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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)

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

For the quarterly period ended March 31, 2001

OR

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

For the transition period from  to
.

Commission File No. 000-30207

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

California

95-4249153(State or Other Jurisdiction of
Incorporation or Organization)

(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 /x/  No / /

The
number of shares outstanding of the registrant's Common Stock, no par value, as of May 14, 2001 was 70,947,773.

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SeeBeyond Technology Corporation and Subsidiaries    INDEX

|PART IFINANCIAL INFORMATION |  |                                                                                                               
|---------------------------- |  | --------------------------------------------------------------------------------------------------------------
|Item 1.                      |  | Financial Statements:                                                                                         
|                             |  | Condensed Consolidated Balance Sheets as of March 31, 2001 (unaudited) and and December 31, 2000              
|                             |  | Condensed Consolidated Statements of Operations (unaudited) for the three months ended March 31, 2001 and 2000
|                             |  | Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2001 and 2000
|Item 2.                      |  | Management's Discussion and Analysis of Financial Condition and Results of
Operations                         
|Item 3.                      |  | Quantitative and Qualitative Disclosure About Market Risk                                                     
|PART IIOTHER INFORMATION    |  |                                                                                                               
|Item 1.                      |  | Legal Proceedings                                                                                             
|Item 2.                      |  | Changes in Securities and Use of Proceeds                                                                     
|Item 6.                      |  | Exhibits and Reports on Form 8-K                                                                              
|SIGNATURES                   |  | 26                                                                                                            

2

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PART IFINANCIAL INFORMATION    Item 1. Financial Statements    SeeBeyond Technology Corporation and Subsidiaries    Condensed Consolidated Balance Sheets

|In thousands, except share and per share data |                                            | March 31,
2001                                                                                                                                                    |                            | December 31,
2000 |        
|--------------------------------------------- | ------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ----------------- | -------
|
|Assets:                                       |                                            |                                                                                                                                                                   |                            |                   |        
|                                              | Current assets:                            |                                                                                                                                                                   |                            |                   |        
|                                              |                                            | Cash and cash equivalents                                                                                                                                         |                            | $                 | 27,357 
|                                              |                                            | Accounts receivable, net of allowances of $1,404 and $1,127 at March 31, 2001 and December 31, 2000, respectively                                                 |                            |                   | 51,972 
|                                              |                                            | Prepaid expenses and other current assets                                                                                                                         |                            |                   | 3,100  
|                                              |                                            |                                                                                                                                                                   |                            |                   |        
|                                              |                                            |                                                                                                                                                                   | Total current assets       |                   |        
|                                              | Property and equipment, net                |                                                                                                                                                                   |                            | 13,546            |        
|                                              | Related party receivable                   |                                                                                                                                                                   |                            | 438               |        
|                                              | Goodwill                                   |                                                                                                                                                                   |                            | 1,116             |        
|                                              | Other assets                               |                                                                                                                                                                   |                            | 1,203             |        
|                                              |                                            |                                                                                                                                                                   |                            |                   |        
|                                              |                                            |                                                                                                                                                                   | Total assets               |                   | $      
|                                              |                                            |                                                                                                                                                                   |                            |                   |        
|Liabilities and shareholders' equity:         |                                            |                                                                                                                                                                   |                            |                   |        
|                                              | Current liabilities:                       |                                                                                                                                                                   |                            |                   |        
|                                              |                                            | Bank line of credit                                                                                                                                               |                            | $                 | 5,000  
|                                              |                                            | Accounts payable                                                                                                                                                  |                            |                   | 13,629 
|                                              |                                            | Accrued compensation and related expenses                                                                                                                         |                            |                   | 7,622  
|                                              |                                            | Accrued expenses                                                                                                                                                  |                            |                   | 13,277 
|                                              |                                            | Deferred revenue                                                                                                                                                  |                            |                   | 22,236 
|                                              |                                            |                                                                                                                                                                   |                            |                   |        
|                                              |                                            |                                                                                                                                                                   | Total current liabilities  |                   |        
|                                              | Notes payable and other obligation         |                                                                                                                                                                   |                            | 400               |        
|                                              |                                            |                                                                                                                                                                   |                            |                   |        
|                                              |                                            |                                                                                                                                                                   | Total liabilities          |                   |        
|                                              |                                            |                                                                                                                                                                   |                            |                   |        
|                                              | Shareholders' equity:                      |                                                                                                                                                                   |                            |                   |        
|                                              |                                            | Preferred stock, no par value10,000,000 shares authorized, no shares issued and outstanding as of March 31, 2001 and December 31, 2000                           |                            |                   |       
|                                              |                                            | Common stock, no par value200,000,000 shares authorized, 70,768,987 and 69,678,315 issued and outstanding, at March 31, 2001 and December 31, 2000, respectively |                            |                   | 134,038
|                                              |                                            | Deferred stock compensation                                                                                                                                       |                            |                   | (6,992 
|                                              |                                            | Accumulated other comprehensive loss                                                                                                                              |                            |                   | (1,033 
|                                              |                                            | Accumulated deficit                                                                                                                                               |                            |                   | (89,445
|                                              |                                            |                                                                                                                                                                   |                            |                   |        
|                                              |                                            |                                                                                                                                                                   | Total shareholders' equity |                   |        
|                                              |                                            |                                                                                                                                                                   |                            |                   |        
|                                              | Total liabilities and shareholders' equity |                                                                                                                                                                   | $                          | 98,732            |        
|                                              |                                            |                                                                                                                                                                   |                            |                   |        

