**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

 

**Washington,D.C. 20549**

 

**FORM 10-Q**

 
| **ý** | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934**                                                                                                                                    |
|------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                                                                                                                                                            |
| ** ** | ** ** | **For  the quarterly period ended June 30, 2005**                                                                                                                                                                                |
| ** ** | ** ** | ** **                                                                                                                                                                                                                            |
| ** ** | ** ** | **OR**                                                                                                                                                                                                                                |
| ** ** | ** ** | ** **                                                                                                                                                                                                                            |
| **o**      | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF  1934**                                                                                                                                   |
| ** ** | ** ** | ** **                                                                                                                                                                                                                            |
| ** ** | ** ** | **For  the transition period from                to                ** |

 

**CommissionFile No. 000-30207’**

 

**SEEBEYONDTECHNOLOGY CORPORATION**

(Exact name of Registrantas Specified in Its Charter)

 
| **Delaware**                                                                                                                                  | ** ** | **95-4249153**                           |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------|
| (State or Other  Jurisdiction of  Incorporation or Organization)                                                                              |       | (I.R.S. Employer  Identification Number) |
|                                                                                                                                          |       |                                     |
| **800 E.  Royal Oaks Drive  Monrovia, California 91016  (626) 471-6000**                                                                 |
| (Address, including Zip  Code, of Registrant’s Principal Executive Offices  and Registrant’s Telephone Number, including Area Code) |

 

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 (orfor such shorter period that the registrant was required to file such reports)and (2) has been subject to such filing requirements for the past90 days. Yes  ý No  o

 

Indicate by check mark whether the registrant is anaccelerated filer (as defined in Rule 12b-2 under the Act). Yes  ý No  o

 

The number of shares outstanding of the registrant’sCommon Stock, $0.0001 par value, as of August 4, 2005 was 85,075,576.

 

 

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**SeeBeyondTechnology Corporation and Subsidiaries**

 

**INDEX**

 
| **Part I - Financial  Information**               |                                                                                                                     |
|---------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------|
| Item 1.                                           | Financial Statements:                                                                                                    |   |
|                                              | Condensed  Consolidated Balance Sheets as of June 30, 2005 (unaudited) and  December 31, 2004                  |   |
|                                              | Condensed  Consolidated Statements of Operations (unaudited) for the three months and  six months June 30, 2005 and 2004 |   |
|                                              | Condensed  Consolidated Statements of Cash Flows (unaudited) for the six months ended  June 30, 2005 and 2004       |   |
|                                              | Notes  to Condensed Consolidated Financial Statements (unaudited)                                                        |   |
| Item  2.                                          | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                              |   |
| Item  3.                                          | Quantitative  and Qualitative Disclosure About Market Risk                                                               |   |
| Item 4.                                           | Controls and  Procedures                                                                                                 |   |
| **Part II - Other Information**                   |                                                                                                                     |
| Item 1.                                           | Legal Proceedings                                                                                                        |   |
| Item  2.                                          | Changes  in Securities and Use of Proceeds                                                                               |   |
| Item 3.                                           | Defaults Upon  Senior Securities                                                                                         |   |
| Item  4.                                          | Submission  of Matters to a Vote of Security Holders                                                                     |   |
| Item 5.                                           | Other Information                                                                                                        |   |
| Item 6.                                           | Exhibits                                                                                                                 |   |
| **Signatures**                                    |                                                                                                                     |
| **Certification  of the Chief Executive Officer** |                                                                                                                     |
| **Certification of the Chief  Financial Officer** |                                                                                                                     |

 

2

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**PART I —FINANCIAL INFORMATION**

 

**Item 1 . Financial Statements**

 

**SeeBeyondTechnology Corporation and Subsidiaries**

 

**CondensedConsolidated Balance Sheets**

(in thousands, exceptshare and per share amounts)

 
| ** **                                                                                                                                                                                                                               | ** ** | **June 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|------------------------|------------|
| ** **                                                                                                                                                                                                                               | ** ** | **(unaudited)**    | ** ** | ** **             | ** ** |
| Assets:                                                                                                                                                                                                                                  |       |               |       |                   |       |
| Current assets:                                                                                                                                                                                                                          |       |               |       |                   |       |
| Cash and cash  equivalents                                                                                                                                                                                                               |       | $                  | 66,050     |                   | $          | 73,148 |   |
| Accounts  receivable, net of allowances of $1,138 and $1,606 at June 30, 2005 and  December 31, 2004, respectively                                                                                                                       |       | 22,610             |       | 37,995                 |       |
| Prepaid expenses  and other current assets                                                                                                                                                                                               |       | 4,503              |       | 3,680                  |       |
| Total current  assets                                                                                                                                                                                                                    |       | 93,163             |       | 114,823                |       |
| Property and  equipment, net                                                                                                                                                                                                             |       | 11,219             |       | 12,728                 |       |
| Goodwill                                                                                                                                                                                                                                 |       | 2,637              |       | 1,391                  |       |
| Other assets                                                                                                                                                                                                                             |       | 2,002              |       | 2,152                  |       |
| Total assets                                                                                                                                                                                                                             |       | $                  | 109,021    |                   | $          | 131,094 |   |
| Liabilities and  stockholders’ equity:                                                                                                                                                                                              |       |               |       |                   |       |
| Current  liabilities:                                                                                                                                                                                                                    |       |               |       |                   |       |
| Accounts payable                                                                                                                                                                                                                         |       | $                  | 6,559      |                   | $          | 6,739 |   |
| Accrued employee  compensation and related expenses                                                                                                                                                                                      |       | 12,789             |       | 13,861                 |       |
| Accrued expenses                                                                                                                                                                                                                         |       | 4,193              |       | 5,808                  |       |
| Deferred  revenues                                                                                                                                                                                                                       |       | 30,296             |       | 36,537                 |       |
| Capital lease  payable - current portion                                                                                                                                                                                                 |       | 410                |       | 748                    |       |
| Total current  liabilities                                                                                                                                                                                                               |       | 54,247             |       | 63,693                 |       |
| Capital lease  payable                                                                                                                                                                                                                   |       | 32                 |       | 28                     |       |
| Total  liabilities                                                                                                                                                                                                                       |       | 54,279             |       | 63,721                 |       |
| Commitments and  contingencies                                                                                                                                                                                                           |       |               |       |                   |       |
| Stockholders’  equity:                                                                                                                                                                                                              |       |               |       |                   |       |
| Common stock,  $.0001 par value - 200,000,000 shares authorized; 88,674,188 shares issued  and 84,954,936 shares outstanding as of June 30, 2005 and 87,559,663 shares  issued and 84,930,711 shares outstanding as of December 31, 2004 |       | 9                  |       | 8                      |       |
| Additional  paid-in capital                                                                                                                                                                                                              |       | 229,185            |       | 226,481                |       |
| Treasury stock                                                                                                                                                                                                                           |       | (9,765             | )          | (6,510                 | )          |
| Accumulated  other comprehensive income                                                                                                                                                                                                  |       | 105                |       | 990                    |       |
| Accumulated  deficit                                                                                                                                                                                                                     |       | (164,792           | )          | (153,596               | )          |
| Total  stockholders’ equity                                                                                                                                                                                                         |       | 54,742             |       | 67,373                 |       |
| Total  liabilities and stockholders’ equity                                                                                                                                                                                         |       | $                  | 109,021    |                   | $          | 131,094 |   |

 

*Theaccompanying notes are an integral part of these financial statements.*

 

3

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**SeeBeyondTechnology Corporation and Subsidiaries**

 

**CondensedConsolidated Statements of Operations**

** **

**(Unaudited)**

(inthousands, except per share data)

 
| ** **                                       | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                       | ** ** | **2005**                         | ** ** | **2004**                       | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenues:                                        |       |                             |       |                           |       |   |   |   |   |
| License                                          |       | $                                | 10,004     |                           | $          | 19,778 |   | $ | 23,753 |   | $ | 30,658 |   |
| Services                                         |       | 7,417                            |       | 9,110                          |       | 17,074 |   | 19,620 |   |
| Maintenance                                      |       | 14,694                           |       | 12,981                         |       | 28,596 |   | 26,028 |   |
| Total revenues                                   |       | 32,115                           |       | 41,869                         |       | 69,423 |   | 76,306 |   |
| Cost of  revenues:                               |       |                             |       |                           |       |   |   |   |   |
| License                                          |       | 59                               |       | 381                            |       | 392 |   | 658 |   |
| Services and  maintenance revenues               |       | 9,895                            |       | 10,615                         |       | 20,605 |   | 20,794 |   |
| Total cost of  revenues                          |       | 9,954                            |       | 10,996                         |       | 20,997 |   | 21,452 |   |
| Gross profit                                     |       | 22,161                           |       | 30,873                         |       | 48,426 |   | 54,854 |   |
| Operating  expenses:                             |       |                             |       |                           |       |   |   |   |   |
| Research and  development                        |       | 10,287                           |       | 9,636                          |       | 20,298 |   | 19,376 |   |
| Sales and  marketing                             |       | 13,087                           |       | 16,066                         |       | 26,794 |   | 31,070 |   |
| General and  administrative                      |       | 5,168                            |       | 4,249                          |       | 10,329 |   | 8,858 |   |
| Merger and  acquisition                          |       | 2,350                            |       | —                         |       | 2,350 |   | — |   |
| Amortization of  sales and marketing warrants    |       | —                           |       | —                         |       | — |   | (14 | ) |
| Amortization of  stock-based compensation        |       | —                           |       | —                         |       | 1 |   | 97 |   |
| Total operating  expenses                        |       | 30,892                           |       | 29,951                         |       | 59,772 |   | 59,387 |   |
| (Loss) income  from operations                   |       | (8,731                           | )          | 922                            |       | (11,346 | ) | (4,533 | ) |
| Interest income  and other income (expense), net |       | 292                              |       | 143                            |       | 578 |   | (70 | ) |
| Interest expense                                 |       | (31                              | )          | (61                            | )          | (60 | ) | (133 | ) |
| (Loss) income  before income tax provision       |       | (8,470                           | )          | 1,004                          |       | (10,828 | ) | (4,736 | ) |
| Income tax  provision                            |       | 145                              |       | 135                            |       | 368 |   | 178 |   |
| Net (loss)  income                               |       | $                                | (8,615     | )                              | $          | 869 |   | $ | (11,196 | ) | $ | (4,914 | ) |
|                                             |       |                             |       |                           |       |   |   |   |   |
| Basic and  diluted net (loss) income per share   |       | $                                | (0.10      | )                              | $          | 0.01 |   | $ | (0.13 | ) | $ | (0.06 | ) |
| Number of shares  used in calculating:           |       |                             |       |                           |       |   |   |   |   |
| - basic net  (loss) income per share             |       | 85,370                           |       | 84,607                         |       | 85,364 |   | 84,430 |   |
| - diluted net  (loss) income per share           |       | 85,370                           |       | 88,819                         |       | 85,364 |   | 84,430 |   |

 

*Theaccompanying notes are an integral part of these financial statements.*

 

4

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**SeeBeyondTechnology Corporation and Subsidiaries**

 

