##### Table of Contents



| |                                                          
| | ---------------------------------------------------------
| |                                                          
| |                                                          
|
| | SECURITIES AND EXCHANGE COMMISSION                       
| | Washington, D. C. 20549                                  
|
|
| |                                                          
|
|
| | FORM 10-K                                                
|
| | FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13
| | OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934          

|  |  |                                                                                             
|- |  | --------------------------------------------------------------------------------------------
|þ |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|  |  | For the fiscal year ended December 31,
    2002                                             
| 
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
| 
|  |  | For the transition period
    from           to                                             

Commission File Number: 0-27491



---

DALEEN TECHNOLOGIES, INC.

(Exact name of registrant as specified in Its
charter)


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

Registrants telephone number, including
area code:

(561) 999-8000


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

None


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

Common Stock, par value $.01 per
share

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

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

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

The aggregate market value of the common stock
held by non-affiliates of the Registrant, based upon the average
of the closing bid and ask quotations for the common stock on
March 18, 2003 as reported by The OTC Bulletin Board, was
approximately $1,534,182 and was $2,336,518 on June 30,
2002, based upon the closing sale price, as reported by The
Nasdaq SmallCap Market.

As of March 18, 2003, and June 30, 2002
the Registrant had outstanding 45,828,912 and
23,532,081 shares of common stock, respectively.

Documents Incorporated by Reference

Portions of the Registrants definitive
Proxy Statement for the 2003 Annual Meeting of Stockholders are
incorporated by reference in Part III of this Form 10-K to
the extent stated herein.



---






---

TABLE OF CONTENTS



|                                                                     |  |  |  |  |  |  |  | 
|-------------------------------------------------------------------- |  |  |  |  |  |  |  | 
|FORWARD-LOOKING STATEMENTS                                          
|PART I                                                              
|PART II                                                             
|SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA                      
|DALEEN TECHNOLOGIES, INC.                                           
|RISKS ASSOCIATED WITH DALEENS BUSINESS AND FUTURE OPERATING RESULTS
|PART III                                                            
|PART IV                                                             
|Exhibit List                                                        
|SIGNATURES                                                          
|CERTIFICATION                                                       
|CERTIFICATION                                                       
|INDEPENDENT AUDITORS REPORT                                        
|CONSOLIDATED BALANCE SHEETS                                         
|CONSOLIDATED STATEMENTS OF OPERATIONS                               
|CONSOLIDATED STATEMENTS OF STOCKHOLDERS (DEFICIT) EQUITY           
|CONSOLIDATED STATEMENTS OF CASH FLOWS                               
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                          
|SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS                      
|Amendment to Certificate of Incorporation                           
|Amendment to Bylaws                                                 
|Common Stock Purchase Warrant                                       
|Common Stock Purchase Warrant                                       
|Supplemental Voting Agreement                                       
|Employment Agreement/Gordon Quick                                   
|Long-Term Incentive Compensation Plan                               
|Lease Dated May 12, 1998                                            
|Settlement and Release Agreement                                    
|Settlement and Release Agreement                                    
|Subsidiaries                                                        
|Independent Auditor's Consent                                       
|Certification of CEO                                                
|Certification of CFO                                                



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##### Table of Contents






FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements
within the meaning of the Securities Exchange Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended by
the Private Securities Litigation Reform Act of 1995. These
forward-looking statements are not historical facts but are the
intent, belief or current expectations, of our business and
industry, and the assumptions upon which these statements are
based. Words such as anticipates,
expects, intends, will,
could, would, should,
may, plans, believes,
seeks, estimates and variations of these
words and the negatives thereof and similar expressions are
intended to identify forward-looking statements. These
statements are not guarantees of future performance and are
subject to risks, uncertainties, and other factors, some of
which are beyond our control, are difficult to predict and could
cause actual results to differ materially from those expressed
or forecasted in the forward-looking statements. These risks and
uncertainties include those described in response to Item 7
under the headings Risk Factors and
Managements Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this
Form 10-K. Forward-looking statements that were true at the
time made may ultimately prove to be incorrect or false. Readers
are cautioned to not place undue reliance on forward-looking
statements, which reflect our managements view only as of
the date of this report. We undertake no obligation to update or
revise forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or changes
to future operating results.

You should be aware that some of these statements
are subject to known and unknown risks, uncertainties and other
factors, including those discussed in the section of the
Form 10-K under the heading Risk Factors that
could cause the actual results to differ materially from those
suggested by the forward-looking statements.




PART I

Item 1.     Business

Overview

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

We were incorporated in Delaware in 1999, and
were previously incorporated in Illinois and Florida.

On October 3, 2002 we formed a wholly-owned
subsidiary DSI, Inc. and a wholly-owned subsidiary of DSI, Inc.,
Daleen Solutions, Inc. (Daleen Solutions). These
entities were formed for the purpose of purchasing the assets
and assuming certain liabilities of Abiliti Solutions, Inc.
(Abiliti) on December 20, 2002.

In July 2000 we formed a wholly owned subsidiary
PartnerCommunity, Inc. (PartnerCommunity). On
June 24, 2002, we sold all of our common and preferred
stock in PartnerCommunity in exchange for net cash proceeds of
approximately $69,000, a promissory note for $200,000 payable in
30 months with interest payable annually at a rate of 8%
per year, and five year warrants to purchase 1,200,000 shares of
PartnerCommunity preferred stock at a price of $0.10 per share.

In January 2002, we formed a wholly-owned
subsidiary, Daleen Australia Pty Limited, a corporation formed
under the laws of Australia to conduct our Asia-Pacific
operations.

1



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##### Table of Contents



We became a leading provider of advanced billing
software to the emerging competitive telecommunications
companies in the United States between 1996 and 2000. Our
BillPlex® product was the first true convergent billing
software with the capability to rate and bill for a variety of
voice, data and Internet services, and consolidate charges onto
a single bill. As we grew in size and geography, we added new
customer care and management products to enhance our billing
applications, and formed alliances with other major telecom
technology providers to expand our presence into new geographic
regions and vertical markets.

We launched our current RevChain product platform
in February 2001, replacing the BillPlex client-server
applications with a family of more powerful web-enabled
applications that are built on an open Internet Integration
Architecture (IIA). RevChain was designed to provide the
increased throughput and support that convergent service
providers need to rate and bill for high volumes of wireline and
wireless, voice, data, Internet, and digital media services. The
open architecture and modular design facilitates integration
with other billing and OSS systems, and streamlines the
migration process for customers moving from BillPlex to RevChain.

The RevChain product family includes:



| |   |                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------
| |  | RevChain Commerce  a convergent
    billing and customer care solution;                                                            
|
| |  | RevChain Interact  an Internet
    interface for customer service representatives;                                                 
|
| |  | RevChain Care  web-based customer
    account management and self-care with electronic bill
    presentment and payment (EBPP); and
|
| |  | RevChain mCommerce  customer account
    management and billing via the mobile device.                                             

Our product portfolio expanded as a result of our
acquisition of Abiliti in December 2002, and now includes
Simpliciti.net, an enhanced event management and revenue
assurance application developed and previously offered by
Abiliti, and a turn-key outsourcing services solution for
billing and event management through our BillingCentral®
outsource operation. Simpliciti.net provides a dynamic way for
communication providers dealing with multiple data feeds, event
formats, and service types to capture events from various
network elements, validate and enhance individual records
online, and distribute data in the appropriate format to
downstream systems. It uses a flexible, rules-driven
architecture to allow service providers to quickly, efficiently,
and cost-effectively support new service types and event data
formats without complex programming. The addition of the
BillingCentral operation provides us the flexibility to offer
our RevChain software on a licensed basis or as an outsourced
solution. Staffed by billing and telecommunications experts with
an intimate knowledge of our applications, this carrier-class
operation has the capacity to provide multiple levels of
comprehensive outsourcing services to customers of all sizes.
The BillingCentral outsourcing operation also adds a revenue
stream to complement our licensed sales and services offerings.

We also acquired Abilitis
NetworkStrategies® billing application and RateIT
rating engine. Although not actively marketed to new customers,
we will continue to provide services and support to existing
customers.

We also offer professional services and product
support related to all of our products previously sold to our
customers.

Available Information

We file our Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K and any amendments to those reports with the SEC.
These filings are available to the public over the internet on
the SECs website at http://www.sec.gov and are
available free of charge on our website at
http://www.daleen.com as soon as reasonably practical
after such reports are filed with the SEC. You may also read and
copy any document we file with the SEC at the SECs Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. You may call the SEC at 1-800-SEC- 0330 for further
information on the operation of the Public Reference Room.

2



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Recent Developments



| |                                                              
| | -------------------------------------------------------------
| | Acquisition of Abilitis Net Assets
    and Private Placement

On December 20, 2002, pursuant to an Asset
Purchase Agreement dated October 7, 2002 (Asset
Purchase Agreement), Daleen Solutions consummated its
purchase (Asset Purchase) of substantially all of
the assets and assumption of certain liabilities of Abiliti. As
consideration for the Asset Purchase, we issued to Abiliti
11,406,284 shares of our common stock, par value $0.01 per share
(common stock) 115,681 shares of our Series F
convertible preferred stock (Series F preferred
stock) and warrants to purchase 5,666,069 additional
shares of our common stock at an exercise price of $0.906 per
share.

Concurrently with the consummation of the Asset
Purchase, pursuant to an Investment Agreement dated
October 7, 2002 (Investment Agreement), we
completed a private placement of 10,992,136 shares of our common
stock, 115,681 shares of our Series F preferred stock,
warrants to purchase 5,666,069 additional shares of our common
stock at an exercise price of $0.906 per share, and warrants to
purchase 500,000 additional shares of our common stock at an
exercise price of $0.17 per share, for a total consideration of
$5.015 million in cash (2002 Private
Placement). The purchasers in the 2002 Private Placement
were Behrman Capital II L.P. and Strategic Entrepreneur
Fund II, L.P. (collectively, the Behrman
Funds), which are affiliated entities and stakeholders of
Abiliti. The proceeds of the 2002 Private Placement will be used
for working capital and general corporate purposes.

The acquisition of Abiliti resulted in several
significant changes to our business, which we believe will
strengthen our business operations going forward. Both companies
have extensive billing experience, knowledge of the telecom
service provider market, established products and customer
bases, and strong product development capabilities, which will
allow us to offer more comprehensive solutions to current and
prospective customers worldwide. We believe these synergies,
combined with an increased scale of operations and greater
efficiencies in our business processes, will yield a more
effective and streamlined organization.

As a result of the Abiliti acquisition we have:



| |   |                                                                    
| | - | -------------------------------------------------------------------
| |  | A more balanced business model;                                    
|
| |  | A broader set of competitive product and service
    offerings; and
|
| |  | An increased scale of operations and delivery
    capabilities.    

Historically we have operated under a licensed
software model, deriving revenues primarily from licensed
software sales and complementary professional services
contracts. Under this model, our revenue was subject to severe
quarterly fluctuations, thereby making it more difficult to
maintain a balance between revenues and expenses. In contrast, a
significant portion of revenues from Abilitis business was
driven through recurring revenue contracts for the delivery of
outsourced billing and event management services, which are
billed and recognized on a monthly basis as services are
rendered. Our more balanced business model supports our goals of
becoming cash flow positive and reaching sustainable
profitability. More importantly, the acquisition of Abiliti
added a revenue stream component to our business, which provides
more stability and greater visibility into future performance.

Abilitis Simpliciti.net and BillingCentral
product and service offerings complement our RevChain solutions
and enhance our ability to serve the complex billing, event
management and revenue assurance needs of a wider cross section
of service providers, from mid-sized CLECs, to regional service
providers, and Tier 1 carriers in the wholesale and retail
markets. Customers may continue to license our RevChain or
Simpliciti.net software as stand-alone solutions, or opt to
outsource their billing and event management operations to us
through Abilitis BillingCentral offering. This facility is
staffed by experts and equipped to handle customers of all
sizes, from smaller service providers to large Tier 1
carriers, giving us immediate access to an established channel
for the delivery of our RevChain products.

The acquisition of Abiliti allows us to leverage
the skills, core knowledge and shared insights from personnel in
both organizations to add incremental value to the development,
delivery and support of all of our expanded product and service
offerings. We now have an increased capacity to support ongoing
product

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development, marketing, customer support and
delivery for new and existing customers in the U.S. and
international locations, while maintaining our organizational
efficiency. Experienced leadership from both organizations share
a common strategy to build a stronger, more capable and
competitive billing and OSS company.


Effective upon the consummation of the Asset
Purchase and 2002 Private Placement, Gordon Quick, the President
and Chief Executive Officer of Abiliti, was appointed President
and Chief Executive Officer of Daleen. Additionally, the
following persons were appointed as directors of the Company:
John S. McCarthy, Gordon Quick and Dennis Sisco. James Daleen,
former Chairman of the Board, President and Chief Executive
Officer of Daleen, continues to serve as Chairman of the Board
of Directors following the Asset Purchase and 2002 Private
Placement. In addition, the following persons, each of whom
served as a director of the Company prior to the transactions,
continue to serve as directors following the transactions:
Daniel Foreman, Stephen Getsy and Ofer Nemirovsky.

For further information about the Asset Purchase
and 2002 Private Placement, see Part II, Item 5 in
this Form 10-K under the heading Issuance of Common
Stock and Series F Preferred Stock in the Asset Purchase
and 2002 Private Placement.



| |                         
| | ------------------------
| | Restructuring Activities

On May 13, 2002, our Board of Directors
approved a plan to further reduce our operating expenses
(2002 Restructuring). On May 14, 2002, we
announced and began to implement the 2002 Restructuring. The
2002 Restructuring included a workforce reduction of 35
employees.

For additional information on the 2002
Restructuring see Item 7. Managements
Discussion and Analysis of Financial Condition and Results of
Operations.



| |                                                       
| | ------------------------------------------------------
| | Resignation of Key Executive Officer and
    Directors

Effective October 3, 2002, P.J. Hilbert
resigned as a director of the Company. Ms. Hilbert had
served as a director since October 20, 2000.

On December 20, 2002, Mr. Daleen
resigned his position as President and Chief Executive Officer
of the Company. Mr. Daleen was paid cash benefits of
$328,900 on December 31, 2002, and an additional amount of
$328,900 will be paid in equal cash installments on a monthly
basis over a period of 24 months beginning in January 2004.
Mr. Daleen continues as the Companys Chairman of the
Board of Directors and provides consulting services to the
Company pursuant to a six-month consulting agreement.

On December 20, 2002, Paul Cataford resigned
as a director of the Company. Mr. Cataford had served as a
director since August 1998.

Industry Background

Our core billing, customer management, event
management and revenue assurance business continues to be
focused on the telecommunications industry. Like other
technology-driven industries, rapid growth in the telecom market
created a segmentation among industry participants that was
based on the types of services offered, and the networks or
delivery technology deployed. Far from its regulated origins,
the telecom industry became a multi-faceted open market of
traditional, independent and competitive local exchange and long
distance carriers, competing to offer customers a range of
wireline and wireless voice, data, Internet, and other high
bandwidth digital services. An explosion of new technologies,
combined with unprecedented demand from technology-dependent
consumers, fueled the development of these new market segments,
each bearing unique requirements.

As competition for customers grew more intense,
service providers began to diversify their product and service
offerings, erasing the boundaries that differentiated them.
While this allowed them to retain and grow their customer bases,
a new problem emerged. More often than not, existing billing and
operational support systems were not able to support the new
offerings, thus preventing them from achieving their full revenue

4



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potential. When the economy stalled, many of
these service providers found they faced huge revenue gaps. With
no new capital to fund needed operational improvements, they
were forced out of the market.


We believe todays market is more
homogenous, differentiated by business strategy and size more
than service offerings. With similar product offerings, it seems
that service providers are attempting to differentiate
themselves by bundling together and cross-discounting innovative
combinations of communications services and providing superior
customer care. While reaping the benefits of Internet
technologies through increased demand for new services that can
be delivered via the web, we see telecommunications companies
being challenged to find ways to use the Internet to improve
service delivery and overall customer relationship management.
As a result of the added pressure to improve profit margins,
service providers seem to be taking a more aggressive role in
understanding and managing the systems and processes involved in
capturing and driving revenue. More than ever, we believe our
success is linked to having effective billing and customer
management, event management and revenue assurance solutions
that make it easier to track and manage customers and revenues,
dynamically change and grow service offerings, and automate and
streamline operational performance.

Issues Common to Our Targeted
Markets

The rapid market expansion and growth seen in the
telecommunications industry in the late 1990s was severely
impacted by a general economic slowdown and constraints on such
companies ability to raise capital that started in 2001
and continues today. This dramatic change in business conditions
caused many technology and communications companies to cease
operations, while others took drastic steps to reduce expenses
in order to remain competitive. Shifting their focus away from
aggressive growth targets and new market penetration, companies
are now facing increased pressure to increase revenues from
their current customer base while reducing their operating costs.

To survive the past two years, providers were
forced to postpone previously planned technology upgrades and
new investments, stretching the capabilities of their
back-office systems. In order to introduce new offerings and
rate plans, and accept and handle new types and formats of event
data, providers have repeatedly added to or modified their
legacy systems. These businesses now find themselves maintaining
an extremely complex information systems environment consisting
of numerous proprietary systems that were often designed to work
as stand-alone applications. In addition, many of these systems
are based on older technology platforms that are more costly to
maintain and have only a limited interoperability with other
elements of the information system. They require significant
time, resources and effort to modify, making it difficult for
service providers to respond quickly and competitively with
innovative marketing promotions and new service offerings.

Mergers and business combinations among service
providers have added to the complexity and inefficiency of
billing and OSS environments. As companies merge, the surviving
entity is often left with multiple disconnected systems
supporting different business units, with no common platform to
connect one group or system to another, and fewer resources to
achieve integration. Because of these challenges, we see
providers scrutinizing their technology investments more
fiercely than ever before, searching for ways to streamline and
improve processes, eliminate redundancies, and drive costs out
of their operations. With a renewed focus on profitability,
these companies are starting to view technology as a tool to
improve their competitive positioning and facilitate long-term
survival. Yet unlike technology spending in the past, which was
often based on its future potential, every dollar of new
technology investment must immediately deliver an equivalent or
greater increase in revenues or cost savings.

Rather than invest in technology upgrades for
their existing systems, a growing number of service provider
organizations are beginning to look at outsourcing as a
cost-effective alternative to running their own billing
operations. We believe outsourcing offers a number of economic
and performance advantages that can help providers upgrade their
billing and OSS infrastructure without costly migrations. In
addition to the cost savings from not having to staff, train,
and maintain the hardware and resources associated with running
a data center, outsourcing can help providers unify their
organizations by providing a single technology platform

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across their enterprise. Providers can
significantly decrease their operational costs, while also
taking advantage of the latest product technologies and using
the experience of billing experts.


Regardless of their chosen delivery channel,
todays communication providers must have the ability to
create and implement new services quickly, manage them
efficiently and issue a single invoice for complex service
bundles, while providing exceptional service to customers. This
requires a more comprehensive solution than traditional billing
applications have previously offered. We believe our targeted
markets can benefit from a high performance solution that is
designed to meet the specific challenges they face in
todays market, including the ability to:



| |   |                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------
| |  | Quickly and efficiently support multiple,
    convergent networks, data sources, and service types;   
|
| |  | Dynamically create, deploy and update new
    services and pricing programs;                          
|
| |  | Eliminate process redundancies and revenue leaks;                                                     
|
| |  | Enhance or extend the value of other enterprise
    systems; and                                      
|
| |  | Maximize efficiency through ease of
    implementation, system administration, and ongoing operations.

The Daleen Solution

For more than a decade, we have been developing
and delivering software solutions that allow telecom providers
to capture and manage the revenue from their product and service
offerings. As technologies started to converge, our billing and
customer management products led the way, taking advantage of
key Internet technologies to offer a single, open platform for
billing that could be integrated with other enterprise systems
to streamline operational processes and eliminate avoidable
redundancies. Our RevChain platform was designed to support
traditional and next generation technologies for convergent
providers seeking to offer multiple services. RevChain
applications are built on an innovative IIA, an advanced
computing architecture that leverages the latest industry
standards and programming tools for enhanced performance and
efficiency. The open design and use of standard technologies,
such as HTTP, XML, and J2EE, facilitate integration of our
solutions into a providers existing infrastructure, and
give providers the flexibility to offer new products and
services quickly in response to dynamic market conditions.

Our acquisition of Abiliti further enhances our
ability to meet both the revenue growth and efficiency goals of
organizations of all sizes. With a commitment to enabling
customers to achieve revenue optimization, we designed our
products to be easily configured to a service providers
specific business requirements. One of Abilitis products,
Simpliciti.net, a highly flexible event management and revenue
assurance application, is powered by a dynamic rules-driven
architecture that utilizes easy-to-alter business rules to allow
service providers to support new services and event data
formats, without complex programming. When combined, RevChain
and Simpliciti.net have the potential to create a powerful
solution that gives providers the tools to better manage the
complexities of their back-office and drive more revenue from
new and existing customers, networks and partners.

As a complement to our licensed software, the
BillingCentral offering extends our delivery capabilities by
giving customers the flexibility to purchase RevChain and
Simpliciti.net as a turn-key outsourcing solution.
BillingCentral provides a high-value, high performance solution
that is delivered by billing and telecom experts in a
carrier-class environment.

Today, we believe our products and comprehensive
outsourcing services are better aligned with the business,
operational, and economic goals of sub-Tier 1 and Tier 1
providers, including the need to:



| |   |                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------
| |  | Retain and grow their customer base by providing
    and delivering high quality and innovative services;
|
| |  | Adapt to changing economic conditions, reduced
    staffing levels, and constrained budgets;             
|
| |  | Capture and retain more revenues from each
    customer and partner;                                     
|
| |  | Streamline and improve the efficiency of
    back-office processes through automation; and               

6



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| |   |                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------
| |  | Build a common platform to bridge the gap between
    existing systems, customers and business units.

The Daleen Strategy

Our focus in 2002 reflected the challenges we
faced as a result of weakening conditions in the
telecommunications industry and economic and regulatory
uncertainty delaying and reducing purchase decisions by industry
participants. There were very few new sales opportunities in the
U.S.; therefore, our efforts were primarily focused on helping
current customers identify areas for improvement in their
billing operations, and adding enhancements to our RevChain
product line that are intended to allow our customers to
continue to drive efficiencies in their organizations. Following
the course that was set in 2001, we focused on achieving
measured growth through a combination of direct and partner
sales, in the U.S. and abroad. This approach supported our
financial goal of reducing costs, while leveraging our highly
developed product capabilities to gain access into new
geographies, markets, and Tier 1 accounts. It also supported
customer demand for broader, pre-integrated solutions and allows
us to leverage the strength of our product architecture and
advanced billing functionalities.

Our goal is to become a leading global provider
of billing and OSS applications in the telecommunications
industry through execution of a two-tiered strategy consisting
of organic growth and growth through aggregations (mergers,
acquisitions or other strategic transactions). We continue to
pursue organic growth from our existing customer base and
through sales opportunities in our core markets, while
concurrently pursuing opportunities to aggregate with
synergistic billing and OSS companies.



| |               
| | --------------
| | Organic Growth

Developing and maintaining long-term customer
relationships.We believe that now,
more than ever, providers are seeking to develop long-term
positive relationships with their vendors. In todays
environment, providers value experience, proven quality, and
cost-efficient implementation and operations. With reduced
budgets and staffing, they are less likely to risk bringing new
vendors into critical projects. This trend can lead to
additional product sales and outsourcing opportunities, as well
as recurring support and maintenance revenues. We continue to
focus on delivering exceptional levels of service that will
allow us to build and maintain strong long-term relationships
with our customers.

Aggressively targeting high potential
markets.Providers are increasingly
under pressure to produce revenue at a faster rate, while
holding down or reducing their operational costs. The ability to
increase revenue, improve margins, and provide high levels of
customer satisfaction is becoming even more crucial for success.
Our products are designed to support a broad array of telecom
services, including local and long distance voice, data, video,
wireless and Internet services, and digital media products,
while minimizing implementation and operations expenses. Our
primary strategy is to focus on the Integrated Communications
Provider (ICP) and wireline carrier market segments, where we
believe we have vast experience and strong customer
satisfaction. By focusing our organic growth activities on
segments in which we enjoy a strong presence and good
reputation, we believe we can deliver incremental revenue at
attractive margins.

Expanding the core outsourcing
business.The attraction of an
outsourced service offering is increasing among providers, as
their primary focus shifts from increased revenues to increased
profitability. We operate as a billing application service
provider (BASP) providing a tailored billing solution for each
customer based on our own billing and event management products.
We host our own applications in our BillingCentral data center
and offer a web-based front end that gives outsourcing customers
visibility into, and oversight of, the billing process. This
allows our customers to assert the level of control they desire,
without the staff or burden of doing the work. Our proven
automation tools and best practices are intended to
provide consistent service quality and cost savings for our
outsourcing customers.

Broadening our revenue
base.With the addition of
Simpliciti.net and BillingCentral from our acquisition of
Abiliti, we expanded our portfolio of products and services.
Simpliciti.net, a new event management and revenue assurance
application, presents increased revenue potential from our
existing base of customers, while also creating new sales
opportunities with providers who would rather
augment  not replace  their legacy billing
systems. The BillingCentral outsourcing offering expands our
ability to offer a full spectrum of

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billing, event management and revenue assurance
services in a managed services environment, so that every
customer scenario can be supported. These solutions were created
with the scalability and flexibility to support all size
customers, including the largest Tier 1 service
providers  anywhere in the world  thereby
creating a larger potential target market.




| |                            
| | ---------------------------
| | Growth Through Aggregations

Generally.We
believe the rate of growth that can be achieved through organic
growth is restricted by the current economic and financial
market conditions within the telecommunications market. We
intend to augment our growth through aggregations, transactions
where we would combine our resources and customers with other
billing and OSS vendors serving the telecom marketplace. Our
goal is to increase our customer base and/or product offerings
in a manner that will enhance our core business strategies and
to further grow our business. Aggregations could be accomplished
through mergers, acquisitions or other strategic transactions.
If necessary to facilitate our aggregation strategy, we may seek
additional capital from current or new investors which may
result in the issuance of additional equity securities. Our
aggregation strategy has certain risks which appear in
Item 7 of this Form 10-K under the heading Risk
Factors  there is no assurance that we
can effectively implement our aggregation strategy and even if
we can, it might not be successful and could be dilutive to our
existing stockholders.

Acquire Customers.Because of the general economic conditions, we have seen a lower
number of potential customer buying decisions. We will seek to
increase our number of customers as a part of the aggregation
strategy. By expanding our customer base, we plan to diversify
the risks related to our concentration of business with
particular large customers and narrow market segments. We also
plan to cross sell our current products and services to
customers we acquire to increase customer depth and loyalty.

Acquire Products and
Technology.The enormous investments
that were made in products and technology in the late
1990s are not feasible due to current market conditions
and slower economic growth possibilities. Therefore, we will
seek to acquire products and technologies though our aggregation
strategy. We seek to build a more complete product and
technology offering to complement our current billing and event
management products and services.

Establish Broader
Distribution.By increasing the
breadth of our products and services, we intend to expand our
target market to companies seeking a more comprehensive product
and services solutions or companies in other industries. We also
believe we can benefit from acquiring distribution channels by
taking advantage of expertise in other geographic or market
areas.

Realize Synergies While Increasing
Scale.By combining our management and
administration resources with those of other companies with whom
we aggregate, we expect to realize cost savings while increasing
our revenue potential. With each aggregation, we will strive to
combine business functions wherever possible to reduce
non-revenue generating costs.

Products and Services

We provide products and services to a variety of
service providers. As technology spending has declined in recent
years due to adverse economic and financial market conditions,
we have experienced an increased shift in our business from the
licensing of products to a greater dependence upon the
professional and other services we provide.

The percentage of our total revenues derived from
licensing fees and professional and other services for the years
ended December 31, 2000, 2001, and 2002, was as follows:

|                                |  |                         |       |      |  |      |       |   |  |  |       |  
|------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                |  |                        
|                                |  | Year Ended December 31,
|                                |  |                        
|                                |  | 2000                    |       | 2001 |  | 2002
|                                |  |                         |       |      |  |     
|License fees                    |  |                         | 61.6  | %    |  |      | 28.7  | % |  |  | 22.0  | %
|Professional services and other |  |                         | 38.4  |      |  |      | 71.3  |   |  |  | 78.0  |  
|                                |  |                         |       |      |  |      |       |   |  |  |       |  
|                                |  |                         | 100.0 | %    |  |      | 100.0 | % |  |  | 100.0 | %
|                                |  |                         |       |      |  |      |       |   |  |  |       |  

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Further information about our products and
services appears below.



| |                          
| | -------------------------
| | Billing and Customer Care

RevChain
Commerce RevChain Commerce
is a powerful billing and customer care (BCC) system
designed to allow service providers to handle high volumes of
convergent communications services. With the ability to read,
rate, and track virtually any type of usage data from any source
over any network, it provides the flexibility and support for
rating and billing any combination of traditional and next
generation wireline and wireless, local and long distance,
voice, data, Internet, and digital content services.
RevChains advanced design and open architecture support
rapid service creation and deployment, discounts and pricing
structures, and cross-service promotions, and allow providers to
configure both simple and complex services with minimal
resources and implementation time. RevChain Commerce integrates
with legacy billing, Customer Relationship Management
(CRM) and other enterprise applications to streamline
internal processes and improve data integrity between systems.

RevChain Commerce includes advanced features to
support account and service management, configurable rate plans,
real-time credit limits, automatic prepayment, settlements, and
management reports. Sophisticated partner settlement features
provide an automated process for establishing and maintaining
relationships in the provisioning and delivery of collaborative
services. RevChain Commerce supports global operations with
support for multiple languages and tax plans, currency
conversion, and customer-sensitive language and address
localization.