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

3

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SeeBeyond Technology Corporation and Subsidiaries    Condensed Consolidated Statements of Operations    (Unaudited)

|                                                                        |                                                                                                                                                       | Three Months Ended
March 31, |       
|----------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------- | ------
|
|
|Revenues:                                                               |                                                                                                                                                       |                              |       
|                                                                        | License (net of amortization of strategic marketing partner warrants of $906 and $0 for the three months ended March 31, 2001 and 2000, respectively) |                              | $     
|                                                                        | Services                                                                                                                                              |                              |       
|                                                                        | Maintenance                                                                                                                                           |                              |       
|                                                                        |                                                                                                                                                       |                              |       
|                                                                        |                                                                                                                                                       | Total revenues               |       
|Cost of revenues:                                                       |                                                                                                                                                       |                              |       
|                                                                        | License                                                                                                                                               |                              |       
|                                                                        | Services (exclusive of stock-based compensation of $91 and $196 for the three months ended March 31, 2001 and 2000, respectively)                     |                              |       
|                                                                        | Maintenance                                                                                                                                           |                              |       
|                                                                        |                                                                                                                                                       |                              |       
|                                                                        |                                                                                                                                                       | Total cost of revenues       |       
|                                                                        |                                                                                                                                                       |                              |       
|                                                                        | Gross profit                                                                                                                                          |                              |       
|Operating expenses:                                                     |                                                                                                                                                       |                              |       
|                                                                        | Research and development (exclusive of stock-based compensation of $101 and $202 for the three months ended March 31, 2001 and 2000, respectively)    |                              |       
|                                                                        | Sales and marketing (exclusive of stock-based compensation of $344 and $734 for the three months ended March 31, 2001 and 2000, respectively)         |                              |       
|                                                                        | General and administrative (exclusive of stock-based compensation of $43 and $149 for the three months ended March 31, 2001 and 2000, respectively)   |                              |       
|                                                                        | Amortization of alliance warrants                                                                                                                     |                              |       
|                                                                        | Amortization of stock-based compensation                                                                                                              |                              |       
|                                                                        | Amortization of goodwill                                                                                                                              |                              |       
|                                                                        |                                                                                                                                                       |                              |       
|                                                                        |                                                                                                                                                       | Total operating expenses     |       
|                                                                        |                                                                                                                                                       |                              |       
|Loss from operations                                                    |                                                                                                                                                       |                              | (4,523
|Other income (expense), net                                             |                                                                                                                                                       |                              | 141   
|                                                                        |                                                                                                                                                       |                              |       
|Loss before provision for income taxes                                  |                                                                                                                                                       |                              | (4,382
|Provision for income taxes                                              |                                                                                                                                                       |                              |      
|                                                                        |                                                                                                                                                       |                              |       
|Net loss                                                                |                                                                                                                                                       |                              | (4,382
|                                                                        |                                                                                                                                                       |                              |       
|Accretion on preferred stock                                            |                                                                                                                                                       |                              |      
|                                                                        |                                                                                                                                                       |                              |       
|Net loss available to common shareholders                               |                                                                                                                                                       | $                            | (4,382
|                                                                        |                                                                                                                                                       |                              |       
|Basic and diluted net loss per share                                    |                                                                                                                                                       | $                            | (0.06 
|                                                                        |                                                                                                                                                       |                              |       
|Number of shares used in computing basic and diluted net loss per share |                                                                                                                                                       |                              | 70,224
|                                                                        |                                                                                                                                                       |                              |       

