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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

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|(Mark One)                                    |                                                                                        
|--------------------------------------------- | ---------------------------------------------------------------------------------------
|ý                                             | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|For the quarterly period ended March 31, 2002
|OR                                           
|o                                             | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITES EXCHANGE ACT OF 1934

For the transition period from  to
.

Commission File No. 000-30207

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SEEBEYOND TECHNOLOGY CORPORATION(Exact name of Registrant as Specified in Its Charter)

|Delaware(State or Other Jurisdiction of
Incorporation or Organization)                                                                                                                                                                    |  | 95-4249153(I.R.S. Employer
Identification Number)
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------
|404 E Huntington Drive
Monrovia, California 91016
(Address of Principal Executive Office)
(626) 471-6000(Address, including Zip Code, of Registrant's Principal Executive Offices
and Registrant's Telephone Number, including Area Code)

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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 ý    No o

The
number of shares outstanding of the registrant's Common Stock, $0.0001 par value, as of May 13, 2002 was 83,246,343.

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SeeBeyond Technology Corporation

INDEX

PART IFINANCIAL INFORMATION

|Item 1.                   | Financial Statements:                                                                                          |    |   
|------------------------- | -------------------------------------------------------------------------------------------------------------- | -- | --
|                          | Condensed Consolidated Balance Sheets as of March 31, 2002 (unaudited) and December 31, 2001                   |    | 3 
|                          | Condensed Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2002 and 2001 |    | 4 
|                          | Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2002 and 2001 |    | 5 
|                          | Notes to Condensed Consolidated Financial Statements (unaudited)                                               |    | 6 
|Item 2.                   | Management's Discussion and Analysis of Financial Condition and Results of Operations                          |    | 11
|Item 3.                   | Quantitative and Qualitative Disclosure About Market Risk                                                      |    | 26
|PART IIOTHER INFORMATION
|Item 1.                   | Legal Proceedings                                                                                              |    | 27
|Item 2.                   | Changes in Securities and Use of Proceeds                                                                      |    | 27
|Item 4.                   | Submission of Matters to a Vote of Security Holders                                                            |    | 27
|Item 6.                   | Exhibits and Reports on Form 8-K                                                                               |    | 27
|SIGNATURES                |                                                                                                                | 28





2

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PART IFINANCIAL INFORMATION

Item 1.    Financial Statements

SeeBeyond Technology Corporation
Condensed Consolidated Balance Sheets

|In thousands, except share and per share data |                       | March 31,
2002                                                                                                                                                                 |                                            | December 31,
2001 |        
|--------------------------------------------- | --------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ----------------- | -------
|
|Assets:                                       |                       |                                                                                                                                                                                |                                            |                   |        
|                                              | Current assets:       |                                                                                                                                                                                |                                            |                   |        
|                                              |                       | Cash and cash equivalents                                                                                                                                                      |                                            | $                 | 104,578
|                                              |                       | Accounts receivable, net of allowances of $1,885 and $1,837 at March 31, 2002 and December 31, 2001, respectively                                                              |                                            |                   | 49,974 
|                                              |                       | Prepaid expenses and other current assets                                                                                                                                      |                                            |                   | 4,134  
|                                              |                       |                                                                                                                                                                                |                                            |                   |        
|                                              |                       |                                                                                                                                                                                | Total current assets                       |                   |        
|                                              |                       | Property and equipment, net                                                                                                                                                    |                                            |                   | 13,206 
|                                              |                       | Related party receivable                                                                                                                                                       |                                            |                   |       
|                                              |                       | Goodwill                                                                                                                                                                       |                                            |                   | 1,123  
|                                              |                       | Other assets                                                                                                                                                                   |                                            |                   | 310    
|                                              |                       |                                                                                                                                                                                |                                            |                   |        
|                                              |                       |                                                                                                                                                                                | Total assets                               |                   | $      
|                                              |                       |                                                                                                                                                                                |                                            |                   |        
|Liabilities and stockholders' equity:         |                       |                                                                                                                                                                                |                                            |                   |        
|                                              | Current liabilities:  |                                                                                                                                                                                |                                            |                   |        
|                                              |                       | Accounts payable                                                                                                                                                               |                                            | $                 | 6,835  
|                                              |                       | Accrued compensation and related expenses                                                                                                                                      |                                            |                   | 6,988  
|                                              |                       | Accrued expenses                                                                                                                                                               |                                            |                   | 13,634 
|                                              |                       | Deferred revenues                                                                                                                                                              |                                            |                   | 27,708 
|                                              |                       | Lease line payablecurrent portion                                                                                                                                             |                                            |                   | 542    
|                                              |                       |                                                                                                                                                                                |                                            |                   |        
|                                              |                       |                                                                                                                                                                                | Total current liabilities                  |                   |        
|                                              | Lease line payable    |                                                                                                                                                                                |                                            | 1,249             |        
|                                              |                       |                                                                                                                                                                                |                                            |                   |        
|                                              |                       |                                                                                                                                                                                | Total liabilities                          |                   |        
|                                              | Stockholders' equity: |                                                                                                                                                                                |                                            |                   |        
|                                              |                       | Preferred stock, $.0001 par value10,000,000 shares authorized; no shares issued and outstanding as of March 31, 2002 and December 31, 2001                                    |                                            |                   |       
|                                              |                       | Common stock, $.0001 par value200,000,000 shares authorized; 83,229,091 and 74,750,485 shares issued and outstanding as of March 31, 2002 and December 31, 2001, respectively |                                            |                   | 8      
|                                              |                       | Additional paid-in capital                                                                                                                                                     |                                            |                   | 219,461
|                                              |                       | Deferred stock compensation                                                                                                                                                    |                                            |                   | (2,230 
|                                              |                       | Accumulated other comprehensive loss                                                                                                                                           |                                            |                   | (1,269 
|                                              |                       | Accumulated deficit                                                                                                                                                            |                                            |                   | (99,601
|                                              |                       |                                                                                                                                                                                |                                            |                   |        
|                                              |                       |                                                                                                                                                                                | Total stockholders' equity                 |                   |        
|                                              |                       |                                                                                                                                                                                |                                            |                   |        
|                                              |                       |                                                                                                                                                                                | Total liabilities and stockholders' equity |                   | $      
|                                              |                       |                                                                                                                                                                                |                                            |                   |        

The accompanying notes are an integral part of these financial statements.

3

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SeeBeyond Technology Corporation
Condensed Consolidated Statements of Operations
(Unaudited)