RevChain
Interact RevChain Interact
is a true web-based client interface that provides direct access
to the product catalog and customer database within the RevChain
Commerce application. It leverages the power of the Internet to
allow Customer Service Representatives (CSRs) to achieve higher
levels of efficiency while delivering exceptional service. Using
a standard Web browser, RevChain Interact offers CSRs a
centralized view into the customer account and provides the
functionality needed to manage customer accounts including
customer management activities, balance management, provisioning
of products and services, dispute processing, and collections.
The look, feel and familiar web navigation techniques of our
product make it easy to use with minimal training. There is no
client software to install, so providers can deploy new CSRs
quickly. With extensive scaling capabilities for large
operations, RevChain Interact enhances operating efficiency by
reducing the database connections, server load, hardware and
software requirements, and minimizing the network bandwidth
necessary to run the system.

RevChain
Care RevChain Care is an
intuitive software product that allows service providers to
offer convenient customer self-care and EBPP over the Internet.
RevChain Care provides 24-hour access to accurate, up-to-date
information so customers can view their current and historical
billing and usage data, update personal account information,
make payments, and initiate disputes online at their
convenience. This application can be customized with minimal
effort to extend a service providers brand and enhance
other marketing efforts. RevChain Care is pre-integrated with
our entire suite of products and designed for seamless
integration with CRM and other revenue-enhancing operation
support systems.

RevChain
mCommerce RevChain
mCommerce extends billing, customer management and commerce
capabilities to customers over Web-accessible devices. Used in
conjunction with RevChain Commerce, this application allows
customers to view their account balances, modify personal
information, and make payments via a mobile device over secure
connections.



| |                                           
| | ------------------------------------------
| | Event Management and Revenue
    Assurance

Simpliciti.net
Simpliciti.net, recently acquired from Abiliti, is a flexible
event management solution that provides a centralized audit and
control point for managing network events across an enterprise.
Powered by a highly-configurable, rules-driven architecture,
Simpliciti.net has the ability to accept an unlimited number of
record types from a variety of sources, identify erred events
early in the process, validate and enhance records online, and
distribute them to multiple downstream systems.
Simpliciti.nets dynamic nature allows providers to quickly
and efficiently support new services and event data formats
without complex programming. By giving providers a
comprehensive, enterprise-wide view of the data flowing through
their

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network, Simpliciti.net is designed to improve
revenue assurance and allow providers to make strategic business
decisions that will enable them to rapidly respond to changing
market conditions.




| |                     
| | --------------------
| | Outsourced Solutions

BillingCentral BillingCentral,
recently acquired from Abiliti, is a comprehensive outsourcing
solution that offers the power of our latest RevChain and
Simpliciti.net software in a proven, carrier-class data center
that is staffed by billing and telecommunications experts. It
provides a high-value, cost-effective alternative to licensing
that allows providers to take advantage of advanced billing and
event management products without a significant up-front
investment in resources, hardware, training, or other costs
associated with running a billing operation. Through a standard
Internet browser, our products allow customers to have complete
visibility into, and full control of, the billing process.
BillingCentral services are designed to be scalable across a
large number of customers through the use of our proprietary
automation tools and a secure Internet site.

Through BillingCentral, we operate as a BASP
providing a tailored billing solution for each customer that is
comprised of our own billing and event management products and
hosted in our own data center. Customers are serviced by
dedicated equipment and provided with tailored solutions that
include interfaces to third-party applications, special access
arrangements and other customized services. Because of the
turn-key nature of our offering, our BillingCentral customers
are able to deal with us as a single source for application
software, hosting, billing operations, customization, and
support.



| |                              
| | -----------------------------
| | Additional products supported

The following solutions were recently acquired
from Abiliti. Although not actively marketed to new customers,
we will continue to provide enhanced services and full support
to existing customers.

Rate
IT Rate IT is a
stand-alone rating product that adds functionality to existing
billing systems, allowing service providers to meet their
current billing requirements, while avoiding the cost, time and
complexity involved in fully replacing a legacy billing system.

NetworkStrategies NetworkStrategies
is a stand-alone billing application designed with high levels
of flexibility and scalability to support the complex billing
requirements of telecom service providers.



| |                                                                        
| | -----------------------------------------------------------------------
| | Professional Consulting Services,
    Maintenance and Technical Support

We offer a wide array of consulting, maintenance,
and technical support options designed to provide customers with
superior services and support, while also giving them the tools
and knowledge they need to independently run their day-to-day
operations. We provide the following services:

BillingCentral
Services.We provide end-to-end
support of the BillingCentral product, including back-office
support, event collection and processing, data center
facilities, revenue assurance, reports, analysis and
reconciliation, invoice generation and delivery to the print
vendor.

Professional Consulting
Services.A variety of professional
consulting services are available to assist customers in the
implementation, modification, enhancement, and customization of
our products. We generally provide these services to our
customers via clearly-defined services agreements. Through a
discovery process, we work with customers to fully understand
the customers business and technical needs, ultimately
resulting in the development of business models and processes
that utilize our products to increase their market potential
and/or lower their operating costs.

Maintenance.We have
comprehensive maintenance and support programs that provide both
site license and BillingCentral customers with timely,
high-quality maintenance and support services for our products.
These services are generally provided via annual maintenance
agreements with customers. A maintenance agreement entitles a
customer to multiple levels of technical support for prompt and
professional response to issues during and after normal business
hours.

Operational Environment Tuning and Performance
Level Service.We provide technical
and product configuration support for operational issues and
testing environment support. The support center maintains a

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close working relationship with customers, making
available all maintenance releases and assisting in planning and
scheduling the implementation of each release. An additional
service, which involves an on-site performance tune up to
optimize the billing operations environment, is also available
to existing customers.




| |                                     
| | ------------------------------------
| | Third-party Software
    Fulfillment

When customers require it, we facilitate the
delivery of a complete solution by offering third-party software
products that enable customers applications. These include
platform products, such as the Windows NT® and UNIX®
operating systems running from an Oracle® database. Our
RevChain applications are enabled through BEAs WebLogic
product. We also provide complementary products that integrate
with all of our applications, such as GeoStanTM
Address Validation Software from Sagent; Doc1 from Group 1
for invoice rendering; and tools that support development and
reporting, such as Crystal Decisions Crystal Reports.



| |         
| | --------
| | Training

We offer comprehensive training for all current
products, using a variety of media to provide customers with the
skills they need to most effectively use our software. Our
curriculum includes a comprehensive train-the-trainer program
via the Internet to prepare customers trainers who support
CSRs, billing administrators and billing operators. For
customers who are more comfortable with traditional
instructor-led sessions, we offer a full suite of technical and
end-user training programs. A learning consultant is assigned to
each customer to tailor the training of a customers staff
during the life cycle of the project.



| |           
| | ----------
| | Technology

Our products take advantage of the most advanced
technologies to deliver maximum return on providers
technology investment. Our RevChain applications are built on a
unique open IIA that uses standard Internet technologies,
including HTTP, XML and universal J2EE support to deliver
flexibility and performance in supporting traditional and next
generation services. We built this architecture with extensive
scalability and flexibility to ensure that our customers
continue to distinguish themselves among competitors and thrive
in an economy that demands operational efficiency. The IIA
framework means fewer manual steps, fewer hours correcting
errors, and reduced costs.

IIA is more than a framework for seamless
integration between our RevChain applications. Through its
interoperability with CRM applications and legacy billing and
enterprise systems, it can enhance the performance of other
operational systems and extend the value of a providers
investment in legacy systems.

Products acquired from Abiliti, were built
exclusively on Microsofts Windows 2000 and SQL Server 2000
platforms, creating a highly optimized, and more easily
supported code base built around a specific operating system,
and taking advantage of the functionality built into the
Microsoft platforms.

Our development activities are currently focused
on completing integration activities between the RevChain
products and Simpliciti.net. This will allow us to offer a more
comprehensive solution for event processing, rating, billing and
revenue assurance. We are also integrating the RevChain products
into BillingCentral, giving us the capability to provide
outsourced billing services for current and potential customers.

Customers

Our customers consist mainly of local and
inter-exchange carriers, Internet service providers, other data
services providers, broadband service providers, ICPs, and
wholesale network carriers. We have customers located in the
United States, Canada, Latin America/Caribbean, Asia-Pacific
region and Europe, including such companies as AAPT Limited,
Allegiance Telecom, Inc., SBC Long Distance, Integra Telecom,
and Cbeyond Communications. In addition, we have original
equipment manufacturers (OEM)/Reseller relationships with i2
Technologies, Inc., and Telcordia Technologies, Inc. For the
year ended December 31, 2002, Integra Telecom accounted for
14% of our total revenue. We anticipate in future periods that
we will be dependent upon a limited number of customers for a
significant portion of our revenue, including certain new

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customers attributable to our acquisition of
Abiliti. See Risk Factors  our business relies
in part on a limited number of customers and unfavorable
developments in relation to a major customer may adversely
affect our revenues, operating results and cash flows.


Sales and Marketing

Sales.Our sales
strategy mainly consists of a direct selling approach
supplemented by strategic alliances to achieve greater reach
into geographic and vertical markets and targeted customer
segments. Through the efforts of our internal direct sales team,
we develop and manage relationships with providers and network
operators, using a consultative problem-solving sales process.
We work closely with these customers to define and determine how
their needs can be fulfilled with our products and services.

Certified system integration and delivery
partners play a key role in providing solutions and delivery for
our customers and extend the capabilities of our sales and
marketing organization. These partners enhance our direct sales
efforts along with our OEM/reseller partners, including
Telcordia Technologies, Inc. and i2 Technologies, Inc., who
license our RevChain software and offer it to their customers.

Due to the sophisticated nature of our products
and services, the duration of a sales cycle can typically range
anywhere from one to two months to one year or longer.

Marketing.Our
marketing organization is focused on building corporate brand
awareness and establishing a competitive position for our
software products and services among our target customers. Our
marketing programs include a combination of electronic and print
campaigns to establish awareness of our products and services,
as well as coordinated efforts to manage ongoing public and
media relations, plan and manage events, support our strategic
partner alliances, and maintain relationships with industry
analysts. We participate in targeted industry events that
showcase new technologies and solutions, and utilize speaking
opportunities and exhibits at trade shows and conferences to
demonstrate the value of our solutions in meeting customer needs.

Strategic Alliances

We have developed strategic alliances that expand
the coverage of our direct sales organization, provide
implementation and customization services for our products, and
complete our solutions offerings. Our strategy is to leverage
our current relationships and develop new alliances to help
achieve our sales and implementation targets. These alliances
enhance our ability to exploit new opportunities in our existing
markets, expand our addressable market, and drive new strategic
and product initiatives.

Our alliance program is based on three types of
contractual relationships:



| |   |                                              
| | - | ---------------------------------------------
| |  | strategic OEM/reseller partners;             
|
| |  | system integration and delivery partners; and
|
| |  | technology partners.                         

Strategic OEM/Reseller
Partners.Our strategic OEM/reseller
partners license and resell our solutions. Our applications add
value to our partners products, including OSS, legacy
systems, and other Internet-based products. Our strategic
OEM/reseller partners include Telcordia Technologies, Inc.,
Scientific Applications International Corporation (SAIC), Danet,
Inc., EYT, Inc. (formerly Ernst and Young Technologies), and i2
Technologies, Inc.

System Integration and Delivery
Partners.We work with recognized
systems integrators to provide additional project implementation
support when a customer desires a systems integrator or
additional resources are needed to complete a project. Other
services provided by systems integration and delivery partners
include strategic, technological and management consulting. Our
system integration and delivery partners include Telcordia
Technologies, Inc., SAIC and Danet, Inc. These partners are
certified by us and have the ability to implement our solution
in combination with those of other industry leaders.

Technology Partners.We work with leading software, hardware, and network providers
that offer products and services that compliment ours. We engage
with technology partners on joint sales and marketing

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efforts, as well as development work and projects
to create seamless best-of-breed solutions. Our
technology partners include: Aether Systems, Cisco Systems,
Intec Telecom Systems, Oracle Corporation, BEA Systems, Inc.,
MetaSolv Software, Inc., Juniper Networks, Extreme Networks,
Comptel Corporation, Vertex, Inc., XACCT Technologies and EHPT
USA. Our pre-integrated RevChain applications offer our mutual
customers flexibility and integration capabilities thus
decreasing risk, time-to-implementation, and costs. In addition,
we have developed working relationships with platform partners
that create and market the hardware, operating systems, and
database engines on which our technology runs. They include
Microsoft® (network operating system and database engine),
Sun Microsystems (operating systems and server hardware) and
Oracle (database engine).


Research and Development

Our product development capabilities are
essential to our strategy of enhancing our core technology,
developing additional applications, incorporating that
technology, and maintaining the competitiveness of our product
software. We have invested heavily in software development to
ensure that we have the product design skills and tools for
achieving our market leadership objective. We recognize that our
ability to create and extend our products, comes from investing
in talented software engineers, quality assurance testers and
billing and telecommunications specialists.

Our research and development expenses totaled
approximately $27.2 million for 2000, $12.5 million
for 2001, and $4.0 million for 2002. As of March 18,
2003, 52 employees were engaged in research and development
activities, 22 located in our corporate headquarters in Boca
Raton, Florida and 30 employees, located in St. Louis, Missouri.

Competition

The markets in which we compete are intensely
competitive, highly fragmented, and rapidly changing. Our
applications compete on the basis of product functionality,
performance, scalability, extensibility, ease of integration and
cost of ownership. We are also evaluated on our responsiveness
to the needs of customers, specific product features and
functionalities, the timeliness of product implementations,
quality and reliability of products, pricing strategies, project
management capability, financial condition and technical
expertise.

Our main billing and customer management
competitors include:



| |   |                                                                                                
| | - | -----------------------------------------------------------------------------------------------
| |  | Amdocs Limited;                                                                                
|
| |  | Convergys Corporation;                                                                         
|
| |  | Portal Software, Inc.;                                                                         
|
| |  | Saville, a business unit of ADC
    Telecommunications, Inc., formerly Saville Systems PLC; and
|
| |  | CSG Systems International, Inc.                                                                

Our main event management competitors include:



| |   |                           
| | - | --------------------------
| |  | Intec Telecom Systems PLC;
|
| |  | Narus, Inc.; and          
|
| |  | Openet.Telecom            

We also compete with the internal information
technology departments of large communications companies, who
may elect to develop functionality such as those provided by our
products in-house rather than buying from outside suppliers.

We believe that our ability to compete depends in
part on the performance of the competition, including the
development by others of software that is competitive with our
products and services, the price at which others offer
competitive software and services, the extent of
competitors responsiveness to customer needs, and the
ability of our competitors to hire, retain and motivate key
personnel.

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We anticipate continued growth and competition in
our target markets and the entrance of new competitors into the
customer management and billing, event management, mediation,
and service activation software markets, as well as emerging
participants in the overall revenue assurance area. We expect
that the market for our products will remain intensely
competitive.

Intellectual Property

We regard significant portions of our software
products and related processes as proprietary and rely on a
combination of patent, copyright, trademark and trade secret
law, contractual provisions and nondisclosure agreements to
protect our intellectual property rights. We have been issued
patents for our dynamically configurable and extensible rating
engine, customizable electronic invoice with options security,
and distributed third party commercial information through
electronic invoices and tracking the usage of such information.
We are currently pursuing five other patent applications pending
in the United States. In addition, we have filed a number of
trademark applications to protect our trademarks and tradenames.

When we license our products, we use signed
license agreements that limit access to and distribution of our
intellectual property and contain confidentiality terms
customary in the industry. Generally, we license our products in
object code only, a format that does not allow the user to
change the software source code. However, some of our license
agreements do require us to place the source code for our
products into escrow. These agreements generally provide that
these licensees would have a limited, non-exclusive right to use
the software source code if there is a bankruptcy proceeding by
or against us, if we cease to do business without a successor or
if we discontinue providing maintenance and support on our
products. We generally enter into employment or independent
contractor agreements that include nondisclosure obligations
with our employees and consultants to ensure and to protect our
intellectual property rights.

Employees

As of March 18, 2003, we had 128 full-time
employees, of whom 33 were in product implementation and
support, 17 in sales and marketing, 52 in research and product
development, and 26 in administration. We have never had a work
stoppage and none of our employees are represented under
collective bargaining agreements. We consider our relations with
our employees to be good.

Item 2.     Properties.

We relocated our headquarters in January 2002. We
are now located in a professional office building in Boca Raton,
Florida where we lease approximately 31,000 square feet. We
occupy these premises under a lease that expires on
January 31, 2004.

We lease two separate spaces with an aggregate of
approximately 35,000 square feet located in Chesterfield,
Missouri. These spaces house the corporate offices of our
subsidiary, Daleen Solutions, and our BillingCentral data
center. The lease for the corporate office space expires
June 30, 2004 and the data center lease expires
August 31, 2004.

We also lease approximately 8,500 square feet of
office space in Atlanta, Georgia. We no longer occupy this
facility and the space is currently being subleased to a third
party sub-tenant for the duration of the lease term. The Atlanta
lease expires on August 31, 2004.

We also lease approximately 5,400 square foot
office space in Toronto, Canada. We no longer occupy this
facility and the space is currently being subleased to a third
party sub-tenant for the duration of the lease term. The Toronto
lease expires February 28, 2004.

The facilities in Florida and Missouri are
suitable and adequate in size for the current needs of the
Company, and each of our leases is on commercially reasonable
terms.

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Item 3.     Legal
Proceedings.

Fazari v. Daleen Technologies

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

The complaint includes allegations of violations
of (i) Section 11 of the Securities Act of 1933 by all
named defendants, (ii) Section 15 of the Securities
Act of 1933 by the individual defendants and
(iii) Section 10(b) of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder by the
underwriter defendants.

Specifically, the plaintiffs allege in the
complaint that, in connection with our IPO, the defendants
failed to disclose excessive commissions purportedly
solicited by and paid to the underwriter defendants in exchange
for allocating shares of our common stock in the IPO to the
underwriter defendants preferred customers. Plaintiffs
further allege that the underwriter defendants had agreements
with preferred customers tying the allocation of shares sold in
our IPO to the preferred customers agreements to make
additional aftermarket purchases at pre-determined prices.
Plaintiffs further allege that the underwriters used their
analysts to issue favorable reports about us to further inflate
our share price following the IPO. Plaintiffs claim that the
defendants knew or should have known of the underwriters actions
and that the failure to disclose these alleged arrangements
rendered our prospectus included in our registration statement
on Form S-1 filed with the SEC in September 1999 materially
false and misleading. Plaintiffs seek unspecified damages and
other relief.

We believe that we are entitled to
indemnification by the underwriters under the terms of the
underwriting agreements. We have notified the underwriters of
the action, but the underwriters have not yet agreed to
indemnify us. We are participating in discussions with the
underwriters regarding an agreement by the underwriters to
indemnify the issuers. However, our lead underwriter, BancBoston
Robertson Stephens Inc., has ceased doing business and there is
no assurance it will have the financial resources to provide
indemnification. We are also monitoring the progress of a
proposed settlement involving the plaintiffs, the insurance
companies and other issuers that includes a waiver by the
insurance companies of any retention amounts under the policies.
In that case, there would be no liability to be recorded by us
other than legal fees incurred in the initial defense of the
action, which are immaterial. Currently a loss cannot be
determined because the lawsuit is in its initial stages and
there is no guarantee that either the indemnification agreement
or a settlement with the plaintiffs will be finalized. In the
event that the litigation is not dismissed or the settlement
discussions are unsuccessful, we intend to defend vigorously
against the plaintiffs claims.

Other
Matters

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

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

We held a special meeting of Daleen stockholders
on December 20, 2002. At the special meeting the
stockholders of the Company voted on and approved each of the
following proposals:

Proposal One: To approve the Asset Purchase
Agreement between the Company and Abiliti and the transactions
contemplated thereby, including the issuance by the Company to
Abiliti of shares of our common stock, Series F preferred
stock and warrants to purchase additional shares of common
stock. 32,203,673 shares were voted in favor of this proposal,
43,695 shares were voted against this proposal and 123,226
shares abstained from voting on this proposal.

Proposal Two: To approve the Investment Agreement
between the Company and the Behrman Funds, and the transactions
contemplated thereby, including the issuance and sale by the
Company in a private placement to the Behrman Funds of shares of
common stock, Series F preferred stock and warrants to
purchase additional shares of common stock for an aggregate
purchase price of approximately $5.015 million and the
adoption of a new long term incentive compensation plan.
32,203,673 shares were voted in favor of this proposal, 43,765
shares were voted against this proposal and 124,171 shares
abstained from voting on this proposal.

Proposal Three: To approve an amendment to our
certificate of incorporation to (i) increase our authorized
shares of Series F preferred stock, and (ii) amend the
terms of the Series F preferred stock to provide that the
transactions contemplated by the Asset Purchase and 2002 Private
Placement will not result in an adjustment to the conversion
price of the Series F preferred stock or give rise to
redemption rights in favor of the holders of the Series F
preferred stock. 32,175,222 shares were voted in favor of this
proposal, 66,356 shares were voted against this proposal and
129,286 shares abstained from voting on this proposal.

Executive Officers of the
Registrant.

The names, ages at December 31, 2002, and
current positions of our executive officers are listed below in
accordance with General Instruction G(3) of Form 10-K and
Instruction 3 of Item 401(b) of Regulation S-K. Unless
otherwise stated, each executive officer has held their position
for at least the last five years. All officers are elected for
one year terms or until their respective successors are chosen.
There are no family relationships among the executive officers.
If there is any agreement or understanding between an officer
and any other person pursuant to which the officer was elected,
the agreement or understanding is stated below.

Gordon Quick,55,
has served as President and Chief Executive Officer of Daleen
since December 20, 2002. Mr. Quick was appointed to
such positions in conjunction with the closing of the Asset
Purchase and 2002 Private Placement. Prior to joining Daleen and
beginning in August 1999, Mr. Quick served as the president
and chief executive officer of Abiliti. Prior to that,
Mr. Quick served as the chief operating officer of
HighwayMaster Corporation from January 1995 until April 1999.

Jeanne Prayther,36,
has served as Chief Financial Officer of Daleen since August
2001. She previously served as Daleens vice president of
finance and accounting from June 2000 until August 2001. Prior
to joining Daleen, Ms. Prayther worked at KPMG LLP, a public
accounting firm, for 12 years in the assurance practice,
most recently in a senior manager position.

David McTarnaghan,40, has served as Senior Vice President of Global Sales since
joining Daleen in 1998. Mr. McTarnaghan became an executive
officer in June 2002. Mr. McTarnaghan has over
16 years of experience in information technology and
telecommunications sales most recently serving as general
manager at Fujitsu Business Communications Systems from 1991 to
1998.




PART II

Item 5.     Market
for Registrants Common Equity and Related Stockholder
Matters.

Our common stock was traded on The Nasdaq Stock
Market under the symbol DALN from October 1,
1999 to July 12, 2002. From July 12, 2002 to
December 31, 2002 our common stock was traded on

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the Nasdaq SmallCap Market under the symbol
DALN. Prior to October 1, 1999 there was no
established market for our common stock. The price per share
reflected in the table below represents the range of low and
high closing sale prices for our common stock as reported by The
Nasdaq Stock Market or the Nasdaq SmallCap Market for the
periods indicated:


|                   |  |            |      |           |  |   |      | 
|------------------ |  | ---------- | ---- | --------- |  | - | ---- | 
|Quarter Ended      |  | High Price |      | Low Price
|                   |  |            |      |          
|March 31, 2001     |  | $          | 4.19 |           |  | $ | 0.94 | 
|June 30, 2001      |  | $          | 1.57 |           |  | $ | 0.65 | 
|September 30, 2001 |  | $          | 1.10 |           |  | $ | 0.42 | 
|December 31, 2001  |  | $          | 0.57 |           |  | $ | 0.30 | 
|March 31, 2002     |  | $          | 0.45 |           |  | $ | 0.17 | 
|June 30, 2002      |  | $          | 0.24 |           |  | $ | 0.13 | 
|September 30, 2002 |  | $          | 0.17 |           |  | $ | 0.11 | 
|December 31, 2002  |  | $          | 0.25 |           |  | $ | 0.08 | 

Effective December 31, 2002, the Company was
delisted by The Nasdaq SmallCap Market, and is currently being
traded on the OTC Bulletin Board under the symbol
DALN. The closing sale price of our common stock as
reported by the OTC Bulletin Board on March 18, 2003 was
$0.08 per share.

The number of stockholders of record of our
common stock as of March 18, 2003, was approximately 230.

We have never paid cash dividends on our capital
stock. We currently intend to retain any earnings for use in the
business and do not anticipate paying any cash dividends in the
foreseeable future.

Issuance of Common Stock and Series F
Preferred Stock in the Asset Purchase and 2002 Private
Placement

On December 20, 2002, pursuant to the Asset
Purchase Agreement dated October 7, 2002, Daleen Solutions
consummated the Asset Purchase of substantially all of the
assets and assumption of certain liabilities of Abiliti. As
consideration for the Asset Purchase, we issued to Abiliti
11,406,284 shares of our common stock, 115,681 shares of our
Series F preferred stock and warrants to purchase 5,666,069
additional shares of our common stock at an exercise price of
$0.906 per share. The warrants may not be exercised prior to
June 20, 2003, subject to acceleration in certain
circumstances. On December 20, 2002, the shares and
warrants issued to Abiliti were transferred to certain creditors
of Abiliti, including the Behrman Funds.

Concurrently with the consummation of the Asset
Purchase, on December 20, 2002, pursuant to an Investment
Agreement dated October 7, 2002, we completed our 2002
Private Placement of 10,992,136 shares of our common stock,
115,681 shares of our Series F preferred stock, warrants to
purchase 5,666,069 additional shares of our common stock at an
exercise price of $0.906 per share, and warrants to purchase
500,000 additional shares of our common stock at an exercise
price of $0.17 per share, for a total consideration of
$5.015 million in cash. The warrants that have an exercise
price of $0.906 per share may not be exercised prior to
June 20, 2003, and the warrants that have an exercise price
of $0.17 per share may not be exercised prior to
December 20, 2003, subject in each case to acceleration in
certain circumstances. The purchasers in the 2002 Private
Placement were the Behrman Funds, which are shareholders and
creditors of Abiliti. As of March 18, 2003, the Behrman
Funds beneficially own approximately 72.5% of our outstanding
common stock assuming the conversion of only their Series F
preferred stock and exercise of their warrants to acquire common
stock.

The terms of the Asset Purchase and 2002 Private
Placement, including the Asset Purchase Agreement, Investment
Agreement and certain other transaction documents are set forth
in our Current Report on Form 8-K filed with the Securities
and Exchange Commission on October 11, 2002, and the
exhibits thereto. Our stockholders approved the Asset Purchase
and 2002 Private Placement and the related amendments to the
certificate of incorporation at the special meeting of
stockholders held on December 20, 2002.

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The terms of the Series F preferred stock
issued in the Asset Purchase and 2002 Private Placement are
identical to the previously outstanding Series F preferred
stock. Each share of Series F preferred stock is
convertible into 122.4503 shares of our common stock and is
entitled to vote with the common stock on all matters submitted
to a vote of our common stockholders on the basis of 100 votes
per share of Series F preferred stock.

The offering and sale of the Series F
preferred stock and warrants was exempt from registration under
the Securities Act of 1933, as amended, by virtue of
Rule 506 of Regulation D promulgated thereunder.

Use of
Proceeds

The gross proceeds from the 2002 Private
Placement were $5,015,000. We paid our investment advisor
$500,000 in cash plus warrants to purchase 250,000 shares of our
common stock at an exercise price of $0.17 and we paid Behrman
Brothers L.P., a party under common control with the Behrman
Funds, a $650,000 fee. These payments were made in connection
with the consummation of the Asset Purchase and 2002 Private
Placement. We will use the net proceeds for working capital and
general corporate purposes.

Terms of Series F preferred
stock

Number of Shares; Purchase
Price.Pursuant to the Asset Purchase
and 2002 Private Placement, we issued and sold an aggregate of
231,362 shares of Series F preferred stock in addition to
the 226,862 shares of Series F preferred stock that were
outstanding prior to the closing of the Asset Purchase and 2002
Private Placement. The total number of shares of Series F
preferred stock outstanding as of March 18, 2003 is
458,224. There are also warrants outstanding to purchase an
aggregate of 109,068 shares of Series F preferred stock
(Series F Warrants) with an exercise price of
$166.41 per share of Series F preferred stock that are
exercisable at any time prior to June 7, 2006.

Conversion Price.Each share of Series F preferred stock is convertible at
any time at the option of the holder into shares of our common
stock. The number of shares of common stock issuable upon
conversion of a single share of Series F preferred stock is
determined by dividing the original price per share of the
Series F preferred stock, or $110.94, by the conversion
price in effect on the date of conversion. The current
conversion price of the Series F preferred stock is $0.9060
after giving effect to a one-time reset following our earnings
release for the quarter ended June 30, 2001. Based on the
current conversion price, each share of Series F preferred
stock, including the shares of Series F preferred stock
issuable upon exercise of the Series F Warrants, currently
are convertible into 122.4503 shares of common stock, or an
aggregate of approximately 69,465,072 shares of common stock
assuming the conversion into common stock of all of our
outstanding Series F preferred stock, and the exercise in
full of the Series F Warrants and conversion of the
Series F preferred stock issuable upon such exercise. As of
March 18, 2003, 21,020 shares of Series F preferred
stock have been converted to common stock resulting in the
issuance of 2,573,902 shares of common stock.

In the event we issue common stock or securities
convertible into common stock at a price per share less than the
conversion price of the Series F preferred stock, the
conversion price will be reduced to be equal to the price per
share of the securities sold. This adjustment provision is
subject to a number of exceptions, including the issuance of
stock or options to employees and the issuance of stock or
options in connection with acquisitions. The conversion price
will also be subject to adjustment as a result of stock splits
and stock dividends on our common stock.