**CondensedConsolidated Statements of Cash Flows**

** **

**(Unaudited)**

(in thousands)

 
| ** **                                                                       | ** ** | **Six Months Ended  June 30,** | ** ** |
|----------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                       | ** ** | **2005**                       | ** ** | **2004** | ** ** |
| Cash flows from  operating activities:                                           |       |                           |       |   |   |
| Net loss                                                                         |       | $                              | (11,196    | ) | $ | (4,914 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities:     |       |                           |       |   |   |
| Loss (gain) on  disposal of fixed assets                                         |       | 111                            |       | (34 | ) |
| Depreciation and  amortization                                                   |       | 2,147                          |       | 2,443 |   |
| Provision for  doubtful accounts receivable                                      |       | (111                           | )          | 93 |   |
| Amortization of  sales and marketing warrants                                    |       | —                         |       | (14 | ) |
| Amortization of  stock-based compensation                                        |       | 1                              |       | 97 |   |
| Changes in  assets and liabilities:                                              |       |                           |       |   |   |
| Accounts  receivable                                                             |       | 15,667                         |       | 149 |   |
| Prepaid expenses  and other current assets                                       |       | (823                           | )          | 1,065 |   |
| Accounts payable                                                                 |       | (340                           | )          | 785 |   |
| Accrued  compensation and related expenses                                       |       | (1,813                         | )          | (1,404 | ) |
| Accrued expenses                                                                 |       | (1,817                         | )          | (2,313 | ) |
| Deferred  revenues                                                               |       | (6,296                         | )          | (1,152 | ) |
| Net cash used in  operating activities                                           |       | (4,470                         | )          | (5,199 | ) |
|                                                                             |       |                           |       |   |   |
| Cash flows from  investing activities:                                           |       |                           |       |   |   |
| Purchases of  property and equipment                                             |       | (722                           | )          | (1,023 | ) |
| Payment to  acquire company, net of cash                                         |       | (286                           | )          | — |   |
| Other                                                                            |       | 150                            |       | 318 |   |
| Net cash used in  investing activities                                           |       | (858                           | )          | (705 | ) |
|                                                                             |       |                           |       |   |   |
| Cash flows from  financing activities:                                           |       |                           |       |   |   |
| Repayments on  bank lines of credit                                              |       | —                         |       | (1,576 | ) |
| Repayments of  capital lease obligation                                          |       | (334                           | )          | (130 | ) |
| Proceeds from  issuance of common stock pursuant to employee stock option plan   |       | 2,353                          |       | 2,744 |   |
| Proceeds from  issuance of common stock pursuant to employee stock purchase plan |       | 351                            |       | 328 |   |
| Payments for  purchase of common stock                                           |       | (3,255                         | )          | (644 | ) |
| Net cash (used  in) provided by financing activities                             |       | (885                           | )          | 722 |   |
|                                                                             |       |                           |       |   |   |
| Effect of  exchange rate changes on cash and cash equivalents                    |       | (885                           | )          | (65 | ) |
| Net decrease in  cash and cash equivalents                                       |       | (7,098                         | )          | (5,247 | ) |
| Cash and cash  equivalents at beginning of the period                            |       | 73,148                         |       | 70,135 |   |
| Cash and cash  equivalents at end of the period                                  |       | $                              | 66,050     |   | $ | 64,888 |   |

 

*Theaccompanying notes are an integral part of these financial statements.*

 

5

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**SeeBeyondTechnology Corporation and Subsidiaries**

 

**Notes toCondensed Consolidated Financial Statements**

 

**(Unaudited)**

 

**Note 1.****                                  *Basis of Presentation***

 

The accompanying unaudited condensed consolidatedfinancial statements have been prepared by SeeBeyond Technology Corporation(the “Company” or “SeeBeyond”) in accordance with the rules and regulations ofthe Securities and Exchange Commission. Certain information and footnotedisclosures normally included in consolidated financial statements prepared inaccordance with accounting principles generally accepted in the United Stateshave been condensed or omitted in accordance with such rules and regulations.In the opinion of management, the accompanying unaudited condensed consolidatedfinancial statements reflect all adjustments, consisting only of normalrecurring adjustments, necessary to present fairly the financial position ofthe Company, and its results of operations and cash flows. These condensedconsolidated financial statements should be read in conjunction with the annualaudited consolidated financial statements and notes as of and for the yearended December 31, 2004 included in the Company’s Form 10-K filedwith the Securities and Exchange Commission on March 9, 2005.

 

The results of operations for the three months and sixmonths ended June 30, 2005 are not necessarily indicative of the results thatmay be expected for the year ending December 31, 2005 or any other interimperiod, and the Company makes no representations related thereto.

 

The consolidated financial statements include theaccounts of the Company and its subsidiaries. All material intercompanyaccounts and transactions have been eliminated in consolidation.

 

Certain reclassifications have been made to prior yearinformation to conform to the current period’s presentation.

 

**Note 2.****                                  *Revenue Recognition***

 

The Company recognizes revenue when an agreement hasbeen signed by both parties or other persuasive evidence of an arrangementexists, the software has been shipped or electronically delivered, the fees arefixed or determinable, collection of the resulting receivable is probable andno other significant obligations remain. For multiple element arrangementswhere vendor-specific objective evidence of fair value exists for allundelivered elements, we account for the delivered elements in accordance withthe “residual method” prescribed by Statement of Position 98-9. Vendor-specificobjective evidence of fair value is based on the price a customer is requiredto pay when the element is sold separately. The Company enters intoarrangements with end users, which may include the sale of licenses ofsoftware, maintenance and services under the arrangement or variouscombinations of each element, including the sale of such elements separately.

 

For multiple element arrangements, each element of thearrangement is analyzed and the Company allocates a portion of the total feeunder the arrangement to the undelivered elements, primarily services andmaintenance, using vendor-specific objective evidence of fair value of theelement and the remaining portion of the fee is allocated to the deliveredelements (i.e., generally the software license), regardless of any separateprices stated within the contract for each element, under the residual methodprescribed by SOP 98-9. Vendor-specific objective evidence of fair value isbased on the price the customer is required to pay when the element is soldseparately (i.e., hourly rates charged for consulting services when soldseparately from a software license and the renewal rate for maintenancearrangements). Each license agreement offers additional maintenance renewalperiods at a stated price. If vendor-specific objective evidence of fair valuedoes not exist for the undelivered elements, all revenue is deferred andrecognized ratably over the service period if the undelivered element isservices, or over the period the maintenance is provided if the undeliveredelement is maintenance, or until sufficient objective evidence exists or allelements have been delivered.

 

*License Revenues:* Amountsallocated to license revenues under the residual method are recognized at thetime of delivery of the software when vendor specific objective evidence of fairvalue exists for the undelivered elements, if any, and all the other revenuerecognition criteria discussed above have been met.

 

*Services Revenues:* Revenuesfrom services are comprised of consulting and implementation services and, to alimited extent, training. Services are generally sold on a time-and-materialsor fixed fee basis and include a range of services including installation ofoff-the-shelf software, data conversion and building non-complex interfaces toallow the software to operate in customized environments. Services aregenerally separable from the other elements under the arrangement since theperformance of the services is not essential to the functionality (i.e., do notinvolve significant production, modification or customization of the softwareor building

 

6

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complex interfaces) of any other element of thetransaction and are described in the contract such that the total price of thearrangement would be expected to vary as the result of the inclusion orexclusion of the services. Revenues for services are recognized as the servicesare performed. Training services are sold either on a per student basis or perclass and are recognized as classes are attended.

 

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

 

Revenues on sales made by alliance partners aregenerally recognized upon shipment of the software to the end user, if allother revenue recognition criteria noted above are met. Under limited arrangementswith certain distributors when all the revenue recognition criteria have beenmet and upon delivery of the product to the distributor, revenues arerecognized at that time. The Company does not offer a right of return on itsproducts.

 

**Note 3.****                                  *Operations by Reportable Segments and Geographic Area***

 

SeeBeyond has developed a comprehensive solution forbusiness integration, enabling the seamless flow of information across systemsapplications and enterprises in real-time, on a global basis. The Companyoperates in one industry segment, which is the development and marketing of acomprehensive solution for business integration where all key integrationtechnologies, including application-to-application, business-to-business andbusiness process management, are seamlessly integrated.  Revenues and long-lived assets by geographicarea were as follows (in thousands):

 
| ** **     | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|----------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **     | ** ** | **2005**                         | ** ** | **2004**                       | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenues:      |       |                             |       |                           |       |   |   |   |   |
| North America  |       | $                                | 18,350     |                           | $          | 20,596 |   | $ | 39,823 |   | $ | 37,450 |   |
| Europe         |       | 10,464                           |       | 18,367                         |       | 21,659 |   | 33,592 |   |
| Pacific Rim    |       | 3,301                            |       | 2,906                          |       | 7,941 |   | 5,264 |   |
| Total revenues |       | $                                | 32,115     |                           | $          | 41,869 |   | $ | 69,423 |   | $ | 76,306 |   |

 
| ** **               | ** ** | ** ** | ** ** | ** ** | ** ** | **June 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|--------------------------|------------|------------|------------|------------|------------|--------------------|------------|------------------------|------------|
| Long-lived  assets:      |       |       |       |       |       |               |       |                   |       |
| North America            |       |       |       |       |       | $                  | 12,197     |                   | $          | 13,392 |   |
| Europe                   |       |       |       |       |       | 2,561              |       | 1,617                  |       |
| Pacific Rim              |       |       |       |       |       | 1,100              |       | 1,262                  |       |
| Total long-lived  assets |       |       |       |       |       | $                  | 15,858     |                   | $          | 16,271 |   |

 

No single customer accounted for more than 10% of theCompany’s net revenues during the three months and six months ended June 30,2005 while one customer accounted for 11% of the Company’s net revenues duringthe three months and six months ended June 30, 2004.

 

**Note 4.****                                  *Computation of Net (Loss) Income Per Share***

 

Basic net (loss) income per share is computed on thebasis of the weighted average number of common shares outstanding. Diluted net (loss)income per share is computed on the basis of the weighted average number ofcommon shares outstanding plus the effect of outstanding stock warrants andoutstanding employee stock options using the “treasury stock” method.

 

7

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The following table sets forth the components of basicand diluted net (loss) income per share for the periods indicated (inthousands, except per share amounts):

 
| ** **                                                                                              | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                                                              | ** ** | **2005**                         | ** ** | **2004**                       | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net (loss)  income                                                                                      |       | $                                | (8,615     | )                              | $          | 869 |   | $ | (11,196 | ) | $ | (4,914 | ) |
| Weighted average  outstanding shares of common stock used to compute basic net (loss) income  per share |       | 85,370                           |       | 84,607                         |       | 85,364 |   | 84,430 |   |
| Dilutive effect  of employee stock options                                                              |       | —                           |       | 4,212                          |       | — |   | — |   |
| Common stock and  common stock equivalents                                                              |       | 85,370                           |       | 88,819                         |       | 85,364 |   | 84,430 |   |
| Basic and  diluted net (loss) income per share                                                          |       | $                                | (0.10      | )                              | $          | 0.01 |   | $ | (0.13 | ) | $ | (0.06 | ) |

 

Options topurchase approximately 18,872,176 shares of common stock for the three monthsand six months ended June 30, 2005, and options to purchase approximately 18,386,656shares of common stock for the three months and six months ended June 30,2004 were not included in the calculations of diluted net loss per sharebecause their effect would be antidilutive for the three months ended June 30,2004, 4,012,000 shares of common stock were included in the calculation ofdiluted net income. Common stock warrants to purchase 625,000 shares were notincluded in the calculations of diluted net loss per share because their effectwould be antidilutive for the three months ended June 30, 2005 and the sixmonths ended June 30, 2005 and June 30, 2004.