|                                      |                                                                                                                                                    | Three Months Ended
March 31, |      
|------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------- | -----
|
|
|Revenues:                             |                                                                                                                                                    |                              |      
|                                      | License (net of warrant amortization of $0 and $906 for the three months ended March 31, 2002 and 2001, respectively)                              |                              | $    
|                                      | Services                                                                                                                                           |                              |      
|                                      | Maintenance                                                                                                                                        |                              |      
|                                      |                                                                                                                                                    |                              |      
|                                      |                                                                                                                                                    | Total revenues               |      
|Costs and expenses:                   |                                                                                                                                                    |                              |      
|                                      | Costs of license revenues                                                                                                                          |                              |      
|                                      | Costs of services revenues (exclusive of stock-based compensation of $42 and $90 for the three months ended March 31, 2002 and 2001, respectively) |                              |      
|                                      | Costs of maintenance revenues                                                                                                                      |                              |      
|                                      | Research and development (exclusive of stock-based compensation of $47 and $101 for the three months ended March 31, 2002 and 2001, respectively)  |                              |      
|                                      | Sales and marketing (exclusive of stock-based compensation of $156 and $344 for the three months ended March 31, 2002 and 2001, respectively)      |                              |      
|                                      | General and administrative (exclusive of stock-based compensation of $20 and $43 for the three months ended March 31, 2002 and 2001, respectively) |                              |      
|                                      | Amortization of goodwill                                                                                                                           |                              |      
|                                      | Amortization of sales and marketing warrants                                                                                                       |                              |      
|                                      | Amortization of stock-based compensation                                                                                                           |                              |      
|                                      |                                                                                                                                                    |                              |      
|                                      |                                                                                                                                                    | Total costs and expenses     |      
|                                      |                                                                                                                                                    |                              |      
|Income (loss) from operations         |                                                                                                                                                    |                              | 2,785
|Other income                          |                                                                                                                                                    |                              |      
|                                      | Interest, net                                                                                                                                      |                              |      
|                                      |                                                                                                                                                    |                              |      
|                                      | Income (loss) before income tax provision                                                                                                          |                              |      
|                                      | Provision for income tax                                                                                                                           |                              |      
|                                      |                                                                                                                                                    |                              |      
|Net income (loss)                     |                                                                                                                                                    | $                            | 2,895
|                                      |                                                                                                                                                    |                              |      
|Basic net income (loss) per share     |                                                                                                                                                    | $                            | 0.04 
|                                      |                                                                                                                                                    |                              |      
|Diluted net income (loss) per share   |                                                                                                                                                    | $                            | 0.03 
|                                      |                                                                                                                                                    |                              |      
|Number of shares used in calculating: |                                                                                                                                                    |                              |      
|                                      | Basic net income (loss) per share                                                                                                                  |                              |      
|                                      |                                                                                                                                                    |                              |      
|                                      | Diluted net income (loss) per share                                                                                                                |                              |      
|                                      |                                                                                                                                                    |                              |      

The accompanying notes are an integral part of these financial statements.

4

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SeeBeyond Technology Corporation
Condensed Consolidated Statements of Cash Flows
(Unaudited)

|                                                             |                                                                                      | Three Months Ended
March 31,                 |                                       
|------------------------------------------------------------ | ------------------------------------------------------------------------------------ | -------------------------------------------- | --------------------------------------
|
|
|Cash flows from operating activities:                        |                                                                                      |                                              |                                       
|                                                             | Net income (loss)                                                                    |                                              | $                                     
|                                                             | Adjustments to reconcile net income (loss) to net cash used in operating activities: |                                              |                                       
|                                                             |                                                                                      | Loss on disposal of fixed assets             |                                       
|                                                             |                                                                                      | Depreciation and amortization                |                                       
|                                                             |                                                                                      | Provision for doubtful accounts receivable   |                                       
|                                                             |                                                                                      | Amortization of goodwill                     |                                       
|                                                             |                                                                                      | Amortization of sales and marketing warrants |                                       
|                                                             |                                                                                      | Amortization of other warrants               |                                       
|                                                             |                                                                                      | Amortization of stock-based compensation     |                                       
|                                                             | Changes in assets and liabilities:                                                   |                                              |                                       
|                                                             |                                                                                      | Accounts receivable                          |                                       
|                                                             |                                                                                      | Prepaid expenses and other current assets    |                                       
|                                                             |                                                                                      | Accounts payable                             |                                       
|                                                             |                                                                                      | Accrued expenses                             |                                       
|                                                             |                                                                                      | Deferred revenue                             |                                       
|                                                             |                                                                                      |                                              |                                       
|                                                             |                                                                                      |                                              | Net cash used in operating activities:
|                                                             |                                                                                      |                                              |                                       
|Cash flows from investing activities:                        |                                                                                      |                                              |                                       
|                                                             | Purchases of property and equipment                                                  |                                              |                                       
|                                                             | Payments to acquire companies, net of cash acquired                                  |                                              |                                       
|                                                             | Related party receivable                                                             |                                              |                                       
|                                                             | Other                                                                                |                                              |                                       
|                                                             |                                                                                      |                                              |                                       
|                                                             |                                                                                      | Net cash used in investing activities        |                                       
|                                                             |                                                                                      |                                              |                                       
|Cash flows from financing activities:                        |                                                                                      |                                              |                                       
|                                                             | Net borrowings on bank lines of credit                                               |                                              |                                       
|                                                             | Proceeds from issuance of common stock pursuant to secondary public offering, net    |                                              |                                       
|                                                             | Payments on lease line payable                                                       |                                              |                                       
|                                                             | Proceeds from issuance of common stock pursuant to employee stock option plan        |                                              |                                       
|                                                             |                                                                                      |                                              |                                       
|                                                             |                                                                                      | Net cash provided by financing activities    |                                       
|                                                             |                                                                                      |                                              |                                       
|Effect of exchange rate changes on cash and cash equivalents |                                                                                      |                                              | (86                                   
|                                                             |                                                                                      |                                              |                                       
|Net increase (decrease) in cash and cash equivalents         |                                                                                      |                                              | 57,539                                
|Cash and cash equivalents at beginning of the period         |                                                                                      |                                              | 47,039                                
|                                                             |                                                                                      |                                              |                                       
|Cash and cash equivalents at end of the period               |                                                                                      | $                                            | 104,578                               
|                                                             |                                                                                      |                                              |                                       

The accompanying notes are an integral part of these financial statements.

5

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SeeBeyond Technology Corporation
Notes to Condensed Consolidated Financial Statements

Note 1. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by SeeBeyond Technology Corporation (the "Company" or "SeeBeyond") in
accordance with the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in consolidated financial statements prepared in
accordance with generally accepted accounting principles have been condensed or omitted in accordance with such rules and regulations. In the opinion of management, the accompanying unaudited
condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of the Company, and its results
of operations and cash flows. These condensed consolidated financial statements should be read in conjunction with the annual audited consolidated financial statements and notes as of and for the year
ended December 31, 2001 included in the Company's Form 10-K filed with the Securities and Exchange Commission on February 8, 2002.

The
results of operations for the three months ended March 31, 2002 are not necessarily indicative of the results that may be expected for the year ending December 31, 2002
or any other interim period, and the Company makes no representations related thereto.

The
consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in
consolidation.

Note 2. Revenue Recognition

The Company recognizes revenue when an agreement has been signed by both parties or other persuasive evidence of an arrangement exists, the software has been
shipped or electronically delivered,
the fees are fixed or determinable, collection of the resulting receivable is probable, and no other significant obligations remain. For multiple element arrangements where vendor-specific objective
evidence of fair value exists for all undelivered elements, we account for the delivered elements in accordance with the "residual method" prescribed by Statement of Position 98-9.
Vendor-specific objective evidence of fair value is based on the price a customer is required to pay when the element is sold separately. The Company enters into arrangements with end users, which may
include the sale of licenses of software, maintenance and services under the arrangement or various combinations of each element, including the sale of such elements separately.

For
multiple element arrangements, each element of the arrangement is analyzed and the Company allocates a portion of the total fee under the arrangement to the undelivered elements,
primarily services and maintenance, using vendor-specific objective evidence of fair value of the element and the remaining portion of the fee is allocated to the delivered elements (i.e. generally
the software license) regardless of any separate prices stated within the contract for each element, under the residual method prescribed by SOP 98-9. Vendor-specific objective evidence of
fair value is based on the price the customer is required to pay when the element is sold separately (i.e. hourly rates charged for consulting services when sold separately from a software license and
the renewal rate for maintenance arrangements). Each license agreement offers additional maintenance renewal periods at a stated price. If vendor-specific objective evidence of fair value does not
exist for the undelivered elements, all revenue is deferred and recognized ratably over the service period if the undelivered element is services, or over the period the maintenance is provided if the
undelivered element is maintenance, or until sufficient objective evidence exists or all elements have been delivered.