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

4

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

|                                                             |                                                                             | Three Months Ended
March 31,               |       
|------------------------------------------------------------ | --------------------------------------------------------------------------- | ------------------------------------------ | ------
|
|
|Cash flows from operating activities:                        |                                                                             |                                            |       
|                                                             | Net loss                                                                    |                                            | $     
|                                                             | Adjustments to reconcile net loss to net cash used in operating activities: |                                            |       
|                                                             |                                                                             | Loss on disposal of fixed assets           |       
|                                                             |                                                                             | Depreciation and amortization              |       
|                                                             |                                                                             | Provision for doubtful accounts receivable |       
|                                                             |                                                                             | Amortization of stock warrants             |       
|                                                             |                                                                             | Amortization of stock based compensation   |       
|                                                             |                                                                             | Amortization of goodwill                   |       
|                                                             | Changes in assets and liabilities:                                          |                                            |       
|                                                             |                                                                             | Accounts receivable                        |       
|                                                             |                                                                             | Prepaid expenses and other current assets  |       
|                                                             |                                                                             | Accounts payable                           |       
|                                                             |                                                                             | Other accrued expenses                     |       
|                                                             |                                                                             | Deferred revenue                           |       
|                                                             |                                                                             |                                            |       
|Net cash used in operating activities                        |                                                                             |                                            | (4,420
|                                                             |                                                                             |                                            |       
|Cash flows from investing activities:                        |                                                                             |                                            |       
|                                                             | Purchases of property and equipment                                         |                                            |       
|                                                             | Payment to acquire company, net of cash acquired                            |                                            |       
|                                                             | Other                                                                       |                                            |       
|                                                             |                                                                             |                                            |       
|Net cash used in investing activities                        |                                                                             |                                            | (4,081
|                                                             |                                                                             |                                            |       
|Cash flows from financing activities:                        |                                                                             |                                            |       
|                                                             | Net borrowings under bank line of credit                                    |                                            |       
|                                                             | Proceeds from issuance of common stock pursuant to stock option plan        |                                            |       
|                                                             |                                                                             |                                            |       
|Net cash provided by financing activities                    |                                                                             |                                            | 7,046 
|                                                             |                                                                             |                                            |       
|Effect of exchange rate changes on cash and cash equivalents |                                                                             |                                            | (616  
|                                                             |                                                                             |                                            |       
|Net (decrease)/increase in cash and cash equivalents         |                                                                             |                                            | (2,071
|Cash and cash equivalents at beginning of the period         |                                                                             |                                            | 29,428
|                                                             |                                                                             |                                            |       
|Cash and cash equivalents at end of the period               |                                                                             | $                                          | 27,357
|                                                             |                                                                             |                                            |       

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

5

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SeeBeyond Technology Corporation and Subsidiaries    Notes to Condensed Consolidated Financial Statements

Note 1.The Company and Summary of Significant Accounting Policies

The Company

SeeBeyond Technology Corporation, formerly known as Software Technologies Corporation, provides a comprehensive solution for e-Business application
integration, enabling the seamless flow of information across all systems, applications and enterprises on a global basis. The Company provides this solution to its customers primarily by license of
its software and also by offering software implementation and consulting services. The Company was founded in 1989 and sold its first product and services in 1991. In November 1999, the Company
launched the fourth generation of its product, e*Gate 4.0 software, and concurrently renamed its product line, previously called DataGate software, to e*Gate software.

The
Company's operations are subject to certain risks and uncertainties, including rapid technological changes, success of the Company's product marketing and product distribution
strategies, the need to manage growth, the need to retain key personnel and protect intellectual property, and the availability of additional capital financing on terms acceptable to the Company.

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of SeeBeyond Technology Corporation and its wholly owned subsidiaries (the
"Company"). All material intercompany transactions have been eliminated in consolidation. The information furnished is unaudited and reflects all adjustments that, in the opinion of management, are
necessary to provide a fair statement of the results for the interim periods presented. The financial statements should be read in conjunction with
the financial statements for the year ended December 31, 2000 as filed with the Securities and Exchange Commission ("SEC").

Use of Estimates

The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates. Significant estimates made in preparing the consolidated financial statements include the allowance for doubtful
accounts, certain accrued liabilities and estimates of future cash flows developed to determine whether conditions of impairment are present.

Revenue Recognition

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 each arrangement, revenues are recognized when an agreement has been signed by both parties, the fees are
fixed or determinable, collection of the fees is probable and delivery of the product has occurred and no other significant obligations remain.

For
multi-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

6

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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 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. 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 either on a per student basis or per class 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 term of the contract.

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

Income Taxes

The Company uses the liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to financial statements carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry forwards. The measurement of deferred
tax assets and liabilities is based on provisions of the enacted tax law. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance based on the amount of tax benefits
that, based on available evidence, is not expected to be realized.

Comprehensive Loss

The Company accounts for comprehensive loss using SFAS No. 130, "Reporting Comprehensive Income". SFAS No. 130 establishes 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 shareholders' equity.