 

**Note 5.****                                  *Stock-Based Compensation***

 

As permitted under SFAS No. 123 “Accounting forStock-based Compensation” and SFAS No. 148, “Accounting for Stock-basedCompensation — Transition and Disclosure — and amendment to FAS 123”,  the Company continues to apply the provisionsof APB No. 25, “Accounting for Stock Issued to Employees,” for itsrecording of stock-based compensation arrangements. Accordingly, the Companyaccounts for its stock-based compensation using the intrinsic value method,which requires recognition of expense when the option exercise price is lessthan the fair value of the stock at the date of grant. The Company provides therequired pro forma net income (loss) and pro forma earnings (loss) per sharedisclosures for employee stock option grants made in 1995 and future years asif the fair value based method defined in SFAS No. 123 had been applied.Under the fair value method stock options are valued and expensed based on thefair value of the options determined under an option-pricing model.

 

The following table sets forth pro forma net loss andpro forma loss per share (in thousands, except per share amounts):

 
| ** **                                                                           | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                                           | ** ** | **2005**                         | ** ** | **2004**                       | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net (loss) income,  as reported                                                      |       | $                                | (8,615     | )                              | $          | 869 |   | $ | (11,196 | ) | $ | (4,914 | ) |
| Stock-based  employee compensation costs, included in net loss, as reported          |       | —                           |       | —                         |       | 1 |   | 97 |   |
| Stock-based  employee compensation costs if fair value based method had been applied |       | (1,005                           | )          | (2,666                         | )          | (2,901 | ) | (4,951 | ) |
| Pro forma net  loss                                                                  |       | $                                | (9,620     | )                              | $          | (1,797 | ) | $ | (14,096 | ) | $ | (9,768 | ) |
| Loss per share:                                                                      |       |                             |       |                           |       |   |   |   |   |
| Basic and  diluted - as reported                                                     |       | $                                | (0.10      | )                              | $          | 0.01 |   | $ | (0.13 | ) | $ | (0.06 | ) |
| Basic and  diluted - pro forma                                                       |       | $                                | (0.11      | )                              | $          | (0.02 | ) | $ | (0.17 | ) | $ | (0.12 | ) |

 

**Note 6.****                                  *Commitments, Contingencies and Debt***

 

**Bank Lines of Credit**

 

In November 2000, the Company established a$15.0 million line of credit facility (the “Line”) with a lendinginstitution that bears interest at an annual rate of either prime plus 0.5% orthe London InterBank Offered Rate (“LIBOR”) rate plus 2.50% (payable monthly). The expiration date of the Line has been extended through May 31, 2006.  As of June 30, 2005, $8.4 millionwas available under the Line and there were no borrowings outstanding. TheCompany may use up to $5.0 million of the Line to issue letters of credit.As of June 30, 2005, approximately $778,000 was available for the issuanceof letters of credit. The Line is secured by

 

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intellectual property rights, accounts receivable andcertain other assets and is subject to certain borrowing base restrictions. TheLine requires maintenance of certain financial covenants pertaining to keyfinancial ratios and the Company is in compliance with those covenants as of June 30,2005.

 

**Note 7.****                                  *Legal Proceedings***

 

The Company is party to routine claims and suitsbrought against it in the ordinary course of business including disputesarising over the ownership of intellectual property rights and collectionmatters. In the opinion of management, the outcome of such routine claims willnot have a material adverse effect on the Company’s business, financialcondition or results of operation.

 

Purported class action lawsuits have been filed againstSeeBeyond and individual officers and members of our board of directors withrespect to the proposed merger involving Sun Microsystems, Inc. (see Notes11 and 12). The lawsuits generally allege that the defendants breachedfiduciary duties to our stockholders and engaged in self-dealing by enteringinto and approving the merger agreement with Sun Microsystems. The complaintsseek, among other things, to enjoin completion of the merger with SunMicrosystems and to rescind the transaction.  Please refer to “Note12—Subsequent Event”.

 

**Note 8.****                                  *Comprehensive (Loss) Income***

 

SFAS No. 130 “Reporting Comprehensive Income,”establishes standards for reporting comprehensive (loss) income and itscomponents in financial statements. Comprehensive (loss) income, as defined,refers to revenues, expenses, gains and losses that are not included in net (loss)income but rather are recorded directly in stockholders’ equity.

 

Total comprehensive (loss) income was as follows (inthousands):

 
| ** **                      | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|---------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                      | ** ** | **2005**                         | ** ** | **2004**                       | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net (loss)  income              |       | $                                | (8,615     | )                              | $          | 869 |   | $ | (11,196 | ) | $ | (4,914 | ) |
| Other  comprehensive loss:      |       |                             |       |                           |       |   |   |   |   |
| Foreign  translation adjustment |       | (520                             | )          | (565                           | )          | (885 | ) | (65 | ) |
| Comprehensive  (loss) income    |       | $                                | (9,135     | )                              | $          | 304 |   | $ | (12,081 | ) | $ | (4,979 | ) |

 

**Note 9.****                                  *Stockholders’ Equity***

 

**Treasury Stock**

 

During the three monthsended June 30, 2005, the Company purchased 1,090,300 shares of its common stockat an average price of $2.98 per share. As of June 30, 2005, the Company held 3,719,252 shares of its commonstock in treasury.

 

**Note 10.****                           *Recent Accounting Pronouncements***

 

In December 2004, theFinancial Accounting Standards Board issued Statements of Financial AccountingStandards Statement No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”).  This Statement is a revision of SFAS No. 123,“Accounting for Stock-BasedCompensation” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”.  SFAS 123(R) requires a company to measure the grant-date fair value ofequity awards given to employees in exchange for services and recognize thatcost over the period that such services are performed.  SFAS 123R is effective beginning January 1,2006.

 

The Company is currentlyevaluating the two methods of adoption allowed by SFAS 123R: themodified-prospective transition method and the modified-retrospectivetransition method.  Adoption of SFAS 123Ris expected to materially increase stock compensation expense and decrease netincome; however, the impact cannot be determined at this time.  In addition, SFAS 123R requires the excesstax benefits related to stock compensation be reported as a cash inflow fromfinancing activities rather than as a reduction of taxes paid in cash fromoperating activities.

 

In May 2005, FASB issued SFAS 154, “Accounting Changes and ErrorCorrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3”.SFAS 154 changes the requirements for the accounting for and reporting of achange in accounting principle, and applies to all voluntary changes inaccounting principle. It also applies to changes required by an accountingpronouncement in the unusual instance that the pronouncement does not includespecific transition provisions. This statement requires retrospective applicationto prior periods’ financial statements of changes in accounting principle,unless it is impracticable to determine either the

 

9

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period-specific effects or the cumulative effect of the change. SFAS154 is effective for accounting changes made in fiscal years beginning afterDecember 15, 2005. We do not expect that adoption of this statement will have amaterial impact on our results of operations or financial condition.

 

**Note 11.****                           *Business Combinations***

 

*Acquisition of SpiritSoft*

 

On April 22,2005, we acquired substantially all of the assets and certain liabilities ofSpiritSoft, a privately held software development company.

 

The total purchase price was approximately $1.2 million, of whichapproximately $285,000 was paid in cash. The SpiritSoft acquisition wasaccounted for under SFAS 141 “Business Combinations” and certain specifiedprovisions of SFAS 142 “Goodwill and Other Intangible Assets”.  The assets acquired and liabilities assumedare based on their fair values at the date of acquisition.  The results of operations of SpiritSoft areincluded in our Condensed Consolidated Statements of Operations from April 22,2005.  Pro forma results are notpresented as the effect of the acquisition is not material to our results ofoperations.

 

We are finalizing our assessment of the fair value of the intangibleand other assets acquired. The following table summarizes the preliminaryallocation of the purchase price to the assets acquired and liabilities assumedbased on their estimated fair values on the date of acquisition:

 

| Assets acquired:                                    |   |      |      |
|-----------------------------------------------------|--------|-----------|-----------|
| Accounts  receivable                                |   | $         | 170,861   |   |
| Property and  equipment                             |   | 26,872    |      |
| Total assets  acquired                              |   | 197,733   |      |
|                                                |   |      |      |
| Liabilities  assumed:                               |   |      |      |
| Accounts payable                                    |   | 159,521   |      |
| Accrued employee  compensation and related expenses |   | 740,514   |      |
| Deferred revenues                                   |   | 55,302    |      |
| Other  liabilities                                  |   | 202,341   |      |
|                                                |   | 1,157,678 |      |
|                                                |   |      |      |
| Cash paid                                           |   | 285,253   |      |
|                                                |   |      |      |
| Total  preliminary purchase price                   |   | $         | 1,245,198 |   |

 

Weassessed the potential benefits from this acquisition, including the enhancementof our product suite and determined that the purchase price representedappropriate consideration for the acquisition. As the purchase price exceededthe fair value of the assets purchased, we recorded goodwill in connection withthis transaction. In accordance with SFAS 142, goodwill is not being amortizedand will be tested for impairment annually or sooner, if circumstances indicatethat impairment may have occurred. We expect to finalize the valuation of theacquired intangible and other assets in the third quarter of 2005.

 

*Acquisitionby Sun MicroSystems, Inc.*

 

On June27, 2005, the Company entered into an Agreement and Plan of Merger with SunMicrosystems, Inc. (“Sun”) and Big Bear Acquisition Corporation, a directwholly owned subsidiary of Sun, pursuant to which, if completed, theCompany would become a subsidiary of Sun and stockholders of the Company wouldreceive $4.25 in cash (without interest) for each share of SeeBeyond commonstock owned (the “Merger”).  The Merger is subject to certain closingconditions, including regulatory approvals and SeeBeyond stockholder approval.The special stockholder meeting will be held on August 25, 2005.

 

For thethree months and six months ended June 30, 2005, we incurred approximately $2.3million of professional and legal fees in connection with the Merger. If the Mergeris not completed, under specified circumstances we may be required to pay atermination fee of $12.6 million to Sun.

 

**Note 12.****                          ****Subsequent Event**

 

On July 11 and 14, 2005, purported class action lawsuits were filed inthe California Superior Court, County of Los Angeles. These cases are captioned*Paul L. Henderson v. SeeBeyond TechnologyCorporation et al.*, Case No. BC336372 and *Manju Mehta, a/k/a Manju Kapoor v. James T. Demetriades, et al.*,Case No. BC336523, and name as defendants our Chief Executive Officer JamesDemetriades, the other members of our board of directors: Raymond Lane, JohnBuckley, Salah Hassanein and Steven Ledger, and SeeBeyond. The complaintsallege that, in pursuing the transaction with Sun and approving the mergeragreement with

 

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Sun, the defendants breached their fiduciary duties to the holders ofSeeBeyond common stock by, among other things, engaging in self-dealing,approving a transaction in which they allegedly stand to receive financialbenefits not shared by the other SeeBeyond shareholders, failing to obtain thehighest price reasonably available for SeeBeyond and its shareholders, failingto properly value SeeBeyond and agreeing to the termination fee provisions ofthe merger agreement and voting agreements relating to the Sun merger. Thecomplaints further allege that the merger agreement with Sun resulted froma flawed process and that the defendants tailored the terms of the merger toadvance their own financial interests. The complaints seek an injunctionpreventing the completion of the merger with Sun an order directing ourdirectors to exercise their fiduciary duties to obtain a transaction in thebest interests of our stockholders, rescission of the proposed merger to theextent already implemented, and reasonable costs and attorneys’ fees.