License Revenues:Amounts allocated to license revenues under the residual method are recognized at the time of delivery of
the software when vendor-specific objective evidence of fair value

6

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exists for the undelivered elements, if any, and all the other revenue recognition criteria discussed above have been met.

Services Revenues:Revenues from services are comprised of consulting and implementation services and, to a limited extent,
training. Consulting services are generally sold on a time-and-materials or fixed fee basis and include a range of services including installation of
off-the-shelf software, data conversion and building non-complex interfaces to allow the software to operate in customized environments. Services are generally
separable from the other elements under the arrangement since the performance of the services are not essential to the functionality (i.e., do not involve significant production, modification or
customization of the software or building complex interfaces) of any other element of the transaction and are described in the contract such that the total price of the arrangement would be expected
to vary as the result of the inclusion or exclusion of the services. Revenues for services are recognized as the services are performed. Training services are sold on a per student basis and are
recognized as classes are attended.

Maintenance Revenues:Maintenance revenues consist primarily of fees for providing unspecified software upgrades on a
when-and-if-available basis and technical support over a specified term, which is typically
twelve months. Maintenance revenues are typically paid in advance and are recognized on a straight-line basis over the specified term.

Revenues
on sales made by alliance partners are generally recognized upon shipment of the software to the end user, if all other revenue recognition criteria noted above are met. Under
limited arrangements with certain distributors when all the revenue recognition criteria have been met upon delivery of the product to the distributor, revenues are recognized at that time. The
Company does not offer a right of return on its products.

Note 3. Recently Issued Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations"
and No. 142, "Goodwill and Other Intangible Assets" which were adopted by the Company on January 1, 2002. SFAS No. 141 eliminates the pooling-of-interests
method of accounting for business combinations and changes the criteria to recognize intangible assets apart from goodwill. Under SFAS No. 142 goodwill and indefinite lived intangible assets
are no longer amortized but reviewed annually, or more frequently if impairment indicators arise, for impairment. The impact of adoption of the new standards has not had a material impact on the
results of operations or financial position of the Company.

In
October 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which
supercedes SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 144 addresses the accounting
and reporting for the impairment or disposal of long-lived assets, including discontinued operations. The Company adopted SFAS No. 144 on January 1, 2002 and the adoption did
not have a material impact on the Company's results of operations or financial position.

Note 4. Operations by Reportable Segments and Geographic Area

SeeBeyond has developed a comprehensive solution for business integration, enabling the seamless flow of information across systems applications and enterprises
in real-time, on a global basis. The Company operates in one industry segment, which is the development and marketing of a comprehensive solution for business integration where all key
integration technologies, including application-to-application, business-to-business and business process management, are seamlessly integrated.

7

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Revenues
and long-lived assets by geographic area were as follows (in thousands):

Three Months Ended
March 31,2002

2001Revenues:North America

$
27,722

$
35,522Europe


9,180


10,361Pacific Rim


3,460


3,512Total revenues

$
40,362

$
49,395




March 31,
2002

December 31,
2001Long-lived assets:North America

$
12,185

$
11,520Europe


2,166


2,382Pacific Rim


288


266Total long-lived assets

$
14,639

$
14,168


No
single customer accounted for more than 10% of the Company's net revenues during the three months ended March 31, 2002 and 2001.

Note 5. Computation of Net Income (Loss) Per Share

Basic net income (loss) per share is computed on the basis of the weighted average number of common shares outstanding. Diluted net income (loss) per share is
computed on the basis of the weighted average number of common shares outstanding plus the effect of outstanding stock warrants and outstanding stock options using the "treasury stock" method.

The
following table sets forth the components of basic and diluted net income (loss) per share for the periods indicated (in thousands, except per share amounts):

Three Months Ended
March 31,2002

2001Net income (loss)

$
2,895

$
(4,382
)Weighted average outstanding shares of common stock used to compute basic net income (loss) per share


78,678


70,224Dilutive effect of:Stock warrants


577


Employee stock options


3,618


Common stock and common stock equivalents


82,873


70,224Net income (loss) per share:Basic

$
0.04

$
(0.06
)Diluted

$
0.03

$
(0.06
)


8

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Options
to purchase 4,516,000 and 17,442,774 shares of common stock were not included in the calculations of diluted net income (loss) per share for the three months ended
March 31, 2002 and 2001, respectively, because their effect would be antidilutive. For the three months ended March 31, 2001, common stock warrants to purchase 4,225,000 shares were not
included in the calculations of diluted net loss per share, because their effect would be antidilutive.

Note 6. Commitments, Contingencies and Debt

Bank Line of Credit and Lease Line Payable

In November 2000, the Company established a $15.0 million line of credit facility (the "Line") with a lending institution that bears interest at an
annual rate of either prime plus 0.5% or the London InterBank Offered Rate ("LIBOR") rate plus 2.50% (payable monthly) and was to expire May 31, 2002. In October 2001, the Company
amended the Line to extend the expiration date through May 31, 2003. As of March 31, 2002, $11.8 million was available under the Line and there were no borrowings outstanding. The
Company may use up to $5.0 million of the Line to issue letters of credit. As of March 31, 2002, $1.8 million was available for the issuance of letters of credit. The Line is
secured by intellectual property rights, accounts receivable and certain other assets and is subject to certain borrowing base restrictions. The Line requires maintenance of certain financial
covenants pertaining to key financial ratios.

In
addition to the Line, the Company has a $2.0 million equipment line (the "Lease Line") with the same lending institution providing the Line. The Lease Line bears interest at an
annual rate of either prime plus 0.75%, or the LIBOR rate plus 2.75% (payable monthly) and expires on November 30, 2004. The rate at March 31, 2002 was 5.5%. The Company was allowed to
draw against the Lease Line through November 30, 2001. Interest is payable monthly and principal is payable in 36 monthly installments commencing in December 2001. As of
March 31, 2002, there was $1.8 million outstanding under the Lease Line which is secured by certain assets of the Company.

Legal Proceedings

The Company is party to claims and suits brought against it in the ordinary course of business. In the opinion of management, such claims should not have any
material adverse effect upon the results of operation, cash flows or the financial position of the Company.

Note 7. Other Comprehensive Income (Loss)

The Company accounts for comprehensive income (loss) using SFAS No. 130, "Reporting Comprehensive Income". SFAS No. 130 established standards for
reporting comprehensive income and its components in financial statements. Comprehensive income, as defined, refers to revenues, expenses, gains and losses that are not included in net income but
rather are recorded directly in stockholders' equity.

Total
comprehensive income (loss) was as follows (in thousands):

Three Months Ended
March 31,2002

2001Net income (loss)

$
2,895

$
(4,382
)Other comprehensive loss:Foreign translation adjustment


(86
)

(616
)Comprehensive income (loss)

$
2,809

$
(4,998
)


9

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Note 8. Stockholders' Equity

Secondary Public Offering

In February 2002, the Company completed a public offering of 6,572,623 shares of common stock at $9.57 per share and realized proceeds, net of underwriting
discounts, commissions and issuance costs, of approximately $58.9 million.

Warrant Exercise

In January 2002, a strategic alliance partner of the Company exercised its warrant and converted its right to purchase 1,200,000 shares of common stock at
$5.33 per share into 666,337 shares of common stock.