7

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Total comprehensive loss was as follows (in thousands):

Three Months Ended March 31,2001

2000Net loss

$
(4,382
)
$
(12,866
)Other comprehensive loss:Foreign translation adjustment


(616
)

(110
)Comprehensive loss

$
(4,998
)
$
(12,976
)


Recently Issued Accounting Pronouncements

In June 2000, SFAS No. 138, "Accounting for Certain Hedging Activities, an amendment of FASB No. 133", was issued. In July 1999, SFAS
No. 137, "Accounting for Derivative Instruments and Hedging ActivitiesDeferral of Effective Date of FASB No. 133," was issued. In September 1998, SFAS No. 133,
"Accounting for Derivative instruments and Hedging Activities," was issued. The Company adopted SFAS No. 133, 137 and 138 in June 2000. SFAS No. 133 establishes accounting and reporting
standards for derivative financial instruments and hedging activities related to those instruments, as well as other hedging activities. The Company does not currently hold any derivative instruments
and does not engage in hedging activities, and therefore the adoption of these pronouncements did not have a material impact on its financial position, results of operations or cash flows.

Note 2.Operations by Reportable Segments and Geographic Area

The Company has adopted the provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Company's Chief
Executive Officer ("CEO") is considered to be the Company's chief operating decision maker. The CEO reviews financial information presented on a consolidated basis similar to the consolidated
financial statements. Therefore, the Company has concluded that it operates primarily in one industry segment and accordingly, has provided enterprise-wide disclosures.

The
Company maintains operations in North America and twelve countries in Europe and the Pacific Rim including: United Kingdom, Germany, France, Belgium, Italy, Australia and Japan.
Information about the Company's operations in North America and international territories for the three months ended March 31, 2001 and 2000 is presented below.

8

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

Three Months Ended March 31,2001

2000Revenues:North America

$
35,522

$
13,354Europe


10,361


3,118Pacific Rim


3,512


1,102Total revenues

$
49,395

$
17,574


March 31,
2001

December 31,
2000Long-lived assets:North America

$
12,840

$
9,468Europe


3,232


2,605Pacific Rim


231


233Total long-lived assets

$
16,303

$
12,306


No
single customer accounted for more than 10% of the Company's net revenues during the three months ended March 31, 2001 and 2000.

Note 3.Computation of Net Loss Per Share

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

Three Months Ended March 31,2001

2000Numerator:Net loss

$
(4,382
)
$
(12,866
)Accretion of preferred stock





(577
)Net loss available to common shareholders

$
(4,382
)
$
(13,443
)Denominator:Denominator for basic and diluted net loss per shareweighted average shares outstanding


70,224


47,350Basic and diluted net loss per share

$
(0.06
)
$
(0.28
)


Options
to purchase 17,442,774 and 12,830,610 shares of common stock were outstanding as of March 31, 2001 and 2000, respectively, but were not included in the calculations of
diluted net loss per share because their effect would be antidilutive. Common stock warrants were not included in the calculations of diluted net loss per share because their effect would be
antidilutive.

Note 4.Commitments, Contingencies and Debt

Bank Line of Credit and Notes Payable

In November 2000, the Company established a $15.0 million line of credit facility (the "New 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 expires May 31,

9

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2002. As of March 31, 2001 $9.8 million was available under the New Line and as of December 31, 2000, $15.0 million was available. The Company may use up to $5.0 million of the New Line
to issue letters of credit. The New Line is secured by intellectual property rights, accounts receivable and certain other assets and is subject to certain borrowing base restrictions. The New Line
requires maintenance of certain financial covenants pertaining to key financial ratios.

As
of March 31, 2001 and December 31, 2000, the Company also had a $3.0 million equipment line (the "Equipment Line") with the same lending institution as the New Line
that 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 interest rate at March 31, 2001 was
8.75% and at December 31, 2000 was 10.25%. The Company may draw against the Equipment 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, 2001 and December 31, 2000, there was $400,000 outstanding under the Equipment Line, which is secured by certain assets of the
Company.

Business Combination

In January 2001, the Company acquired STC Software Technologies Corporation (Schweiz) AG, Zurich ("Distributor"), an independent distributor of the Company's
software. The Company purchased all of the outstanding capital stock of the Distributor for approximately $885,000, excluding approximately $1.2 million of contingent consideration to be paid upon the
achievement of certain operating results. $344,000 of this contingent consideration had been realized as of March 31, 2001. The purchase price included $150,000 in cash and 35,000 shares of the
Company's common stock. The transaction was accounted for under the purchase method of accounting and the excess purchase price is being amortized as goodwill on a straight-line basis over a
three-year period. Proforma financial information is not presented as such amounts are not material.

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 5.Shareholders' Equity

Warrant Grants

In March 2001, the Company 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 warrants are exercisable immediately. The remaining 450,000 warrants 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
and marketing support. The immediately exercisable portion of the warrant was valued as of the date of issuance and was charged against revenues generated from a concurrent license sale to this
strategic marketing partner, while the remaining portion of the warrant will be valued as the warrant vests and will be recorded as a charge to marketing expense over the term of the co-marketing
agreement. There is no obligation for this strategic partner to make future product purchases from the Company.