 

Although we believe that the lawsuits are without merit, and intend todefend them vigorously, no assurances can be given that we will prevail in thelawsuits. In the event that holders of a majority of the outstanding shares ofSeeBeyond common stock vote in favor of adoption of the merger agreement withSun in addition to any other defenses SeeBeyond, Mr. Demetriades and thedirector defendants may assert, SeeBeyond, Mr. Demetriades and the directordefendants intend to rely upon the approval of the proposal to adopt the mergeragreement with Sun in defense of the claims asserted in the actions.Specifically, SeeBeyond, Mr. Demetriades and the director defendants intend toargue that the approval of the proposal to adopt the merger agreement with Sunby holders of a majority of the shares of our common stock constitutes aratification or acceptance of the conduct that is the subject of plaintiffs’complaints. SeeBeyond, Mr. Demetriades and the director defendants furtherintend to argue that such ratification or approval constitutes a completedefense to the claims asserted in the complaints or otherwise operates toprotect them from liability or increase the plaintiffs’ burdens of pleading andproof in the actions. 

 

Furthermore, one of the conditions to the closing of the merger withSun is that there is no injunction issued by any court preventing theconsummation of the merger. No assurances can be given that these lawsuits willnot result in such an injunction being issued, which could prevent or delay theclosing of the merger with Sun.

 

11

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**Item 2 .****                                Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

You should read the following discussion inconjunction with the consolidated financial statements and related notes ofSeeBeyond Technology Corporation appearing elsewhere in this Form 10-Q andthe Form 10-K. The following discussion contains forward-looking statementsthat involve risks and uncertainties, including statements regardinganticipated costs and expenses, mix of revenues and plans for introducing newproducts and services. Our actual results could differ materially from theresults contemplated by these forward-looking statements as a result of anumber of factors, including those discussed below, under “Risk Factors” andelsewhere in this Form 10-Q.

 

**Proposed Merger**

 

On June27, 2005, the Company entered into an Agreement and Plan of Merger with SunMicrosystems, Inc. (“Sun”) and Big Bear Acquisition Corporation, a directwholly owned subsidiary of Sun, pursuant to which, if completed, the Companywould become a subsidiary of Sun and stockholders of the Company would receive$4.25 in cash (without interest) for each share of SeeBeyond common stockowned.  The Merger is subject to certain closing conditions, includingregulatory approvals and SeeBeyond stockholder approval.  The special stockholder meeting will be heldon August 25, 2005.

 

**General Overview**

 

In October 2003, weannounced the general availability of our new suite of products, the SeeBeyondIntegrated Composite Application Network version 5.0 (“ICAN 5”).   ICAN 5 offers the integration industry’sfirst fully integrated platform for the development and deployment of compositeapplications.  ICAN 5 helps organizationsto rapidly assemble and deploy enterprise-scale end-user composite applicationsbuilt on existing systems and infrastructure.

 

We derive revenuesprimarily from three sources: licenses, services and maintenance.  We sell our products and services on a globalbasis through our direct sales force, and through alliances with leadingsystems integrators, and in other instances, through value-added resellers andtechnology vendors. Our products are typically licensed directly to customersfor a perpetual term, with pricing based on the number of systems orapplications the customer is integrating or connecting with our products.  We record license revenues when a licenseagreement 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 noother significant obligations remain. Payments for licenses, services and maintenance received in advance ofrevenue recognition are recorded as deferred revenue.

 

Total revenue for the threemonths and six months ended June 30, 2005 was $32.1million and $69.4 million,respectively, as compared to $41.9 million and $76.3 million, respectively, inthe same periods of the prior year, a 23% and 9% decrease from the same periodsin the prior year.  License revenue forthe three months and six months ended June 30, 2005 was $10.0 million and$23.8 million, respectively, a 49% and 22% decrease over the same periods ofthe prior year.  For the three months andsix months ended June 30, 2005, license revenues represented 31% and 34%,respectively, of total revenue with services revenues representing 23% and 25%,respectively, and maintenance revenues representing 46% and 41%, respectively.

 

International revenuesrepresented 43% of total revenues for the three months and six months ended June 30,2005, with Europe revenues representing 34% and 31%, respectively and AsiaPacific revenues representing 10% and 11%, respectively.

 

We remain focused oncontrolling costs, growing license revenue, achieving our operating margingoals and ensuring our customers success with ICAN 5.

 

**Critical Accounting Policies**

 

The discussion and analysis of our financial conditionand results of operations are based upon our consolidated financial statements,which have been prepared in accordance with U.S. generally accepted accountingprinciples.  The preparation of thesefinancial statements requires us to make estimates and judgments that affectthe reported amounts of assets and liabilities, revenues and expenses, andrelated disclosure of contingent assets and liabilities at the date of ourfinancial statements. Actual results may differ from these estimates underdifferent assumptions or conditions.

 

We believe our most critical accounting policiesinclude the following:

 

•                                          revenuerecognition,

 

•                                          estimatingallowance for doubtful accounts, and

 

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•                                          accountingfor income taxes.

 

*Revenue recognition.* Werecognize revenue when an agreement has been signed by both parties or otherpersuasive evidence of an arrangement exists, the software has been shipped orelectronically delivered, the fees are fixed or determinable, collection of theresulting receivable is probable, and no other significant obligations remain.For multiple element arrangements where vendor-specific objective evidence of fairvalue exists for all undelivered elements, we account for the deliveredelements in accordance with the “residual method” prescribed by Statement ofPosition 98-9. Vendor-specific objective evidence of fair value is based on theprice a customer is required to pay when the element is sold separately.

 

We assess whether the fee is fixed and determinableand collection is probable at the time of the transaction. In assessing whetherthe fee is fixed and determinable, we analyze the payment terms of the transactionand other factors, including the nature and class of customer, our historicalexperience of collecting under our payment terms without granting a concession,the possibility of the product becoming technologically obsolete before thepayments become due and the likelihood of the customer asking for a refund. Wedo not offer a right of return on our products.

 

If we determine the fee is not fixed or determinable,we defer the revenue until the payments under the arrangement become due. Weassess whether collection is probable based on a number of factors, includingthe customer’s past transaction history and credit worthiness. If we determinethat collection of a fee is not probable, we defer the fee and recognizerevenue at the time collection becomes probable, which is generally upon thereceipt of cash.

 

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

 

Revenues on sales made by alliance partners aregenerally recognized upon shipment of the software to the end user, if all otherrevenue recognition criteria noted above are met. Under limited arrangementswith certain distributors when all the revenue recognition criteria have beenmet upon delivery of the product to the distributor, revenues are recognized atthat time.  The Company does not offer aright of return on its products.

 

The fair value of services such as consulting ortraining is based upon separate sales of these services. Consulting andtraining services are generally sold on a time-and-materials or fixed fee basisand are generally recognized as the services are performed. Consulting servicesprimarily consist of implementation services related to the installation of ourproducts and generally do not involve significant production, modification orcustomization to or development of the software.

 

Significant management judgments and estimates must bemade when applying our revenue recognition policy.  In the event the application of our revenuerecognition policy is incorrect material differences in the amount and timingof revenue could result.

 

*Allowance for doubtful accounts.* Wemaintain allowances for doubtful accounts based on our analyses of thelikelihood that our customers will not pay us all the amounts due us.  In circumstances where there is knowledge of aspecific customer’s inability to meet its financial obligations, a specificreserve is recorded against amounts due to reduce the net recognized receivableto the amount that is reasonably believed to be collected. For all ourcustomers we perform analyses, which include a review of their credit profiles,the terms and conditions of the contracts with our customers, and the currenteconomic trends and payment history. We reassess these allowances eachaccounting period. If actual payment experience with our customers is differentthan our estimates, adjustments to these allowances may be necessary resultingin additional charges to our statement of operations.

 

*Accounting for income taxes.* Werecord a valuation allowance to reduce our deferred tax assets by the estimatedamount of tax benefits which are not expected to be realized.  Tax benefits will not be realized if we donot generate sufficient taxable income in the future to utilize those deferredtax assets.  Our accounting for deferredtaxes under Statement of Financial Accounting Standards No. 109, *Accounting for Income Taxes*(“Statement109”), involves the evaluation of a number of factors concerning the ability torealize our deferred tax assets. In concluding that a valuation allowance wasrequired on the remaining net deferred tax assets, we primarily considered suchfactors as our history of operating losses and expected future income or lossesand the nature of our deferred tax assets in specific jurisdictions.  In the event that we determine we are able torealize our deferred tax assets in the future in excess of their net recordedamount, an adjustment to the valuation allowance would increase income in theperiod such a determination was made.

 

Significant management judgment is required for purposes of assessingour ability to realize any future benefit from our net deferred taxassets.  In the event actual resultsdiffer from these estimates or we adjust these estimates in future periods, ouroperating results and financial position could be materially affected.

 

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In addition, Federal and state income taxes have not been provided foraccumulated undistributed earnings of our foreign subsidiaries.  We intend to permanently reinvest such earningsin those foreign subsidiaries.  Theamount of earnings designated as indefinitely reinvested offshore is based uponthe Company’s expectations of the future cash needs of its entities.  Income tax considerations are also a factorin determining the amount of foreign earnings to be repatriated.  In the event actual cash needs of the Company’sU.S. entity exceeds its current expectations or the actual cash needs of itsforeign entities are less than expected, the Company may need to repatriateforeign earnings which have been designated as indefinitely reinvestedoffshore.  This would result inadditional income tax expense being recorded.

 

**Results of Operations**

 

The following table sets forth our results ofoperations for the three months ended June 30, 2005 and 2004, respectively,expressed as a percentage of total revenues:

 
| ** **                                    | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-----------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                    | ** ** | **2005**                         | ** ** | **2004**                       | ** ** | **2005** | ** ** | **2004** | ** ** |
| Revenues:                                     |       |                             |       |                           |       |   |   |   |   |
| License                                       |       | 31                               | %          | 47                             | %          | 34 | % | 40 | % |
| Services                                      |       | 23                               |       | 22                             |       | 25 |   | 26 |   |
| Maintenance                                   |       | 46                               |       | 31                             |       | 41 |   | 34 |   |
| Total revenues                                |       | 100                              |       | 100                            |       | 100 |   | 100 |   |
| Cost of  revenues:                            |       |                             |       |                           |       |   |   |   |   |
| License                                       |       | —                           |       | 1                              |       | 1 |   | 1 |   |
| Services and  maintenance                     |       | 31                               |       | 25                             |       | 29 |   | 27 |   |
| Total cost of  revenues                       |       | 31                               |       | 26                             |       | 30 |   | 28 |   |
| Gross profit                                  |       | 69                               |       | 74                             |       | 70 |   | 72 |   |
| Operating  expenses:                          |       |                             |       |                           |       |   |   |   |   |
| Research and  development                     |       | 32                               |       | 23                             |       | 29 |   | 25 |   |
| Sales and  marketing                          |       | 41                               |       | 38                             |       | 39 |   | 41 |   |
| General and  administrative                   |       | 16                               |       | 10                             |       | 15 |   | 12 |   |
| Merger and  acquisition                       |       | 7                                |       | —                         |       | 3 |   | — |   |
| Amortization of  sales and marketing warrants |       | —                           |       | —                         |       | — |   | — |   |
| Amortization of  stock-based compensation     |       | —                           |       | —                         |       | — |   | — |   |
| Total operating  expenses                     |       | 96                               |       | 72                             |       | 86 |   | 78 |   |
| (Loss) income  from operations                |       | (27                              | )          | 2                              |       | (16 | ) | (6 | ) |
| Interest and  other income (expense), net     |       | —                           |       | —                         |       | — |   | — |   |
| Interest expense                              |       | —                           |       | —                         |       | — |   | — |   |
| (Loss) income  before income tax provision    |       | (27                              | )          | 2                              |       | (16 | ) | (6 | ) |
| Income tax  provision                         |       | —                           |       | —                         |       | — |   | — |   |
| Net (loss)  income                            |       | (27                              | )%         | 2                              | %          | (16 | )% | (6 | )% |

 

**Revenues**

 

***Total revenues***(in thousands except percentages):

 
| ** **     | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|----------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **     | ** ** | **2005**                         | ** ** | **2004**                       | ** ** | **Change** | ** ** | **2005** | ** ** | **2004** | ** ** | **Change** | ** ** |
| Total revenues |       | $                                | 32,115     |                           | $          | 41,869 |   | $ | (9,754 | ) | (23 | )% | $ | 69,423 |   | $ | 76,306 |   | $ | (6,883 | ) | (9 | )% |
|                |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Total revenues decreased for the three months and sixmonths ended June 30, 2005 as compared to the same periods of the prior yearprimarily due to decreases in license and services revenues.