Warrant Cancellation

In March 2002, a warrant between another strategic alliance partner and the Company was cancelled and all rights under the warrant, including the right to
acquire any and all fully vested shares of the Company's common stock thereunder, were forfeited.

Note 9. Related Party Transactions

On January 2, 2002, the Company made a loan in the amount of $2.0 million to one of its executive officers who is also a stockholder. The loan bore
interest at a rate of 8.5% and was fully repaid as to principal and interest as of February 27, 2002.

10

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

You should read the following discussion in conjunction with the consolidated financial statements and related notes of SeeBeyond Technology Corporation appearing
elsewhere in this Form 10-Q. The following discussion contains forward-looking statements that involve risks and uncertainties, including statements regarding anticipated costs and
expenses, mix of revenues and plans for introducing new products and services. Our actual results could differ materially from the results contemplated by these forward-looking statements as a result
of a number of factors, including those discussed below, under "Risk Related to SeeBeyond" and elsewhere in this Form 10-Q.

Overview

We were founded in 1989 and sold our first products and services in 1991 under the name "Software Technologies Corporation." From 1991 to 1998 our sales and
marketing efforts were primarily focused on customers in the healthcare industry. In 1998, we began to significantly increase our sales and marketing expenses to target customers in other vertical
markets, such as financial services/insurance, manufacturing, retail/e-Commerce/services, telecommunications, energy services and government. Following the launch in November 1999
of the fourth generation of our primary product with the introduction of e*Gate 4.0, we launched the next version of its eBusiness Integration Suite ("eBI Suite") version 4.5, in June 2001. In
anticipation of this release, we accelerated the growth of our product development, services and sales and marketing organizations. We incurred significant losses in 1999, 2000, and 2001, and as of
March 31, 2002, we had an accumulated deficit of approximately $99.6 million.

We
derive revenues primarily from three sources: licenses, services and maintenance. We market our products and services on a global basis through our direct sales force, and augment our
marketing efforts through relationships with systems integrators, and in other instances, through value-added resellers and technology vendors. Our products are typically licensed directly to
customers for a perpetual term, with pricing based on the number of systems or applications the customer is integrating or connecting with our products. We record license revenues when a license
agreement has been signed by both parties, the fee is fixed or determinable, collection of the fee is probable, delivery of our products has occurred and no other significant obligations remain.
Payments for licenses, services and maintenance received in advance of revenue recognition are recorded as deferred revenue.

We
currently have operations in sixteen countries outside of the United States. Revenues derived from international sales have grown to 31% of total revenues for the three months ended
March 31, 2002 from 28% of total revenues for the same period in the previous year. We believe that international revenues will continue to be significant in future periods. To date, we have
not experienced significant seasonality of revenues. However, we expect that our future results will fluctuate in response to the fiscal or quarterly budget cycles of our customers.

Revenues
from services include consulting and implementation services and training. A majority of our customers use third-party systems integrators to implement our products. Customers
also typically purchase additional consulting services from us to support their implementation activities. These consulting services are generally sold on a time and materials or fixed fee basis, and
services revenues are recognized as the services are performed. We also offer training services, which are sold on a per student basis and for which revenues are recognized as the classes are
attended.

Customers
who license our products normally purchase maintenance contracts. These contracts provide unspecified software upgrades and technical support over a fixed term, which is
typically 12 months. Maintenance contracts are usually paid in advance, and revenues from these contracts are recognized ratably over the term of the contract.

11

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Our
costs and expenses are classified as cost of license revenues, cost of services revenues, cost of maintenance revenues, research and development, sales and marketing and general and
administrative. Each category, except cost of license revenues, includes related expenses for salaries, employee benefits, incentive compensation, bonuses, travel, telephone, communications, rent and
allocated facilities and professional fees.

Cost
of license revenues includes the cost of third-party licensed software embedded or bundled with our products and the cost of third-party software resold. Cost of services revenues
consists of compensation and related overhead costs for personnel engaged in implementation consulting and services and training. Cost of maintenance revenues includes compensation and related
overhead costs for personnel engaged in maintenance and support activities. For the three months ended March 31, 2002, our gross margin was 95.0% on our license revenues, 24.4% on our services
revenues and 81.1% on our maintenance revenues. We expect in the future to continue to earn substantially higher gross margins on our license and maintenance revenues compared to our services
revenues. As a result, our overall gross margin depends significantly on our revenues mix.

Our
sales and marketing expenses include additional expenditures specific to the marketing group, such as public relations and advertising, trade shows, and marketing collateral
materials and expenditures specific to the sales group, such as commissions.

To
date, all software product development costs have been expensed as incurred. Also included in our operating expenses are the restructuring charge, alliance warrants, marketing
warrants and stock compensation.

In
March 2001, we entered into a four-year co-marketing agreement with a strategic marketing partner and issued a warrant to purchase 625,000 shares of
common stock at an exercise price of $11.34 per share. The warrant expires in March 2006 and 175,000 shares under the warrant were exercisable immediately. The remaining 450,000 shares subject
to the warrant are performance based and shall vest and become exercisable over the thirty-six month period following the issuance of the warrant provided the warrant holder has achieved
various milestones related to providing certain sales an marketing support. As of March 31, 2002, a total of 350,000 shares subject to the warrant were vested. The unvested portion of the
warrant was valued as of the date of issuance and is being amortized as a charge to marketing expense over the term of the co-marketing agreement. The value of the unvested portion of the
warrant will be adjusted in each reporting period based on changes in the fair value of the warrants until such date as the warrants are fully vested. There is no obligation for this strategic partner
to make future product purchases from us.

In
connection with stock option grants to our employees, we have recorded deferred stock compensation totaling $8.5 million through March 31, 2002, of which approximately
$800,000 remains to be amortized. This amount represents the difference between the exercise price and the deemed fair value of our common stock on the date the options were granted multiplied by the
number of option shares granted. This amount is included as a component of stockholders' equity and is being amortized by charges to operations over the vesting period of the options, consistent with
the method described in Financial Accounting Standards Board Interpretation No. 28. We recognized amortization of deferred compensation expense of approximately $265,000 and $578,000 for the
three months ended March 31, 2002 and 2001, respectively. The amortization of the remaining deferred stock compensation will result in additional charges to operations through 2004. The
amortization of stock compensation is classified as a separate component of operating expenses in our consolidated statement of operations.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to

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make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our
financial statements. Actual results may differ from these estimates under different assumptions or conditions.

Our
significant accounting policies are described in Note 1 to our consolidated financial statements as of and for the year ended December 31, 2001, included in our
Form 10-K filed with the Securities and
Exchange Commission on February 8, 2002. We believe our most critical accounting policies include the following:



Revenue recognition.We recognize revenue when an agreement has been signed by both parties or other persuasive evidence of
an arrangement exists, the software has been shipped or electronically delivered, the fees are fixed or determinable, collection of the resulting receivable is probable, and no other significant
obligations remain. For multiple element arrangements where vendor-specific objective evidence of fair value exists for all undelivered elements, we account for the delivered elements in accordance
with the "residual method" prescribed by Statement of Position 98-9. Vendor-specific objective evidence of fair value is based on the price a customer is required to pay when the element
is sold separately.