The Series F preferred stock will
automatically convert into common stock at any time after
March 30, 2002, if the common stock trades on The Nasdaq
Stock Market or a national securities exchange at a price per
share of at least $3.3282 for ten trading days within any
twenty-day trading period. The Series F preferred stock is
not subject to automatic conversion if our common stock is not
then listed for trading on The Nasdaq National Market or a
national securities exchange.

Voting Rights.The
holders of the Series F preferred stock have voting rights
entitling them to vote together with the holders of our common
stock as a single class on all matters presented for a vote to
the common stockholders. The Series F preferred stock
entitles the holders thereof to vote with the common stock

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on the basis of 100 votes for each share of
Series F preferred stock. Additionally, so long as at least
50% of the shares of Series F preferred stock that are ever
outstanding at any one time remain outstanding, we are prevented
from the following activities unless we first obtain the
approval of a majority of the outstanding shares of
Series F preferred stock:




| |                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | i) authorize or issue any other class or
    series of preferred stock ranking senior to or pari passu
    with the Series F preferred stock as to payment of amounts
    distributable upon our dissolution, liquidation or winding up or
    issue any additional shares of Series F preferred stock;
|
| | ii) reclassification of any capital stock
    into shares having preferences or priorities senior to or
    pari passu with the Series F preferred stock;                                                                                                                                              
|
| | iii) amend, alter or repeal any rights of
    the Series F preferred stock; and                                                                                                                                                                                                                        
|
| | iv) pay dividends on any other class or
    series of capital stock.                                                                                                                                                                                                                                   

Dividends.Holders
of Series F preferred stock have the rights to the payment
of dividends only when and if dividends are declared on our
common stock. In the event we pay dividends on our common stock,
the holders of the Series F preferred stock are entitled to
dividends on an as-if-converted basis.

Liquidation
Preference.In the event of a
dissolution, liquidation or winding up of our operations, after
payment or provision for payment of debts, but before any
distribution to the holders of common stock or any other class
or series of our then outstanding capital stock ranking junior
to the Series F preferred stock, the holders of the
Series F preferred stock then outstanding are entitled to
receive a preferential amount of $110.94 per share (the
Preferential Amount), which is equal to the original
purchase price per share; provided however, that
(i) if the assets to be distributed to the holders of the
Series F preferred stock are insufficient to permit the
payment to such holders of the full Preferential Amount, then
all of our assets to be distributed will be distributed ratably
to the holders of the Series F preferred stock and
(ii) if the amount distributable on each share of common
stock upon liquidation, dissolution or winding up of our
operations (after taking into account all distributions that
would be necessary to satisfy the Preferential Amounts due to
holders of the Series F preferred stock) is greater than
the Preferential Amount payable on the Series F preferred
stock, we, in lieu of distributing the Preferential Amount to
the holders of Series F preferred stock, shall make a
distribution in an amount per share to the holders of
Series F preferred stock (on an as-if converted basis)
equal to the amount per share distributed to the holders of
common stock.

Redemption Rights; Rights on Sale of the
Company.Unless otherwise agreed by
the holders of at least a majority of the outstanding shares of
Series F preferred stock, voting or consenting as a
separate class, in the event of a Sale of the
Company we are required to redeem all of the issued and
outstanding shares of Series F preferred stock for a
redemption price equal to the Preferential Amount. A Sale
of the Company means: (i) the acquisition by another
entity by means of merger or consolidation resulting in the
exchange of at least 50% of the outstanding shares of our
capital stock for securities issued or other consideration paid
by the acquiring entity or any parent or subsidiary thereof
(except for a merger or consolidation after the consummation of
which our stockholders immediately prior to such merger or
consolidation own in excess of 50% of the voting securities of
the surviving corporation or its parent corporation); or
(ii) the sale or other disposition by us of substantially
all of our assets (other than a sale or transfer of assets to
one or more of our wholly-owned subsidiaries).

Registration Rights.We filed with the Securities and Exchange Commission a
Registration Statement on Form S-3 for the purpose of
registering the shares of common stock issuable upon conversion
of the Series F preferred stock that covers the
Series F preferred stock outstanding prior to the Asset
Purchase and the 2002 Private Placement. The Securities and
Exchange Commission declared the Registration Statement
effective on September 25, 2001. We also granted to the
holders of such Series F preferred stock (i) the right
to demand that we effect up to three underwritten public
offerings of the common stock underlying the Series F
preferred stock and Warrants and (ii) piggyback
registration rights in the event we subsequently file a
registration statement for the sale of capital stock. We
previously granted piggyback registration rights to
a number of our other stockholders, including our largest
stockholders. As a result, the Registration Statement covers an
aggregate of 56,192,841 shares of common stock. The holders of
the shares of common

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stock included in the Registration Statement are
not obligated to sell any or all of the shares to be registered.
However, it permits the holders of the registered shares,
including the shares of common stock issuable upon conversion of
the Series F preferred stock, to sell their shares of our
common stock in the public market or in private transactions
from time to time until all of the shares are sold or the shares
otherwise may be transferred without restriction under the
securities laws.


We have also entered into a registration rights
agreement with Abiliti, the Behrman Funds and Kaufman Bros., our
investment advisor in the Asset Purchase and 2002 Private
Placement, pursuant to which we have agreed to file up to three
registration statements upon the demand of a majority of, and
covering, the following: (i) the common stock issued in the
Asset Purchase and 2002 Private Placement; (ii) the common
stock issuable upon conversion of the Series F preferred
stock issued in the Asset Purchase and 2002 Private Placement;
and (iii) the common stock issuable upon exercise of the
common stock warrants issued in the Asset Purchase and 2002
Private Placement. In addition, we have granted to the Behrman
Funds piggyback rights generally entitling them to
require that we register their shares of common stock, including
the shares issuable upon conversion of the Series F
preferred stock and upon exercise of the common stock warrants,
when we are registering our equity securities. The piggyback
rights apply only to shares of our common stock issued in the
2002 Private Placement and shares issuable upon conversion or
exercise of Series F preferred stock and common stock
warrants issued in the 2002 Private Placement.

Certain holders of Series F preferred
stock.The holders of the
Series F preferred stock issued in the Asset Purchase and
2002 Private Placement include Behrman Capital II L.P. and an
affiliated fund, Strategic Entrepreneur Fund II, L.P.
Mr. Dennis Sisco, a director of Daleen, is a Partner of
Behrman Capital , an investment firm that manages Behrman
Capital II, L.P.

Item 6.     Selected
Consolidated Financial Data.

The selected financial data set forth below
should be read in conjunction with the consolidated financial
statements, including the notes thereto, and
Managements Discussion and Analysis of Financial
Condition and Results of Operations included in
Item 7 of this Form 10-K. The following selected
financial data concerning Daleen for and as of the end of each
of the years in the five year period ended December 31,
2002, are derived from the audited consolidated financial
statements of Daleen. The selected financial data is qualified
in its entirety by the more detailed information and
consolidated financial statements, including the notes thereto,
included elsewhere in this report. The audited consolidated
financial statements of Daleen as of December 31, 2002 and
2001 and for each of the years in the three year period ended
December 31, 2002, and the report of KPMG LLP thereon, are
included elsewhere in this report.

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##### Table of Contents






SELECTED CONDENSED CONSOLIDATED FINANCIAL
DATA

|                                                                             |                                                |                                      |         |       |        |      |         |        |        |      |         |        |        |  |          |        |        |  |         |       |        | 
|---------------------------------------------------------------------------- | ---------------------------------------------- | ------------------------------------ | ------- | ----- | ------ | ---- | ------- | ------ | ------ | ---- | ------- | ------ | ------ |  | -------- | ------ | ------ |  | ------- | ----- | ------ | 
|                                                                             |                                                |                                     
|                                                                             |                                                | Years Ended December 31,            
|                                                                             |                                                |                                     
|                                                                             |                                                | 1998                                 |         | 1999  |        | 2000 |         | 2001   |        | 2002
|                                                                             |                                                |                                      |         |       |        |      |         |        |        |     
|                                                                             |                                                |                                     
|                                                                             |                                                | (in thousands except per share data)
|Revenue:                                                                     |                                                |                                      |         |       |        |      |         |        |        |      |         |        |        |  |          |        |        |  |         |      
|                                                                             | License fees                                   |                                      | $       | 1,879 |        |      |         | 12,404 |        |      |         | 26,886 |        |  |          | 3,565  |        |  |         | 1,450 |       
|                                                                             | Professional services and other                |                                      |         | 3,352 |        |      |         | 8,321  |        |      |         | 16,743 |        |  |          | 8,867  |        |  |         | 5,154 |       
|                                                                             |                                                |                                      |         |       |        |      |         |        |        |      |         |        |        |  |          |        |        |  |         |      
|                                                                             |                                                | Total revenue                        |         |       | 5,231  |      |         |        | 20,725 |      |         |        | 43,629 |  |          |        | 12,432 |  |         |       | 6,604  | 
|                                                                             |                                                |                                      |         |       |        |      |         |        |        |      |         |        |        |  |          |        |        |  |         |      
|Cost of revenue:                                                             |                                                |                                      |         |       |        |      |         |        |        |      |         |        |        |  |          |        |        |  |         |      
|                                                                             | License fees                                   |                                      |         | 3     |        |      |         | 64     |        |      |         | 682    |        |  |          | 1,646  |        |  |         | 232   |       
|                                                                             | Professional services and other                |                                      |         | 4,239 |        |      |         | 7,721  |        |      |         | 13,878 |        |  |          | 7,302  |        |  |         | 2,523 |       
|                                                                             |                                                |                                      |         |       |        |      |         |        |        |      |         |        |        |  |          |        |        |  |         |      
|                                                                             |                                                | Total cost of revenue                |         |       | 4,242  |      |         |        | 7,785  |      |         |        | 14,560 |  |          |        | 8,948  |  |         |       | 2,755  | 
|                                                                             |                                                |                                      |         |       |        |      |         |        |        |      |         |        |        |  |          |        |        |  |         |      
|Gross margin                                                                 |                                                |                                      | 989     |       |        |      | 12,940  |        |        |      | 29,069  |        |        |  | 3,484    |        |        |  | 3,849   |      
|Operating expenses:                                                          |                                                |                                      |         |       |        |      |         |        |        |      |         |        |        |  |          |        |        |  |         |      
|                                                                             | Sales and marketing                            |                                      |         | 2,435 |        |      |         | 4,342  |        |      |         | 14,680 |        |  |          | 10,895 |        |  |         | 3,738 |       
|                                                                             | Research and development                       |                                      |         | 6,653 |        |      |         | 9,348  |        |      |         | 27,215 |        |  |          | 12,502 |        |  |         | 3,863 |       
|                                                                             | Purchased in-process research and development  |                                      |         |      |        |      |         | 6,347  |        |      |         |       |        |  |          |       |        |  |         | 104   |       
|                                                                             | General and administrative                     |                                      |         | 4,824 |        |      |         | 8,965  |        |      |         | 18,210 |        |  |          | 13,820 |        |  |         | 5,817 |       
|                                                                             | Amortization of goodwill and other intangibles |                                      |         |      |        |      |         | 607    |        |      |         | 15,205 |        |  |          | 12,014 |        |  |         |      |       
|                                                                             | Impairment of long-lived assets                |                                      |         |      |        |      |         |       |        |      |         |       |        |  |          | 34,604 |        |  |         |      |       
|                                                                             | Restructuring charges                          |                                      |         |      |        |      |         |       |        |      |         |       |        |  |          | 11,763 |        |  |         | 745   |       
|                                                                             |                                                |                                      |         |       |        |      |         |        |        |      |         |        |        |  |          |        |        |  |         |      
|                                                                             |                                                | Total operating expenses             |         |       | 13,912 |      |         |        | 29,609 |      |         |        | 75,310 |  |          |        | 95,598 |  |         |       | 14,267 | 
|                                                                             |                                                |                                      |         |       |        |      |         |        |        |      |         |        |        |  |          |        |        |  |         |      
|Operating loss                                                               |                                                |                                      | (12,923 | )     |        |      | (16,669 | )      |        |      | (46,241 | )      |        |  | (92,114  | )      |        |  | (10,418 | )    
|Nonoperating income                                                          |                                                |                                      | 754     |       |        |      | 1,329   |        |        |      | 2,456   |        |        |  | 1,125    |        |        |  | 757     |      
|                                                                             |                                                |                                      |         |       |        |      |         |        |        |      |         |        |        |  |          |        |        |  |         |      
|Net loss                                                                     |                                                |                                      | (12,169 | )     |        |      | (15,340 | )      |        |      | (43,785 | )      |        |  | (90,989  | )      |        |  | (9,661  | )    
|Accretion of preferred stock                                                 |                                                |                                      | (65     | )     |        |      | (122    | )      |        |      |        |        |        |  |         |        |        |  |        |      
|Preferred stock dividends arising from beneficial
    conversion features    |                                                |                                      |        |       |        |      |        |        |        |      |        |        |        |  | (28,512  | )      |        |  |        |      
|                                                                             |                                                |                                      |         |       |        |      |         |        |        |      |         |        |        |  |          |        |        |  |         |      
|Net loss applicable to common stockholders                                   |                                                | $                                    | (12,234 | )     |        |      | (15,462 | )      |        |      | (43,785 | )      |        |  | (119,501 | )      |        |  | (9,661  | )    
|                                                                             |                                                |                                      |         |       |        |      |         |        |        |      |         |        |        |  |          |        |        |  |         |      
|Net loss applicable to common stockholders per
    share  basic and diluted |                                                | $                                    | (3.78   | )     |        |      | (1.06   | )      |        |      | (2.02   | )      |        |  | (5.47    | )      |        |  | (0.40   | )    
|                                                                             |                                                |                                      |         |       |        |      |         |        |        |      |         |        |        |  |          |        |        |  |         |      
|Weighted average shares  basic and
    diluted                              |                                                |                                      | 3,240   |       |        |      | 14,548  |        |        |      | 21,671  |        |        |  | 21,836   |        |        |  | 23,919  |      
|                                                                             |                                                |                                      |         |       |        |      |         |        |        |      |         |        |        |  |          |        |        |  |         |      

|                                                                              |  |              |         |      |  |      |         |      |  |      |        |  |  |   |        |  |  |   |        | 
|----------------------------------------------------------------------------- |  | ------------ | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                                                              |  |             
|                                                                              |  | December 31,
|                                                                              |  |             
|                                                                              |  | 1998         |         | 1999 |  | 2000 |         | 2001 |  | 2002
|                                                                              |  |              |         |      |  |      |         |      |  |     
|Condensed Consolidated Balance Sheet
    Data:                                |  |              |         |      |  |      |         |      |  |      |        |  |  |   |        |  |  |   |        | 
|Cash and cash equivalents                                                     |  | $            | 723     |      |  | $    | 52,852  |      |  | $    | 22,268 |  |  | $ | 13,093 |  |  | $ | 6,589  | 
|Total assets                                                                  |  |              | 11,025  |      |  |      | 133,881 |      |  |      | 99,462 |  |  |   | 21,193 |  |  |   | 18,789 | 
|Current portion of long-term debt and obligations
    under capital leases    |  |              |        |      |  |      |        |      |  |      | 129    |  |  |   |       |  |  |   | 164    | 
|Long-term debt and obligations under capital
    leases, less current portion |  |              |        |      |  |      |        |      |  |      | 607    |  |  |   |       |  |  |   | 26     | 
|Stockholders (deficit) equity                                                |  | $            | (13,897 | )    |  |      | 119,457 |      |  |      | 77,501 |  |  |   | 14,262 |  |  |   | 13,707 | 

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|        |                                                                                           
|------- | ------------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations.

The following should be read in conjunction
with the accompanying consolidated financial statements and the
related notes thereto included elsewhere herein.

Overview

From our founding in 1989 and through 1996, we
operated as a software consulting company, performing contract
consulting and software development services in a contract
placement and staffing business. We sold the contract placement
and staffing business to a third party in 1996. Since 1996, we
have been a provider of software solutions and have evolved to
be a global provider of advanced billing and customer care,
event management and revenue assurance software for traditional
and next generation communication service providers and other
technology solutions providers. As we grew in size and
geography, we added new customer care and management products to
enhance our billing applications. In addition to our products
and applications, we offer professional consulting services,
training, maintenance, support and third party software
fulfillment, in each case related to the products we develop. We
recognized the first material revenue from software license fees
in 1998.

Critical Accounting Policies and
Estimates

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

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

Revenue
Recognition

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

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

Professional service fees are recognized
separately from the license fee since the services are not
considered significant to the functionality of the software and
the software does not require significant

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modification, production or customization. There
are two types of service contracts that are entered into with
customers: fixed fee and time and materials.


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

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

Revenue related to outsourcing services consists
of monthly processing fees generated from the provision of
billing and event management services to our customers. Revenue
is recognized as the related services are rendered and it is
billed monthly based on transaction volume processed, percentage
of revenue billed on behalf of customers or monthly minimum
charges per the contract.

Accounts
Receivable

We maintain an allowance for doubtful accounts
for estimated losses resulting from the inability of our
customers to make required payments. We continuously monitor
collections and payments from our customers and the allowance
for doubtful accounts is based on historical experience and any
specific customer collection issues that we have identified. If
the financial condition of our customers were to continue to
deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required.

Investment in
Third Parties

We have an investment in a technology company
having operations in areas within our strategic focus. We record
an investment impairment charge when we believe an investment
has experienced a decline in value that is other than temporary.
Future adverse changes in market conditions, or poor operating
results of underlying investments, could result in losses or an
inability to recover the carrying value of the investments that
may not be reflected in an investments current carrying
value, thereby possibly requiring an impairment charge in the
future.

Accounting
for Income Taxes

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

We currently have a net operating loss
carryforward for U.S. federal and state income tax purposes in
excess of $122.0 million, and are continuing to experience
operating losses for tax purposes. In addition, we have net
operating loss carryforwards for Canada in the amount of
approximately $22 million. Therefore, we currently do not pay
any federal income taxes. However, the amount of the net
operating loss and credit carryforwards that we may utilize each
year may be limited due to changes in stock ownership that have
occurred over the past several years and the recent transactions
related to the most recent Asset Purchase, the 2002 Private
Placement and the sale of Series F preferred stock in
June 7, 2001 (2001 Private Placement).

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Goodwill

Prior to the adoption of Statement of Financial
Accounting Standards No. 142 Goodwill and Other
Intangible Assetsgoodwill was amortized on a
straight-line basis over the expected periods to be benefited,
and assessed for recoverability by determining whether the
amortization of the unamortized goodwill balance over its
remaining life could be recovered through undiscounted future
operating cash flows. The estimated cash flows were compared to
our goodwill amounts; if the unamortized balance of the goodwill
exceeded the estimated cash flows, the excess of the unamortized
balance was written off. During the year ended December 31,
2001 we wrote off approximately $31.2 million of
unamortized goodwill related to the acquisition of Inlogic
Software Inc. (Inlogic).

In 2002, the Company adopted the provisions of
SFAS No. 142. Goodwill is no longer amortized but tested
for impairment at least annually. At December 31, 2002 the
goodwill balance related to the Abiliti Asset purchase.

At December 31, 2002 we evaluated goodwill
for impairment and determined that goodwill was not impaired. In
performing this impairment assessment, management made judgments
regarding the anticipated future cash flows from the Asset
Purchase. Different assumptions in this assessment could have
led to a different result, which could have had a material
effect on our reported earnings. The conditions that could
trigger an impairment write-down in the future include a
significant downward trend in our operating results or cash
flow, a decrease in demand for our products, a change in the
competitive environment and other economic factors.

Results of Operations

Fiscal 2002 continued to be a challenging time
for us as the telecommunications industry continued to weaken.
The economic slowdown that began in early 2001 affected us, as
it affected many companies in the technology and
telecommunications sectors. Despite the challenges, we managed
to be a competitor in the marketplace and managed our costs and
cash burn to the lowest levels in our history. We focused on
achieving growth through our installed base of customers as well
as maintaining a combination of a direct sales force and
alliance partner sales.

In addition, in December 2002, we acquired
substantially all of the assets and assumed certain liabilities
of Abiliti. The acquisition created an increased revenue stream
to our business and helped position ourselves to be a long
standing competitor in the marketplace. In addition to licensing
our software, we will now offer a comprehensive outsourcing
solution. BillingCentral, is a carrier-class data center,
staffed by billing experts. The recurring revenue from
BillingCentral is expected to be significant to our ongoing
operations.

For the year ended December 31, 2002 the
results of operations includes ten days of operating results of
Daleen Solutions.



| |                                        
| | ---------------------------------------
| | In-Process Research and
    Development

The acquisition of Abiliti resulted in a charge
of $104,000 in the year ended December 31, 2002 related to
the write-off of purchased in-process research and development.
This in-process research and development related to Abiliti
products which were in the early stages of their development at
the time of the Asset Purchase. The value assigned to in-process
research and development was determined based on
managements estimates of the percentage of completion of
the underlying development effort, resulting net cash flows from
Abiliti products, and the discounting of such cash flows back to
their present value. In aggregate, Abiliti had spent
approximately $196,201 in research and development expenditures
associated with the in-process technology and had estimated that
an additional $748,043 would be spent in order to complete all
in-process products. This included coding, testing,
benchmarking, documentation and certification.

In projecting net cash flows resulting from
Abiliti products, we estimated revenues, cost of sales, research
and development, sales and marketing and general and
administrative expenses for each product. Economic rents for the
use of other contributory assets were then deducted from the net
operating profit. These include charges for workforce (1.5%),
working capital (1.0%) and fixed assets (1.3%). Revenue growth
was based on

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managements estimates of market size and
growth, supported by independent market data for the
communication software and services industry and the nature and
timing of the development of product enhancements and new
products by us and our competitors.


The projected net cash flows for Abiliti products
were discounted using a 30.7% weighted average cost of capital
(WACC). The 30.7% rate was based upon the weighted
average cost of equity and long-term debt. The WACC calculation
produces the average required rate of return of an investment in
an operating enterprise.

No assurances are given that the underlying
assumptions used to estimate projected net cash flows will
transpire as estimated. Operating results are subject to
uncertain market events and risks which are beyond our control,
such as trends in technology, government regulations, market
size and growth, and product introductions, delays in product
development, changes in operating expenses and gross margins, or
other actions by competitors. For these reasons actual results
may differ from the projected results.



| |                      
| | ---------------------
| | Restructuring Charges

In 2001, the Board of Directors approved three
cost reduction plans (the 2001 Restructurings). We
recorded $11.4 million in restructuring charges in the year
ended December 31, 2001 related to the 2001 Restructurings.
These charges included the estimated costs related to workforce
reductions, downsizing and closing of facilities, asset
writedowns and other costs. The workforce reductions included
the termination of approximately 400 employees throughout our
Boca Raton, Florida; Atlanta, Georgia; and Toronto, Ontario,
Canada facilities, and included employees from substantially all
of our employee groups. The downsizing and closing of facilities
included the consolidation of our North American workforce into
one Boca Raton, Florida office, the closure of our Toronto and
Atlanta facilities and rental property lease termination charges
of $1.4 million.

The asset writedowns were primarily related to
the disposition of duplicative furniture and equipment and
computer equipment from terminated employees, which was not
resalable. Other costs included costs incurred that no longer
provided a benefit to us such as recruiting fees and relocation
costs related to employment offers that were rescinded,
penalties for cancellation of a user conference and trade shows,
accounting and legal fees, penalties for cancellation of
software maintenance contracts in Atlanta and Toronto and other
miscellaneous expenses.

The 2001 Restructurings resulted in significant
savings in the amount of approximately $29.0 million in
2002 related to the cost of salaries and benefits for terminated
employees.

On May 13, 2002, our Board of Directors
approved the 2002 Restructuring and we announced a plan to
further reduce expenses on May 14, 2002. We recorded a
$745,000 restructuring charge in the year ended
December 31, 2002 related to the 2002 Restructuring. This
charge included the estimated costs related to workforce
reduction of 35 employees.



| |                    
| | -------------------
| | Inlogic Acquisition

In December 1999, we acquired all of the issued
and outstanding capital shares of Inlogic. In connection with
this acquisition we recorded goodwill in the amount of
$55.8 million. Goodwill was being amortized over a four
year useful life. Due to changes in economic conditions and our
past revenue performance, we assessed the recoverability of
goodwill in 2001 by determining whether the amortization of the
goodwill over the remaining life could be received through
undiscounted future operating cash flow. As a result, we wrote
off the remaining balance of goodwill in the year ended
December 31, 2001 which amounted to a reduction of goodwill
in the amount of approximately $31.2 million. This was mainly
due to the estimated shortfall of the cash flows, discounted at
a rate commensurate with the associated risks.

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| |                  
| | -----------------
| | Operating Results

The following table sets forth our results of
operations expressed as a percentage of total revenue for the
periods indicated. These historical results are not necessarily
indicative of results to be expected for any future period.






DALEEN TECHNOLOGIES, INC.


Results of Operations

|                                     |                                                |                          |        |      |       |      |        |       |       |  |        |      |       | 
|------------------------------------ | ---------------------------------------------- | ------------------------ | ------ | ---- | ----- | ---- | ------ | ----- | ----- |  | ------ | ---- | ----- | 
|                                     |                                                |                         
|                                     |                                                | Years ended December 31,
|                                     |                                                |                         
|                                     |                                                | 2000                     |        | 2001 |       | 2002
|                                     |                                                |                          |        |      |       |     
|As a Percentage of Total
    Revenue |                                                |                          |        |      |       |      |        |       |       |  |        |     
|Revenue:                             |                                                |                          |        |      |       |      |        |       |       |  |        |     
|                                     | License fees                                   |                          |        | 61.6 | %     |      |        | 28.7  | %     |  |        | 22.0 | %    
|                                     | Professional services and other                |                          |        | 38.4 |       |      |        | 71.3  |       |  |        | 78.0 |      
|                                     |                                                |                          |        |      |       |      |        |       |       |  |        |     
|                                     |                                                | Total revenue            |        |      | 100.0 |      |        |       | 100.0 |  |        |      | 100.0 | 
|Cost of revenue:                     |                                                |                          |        |      |       |      |        |       |       |  |        |     
|                                     | License fees                                   |                          |        | 1.6  |       |      |        | 13.2  |       |  |        | 3.5  |      
|                                     | Professional services and other                |                          |        | 31.8 |       |      |        | 58.7  |       |  |        | 38.2 |      
|                                     |                                                |                          |        |      |       |      |        |       |       |  |        |     
|                                     |                                                | Total cost of revenue    |        |      | 33.4  |      |        |       | 71.9  |  |        |      | 41.7  | 
|                                     |                                                |                          |        |      |       |      |        |       |       |  |        |     
|Gross Margin                         |                                                |                          | 66.6   |      |       |      | 28.1   |       |       |  | 58.3   |     
|Operating expenses:                  |                                                |                          |        |      |       |      |        |       |       |  |        |     
|                                     | Sales and marketing                            |                          |        | 33.6 |       |      |        | 87.6  |       |  |        | 56.6 |      
|                                     | Research and development                       |                          |        | 62.4 |       |      |        | 100.6 |       |  |        | 60.1 |      
|                                     | General and administrative                     |                          |        | 41.7 |       |      |        | 111.2 |       |  |        | 88.1 |      
|                                     | Amortization of goodwill and other intangibles |                          |        | 34.9 |       |      |        | 96.6  |       |  |        |     |      
|                                     | Impairment of long-lived assets                |                          |        |     |       |      |        | 278.3 |       |  |        |     |      
|                                     | Restructuring charges                          |                          |        |     |       |      |        | 94.6  |       |  |        | 11.3 |      
|                                     |                                                |                          |        |      |       |      |        |       |       |  |        |     
|                                     |                                                | Total operating expenses |        |      | 172.6 |      |        |       | 768.9 |  |        |      | 216.1 | 
|                                     |                                                |                          |        |      |       |      |        |       |       |  |        |     
|Operating loss                       |                                                |                          | (106.1 | )    |       |      | (740.8 | )     |       |  | (157.8 | )   
|Nonoperating income                  |                                                |                          | 5.6    |      |       |      | 9.1    |       |       |  | 11.5   |     
|                                     |                                                |                          |        |      |       |      |        |       |       |  |        |     
|Net loss                             |                                                |                          | (100.5 | )%   |       |      | (731.7 | )%    |       |  | (146.3 | )%  
|                                     |                                                |                          |        |      |       |      |        |       |       |  |        |     

Year Ended
December 31, 2002 Compared to Year Ended December 31,
2001

Total Revenue.Total
revenue, which includes license fees and professional services
and other revenue, decreased $5.8 million, or 46.9%, to
$6.6 million in 2002 from $12.4 million in 2001. The
primary reason for the lower revenue is related to fewer license
contracts being signed in the year ended December 31, 2002
as compared to the same period in 2001. In addition, the reduced
number of contracts signed in 2002 reduced services revenue in
2002 as a result of fewer product implementations and the need
for less third-party software fulfillment.

License Fees.Our
license fees are derived from licensing our software products.
License fees decreased $2.1 million, or 59.3% in the year
ended December 31, 2002, to $1.5 million, from
$3.6 million for the same period in 2001. This decrease was
due to fewer license contracts being signed in the year ended
December 31, 2002 compared to the same period in 2001. The
primary reasons for this reduction include an overall reduction
in technology spending, market conditions in the industries in
which our customers operate, lengthening of the sales cycle and
postponement of customer licensing decisions. License fees
constituted 22.0% of total revenue in the year ended
December 31, 2002 compared to 28.7% in the same period in
2001.

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Professional Services and
Other.Our professional services and
other consists of revenue from professional consulting services,
training, maintenance and support, and third party software
fulfillment all related to the software products we develop.
Consulting services are offered on a fixed fee basis and on a
time and material basis. Third-party software fulfillment is
offered on a cost plus basis. In addition, our
professional services and other revenue in 2002 includes ten
days of operating BillingCentral, our outsourcing solution we
acquired from Abiliti on December 20, 2002. Outsourced
services are billed and recognized as services are rendered.
Professional services and other revenue decreased
$3.7 million, or 41.9%, to $5.2 million in the year
ended December 31, 2002 from $8.9 million in the same
period in 2001. The decrease was due to less ongoing product
implementations, fewer maintenance contracts due to customer
combinations and insolvency, and less revenue associated with
third party software fulfillment offset by the revenue earned by
our outsourcing services for ten days in 2002. Professional
services and other revenue increased to 78.0% of total revenue
in the year ended December 31, 2002 compared to 71.3% in the
same period in 2001. The increase as a percentage of total
revenue is due to a reduction in license fee revenue in the year
ended December 31, 2002.