 

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***License revenues***(in thousands except percentages):

 
| ** **       | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **       | ** ** | **2005**                         | ** ** | **2004**                       | ** ** | **Change** | ** ** | **2005** | ** ** | **2004** | ** ** | **Change** | ** ** |
| License revenues |       | $                                | 10,004     |                           | $          | 19,778 |   | $ | (9,774 | ) | (49 | )% | $ | 23,753 |   | $ | 30,658 |   | $ | (6,905 | ) | (23 | )% |
|                  |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

License revenuesdecreased for the three months and six months ended June 30, 2005 as comparedto the same periods in the prior year primarily due to twofactors.  In Europe, license revenue decreased year over year due tothe signing of a single large license deal in the prior year, which representedapproximately 10% of revenue in the prior year.  In addition, licenserevenue for the three months and six months ended June 30, 2005 was impacted bythe announcement by the Company on June 27, 2005 regarding the Company’sacquisition by Sun Microsystems, Inc.  This announcement impacted thepotential signing of new license deals with customers as they delay decisionsto evaluate the impact of the announced merger on the Company’s productofferings.

 

***Services revenues***(in thousands except percentages):

 

Revenues from servicesinclude consulting and implementation services, training and reimbursableout-of-pocket expenses. A majority of our customers use third-party systemsintegrators to implement our products. Customers also typically purchaseadditional consulting services from us to support their implementation activities.  From time to time, we use third-party systemsintegrators in a sub-contractor capacity to supplement our own internalservices employees. Our consulting services are generally sold on a time andmaterials or fixed fee basis, and services revenues are recognized as theservices are performed. We also offer training services, which are sold on aper student basis and for which revenues are recognized as the classes areattended.

 
| ** **         | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **         | ** ** | **2005**                         | ** ** | **2004**                       | ** ** | **Change** | ** ** | **2005** | ** ** | **2004** | ** ** | **Change** | ** ** |
| Services  revenues |       | $                                | 7,417      |                           | $          | 9,110 |   | $ | (1,693 | ) | (19 | )% | $ | 17,074 |   | $ | 19,620 |   | $ | (2,546 | ) | (13 | )% |
|                    |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Services revenues decreased for the three months andsix months ended June 30, 2005 as compared to the same periods of theprior year primarily due to a decrease in the size, nature and timing of suchengagements as a result of lower license revenues in the current year’s threeand six month periods as compared to the same periods in the prior year.

 

***Maintenance revenues***(in thousands except percentages):

 

Customers who license ourproducts normally purchase maintenance contracts. These contracts provideunspecified software upgrades and technical support over a fixed term, which istypically 12 months. Maintenance contracts are usually paid in advance,and revenues from these contracts are recognized ratably over the term of thecontract.

 
| ** **            | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-----------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **            | ** ** | **2005**                         | ** ** | **2004**                       | ** ** | **Change** | ** ** | **2005** | ** ** | **2004** | ** ** | **Change** | ** ** |
| Maintenance  revenues |       | $                                | 14,694     |                           | $          | 12,981 |   | $ | 1,713 |   | 13 | % | $ | 28,596 |   | $ | 26,028 |   | $ | 2,568 |   | 10 | % |
|                       |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Maintenance revenues for the three months and sixmonths ended June 30, 2005 increased as compared to the same periods of theprior year primarily due to renewals of prior period maintenance contractsassociated with the increase in our cumulative license revenues.

 

**Cost of revenues**(in thousands except percentages):

 

Cost of revenues consistsprimarily of compensation and related overhead costs for personnel andsub-contractors engaged in implementation services, maintenance supportactivities, training and out-of-pocket expenses as well as royalties forthird-party products embedded or bundled with our products. Such costs includesalaries, employee benefits, incentive compensation, bonuses, travel, rent andallocated facilities and professional fees.

 

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| ** **              | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **              | ** ** | **2005**                         | ** ** | **2004**                       | ** ** | **Change** | ** ** | **2005** | ** ** | **2004** | ** ** | **Change** | ** ** |
| Total cost of  revenues |       | $                                | 9,954      |                           | $          | 10,996 |   | $ | (1,042 | ) | (9 | )% | $ | 20,997 |   | $ | 21,452 |   | $ | (455 | ) | (2 | )% |
|                         |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Total cost of revenues for the three months and six monthsended June 30, 2005 decreased slightly as compared to the same periods of theprior year with no significant year over year changes in any particular cost ofrevenue line item.

 

**Operating expenses**

 

***Research and development expenses***(in thousands except percentages):

 

Research and development expenses consist primarily ofpersonnel, third party contractors and related costs associated with thedevelopment and enhancement of our products.

 
| ** **                         | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                         | ** ** | **2005**                         | ** ** | **2004**                       | ** ** | **Change** | ** ** | **2005** | ** ** | **2004** | ** ** | **Change** | ** ** |
| Research and  development expenses |       | $                                | 10,287     |                           | $          | 9,636 |   | $ | 651 |   | 7 | % | $ | 20,298 |   | $ | 19,376 |   | $ | 922 |   | 5 | % |
|                                    |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Research and development expenses increased for the threemonths and six months ended June 30, 2005 as compared to the same periods ofthe prior year as we transition our product development efforts to new productsdue to the completion of the ICAN 5 product suite and continue to enhance andextend our product suites.  We anticipateresearch and development expenses to increase slightly in absolute dollars forthe foreseeable future.

 

***Sales and marketing expenses***(in thousands except percentages):

 

Sales and marketing expensesconsist primarily of personnel and related costs of our direct sales force andmarketing staff and the cost of expenditures specific to the marketing group,such as public relations and advertising, trade shows and marketing collateralmaterials and expenditures.

 
| ** **                    | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                    | ** ** | **2005**                         | ** ** | **2004**                       | ** ** | **Change** | ** ** | **2005** | ** ** | **2004** | ** ** | **Change** | ** ** |
| Sales and  marketing expenses |       | $                                | 13,087     |                           | $          | 16,066 |   | $ | (2,979 | ) | (19 | )% | $ | 26,794 |   | $ | 31,070 |   | $ | (4,276 | ) | (14 | )% |
|                               |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Sales and marketing expenses decreased for the threemonths and six months ended June 30, 2005 as compared to the same periods ofthe prior year primarily due to a decrease in sales commissions on lowerlicense sales and promotional and public relations activities.  We anticipate sales and marketing expenses toincrease slightly in absolute dollars for the foreseeable future.

 

***General and administrativeexpenses*** (inthousands except percentages):

 

General and administrativeexpenses consist primarily of personnel and related costs for corporate,executive, human resources, legal, IT, finance and accounting functions.

 
| ** **                           | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                           | ** ** | **2005**                         | ** ** | **2004**                       | ** ** | **Change** | ** ** | **2005** | ** ** | **2004** | ** ** | **Change** | ** ** |
| General and  administrative expenses |       | $                                | 5,168      |                           | $          | 4,249 |   | $ | 919 |   | 22 | % | $ | 10,329 |   | $ | 8,858 |   | $ | 1,471 |   | 17 | % |
|                                      |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

General and administrative expenses for the threemonths and six months ended June 30, 2005 increased as compared to the sameperiods of the prior year primarily due to consulting and related expensesincurred on compliance and review projects related to the requirements imposedby the Sarbanes-Oxley Act of 2002.  Weanticipate general and administrative expenses to increase slightly in absolutedollars for the foreseeable future.

 

***Merger and acquisition expenses***(in thousands except percentages):

 
| ** **                       | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|----------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                       | ** ** | **2005**                         | ** ** | **2004**                       | ** ** | **Change** | ** ** | **2005** | ** ** | **2004** | ** ** | **Change** | ** ** |
| Merger and  acquisition expenses |       | $                                | 2,350      |                           | —     |   | $ | 2,350 |   | 100 | % | $ | 2,350 |   | — |   | $ | 2,350 |   | 100 | % |
|                                  |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Merger and acquisition expenses increased for thethree months and six months ended June 30, 2005 as compared to the same periodsof the prior year primarily due to professional and legal fees incurred inrelation to the Sun acquisition.

 

16

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***Interestincome and other income (expense), net***(in thousands except percentages):

 

Interest income and otherincome (expense), net consists of interest earned on cash balances, foreigncurrency gains and losses, gains and losses on the disposal of fixed assets andother miscellaneous income and expense items.

 
| ** **                                       | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                       | ** ** | **2005**                         | ** ** | **2004**                       | ** ** | **Change** | ** ** | **2005** | ** ** | **2004** | ** ** | **Change** | ** ** |
| Interest income  and other income (expense), net |       | $                                | 292        |                           | $          | 143 |   | $ | 149 |   | 104 | % | $ | 578 |   | $ | (70 | ) | $ | 648 |   | (926 | )% |
|                                                  |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Interest income and otherincome (expense), net for the three months and six months ended June 30,2005 increased as compared to the same periods of the prior year primarily dueto decreases in foreign exchange losses in several of our internationalsubsidiaries and an increase in interest income earned as a result of higherinterest rates.

 

***Interestexpense***(in thousands except percentages):

 
| ** **       | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **       | ** ** | **2005**                         | ** ** | **2004**                       | ** ** | **Change** | ** ** | **2005** | ** ** | **2004** | ** ** | **Change** | ** ** |
| Interest expense |       | $                                | (31        | )                              | $          | (61 | ) | $ | 30 |   | (49 | )% | $ | (60 | ) | $ | (133 | ) | $ | 73 |   | (55 | )% |
|                  |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Interest expense for the three months and six months endedJune 30, 2005 decreased as compared to the same periods of the prior yearprimarily due to repayment in full of the equipment line and equipment advance priorto December 31, 2004.

 

***Income tax provision***(in thousands except percentages):

 
| ** **            | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-----------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **            | ** ** | **2005**                         | ** ** | **2004**                       | ** ** | **Change** | ** ** | **2005** | ** ** | **2004** | ** ** | **Change** | ** ** |
| Income tax  provision |       | $                                | 145        |                           | $          | 135 |   | $ | 10 |   | 7 | % | $ | 368 |   | $ | 178 |   | $ | 190 |   | 107 | % |
|                       |            |                                  |            |                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The income tax provisionconsists primarily of foreign taxes due to income earned in foreign operations andstate franchise taxes.  The estimatedeffective tax rates differ from the U.S. statutory rate primarily due to statetaxes, non-deductible expenses and changes in the valuation allowance.

 

The Company recordsvaluation allowances against its deferred tax assets, when necessary, inaccordance with SFAS No. 109, “Accounting for Income Taxes”.  Realization of deferred tax assets (such asnet operating loss carryforwards and income tax credits) is dependent on futuretaxable earnings and is therefore uncertain. To the extent management believes recovery is unlikely, the Companyestablishes a valuation allowance against its deferred tax asset.  The Company’s tax position as of June 30, 2005has not changed since December 31, 2004.  The Company continues to monitor the need forthe valuation allowance each period.  Inthe event actual results differ from the Company’s estimates, the operatingresults and financial position could be materially affected.