We
assess whether the fee is fixed or determinable and collection is probable at the time of the transaction. In assessing whether the fee is fixed or determinable we analyze the payment
terms of the transaction and other factors, including the nature and class of customer, our historical experience of collecting under our payment terms without granting a concession, the possibility
of the product becoming technologically obsolete before the payments become due and the likelihood of the customer asking for a refund. If we determine the fee is not fixed or determinable we defer
the revenue until the payments under the arrangement become due. We assess whether collection is probable based on a number of factors, including the customer's past transaction history and
credit-worthiness. If we determine that collection of a fee is not probable, we defer the fee and recognize revenue at the time collection becomes probable, which is generally upon the receipt of
cash.

Maintenance
revenues consist primarily of fees for providing unspecified software upgrades on a when-and-if-available basis and technical support over
a specified term, which is typically twelve months. Maintenance revenues are typically paid in advance and are recognized on a straight-line basis over the specified term.

Revenues
on sales made by alliance partners are generally recognized upon shipment of the software to the end user, if all other revenue recognition criteria noted above are met. Under
limited arrangements
with certain distributors when all the revenue recognition criteria have been met upon delivery of the product to the distributor, revenues are recognized at that time. The Company does not offer a
right of return on its products.

The
fair value of services such as consulting or training is based upon separate sales of these services. Consulting and training services are generally sold on a
time-and-materials or fixed fee basis and are generally recognized as the services are performed. Consulting services primarily consist of implementation services related to
the installation of the Company's products and generally do not involve significant production, modification or customization to or development of the software.

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Significant
management judgments and estimates must be made in connection with determination of the revenue to be recognized in any accounting period. If we made different judgments or
estimates for any period, material differences in the amount and timing of revenue recognized could result.

Allowance for doubtful accounts.We maintain allowances for doubtful accounts based on our analyses of the likelihood that
our customers will not pay us all the money they owe. In circumstances where there is knowledge of a specific customer's inability to meet its financial obligations, a specific reserve is recorded
against amounts due to reduce the net recognized receivable to the amount that is reasonably believed to be collected. For all our customers we perform analyses, which includes a review of their
credit profiles, the terms and conditions of the contracts with our customers, and the current economic trends and payment history. We reassess these allowances each accounting period. If actual
payment experience with our customers is different than our estimates, adjustments to these allowances may be necessary resulting in additional charges to our income statement.

Accounting for income taxes.We record a valuation allowance to reduce our deferred tax assets by the amount of tax benefits
we estimate, based on available evidence, is not expected to be realized. Tax benefits will not be realized if we do not generate sufficient taxable income in the future to apply the deferred tax
balance against. As of March 31, 2002, a valuation allowance equal to the value of the deferred tax assets was maintained. In the event we were to determine that we would be able to realize our
deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period such a determination was made.

Significant
management judgment is required in estimating our future taxable income for purposes of assessing our ability to realize any future benefit from our deferred tax assets. In
the event that actual results differ from these estimates or we adjust these estimates in future periods, our operating results and financial position could be materially affected.

Foreign Currency Translation.The functional currency for our foreign operations is their local currency. The financial
statements of foreign subsidiaries have been translated into United States dollars. Asset and liability accounts have been translated using the exchange rate in effect at the balance sheet date.
Revenue and expense accounts have been translated using the average exchange rate for the period. The gains and losses associated with the translation of the financial statements resulting from the
changes in exchange rates from period to period have been reported in the other comprehensive income or loss account in stockholders' equity. To the extent assets and liabilities of the foreign
operations are realized or the foreign operations pay back intercompany debt, amounts previously reported in other comprehensive income or loss account would be included in net income or loss in the
period in which the transaction occurs. Transaction gains or losses, other than intercompany debt deemed to be of a long-term nature, are included in net income or loss in the period in
which they occur.

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Results of Operations

The following table sets forth our results of operations for the three months ended March 31, 2002 and 2001 respectively, expressed as a percentage of
total revenues:

Three Months Ended
March 31,2002

2001Revenues:License

52
%
65
%Services

25

23Maintenance

23

12Total revenues

100

100Costs and expenses:Cost of license revenue

3

1Cost of services revenue

19

21Cost of maintenance revenues

4

2Research and development

19

14Sales and marketing

36

56General and administrative

10

12Amortization of goodwill



Amortization of alliance warrants

1

2Amortization of stock based compensation

1

1Total costs and expenses

93

109Income (loss) from operations

7

(9
)Other income (expense), net



Income (loss) before provision for income taxes

7

(9
)Provision for income taxes



Net income (loss)

7
%
(9
)%


Results of operations for the three months ended March 31, 2002 and 2001:

Revenues

Total revenues.Total revenues for the three months ended March 31, 2002 decreased 18% from the same period last year,
from $49.4 million to $40.4 million. Total revenues for the three months ended March 31, 2002 decreased primarily due to a decrease in sales of our products and services to both
new and existing customers.

License revenues.License revenues for the three months ended March 31, 2002, decreased 35% from the same period last
year, from $32.4 million to $21.1 million. License revenues for the three months ended March 31, 2002, as a percentage of total revenues were 52%, as compared to 65% for the same
period in the previous year. The decrease in license revenues was due primarily to the current downturn in the economy, the delay in the capital spending decisions of much of our customer base and
resulting decline in information technology spending in general.

Services revenues.Services revenues for the three months ended March 31, 2002, decreased 9% from the same period in
the previous year, from $11.2 million to $10.2 million. Services revenues for the three months ended March 31, 2002, as a percentage of total revenues were 25%, as compared to 23%
for the same period in the previous year. The decrease in the absolute dollar amount of services

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revenues was due primarily to the decline in consulting revenues that resulted from the corresponding decrease in license revenues for the three months ended March 31, 2002 and the three
months ended December 31, 2001, as compared to the three months ended March 31, 2001 and December 31, 2000.

Maintenance revenues.Maintenance revenues for the three months ended March 31, 2002, increased 57% from the same
period in the previous year, from $5.8 million to $9.1 million. Maintenance revenues for the three months ended March 31, 2002, as a percentage of total revenues were 23%, as
compared to 12% for the same period in the previous year. The increase in maintenance revenues was due primarily to customer renewals of prior period maintenance contacts associated with the increase
in our cumulative license revenue.

Costs and expenses

Cost of license revenues.Cost of license revenues for the three months ended March 31, 2002, was approximately
$1.1 million, compared to $443,000 in the same period in the previous year. Cost of license revenues consists primarily of the cost of third-party licensed software embedded or bundled with our
products and the cost of third-party software resold. This increase was due to a corresponding increase in the percentage of revenues for the three months ended March 31, 2002 attributable to
the sale of our products with third party embedded or bundled software and the resale of third party software.

Cost of services revenues.Cost of services revenues for the three months ended March 31, 2002, decreased 25% from the
same period in the previous year, from $10.3 million to $7.7 million. This decrease was due primarily to the decrease in professional services staff and the related costs associated with
decreased services revenues. Cost of services revenues as a percentage of total revenues was 19% for the three months ended March 31, 2002, as compared to 21% for the same period in the
previous year. This decrease was due primarily to lower headcount and increased utilization of existing internal resources. We expect that cost of services revenues will increase slightly in absolute
dollars for the foreseeable future.

Cost of maintenance revenues.Cost of maintenance revenues for the three months ended March 31, 2002, increased 93%
from the same period in the previous year, from approximately $879,000 to $1.7 million. Cost of maintenance revenues as a percentage of total revenues was 4% for the three months ended
March 31, 2002, as compared to 2% for the same period in the previous year. This increase in cost of maintenance revenue was due primarily to an increase in maintenance related headcount. We
expect that costs of maintenance revenues will increase slightly in absolute dollars for the foreseeable future.