Cost of Revenue.Total cost of revenue decreased $6.2 million, or 69.2%, to
$2.8 million in the year ended December 31, 2002 from
$8.9 million in 2001. Total cost of revenue includes both
cost of license fees and cost of professional services and
other. These components include the cost of direct labor,
benefits, third party fees paid for product referrals, overhead
and materials associated with the fulfillment and delivery of
the license products, and related corporate overhead costs to
provide professional services to customers. In addition, the
costs in 2002 include ten days of costs associated with our
acquisition of Abiliti. The total costs decreased due to a
decrease in total revenue and a decrease in amortization of
prepaid third party license fees. In the year ended
December 31, 2001, the Company wrote off $1.2 million
of prepaid third party software license costs because these
products were no longer integrated with our product. The
decrease in costs were also the result of our cost reduction
measures taken in the 2001 Restructurings and the 2002
Restructuring. Total cost of revenue as a percentage of total
revenue decreased to 41.7% in 2002 from 71.9% in 2001.

Cost of License
Fees.Cost of license fees includes
direct cost of labor, benefits and packaging material for
fulfillment and shipment of our software products, third-party
software license payments and related documentation and
third-party referral fees associated with customer contracts.
Cost of license fees decreased to $232,000, or 85.9%, in the
year ended December 31, 2002 from $1.6 million in the
same period in 2001. The decrease was due to a decrease in
amortization expense related to prepaid third party licenses. In
the year ended December 31, 2001 the Company wrote down
$1.2 million of certain prepaid third party license costs
because these products were no longer integrated with our
product.

Cost of Professional Services and
Other.Cost of professional services
and other includes direct cost of labor, benefits, third party
software and related overhead costs to provide professional
services to customers. Cost of professional services and other
decreased $4.8 million, or 65.5%, to $2.5 million in the
year ended December 31, 2002 from $7.3 million in the
same period in 2001. These costs decreased as a result of our
cost reduction measures taken with the 2001 Restructurings and
the 2002 Restructuring. In addition, the revenue related to the
professional services and other has decreased. The decrease in
costs were slightly offset by an increase in labor costs for ten
days in 2002 related to our acquisition of Abiliti. Cost of
professional services and other decreased to 48.9% of
professional services and other revenue in 2002 compared to
82.3% in 2001.

Sales and Marketing.Sales and marketing expenses consist primarily of salaries,
benefits, commissions and bonuses earned by sales, marketing and
partner management personnel, travel and entertainment, trade
show and marketing program costs, promotional and related
corporate overhead costs. These expenses decreased
$7.1 million, or 65.7%, to $3.7 million in the year
ended December 31, 2002 from $10.9 million in the same
period in 2001. The decrease was a result of a decrease in our
trade show presence, decrease in sales commissions and bonuses
as well as the cost reduction measures taken with the 2001
Restructurings and the 2002 Restructuring. As a percentage of
total revenue, these expenses decreased to 56.6% in 2002 from
87.6% in 2001.

Research and
Development.Research and development
expenses consist primarily of salaries, benefits and bonuses for
software developers, product testing and benchmarking,
management and quality assurance personnel, subcontractor costs
and related corporate overhead costs. Our research and
development expenses

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decreased $8.5 million, or 68.3%, to
$4.0 million in the year ended December 31, 2002 from
$12.5 million in the same period in 2001. The overall
decrease was a result of the cost reduction measures associated
with the 2001 Restructurings and the 2002 Restructuring slightly
offset by the increased amount of labor related to our
acquisition of Abiliti. As a percentage of total revenue, these
expenses decreased to 60.1% in 2002 from 100.6% in 2001.


General and
Administrative.General and
administrative expenses consist primarily of salaries, benefits
and bonuses for executive, finance and accounting,
administrative, facilities, human resources and information
systems personnel. It also consists of non-cash stock
compensation expense, provision for bad debts and related
corporate overhead costs. Our general and administrative
expenses decreased $8.0 million, or 57.9%, to
$5.8 million in the year ended December 31, 2002 from
$13.8 million the same period in 2001. This decrease was
attributed to the aggregate amount of approximately $5.3 million
non-cash charges recorded in the year ended December 31,
2001, encompassing: (i) an asset write-down of
$1.0 million related to an investment; (ii) the
issuance of warrants to purchase common stock in connection with
legal settlement resulting in a charge of approximately
$495,000; (iii) a charge of $1.2 million related to
amortization of stock compensation expense due to options issued
in 1999 and 2000 with exercise prices below fair market value
compared to $22,400 in amortization of stock compensation in the
same period in 2002; (iv) an increase in the allowance for
non-recourse loans in the amount of approximately
$1.2 million due to a decline in our stock price at
December 31, 2001 and the impact of such declines on the
stock pledged as collateral; and (v) a $1.7 million
charge to our provision for bad debt for the year ended
December 31, 2001 compared to a $270,000 charge for the
same period in 2002. The provision in year 2001 was due to the
market conditions in the telecommunications industry and certain
customers significantly reducing or liquidating their operations
in 2001. The decrease in general and administrative expenses was
also a direct result of the cost reduction measures associated
with the 2001 Restructurings and the 2002 Restructuring offset
by the increased amount of labor and severance costs recorded
related to our acquisition of Abiliti. The severance costs
amounted to approximately $800,000 and related primarily to the
resignation of our chief executive officer and president. As a
percentage of total revenue, general and administrative expenses
decreased to 88.1% in 2002 from 111.2% in 2001.

Amortization of Goodwill and Other
Intangibles.Amortization expense
decreased $12.0 million, or 100%, to $0 in the year ended
December 31, 2002, from $12.0 million for the same
period in 2001. Goodwill and other intangibles was related to
the acquisition of Inlogic and was considered impaired and
written off during 2001. No amortization of goodwill and other
intangibles was recorded in 2002.

Impairment of Long-Lived
Assets.Impairment charges decreased
$34.6 million, or 100%, to $0 in the year ended
December 31, 2002, from $34.6 million for the same
period in 2001. Impairment charges in the year ended
December 31, 2001 consisted of (i) write-off of
employee workforce of $1.5 million; (ii) impairment of
property and equipment in the amount of $1.9 million; and
(iii) an impairment of goodwill of $31.2 million. Due to
various restructuring activities initiated by us, we performed
an evaluation of the recoverability of the employee workforce
acquired in the acquisition of Inlogic under SFAS No. 121 in
2001. We determined that this asset was impaired and in
connection with this determination, we recorded an impairment
charge in the amount of approximately $1.5 million. In
addition, we determined that certain property, leasehold
improvements and equipment, which mainly represented computer
equipment and furniture from the Toronto and Atlanta facilities,
was impaired. We recorded an impairment charge of approximately
$1.9 million during the year ended December 31, 2001
representing the difference between the fair value and the
carrying value of the assets. We recorded an impairment charge
to goodwill in the amount of approximately $1.1 million in
March 2001 related to certain gateway products acquired from
Inlogic on December 16, 1999 which we do not plan to
promote and license in the future. In addition, due to economic
conditions and our past revenue performance, we performed an
evaluation of the recoverability of the goodwill under SFAS
No. 121 over the remaining useful life and determined that
the undiscounted future operating cash flows projected was less
than the goodwill balance at December 31, 2001. This
resulted in an additional writedown of goodwill in the amount of
approximately $30.1 million at December 31, 2001. An
assessment of the goodwill related to Abiliti was evaluated at
December 31, 2002 and no impairment was recorded in
accordance with SFAS No. 142.

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Restructuring
Charges.Restructuring charges
decreased $11.0 million, or 94.6%, to approximately
$745,000 in the year ended December 31, 2002, from
$11.8 million for the same period in 2001. Restructuring
charges incurred by us in the year ended December 31, 2002
related to the 2002 Restructuring. These charges were related to
employee termination benefits. The costs were from the following
financial statement captions:

|                                      |  |   |         | 
|------------------------------------- |  | - | ------- | 
|Cost of sales  professional services |  | $ | 140,000 | 
|Research and development              |  |   | 168,000 | 
|Sales and marketing                   |  |   | 148,000 | 
|General and administrative            |  |   | 289,000 | 
|                                      |  |   |         | 
|                                      |  | $ | 745,000 | 
|                                      |  |   |         | 

Restructuring charges incurred by us in the year
ended December 31, 2001 related to the 2001 Restructurings.
In the 2001 Restructurings, additional employees were
terminated, costs were incurred related to the closing of the
Toronto and Atlanta facilities, and there were asset writedowns.
In the 2002 Restructuring, the costs incurred were related
primarily to the terminations of 35 employees.

Nonoperating Income.Nonoperating income decreased $368,000 or 32.7%, to $757,000 in
the year ended December 31, 2002 from $1.1 million for
the same period in 2001. This was primarily attributable to the
decrease in investment earnings due to the decrease in interest
rates in 2002 compared to 2001, and a decrease in cash. In
addition, in the year ended December 31, 2001 we received a
refund related to our self-funded health insurance policy which
we did not receive in 2002 since we were no longer on a
self-funded health insurance program. This decrease was offset
by the gain on sale of PartnerCommunity of $391,000 recorded in
the year ended December 31, 2002.

Year Ended
December 31, 2001 Compared to Year Ended December 31,
2000

Total Revenue.Total
revenue, which includes license revenue and professional
services and other revenue, decreased $31.2 million, or
71.5%, to $12.4 million in the year ended December 31,
2001 from $43.6 million for the same period in 2000. The
primary reason for the lower revenue is related to fewer license
contracts being signed in the year ended December 31, 2001
as compared to the same period in 2000. In addition, the reduced
number of contracts signed in 2001 also decreased our services
revenue due to less ongoing product implementations related to
licensing our software products and the need for third-party
software fulfillment.

License Fees.Our
license fees are derived from licensing our software products.
License fees decreased $23.3 million, or 86.7%, in the year
ended December 31, 2001 to $3.6 million, compared to
$26.9 million for the same period in 2000. This decrease
was due to fewer license contracts being signed in the year
ended December 31, 2001 compared to the same period in
2000. The primary reasons for this reduction include an overall
reduction in technology spending, market conditions in our
industry, the impact of global events, competition, lengthening
of the sales cycle and postponement of customer licensing
decisions. License fees constituted 28.7% of total revenue in
the year ended December 31, 2001, compared to 61.6% in the
same period in 2000.

Professional Services and
Other.Our professional services and
other consists of revenue from professional consulting services,
training, maintenance and support, and third party software
fulfillment, all related to the software products we develop and
license. We offer consulting services on a fixed fee basis and
on a time and materials basis. We offer third party software
fulfillment based on our acquisition cost plus a reasonable
margin. Professional services and other revenue decreased
$7.9 million, or 47.0%, in the year ended December 31,
2001 to $8.9 million, compared to $16.7 million in the
same period in 2000. The decrease was due to less ongoing
product implementations, fewer maintenance contracts due to
customer combinations and insolvency, and less revenue
associated with third-party software fulfillment. Professional
services and other revenue constituted 71.3% of total revenue in
the year ended December 31, 2001, compared to 38.4% for the
same period in 2000. The increase as a percentage of total
revenue is due to a reduction in license fee revenue in the year
ended December 31, 2001.

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Total Cost of
Revenue.Total cost of revenue
decreased $5.6 million, or 38.5%, to $8.9 million in
the year ended December 31, 2001 from $14.6 million in
the same period in 2000. Total cost of revenue includes both
cost of license fees and cost of professional services and
other. These components include the cost of direct labor,
benefits, overhead and materials associated with the fulfillment
and delivery of licensed products, and related corporate
overhead costs to provide professional services to our
customers. These costs decreased due to the decrease in total
revenue as well as the result of our cost reduction measures
taken in the 2001 Restructurings. The cost reductions included a
decrease in professional services personnel and other overhead
costs which were reduced when we closed the Atlanta, Georgia
office. The Atlanta office primarily operated as a professional
services facility. Overall, total cost of revenue as a
percentage of total revenue increased to 71.9% in the year ended
December 31, 2001, compared to 33.4% in the same period in
2000. This increase resulted from the decrease in total revenue
and a $1.2 million write-off of prepaid third-party
software license costs because certain third-party products are
no longer being integrated with our product.

Cost of License
Fees.Cost of license fees includes
direct cost of labor, benefits and packaging material for
fulfillment and shipment of our software products and
amortization expense related to prepaid third-party software
licenses. Cost of license fees increased to $1.6 million,
or 13.2%, in the year ended December 31, 2001, from
$682,000, or 1.6%, in the same period in 2000 due to the
amortization expense related to prepaid third-party licenses,
which are being amortized over the term of their respective
agreements. In the year ended December 31, 2001, we wrote
down $1.2 million of certain prepaid third-party software
licenses because they are no longer integrated with our product.
These prepaid third-party license agreements did not exist in
the same period in 2000. Cost of license fees increased to 46.2%
of license revenue in the year ended December 31, 2001,
compared to 2.5% for the same period in 2000 due to the decrease
in license revenue and write-down of prepaid third-party
software licenses.

Cost of Professional Services and
Other.Cost of professional services
and other includes direct cost of labor, benefits, third party
software and related corporate overhead costs to provide
professional services and training to our customers. Cost of
professional services and other decreased $6.6 million, or
47.4%, to $7.3 million in the year ended December 31,
2001, from $13.9 million in the same period in 2000. These
costs decreased as a result of our cost reduction measures taken
with the 2001 Restructurings. In addition, the revenue related
to professional services and other has decreased. Cost of
professional services and other remained consistent at 82.4% of
professional services and other revenue in the year ended
December 31, 2001, compared to 82.9% for the same period in
2000.

Sales and Marketing.Sales and marketing expenses consist primarily of salaries,
benefits, commissions and bonuses for sales, marketing and
partner management personnel, travel and entertainment, trade
show and marketing program costs, promotional and related
corporate overhead costs. These expenses decreased
$3.8 million, or 25.8%, to $10.9 million in the year
ended December 31, 2001, from $14.7 million for the same
period in 2000. The decrease was due to a decrease in sales
commissions and the cost reduction measures associated with the
2001 Restructurings, slightly offset by an increased sales
presence in The Netherlands. As a percentage of revenue, these
expenses increased from 33.6% in the year ended
December 31, 2000 to 87.6% for the same period in 2001
mainly due to the decrease in total revenue in the year ended
December 31, 2001 compared to the same period in 2000.

Research and
Development.Research and development
expenses consist primarily of salaries, benefits and bonuses for
software developers, product testing and benchmarking,
management and quality assurance personnel, subcontractor costs
and related corporate overhead costs. Our research and
development expenses decreased $14.7 million, or 54.1%, to
$12.5 million in the year ended December 31, 2001,
from $27.2 million for the same period in 2000. The overall
decrease was primarily due to the cost reduction measures
associated with the 2001 Restructurings. The cost reductions
included a decrease in research and development personnel and
other costs, which were reduced when we closed the Toronto,
Ontario, Canada facility. The Toronto facility primarily
operated as a research and development facility. As a percentage
of revenue, these expenses increased from 62.4% in 2000 to
100.6% in 2001. This was a result of the lower revenue
recognized in the year ended December 31, 2001 compared to
the same period in 2000.

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General and
Administrative.General and
administrative expenses consist primarily of salaries, benefits
and bonuses for executive, finance and accounting, facilities,
human resources and information systems personnel. It also
consists of non-cash stock compensation expense and provision
for bad debts and related corporate overhead costs. Our general
and administrative expenses decreased $4.4 million, or
24.1%, to $13.8 million in the year ended December 31,
2001, from $18.2 million in the same period in 2000. The
decrease was due to the net effect of the following increases
and decreases. The increases were due to approximately
$4.2 million of non-cash charges recorded in the year ended
December 31, 2001 encompassing: (i) an asset
write-down of $1.0 million related to an investment;
(ii) the issuance of warrants in connection with a legal
settlement resulting in a charge of approximately $495,000;
(iii) an increase in the allowance for a non-recourse loan
to an executive officer in the amount of approximately
$1,032,000 due to the decline in our stock price at
December 31, 2001; and (iv) a $1.7 million charge
to our provision for bad debt due to market conditions in the
telecommunications industry and certain customers significantly
reducing or liquidating their operations. The increases were
offset by the decrease in administrative personnel and
administrative charges associated with the 2001 Restructurings.
As a percentage of revenue, general and administrative expenses
increased to 111.2% in the year ended December 31, 2001
from 41.7% in the same period in 2000. This was a result of the
lower revenue recognized in 2001 and the non-cash charges
described above incurred in the year ended December 31,
2001 compared to the same period in 2000.

Amortization of Goodwill and Other
Intangibles.Goodwill, which related
to our acquisition of Inlogic, was being amortized over a
four-year period. Amortization expense decreased
$3.2 million, or 21.0%, to $12.0 million in the year
ended December 31, 2001 from $15.2 million for the
same period in 2000. This was primarily due to the amortization
expense related to the employee workforce, which was considered
impaired and written off in 2001. This resulted in only three
months of amortization of the employee workforce being recorded
in the year ended December 31, 2001. In addition, goodwill
was considered impaired and written off during the year. This
resulted in the additional reduction in amortization expense.

Impairment of Long-Lived
Assets.Impairment charges related to
long-lived assets in the year ended December 31, 2001
consisted of (i) write-off of employee workforce of
$1.5 million; (ii) impairment of property and
equipment associated with the 2001 Restructurings in the
aggregate amount of $1.9 million; and (iii) an impairment
of goodwill in the amount of $31.2 million. Due to various
restructuring activities initiated by us, we performed an
evaluation of the recoverability of the employee workforce
acquired in the Inlogic acquisition under Statement
No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed
of(SFAS No. 121). We determined that this
asset was impaired and in connection with this determination, we
recorded an impairment charge in the year ended
December 31, 2001 in the amount of approximately
$1.5 million. In addition, we determined that certain
property, leasehold improvements and equipment, which mainly
represented computer equipment and furniture from the Toronto
and Atlanta facilities, was impaired. We recorded an impairment
charge of approximately $1.9 million during the year ended
December 31, 2001 representing the difference between the
fair value and the carrying value of the assets. We recorded an
impairment charge to goodwill in the amount of approximately
$1.1 million in March, 2001 related to certain gateway products
acquired from Inlogic on December 16, 1999 which we do not
plan to promote and license in the future. In addition, due to
economic conditions and our past revenue performance, we
assessed the recoverability of the goodwill under SFAS
No. 121 by determining whether the amortization of the
goodwill over the remaining life could be recovered through
undiscounted future operating cash flows. This resulted in a
writedown of goodwill in the amount of approximately $23.4
million in August 2001 and $6.7 million in December 2001.
This was mainly due to the estimated shortfall of cash flows
discounted at a rate commensurate with the associated risks.

Restructuring
Charges.Restructuring charges
incurred by us in the year ended December 31, 2001, related
to the 2001 Restructurings and amounted to $11.8 million.
These charges included $6.3 million of employee termination
benefits, $2.5 million of facility costs, $2.9 million
of asset writedowns, and $220,000 of other restructuring costs
which include penalties incurred for cancellations of trade
shows and marketing programs, recruiting fees and relocation
costs related to employment offers that were rescinded, penalties

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incurred for cancellation of software maintenance
contracts, legal fees and other costs. The costs were from the
following financial statement captions:


|                                          |  |   |              | 
|----------------------------------------- |  | - | ------------ | 
|Cost of sales  professional
    services |  | $ | 1.7 million  | 
|Research and development                  |  | $ | 2.6 million  | 
|Sales and marketing                       |  | $ | 1.6 million  | 
|General and administrative                |  | $ | 6.0 million  | 
|                                          |  |   |              | 
|                                          |  | $ | 11.9 million | 
|                                          |  |   |              | 

Included in the above totals, is $110,000 related
to foreign currency translation exchange losses.

Total restructuring charges for the year ended
December 31, 2001 was $11.8 million compared to $0 in the
same period in 2000. There were no restructuring actions taken
in 2000.

Seasonality

Historically, our operating results have varied
significantly from quarter to quarter due to operating under a
license software model. We expect future fluctuations from
quarter to quarter to be less severe because a significant
portion of our revenues are being driven through the delivery of
outsourced billing and event management services. However, we
will still experience some variations in operating results from
quarter to quarter based upon certain factors including delays
in completing contract negotiations with large licensees without
an offset by a corresponding reduction in fixed costs. We have
not experienced seasonal fluctuations. For all these reasons, we
believe that results of operations for interim periods should
not be relied upon as any indication of the results to be
expected in any future period.

Liquidity and Capital Resources

The following table provides information relating
to our material contractual obligations at December 31,
2002.

|                        |  |                        |             |                  |  |           |             |  |  |   |         | 
|----------------------- |  | ---------------------- | ----------- | ---------------- |  | --------- | ----------- |  |  | - | ------- | 
|                        |  |                       
|                        |  | Payments Due By Period
|                        |  |                       
|Contractual Obligations |  | Total                  |             | Less Than 1 year |  | 1-3 years
|                        |  |                        |             |                  |  |          
|Capital leases          |  | $                      | 205,000     |                  |  | $         | 178,000     |  |  | $ | 27,000  | 
|Operating leases        |  | $                      | 2.3 million |                  |  | $         | 1.6 million |  |  | $ | 700,000 | 

Net cash used in operating activities was
$9.2 million for the year ended December 31, 2002,
compared to $31.9 million for the year ended
December 31, 2001. The principal use of cash for both
periods was to fund our losses from operations.

Net cash provided by financing activities was
$3.6 million for the year ended December 31, 2002,
compared to $25.1 million for the year ended December 31,
2001. In 2002, the cash provided was primarily related to the
net proceeds received from the 2002 Private Placement. In 2001,
the cash provided was primarily related to the net proceeds
received from the 2001 Private Placement.

Net cash used in investing activities was
$1.1 million for the year ended December 31, 2002
compared to $1.9 million for the year ended
December 31, 2001. The cash used in 2002 was primarily
related to transaction costs associated with the 2002 Private
Placement. The cash used in 2001 was primarily related to a
non-recourse note receivable issued to our chairman and chief
executive officer for approximately $1.2 million and
capital expenditures of approximately $780,000.

We continued to experience operating losses
during the year ended December 31, 2002 and had an accumulated
deficit of $210.9 million at December 31, 2002. Cash
and cash equivalents at December 31, 2002 was
$6.6 million. The cash used in operations during the year
ended December 31, 2002 was a significant improvement from
previous years. The 2001 Restructurings and 2002 Restructuring
resulted in a reduction in operating expense levels and cash
usage requirements in the year ended December 31, 2002.

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We intend to continue to manage our use of cash.
We believe the cash and cash equivalents at December 31,
2002, together with the reduced cost structure resulting from
the 2001 Restructurings and 2002 Restructuring, the acquisition
of the revenue stream expected from the BillingCentral service
offering as well as our 2003 anticipated revenue, may be
sufficient to fund our operations for the foreseeable future.
However, the telecommunications and software industries are
still faced with many challenges. In addition, there is a high
business concentration risk with certain of our outsourcing
services customers and if any of these customers were to
terminate their agreement with us it would severely impact our
business. We provide outsourcing services to our largest
customer pursuant to a contract expiring at the end of December
2003. In addition, the customer has financial restraints. If
this customer were to cease doing business with us for any
reason, we may be required to further reduce our operations
and/or seek additional public or private equity financing or
financing from other sources or consider other strategic
alternatives. There can be no assurances that additional
financing or strategic alternatives will be available, or that,
if available the financing or strategic alternatives will be
obtainable on terms acceptable to us or that any additional
financing would not be substantially dilutive to our existing
stockholders. If this customer were to cease doing business with
us for any reason, and we failed to obtain additional financing
or failed to engage in one or more strategic alternatives it may
have a material adverse affect on our ability to meet our
financial obligations and to continue to operate as a going
concern. Our audited consolidated financial statements included
elsewhere in this Form 10-K have been have been prepared
assuming that we will continue as a going concern, and do not
include any adjustments that might result from the outcome of
this uncertainty. See Risks Associated with Our Business
and Operating Results below.

New Accounting Pronouncements

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

In July 2002, the FASB issued Statement of
Financial Accounting Standards No. 146, Accounting
for Exit or Dismissal Activities(SFAS
No. 146). SFAS No. 146 will be effective for
disposal activities initiated by us after December 31,
2002. We do not anticipate any exit or dismissal activities at
this time and therefore we believe that adoption will not have
an impact on our consolidated financial statements.

In October 2002, the Emerging Issues Task Force
(EITF) issued tentative conclusions regarding EITF
Issue 00-21, Accounting for Revenue Arrangements with
Multiple Deliverables(EITF 00-21). EITF
00-21 relates to accounting for multiple-deliverable
arrangements and specifies circumstances under which a revenue
arrangement should be separated into different
revenue-generating deliverables or units of
accounting and how the revenue arrangement should be
allocated to the different deliverables or units of accounting.
EITF 00-21 is tentatively scheduled to be effective for revenue
arrangements entered into in fiscal periods beginning after
June 15, 2003. We are currently evaluating the impact EITF
00-21 will have on our consolidated financial statements.

In November 2002, the FASB issued Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, an interpretation of FASB Statements
No. 5, 57 and 107 and a rescission of FASB Interpretation
No. 34. This Interpretation elaborates on the disclosures
to be made by a guarantor in its interim and annual financial
statements about its obligations under guarantees issued. The
Interpretation also clarifies that a guarantor is required to
recognize, at inception of a guarantee, a liability for the fair
value of the obligation undertaken. The initial recognition and
measurement provisions of the Interpretation are applicable to
guarantees issued or modified after

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December 31, 2002 and are not expected to
have an effect on our financial statements. The disclosure
requirements are effective for fiscal years ending after
December 31, 2002.


In December 2002, the FASB issued Statement of
Financial Accounting Standards No. 148, Accounting for
Stock Based Compensation  Transition and Disclosure,
an amendment of FASB Statement No. 123(SFASS
No. 148).This Statement amends Statement of
Financial Accounting Standards No. 123, Accounting for
Stock Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value method of
accounting for stock based employee compensation. In addition,
this Statement amends the disclosures in both annual and interim
financial statements. We are currently using the provisions of
Accounting Principles Board Opinion No. 25 and have amended
the disclosures in this Form 10-K.




RISKS ASSOCIATED WITH DALEENS BUSINESS
AND FUTURE OPERATING RESULTS

Risk Factors

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

Risks Associated with our Business and
Operations



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

There was one customer that represented 14% of
our total revenue for the year ended December 31, 2002. In
2003, we anticipate that our top three customers may represent
up to approximately 70% of our revenues. In addition, we expect
that more than one-third of our revenues may come from one
particular customer. If an unfavorable development occurs with
respect to any significant customer, such as described below, it
would likely materially adversely impact our total revenues and
financial results. We provide outsourcing services to our
largest customer pursuant to a contract expiring at the end of
December 2003. This customer has publicly disclosed that it must
substantially reduce the level of its outstanding indebtedness
by April 30, 2003 under the terms of its bank agreements,
and has further stated that its independent accountants may give
the company a going concern opinion if it does not quickly
reduce its indebtedness. Accordingly, there can be no assurance
that we will achieve anticipated revenues from this customer in
2003, or that we will be able to obtain any replacement
contracts for any business that we do not retain in the future
from this customer for any reason.



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

We incurred net losses of approximately
$9.7 million for the year ended December 31, 2002, and
we had an accumulated deficit of approximately $210.9 million as
of December 31, 2002. Our cash and cash equivalents at
December 31, 2002 was $6.6 million. Cash used in
operations for the year ended December 31, 2002 was
$9.2 million. As a result of our financial condition, the
independent auditors report covering our December 31,
2002 consolidated financial statements contains an explanatory
paragraph that states that our recurring losses from operations
and accumulated deficit raised substantial doubt about our
ability to continue as a going concern.

We believe that our cash and cash equivalents as
of December 31, 2002 together with the reduced cost
structure resulting from the 2001 Restructurings and the 2002
Restructuring, the acquisition of the revenue

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stream expected from the BillingCentral service
offering as well as our 2003 anticipated revenue, may be
sufficient to fund our operations for the foreseeable future.
However, the telecommunications and software industries are
still faced with many challenges. In addition, there is a high
business concentration risk with certain of our outsourcing
services customers. If any of these customers were to terminate
their agreement with us it would severely impact our business.
We provide outsourcing services to our largest customer pursuant
to a contract expiring at the end of December 2003. In addition,
the customer has financial restraints. If this customer were to
cease doing business with us for any reason, we may be required
to further reduce our operations and/or seek additional public
or private equity financing, or financing from other sources or
consider other strategic alternatives. There can be no
assurances that additional financing or strategic alternatives
will be available, or if available, will be on terms acceptable
to us, or all of our stockholders. If our largest customer
ceased doing business with us for any reason and we failed to
obtain additional financing or failed to engage in one or more
strategic alternatives it may have a material adverse effect on
our ability to meet our financial obligations and to continue to
operate as a going concern. See Risks Associated with our
Series F Preferred Stock  The holders of our
Series F preferred stock have rights that are senior to
those of the holders of our common stock in the event of the
sale of our Company or in the event of our liquidation,
dissolution or winding up for a discussion of the terms of
the Series F preferred stock applicable in the event of a
business combination, liquidation event or issuance of equity
securities.




| |                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The difficulties involved in integrating
    our business with Abilitis may divert our
    managements attention and may adversely affect our
    business and results of operations.