 

Net undistributed earningsof certain foreign subsidiaries are considered to be indefinitely reinvested,and accordingly, no provision for U.S. Federal and state income taxes has beenprovided thereon.  Upon distribution ofthese earnings in the form of dividends, or otherwise, the Company would besubject to U.S. income tax.

 

**Liquidity and capital resources**

 

As of June 30, 2005, we had cash and cashequivalents of $66.0 million, a decrease of $7.1 million from $73.1 millionheld as of December 31, 2004.

 

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*Operating activities:*

 
| ** **                             | ** ** | **Six Months Ended  June 30,** | ** ** |
|----------------------------------------|------------|--------------------------------|------------|
| ** **                             | ** ** | **2005**                       | ** ** | **2004** | ** ** | **Change** | ** ** |
| Net cash used in  operating activities |       | $                              | (4,470     | ) | $ | (5,199 | ) | $ | 729 |   | (14 | )% |
|                                        |            |                                |            |  |  |  |  |  |  |  |  |  |

 

Net cash used in operating activities for the six months ended June 30,2005 was primarily due to a net loss of $11.2 million and decreases in accountspayable, accrued compensation and related expenses, accrued expenses anddeferred revenues, partially offset by a decrease in accounts receivable.

 

Net cash provided by operating activities for the six months ended June30, 2004 was primarily due to a net loss of $4.9 million and decreases inaccrued compensation and related expenses and accrued expenses, partiallyoffset by a decrease in accounts receivable and increases in accounts payableand deferred revenues.

 

*Investing activities:*

 
| ** **                             | ** ** | **Six Months Ended  June 30,** | ** ** |
|----------------------------------------|------------|--------------------------------|------------|
| ** **                             | ** ** | **2005**                       | ** ** | **2004** | ** ** | **Change** | ** ** |
| Net cash used in  investing activities |       | $                              | (858       | ) | $ | (705 | ) | $ | 153 |   | (22 | )% |
|                                        |            |                                |            |  |  |  |  |  |  |  |  |  |

 

The change in investing activities from June 30, 2004to June 30, 2005 is due primarily to a decrease in capital expenditures, partiallyoffset by a payment to acquire a company during the six months ended June 30,2005.  We expect capital expenditures inthe next three months to remain flat compared to the previous three months.

 

*Financing activities:*

 
| ** **                                           | ** ** | **Six Months Ended  June 30,** | ** ** |
|------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                           | ** ** | **2005**                       | ** ** | **2004** | ** ** | **Change** | ** ** |
| Net cash (used  in) provided by financing activities |       | $                              | (885       | ) | $ | 722 |   | $ | (1,607 | ) | (223 | )% |
|                                                      |            |                                |            |  |  |  |  |  |  |  |  |  |

 

Net cash used in financing activities for the sixmonths ended June 30, 2005 was primarily due to payments for the repurchase of1,090,300 shares of treasury stock, partially offset by proceeds from theissuance of common stock pursuant to the employee stock option plan.

 

Net cash provided by financing activities for the sixmonths ended June 30, 2004 was primarily due to proceeds from the issuance ofcommon stock pursuant to the employee stock option plan, partially offset byrepayments on the bank lines of credit.

 

In November 2000, the Company established a$15.0 million line of credit facility (the “Line”) with a lendinginstitution that bears interest at an annual rate of either prime plus 0.5% orthe London InterBank Offered Rate (“LIBOR”) rate plus 2.50% (payable monthly). TheLine expires on May 31, 2006.  As of June 30,2005, approximately $8.4 million was available under the Line and therewere no borrowings outstanding. The Company may use up to $5.0 million ofthe Line to issue letters of credit. As of June 30, 2005, approximately$778,000 was available for the issuance of letters of credit. The Line issecured by intellectual property rights, accounts receivable and certain otherassets and is subject to certain borrowing base restrictions. The Line requiresmaintenance of certain financial covenants pertaining to key financial ratiosand the Company is in compliance with those covenants as of June 30, 2005.

 

We believe that our current cash and cash equivalentsbalance will be sufficient to meet our working capital and capital expenditurerequirements for at least the next twelve months. However, we may need to raiseadditional funds, and we may not be able to obtain additional debt or equityfinancing on favorable terms, if at all. In addition, we may also utilize cashresources to fund acquisitions or investments in complementary businesses,technologies or product lines.

 

**Risks Related to SeeBeyond**

 

You should carefully consider the risks described below in evaluatingthe other statements made herein. The risks described below are not the onlyones facing our Company. Additional risks not presently known to us, or wecurrently deem immaterial, may also impair our business operations.

 

Our business, financial condition or results of operations could beadversely affected by any of these risks. The trading price of our 

 

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common stock could decline due to any of these risks.

 

***Failure to completethe merger recently announced with Sun Microsystems, Inc. could have anegative impact on the market price of our common stock and on our business.***

 

On June 27, 2005, weentered into a merger agreement with Sun Microsystems, Inc. (“Sun”) that wouldresult in SeeBeyond becoming a wholly owned subsidiary of Sun.  If themerger is not completed, the price of our common stock may decline to theextent that the current market price reflects a market assumption that themerger will be completed. In addition, our business and operations may beharmed to the extent that customers, suppliers and others believe that wecannot compete effectively in the marketplace without the merger. We also willbe required to pay significant costs incurred in connection with the merger,whether or not the merger is completed. Moreover, under specified circumstanceswe may be required to pay a termination fee of $12.6 million to Sun inconnection with a termination of the merger agreement.

 

***Pending stockholderlawsuits could prevent or delay the closing of the merger or otherwisenegatively impact the business and operations of SeeBeyond.***

 

Purported class actionlawsuits have been filed against SeeBeyond and individual officers and membersof our board of directors with respect to the merger involving Sun. Thelawsuits generally allege that the defendants breached fiduciary duties to ourstockholders and engaged in self-dealing by entering into and approving themerger agreement with Sun. The complaints seek, among other things, to enjoincompletion of the merger with Sun and to rescind the transaction. Please refer to “Note 12—Subsequent Event” in our Notes to ConsolidatedFinancial Statements.

 

Although we believe thatthe lawsuits are without merit, and intend to defend them vigorously, noassurances can be given that we will prevail in the lawsuits. In the event thatholders of a majority of the outstanding shares of SeeBeyond common stock votein favor of adoption of the merger agreement with Sun, in addition to any otherdefenses SeeBeyond, Mr. Demetriades and the director defendants may assert,SeeBeyond, Mr. Demetriades and the director defendants intend to rely upon theapproval of the proposal to adopt the merger agreement with Sun in defenseof the claims asserted in the actions. Specifically, SeeBeyond, Mr. Demetriadesand the director defendants intend to argue that the approval of the proposalto adopt the merger agreement with Sun by holders of a majority of theshares of our common stock constitutes a ratification or acceptance of theconduct that is the subject of plaintiffs’ complaints. SeeBeyond, Mr.Demetriades and the director defendants further intend to argue that suchratification or approval constitutes a complete defense to the claims assertedin the complaints or otherwise operates to protect them from liability orincrease the plaintiffs’ burdens of pleading and proof in the actions.

 

Furthermore, one of theconditions to the closing of the merger with Sun is that there is noinjunction issued by any court preventing the consummation of the merger. Noassurances can be given that these lawsuits will not result in such aninjunction being issued, which could prevent or delay the closing of the mergerwith Sun.

 

***A downturn in thegeneral economy or a continuation of the industry trend toward reducing ordelaying additional information technology spending due to cost-cuttingpressures could reduce demand for our products and services.***

 

We rely significantly upon customers making large informationtechnology purchasing decisions as a source of revenue. The general slow-downin capital spending by our customers that we experienced in recent years, ifsustained again in future periods, could result in reduced sales or thepostponement of sales to our customers. There can be no assurance the level ofspending on information technology in general or on business integrationsoftware by our customers and potential customers in particular, will increaseor remain at current levels in future periods. Lower spending on informationtechnology could result in reduced license sales to our customers, reducedoverall revenues, diminished margin levels, and could impair our operatingresults in future periods.

 

***We have a largeaccumulated deficit, we may incur future losses and we may not maintainprofitability.***

 

We have incurred substantial losses since 1998 as we increased fundingof the development of our products and technologies and expanded our sales andmarketing organization. As of June 30, 2005, we had an accumulated deficit ofapproximately $164.8 million. We may continue to incur losses in futureperiods and we may not achieve and sustain profitability on a quarterly basis,or on an annual basis.

 

***Our operatingresults fluctuate significantly, and an unanticipated decline in revenues orgross margin may disappoint securities analysts or investors and result in adecline in our stock price.***

 

Our operating results have fluctuated significantly in the past and mayvary significantly in the future. We believe period-to-period

 

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comparisons of our historical results of operations are not a goodpredictor of our future performance.

 

Our revenues and operating results depend upon the volume and timing ofcustomer orders and payments and the date of product delivery. Historically, asubstantial portion of our revenues in a given quarter has been recorded in thefinal month of that quarter, with a concentration of these revenues in the lasttwo 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 adverseeffect on our quarterly operating results. Since our operating expenses arebased on anticipated revenues and because a high percentage of these expensesare relatively fixed, a delay in the recognition of revenues from one or morelicense transactions could cause significant variations in operating resultsfrom quarter to quarter and cause a decline in our stock price. We realizesubstantially higher gross margins on our license revenues compared to ourservices and maintenance revenues. Thus, our margins for any particular quarterwill be highly dependent on our revenue mix in that quarter. In ourinternational markets, we have experienced some seasonality of revenues, withlower revenues in the summer months. Although this seasonality has not had a materialimpact on our operating results in the past, we cannot assure that ouroperating results will not fluctuate in the future as a result of these andother international trends.

 

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

 

***We experience longand variable sales cycles, which could have a negative impact on our results ofoperations for any given quarter.***

 

Our products are often used by our customers throughout theirorganizations to address critical business problems. Customers generallyconsider a wide range of issues before committing to purchase our products,including product benefits, the ability to operate with existing and futurecomputer systems, the ability to accommodate increased transaction volumes andproduct reliability. Many customers are addressing these issues for the firsttime when they consider whether to buy our products and services. As a result,we or other parties, including systems integrators, must educate potentialcustomers on the use and benefits of our products and services. In addition,the purchase of our products generally involves a significant commitment ofcapital and other resources by a customer. This commitment often requiressignificant technical review, assessment of competitive products and approvalat a number of management levels within a customer’s organization. Our salescycle may vary based on the industry in which the potential customer operatesand is difficult to predict for any particular license transaction. The lengthand variability of our sales cycle makes it difficult to predict whetherparticular sales will be concluded in any given quarter. If one or more of ourlicense transactions are not consummated in a given quarter, our results ofoperations for that quarter may be below our expectations and the expectationsof analysts and investors.

 

***Our operatingresults are highly dependent on license revenues from one software suite, andour business could be materially harmed by factors that adversely affect thepricing and demand for this software suite.***

 

Substantially all of our license revenues have been, and are expectedto continue to be, derived from the license of our Business Integration Suite.Accordingly, our future operating results will depend on the demand for ourBusiness Integration Suite by future customers, including new and enhancedreleases that are subsequently introduced. Our latest version of the Business IntegrationSuite, ICAN 5, was made generally available to customers in October 2003.If our competitors release new products that are superior to our BusinessIntegration Suite in functionality, performance or price, or if we fail toenhance our Business Integration Suite and introduce new products in a timelymanner, demand for our products may decline, and we may have to reduce thepricing of our products. A decline in demand or pricing for our BusinessIntegration Suite as a result of these or other factors would significantlyreduce our revenues.