Research and development expenses.Research and development expenses for the three months ended March 31, 2002,
increased 12% from the same period in the previous year, from $6.9 million to $7.7 million. Research and development expenses as a percentage of total revenues were 19% for the quarter
ended March 31, 2002 as compared to 14% for the same period in the prior year. The increase in research and development expenses was due primarily to the increase in the number of software
developers and quality assurance personnel to support our product development, documentation and testing activities related to the development and release of the latest versions of our products. We
anticipate that research and development expenses will continue to increase in absolute dollars for the rest of 2002 as we continue to invest in additional headcount and the further development of our
products.

Sales and marketing expenses.Sales and marketing expenses for the three months ended March 31, 2002, decreased 47%
from the same period in the previous year, from $27.5 million to $14.5 million. Sales and marketing expenses as a percentage of total revenues were 36% for the quarter ended
March 31, 2002 as compared to 56% for the same period in the prior year. This decrease in

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sales and marketing expense was due primarily to a decrease in marketing staff and promotional and public relations activities. We anticipate that our sales and marketing expense will increase in
absolute dollars for the remainder of 2002, primarily due to the hiring of additional sales representatives.

General and administrative expenses.General and administrative expenses for the three months ended March 31, 2002,
decreased 30% from the same period in the previous year, from $6.0 million to $4.2 million. General and administrative expenses as a percentage of total revenues were 10% for the quarter
ended March 31, 2002 as compared to 12% for the same period in the prior year. This decrease in general and administrative expenses was due primarily to cost savings resulting from the
reduction in workforce during the three months ended September 30, 2001. We anticipate general and administrative expenses to increase slightly in absolute dollars for the foreseeable future.

Amortization of goodwill.Amortization of goodwill for the three months ended March 31, 2002, was $0, compared to
$32,000 for the same period in the prior year. The decrease in amortization of goodwill was a result of the implementation of FAS 142 whereby goodwill is no longer amortized but reviewed
periodically for impairment.

Amortization of sales and marketing warrants.Amortization of warrants for the three months ended March 31, 2002, was
$441,000, compared to $1.3 million for the same period in the prior year. The decrease in amortization of warrants was a result of warrants issued to strategic alliance partners being fully
amortized or cancelled. The amortization of warrant expense for the three months ended March 31, 2002 and the remaining warrant expense to be recognized in future periods relate to a
four-year co-marketing agreement with a strategic partner. The value of the unvested portion of the warrant will be adjusted in each reporting period based on changes in the
fair value of the warrant until such date as the warrant is fully vested and therefore the amount of amortization for such warrant is subject to fluctuation based on the value of our stock.

Amortization of stock-based compensation.Amortization of stock-based compensation for the three months ended
March 31, 2002, was approximately $265,000, compared to $578,000 for the same period in the previous year.

Other Income (Expense), Net

Other income (expense), net consists primarily of interest income (expense). Other income, net for the three months ended March 31, 2002, was approximately
$193,000 compared to other income of $141,000 for the same period last year. The increase in income was primarily due to an increase in interest income due to larger cash balances as a result of our
secondary public stock offering in February 2002.

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Liquidity and Capital Resources

As of March 31, 2002, we had cash and cash equivalents of $104.6 million, an increase of $57.6 million from $47.0 million held as of
December 31, 2001.

Net
cash used in operating activities was $2.0 million during the three months ended March 31, 2002, as compared with $4.4 million in the same period in the previous
year. This period over period decrease in cash used in operating activities reflects a decrease in net loss and increases in deferred revenue offset by increases in accounts receivable and prepaid
expenses and other current assets and a decrease in accounts payable.

Net
cash used in investing activities was $2.4 million during the three months ended March 31, 2002, as compared with $4.1 million in the same period in the previous
year. The decrease primarily was due to lower capital expenditures.

Net
cash provided by financing activities was $62.1 million during the three months ended March 31, 2002, as compared with $7.1 million in the same period in the
previous year. This increase was primarily attributable to $58.9 million raised from our sale of 6,572,623 shares of common stock in a secondary public offering completed in
February 2002, and $3.3 million raised through the exercise of stock options to purchase shares of common stock from our stock option plan..

In
October 2001, we extended our $15.0 million line of credit facility to May 31, 2003. The line of credit bears interest at a rate of prime plus .5%, payable
monthly. As of March 31, 2002, $11.8 million was available under the credit facility and there were no borrowings outstanding.

We
believe that our current cash and cash equivalents balance and cash flow from operations will be sufficient to meet our working capital and capital expenditure requirements for at
least the next twenty-four months

Risks Related to SeeBeyond

You should carefully consider the risks described below in evaluating the other statements made herein. The risks described below are not the only ones facing our
company. Additional risks not presently known to us, or that we currently deem immaterial, may also impair our business operations.

Our
business, financial condition or results of operations could be adversely affected by any of these risks. The trading price of our common stock could decline due to any of these
risks.



We have incurred substantial losses since 1998 as we increased funding of the development of our products and technologies and expanded our sales and marketing
organization. As of March 31, 2002, we had an accumulated deficit of $99.6 million. Although we were profitable for the three months ended March 31, 2002, we incurred a net loss
of $17.4 million in fiscal year 2001, we may incur losses in future periods and we may not maintain profitability on a quarterly basis or achieve profitability on an annual basis.



Our products are often used by our customers throughout their organizations to address critical business problems. Customers generally consider a wide range of
issues before committing to purchase our products, including product benefits, the ability to operate with existing and future computer systems, the ability to accommodate increased transaction
volumes and product reliability. Many customers are addressing these issues for the first time when they consider whether to buy our products

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and services. As a result, we or other parties, including systems integrators, must educate potential customers on the use and benefits of our products and services. In addition, the purchase of our
products generally involves a significant commitment of capital and other resources by a customer. This commitment often requires significant technical review, assessment of competitive products and
approval at a number of management levels within a customer's organization. Our sales cycle may vary based on the industry in which the potential customer operates and is difficult to predict for any
particular license transaction. The length and variability of our sales cycle makes it difficult to predict whether particular sales will be concluded in any given quarter. If one or more of our
license transactions are not consummated in a given quarter, our results of operations for that quarter may be below our expectations and the expectations of analysts and investors.



Substantially all of our license revenues have been, and are expected to continue to be, derived from the license of our Business Integration Suite. Accordingly,
our future operating results will depend on the demand for our Business Integration Suite by future customers, including new and enhanced releases that are subsequently introduced. Our latest version
of e*Gate Integrator version 4.5, was launched in June 2001. If our competitors release new products that are superior to our Business Integration Suite in performance or price, or if we fail
to enhance our Business Integration Suite and introduce new products in a timely manner, demand for our products may decline, and we may have to reduce the pricing of our products. A decline in demand
or pricing for our Business Integration Suite as a result of these or other factors would significantly reduce our revenues.

In
the past, we have experienced delays in the commencement of commercial releases of our Business Integration Suite. To date, these delays have not had a material impact on our
revenues. In the future, we may fail to introduce or deliver new products on a timely basis. If new releases or products are delayed or do not achieve market acceptance, we could experience customer
dissatisfaction or a delay or loss of revenues. For example, the introduction of new enterprise and business applications requires us to introduce new e*Way adapters to support the integration of
these applications. Our failure to introduce these or other modules in a timely manner could cause our revenues and market share to decline. In addition, customers may delay purchases of our products
in anticipation of future releases. If customers defer material orders in anticipation of new releases or new product introductions, our revenues may decline.