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 Factors" 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. In November 1999, we launched the fourth generation of our
primary product with the introduction of e*Gate 4.0 software and changed the name of this product from DataGate software to e*Gate software. 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 and 2000, and as of March 31, 2001, we had an accumulated deficit of $89.4
million. In October 2000, we changed our name to SeeBeyond Technology Corporation.

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 twelve countries outside of the United States. Revenues derived from international sales have grown to 28% for the three months ended March 31,
2001 from 24% of total revenues for the three months ended March 31, 2000. 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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In the past, we offered our healthcare customers our expertise in configuring hardware and software systems in conjunction with their purchase of our products. In these instances, we
would sell third-party hardware and software to our customers in addition to our products. Other revenues consist of these sales of third-party hardware and software. We discontinued offering this
service to our customers during the fourth quarter of 1999.

For
1997 and prior years, we recognized revenues in accordance with American Institute of Certified Public Accountants Statement of Position, or SOP, 91-1 "Software Revenue
Recognition." Commencing
in 1998, we began recognizing revenues in accordance with American Institute of Certified Public Accountants SOP 97-2, "Software Revenue Recognition," as amended by SOP 98-4 and SOP 98-9. To date, our
adoption of these new standards has not had any material effect on our revenue recognition.

Cost
of revenues consists of cost of license revenues, cost of services revenues, and cost of maintenance revenues. Cost of license revenues includes the cost of third-party licensed
software embedded or bundled with our products. 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, 2001,
our gross margin was 98.6% on our license revenues, 8.1% on our services revenues and 84.8% 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
operating expenses are classified as research and development, sales and marketing and general and administrative. Each category includes related expenses for salaries, employee
benefits, incentive compensation, bonuses, travel, telephone, communications, rent and allocated facilities and professional fees. 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 amortization of alliance warrants and the amortization of stock compensation.

In
order to increase both our company's and our products' market presence, we entered into strategic alliances with Computer Sciences Corporation ("CSC") in March 2000, Electronic
Data Systems Corporation ("EDS") in January 2000 and Accenture, formerly Andersen Consulting, in November 1999. We granted each of these strategic partners a warrant to purchase up to 1,200,000 shares
of our common stock which becomes exercisable upon the achievement of various milestones, which include the creation of e*Gate software market offerings in the case of Accenture and CSC and the
generation of SeeBeyond license revenues by selling our products to third parties in the case of EDS and CSC. These warrants expire from July 2002 to November 2003, and have a per share exercise price
of $5.33 for Accenture, $6.67 for EDS and $14.00 for CSC. These warrants contain a significant economic disincentive for non-performance, and accordingly, the fair value of these warrants was measured
at the date of grant in accordance with Emerging Issues Task Force No. 96-18. Using the Black-Scholes option-pricing model, we valued the warrants granted to Accenture in 1999 at $3.3 million
and the warrants granted to EDS and CSC at $10.1 million. These amounts are included in common stock and are being amortized by charges to operations over the vesting periods of the warrants. We
recognized amortization of $1.3 million and $2.2 million for the three months ended March 31, 2001 and 2000, respectively, and we will recognize additional amortization of $3.8 million in 2001
and the remainder of $0.7 million in 2002. The amortization of the alliance warrants is classified as a separate component of operating expenses in our consolidated statement of operations.

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In March 2001, the Company 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 warrants are exercisable immediately. The remaining 450,000 warrants 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 and marketing support.
The immediately exercisable portion of the warrant was valued as of the date of issuance and was charged against revenues generated from a concurrent license sale to this strategic marketing partner,
while the remaining portion of the warrant will be valued as the warrant vests and will be recorded as a charge to marketing expense over the term of the co-marketing agreement. There is no obligation
for this strategic partner to make future product purchases from the Company.

In
connection with stock option grants to our employees, we have recorded deferred stock compensation totaling $8.5 million through March 31, 2001, of which approximately $2.3
million 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 shareholders' 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 $3.9 million and $1.7 million in 2000 and
1999, respectively. The amortization of the remaining deferred stock compensation at December 31, 2000 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.

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Results of Operations

The following table sets forth our results of operations for the three months ended March 31, 2001 and 2000, expressed as a percentage of total
revenues:

Three Months Ended March 31,2001

2000Revenues:License

65
%
49
%Services

23

35Maintenance

12

16Total revenues

100

100Cost of revenues:License

1

1Services

21

36Maintenance

2

5Gross profit

76

58Operating expenses:Research and development

14

20Sales and marketing

56

68General and administrative

12

21Amortization of goodwill



Amortization of alliance warrants

2

12Amortization of stock-based compensation

1

7Total operating expenses

85

128Loss from operations

(9
)
(70
)Interest and other income (expense), net



(3
)Loss before provision for income taxes

(9
)
(73
)Provision for income taxes



Net loss

(9
)%
(73
)%


Results of operations for the three months ended March 31, 2001 and March 31, 2000:

Revenues

Total revenues for the three months ended March 31, 2001 increased 181% from the same period last year, from $17.6 million to $49.4 million.