 

In the past, we have experienced delays in the commencement ofcommercial releases of our Business Integration Suite. In the future, we mayfail to introduce or deliver new products on a timely basis. If new releases orproducts are delayed or do not achieve market acceptance, we could experiencecustomer dissatisfaction or a delay or loss of revenues. For example, theintroduction of new enterprise and business applications requires us tointroduce new e*Way adapters to support the integration of these applications.Our failure to introduce these or other modules in a timely manner could causeour revenues and market share to decline. In addition, customers may delaypurchases of our products in anticipation of future releases. If customersdefer material orders in anticipation of new releases or new productintroductions, our revenues may decline.

 

Moreover, as we release enhanced versions of our products, we may notbe successful in upgrading our customers who purchased previous versions of ourBusiness Integration Suite to the current version. We also may not besuccessful in selling add-on modules

 

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for our products to existing customers. Any failure to continue toupgrade existing customers’ products or sell new modules, if and when they areintroduced, could negatively impact customer satisfaction and our revenues.

 

***The loss of anysignificant customer could harm our business and cause our stock price to decline.***

 

We do not have long-term sales contracts with any of our customers.There can be no assurance that any of our customers will continue to purchaseour products in the future. As a result, a customer that generates substantialrevenue for us in one period may not be a source of revenue in subsequentperiods.  Because a significant portion of our revenues are derived fromrepeat customer business, the loss of any significant customer or the failureof such a customer to license additional products and services from us, couldcause our revenues to decline, harm our business and cause our stock price todecline.

 

***Our revenues willlikely decline if we do not develop and maintain successful relationships withour systems integration partners and other partners, who also haverelationships with our competitors.***

 

We have entered into agreements with a number of systems integratorsfor them to install and deploy our products and perform custom integration ofsystems and applications. These systems integrators also engage in jointmarketing and sales efforts with us. If these relationships fail, we will haveto devote substantially more resources to the sales and marketing andimplementation and support of our products than we would otherwise, and ourefforts may not be as effective as those of the systems integrators. In manycases, these parties have extensive relationships with our existing andpotential customers and influence the decisions of these customers. We relyupon these firms to recommend our products during the evaluation stage of thepurchasing process, as well as for implementation and customer supportservices.

 

These systems integrators are not contractually required to implementour products, and competition for these resources may preclude us fromobtaining sufficient resources to provide the necessary implementation servicesto support our needs. If the number of installations of our products exceedsour access to the resources provided by these systems integrators, we will berequired to provide these services internally, which would increase ourexpenses and significantly limit our ability to meet our customers’implementation needs. A number of our competitors have stronger relationshipswith some of these systems integrators and, as a result, these systemsintegrators might be more likely to recommend competitors’ products andservices instead of ours. In addition, a number of our competitors haverelationships with a greater number of these systems integrators or havestronger systems integrator relationships based on specific vertical marketsand, therefore, have access to a broader base of customers.

 

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

 

***Our markets arehighly competitive and, if we do not compete effectively, we may suffer pricereductions, reduced gross margins and loss of market share.***

 

The market for our products is intensely competitive, evolving and subjectto rapid technological change. We expect the intensity of competition toincrease in the future. As a result of increased competition, we may have toreduce the price of our products and services, and we may experience reducedgross margins and loss of market share, any one of which could significantlyreduce our future revenues and operating results. Our current competitorsinclude vendors offering business application integration and traditionalelectronic data interchange, or EDI, software products, as well as “in house”information technology departments of potential customers that have developedor may develop systems that provide some or all of the functionality of ourBusiness Integration Suite. We may also encounter competition from major enterprisesoftware developers in the future.

 

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

 

***Our substantial andexpanding international operations are subject to uncertainties, which couldadversely affect our operating results.***

 

Revenues from the sale of products and services outside the UnitedStates accounted for 43% during the three months and six months ended June 30,2005.  Revenues from the sale of products and services in the UnitedKingdom as a percent of our total revenues were

 

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15% and 14%, respectively during the three months and six months endedJune 30, 2005. We believe revenues from sales outside the United States willcontinue to account for a material portion of our total revenues for theforeseeable future. We are exposed to several risks inherent in conductingbusiness internationally, such as:

 

•                  fluctuations in currency exchangerates, which could result in increased expenses;

 

•                  unexpected changes in regulatoryrequirements, including imposition of currency exchange controls, applicable toour business or to the Internet, which could result in increased costs of doingbusiness overseas;

 

•                  difficulties and costs of staffingand managing international operations;

 

•                  political and economic instability,which could result in increasing governmental ownership or regulation ofbusinesses or other instrumentalities of commerce, wage and price controls,higher interest rates and spiraling inflation; and

 

•                  reduced protection for intellectualproperty rights in some countries.

 

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

 

***New regulations related to equity compensation willadversely affect our operating results and may affect our ability to attractand retain key personnel.***

 

Since ourinception, we have used stock options as an important component of our employeecompensation packages. We believe that our stock option plan is an essentialtool to link the long-term interests of our stockholders and employees, andserve to motivate management to make decisions that will, in the long run, givethe best returns to stockholders. The Financial Accounting Standards Board(FASB) has implemented changes to United States generally acceptedaccounting principles requiring us to record a charge to earnings for employeestock option grants, as well as other equity-based awards. The changesimplemented by FASB relating to the accounting for equity compensation plansare scheduled to go into effect in the first quarter of 2006.  This accounting pronouncement will negativelyimpact our operating results and could affect our ability to raise capital onacceptable terms.  For an illustrativeexample of the adverse impact this accounting change may have had on our recentoperating results, please see Note 5 — “Stock-Based Compensation” to theconsolidated financial statements included elsewhere in this report.  To the extent that new regulations make itmore difficult or expensive to grant options to employees, we may incurincreased compensation costs, change our equity compensation strategy or findit difficult to attract, retain and motivate employees, each of which couldmaterially and adversely affect our business.

 

***We could sufferlosses and negative publicity if new versions or releases of our productscontain errors or defects.***

 

Our products and their interactions with customers’ softwareapplications and IT systems are complex and, accordingly, there may beundetected errors or failures when our products are introduced or as newversions are released. In the past we have discovered software errors in ournew releases and new products after their introduction, which have resulted inadditional product development expenses. To date, these additional expenseshave not been material. These errors have resulted in product release delays,delayed revenues and customer dissatisfaction. In the future we may discovererrors, including performance limitations, in new releases or new productsafter the commencement of commercial shipments. Since many customers are usingour products for mission-critical business operations, any of these occurrencescould seriously harm our business and generate negative publicity, which couldhave a negative impact on future sales. Although we maintain product liabilityand errors and omissions insurance, we cannot assure you these policies will besufficient to compensate for losses caused by any of these occurrences.

 

***If our products donot operate with the many hardware and software platforms used by our customersand keep pace with technological change, our business may fail.***

 

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

 

•                  ourability to integrate our products with multiple platforms and existing, orlegacy, systems and to modify our products as new versions of softwareapplications are introduced;

 

•                  theportability of our products, particularly the number of operating systems anddatabases our products can source or target;

 

•                  ourability to anticipate and support new standards, especially Internet standards;

 

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•                  theintegration of additional software modules under development with our existingproducts; and

 

•                  ourmanagement of software being developed by third parties for our customers foruse with our products.

 

Our industry is characterized by very rapid technological change,frequent new product introductions and enhancements, changes in customerdemands and evolving industry standards. We have also found the technologicallife cycles of our products are difficult to estimate. We believe we mustcontinue to enhance our current products and concurrently develop and introducenew products that anticipate emerging technology standards and keep pace withcompetitive and technological developments. Failure to do so will harm ourability to compete. As a result, we are required to continue to makesubstantial product development investments.

 

***The market forbusiness integration software may not grow as quickly as we anticipate whichwould cause our revenues to fall below expectations.***

 

The market for business integration software is rapidly evolving. Weearn substantially all of our license revenues from sales of our BusinessIntegration Suite. We expect to earn substantially all of our revenues in theforeseeable future from sales of our Business Integration Suite and relatedproducts and services. Our future financial performance will depend oncontinued growth in the number of organizations demanding software and servicesfor application integration and business integration solutions and seeking outsidevendors to develop, manage and maintain this software for their criticalapplications. Many of our potential customers have made significant investmentsin internally developed systems and would incur significant costs in switchingto third-party products, which may substantially inhibit the growth of themarket for business integration software. If this market fails to grow, orgrows more slowly than we expect, our revenues will be adversely affected.

 

***Pending or futurelitigation could have a material adverse impact on our results of operation andfinancial condition.***

 

From time to time, we have been subject to litigation. In addition tothe related cost and use of cash, pending or future litigation could cause thediversion of management’s attention and resources, and ultimately could have amaterial adverse impact on our results of operation and financial condition.

 

***If we fail toadequately protect our proprietary rights, we may lose these rights and ourbusiness may be seriously harmed.***

 

We depend upon our ability to develop and protect our proprietarytechnology and intellectual property rights to distinguish our product from ourcompetitors’ products. The unauthorized use by others of our proprietary rightscould materially harm our business. We rely on a combination of copyright,trademark and trade secret laws, as well as confidentiality agreements andlicensing arrangements, to establish and protect our proprietary rights. Wecurrently have no issued patents. Despite our efforts to protect ourproprietary rights, existing laws afford only limited protection. Attempts maybe made to copy or reverse engineer aspects of our products or to obtain anduse information we regard as proprietary. Accordingly, we cannot be certain wewill be able to protect our proprietary rights against unauthorized third partycopying or use. Furthermore, policing the unauthorized use of our products isdifficult, and expensive litigation may be necessary in the future to enforceour intellectual property rights.

 

***Our products couldinfringe the intellectual property rights of others, causing costly litigationand the loss of significant rights.***

 

Third parties may claim we have infringed their current or futureintellectual property rights. We expect software developers in our market willincreasingly be subject to infringement claims as the number of products indifferent software industry segments overlap. Any claims, with or withoutmerit, could be time-consuming, result in costly litigation, prevent productshipment or cause delays, or require us to enter into royalty or licensingagreements, any of which could harm our business. Patent litigation inparticular has complex technical issues and inherent uncertainties. In theevent an infringement claim against us is successful and we cannot obtain alicense on acceptable terms, license a substitute technology or redesign ourproducts to avoid infringement, our business would be harmed. Furthermore,former employers of our current and future employees may assert our employeeshave improperly disclosed to us or are using their confidential or proprietaryinformation.

 

***Failure to raiseadditional capital or generate the significant capital necessary to expand ouroperations and invest in new products could reduce our ability to compete andresult in lower revenues.***

 

We currently expect our current cash resources will be sufficient tomeet our working capital and capital expenditure needs for at least the nexttwelve months. After that, we may need to raise additional funds, and we cannotbe certain we will be able to obtain additional debt or equity financing onfavorable terms, or at all. If we raise additional equity financing, ourstockholders may experience significant dilution of their ownership interestsand the per share value of our common stock could decline. If we engage in debtfinancing, we may be required to accept terms that restrict our ability toincur additional indebtedness and force us to maintain specified liquidity orother ratios, any of which could harm our business. If we need additionalcapital and cannot raise it on acceptable

 

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terms, we may not be able to, among other things:

 

•                  developor enhance our products and services;

 

•                  maintainor expand our sales and marketing organizations;

 

•                  acquirecomplementary technologies, products or businesses;

 

•                  expandoperations, in the United States or internationally;

 

•                  hire,train and retain employees; or

 

•                  respondto competitive pressures or unanticipated working capital requirements.