Moreover,
as we release enhanced versions of our products, we may not be successful in upgrading our customers who purchased previous versions of our Business Integration Suite to the
current version. We also may not be successful in selling add-on modules for our products to existing customers. Any failure to continue to upgrade existing customers' products or sell new
modules, if and when they are introduced, could negatively impact customer satisfaction and our revenues.



We have entered into agreements with a number of systems integrators for them to install and deploy our products and perform custom integration of systems and
applications. These systems integrators also engage in joint marketing and sales efforts with us. If these relationships fail, we will have to devote substantially more resources to the sales and
marketing and implementation and support of our products than we would otherwise, and our efforts may not be as effective as those of the systems integrators. In many cases, these parties have
extensive relationships with our existing and potential customers and influence the decisions of these customers. We rely upon these firms to

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recommend our products during the evaluation stage of the purchasing process, as well as for implementation and customer support services.

These
systems integrators are not contractually required to implement our products, and competition for these resources may preclude us from obtaining sufficient resources to provide the
necessary implementation services to support our needs. If the number of installations of our products exceeds our access to the resources provided by these systems integrators, we will be required to
provide these services internally, which would increase our expenses and significantly limit our ability to meet our customers' implementation needs. A number of our competitors have stronger
relationships with some of these systems integrators and, as a result, these systems integrators might be more likely to recommend competitors' products and services instead of ours. In addition, a
number of our competitors have relationships with a greater number of these systems integrators or have stronger systems integrator relationships based on specific vertical markets and, therefore,
have access to a broader base of customers.

Our
failure to establish or maintain systems integrator relationships would significantly harm our ability to license and successfully implement our software products. In addition, we
rely on the industry expertise and customer contacts of these firms in order to market our products more effectively. Therefore, any failure of these relationships would also harm our ability to
increase revenues in key commercial markets. We are currently investing, and plan to continue to invest, significant resources to develop these relationships. Our operating results could be adversely
affected if these efforts do not generate license and service revenues necessary to offset this investment.



We must plan and manage our growth effectively in order to offer our products and services and achieve revenue growth and profitability in a rapidly evolving
market. We continue to increase the scope of our operations domestically and internationally and have in recent years added a number of employees. Our growth has and will continue to place a
significant strain on our management systems and resources, and we may not be able to effectively manage our growth in the future.

Furthermore,
if our relationships with systems integrators succeed and we are able to penetrate additional commercial markets, we may need additional sales and marketing and professional
services resources to support these customers. The growth of our customer base will require us to invest significant resources in the training and development of our employees and our systems
integration partners. If these organizations fail to keep pace with the number and demands of the customers that
license our products, our ability to market and sell our products and services and our ability to develop new products and services will be harmed. To manage our business, we must continue to:



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In
addition, if we acquire or invest in other companies, we may experience further strain on our resources and face risks inherent in integrating two corporate cultures, product lines,
operations and businesses.



Our quarterly operating results have fluctuated significantly in the past and may vary significantly in the future. We believe that
period-to-period comparisons of our historical results of operations are not a good predictor of our future performance.

Our
revenues and operating results depend upon the volume and timing of customer orders and payments and the date of product delivery. Historically, a substantial portion of our revenues
in a given quarter has been recorded in the final month of that quarter, with a concentration of these revenues in the last two weeks of the final month. We expect this trend to continue and,
therefore, any failure or delay in the closing of orders would have a material adverse effect on our quarterly operating results. Since our operating expenses are based on anticipated revenues and
because a high percentage of these expenses are relatively fixed, a delay in the recognition of revenues from one or more license transactions could cause significant variations in operating results
from quarter to quarter and cause a decline in our stock price. We realize substantially higher gross margins on our license and maintenance revenues compared to our services revenues. Thus, our
margins for any particular quarter will be highly dependent on our revenue mix in that quarter. In our international markets, we have experienced some seasonality of revenues, with lower revenues in
the summer months. Although this seasonality has not had a material impact on our operating results in the past, we cannot assure you that our operating results will not fluctuate in the future as a
result of these and other international trends.

We
record as deferred revenue payments from customers that do not meet our revenue recognition policy requirements. Since only a small portion of our revenues each quarter is recognized
from deferred revenue, our quarterly results depend primarily upon entering into new contracts to generate revenues for that quarter. New contracts may not result in revenues in the quarter in which
the contract was signed, and we may not be able to predict accurately when revenues from these contracts will be recognized. If our operating results are below the expectations of securities analysts
or investors for these or other reasons, our stock price would likely decline, perhaps substantially.



The market for our products is intensely competitive, evolving and subject to rapid technological change. We expect the intensity of competition to increase in
the future. As a result of increased competition, we may have to reduce the price of our products and services, and we may experience reduced gross margins and loss of market share, any one of which
could significantly reduce our future revenues and operating results. Our current competitors include vendors offering e-Business application integration, or eAI, and traditional
electronic data interchange, or EDI, software products, as well as "in house" information technology departments of potential customers that have developed or may develop systems that provide some or
all of the functionality of our Business Integration Suite. We may also encounter competition from major enterprise software developers in the future.

Many
of our existing and potential competitors have more resources, broader customer relationships and better-established brands than we do. In addition, many of these competitors have
extensive knowledge of our industry. Some of our competitors have established or may establish cooperative relationships among themselves or with third parties to offer a single solution and increase
the ability of their products to address customer needs.

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Revenues from the sale of products and services outside the United States accounted for 31% of our total revenues for the three months ended March 31, 2002
and 28% of our total revenues for the same period in 2001. We believe that revenues from sales outside the United States will continue to account for a material portion of our total revenues for the
foreseeable future. We are exposed to several risks inherent in conducting business internationally, such as:



Any
of these factors could adversely affect our international operations and, consequently, our operating results.



We rely significantly upon customers making large information technology purchasing decisions as a source of revenue. In 2001 and in the first quarter of 2002, we
experienced a general slow-down in the level of capital spending by some of our customers due to the general economic downturn, which has adversely affected our revenues. This
slow-down in capital spending, if sustained in future periods, could result in reduced sales or the postponement of sales to our customers. There can be no assurance that the level of
spending on information technology in general, or on business integration software by our customers and potential customers in particular, will increase or remain at current levels in future periods.
Lower spending on information technology could result in reduced sales to our customers and could impair our operating results in future periods.



Our products and their interactions with customers' software applications and IT systems are complex and, accordingly, there may be undetected errors or failures
when our products are introduced or as new versions are released. In the past we have discovered software errors in our new releases and new products after their introduction, which have resulted in
additional product development expenses. To date, these additional expenses have not been material. These errors have resulted in product release delays, delayed revenues and customer dissatisfaction.
In the future we may discover errors, including performance limitations, in new releases or new products after the commencement of commercial shipments. Since many customers are using our products for
mission-critical business operations, any of these occurrences could seriously harm our business and generate negative publicity, which could have a negative impact on future sales. Although we
maintain product liability and errors and omissions insurance, we cannot assure you that these policies will be sufficient to compensate for losses caused by any of these occurrences.

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We currently serve a customer base with a wide variety of constantly changing hardware, software applications and networking platforms. If our products fail to
gain broad market acceptance due to an
inability to support a variety of these platforms, our operating results may suffer. Our business depends on a number of factors, including the following:



Our
industry is characterized by very rapid technological change, frequent new product introductions and enhancements, changes in customer demands and evolving industry standards. We
have also found that the technological life cycles of our products are difficult to estimate. We believe that we must continue to enhance our current products and concurrently develop and introduce
new products that anticipate emerging technology standards and keep pace with competitive and technological developments. Failure to do so will harm our ability to compete. As a result, we are
required to continue to make substantial product development investments.