In December 2002, we completed the acquisition of
substantially all of the assets and assumption of certain
liabilities of Abiliti. The transaction resulted in certain
changes to our senior management team, including the appointment
of Gordon Quick, previously Abilitis President and CEO, to
the role of our President and CEO. Also, we hired all of the
employees of Abiliti as of the closing date. The potential
difficulties of combining the companies operations include:



| |   |                                                                                           
| | - | ------------------------------------------------------------------------------------------
| |  | integrating members of senior management and
    other personnel with diverse backgrounds;
|
| |  | integrating the products, technologies and
    operations of the two companies; and       
|
| |  | possible inconsistencies in standards, controls,
    procedures and policies.             

The diversion of our managements attention
and other difficulties encountered in connection with the
integration process and the operation of the combined company
could materially and adversely affect our business and results
of operations.



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

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

Additionally, the terms of any aggregation
transaction or capital raising transaction may require us to
issue additional shares of our common stock or securities
convertible into our common stock, which would be

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dilutive to our existing stockholders, and which
could materially and adversely affect the market price of our
common stock, or an aggregation may result in a change in the
character of your investment. Moreover, any aggregation
transaction may result in additional costs, expenses and other
obligations, and could result in additional ongoing capital
needs, all of which could materially and adversely affect our
results of operations and financial condition.




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

We incurred net losses of approximately
$43.8 million, $90.9 million, and $9.7 million
for the years ended December 31, 2000, 2001 and 2002,
respectively. We have not achieved profitability to date and may
not do so in the foreseeable future.

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



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

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

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



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

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



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

We believe that our future success will depend to
a significant extent upon our ability to enhance our product and
services offerings to meet the requirements of our customers in
a rapidly developing and evolving

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market. Due to our cost reduction measures, we
have significantly reduced the amount of cash we will utilize
for future research and development. This reduction may make it
more difficult to enhance future product and service offerings.
If we are unable to anticipate or respond adequately to customer
needs, our business and financial performance will be adversely
affected.




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

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



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

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



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

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



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

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

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

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



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

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



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

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



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

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



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

The trading price of our common stock has been
volatile due in part to the volatility in the communications and
technology areas of the equity securities markets, and our
results of operations. We anticipate that the trading price for
our common stock will continue to experience volatility in the
future.

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Factors that may affect the fluctuation in the
trading price of our common stock may include but are not
limited to: quarter-to-quarter variations in our operating
results; our ability to raise additional capital and/or engage
in strategic alternatives; failure to meet market expectations
of our performance; announcements and technological innovations
or new products by us or our competitors; the projected level of
business activity or perceived growth (or the lack thereof) in
the market; increased price competition; and general conditions
in the Internet, technology and the telecommunications
industries.




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

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

Settlement discussions concerning this litigation
are ongoing, however, there can be no assurance that a
settlement will be reached, or that the terms of any such
settlement will be satisfactory to us. We intend to vigorously
defend against the plaintiffs claims if this litigation is
not dismissed or settlement discussions are unsuccessful. Any
such defense may result in substantial costs and divert
managements attention, which may adversely affect or
business and results of operations. While we believe that we are
entitled to be indemnified by the underwriters under the terms
of the underwriting agreement, there can be no assurance that
indemnification will be available to us, or the amount of any
such indemnification. Furthermore, BancBoston Robertson Stephens
Inc., the lead underwriter in our initial public offering, has
ceased doing business. See Item 3  Legal
Proceedings in this report for a more complete discussion
concerning this pending litigation.

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



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

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

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Risks Associated with our Series F
Preferred Stock



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

The holders of the Series F preferred stock
will have a claim against our assets senior to the claim of the
holders of our common stock in the event of our liquidation,
dissolution or winding up. The aggregate amount of that senior
claim will be at least $110.94 per share of Series F
preferred stock (the Preferential Amount), or
approximately $50.8 million based on the number of shares
of Series F preferred stock outstanding at March 18,
2003.

Additionally, unless otherwise agreed by the
holders of at least a majority of the outstanding shares of
Series F preferred stock, in the event of a Sale of
the Company, we are required to redeem all of the issued
and outstanding shares of Series F preferred stock for the
Preferential Amount per share. A Sale of the Company
means, with certain limited exceptions: (i) the acquisition
by another entity by means of merger or consolidation resulting
in the exchange of at least 50% of the outstanding shares of our
capital stock for securities issued or other consideration paid
by the acquiring entity or any parent subsidiary thereof; or
(ii) the sale or other disposition by us of substantially
all of our assets. As a result, in the event of a Sale of the
Company, the holders of the Series F preferred stock will
be entitled to the first $50.8 million of the transaction
value based on the Series F preferred stock outstanding at
March 18, 2003.



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

The holders of the Series F preferred stock
have voting rights entitling them to vote together with the
holders of our common stock as a single class and on the basis
of 100 votes per share of Series F preferred stock held by
such holder, subject to certain anti-dilution adjustments. As of
March 18, 2003, the voting power of the holders of the
currently outstanding shares of Series F preferred stock
constitutes approximately 50.0% of the entire voting class of
common stock, without giving effect to the shares of our common
stock currently owned by the holders of the Series F
preferred stock, or the exercise of warrants to acquire our
common stock and warrants to acquire our Series F preferred
stock (Series F Warrants) held by such holders,
or approximately 55.31% if the warrant holders exercise their
Series F Warrants.

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

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

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In the event of conversion of the Series F
preferred stock, the holders are entitled to vote the number of
shares of common stock issued upon conversion. Each share of
outstanding Series F preferred stock is currently
convertible into 122.4503 shares of common stock, or an
aggregate of approximately 56.1 million shares of common
stock assuming the conversion of all of the shares of
Series F preferred stock outstanding as of March 18,
2003.

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



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



| |                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------
| | The terms of the Asset Purchase and 2002
    Private Placement had a significant dilutive effect on holders
    of our common stock.

In December 2002, we concurrently completed the
Asset Purchase and 2002 Private Placement. We issued, in the
aggregate, the following securities in connection with these
transactions:



| |   |                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------
| |  | 22,398,420 shares of our common stock;                                                                     
|
| |  | 231,362 shares of our Series F preferred
    stock;                                                        
|
| |  | warrants to acquire 11,332,138 shares of our
    common stock at an exercise price of $0.906 per share; and
|
| |  | warrants to acquire 500,000 shares of our common
    stock at an exercise price of $0.17 per share.        

As of March 18, 2003 the Behrman Funds
beneficially owned 72.5% of our outstanding common stock
assuming the conversion of only their preferred stock and
exercise of their warrants.

As described above, the holders of the
Series F preferred stock issued in the Asset Purchase and
2002 Private Placement have rights that are senior to the rights
of our common stockholders in the event of the sale of our
company or in the event of our liquidation, dissolution or
winding up. See  The holders of our
Series F preferred stock have rights that are senior to
those of the holders of our common stock in the event of the
sale of our company or in the event of our liquidation,
dissolution or winding up and  The
holders of our Series F preferred stock have significant
voting rights that are senior to those of the holders of our
common stock.



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

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

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

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



| |                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Sales of a substantial number of shares of
    common stock in the public market, could lower our stock price
    and impair our ability to raise funds in new stock
    offerings.

In 2001, we filed a registration statement with
the Securities and Exchange Commission for the purpose of
registering the potential resale by certain stockholders of
shares of our common stock issuable upon conversion of the
Series F preferred stock then outstanding and common stock
held or that may be acquired by certain other stockholders. The
Registration Statement covers an aggregate of approximately
56.2 million shares of our common stock, and may be amended
from time to time to revise the disclosure therein, or to cover
additional shares. The holders of the shares of common stock
included in the Registration Statement are not obligated to sell
any or all of the registered shares. However, it permits the
holders of the registered shares, including the shares of common
stock issuable upon conversion of the Series F preferred
stock, to sell their shares of our common stock in the public
market or in private transactions from time to time until all of
the shares are sold or the shares otherwise may be transferred
without restriction under the securities laws.

Future sales of a substantial number of shares of
our common stock in the public market, or the perception that
such sales could occur, including any perceptions that may be
created upon the actual conversion of Series F preferred
stock, could adversely affect the prevailing market price of our
common stock. Additionally, a decrease in the market price of
our common stock could make it more difficult for us to raise
additional capital through the sale of equity securities.



|         |                                                                 
|-------- | ----------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    About Market Risks.

Our financial instruments consist of cash that is
invested in institutional money market accounts. We do not use
derivative financial instruments in our operations or
investments and do not have significant operations or
investments that are subject to fluctuations in commodities
prices or foreign currency exchange rates.



|        |                                                 
|------- | ------------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data.

Our financial statements are submitted as a
separate section of this Report, beginning on page F-1 and
are incorporated herein.



|        |                                                                                              
|------- | ---------------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial
    Disclosure.

None.




PART III

Item 10.     Directors
and Executive Officers of the Registrant.

Our Board of Directors currently consists of
James Daleen, Daniel J. Foreman, Stephen J. Getsy, Gordon Quick,
John McCarthy, Dennis Sisco, and Ofer Nemirovsky.

42



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Additional information relating to the directors
of Daleen, including directors who are executive officers of
Daleen, is set forth in Daleens Proxy Statement for the
2003 Annual Meeting of Stockholders (the Proxy
Statement) and is incorporated herein by reference.
Information relating to the executive officers of Daleen is set
forth under the caption Executive Officers of the
Registrant in Part I of this Form 10-K.

Compliance with Section 16(a) of the
Securities Exchange Act of 1934:

Section 16(a) of the Securities Exchange of
1934, as amended, and regulations of the Securities and Exchange
Commission thereunder require our directors and executive
officers and any persons who own more than 10% of Daleens
Common Stock, as well as certain affiliates of such persons, to
file reports with the Securities and Exchange Commission with
respect to their ownership of our common stock. Directors,
executive officers and persons owning more than 10% of our
common stock are required by Securities and Exchange Commission
regulations to furnish us with copies of all Section 16(a)
reports they file. Based solely on its review of the copies of
such reports received by it and written representations that no
other reports were required of those persons, we believe that
during fiscal 2002, all filing requirements applicable to our
directors and executive officers were complied with, except that
(i) Abiliti filed a Form 3 after the required deadline for
filing and (ii) John McCarthy filed an amended Form 3
after the required deadline for filing, although the original
Form 3 was filed before the deadline. We are not aware of
any other persons other than directors and executive officers
and their affiliates who own more than 10% of our common stock.

Item 11.     Executive
Compensation.

Information relating to executive compensation is
set forth in the Proxy Statement and is incorporated herein by
reference; provided, such incorporation by reference shall not
be deemed to include or incorporate by reference the information
referred to in Item 402 (a)(8) of Regulation S-K.

Item 12.     Security
Ownership of Certain Beneficial Owners and
Management.

With the exception of the equity compensation
plan information provided as of December 31, 2002, the
information relating to this item is provided in the
Companys definitive proxy statement to be filed with the
Securities and Exchange Commission in connection with its annual
meeting of stockholders to be held on June 10, 2003. Such
information is incorporated herein by reference.

|                                                                 |  |                      |           |                     |  |                        |      |  |  |  |            | 
|---------------------------------------------------------------- |  | -------------------- | --------- | ------------------- |  | ---------------------- | ---- |  |  |  | ---------- | 
|                                                                 |  |                      |           |                     |  | (c)                   
|                                                                 |  |                      |           |                     |  | Number of securities  
|                                                                 |  | (a)                  |           |                     |  | remaining for future  
|                                                                 |  | Number of securities |           | (b)                 |  | issuance under equity 
|                                                                 |  | to be issued upon    |           | Weighted-average    |  | compensation plans    
|                                                                 |  | exercise of          |           | exercise price of   |  | (excluding securities 
|Plan Category                                                    |  | outstanding options  |           | outstanding options |  | reflected in column(a)
|                                                                 |  |                      |           |                     |  |                       
|Equity compensation plans approved by security
    holders       |  |                      | 3,092,743 |                     |  | $                      | 4.82 |  |  |  | 14,301,309 | 
|Equity compensation plans not approved by
    securities holders |  |                      |          |                     |  |                        |     |  |  |  |           | 

Item 13.     Certain
Relationships and Related Transactions.

The information relating to certain relationships
and related transactions is set forth under the caption
Related Party Transactions in the Proxy Statement
and is incorporated herein by reference.

Item 14.     Controls
and Procedures.

Our management, under the supervision and with
the participation of our Chief Executive Officer (CEO) and
Chief Financial Officer (CFO), performed an evaluation of the
effectiveness of the design and operation of our internal
control structure and procedures for financial reporting within
90 days before the filing date of this annual report. Based
on that evaluation, the CEO and CFO concluded that our internal
controls and disclosure procedures for financial reporting were
effective.

43



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##### Table of Contents



There have been no significant changes in our
internal controls or in other factors that could affect these
controls subsequent to the date of their evaluation.




PART IV

Item 15.     Exhibits,
Financial Statement Schedules, and Reports on
Form 10-K.

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



| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | 1. Financial Statements                                                                                                        
|
| | The financial statements are submitted as a
    separate section of this report, beginning on page F-1.                        
|
| | 2. Financial Statement Schedule                                                                                                
|
| | Schedule II Valuation and Qualifying
    Accounts.Submitted as a separate
    section of the financial statements on page F-33.
|
| | 3. Exhibits.                                                                                                                   
|
| | The following exhibits are filed as part of, or
    are incorporated by reference into, this report on
    Form 10-K:          




Exhibit List

|        |         |  |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- | ------- |  |  | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |  |  |            
|Number  |         |  |  | Description
|        |         |  |  |            
|        | 3.1(a) |  |  |            |  | Certificate of Incorporation of Daleen
    Technologies, Inc. (Incorporated by reference to
    Exhibit 3.1 to the Companys Registration Statement on
    Form S-1 (File No. 333-82487) filed on
    September 30, 1999).                                                                                                                                                                                                                                                                                                                                                        
|        | 3.1(b) |  |  |            |  | Certificate of Amendment to Certificate of
    Incorporation of Daleen Technologies, Inc. (Incorporated by
    reference to Exhibit 10.2 to the Companys
    Form 8-K (File No. 0-27491) filed on June 15,
    2001).                                                                                                                                                                                                                                                                                                                                                            
|        | 3.1(c)  |  |  |            |  | Certificate of Amendment of Certificate of
    Incorporation of Daleen Technologies, Inc. filed herewith.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 3.2(a) |  |  |            |  | Bylaws of Daleen Technologies, Inc. (Incorporated
    by reference to Exhibit 3.2 to the Companys
    Registration Statement on Form S-1 (File No. 333-82487)
    filed on September 30, 1999). (Incorporated by reference to
    Exhibit 3.2 to the Companys Registration Statement on
    Form S-1 (File No. 333-82487) filed on
    September 30, 1999).                                                                                                                                                                                                                     
|        | 3.2(b)  |  |  |            |  | Amendment to Bylaws of Daleen Technologies, Inc.
    filed herewith.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 4.1    |  |  |            |  | See Exhibits 3.1(a), 3.1(b), 3.1(c), 3.2(a) and
    3.2(b) for provisions of the certificate of incorporation, as
    amended, and bylaws, as amended, of Daleen Technologies, Inc.
    defining rights of the holders of common stock and preferred
    stock of Daleen Technologies, Inc. (Incorporated by reference to
    Exhibit 4.1 to the Companys Registration Statement on
    Form S-1 (File No. 333-82487) filed on
    September 30, 1999 and incorporated by reference to
    Exhibit 10.2 to the Companys Form 8-K (File
    No. 0-27491) filed on June 15, 2001).
|        | 4.2    |  |  |            |  | Specimen stock certificate (Incorporated by
    reference to Exhibit 4.2 to the Companys Registration
    Statement on Form S-1 (File No. 333-82487) filed on
    September 30, 1999).                                                                                                                                                                                                                                                                                                                                                                                           
|        | *10.1  |  |  |            |  | Employment Agreement, dated December 1,
    1994, between James Daleen and Daleen Technologies, Inc.
    (Incorporated by reference to Exhibit 10.1 to the
    Companys Registration Statement on Form S-1 (File
    No. 333-82487) filed on September 30, 1999).                                                                                                                                                                                                                                                                                                                
|        | *10.2  |  |  |            |  | Amendment to Employment Agreement dated
    September 5, 1997, between James Daleen and Daleen
    Technologies, Inc. (Incorporated by reference to
    Exhibit 10.2 to the Companys Registration Statement
    on Form S-1 (File No. 333-82487) filed on
    September 30, 1999).                                                                                                                                                                                                                                                                                               

44



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|        |         |  |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                         
|------- | ------- |  |  | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |  |  |            
|Number  |         |  |  | Description
|        |         |  |  |            
|        | *10.3  |  |  |            |  | Third Amendment to the Employment Agreement,
    effective March 1, 1999, between James Daleen and Daleen
    Technologies, Inc. (Incorporated by reference to
    Exhibit 10.3 to the Companys Registration Statement
    on Form S-1 (File No. 333-82487) filed on
    September 30, 1999).                                                                                          
|        | *10.4  |  |  |            |  | Employment Agreement, dated, January 31,
    1998, between David B. Corey and Daleen Technologies, Inc.
    (Incorporated by reference to Exhibit 10.4 to the Companys
    Registration Statement on Form S-1 (File
    No. 333-82487) filed on September 30, 1999).                                                                                                                   
|        | *10.5  |  |  |            |  | Form of Indemnification Agreement (Incorporated
    by reference to Exhibit 10.10 to the Companys
    Registration Statement on Form S-1 (File
    No. 333-82487) filed on September 30, 1999).                                                                                                                                                                                        
|        | *10.6  |  |  |            |  | Daleen Technologies, Inc. Amended and Restated
    Stock Incentive Plan (Incorporated by reference to
    Exhibit 10.11 to the Companys Registration Statement
    on Form S-1 (File No. 333-82487) filed on
    September 30, 1999).                                                                                                                                                  
|        | *10.7  |  |  |            |  | Daleen Technologies, Inc. 1998 Incentive Stock
    Option Plan (Incorporated by reference to Exhibit 10.12 to
    the Companys Registration Statement on Form S-1 (File
    No. 333-82487) filed on September 30, 1999).                                                                                                                                                               
|        | *10.8  |  |  |            |  | Daleen Technologies, Inc. 1997 Incentive Stock
    Option Plan (Incorporated by reference to Exhibit 10.13 to
    the Companys Registration Statement on Form S-1 (File
    No. 333-82487) filed on September 30, 1999).                                                                                                                                                               
|        | *10.9  |  |  |            |  | Daleen Technologies, Inc. 1995 Incentive Stock
    Option Plan (Incorporated by reference to Exhibit 10.14 to
    the Companys Registration Statement on Form S-1 (File
    No. 333-82487) filed on September 30, 1999).                                                                                                                                                               
|        | *10.10 |  |  |            |  | Daleen Technologies, Inc. 1998 Employee
    Non-Qualified Stock Option Plan (Incorporated by reference to
    Exhibit 10.15 to the Companys Registration Statement
    on Form S-1 (File No. 333-82487) filed on
    September 30, 1999).                                                                                                                                              
|        | *10.11 |  |  |            |  | Daleen Technologies, Inc. 1996 Employee
    Non-Qualified Stock Option Plan (Incorporated by reference to
    Exhibit 10.16 to the Companys Registration Statement
    on Form S-1 (File No. 333-82487) filed on
    September 30, 1999).                                                                                                                                              
|        | *10.12 |  |  |            |  | Daleen Technologies, Inc. 1994 Employee
    Non-Qualified Stock Option Plan (Incorporated by reference to
    Exhibit 10.17 to the Companys Registration Statement
    on Form S-1 (File No. 333-82487) filed on
    September 30, 1999).                                                                                                                                              
|        | 10.13  |  |  |            |  | Lease Agreement, dated August 4, 1992, by
    Innovative Selective Software, Inc., and Crow-Childress-Donner,
    Limited (Incorporated by reference to Exhibit 10.18 to the
    Companys Registration Statement on Form S-1 (File No.
    333-82487) filed on September 30, 1999).                                                                                                    
|        | 10.14  |  |  |            |  | First Amendment to Lease Agreement, dated
    December 29, 1994, by Daleen Technologies Inc, successor to
    Innovative Selective Software, Inc., and Regent Holding
    Corporation, successor to Crow-Childress-Donner (Incorporated by
    reference to Exhibit 10.19 to the Companys
    Registration Statement on Form S-1 (File No. 333-82487)
    filed on September 30, 1999).
|        | 10.15  |  |  |            |  | Lease Agreement, dated August 27, 1998, by
    Daleen Technologies, Inc. and Regent Holding Corporation
    (Incorporated by reference to Exhibit 10.20 to the
    Companys Registration Statement on Form S-1 (File
    No. 333-82487) filed on September 30, 1999).                                                                                                                  
|        | 10.16  |  |  |            |  | First Amendment to Lease, dated December 2,
    1998, between Daleen Technologies, Inc. and Regent Holding
    Corporation (Incorporated by reference to Exhibit 10.21 to
    the Companys Registration Statement on Form S-1 (File
    No. 333-82487) filed on September 30, 1999).                                                                                                   
|        | 10.17  |  |  |            |  | Second Amendment to Lease, dated January 16,
    1999, between Daleen Technologies, Inc. and Regent Holding
    Corporation (Incorporated by reference to Exhibit 10.22 to
    the Companys Registration Statement on Form S-1 (File
    No. 333-82487) filed on September 30, 1999).                                                                                                  

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|        |         |  |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                               
|------- | ------- |  |  | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |  |  |            
|Number  |         |  |  | Description
|        |         |  |  |            
|        | 10.18  |  |  |            |  | Sublease Agreement, dated August 2, 1999,
    between W.R. Grace & Co. and Daleen Technologies, Inc.
    (Incorporated by reference to Exhibit 10.24 to the
    Companys Registration Statement on Form S-1 (File
    No. 333-82487) filed on September 30, 1999).                                                                                                                           
|        | *10.19 |  |  |            |  | Employment Agreement, dated April 7, 1997,
    between John Z. Yin and Daleen Technologies, Inc. (Incorporated
    by reference to Exhibit 10.25 to the Companys
    Registration Statement on Form S-1 (File
    No. 333-82487) filed on September 30, 1999).                                                                                                                               
|        | *10.20 |  |  |            |  | Employment Agreement, dated April 7, 1997,
    between Frank Dickinson and Daleen Technologies, Inc.
    (Incorporated by reference to Exhibit 10.26 to the
    Companys Registration Statement on Form S-1 (File
    No. 333-82487) filed on September 30, 1999).                                                                                                                           
|        | *10.21 |  |  |            |  | Employment Agreement, dated July 22, 1998,
    between David McTarnaghan and Daleen Technologies, Inc.
    (Incorporated by reference to Exhibit 10.27 to the
    Companys Registration Statement on Form S-1 (File
    No. 333-82487) filed on September 30, 1999).                                                                                                                         
|        | 10.22  |  |  |            |  | Indemnity Escrow Agreement dated
    December 16, 1999, between the Company, Daleen Canada
    Corporation, Inlogic Software Inc., the shareholders of Inlogic
    Software Inc., and Montreal Trust Company of Canada, as escrow
    agent (Incorporated by reference to Exhibit 10.1 to the
    Companys Form 8-K (File No. 333-82487) filed on
    December 30, 1999).                    
|        | 10.23  |  |  |            |  | Employee/Shareholder Escrow Agreement dated
    December 16, 1999, between the Company, Daleen Canada
    Corporation, Inlogic Software Inc., the employee shareholders of
    Inlogic Software Inc., and Montreal Trust Company of Canada, as
    escrow agent (Incorporated by reference to Exhibit 10.2 to the
    Companys Form 8-K (File No. 333-82487) filed on
    December 30, 1999).
|        | 10.24  |  |  |            |  | Exchange Trust Agreement dated December 16,
    1999, between the Company, Daleen Canada Corporation, Daleen
    Callco Corporation, the shareholders of Inlogic Software Inc.,
    and Montreal Trust Company of Canada, as trustee (Incorporated
    by reference to Exhibit 10.4 to the Companys
    Form 8-K (File No. 333-82487) filed on
    December 30, 1999).                       
|        | 10.25  |  |  |            |  | Registration Rights Agreement dated
    December 16, 1999, between the Company and the shareholders
    of Inlogic Software Inc. (Incorporated by reference to
    Exhibit 10.5 to the Companys Form 8-K (File
    No. 333-82487) filed on December 30, 1999).                                                                                                                               
|        | 10.26  |  |  |            |  | Office Lease Agreement dated May 5, 2000,
    between Daleen Technologies, Inc., Daleen Canada Corporation and
    The Atrium on Bay Inc. (Incorporated by reference to
    Exhibit 10.1 to the Companys Quarterly Report on
    Form 10-Q (File No. 0-27491) filed on August 14,
    2000).                                                                                                 
|        | 10.27  |  |  |            |  | Second Amendment to Lease, dated May 31,
    2000, between Daleen Technologies, Inc. and Regent Holding
    Corporation. (Incorporated by reference to Exhibit 10.2 to
    the Companys Quarterly Report on Form 10-Q (File
    No. 0-27491) filed on August 14, 2000).                                                                                                                      
|        | 10.28  |  |  |            |  | Third Amendment to Lease, dated May 31,
    2000, between Daleen Technologies, Inc. and Regent Holding
    Corporation. (Incorporated by reference to Exhibit 10.3 to
    the Companys Quarterly Report on Form 10-Q (File
    No. 0-27491) filed on August 14, 2000).                                                                                                                       
|        | *10.29 |  |  |            |  | Daleen Technologies, Inc. Amended & Restated
    1999 Stock Incentive Plan (Incorporated by reference to
    Exhibit 10.37 to the Companys Form 10-K405 (File
    No. 0-27491) filed on April 5, 2001).                                                                                                                                                                                      
|        | 10.30  |  |  |            |  | Promissory Note and Stock Pledge Agreement dated
    January 11, 2001 by and between James Daleen and J.D.
    Investment Company Limited Partnership and Daleen Technologies,
    Inc. (Incorporated by reference to Exhibit 10.38 to the
    Companys Form 10-K405 (File No. 0-27491) filed
    on April 5, 2001.)                                                                         
|        | *10.31 |  |  |            |  | PartnerCommunity Inc. 2000 Stock Incentive Plan
    (Incorporated by reference to Exhibit 10.39 to the
    Companys Form 10-K405 (File No. 0-27491) filed
    on April 5, 2001).                                                                                                                                                                                                             
|        | 10.32  |  |  |            |  | Securities Purchase Agreement dated
    March 30, 2001 by and between Daleen Technologies, Inc. and
    the Escrow Purchasers named therein (Incorporated by reference
    to Exhibit 10.45 to the Companys Form 10-K405
    (File No. 0-27491) filed on April 5, 2001).                                                                                                                     

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|        |         |  |  |             |  |                                                                                                                                                                                                                                                                                                                                                      
|------- | ------- |  |  | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |  |  |            
|Number  |         |  |  | Description
|        |         |  |  |            
|        | 10.33  |  |  |            |  | Form of Certificate of Amendment for the
    Series F Convertible Preferred Stock (Incorporated by
    reference to Exhibit 10.46 to the Companys
    Form 10-K405 (File No. 0-27491) filed on April 5,
    2001).                                                                                                                                  
|        | *10.34 |  |  |            |  | Amended and Restated 1999 Stock Incentive Plan
    (Incorporated by reference to Exhibit 10.37 to the
    Companys Form 10-K405 (File No. 0-27491) filed
    on April 5, 2001).                                                                                                                                                                     
|        | 10.35  |  |  |            |  | Form of Warrant Agreement by and between Daleen
    Technologies, Inc. and the Escrow Purchasers name therein
    (Incorporated by reference to Exhibit 10.47 to the
    Companys Form 10-K405 (File No. 0-27491) filed
    on April 5, 2001).                                                                                                      
|        | 10.36  |  |  |            |  | Registration Rights Agreement dated
    March 30, 2001 by and between Daleen Technologies, Inc. and
    the Escrow Purchasers named therein (Incorporated by reference
    to Exhibit 10.48 to the Companys Form 10-K405
    (File No. 0-27491) filed on April 5, 2001).                                                                            
|        | 10.37  |  |  |            |  | Escrow Agreement dated March 30, 2001 by and
    between Daleen Technologies, Inc. and the Escrow Purchasers
    named therein (Incorporated by reference to Exhibit 10.49
    to the Companys Form 10-K405 (File No. 0-27491)
    filed on April 5, 2001).                                                                                         
|        | *10.38 |  |  |            |  | Employment Agreement, dated April 21, 2000
    between Steven Kim and Daleen Technologies (Incorporated by
    reference to Exhibit 10.9 to the Companys
    Form 10-Q (File No. 0-27491) filed on May 15,
    2001).                                                                                                                               
|        | *10.39 |  |  |            |  | Amendment, dated September 10, 2001, to
    Exhibit B of Employment Agreement dated January 31,
    1998 by and between Daleen Technologies, Inc. and David B. Corey
    (Incorporated by reference to Exhibit 10.1 to the
    Companys Quarterly Report on Form 10-Q (File
    No. 0-27491) filed on November 14, 2001).                           
|        | *10.40 |  |  |            |  | Agreement of Interpretation, dated
    October 23, 2001, regarding Employment Agreement dated
    January 31, 1998, as amended, by and between Daleen
    Technologies, Inc. and David B. Corey (Incorporated by reference
    to Exhibit 10.2 to the Companys Quarterly Report on
    Form 10-Q (File No. 0-27491) filed on
    November 14, 2001).
|        | *10.41 |  |  |            |  | Relocation Agreement, dated July 11, 2001,
    by and between Daleen Technologies, Inc. and David B. Corey
    (Incorporated by reference to Exhibit 10.3 to the
    Companys Quarterly Report on Form 10-Q (File
    No. 0-27491) filed on November 14, 2001).                                                                                     
|        | *10.42 |  |  |            |  | Employment Agreement, dated May 31, 2000, by
    and between Daleen Technologies, Inc. and Jeanne T. Prayther
    (Incorporated by reference to Exhibit 10.4 to the
    Companys Quarterly Report on Form 10-Q (File
    No. 0-27491) filed on November 14, 2001).                                                                                  
|        | *10.43 |  |  |            |  | Amendment, dated August 22, 2001, to
    Employment Agreement dated May 31, 2000 by and between
    Daleen Technologies, Inc. and Jeanne T. Prayther (Incorporated
    by reference to Exhibit 10.5 to the Companys
    Quarterly Report on Form 10-Q (File No. 0-27491) filed
    on November 14, 2001).                                           
|        | *10.44 |  |  |            |  | Retention Bonus Agreement, dated August 22,
    2001, by and between Daleen Technologies, Inc. and Jeanne T.
    Prayther (Incorporated by reference to Exhibit 10.6 to the
    Companys Quarterly Report on Form 10-Q (File
    No. 0-27491) filed on November 14, 2001).                                                                          
|        | *10.45 |  |  |            |  | Amendment, dated September 20, 2001, to
    Employment Agreement dated April 21, 2000 by and between
    Daleen Technologies, Inc. and Steven R. Kim (Incorporated by
    reference to Exhibit 10.7 to the Companys Quarterly
    Report on Form 10-Q (File No. 0-27491) filed on
    November 14, 2001).                                           
|        | *10.46 |  |  |            |  | Amendment, dated July 18, 2001, to the
    Daleen Technologies, Inc. Amended and Restated 1999 Stock
    Incentive Plan (Incorporated by reference to Exhibit 10.8
    to the Companys Quarterly Report on Form 10-Q (File
    No. 0-27491) filed on November 14, 2001).                                                                            
|        | *10.47 |  |  |            |  | Daleen Technologies, Inc. 2001 Broad-Based Stock
    Incentive Plan (Incorporated by reference to Exhibit 10.9
    to the Companys Quarterly Report on Form 10-Q (File
    No. 0-27491) filed on November 14, 2001).                                                                                                                                
|        | *10.48 |  |  |            |  | Severance and Release Agreement dated effective
    December 31, 2001 by and between Daleen Technologies, Inc.
    and David B. Corey (Incorporated by reference to
    Exhibit 10.50 to the Companys Form 10-K (File
    No. 0-27491) filed on April 1, 2002).                                                                                     