 

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

 

***If we fail toattract, retain and integrate qualified personnel, our ability to compete willbe harmed.***

 

We depend on the continued service of our key technical, sales andsenior management personnel, including our founder and Chief Executive Officer,James T. Demetriades. Most of these persons are not bound by an employmentagreement, and we do not maintain key person life insurance on any of thesepersons, other than Mr. Demetriades. The loss of any of our seniormanagement or other key product development or sales and marketing personnelcould adversely affect our future operating results. Additionally, we recentlyexperienced significant turnover in our North American sales force, includingnew staff and management.  Our ability to effectively train and integratethis new North American sales force could pose continuing challenges to ourbusiness.  If we fail to do so, our operating results, particularly in theshort term, could be negatively impacted.  In addition, we must attract,retain and motivate highly skilled employees, including sales personnel andsoftware engineers. We face significant competition for individuals with theskills required to develop, market and support our products and services. Wemay not be able to recruit and retain sufficient numbers of these highlyskilled employees. If we fail to do so, our ability to compete will besignificantly harmed.

 

***Our growthcontinues to place a significant strain on our management systems andresources. If we fail to manage our growth, our ability to market and sell ourproducts and develop new products may be harmed.***

 

We must plan and manage our growth effectively in order to offer ourproducts and services and achieve revenue growth and profitability in a rapidlyevolving market. Our growth has and will continue to place a significant strainon our management systems and resources, and we may not be able to effectivelymanage our growth in the future.

 

Furthermore, if our relationships with systems integrators succeed andwe are able to penetrate additional commercial markets, we may need additionalsales and marketing and professional services resources to support thesecustomers. The growth of our customer base will require us to investsignificant resources in the training and development of our employees and oursystems integration partners. If these organizations fail to keep pace with thenumber and demands of the customers that license our products, our ability tomarket and sell our products and services and our ability to develop newproducts and services will be harmed. To manage our business, we must continueto:

 

•                  effectivelymanage our direct sales force;

 

•                  effectivelymanage our professional services organization;

 

•                  hireand retain qualified software engineers;

 

•                  improveour operational, financial and management controls;

 

•                  improveour reporting systems and procedures;

 

•                  enhanceour management and information control systems; and

 

•                  effectivelymanage, train and motivate our workforce.

 

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

 

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***We have implementedanti-takeover provisions that could discourage or prevent a takeover, even ifan acquisition would be beneficial to our stockholders.***

 

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

 

***Concentration ofownership among our existing executive officers and directors may prevent newinvestors from influencing significant corporate decisions.***

 

Our Chief Executive Officer, James T. Demetriades beneficially ownsapproximately 30% of our outstanding common stock. Our executive officers anddirectors beneficially own, in the aggregate, approximately 39% of ouroutstanding common stock. As a result, these stockholders will be able toexercise a significant level of control over all matters requiring stockholderapproval, including the election of directors and approval of significantcorporate transactions. This could have the effect of delaying or preventing achange of control of SeeBeyond and will make some transactions difficult orimpossible without the support of these stockholders.

 

***External factorssuch as potential terrorist attacks could have a material adverse affect on theU.S. and global economics.***

 

The possibility of potential terrorist attacks could have an adverseeffect upon an already weakened world economy and could cause U.S. and foreignbusinesses to slow spending on products and services and delay sales cycles.The economic uncertainty resulting from any such future attacks and other responsesassociated with such attacks may continue to negatively impact short-termconsumer and business confidence.

 

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**Item 3 .****                                Quantitativeand Qualitative Disclosure About Market Risk**

 

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

 

*Interest rate risk.* Wemaintain our funds in money market and certificate of deposit accounts atfinancial institutions. Our exposure to market risk due to fluctuations ininterest rates relates primarily to our interest earnings on our cash deposits.These securities are subject to interest rate risk in as much as their fairvalue may fall if market interest rates increase. If market interest rates wereto increase immediately and uniformly by 10% from the levels prevailing as of June 30,2005, the fair value of the portfolio would not decline by a material amount.We do not use derivative financial instruments to mitigate risks. However, wedo have an investment policy that would allow us to invest in short-term andlong-term investments such as money market instruments and corporate debtsecurities. Our policy attempts to reduce such risks by typically limiting thematurity date of such securities, placing our investments with high creditquality issuers and limiting the amount of credit exposure with any one issuer.

 

*Foreign currency exchange rate risk.* Our exposure to market risk due to fluctuations inforeign currency exchange rates relates primarily to the intercompany balanceswith our subsidiaries located in Australia, France, Germany, Japan and theUnited Kingdom. Transaction gains or losses have not been significant in thepast and we do not participate in any hedging activity on foreign currencies.We would not experience a material foreign exchange loss based on ahypothetical 10% adverse change in the price of any of the local currencies ofthese countries. Consequently, we do not expect that a reduction in the valueof such accounts denominated in foreign currencies resulting from a sudden orsignificant fluctuation in foreign exchange rates would have a direct materialimpact on our financial position, results of operations or cash flows.

 

**Item 4 .****                                Controlsand Procedures**

 

Our management evaluated, with the participation of our chief executiveofficer and chief financial officer, the effectiveness of our disclosurecontrols and procedures (as defined in Rule 13a-15(e) under the SecuritiesExchange Act of 1934 (the “Exchange Act”)) as of the end of the period coveredby this Quarterly Report on Form 10-Q.  Based upon this evaluation, our chiefexecutive officer and chief financial officer have concluded that ourdisclosure controls and procedures are effective to ensure that information weare required to disclose in reports that we file or submit under the ExchangeAct is recorded, processed, summarized and reported within the time periodsspecified in Securities and Exchange Commission rules and forms. There was nochange in our internal control over financial reporting (as defined in Rule13a—15(f) under the Exchange Act) during the period covered by this QuarterlyReport on Form 10-Q that has materially affected, or is reasonably likely tomaterially affect, our internal control over financial reporting.

 

**PARTII —OTHER INFORMATION**

 

**Item 1.****                                   LegalProceedings**

 

The Company is party to routine claims and suitsbrought against it in the ordinary course of business including disputesarising over the ownership of intellectual property rights and collectionmatters. In the opinion of management, the outcome of such routine claims willnot have a material adverse effect on the Company’s business, financialcondition or results of operation.

 

Purported class action lawsuits have been filedagainst SeeBeyond and individual officers and members of our board of directorswith respect to the merger involving Sun Microsystems. The lawsuitsgenerally allege that the defendants breached fiduciary duties to ourstockholders and engaged in self-dealing by entering into and approving themerger agreement with Sun Microsystems. The complaints seek, among otherthings, to enjoin completion of the merger with Sun Microsystems and torescind the transaction.  Please refer to “Note 12—Subsequent Event” inour Notes to Consolidated Financial Statements.

 

**Item 2.****                                   Changesin Securities and Use of Proceeds**

 

**(a)****                                 **Modificationof Constituent Instruments

Not applicable

**(b)****                                 **Changein Rights

Not applicable

**(c)****                                 **Changesin Securities

Not applicable

**(d)**                                  Notapplicable

 

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**(e)         **Purchases of EquitySecurities by the Issuer and Affiliated Purchasers

 
| **Period**     | ** ** | **(a) Total Number  of Shares  Purchased** | ** ** | **(b) Average  Price Paid per  Share** | ** ** | **(c) Total Number of Shares  Purchased as Part of  Publicly Announced Plans** | ** ** | **(d) Maximum Dollar  Amount of Shares that May  Yet Be Purchased Under the  Plan** | ** ** |
|----------------|------------|--------------------------------------------|------------|----------------------------------------|------------|--------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------|------------|
| 4/1/05-4/30/05 |       | —                                     |       |                                   |       |                                                                           |       |                                                                                |       |
| 5/1/05-5/31/05 |       | 1,025,300                                  |       | $                                      | 2.95       |                                                                           | 1,932,250  |                                                                                | $          | 6,975,365 |   |
| 6/1/05-6/30/05 |       | 65,000                                     |       | $                                      | 2.99       |                                                                           | 1,997,250  |                                                                                | $          | 6,781,015 |   |
| Total          |       | 1,090,300                                  |       | $                                      | 2.98       |                                                                           | 1,997,250  |                                                                                | $          | 6,781,015 |   |

 

On May 5, 2005, another repurchase plan was announcedby our Board of Directors who approved a stock repurchase program of up to$10.0 million of common stock and will terminate in 24 months on May 5, 2007.

 

**Item 3.****                                   DefaultsUpon Senior Securities**

 

Not applicable

 

**Item 4.****                                   Submissionof Matters to a Vote of Security Holders**

 

The following proposals were approved at our annualmeeting of stockholders held on June 17, 2005:

 

PROPOSAL ONE: To elect one Class II director to the Company’s Board of Directors toserve for a term of three years or until the Annual meeting of shareholders in2008

 
| **Directors**       | ** ** | **FOR**    | ** ** | **WITHHOLD AUTHORITY** | ** ** |
|---------------------|------------|------------|------------|------------------------|------------|
| Salah M.  Hassanein |       | 76,196,582 |       | 768,073                |       |

 

The aforesaid nominee has been elected as Director forthe term set forth above.

 

PROPOSAL TWO: To appoint Ernst & Young LLP asindeptendent auditors for the 2005 fiscal year received the following vote:

 

| FOR:     |   | 76,555,962 |   | 99.47 | % |
|----------|--------|------------|--------|-------|---|
| AGAINST: |   | 384,834    |   | 0.50  | % |
| ABSTAIN: |   | 23,860     |   | 0.03  | % |

 

The proposal was approved and accordingly ratified.

 

**Item 5.****                                   OtherInformation**

 

None

 

**Item 6.****                                   Exhibits**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                |
|-----------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1(f)          |       | Restated Certificate of Incorporation of the  Registrant                                                                                                       |
| 3.2(f)          |       | Bylaws of the Registrant                                                                                                                                       |
| 4.1(a)          |       | Specimen common stock certificates                                                                                                                             |
| 10.36           |       | Eighth Amendment to the Loan and Security Agreement  dated December 24, 2002 between the Registrant and Comerica  Bank-California dated May 31, 2005 |

 

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| 31.1 |   | Rule 13a-14(a)/ 15d-14(a) Certifications of Chief  Executive Officer and Chief Financial Officer |
|------|--------|--------------------------------------------------------------------------------------------------|
| 32.1 |   | Section 1350 Certifications of Chief Executive  Officer and Chief Financial Officer              |

 

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| (a) |   | Incorporated by reference to an exhibit in the  Registrant’s Registration Statement on Form S-1 File No. 333-330648.                         |
|-----|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|
| (f) |   | Incorporated by reference to an exhibit in the  Registrant’s Annual Report on Form 10-K filed with the Commission on  February 8, 2002. |

 

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**Signature**

 

Pursuant to the requirements of Section 13 or15(d) of the Securities Exchange Act of 1934, the Registrant has duly causedthis report to be signed on its behalf by the undersigned thereunto dulyauthorized, on August 8, 2005.

 
| **SeeBeyond Technology Corporation**                    |
|---------------------------------------------------------|
| /s/  BARRY J. PLAGA                           |   |
| Barry J. Plaga                                          |
| *Executive Vice President and Chief  Financial Officer* |
| *(Principal Financial and Accounting  Officer)*         |

 

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