The market for business integration software is rapidly evolving. We earn substantially all of our license revenues from sales of our Business Integration Suite.
We expect to earn substantially all of our revenues in the foreseeable future from sales of our Business Integration Suite and related products and services. Our future financial performance will
depend on continued growth in the number of organizations demanding software and services for application integration and business integration solutions and seeking outside vendors to develop, manage
and maintain this software for their critical applications. Many of our potential customers have made significant investments in internally developed systems and would incur significant costs in
switching to third-party products, which may substantially inhibit the growth of the market for business integration software. If this market fails to grow, or grows more slowly than we expect, our
revenues will be adversely affected.



We depend upon our ability to develop and protect our proprietary technology and intellectual property rights to distinguish our product from our competitors'
products. The unauthorized use by others of our proprietary rights could materially harm our business. We rely on a combination of copyright, trademark and trade secret laws, as well as
confidentiality agreements and licensing arrangements, to establish and protect our proprietary rights. We currently have no issued patents. Despite our efforts to protect our proprietary rights,
existing laws afford only limited protection. Attempts may be made to copy or reverse engineer aspects of our products or to obtain and use information that we regard as proprietary. Accordingly, we
cannot be certain that we will be able to

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protect our proprietary rights against unauthorized third party copying or use. Furthermore, policing the unauthorized use of our products is difficult, and expensive litigation may be necessary in
the future to enforce our intellectual property rights.



Third parties may claim that we have infringed their current or future intellectual property rights. We expect that software developers in our market will
increasingly be subject to infringement claims as the number of products in different software industry segments overlap. Any claims, with or without merit, could be time-consuming, result
in costly litigation, prevent product shipment or cause delays, or require us to enter into royalty or licensing agreements, any of which could harm our business. Patent litigation in particular has
complex technical issues and inherent uncertainties. In the event an infringement claim against us is successful and we cannot obtain a license on acceptable terms, license a substitute technology or
redesign our products to avoid infringement, our business would be harmed. Furthermore, former employers of our current and future employees may assert that our employees have improperly disclosed to
us or are using their confidential or proprietary information.



We currently expect that our current cash resources, together with anticipated cash flow from operations, will be sufficient to meet our working capital and
capital expenditure needs for at least the next 24 months. After that, we may need to raise additional funds, and we cannot be certain that we will be able to obtain additional debt or equity
financing on favorable terms, or at all. If we raise
additional equity financing, our stockholders may experience significant dilution of their ownership interests and the per share value of our common stock could decline. If we engage in debt
financing, we may be required to accept terms that restrict our ability to incur additional indebtedness and that force us to maintain specified liquidity or other ratios, any of which could harm our
business. If we need additional capital and cannot raise it on acceptable terms, we may not be able to, among other things:



Our
failure to do any of these things could result in lower revenues and could seriously harm our business.



We depend on the continued service of our key technical, sales and senior management personnel, including our Chief Executive Officer, President and Founder,
James T. Demetriades. Most of these persons are not bound by an employment agreement, and we do not maintain key person life insurance on any of these persons, other than Mr. Demetriades. The
loss of any of our senior management or other key product development or sales and marketing personnel could adversely affect our future operating results. In addition, we must attract, retain and
motivate highly skilled employees, including sales personnel and software engineers. We face significant competition for individuals with the skills

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required to develop, market and support our products and services. We may not be able to recruit and retain sufficient numbers of these highly skilled employees. If we fail to do so, our ability to
compete will be significantly harmed.



In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is
especially acute for us because technology companies have experienced greater than average stock price volatility in recent years and, as a result, have been subject to, on average, a greater number
of securities class action claims than companies in other industries. In the future, we may be the target of similar litigation. Securities litigation could result in substantial costs and divert our
management's attention and resources, and could seriously harm our business.



Some provisions of Delaware law and our certificate of incorporation and bylaws could have the effect of delaying or preventing a third party from acquiring us,
even if a change in control would be beneficial to our stockholders. For example, our certificate of incorporation provides for a classified board of directors whose members serve staggered
three-year terms and does not provide for cumulative voting in the election of directors. Our board of directors has the authority, without further action by our stockholders, to fix the
rights and preferences of and issue shares of preferred stock. In addition, our stockholders are unable to act by written consent. These and other provisions could make it more difficult for a third
party to acquire us, even if doing so would benefit our stockholders.



Our Chief Executive Officer, President and Founder, James T. Demetriades beneficially owns approximately 28.9% of our outstanding common stock. Our executive
officers and directors beneficially own, in the aggregate, approximately 38.6% of our outstanding common stock. As a result, these stockholders will be able to exercise a significant level of control
over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This could have the effect of delaying or preventing a change
of control of SeeBeyond and will make some transactions difficult or impossible without the support of these stockholders.

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Item 3: Quantitative and Qualitative Disclosure About Market Risk

We are exposed to a variety of risks, including changes in interest rates affecting the return on our investments and foreign currency fluctuations. We have
established policies and procedures to manage our exposure to fluctuations in interest rates and foreign currency exchange rates.

Interest rate risk.We maintain our funds in money market and certificate of deposit accounts at financial institutions. Our
exposure to market risk due to fluctuations in interest rates relates primarily to our interest earnings on our cash deposits. These securities are subject to interest rate risk in as much as their
fair value may fall if market interest rates increase. If market interest rates were to increase immediately and uniformly by 10% from the levels prevailing as of December 31, 2001, the fair
value of the portfolio would not decline by a material amount. We do not currently use derivative financial instruments to mitigate risks. However, we do have an investment policy that would allow us
to invest in short-term and long-term investments such as money market instruments and corporate debt securities. Our policy attempts to reduce such risks by typically limiting
the maturity date of such securities, placing our investments with high credit quality issuers and limiting the amount of credit exposure with any one issuer.

Foreign currency exchange rate risk.Our exposure to market risk due to fluctuations in foreign currency exchange rates
relates primarily to the intercompany balances with our subsidiaries located in Australia, Belgium, France, Germany, Italy, Japan, Korea, The Netherlands, New Zealand, Singapore, Spain, Sweden,
Switzerland and the United Kingdom. Transaction gains or losses have not been significant in the past and we do not participate in any hedging activity on foreign currencies. We would not experience a
material foreign exchange loss based on a hypothetical 10% adverse change in the price of any of the local currencies of these countries. Consequently, we do not expect that a reduction in the value
of such accounts denominated in foreign currencies resulting from a sudden or significant fluctuation in foreign exchange rates would have a direct material impact on our financial position, results
of operations or cash flows.

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PART IIOTHER INFORMATION

Item 1.    Legal Proceedings

The Company is party to routine claims and suits brought against it in the ordinary course of business including disputes arising over the ownership of
intellectual property rights and collection matters. In the opinion of management, the outcome of such routine claims will not have a material adverse effect on the Company's business, financial
condition or results of operation.

Item 2.    Changes in Securities and Use of Proceeds







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



Item 6.    Exhibits and reports of Form 8-K





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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, on May 15, 2002.

SeeBeyond Technology Corporation

|/s/BARRY J. PLAGABarry J. Plaga |  | Senior Vice President and Chief Financial Officer(Principal Financial and Accounting Officer) |  | 
|------------------------------- |  | --------------------------------------------------------------------------------------------- |  | 
|                                |  |                                                                                               |  | 
|                                |  |                                                                                               |  | 
|                                |  |                                                                                               |  | 

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