47



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|        |         |  |  |             |  |                                                                                                                                                                                                                                                                                                        
|------- | ------- |  |  | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |         |  |  |            
|Number  |         |  |  | Description
|        |         |  |  |            
|        | 10.49  |  |  |            |  | Lease Termination Agreement dated
    December 31, 2001 by and between Daleen Technologies, Inc.
    and Rodney K. Longman (Incorporated by reference to
    Exhibit 10.51 to the Companys Form 10-K (File
    No. 0-27491) filed on April 1, 2002).                                                  
|        | 10.50  |  |  |            |  | Partial Lease Termination Agreement dated
    effective December 31, 2001 by and between Daleen
    Technologies, Inc. and Boss Lakeside Three, LLC (Incorporated by
    reference to Exhibit 10.52 to the Companys
    Form 10-K (File No. 0-27491) filed on April 1,
    2002).                     
|        | *10.51 |  |  |            |  | Amendment dated September 4, 2001 to
    employment agreement dated July 22, 1998 by and between
    David McTarnaghan and Daleen Technologies, Inc. (Incorporated by
    reference to Exhibit 10.1 to the Companys
    Form 10-Q (File No. 0-27491) filed on May 15,
    2002).                      
|        | *10.52 |  |  |            |  | Retention Bonus Agreement dated September 4,
    2001 by and between David McTarnaghan and Daleen Technologies,
    Inc. (Incorporated by reference to Exhibit 10.2 to the
    Companys Form 10-Q (File No. 0-27491) filed on
    May 15, 2002).                                                      
|        | 10.53  |  |  |            |  | Sublease Agreement dated January 31, 2002
    between Daleen Canada Corporation and EDS Canada, Inc.
    (Incorporated by reference to Exhibit 10.3 to the
    Companys Form 10-Q (File No. 0-27491) filed on
    May 15, 2002).                                                                      
|        | 10.54  |  |  |            |  | Asset Purchase Agreement, dated October 7,
    2002, by and between Daleen Technologies, Inc., Daleen
    Solutions, Inc. and Abiliti Solutions, Inc. (Incorporated by
    reference to Exhibit 99.1 to the Companys Current
    Report on Form 8-K (File No. 0-27491) filed on
    October 11, 2002).
|        | 10.55  |  |  |            |  | Investment Agreement, dated October 7, 2002,
    by and between Daleen Technologies, Inc. and the investors named
    therein (Incorporated by reference to Exhibit 99.2 to the
    Companys Current Report on Form 8-K (File
    No. 0-27491) filed on October 11, 2002).                            
|        | 10.56  |  |  |            |  | Registration Rights Agreement, dated
    October 7, 2002, by and between Daleen Technologies, Inc.
    and the holders named therein (Incorporated by reference to
    Exhibit 99.3 to the Companys Current Report on
    Form 8-K (File No. 0-27491) filed on October 11,
    2002).                 
|        | 10.57  |  |  |            |  | Form of Indemnity Escrow Agreement between Daleen
    Technologies, Inc., Abiliti Solutions, Inc. and SunTrust Bank
    (Incorporated by reference to Exhibit 99.4 to the
    Companys Current Report on Form 8-K (File
    No. 0-27491) filed on October 11, 2002).                                  
|        | 10.58  |  |  |            |  | Form of Voting Agreement between Daleen
    Technologies, Inc. and certain shareholders of Abiliti
    Solutions, Inc. (Incorporated by reference to Exhibit 99.5
    to the Companys Current Report on Form 8-K (File
    No. 0-27491) filed on October 11, 2002).                                   
|        | *10.59 |  |  |            |  | Amended and Restated Employment Agreement Between
    Daleen Technologies, Inc. and James R. Daleen dated
    September 20, 2002 (Incorporated by reference to
    Exhibit 10.1 to the Companys Form 10-Q (File
    No. 0-27491) filed on November 14, 2002).                                         
|        | 10.60  |  |  |            |  | Independent Consultant Agreement with James
    Daleen, effective upon termination of Employment Agreement dated
    October 11, 2002 (Incorporated by reference to
    Exhibit 10.2 to the Companys Form 10-Q (File
    No. 0-27491) filed on November 14, 2002).                                    
|        | *10.61 |  |  |            |  | Amendment to Employment Agreement for Jeanne
    Prayther dated October 7, 2002 (Incorporated by reference
    to Exhibit 10.3 to the Companys Form 10-Q (File
    No. 0-27491) filed on November 14, 2002).                                                                                          
|        | *10.62 |  |  |            |  | Amendment to Employment Agreement for David
    McTarnaghan dated October 7, 2002 (Incorporated by
    reference to Exhibit 10.4 to the Companys
    Form 10-Q (File No. 0-27491) filed on
    November 14, 2002).                                                                                    
|        | 10.63   |  |  |            |  | Form of Common Stock Purchase Warrant by and
    between Daleen Technologies, Inc. and the purchasers named in
    the Asset Purchase Agreement and Investment Agreement filed
    herewith.                                                                                                           
|        | 10.64   |  |  |            |  | Form of Common Stock Purchase Warrant by and
    between Daleen Technologies, Inc. and the purchasers named in
    the Investment Agreement filed herewith.                                                                                                                                            

48



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##### Table of Contents



|        |        |  |  |             |  |                                                                                                                                                                                                                                                      
|------- | ------ |  |  | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |  |  |            
|Number  |        |  |  | Description
|        |        |  |  |            
|        | 10.65  |  |  |            |  | Supplemental Voting Agreement by and among
    Harbourvest Partners V Direct Fund, L.P., Harbourvest Partners
    VI Direct Fund, L.P., Abiliti Solutions, Inc., Behrman Capital
    II L.P. and Strategic Entrepreneur Fund II, L.P. filed herewith.
|        | *10.66 |  |  |            |  | Employment Agreement effective December 20,
    2002, between Gordon Quick and Daleen Technologies, Inc. filed
    herewith.                                                                                                                         
|        | *10.67 |  |  |            |  | Long-Term Incentive Compensation Plan filed
    herewith.                                                                                                                                                                                            
|        | 10.68  |  |  |            |  | Lease dated May 12, 1998 between 400
    Chesterfield Corp. and Intertech Management Group, Inc.
    (subsequently assigned to Daleen Solutions, Inc.) and Amendments
    thereto filed herewith.                                                    
|        | 10.69  |  |  |            |  | Settlement and Release Agreement dated
    December 20, 2002, between James Daleen and Daleen
    Technologies, Inc. filed herewith.                                                                                                                 
|        | 10.70  |  |  |            |  | Settlement and Release Agreement dated
    May 14, 2002, between Steve Kim and Daleen Technologies,
    Inc. filed herewith.                                                                                                                         
|        | 21.1   |  |  |            |  | Subsidiaries filed herewith.                                                                                                                                                                                                                         
|        | 23.1   |  |  |            |  | Independent Auditors Consent filed herewith.                                                                                                                                                                                                        
|        | 99.1   |  |  |            |  | Certificate of Principal Executive Officer
    pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
    section 906 of the Sarbanes-Oxley Act of 2002 filed herewith.                                                                          
|        | 99.2   |  |  |            |  | Certificate of Principal Financial and Accounting
    Officer pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to section 906 of the Sarbanes-Oxley Act of 2002 filed
    herewith.                                                       



---

 Previously filed.



|  |                                                                                                                   
|- | ------------------------------------------------------------------------------------------------------------------
|* | Exhibits identified above with an asterisk (*)
    are management contracts or compensation plans or arrangements.

(b) Reports on Form 8-K:



| |    |                                                                                                                                                                                                                                   
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | Report on Form 8-K filed October 11,
    2002 with respect to the signing of the definitive agreements
    for the Asset Purchase and 2002 Private Placement.                                                                     
|
| | 2. | Report on Form 8-K filed November 12,
    2002 with respect to third quarter financial operating results.                                                                                                                         
|
| | 3. | Report on Form 8-K filed December 19,
    2002 with respect to the determination by the Nasdaq that the
    Asset Purchase and 2002 Private Placement constitute a reverse
    merger for purposes of Nasdaq listing requirements.
|
| | 4. | Report on Form 8-K filed December 30,
    2002 with respect to the Companys common stock being
    delisted from The Nasdaq SmallCap Market to the Over The Counter
    Bulletin Board.                                          

49



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized on the 28 day of
March, 2003.



| |                          
| | -------------------------
| | DALEEN TECHNOLOGIES, INC.



| |     |                 
| | --- | ----------------
| | BY: | /s/ GORDON QUICK

| |                                          
| | -----------------------------------------
| |                                          
| | GORDON QUICK                             
| | President and Chief Executive
    Officer
| | (Principal Executive Officer)            

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant in the capacities
and on the dates indicated.

|                                         |  |                                                                                      |  |      |                | 
|---------------------------------------- |  | ------------------------------------------------------------------------------------ |  | ---- | -------------- | 
|Signature                                |  | Title                                                                                |  | Date
|                                         |  |                                                                                      |  |     
|                                        
|/s/ JAMES DALEENJames Daleen             |  | Chairman of the Board                                                                |  |      | March 28, 2003 | 
|                                        
|/s/ GORDON QUICKGordon Quick             |  | President and Chief Executive Officer (Principal
    Executive Officer) and Director |  |      | March 28, 2003 | 
|                                        
|/s/ JEANNE T. PRAYTHERJeanne T. Prayther |  | Chief Financial Officer (Principal Financial and
    Accounting Officer)             |  |      | March 28, 2003 | 
|                                        
|/s/ DANIEL J. FOREMANDaniel J. Foreman   |  | Director                                                                             |  |      | March 28, 2003 | 
|                                        
|/s/ STEPHEN J. GETSYStephen J. Getsy     |  | Director                                                                             |  |      | March 28, 2003 | 
|                                        
|/s/ JOHN MCCARTHYJohn McCarthy           |  | Director                                                                             |  |      | March 28, 2003 | 
|                                        
|Ofer Nemirovsky                          |  | Director                                                                             |  |      | March 28, 2003 | 
|                                        
|/s/ DENNIS SISCODennis Sisco             |  | Director                                                                             |  |      | March 28, 2003 | 

50



---



##### Table of Contents






CERTIFICATION

I, Gordon Quick, President and Chief Executive
Officer of Daleen Technologies, Inc., certify that:

1. I have reviewed this report on
Form 10-K of Daleen Technologies, Inc.;

2. Based on my knowledge, this annual report
does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial
statements, and other information included in this annual
report, fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual
report;

4. The registrants other certifying
officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we
have:



| |                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | (b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | (c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5. The registrants other certifying
officers and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons
performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in controls;
    and
|
| | (b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                           

6. The registrants other certifying
officers and I have indicated in this annual report whether or
not there were significant changes in internal controls or in
other factors that could significantly internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.



| |     |                 
| | --- | ----------------
| | By: | /s/ GORDON QUICK

| |                                          
| | -----------------------------------------
| |                                          
| | Gordon Quick                             
| | President and Chief Executive
    Officer



Date: March 28, 2003

51



---



##### Table of Contents






CERTIFICATION

I, Jeanne Prayther, Chief Financial Officer, and
Secretary of Daleen Technologies, Inc., certify that:

1. I have reviewed this report on
Form 10-K of Daleen Technologies, Inc.;

2. Based on my knowledge, this annual report
does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
annul report;

3. Based on my knowledge, the financial
statements, and other information included in this annual
report, fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual
report;

4. The registrants other certifying
officers and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14 and 15d-14) for the registrant and we
have:



| |                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) designed such disclosure controls and
    procedures to ensure that material information relating to the
    registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | (b) evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | (c) presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5. The registrants other certifying
officers and I have disclosed, based on our most recent
evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons
performing the equivalent function):



| |                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) all significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the registrants ability to record, process,
    summarize and report financial data and have identified for the
    registrants auditors any material weaknesses in controls;
    and
|
| | (b) any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the registrants internal controls; and                                                                                                                                           

6. The registrants other certifying
officers and I have indicated in this annual report whether or
not there were significant changes in internal controls or in
other factors that could significantly internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.



| |     |                    
| | --- | -------------------
| | By: | /s/ JEANNE PRAYTHER

| |                                          
| | -----------------------------------------
| |                                          
| | Jeanne Prayther                          
| | Chief Financial Officer and
    Secretary



Date: March 28, 2003

52



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##### Table of Contents



DALEEN TECHNOLOGIES, INC.

AND SUBSIDIARIES


Consolidated Financial Statements

December 31, 2001 and 2002


(With Independent Auditors Report
Thereon)


F-1



---



##### Table of Contents






INDEPENDENT AUDITORS REPORT

The Board of Directors and Stockholders

Daleen Technologies, Inc.:


We have audited the accompanying consolidated
balance sheets of Daleen Technologies, Inc. and Subsidiaries
(the Company) as of December 31, 2001 and 2002, and the
related consolidated statements of operations,
stockholders (deficit) equity and cash flows for each of
the years in the three-year period ended December 31, 2002.
In connection with our audits of the consolidated financial
statements, we have also audited the financial statement
schedule for each of the years in the three-year period ended
December 31, 2002, as listed in item 15(a)2 of the
Companys 2002 Annual Report on Form 10-K. These
consolidated financial statements and financial statement
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement
schedule based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Daleen Technologies, Inc.
and Subsidiaries as of December 31, 2001 and 2002, and the
results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2002, in
conformity with accounting principles generally accepted in the
United States of America. Also, in our opinion, the related
financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set
forth therein.

The accompanying consolidated financial
statements and financial statement schedule have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 2 to the consolidated financial
statements, the Company has suffered recurring losses from
operations and has an accumulated deficit of $210.9 million
at December 31, 2002. These matters raise substantial doubt
about the Companys ability to continue as a going concern.
Managements plans in regard to these matters are also
described in Note 2. The consolidated financial statements
and financial statement schedule do not include any adjustments
that might result from the outcome of this uncertainty.

As discussed in Note 1(m) to the
consolidated financial statements, Daleen Technologies, Inc. and
Subsidiaries adopted the provisions of Statements of Financial
Accounting Standards No. 142, Goodwill and Other
Intangible Assets,in 2002.



| |             
| | ------------
| | /s/ KPMG LLP

Miami, Florida

January 30, 2003


F-2



---



##### Table of Contents



DALEEN TECHNOLOGIES, INC. AND
SUBSIDIARIES






CONSOLIDATED BALANCE SHEETS


December 31, 2001 and 2002


|                                                                                                                 |                                                                                                                                                                                                                          |                                            |       |          |        |  |       |          |        | 
|---------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------ | ----- | -------- | ------ |  | ----- | -------- | ------ | 
|                                                                                                                 |                                                                                                                                                                                                                          | 2001                                       |       | 2002    
|                                                                                                                 |                                                                                                                                                                                                                          |                                            |       |         
|                                                                                                                 |                                                                                                                                                                                                                          |                                           
|                                                                                                                 |                                                                                                                                                                                                                          | (In thousands, except share               
|                                                                                                                 |                                                                                                                                                                                                                          | and per share data)                       
|ASSETS                                                                                                          
|Current assets:                                                                                                  |                                                                                                                                                                                                                          |                                            |       |          |        |  |       |         
|                                                                                                                 | Cash and cash equivalents                                                                                                                                                                                                |                                            | $     | 13,093   |        |  | $     | 6,589    |       
|                                                                                                                 | Restricted cash                                                                                                                                                                                                          |                                            |       | 30       |        |  |       | 30       |       
|                                                                                                                 | Accounts receivable, less allowance for doubtful
    accounts of $3,789 and $3,976 at December 31, 2001 and
    December 31, 2002, respectively                                                                          |                                            |       | 2,397    |        |  |       | 2,558    |       
|                                                                                                                 | Costs in excess of billings                                                                                                                                                                                              |                                            |       | 5        |        |  |       |         |       
|                                                                                                                 | Unbilled revenue                                                                                                                                                                                                         |                                            |       | 488      |        |  |       | 203      |       
|                                                                                                                 | Other current assets                                                                                                                                                                                                     |                                            |       | 431      |        |  |       | 1,022    |       
|                                                                                                                 |                                                                                                                                                                                                                          |                                            |       |          |        |  |       |         
|                                                                                                                 |                                                                                                                                                                                                                          | Total current assets                       |       |          | 16,444 |  |       |          | 10,402 | 
|Notes receivable, less reserve of $1,188 and $0
    at December 31, 2001 and December 31, 2002,
    respectively |                                                                                                                                                                                                                          |                                            | 659   |          |        |  | 77    |         
|Property and equipment, net                                                                                      |                                                                                                                                                                                                                          |                                            | 2,704 |          |        |  | 1,824 |         
|Goodwill                                                                                                         |                                                                                                                                                                                                                          |                                            |      |          |        |  | 5,086 |         
|Other assets                                                                                                     |                                                                                                                                                                                                                          |                                            | 1,386 |          |        |  | 1,400 |         
|                                                                                                                 |                                                                                                                                                                                                                          |                                            |       |          |        |  |       |         
|                                                                                                                 |                                                                                                                                                                                                                          | Total assets                               |       | $        | 21,193 |  |       | $        | 18,789 | 
|                                                                                                                 |                                                                                                                                                                                                                          |                                            |       |          |        |  |       |         
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                                                        
|Current liabilities:                                                                                             |                                                                                                                                                                                                                          |                                            |       |          |        |  |       |         
|                                                                                                                 | Accounts payable                                                                                                                                                                                                         |                                            | $     | 678      |        |  | $     | 368      |       
|                                                                                                                 | Accrued payroll and other accrued expenses                                                                                                                                                                               |                                            |       | 3,733    |        |  |       | 2,576    |       
|                                                                                                                 | Current portion of capitalized lease                                                                                                                                                                                     |                                            |       |         |        |  |       | 164      |       
|                                                                                                                 | Billings in excess of costs                                                                                                                                                                                              |                                            |       | 1,323    |        |  |       | 616      |       
|                                                                                                                 | Deferred revenue                                                                                                                                                                                                         |                                            |       | 1,013    |        |  |       | 1,279    |       
|                                                                                                                 | Other current liabilities                                                                                                                                                                                                |                                            |       |         |        |  |       | 53       |       
|                                                                                                                 |                                                                                                                                                                                                                          |                                            |       |          |        |  |       |         
|                                                                                                                 |                                                                                                                                                                                                                          | Total current liabilities                  |       |          | 6,747  |  |       |          | 5,056  | 
|Long term portion of capitalized lease                                                                           |                                                                                                                                                                                                                          |                                            |      |          |        |  | 26    |         
|                                                                                                                 |                                                                                                                                                                                                                          |                                            |       |          |        |  |       |         
|                                                                                                                 |                                                                                                                                                                                                                          | Total liabilities                          |       |          | 6,747  |  |       |          | 5,082  | 
|Commitments and contingencies                                                                                    |                                                                                                                                                                                                                          |                                            |       |          |        |  |       |         
|Minority interest                                                                                                |                                                                                                                                                                                                                          |                                            | 184   |          |        |  |      |         
|Stockholders equity:                                                                                            |                                                                                                                                                                                                                          |                                            |       |          |        |  |       |         
|                                                                                                                 | Series F convertible Preferred Stock $.01
    par value; 588,312 shares authorized; 247,882 and 458,224
    issued and outstanding at December 31, 2001 and 2002,
    respectively ($110.94 per share liquidation value) |                                            |       | 25,564   |        |  |       | 27,656   |       
|                                                                                                                 | Common stock-$.01 par value;
    200,000,000 shares authorized; 21,876,554 shares
    issued and outstanding at December 31, 2001 and
    46,848,876 shares issued and 45,847,865 outstanding at
    December 31, 2002   |                                            |       | 219      |        |  |       | 469      |       
|                                                                                                                 | Stockholders notes receivable                                                                                                                                                                                            |                                            |       | (241     | )      |  |       |         |       
|                                                                                                                 | Deferred stock compensation                                                                                                                                                                                              |                                            |       | (88      | )      |  |       |         |       
|                                                                                                                 | Additional paid-in capital                                                                                                                                                                                               |                                            |       | 190,065  |        |  |       | 196,649  |       
|                                                                                                                 | Accumulated deficit                                                                                                                                                                                                      |                                            |       | (201,257 | )      |  |       | (210,918 | )     
|                                                                                                                 | Treasury stock at cost; 0 and
    1,001,011 shares at December 31, 2001 and
    December 31, 2002, respectively                                                                                                          |                                            |       |         |        |  |       | (149     | )     
|                                                                                                                 |                                                                                                                                                                                                                          |                                            |       |          |        |  |       |         
|                                                                                                                 |                                                                                                                                                                                                                          | Total stockholders equity                 |       |          | 14,262 |  |       |          | 13,707 | 
|                                                                                                                 |                                                                                                                                                                                                                          |                                            |       |          |        |  |       |         
|                                                                                                                 |                                                                                                                                                                                                                          | Total liabilities and stockholders equity |       | $        | 21,193 |  |       | $        | 18,789 | 
|                                                                                                                 |                                                                                                                                                                                                                          |                                            |       |          |        |  |       |         

See accompanying notes to consolidated financial
statements.

F-3



---



##### Table of Contents



DALEEN TECHNOLOGIES, INC. AND
SUBSIDIARIES






CONSOLIDATED STATEMENTS OF
OPERATIONS


Years Ended December 31, 2000, 2001 and
2002


|                                                                             |                                                |                                       |         |        |        |      |          |        |        |   |         |       |        | 
|---------------------------------------------------------------------------- | ---------------------------------------------- | ------------------------------------- | ------- | ------ | ------ | ---- | -------- | ------ | ------ | - | ------- | ----- | ------ | 
|                                                                             |                                                | 2000                                  |         | 2001   |        | 2002
|                                                                             |                                                |                                       |         |        |        |     
|                                                                             |                                                |                                      
|                                                                             |                                                | (In thousands, except per share data)
|Revenue:                                                                     |                                                |                                       |         |        |        |      |          |        |        |   |         |      
|                                                                             | License fees                                   |                                       | $       | 26,886 |        |      | $        | 3,565  |        |   | $       | 1,450 |       
|                                                                             | Professional services and other                |                                       |         | 16,743 |        |      |          | 8,867  |        |   |         | 5,154 |       
|                                                                             |                                                |                                       |         |        |        |      |          |        |        |   |         |      
|                                                                             |                                                | Total revenue                         |         |        | 43,629 |      |          |        | 12,432 |   |         |       | 6,604  | 
|                                                                             |                                                |                                       |         |        |        |      |          |        |        |   |         |      
|Cost of revenue:                                                             |                                                |                                       |         |        |        |      |          |        |        |   |         |      
|                                                                             | License fees                                   |                                       |         | 682    |        |      |          | 1,646  |        |   |         | 232   |       
|                                                                             | Professional services and other                |                                       |         | 13,878 |        |      |          | 7,302  |        |   |         | 2,523 |       
|                                                                             |                                                |                                       |         |        |        |      |          |        |        |   |         |      
|                                                                             |                                                | Total cost of revenue                 |         |        | 14,560 |      |          |        | 8,948  |   |         |       | 2,755  | 
|                                                                             |                                                |                                       |         |        |        |      |          |        |        |   |         |      
|Gross Margin                                                                 |                                                |                                       | 29,069  |        |        |      | 3,484    |        |        |   | 3,849   |      
|Operating expenses:                                                          |                                                |                                       |         |        |        |      |          |        |        |   |         |      
|                                                                             | Sales and marketing                            |                                       |         | 14,680 |        |      |          | 10,895 |        |   |         | 3,738 |       
|                                                                             | Research and development                       |                                       |         | 27,215 |        |      |          | 12,502 |        |   |         | 3,967 |       
|                                                                             | General and administrative                     |                                       |         | 18,210 |        |      |          | 13,820 |        |   |         | 5,817 |       
|                                                                             | Amortization of goodwill and other intangibles |                                       |         | 15,205 |        |      |          | 12,014 |        |   |         |      |       
|                                                                             | Impairment of long-lived assets                |                                       |         |       |        |      |          | 34,604 |        |   |         |      |       
|                                                                             | Restructuring charges                          |                                       |         |       |        |      |          | 11,763 |        |   |         | 745   |       
|                                                                             |                                                |                                       |         |        |        |      |          |        |        |   |         |      
|                                                                             |                                                | Total operating expenses              |         |        | 75,310 |      |          |        | 95,598 |   |         |       | 14,267 | 
|                                                                             |                                                |                                       |         |        |        |      |          |        |        |   |         |      
|Operating loss                                                               |                                                |                                       | (46,241 | )      |        |      | (92,114  | )      |        |   | (10,418 | )    
|                                                                             |                                                |                                       |         |        |        |      |          |        |        |   |         |      
|Nonoperating income:                                                         |                                                |                                       |         |        |        |      |          |        |        |   |         |      
|                                                                             | Interest income, net                           |                                       |         | 2,335  |        |      |          | 875    |        |   |         | 217   |       
|                                                                             | Gain on sale of subsidiary                     |                                       |         |       |        |      |          |       |        |   |         | 391   |       
|                                                                             | Other income                                   |                                       |         | 121    |        |      |          | 250    |        |   |         | 149   |       
|                                                                             |                                                |                                       |         |        |        |      |          |        |        |   |         |      
|                                                                             |                                                | Total nonoperating income             |         |        | 2,456  |      |          |        | 1,125  |   |         |       | 757    | 
|                                                                             |                                                |                                       |         |        |        |      |          |        |        |   |         |      
|Net loss                                                                     |                                                |                                       | (43,785 | )      |        |      | (90,989  | )      |        |   | (9,661  | )    
|Preferred stock dividends arising from beneficial
    conversion features    |                                                |                                       |        |        |        |      | (28,512  | )      |        |   |        |      
|                                                                             |                                                |                                       |         |        |        |      |          |        |        |   |         |      
|Net loss applicable to common stockholders                                   |                                                | $                                     | (43,785 | )      |        | $    | (119,501 | )      |        | $ | (9,661  | )    
|                                                                             |                                                |                                       |         |        |        |      |          |        |        |   |         |      
|Net loss applicable to common stockholders per
    share  basic and diluted |                                                | $                                     | (2.02   | )      |        | $    | (5.47    | )      |        | $ | (0.40   | )    
|                                                                             |                                                |                                       |         |        |        |      |          |        |        |   |         |      
|Weighted average shares  basic and
    diluted                              |                                                |                                       | 21,671  |        |        |      | 21,836   |        |        |   | 23,919  |      
|                                                                             |                                                |                                       |         |        |        |      |          |        |        |   |         |      

See accompanying notes to consolidated financial
statements.