License revenues.License revenues for the three months ended March 31, 2001, increased 277% from the same
period last year, from $8.6 million to $32.4 million. License revenues for the three months ended March 31, 2001, as a percentage of total revenues were 65%, as compared to 49% for the same
period in the previous year. These increases in license revenues were due primarily to continued sales of e*Gate 4.0 software, the introduction of our B2B Business Process Management product offering,
the increasing acceptance of our product in key vertical markets and the expansion of our relationships with leading systems integrators.

Services revenues.Services revenues for the three months ended March 31, 2001, increased 84% from the same
period in the previous year, from $6.1 million to $11.2 million. Services revenues for the three months ended March 31, 2001, as a percentage of total revenues decreased to 23%, as compared

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to 35% for the same period in the previous year. The increase in the absolute dollar amount in services revenues was due primarily to increases in professional services staff and the growth of
consulting revenues associated with increased licensing revenues.

Maintenance revenues.Maintenance revenues for the three months ended March 31, 2001, increased 100% from the same
period in the previous year, from $2.9 million to $5.8 million. Maintenance revenues for the three months ended March 31, 2001, as a percentage of total revenues were 12%, as compared to 16%
for the same period in the previous year. The increase in the absolute dollar amount of maintenance revenues was due primarily to increased licensed sales of our products and the renewals of prior
period maintenance contacts.

Cost of revenues

Total cost of revenues for the three months ended March 31, 2001, increased 59% from the same period last year, from $7.3 million to $11.6 million.
Gross margin for the three months ended March 31, 2001, was 76% as compared to 58% for the same period in the previous year. This increase was due primarily to an increase in license revenue
and a decrease in services revenues as a percentage of total revenues.

Cost of license revenues.Cost of license revenues for the three months ended March 31, 2001, was approximately
$443,000, compared to $65,000 in the same period in the previous year.

Cost of services revenues.Cost of services revenues for the three months ended March 31, 2001, increased 61%
from the same period in the previous year, from $6.4 million to $10.3 million. This increase was due primarily to an increase in professional services staff and the related increase in services
revenues. Cost of services revenues as a percentage of total revenues was 21% for the three months ended March 31, 2001, as compared to 36% for the same period in the previous year. This
decrease was due primarily to the decrease in services revenues as a percentage of total revenues.

Cost of maintenance revenues.Cost of maintenance revenues for the three months ended March 31, 2001, decreased
slightly from the same period in the previous year, from approximately $881,000 to $879,000. Cost of maintenance revenues as a percentage of total revenues was 2% for the three months ended
March 31, 2001, as compared to 5% for the same period in the previous year. The slight decrease in the cost of maintenance revenues is due to effective management of headcount.

Operating expenses

Research and development expenses.Research and development expenses for the three months ended March 31, 2001,
increased 97% from the same period in the previous year, from $3.5 million to $6.9
million. The increase in the absolute dollar amount 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. Research and development expenses as a percentage
of total revenues were 14% for the three months ended March 31, 2001, as compared to 20% for the same period in the previous year. This decrease was due primarily to the increase in total
revenues for the three months ended March 31, 2001, as compared to the same period in the previous year. We anticipate that research and development expenses will continue to increase in
absolute dollars for the foreseeable future as we continue to add to our research and development staff.

Sales and marketing expenses.Sales and marketing expenses for the three months ended March 31, 2001, increased
131% from the same period in the previous year, from $11.9 million to $27.5 million. Sales and marketing expenses as a percentage of total revenues for the three months ended March 31, 2001,
was 56%, as compared to 68% for the same period in the previous year. The increase in sales and marketing expense was due primarily to the expansion of our domestic and international

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direct sales forces, and the increase in marketing staff, promotional and public relations activities and product and corporate communications. We anticipate that our sales and marketing expense will
increase in absolute dollars for the foreseeable future as we continue to expand our domestic and international sales forces, expand our marketing staff and develop marketing and awareness campaigns
for both the company and our products and increase promotional activities.

General and administrative expenses.General and administrative expenses for the three months ended March 31,
2001, increased 67% from the same period in the previous year, from $3.6 million to $6.0 million. General and administrative expenses as a percentage of total revenues for the three months ended
March 31, 2001, was 12%, as compared to 21% for the same period in the previous year. The increase in the absolute dollar amount of general and administrative expenses was due primarily to
hiring additional executive, finance, information technologies and administrative personnel to support the growth of our business and worldwide infrastructure during these periods. We expect that
general and administrative expenses will increase in absolute dollars for the foreseeable future as a result of the expansion of our operations and the expenses associated with operating as a public
company.

