the Company and Clifford          +*
               Thompson
    10.83      Executive Employment Agreement dated November 16, 2001 between the Company and Kenneth Rugg      +*
    10.84      Executive Employment Agreement dated November 16, 2001 between the Company and Lawrence Alston   +*
    10.85      Chief Strategy Officer Employment Agreement dated November 16, 2001 between the Company and      +*
               Richard Putz
    21.1       List of Subsidiaries of the Company                                                              +
    23.1       Consent of PricewaterhouseCoopers  LLP                                                           ++

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

A    This  exhibit  is  incorporated  by  reference  to  our  Registration  Statement  on  Form  S-1
     (Registration No. 333-05241).
B    This exhibit is  incorporated by reference to our Annual Report on Form 10-K for the year ended
     December 31, 1996.
C    This exhibit is  incorporated by reference to our Annual Report on Form 10-K for the year ended
     December 31, 1997.
D    This exhibit is  incorporated by reference to our Annual Report on Form 10-K for the year ended
     December 31, 1998.
E    This exhibit is incorporated  by reference to our Quarterly  Report on Form 10-Q for the period
     ended June 30, 1999.
F    This exhibit is incorporated  by reference to our Quarterly  Report on Form 10-Q for the period
     ended September 30, 1999.
G    This exhibit is incorporated  by reference to our Quarterly  Report on Form 10-Q for the period
     ended March 31, 2000.
H    This exhibit is  incorporated by reference to our Annual Report on Form 10-K for the year ended
     December 31, 2000.
I    This exhibit is  incorporated  by reference to  C-bridge's  Registration  Statement on Form S-1
     (Registration No. 333-89069).
J    This exhibit is incorporated by reference to C-bridge's  Quarterly  Report on Form 10-Q for the
     period ended March 31, 2000.
K    This exhibit is incorporated by reference to C-bridge's  Quarterly  Report on Form 10-Q for the
     period ended June 30, 2000.
L    This exhibit is incorporated by reference to C-bridge's  Quarterly  Report on Form 10-Q for the
     period ended September 30, 2000.
M    This exhibit is incorporated by reference to C-bridge's Annual Report on Form 10-K for the year
     ended December 31, 2000.
N    This exhibit is incorporated  by reference to our Quarterly  Report on Form 10-Q for the period
     ended March 31, 2001.
O    This  exhibit  is  incorporated  by  reference  to  our  Registration  Statement  on  Form  S-4
     (Registration No. 333-63048).

*    Management contracts and compensatory arrangements.

+    Previously filed.

++   Filed herewith.


(b)  Reports on Form 8-K

During the three  months ended  December 31, 2001,  we filed on October 3, 2001 a Report on Form 8-K
dated September 19, 2001 relating to our acquisition of C-bridge.


                                                 49



                                             SIGNATURES

Pursuant to the  requirements  of Section 13 or 15(d) 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.

                                                          EXCELON CORPORATION


Date:  April 29, 2002                                     By: /s/ Joseph Bellini
                                                             ----------------------------------------
                                                             Joseph Bellini
                                                             Chief Executive Officer and Director





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