F-4



---



##### Table of Contents



DALEEN TECHNOLOGIES INC. AND
SUBSIDIARIES







CONSOLIDATED STATEMENTS OF STOCKHOLDERS
(DEFICIT) EQUITY


Years Ended December 31, 2000, 2001, and
2002


|                                       |                                                                             |                                   |         |                |   |              |        |             |   |           |           |            |  |            |      |              |   |         |            |             |  |       |     |     |  |   |      |     |   |   |        |       |  |   |         |        |   |   |          |         |   |   |         |         |  
|-------------------------------------- | --------------------------------------------------------------------------- | --------------------------------- | ------- | -------------- | - | ------------ | ------ | ----------- | - | --------- | --------- | ---------- |  | ---------- | ---- | ------------ | - | ------- | ---------- | ----------- |  | ----- | --- | --- |  | - | ---- | --- | - | - | ------ | ----- |  | - | ------- | ------ | - | - | -------- | ------- | - | - | ------- | ------- | -
|                                       |                                                                             |                                   |         |                |   |              |        |             |   |           |           |            |  |            |      |              |   |         |            |            
|                                       |                                                                             | Series F Preferred                |         |                |   |              |        |             |   |           |           |            |  |            |      |             
|                                       |                                                                             | Stock                             |         | Treasury Stock |   | Common Stock |        |             |   |           |           |            |  |            |      |             
|                                       |                                                                             |                                   |         |                |   |              |        | Stockholder |   | Deferred  |           | Additional |  |            |      |             
|                                       |                                                                             | Number of                         |         |                |   | Number of    |        |             |   | Number of |           | Par        |  | Notes      |      | Stock        |   | Paid-in |            | Accumulated |  |      
|                                       |                                                                             | Shares                            |         | Amount         |   | Shares       |        | Amount      |   | Shares    |           | Value      |  | Receivable |      | Compensation |   | Capital |            | Deficit     |  | Total
|                                       |                                                                             |                                   |         |                |   |              |        |             |   |           |           |            |  |            |      |              |   |         |            |             |  |      
|                                       |                                                                             |                                  
|                                       |                                                                             | (In thousands, except share data)
|Balance at December 31, 1999           |                                                                             |                                   |        |                |   | $            |       |             |   |           |          |            |  | $          |     |              |   |         | 21,408,246 |             |  | $     | 214 |     |  | $ | (202 | )   |   | $ | (3,031 | )     |  | $ | 160,446 |        |   | $ | (37,970  | )       |   | $ | 119,457 |        
|                                       | Additional expenses associated with initial
    public offering             |                                   |         |               |   |              |        |            |   |           |           |           |  |            |      |             |   |         |            |            |  |       |     |    |  |   |      |    |   |   |        |      |  |   |         | (135   | ) |   |          |        |   |   |         | (135    | )
|Forfeiture of unvested stock options   |                                                                             |                                   |        |                |   |              |       |             |   |           |          |            |  |            |     |              |   |         |           |             |  |       |    |     |  |   |     |     |   |   | 444    |       |  |   | (444    | )      |   |   |         |         |   |   |        |        
|Non-cash stock compensation            |                                                                             |                                   |        |                |   |              |       |             |   |           |          |            |  |            |     |              |   |         |           |             |  |       |    |     |  |   |     |     |   |   | 439    |       |  |   |        |        |   |   |         |         |   |   | 439     |        
|Exercise of stock options and warrants |                                                                             |                                   |        |                |   |              |       |             |   |           |          |            |  |            |     |              |   |         | 373,481    |             |  |       | 4   |     |  |   |     |     |   |   |       |       |  |   | 1,593   |        |   |   |         |         |   |   | 1,597   |        
|Payment of stockholder note receivable |                                                                             |                                   |        |                |   |              |       |             |   |           |          |            |  |            |     |              |   |         |           |             |  |       |    |     |  |   | 122  |     |   |   |       |       |  |   |        |        |   |   |         |         |   |   | 122     |        
|Non-cash interest on stockholder loan  |                                                                             |                                   |        |                |   |              |       |             |   |           |          |            |  |            |     |              |   |         |           |             |  |       |    |     |  |   | (10  | )   |   |   |       |       |  |   |        |        |   |   |         |         |   |   | (10     | )      
|Issuance of stockholder note           |                                                                             |                                   |        |                |   |              |       |             |   |           |          |            |  |            |     |              |   |         |           |             |  |       |    |     |  |   | (184 | )   |   |   |       |       |  |   |        |        |   |   |         |         |   |   | (184    | )      
|Net loss                               |                                                                             |                                   |        |                |   |              |       |             |   |           |          |            |  |            |     |              |   |         |           |             |  |       |    |     |  |   |     |     |   |   |       |       |  |   |        |        |   |   | (43,785  | )       |   |   | (43,785 | )      
|                                       |                                                                             |                                   |         |                |   |              |        |             |   |           |           |            |  |            |      |              |   |         |            |             |  |       |     |     |  |   |      |     |   |   |        |       |  |   |         |        |   |   |          |         |   |   |         |        
|Balance, December 31, 2000             |                                                                             |                                   |        |                |   |              |       |             |   |           |          |            |  |            |     |              |   |         | 21,781,727 |             |  |       | 218 |     |  |   | (274 | )   |   |   | (2,148 | )     |  |   | 161,460 |        |   |   | (81,755  | )       |   |   | 77,501  |        
|                                       | Issuance of preferred stock-Series F, net                                   |                                   |         | 247,882        |   |              |        | 25,564      |   |           |           |            |  |            |      |              |   |         |            |             |  |       |     |     |  |   |      |     |   |   |        |       |  |   |         |        |   |   |          |         |   |   |         | 25,564  |  
|                                       | Options issued for consulting services related to
    Series F issuance     |                                   |         |               |   |              |        |            |   |           |           |           |  |            |      |             |   |         |            |            |  |       |     |    |  |   |      |    |   |   |        |      |  |   |         | 8      |   |   |          |        |   |   |         | 8       |  
|                                       | Preferred stock dividends arising from beneficial
    conversion features   |                                   |         |               |   |              |        |            |   |           |           |           |  |            |      |             |   |         |            |            |  |       |     |    |  |   |      |    |   |   |        |      |  |   |         | 19,067 |   |   |          | (19,067 | ) |   |         |        |  
|                                       | Issuance of warrants related to Series F
    preferred stock                |                                   |         |               |   |              |        |            |   |           |           |           |  |            |      |             |   |         |            |            |  |       |     |    |  |   |      |    |   |   |        |      |  |   |         | 9,446  |   |   |          | (9,446  | ) |   |         |        |  
|                                       | Forfeitures of unvested stock options                                       |                                   |         |               |   |              |        |            |   |           |           |           |  |            |      |             |   |         |            |            |  |       |     |    |  |   |      |    |   |   |        | 421   |  |   |         | (421   | ) |   |          |        |   |   |         |        |  
|                                       | Non-cash stock compensation expense                                         |                                   |         |               |   |              |        |            |   |           |           |           |  |            |      |             |   |         |            |            |  |       |     |    |  |   |      |    |   |   |        | 1,639 |  |   |         |       |   |   |          |        |   |   |         | 1,639   |  
|                                       | Exercise of stock options and warrants                                      |                                   |         |               |   |              |        |            |   |           |           |           |  |            |      |             |   |         |            | 94,827      |  |       |     | 1   |  |   |      |    |   |   |        |      |  |   |         | 10     |   |   |          |        |   |   |         | 11      |  
|                                       | Payment of stockholder note receivable                                      |                                   |         |               |   |              |        |            |   |           |           |           |  |            |      |             |   |         |            |            |  |       |     |    |  |   |      | 53  |   |   |        |      |  |   |         |       |   |   |          |        |   |   |         | 53      |  
|                                       | Non-cash interest on stockholder note                                       |                                   |         |               |   |              |        |            |   |           |           |           |  |            |      |             |   |         |            |            |  |       |     |    |  |   |      | (20 | ) |   |        |      |  |   |         |       |   |   |          |        |   |   |         | (20     | )
|                                       | Warrants issued-non-cash settlement expense                                 |                                   |         |               |   |              |        |            |   |           |           |           |  |            |      |             |   |         |            |            |  |       |     |    |  |   |      |    |   |   |        |      |  |   |         | 495    |   |   |          |        |   |   |         | 495     |  
|                                       | Net loss                                                                    |                                   |         |               |   |              |        |            |   |           |           |           |  |            |      |             |   |         |            |            |  |       |     |    |  |   |      |    |   |   |        |      |  |   |         |       |   |   |          | (90,989 | ) |   |         | (90,989 | )
|                                       |                                                                             |                                   |         |                |   |              |        |             |   |           |           |            |  |            |      |              |   |         |            |             |  |       |     |     |  |   |      |     |   |   |        |       |  |   |         |        |   |   |          |         |   |   |         |        
|Balance, December 31, 2001             |                                                                             |                                   | 247,882 |                |   |              | 25,564 |             |   |           |          |            |  |            |     |              |   |         | 21,876,554 |             |  |       | 219 |     |  |   | (241 | )   |   |   | (88    | )     |  |   | 190,065 |        |   |   | (201,257 | )       |   |   | 14,262  |        
|                                       | Issuance of stock related to Abiliti asset
    purchase, net                |                                   |         | 115,681        |   |              |        | 2,471       |   |           |           |           |  |            |      |             |   |         |            | 11,406,284  |  |       |     | 114 |  |   |      |    |   |   |        |      |  |   |         | 1,825  |   |   |          |        |   |   |         | 4,410   |  
|                                       | Warrants issued for transaction costs related to
    Abiliti asset purchase |                                   |         |               |   |              |        |            |   |           |           |           |  |            |      |             |   |         |            |            |  |       |     |    |  |   |      |    |   |   |        |      |  |   |         | 615    |   |   |          |        |   |   |         | 615     |  
|                                       | Issuance of stock related to 2002 Private
    Placement, net                |                                   |         | 115,681        |   |              |        | 1,953       |   |           |           |           |  |            |      |             |   |         |            | 10,992,136  |  |       |     | 110 |  |   |      |    |   |   |        |      |  |   |         | 1,210  |   |   |          |        |   |   |         | 3,273   |  
|                                       | Issuance of warrants related to 2002 Private
    Placement                  |                                   |         |               |   |              |        |            |   |           |           |           |  |            |      |             |   |         |            |            |  |       |     |    |  |   |      |    |   |   |        |      |  |   |         | 648    |   |   |          |        |   |   |         | 648     |  
|                                       | Forfeitures of unvested stock options                                       |                                   |         |               |   |              |        |            |   |           |           |           |  |            |      |             |   |         |            |            |  |       |     |    |  |   |      |    |   |   |        | 20    |  |   |         | (20    | ) |   |          |        |   |   |         |        |  
|                                       | Non-cash stock compensation                                                 |                                   |         |                |   |              |        |             |   |           |           |            |  |            |      |              |   |         |            |             |  |       |     |     |  |   |      |     |   |   |        | 68    |  |   |         |        |   |   |          |         |   |   |         | 68      |  
|                                       | Conversion of preferred stock- Series F-to
    common stock                 |                                   |         | (21,020        | ) |              |        | (2,332      | ) |           |           |           |  |            |      |             |   |         |            | 2,573,902   |  |       |     | 26  |  |   |      |    |   |   |        |      |  |   |         | 2,306  |   |   |          |        |   |   |         |        |  
|                                       | Payment of stockholder note receivable                                      |                                   |         |               |   |              |        |            |   |           |           |           |  |            |      |             |   |         |            |            |  |       |     |    |  |   |      | 73  |   |   |        |      |  |   |         |       |   |   |          |        |   |   |         | 73      |  
|                                       | Write-off of shareholder note receivable                                    |                                   |         |               |   |              |        |            |   |           |           |           |  |            |      |             |   |         |            |            |  |       |     |    |  |   |      | 28  |   |   |        |      |  |   |         |       |   |   |          |        |   |   |         | 28      |  
|                                       | Acquisition of treasury stock                                               |                                   |         |               |   |              |        |            |   |           |           | 1,001,011  |  |            |      | (149         | ) |         |            |            |  |       |     |    |  |   |      |     |   |   |        |      |  |   |         |       |   |   |          |         |   |   |         | (149    | )
|                                       | Non-cash interest on stockholder note                                       |                                   |         |               |   |              |        |            |   |           |           |           |  |            |      |             |   |         |            |            |  |       |     |    |  |   |      | (8  | ) |   |        |      |  |   |         |       |   |   |          |        |   |   |         | (8      | )
|                                       | Sale of PartnerCommunity, Inc.                                              |                                   |         |               |   |              |        |            |   |           |           |           |  |            |      |             |   |         |            |            |  |       |     |    |  |   |      | 148 |   |   |        |      |  |   |         |       |   |   |          |        |   |   |         | 148     |  
|                                       | Net loss                                                                    |                                   |         |               |   |              |        |            |   |           |           |           |  |            |      |             |   |         |            |            |  |       |     |    |  |   |      |    |   |   |        |      |  |   |         |       |   |   |          | (9,661  | ) |   |         | (9,661  | )
|                                       |                                                                             |                                   |         |                |   |              |        |             |   |           |           |            |  |            |      |              |   |         |            |             |  |       |     |     |  |   |      |     |   |   |        |       |  |   |         |        |   |   |          |         |   |   |         |        
|Balance, December 31, 2002             |                                                                             |                                   | 458,224 |                |   | $            | 27,656 |             |   |           | 1,001,011 |            |  | $          | (149 | )            |   |         | 46,848,876 |             |  | $     | 469 |     |  | $ |     |     |   | $ |       |       |  | $ | 196,649 |        |   | $ | (210,918 | )       |   | $ | 13,707  |        
|                                       |                                                                             |                                   |         |                |   |              |        |             |   |           |           |            |  |            |      |              |   |         |            |             |  |       |     |     |  |   |      |     |   |   |        |       |  |   |         |        |   |   |          |         |   |   |         |        

See accompanying notes to consolidated financial
statements

F-5



---



##### Table of Contents



DALEEN TECHNOLOGIES, INC. AND
SUBSIDIARIES






CONSOLIDATED STATEMENTS OF CASH
FLOWS


Years Ended December 31, 2000, 2001 and
2002


|                                                                                                |                                                                                 |                                                                        |                                            |                                           |        |         |         |         |        |        |         |        |       |        |        |  
|----------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | ------------------------------------------ | ----------------------------------------- | ------ | ------- | ------- | ------- | ------ | ------ | ------- | ------ | ----- | ------ | ------ | -
|                                                                                                |                                                                                 | 2000                                                                   |                                            | 2001                                      |        | 2002   
|                                                                                                |                                                                                 |                                                                        |                                            |                                           |        |        
|                                                                                                |                                                                                 |                                                                       
|                                                                                                |                                                                                 | (In thousands)                                                        
|Cash flows from operating activities:                                                           |                                                                                 |                                                                        |                                            |                                           |        |         |         |         |        |        |         |       
|                                                                                                | Net loss                                                                        |                                                                        | $                                          | (43,785                                   | )      |         | $       | (90,989 | )      |        | $       | (9,661 | )    
|                                                                                                | Adjustments to reconcile net loss to net cash
    used in operating activities: |                                                                        |                                            |                                           |        |         |         |         |        |        |         |        |      
|                                                                                                |                                                                                 | Depreciation and amortization                                          |                                            |                                           | 3,092  |         |         |         | 4,304  |        |         |        | 2,747 |       
|                                                                                                |                                                                                 | Amortization of deferred stock compensation                            |                                            |                                           | 439    |         |         |         | 1,639  |        |         |        | 68    |       
|                                                                                                |                                                                                 | Amortization of goodwill and other intangibles                         |                                            |                                           | 15,205 |         |         |         | 12,014 |        |         |        |      |       
|                                                                                                |                                                                                 | Loss on disposal of property and equipment                             |                                            |                                           |       |         |         |         | 3,185  |        |         |        | 14    |       
|                                                                                                |                                                                                 | Impairment of long lived assets and other assets                       |                                            |                                           |       |         |         |         | 36,803 |        |         |        |      |       
|                                                                                                |                                                                                 | Bad debt expense                                                       |                                            |                                           | 4,439  |         |         |         | 2,863  |        |         |        | 729   |       
|                                                                                                |                                                                                 | Interest income on stockholders notes
    receivable                  |                                            |                                           | (38    | )       |         |         | (168   | )      |         |        | (75   | )     
|                                                                                                |                                                                                 | Non-cash stock settlement expense                                      |                                            |                                           |       |         |         |         | 495    |        |         |        |      |       
|                                                                                                |                                                                                 | Gain on sale of subsidiary                                             |                                            |                                           |       |         |         |         |       |        |         |        | (391  | )     
|                                                                                                |                                                                                 | Changes in assets and liabilities (net of effects
    of acquisition): |                                            |                                           |        |         |         |         |        |        |         |        |       |       
|                                                                                                |                                                                                 | Purchased in-process research and development                          |                                            |                                           |       |         |         |         |       |        |         |        | 104   |       
|                                                                                                |                                                                                 |                                                                        | Restricted cash                            |                                           |        | (807    | )       |         |        | 101    |         |        |       |       |       
|                                                                                                |                                                                                 |                                                                        | Accounts receivable                        |                                           |        | (13,850 | )       |         |        | 8,992  |         |        |       | 324    |       
|                                                                                                |                                                                                 |                                                                        | Costs in excess of billings                |                                           |        | 1,301   |         |         |        | 2,202  |         |        |       | (51    | )     
|                                                                                                |                                                                                 |                                                                        | Unbilled revenue                           |                                           |        | (702    | )       |         |        | 350    |         |        |       | 101    |       
|                                                                                                |                                                                                 |                                                                        | Other current assets                       |                                           |        | 15      |         |         |        | (26    | )       |        |       | (949   | )     
|                                                                                                |                                                                                 |                                                                        | Notes receivable                           |                                           |        | (304    | )       |         |        |       |         |        |       |       |       
|                                                                                                |                                                                                 |                                                                        | Other assets                               |                                           |        | (1,784  | )       |         |        | (42    | )       |        |       | 16     |       
|                                                                                                |                                                                                 |                                                                        | Accounts payable                           |                                           |        | 1,890   |         |         |        | (2,274 | )       |        |       | 210    |       
|                                                                                                |                                                                                 |                                                                        | Accrued payroll and other accrued expenses |                                           |        | 638     |         |         |        | (8,314 | )       |        |       | (1,696 | )     
|                                                                                                |                                                                                 |                                                                        | Billings in excess of costs                |                                           |        | 697     |         |         |        | (143   | )       |        |       | (708   | )     
|                                                                                                |                                                                                 |                                                                        | Deferred revenue                           |                                           |        | 2,071   |         |         |        | (1,931 | )       |        |       | 33     |       
|                                                                                                |                                                                                 |                                                                        | Other current liabilities                  |                                           |        | 1,520   |         |         |        | (924   | )       |        |       |       |       
|                                                                                                |                                                                                 |                                                                        |                                            |                                           |        |         |         |         |        |        |         |       
|                                                                                                |                                                                                 |                                                                        |                                            | Net cash used in operating activities     |        |         | (29,963 | )       |        |        | (31,863 | )      |       |        | (9,185 | )
|                                                                                                |                                                                                 |                                                                        |                                            |                                           |        |         |         |         |        |        |         |       
|Cash flows provided by financing activities:                                                    |                                                                                 |                                                                        |                                            |                                           |        |         |         |         |        |        |         |       
|                                                                                                | Proceeds from sale of Series F preferred
    stock and warrants, net            |                                                                        |                                            |                                          |        |         |         | 25,564  |        |        |         | 3,551  |      
|                                                                                                | Payment of capital lease                                                        |                                                                        |                                            | (9                                        | )      |         |         | (476    | )      |        |         |       |      
|                                                                                                | Net proceeds from initial public offering                                       |                                                                        |                                            | (136                                      | )      |         |         |        |        |        |         |       |      
|                                                                                                | Proceeds from exercise of stock options and
    bridge warrants                 |                                                                        |                                            | 1,597                                     |        |         |         | 11      |        |        |         |       |      
|                                                                                                | Acquisition of cash from Abiliti                                                |                                                                        |                                            |                                          |        |         |         |        |        |        |         | 92     |      
|                                                                                                |                                                                                 |                                                                        |                                            |                                           |        |         |         |         |        |        |         |       
|                                                                                                |                                                                                 |                                                                        |                                            | Net cash provided by financing activities |        |         | 1,452   |         |        |        | 25,099  |        |       |        | 3,643  |  
|                                                                                                |                                                                                 |                                                                        |                                            |                                           |        |         |         |         |        |        |         |       
|Cash flows used in investing activities:                                                        |                                                                                 |                                                                        |                                            |                                           |        |         |         |         |        |        |         |       
|                                                                                                | Sales and maturities of securities available for
    sale                       |                                                                        |                                            | 9,385                                     |        |         |         |        |        |        |         |       |      
|                                                                                                | Issuance of stockholders notes receivable                                      |                                                                        |                                            | (3                                        | )      |         |         | (1,187  | )      |        |         |       |      
|                                                                                                | Proceeds from sale of fixed assets                                              |                                                                        |                                            |                                          |        |         |         |        |        |        |         | 1      |      
|                                                                                                | Net proceeds from sale of subsidiary                                            |                                                                        |                                            |                                          |        |         |         |        |        |        |         | 68     |      
|                                                                                                | Repayment of stockholders notes receivable                                     |                                                                        |                                            | 122                                       |        |         |         | 33      |        |        |         | 141    |      
|                                                                                                | Payments related to the acquisition of Inlogic
    Software, Inc.               |                                                                        |                                            | (2,246                                    | )      |         |         |        |        |        |         |       |      
|                                                                                                | Payments related to the acquisition of Abiliti                                  |                                                                        |                                            |                                          |        |         |         |        |        |        |         | (1,094 | )    
|                                                                                                | Investment in BizProLink                                                        |                                                                        |                                            | (1,500                                    | )      |         |         |        |        |        |         |       |      
|                                                                                                | Capital expenditures                                                            |                                                                        |                                            | (7,738                                    | )      |         |         | (780    | )      |        |         | (211   | )    
|                                                                                                |                                                                                 |                                                                        |                                            |                                           |        |         |         |         |        |        |         |       
|                                                                                                |                                                                                 |                                                                        |                                            | Net cash used in investing activities     |        |         | (1,980  | )       |        |        | (1,934  | )      |       |        | (1,095 | )
|                                                                                                |                                                                                 |                                                                        |                                            |                                           |        |         |         |         |        |        |         |       
|Effect of exchange rates on cash and cash
    equivalents                                       |                                                                                 |                                                                        | (93                                        | )                                         |        |         | (477    | )       |        |        | 133     |       
|Net decrease in cash and cash equivalents                                                       |                                                                                 |                                                                        | (30,584                                    | )                                         |        |         | (9,175  | )       |        |        | (6,504  | )     
|Cash and cash
    equivalents  beginning of period                                             |                                                                                 |                                                                        | 52,852                                     |                                           |        |         | 22,268  |         |        |        | 13,093  |       
|                                                                                                |                                                                                 |                                                                        |                                            |                                           |        |         |         |         |        |        |         |       
|Cash and cash equivalents  end of
    period                                                   |                                                                                 | $                                                                      | 22,268                                     |                                           |        | $       | 13,093  |         |        | $      | 6,589   |       
|                                                                                                |                                                                                 |                                                                        |                                            |                                           |        |         |         |         |        |        |         |       
|Non-cash investing and financing activities (in
    thousands)                                  |                                                                                 |                                                                        |                                            |                                           |        |         |         |         |        |        |         |       
|Capital lease additions                                                                         |                                                                                 | $                                                                      | 721                                        |                                           |        | $       |        |         |        | $      |        |       
|                                                                                                |                                                                                 |                                                                        |                                            |                                           |        |         |         |         |        |        |         |       
|Forfeiture of unvested stock options                                                            |                                                                                 | $                                                                      | 444                                        |                                           |        | $       | 421     |         |        | $      | 20      |       
|                                                                                                |                                                                                 |                                                                        |                                            |                                           |        |         |         |         |        |        |         |       
|Sale of equipment at book value                                                                 |                                                                                 | $                                                                      | 50                                         |                                           |        | $       | 389     |         |        | $      |        |       
|                                                                                                |                                                                                 |                                                                        |                                            |                                           |        |         |         |         |        |        |         |       
|Issuance of notes receivable                                                                    |                                                                                 | $                                                                      | 184                                        |                                           |        | $       | 1,241   |         |        | $      |        |       
|                                                                                                |                                                                                 |                                                                        |                                            |                                           |        |         |         |         |        |        |         |       
|Fixed assets exchanged for receivables                                                          |                                                                                 | $                                                                      |                                           |                                           |        | $       |        |         |        | $      | 131     |       
|                                                                                                |                                                                                 |                                                                        |                                            |                                           |        |         |         |         |        |        |         |       
|Acquisition of treasury stock in exchange of
    notes receivable                               |                                                                                 | $                                                                      |                                           |                                           |        | $       |        |         |        | $      | 149     |       
|                                                                                                |                                                                                 |                                                                        |                                            |                                           |        |         |         |         |        |        |         |       
|Warrant received in sale of PartnerCommunity                                                    |                                                                                 | $                                                                      |                                           |                                           |        | $       |        |         |        | $      | 166     |       
|                                                                                                |                                                                                 |                                                                        |                                            |                                           |        |         |         |         |        |        |         |       
|Conversion of preferred stock to common                                                         |                                                                                 | $                                                                      |                                           |                                           |        | $       |        |         |        | $      | 2,332   |       
|                                                                                                |                                                                                 |                                                                        |                                            |                                           |        |         |         |         |        |        |         |       
|Issuance of common and preferred stock related to
    asset purchase and 2002 private placement |                                                                                 | $                                                                      |                                           |                                           |        | $       |        |         |        | $      | 5,017   |       
|                                                                                                |                                                                                 |                                                                        |                                            |                                           |        |         |         |         |        |        |         |       

See accompanying notes to consolidated financial
statements.

F-6



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##### Table of Contents



DALEEN TECHNOLOGIES, INC. AND
SUBSIDIARIES






NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


December 31, 2001 and 2002


(1)     Description
of Business and Summary of Significant Accounting
Policies



| |             
| | ------------
| | (a) Business

Daleen Technologies, Inc. (Daleen or
the Company) is a global provider of advanced
billing and customer care, event management, and revenue
assurance software for traditional and next generation
communication service providers and other technology solutions
providers. Daleens solutions leverage the latest open
Internet technologies to enable providers to enhance their
operational efficiency while driving maximum revenue from their
products and services. The Companys RevChain billing
and customer management and Simpliciti.net event
management applications deliver interoperability with other
legacy billing systems and other downstream operational support
systems applications. RevChain and Simpliciti.net can be
purchased as licensed software applications or as part of a
turnkey solution through BillingCentral®, a carrier-class
outsourcing operation. BillingCentral provides the flexibility
to offer the Companys products on a licensed basis or
outsourced solution. This outsourcing solution has the capacity
to provide multiple levels of services to customers of all sizes.

The Company has a professional services
department to provide a variety of professional consulting
services to assist customers with implementation, custom
integration and configuration services, as well as training and
support for customers and business partners. The Company
maintains a customer service department to provide technical
assistance to customers, in addition to providing customer care
for upgrades and new releases of its products.

In December 1999, the Company completed its
acquisition of a wholly owned subsidiary, Inlogic Software Inc.
(renamed Daleen Canada).

In July 2000, the Company formed a subsidiary,
PartnerCommunity, Inc. (PartnerCommunity).
PartnerCommunity provided partner management software products
and services for providers of data content and communication
services. PartnerCommunitys products enable these service
providers to build their own private community to integrate
business processes with their partners and business customers,
and to offer partner management services. The Company sold this
subsidiary in June 2002. See note 14.

In September 2000, the Company formed a
wholly-owned subsidiary to carry out the European operations,
Daleen Technologies Europe B.V., a corporation formed under the
laws of The Netherlands with its registered office in Amsterdam.

In January 2002, the Company formed a
wholly-owned subsidiary, Daleen Australia Pty Limited, a
corporation formed under the laws of Australia to carry out the
Asia-Pacific operations.

On October 3, 2002 the Company formed a
wholly-owned subsidiary DSI, Inc. and a wholly-owned subsidiary
of DSI, Inc., Daleen Solutions, Inc. (Daleen
Solutions). These entities were formed for the purpose of
purchasing the assets and assuming certain liabilities of
Abiliti Solutions, Inc. (Abiliti) on
December 20, 2002. See note 3 for description of
transaction.



| |                                    
| | -----------------------------------
| | (b) Principles of
    Consolidation

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



| |                        
| | -----------------------
| | (c) Revenue Recognition

The Company recognizes revenue under Statement of
Position 98-9, Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions
(SOP 98-9). SOP 98-9 requires recognition
of revenue using the residual method when
(1) there is vendor-specific objective evidence
(VSOE) of the

F-7



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##### Table of Contents



DALEEN TECHNOLOGIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

fair values of all undelivered elements in a
multiple-element arrangement that is not accounted for using
long-term contract accounting, (2) VSOE of fair value does
not exist for one or more of the delivered elements in the
arrangement, and (3) all revenue recognition criteria in
Statement of Position 97-2, Software Revenue
Recognition (SOP 97-2) other than the
requirement for VSOE of the fair value of each delivered element
of the arrangement are satisfied.

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



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

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

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

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

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



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

The Company recognizes revenue from fixed fee
contracts using the percentage of completion method, based on
the ratio of total hours incurred to date to total estimated
labor hours. Changes in job performance, job conditions,
estimated profitability and final contract settlement may result
in revisions to costs and income and are recognized in the
period in which the revisions are determined. Contract costs
include all direct material and labor costs and those indirect
costs related to contract performance, such as indirect labor
and supplies. These costs are readily determinable since the
Company uses the costs that would have been charged if the
contract was a time and materials contract. Provisions for
estimated losses on uncompleted contracts are recorded in the
period in which losses are determined. Amounts billed in excess
of revenue recognized to date are classified as Billings
in excess of costs,

F-8



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##### Table of Contents



DALEEN TECHNOLOGIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

whereas revenue recognized in excess of amounts
billed are classified as Costs in excess of billings
in the accompanying consolidated balance sheets.

Revenue related to professional services under a
time and materials arrangement is recognized as services are
performed.



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

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

Revenue related to outsourcing services consists
of monthly processing fees generated from the Companys
provision of billing and event management services. Revenue is
recognized as the related services are rendered and are billed
monthly based on transaction volume processed, percentage of
revenue billed on behalf of customers or monthly minimum charges
per contractual arrangements.

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



| |                                  
| | ---------------------------------
| | (d) Cash and Cash
    Equivalents

The Company considers all highly liquid
investments with original maturities of three months or less to
be cash equivalents.



| |                     
| | --------------------
| | (e) Notes Receivable

Full recourse notes receivable are recorded at
cost, less any related allowance for impaired notes receivable.
Management, considering current information and events regarding
the borrowers ability to repay their obligations,
considers a note to be impaired when it is probable that the
Company will be unable to collect all amounts due according to
the contractual terms of the note agreement. When a loan is
considered to be impaired, the amount of the impairment is
measured based on the present value of expected future cash
flows discounted at the notes effective interest rate. See
note 13.