Amortization of alliance warrants.Amortization of alliance warrants for the three months ended March 31, 2001,
was $1.3 million, compared to $2.2 million for the same period in the prior year. The decrease in amortization of alliance warrants was a result of warrants issued to a strategic alliance partner in
January 2000 being fully amortized during 2000.

Amortization of stock based compensation.In connection with the stock options grants to employees and non-employee
directors during 2000 and 1999, we recorded total deferred compensation of $8.5 million. Amortization of stock based compensation for the three months ended March 31, 2001, was approximately
$578,000, compared to $1.3 million for the same period in the previous year.

Amortization of goodwill.As a result of the Company's acquisition of STC Software Technologies Corporation (Schweiz)
AG, Zurich, an independent distributor of the Company's software, the Company recorded $1.2 million in goodwill in January 2001. During the quarter ended March 31, 2001, the Company recorded
goodwill amortization of $32,000.

Other Income (Expense), Net

Other income (expense), net consists primarily of interest income (expense). Other income, net for the three months ended March 31, 2001, was
approximately $141,000 compared to other expense of ($593,000) for the same period last year. The increase primarily was due to an increase in interest income due to large cash balances as a result of
the Company's IPO in April 1, 2000.

Liquidity and Capital Resources

As of March 31, 2001, the Company had cash and cash equivalents of $27.4 million, a decrease of $2.0 million from $29.4 million held as of
December 31, 2000.

Net
cash used in operating activities was $4.4 million during the three months ended March 31, 2001, as compared with $5.2 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 other accrued expenses and deferred revenue offset by an increase in accounts
receivable.

Net
cash used in investing activities was $4.1 million during the three months ended March 31, 2001, as compared with $1.0 million in the same period in the previous year. The
increase primarily was due to an increase in capital expenditures as a result of the expansion of the Company's office facilities.

Net
cash provided by financing activities was $7.1 million during the three months ended March 31, 2001, as compared with $7.2 million in the same period in the previous year.
This decrease

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was due primarily to a decrease in the proceeds from issuance of common stock pursuant to the employee stock option plan.

In
May 2000, the Company completed its IPO of 4,600,000 shares of common stock at $12 per share and realized proceeds, net of underwriting discounts, commissions and issuance
costs, of approximately $49.6 million. Concurrent with the IPO, the Company completed the sale of 1,200,000 shares of common stock to a purchaser in a private placement at a price of $12 per share and
realized proceeds, net of underwriting discounts, commissions and issuance costs, of approximately $14.1 million.

In
November 2000, the Company established a $15.0 million line of credit facility (the "New 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 expires May 31, 2002. As of March 31, 2001 $9.8 million was available under the New Line
and as of December 31, 2000, $15.0 million was available. The Company may use up to $5.0 million of the New Line to issue letters of credit. The New Line is secured by intellectual property
rights, accounts receivable and certain other assets and is subject to certain borrowing base restrictions. The New Line requires maintenance of certain financial covenants pertaining to key financial
ratios.

As
of March 31, 2001 and December 31, 2000, the Company also had a $3.0 million equipment line (the "Equipment Line") with the same lending institution as the New Line
that 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 interest rate at March 31, 2001 was
8.75% and at December 31, 2000 was 10.25%. The Company may draw against the Equipment 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, 2001 and December 31, 2000, there was $400,000 outstanding under the Equipment Line, which is secured by certain assets of the
Company.

The
Company anticipates continued growth in its operating expenses for the foreseeable future, particularly in sales and marketing expenses and, to a lesser extent, research and
development and general and administrative expenses. As a result, the Company expects its operating expenses and capital expenditures to constitute the primary uses of its cash resources. In addition,
the Company may require cash resources to fund acquisitions or investments in complementary businesses, technologies or product lines. The Company believes that its current cash and cash equivalents
and its expected cash from operations, will be sufficient to meet its anticipated cash requirements for working capital and capital expenditures for at least the next 12 months. Thereafter, the
Company may need to raise additional funds, and it cannot be certain that it will be able to obtain additional debt or equity financing on favorable terms, if at all.

Euro Currency Conversion

The Euro currency ("Euro") was introduced on January 1, 1999, and the eleven participating European Monetary Union member countries established irrevocable
fixed conversion rates between their local currencies and the Euro. However, the local currencies in those countries will continue to be used as legal tender through January 1, 2002. Thereafter, the
local currencies will be canceled and Euro bills and coins will be used for cash transactions in the participating countries. From January 1, 1999 to
December 31, 2001, companies will be allowed to transact noncash transactions in either Euro or the local currency.

The
Company and certain of its European subsidiaries are currently evaluating the Euro conversion and the potential impact on their operations. At the present time, the Company
believes the necessary changes and costs incurred thus far, and expected to be incurred in the future, are not significant.

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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, 2001, we had an accumulated deficit of $89.5 million. We intend to continue to invest heavily in sales and marketing and research and development. As a result, we
may incur future losses.



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
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 e*Xchange software suite. Accordingly,
our future operating results will depend on the demand for e*Xchange by future customers, including new and enhanced releases that are subsequently introduced. Our core technology engine, e*Gate
version 4.0, was completed in September 1999 and commercially launched in November 1999. If our competitors release new products that are superior to e*Xchange in performance or price, or if we fail
to enhance e*Xchange 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
e*Xchange as a result of these or other factors would significantly reduce our revenues.

18

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In
the past, we have experienced delays in the commencement of commercial releases of our e*Xchange software 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*Ways 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 e*Xchange 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 entered into agreements with EDS and CSC for them to install and deploy our products and perform custom integration of systems and applications. These
systems integrators will 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 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.

The
Company recently entered into a strategic marketing agreement and established a relationship with General Motors Corporation ("GMC"). Under this agreement, GMC will assist us in
our sales and marketing efforts to affiliates within the GMC family of companies and their suppliers. If this relationship with GMC fails to develop as we anticipate, we will have to devote more
resources to the

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sales and marketing of our products than we would otherwise, and our efforts may not be as effective as those of GMC in marketing our products to these divisions and companies affiliated with GMC. Our
failure to maintain this relationship with GMC could harm our ability to increase our revenues from the license and successful implementation of our software products in this key commercial market.



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 enterprise 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 e*Xchange product 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.



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 recently 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 will 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. For us to effectively manage our growth, we must continue to:



20

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In
addition, we opened offices in New York, New York and Redwood Shores, California, where our sales and marketing organization is located. These offices have resulted and will
continue to result in higher expenses and will require us to coordinate these activities with our other operations in Monrovia, California.



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 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 revenues compared to our services and maintenance 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.



We depend on the continued service of our key technical, sales and senior management personnel, including our founder and Chief Executive Officer, James T.
Demetriades. None of these persons is 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 research and development or sales and marketing personnel could adversely affect our future operating results. We recently hired a senior executive to oversee our
European operations. 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 required to develop, market and support our products and services. We cannot assure you that we will 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.

21

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Revenues from the sale of products and services outside the United States accounted for 28% and 24% of our total revenues for the three months ended March 31,
2001 and 2000, respectively. Revenues from the sale of products and services in the United Kingdom as a percent of total revenues were 13% and 9% for the three months ended March 31, 2001 and
2000, respectively, while revenues from the sale of our products and services in Germany as a percent of total revenues were 3% and 5% for the three months ended March 31, 2001 and 2000,
respectively. 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.



Our products and their interactions with customers' software applications and IT systems are complex and, accordingly, there may be undetected errors or
failures when 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 has resulted
in additional research and 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.



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:



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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 e-Business integration software is rapidly evolving. We earn substantially all of our license revenues from sales of our e*Xchange software
suite. We expect to earn substantially all of our revenues in the foreseeable future from sales of e*Xchange 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 e-Business 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 e-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 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 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 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

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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.

Item 3: Quantitative and Qualitative Disclosure About Market Risk

The Company develops products in the United States and sell them in North America, Europe, Africa and the Pacific Rim. As a result, our financial results could
be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. If any of the events described above were to occur, our revenues could be
seriously impacted, since a significant portion of our revenues are derived from international customers. For the three months ended March 31, 2001 we incurred losses of approximately ($29,000)
due to the effect of foreign currency fluctuations as
compared to no significant gains or losses for the three months ending March 31, 2000. Revenues from international customers represented 28% for the three months ended March 31, 2001 and 24%
for the three months ended March 31, 2000.

Our
line of credit and equipment line of credit carry a floating interest rate based on prime plus 0.5% and 0.75%, respectively. Accordingly, we are subject to the risk of incurring
additional interest expense should the prime interest rate increase in the future. The interest rates on our line of credit and equipment line of credit as of March 31, 2001 was 8.5% and 8.75%,
respectively.

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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

(a) Modification of Constituent Instruments



(b) Change in Rights



(c) Changes in Securities



(d) Use of Proceeds

On May 3, 2000, the Company completed the initial public offering of its common stock. The managing underwriters in the offering were Morgan Stanley
Dean Witter, Merrill Lynch & Co. and Donaldson, Lufkin & Jenrette. The shares of common stock sold in the offering were registered under the Securities Act of 1933, as amended, on
a Registration Statement on Form S-1 (No. 333-30648). The Securities and Exchange Commission declared the Registration Statement effective on April 27, 2000. The net offering
proceeds have been and will be used for general corporate purposes.

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, 2001.

| |  | 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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Exhibit Index

|Exhibit Number |  | Description of Document                                                                          |  | 
|-------------- |  | ------------------------------------------------------------------------------------------------ |  | 
|10.21          |  | Warrant Purchase Agreement and Warrant dated March 16, 2001 issued to General Motors Corporation |  | 

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