Non-recourse notes receivable are recorded at
cost, less any related allowance for the difference between the
fair value of the note plus accrued interest and the fair value
of the underlying collateral. See note 13.



| |                                    
| | -----------------------------------
| | (f) Property and Equipment,
    Net

Property and equipment is stated at cost.
Depreciation on property and equipment is calculated using the
straight-line method over the estimated useful lives of the
assets, ranging from three to seven years. Leasehold
improvements are amortized over their useful lives or the term
of the related lease, whichever is shorter.

F-9



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##### Table of Contents



DALEEN TECHNOLOGIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                   
| | ----------------------------------
| | (g) Software Development
    Costs

The Company accounts for software development
costs under Statement of Financial Accounting Standards
No. 86, Accounting for Costs of Computer Software
to Be Sold, Leased or Otherwise Marketed (SFAS
No. 86). Under SFAS No. 86, the costs associated
with software development are required to be capitalized after
technological feasibility has been established. Based on the
Companys product development process, technological
feasibility is generally established upon completion of the
working model. Costs incurred by the Company between completion
of the working model and the point at which the product is ready
for general release are insignificant and, as a result, the
Company has not capitalized any software development costs.



| |                                        
| | ---------------------------------------
| | (h) Impairment of Long-Lived
    Assets

Pursuant to Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets,
(SFAS No. 144) long lived assets, such as
property, plant, and equipment, and purchased intangibles
subject to amortization, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the
carrying amount of an asset to estimated undiscounted future
cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated future cash
flows, an impairment charge is recognized by the amount by which
the carrying amount of the asset exceeds the fair value of the
asset. Assets to be disposed of would be separately presented in
the balance sheet and reported at the lower of the carrying
amount or fair value less costs to sell, and are no longer
depreciated. The asset and liabilities of a disposed group
classified as held for sale would be presented separately in the
appropriate asset and liability sections of the balance sheet.

Goodwill and intangible assets not subject to
amortization are tested annually for impairment, and are tested
for impairment more frequently if events and circumstances
indicate that the asset might be impaired. An impairment loss is
recognized to the extent that the carrying amount exceeds the
assets fair value.

Prior to the adoption of SFAS No. 144, the
Company accounted for long-lived assets in accordance with
Statement of Financial Accounting Standards No. 121,
Accounting for Impairment of Long-Lived Assets to be
Disposed of.



| |                 
| | ----------------
| | (i) Income Taxes

The Company uses the asset and liability method
of accounting for income taxes. Deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized as
a change in expense in the period that includes the enactment
date.



| |                       
| | ----------------------
| | (j) Stock Option Plans

The Company applies the intrinsic-value based
method of accounting prescribed by Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations including
Financial Accounting Standards Board (FASB) Interpretation
No. 44, Accounting for Certain Transactions
Involving Stock Compensation, an Interpretation of APB Opinion
No. 25, issued in March 2000, to account for its fixed
plan stock options. Under this method, compensation expense is
recorded on the date of grant only if the current price of the
underlying stock exceeds the exercise price. Statement of
Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation, (SFAS
No. 123)

F-10



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##### Table of Contents



DALEEN TECHNOLOGIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

established accounting and disclosure requirement
using a fair-value-based method of accounting for stock-based
employee compensation plans. As allowed by SFAS No. 123,
the Company has elected to continue to apply the
intrinsic-value-based method of accounting described above, and
has adopted only the disclosure requirements of SFAS
No. 123.

The fair value of each option granted to
employees is estimated on the date of grant using the
Black-Scholes Option Pricing model with the following
assumptions:

|                        |  |         |  |            |  |           
|----------------------- |  | ------- |  | ---------- |  | ----------
|                        |  | 2000    |  | 2001       |  | 2002      
|                        |  |         |  |            |  |           
|Expected life           |  | 5 years |  | 5 years    |  | 5 years   
|Dividends               |  | None    |  | None       |  | None      
|Risk-free interest rate |  | 5.32%   |  | 2.17-5.07% |  | 1.19-3.78%
|Expected volatility     |  | 125.0%  |  | 106.4%     |  | 195.6%    

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

|                                           |                                                                                                                                         |      |         |         |   |      |         |        |   |  |         |        |  
|------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------- | ---- | ------- | ------- | - | ---- | ------- | ------ | - |  | ------- | ------ | -
|                                           |                                                                                                                                         | 2000 |         | 2001    |   | 2002
|                                           |                                                                                                                                         |      |         |         |   |     
|Net Loss                                   |                                                                                                                                         | $    | (43,785 | )       |   |      | (90,989 | )      |   |  | 9,661   |       
|                                           | Deduct Total stock based employee compensation
    expense determined under the fair-value based method for all
    rewards, net of tax |      |         | (11,342 | ) |      |         | (6,041 | ) |  |         | (2,915 | )
|                                           |                                                                                                                                         |      |         |         |   |      |         |        |   |  |         |       
|Proforma net loss                          |                                                                                                                                         | $    | (55,127 | )       |   |      | (97,030 | )      |   |  | (12,576 | )     
|                                           |                                                                                                                                         |      |         |         |   |      |         |        |   |  |         |       
|Net loss as reported per share as reported |                                                                                                                                         | $    | (2.02   | )       |   |      | (4.17   | )      |   |  | (0.40   | )     
|Net loss per share proforma                |                                                                                                                                         | $    | (2.54   | )       |   |      | (4.44   | )      |   |  | (0.53   | )     



| |                                            
| | -------------------------------------------
| | (k) Fair Value of Financial
    Instruments

Statement of Financial Accounting Standards
No. 107, Disclosures About Fair Value of Financial
Instruments (SFAS No. 107), requires
disclosure of fair value of certain financial instruments. Cash
and cash equivalents, restricted cash, accounts receivable,
costs in excess of billings and other current assets, as well as
accounts payable, accrued payroll and other accrued expenses,
billings in excess of costs, deferred revenue and other current
liabilities, as reflected in the consolidated financial
statements, approximate fair value because of the short-term
maturity of these instruments.

Fair value estimates are made at a specific point
in time, based on relevant market information and information
about the financial instrument. These estimates are subjective
in nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.



| |                     
| | --------------------
| | (l) Use of Estimates

Management has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to
prepare these accompanying financial statements in conformity
with generally accepted accounting principles. Actual results
could differ from those estimates.

F-11



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##### Table of Contents



DALEEN TECHNOLOGIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                             
| | --------------------------------------------
| | (m) Goodwill and Other Intangible
    Assets

Goodwill represents the excess of costs over the
fair value of assets of businesses acquired. The Company adopted
the provisions of Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible
Assets (SFAS No. 142). Goodwill and
other intangible assets acquired in a purchase business
combination and determined to have an infinite useful life are
not amortized, but instead tested for impairment at least
annually in accordance with the provisions of SFAS No. 142.
SFAS No. 142 also requires that intangible assets with
estimable useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS No. 144,
Accounting for Impairment or Disposal of Long-Lived
Assets.

Prior to adoption of SFAS No. 142, goodwill
and other intangibles was amortized on a straight-line basis
over the expected periods to be benefited, and assessed for
recoverability by determining whether the amortization of the
goodwill balance over its remaining life could be recovered
through undiscounted future operating cash flows of the acquired
operation. The amount of goodwill and other intangible asset
impairment, if any, was measured based on projected discounted
future operating cash flows using a discount rate reflecting the
Companys average cost of funds.

In 2001 goodwill represented the excess of the
cost to acquire Daleen Canada over the fair value of the assets
and liabilities purchased. Goodwill was being amortized on a
straight-line basis over four years, the expected period to be
benefited.

Other intangibles represented the fair value of
the employee work force acquired from Daleen Canada and were
also being amortized over four years.

Due to economic conditions and the Companys
past revenue performance, the Company assessed the
recoverability of these intangible assets by determining whether
the amortization of the goodwill and other intangible asset
balances over their remaining lives could be recovered through
undiscounted future operating cash flows over the remaining
amortization period. The Companys carrying value of
goodwill and other intangible assets was reduced by the
estimated shortfall of cash flows, discounted at a rate
commensurate with the associated risks. These assets were
written off during the year ended December 31, 2001. See
note 5 related to impairment charges for the year ended
December 31, 2001.

At December 31, 2002, goodwill represents
the excess of cost over fair value of assets of businesses
acquired. The Company adopted the provisions of SFAS
No. 142 as of January 1, 2002. Goodwill and intangible
assets acquired in a purchase business combination and
determined to have an indefinite useful life are not amortized,
but instead tested for impairment at least annually in
accordance with the provisions of SFAS No. 142.

F-12



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##### Table of Contents



DALEEN TECHNOLOGIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Amortization expense related to goodwill and
other intangible assets was $15.3 million and
$14.4 million for the years ended December 31, 2001
and December 31, 2000, respectively. The following table
reconciles previously reported net loss applicable to common
stockholders as if the provisions of SFAS No. 142 were in
effect in 2001 and 2000:

|                                                                              |  |      |         |      |  |   |          |  
|----------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | - | -------- | -
|                                                                              |  | 2000 |         | 2001
|                                                                              |  |      |         |     
|Reported net loss applicable to common
    stockholders                       |  | $    | (43,785 | )    |  | $ | (119,501 | )
|Add back goodwill amortization                                                |  |      | 14,445  |      |  |   | 15,282   |  
|                                                                              |  |      |         |      |  |   |          |  
|Adjusted net loss applicable to common
    stockholders                       |  | $    | (29,340 | )    |  | $ | (104,219 | )
|                                                                              |  |      |         |      |  |   |          |  
|Net loss applicable to common stockholders per
    share  basic and diluted: |  |      |         |      |  |   |          |  
|Reported net loss applicable to common
    stockholders per share             |  | $    | (2.02   | )    |  | $ | (5.47    | )
|Goodwill amortization                                                         |  |      | 0.67    |      |  |   | 0.70     |  
|                                                                              |  |      |         |      |  |   |          |  
|Adjusted net loss applicable to common
    stockholders per share             |  | $    | (1.35   | )    |  | $ | (4.77    | )
|                                                                              |  |      |         |      |  |   |          |  



| |                                             
| | --------------------------------------------
| | (n) Basic and Diluted Net Loss per
    Share

Basic and diluted net loss applicable to common
stockholders per share was computed by dividing net loss
applicable to common stockholders by the weighted-average number
of shares of common stock outstanding for each period presented.
Common stock equivalents were not considered for each of the
years in the three-year period ended December 31, 2002
since their effect would be antidilutive. Common stock
equivalents amounted to 56,144,804 and 30,631,828 shares as of
December 31, 2002 and 2001, respectively. Net loss
applicable to common stockholders differs from net loss in the
year ended December 31, 2001 due to the preferred stock
dividends arising from the beneficial conversion features from
the sale (2001 Private Placement) of the
Series F convertible preferred stock (Series F
preferred stock) and warrants to purchase additional
shares of Series F preferred stock (Series F
Warrants). See note 6.



| |                         
| | ------------------------
| | (o) Comprehensive Income

Effective January 1, 1998, the Company
adopted Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income(SFAS
No. 130). SFAS No. 130 establishes standards for
reporting and displaying comprehensive income and its components
in a full set of general-purpose financial statements. SFAS
No. 130 requires that an enterprise (a) classify items
of other comprehensive income by their nature in financial
statements and (b) display the accumulated balance of other
comprehensive income separately from accumulated deficit and
additional paid in capital in the equity section of the balance
sheets. Comprehensive income is defined as a change in equity
during the financial reporting period of a business enterprise
resulting from non-owner sources. There were no differences
between net loss and comprehensive loss for each of the years in
the three-year period ended December 31, 2002.



| |                                     
| | ------------------------------------
| | (p) Foreign Currency
    Translation

The functional currency of the Companys
foreign subsidiaries is the U.S. dollar. The translation of the
foreign currency into U.S. dollars is performed for balance
sheet accounts using the current exchange rates in effect at the
balance sheet date and for revenue and expense accounts using
average rates prevailing during the year. The adjustments
resulting from the translation of foreign currency financial
statements for the three-year period ended December 31,
2002 were immaterial and were recorded in the consolidated
statements of operations for the respective periods.

F-13



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##### Table of Contents



DALEEN TECHNOLOGIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company enters into transactions based on the
Companys local currency, which results in limited foreign
currency risk. The Company did not engage in foreign currency
hedging in the three-year period ended December 31, 2002.



| |                        
| | -----------------------
| | (q) Segment Information

Statement of Financial Accounting Standards
No. 131, Disclosure about Segments of an Enterprise and
Related Information(SFAS No. 131)
establishes standards for the way that public business
enterprises report information about operating segments in
annual financial statements and requires those enterprises to
report selected information about operating segments in interim
financial reports issued to stockholders. The Company operates
in one segment for management reporting purposes. Although the
Company has subsidiaries, the Company does not assess the
performance of its subsidiaries on a stand-alone basis. The
revenue generated by the foreign operations of the Company was
not material in the periods presented.



| |                
| | ---------------
| | (r) Derivatives

In June 1998, the FASB issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities(SFAS No. 133). SFAS No. 133 established
accounting and reporting standards for derivative instruments
embedded in other contracts and for hedging activities. SFAS
No. 133, as amended, is effective for all quarters
beginning after June 15, 2000. The Company adopted SFAS
No. 133 in July 2000. The adoption of SFAS No. 133 did
not have an affect on the Companys consolidated financial
position or results of operations since the Company has no
derivative instruments or participates in hedging.

(2)     Liquidity

The Company continued to experience operating
losses during the year ended December 31, 2002 and had an
accumulated deficit of $210.9 million at December 31,
2002. Cash and cash equivalents at December 31, 2002 was
$6.6 million. Cash used in operations for the year ended
December 31, 2002 was $9.2 million which was
principally used to fund the operating losses.

The Company reduced operating expense levels and
cash usage requirements in the year ended December 31, 2002
through various restructuring activities (see note 4).

The Company continues to manage the use of cash.
The Company believes the cash and cash equivalents at
December 31, 2002 together with the reduced cost structure,
the acquisition of the revenue stream expected from the Billing
Central service offering as well as the Companys 2003
anticipated revenue, may be sufficient to fund operations for
the foreseeable future. However, the telecommunications and
software industries are still faced with many challenges. In
addition, there is a high business concentration risk with
certain of the Companys outsourcing services customers and
if any of these customers were to terminate their agreement it
would severely impact the Companys operations. The Company
provides outsourcing services to a large customer pursuant to a
contract expiring at the end of December 2003. In addition, the
customer has financial restraints. If this customer were to
cease doing business with the Company for any reason it may be
required to further reduce operations and/or seek additional
public or private equity financing or financing from other
sources or consider other strategic alternatives. There can be
no assurances that additional financing or strategic
alternatives will be available, or that, if available the
financing or strategic alternatives will be obtainable on terms
acceptable to the Company or that any additional financing would
not be substantially dilutive to existing stockholders. If this
customer were to cease doing business with Daleen and the
Company failed to obtain additional financing or failed to
engage in one or more strategic alternatives it may have a
material adverse affect on the Companys ability to meet
financial obligations and to continue to operate as a going
concern. The consolidated financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.

F-14



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##### Table of Contents



DALEEN TECHNOLOGIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(3)     Asset
Purchase and 2002 Private Placement

On December 20, 2002, pursuant to an Asset
Purchase Agreement dated October 7, 2002 (the Asset
Purchase Agreement), Daleen Solutions, a wholly-owned
subsidiary of Daleen, consummated its purchase (the Asset
Purchase) of substantially all of the assets and
assumption of certain liabilities of Abiliti. Abiliti is a
provider of carrier-class telecommunications billing, rating,
and event management solutions. Daleen Solutions intends to
continue such use of the assets acquired in the Asset Purchase.
As consideration for the Asset Purchase, Daleen issued to
Abiliti 11,406,284 shares of common stock, 115,681 shares of
Series F preferred stock and warrants to purchase 5,666,069
additional shares of common stock at an exercise price of
$0.9060 per share (the Asset Purchase Warrants). The
total consideration of the Asset Purchase amounted to
$6.1 million.

Concurrently with the consummation of the Asset
Purchase, on December 20, 2002, pursuant to an Investment
Agreement dated October 7, 2002 (the Investment
Agreement), Daleen completed its private placement of
10,992,136 shares of common stock, 115,681 shares of Daleen
Series F convertible preferred stock, warrants to purchase
5,666,069 additional shares of common stock at an exercise price
of $0.906 (the Investment Warrants) per share, and
warrants to purchase 500,000 additional shares of common stock
at an exercise price of $0.17 per share (the Additional
Warrants), for total proceeds of $5.015 million in cash
(the 2002 Private Placement). The purchasers in the
2002 Private Placement were Behrman Capital II L.P. and
Strategic Entrepreneur Fund II, L.P. (collectively, the
Behrman Funds), which are related entities and
stakeholders of Abiliti. The proceeds of the 2002 Private
Placement will be used for working capital and general corporate
purposes.

The terms of the Series F preferred stock
are identical to the previously outstanding Series F
preferred stock. See terms of Series F preferred stock in
note 6.

The stockholders of Daleen approved the Asset
Purchase and the 2002 Private Placement, including an amendment
to Daleens Certificate of Incorporation to amend the terms
and preferences of the Series F preferred stock, at a
special meeting of Daleens stockholders held on
December 20, 2002.

The Asset Purchase Warrants and Investment
Warrants may not be exercised prior to June 20, 2003,
subject to acceleration in certain circumstances and expire on
June 7, 2006. The fair value of each of the Asset Purchase
Warrants and Investment Warrants issued is approximately
$580,000 using the Black-Scholes Model. The Additional Warrants
may not be exercised prior to December 20, 2003, subject to
acceleration in certain circumstances and expire on June 7,
2006. The fair value of the Additional Warrants issued is
approximately $69,000 using the Black Scholes Model. The Company
uses the following assumptions in calculating the fair value of
the Asset Purchase Warrants, Investment Warrants and Additional
Warrants:

|                        |  |                                                                          
|----------------------- |  | -------------------------------------------------------------------------
|Expected Life           |  | 3.5 years                                                                
|Dividends               |  | None                                                                     
|Risk-free interest rate |  | 2.15%                                                                    
|Expected volatility     |  | 137.26%                                                                  
|Stock price             |  | $0.17 per share for Additional warrants                                  
|                        |  | $0.9060 per share for Investment Warrants and
    Asset Purchase Warrants

In connection with the Investment Agreement,
Abiliti, the Behrman Funds, HarbourVest Partners V 
Direct Fund, L.P. and HarbourVest Partners VI  Direct
Fund, L.P. entered into a supplemental voting agreement. This
supplemental voting agreement provides that each party will vote
their shares of Daleen common stock and Series F preferred
stock at Daleens 2003 Annual Meeting of Stockholders for
the election of two directors designated by the Behrman Funds
and one director designated by HarbourVest Partners
V  Direct Fund, L.P. and HarbourVest Partners
VI  Direct Fund, L.P. The parties to this
supplemental voting

F-15



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##### Table of Contents



DALEEN TECHNOLOGIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

agreement control a sufficient amount of
Daleens voting power to elect the directors as
contemplated by the supplemental voting agreement. The
supplemental voting agreement will terminate on the final
adjournment of Daleens 2003 Annual Meeting of Stockholders.

Daleen has agreed to file up to three
registration statements at any time after the closing of the
transactions upon the demand of holders of more than a majority
of, and covering, the following (i) the common stock
issuable upon conversion of the Series F preferred stock
issued in each of the Asset Purchase and the 2002 Private
Placement, (ii) the common stock issued in the Asset
Purchase and the 2002 Private Placement, and (iii) the
common stock issuable upon exercise of the warrants issued in
the Asset Purchase and the 2002 Private Placement.

The Asset Purchase resulted in a charge of
$104,000 related to the write-off of purchased in-process
research and development. In-process research and development
relates to the development of Abilitis products at the
time of the Asset Purchase. The products were in the early
stages of their development and were undergoing further
development and integration with Daleens products. The
value assigned to in-process research and development was
determined based on managements estimates of the
percentage of completion of the underlying development effort,
resulting net cash flows from Abilitis products and the
discounting of such cash flows back in their present value.

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

The consolidated statement of operations for the
year ended December 31, 2002 included the operating results
of Daleen Solutions from the date of acquisition. The
preliminary purchase price was allocated as follows (in
thousands):

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

The following unaudited proforma results of
operations of the Company for the year ended December 31,
2002 assume the acquisition occurred as of January 1, 2002.
The costs associated with the in-process research and
development of $104,000 were not included in the proforma
results in 2001 since they are considered to be a non-recurring
charge in 2002. The proforma results have been prepared for
comparative purposes only and do not purport to indicate the
results of operations that would have actually occurred had the
combinations been in effect on the dates indicated, or which may
occur in the future. The unaudited proforma results of
operations are as follows (in thousands):

|                                                                           |  |      |          |      |  |   |         |  
|-------------------------------------------------------------------------- |  | ---- | -------- | ---- |  | - | ------- | -
|                                                                           |  | 2001 |          | 2002
|                                                                           |  |      |          |     
|Total Revenue                                                              |  | $    | 27,501   |      |  | $ | 18,246  |  
|                                                                           |  |      |          |      |  |   |         |  
|Net loss applicable to common stockholders                                 |  | $    | (121,910 | )    |  | $ | (11,274 | )
|                                                                           |  |      |          |      |  |   |         |  
|Net loss applicable to common stockholders per
    share basic and diluted |  | $    | (2.76    | )    |  | $ | (0.25   | )
|                                                                           |  |      |          |      |  |   |         |  
|Weighted average outstanding shares                                        |  |      | 44,234   |      |  |   | 45,447  |  
|                                                                           |  |      |          |      |  |   |         |  

The proforma revenue amounts above include a high
business concentration risk due to three customers amounting to
approximately 60% (unaudited) of the total proforma revenue
in 2002 and 48% (unaudited) in 2001.

F-16



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##### Table of Contents



DALEEN TECHNOLOGIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(4)     Restructuring
Activities

On January 4, 2001, the Companys Board
of Directors formally approved a plan to reduce operating
expenses. The process culminated with the announcement on
January 5, 2001 (the January Restructuring)
that the Company was taking certain specific cost reduction
measures. The Company recorded a $3.0 million restructuring
charge for the year ended December 31, 2001 related to the
January Restructuring. Such charge included the estimated costs
related to workforce reductions, downsizing of facilities, asset
writedowns and other costs. Management implemented these actions
associated with the January Restructuring immediately following
the January 5, 2001 announcement.

The workforce reductions associated with the
January Restructuring included the termination of approximately
140 employees throughout the Companys Boca Raton,
Florida; Atlanta, Georgia; and Toronto, Ontario, Canada
facilities and included employees from substantially all of the
Companys employee groups. The downsizing of facilities
included the downsizing of the Atlanta and Toronto facilities to
one floor at each location. The asset writedowns were primarily
related to the disposition of duplicative furniture and
equipment and computer equipment from terminated employees,
which was not resalable. Other costs included costs incurred
that are no longer going to provide benefit to the Company such
as recruiting fees and relocation costs related to employment
offers that were rescinded, penalties for cancellation of a user
conference and trade show and other miscellaneous expenses.

In late March 2001, management initiated a second
business review to identify additional areas for cost
reductions. As a result, the Companys Board of Directors
formally approved and the Company announced a plan on
April 10, 2001 (the April Restructuring) to
further reduce operating expenses. The Company recorded a
$4.8 million restructuring charge for the year ended
December 31, 2001 in connection with the April
Restructuring. Such charge included the estimated costs related
to workforce reductions, closing of facilities, asset writedowns
and other costs. Management implemented these actions
immediately following the April 10, 2001 announcement.

The workforce reductions associated with the
April Restructuring included the termination of
193 employees throughout all of the Companys
facilities. The Company consolidated its North American
workforce into its Boca Raton corporate offices and closed its
Toronto and Atlanta facilities. In addition, the Company
consolidated its North American research and development and
professional services resources and further reduced its
administrative support functions. The asset writedowns were
primarily related to computer equipment from terminated
employees, which was not resalable. Other costs included
accounting and legal fees, penalties for cancellation of
software maintenance contracts in Atlanta and Toronto and
penalties for cancellation of a trade show.

In October 2001, management initiated a third
business review to continue to identify areas for cost
reduction. As a result, the Companys Board of Directors
formally approved a plan to further reduce operating expenses on
October 19, 2001 (the October Restructuring).
Management began to implement these actions immediately
following the October 19, 2001 announcement. The Company
recorded a restructuring charge of $4.1 million in the year
ended December 31, 2001 in connection with the October
Restructuring. Such charge included the estimated costs related
to workforce reductions due to the termination of
75 employees throughout all of the employees groups,
further downsizing of facilities which included lease buyout
charges of $1.4 million, asset writedowns, and other costs
which were comprised mostly of accounting and legal fees
associated with the October Restructuring.

In May 2002, management initiated another
business review continuing to identify additional areas for cost
reduction. As a result, the Companys Board of Directors
formally approved a plan to further reduce operating expenses on
May 13, 2002 (the 2002 Restructuring). On
May 14, 2002 we announced and immediately began to
implement the 2002 Restructuring. The Company recorded a
$745,000 restructuring charge for the year ended
December 31, 2002 related to the 2002 Restructuring. Such
charge included the

F-17



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##### Table of Contents



DALEEN TECHNOLOGIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

estimated costs related to workforce reductions,
due to termination of 35 employees from substantially all of the
Companys employee groups.

The January Restructuring, April Restructuring,
October Restructuring, and 2002 Restructuring encompassed the
following components (in thousands):

|                                       |  |               |       |               |  |               |       |               |  |       |       |  |  |   |     |  |  |   |        |  
|-------------------------------------- |  | ------------- | ----- | ------------- |  | ------------- | ----- | ------------- |  | ----- | ----- |  |  | - | --- |  |  | - | ------ | -
|                                       |  | January       |       | April         |  | October       |       | 2002          |  |      
|                                       |  | Restructuring |       | Restructuring |  | Restructuring |       | Restructuring |  | Total
|                                       |  |               |       |               |  |               |       |               |  |      
|Employee termination benefits          |  | $             | 1,405 |               |  | $             | 3,193 |               |  | $     | 1,641 |  |  | $ | 745 |  |  | $ | 6,984  |  
|Facility costs/rent on idle facilities |  |               | 854   |               |  |               | 1,274 |               |  |       | 443   |  |  |   |    |  |  |   | 2,571  |  
|Asset writedowns (see note 5)          |  |               | 620   |               |  |               | 240   |               |  |       | 1,999 |  |  |   |    |  |  |   | 2,859  |  
|Other costs                            |  |               | 114   |               |  |               | 58    |               |  |       | 32    |  |  |   |    |  |  |   | 204    |  
|Foreign currency translation charges   |  |               |      |               |  |               |      |               |  |       |      |  |  |   |    |  |  |   | (110   | )
|                                       |  |               |       |               |  |               |       |               |  |       |       |  |  |   |     |  |  |   |        |  
|                                       |  | $             | 2,993 |               |  | $             | 4,765 |               |  | $     | 4,115 |  |  | $ | 745 |  |  | $ | 12,508 |  
|                                       |  |               |       |               |  |               |       |               |  |       |       |  |  |   |     |  |  |   |        |  

The costs were from the following financial
statement captions (in thousands):

|                                       |  |               |       |               |  |               |       |               |  |       |       |  |  |   |     |  |  |   |        | 
|-------------------------------------- |  | ------------- | ----- | ------------- |  | ------------- | ----- | ------------- |  | ----- | ----- |  |  | - | --- |  |  | - | ------ | 
|                                       |  | January       |       | April         |  | October       |       | 2002          |  |      
|                                       |  | Restructuring |       | Restructuring |  | Restructuring |       | Restructuring |  | Total
|                                       |  |               |       |               |  |               |       |               |  |      
|Costs of sales  professional services |  | $             | 387   |               |  | $             | 1,198 |               |  | $     | 134   |  |  | $ | 140 |  |  | $ | 1,859  | 
|Research and development               |  |               | 522   |               |  |               | 1,392 |               |  |       | 694   |  |  |   | 168 |  |  |   | 2,776  | 
|Sales and marketing                    |  |               | 278   |               |  |               | 725   |               |  |       | 568   |  |  |   | 148 |  |  |   | 1,719  | 
|General and administrative             |  |               | 1,806 |               |  |               | 1,450 |               |  |       | 2,719 |  |  |   | 289 |  |  |   | 6,264  | 
|                                       |  |               |       |               |  |               |       |               |  |       |       |  |  |   |     |  |  |   |        | 
|                                       |  | $             | 2,993 |               |  | $             | 4,765 |               |  | $     | 4,115 |  |  | $ | 745 |  |  | $ | 12,618 | 
|                                       |  |               |       |               |  |               |       |               |  |       |       |  |  |   |     |  |  |   |        | 

Included in the above totals is $110,000 related
to foreign currency translation exchange losses.

Amounts charged against the restructuring accrual
for the year ended December 31, 2002 were as follows (in
thousands):

|                                              |  |               |       |               |  |               |       |               |  |       |       |  |  |   |     |  |  |   |        |  
|--------------------------------------------- |  | ------------- | ----- | ------------- |  | ------------- | ----- | ------------- |  | ----- | ----- |  |  | - | --- |  |  | - | ------ | -
|                                              |  | January       |       | April         |  | October       |       | 2002          |  |      
|                                              |  | Restructuring |       | Restructuring |  | Restructuring |       | Restructuring |  | Total
|                                              |  |               |       |               |  |               |       |               |  |      
|Employee termination benefits                 |  | $             | 1,405 |               |  | $             | 3,193 |               |  | $     | 1,641 |  |  | $ | 666 |  |  | $ | 6,905  |  
|Facility costs/rent on idle facilities        |  |               | 789   |               |  |               | 1,274 |               |  |       | 443   |  |  |   |    |  |  |   | 2,506  |  
|Asset writedowns                              |  |               | 620   |               |  |               | 240   |               |  |       | 1,999 |  |  |   |    |  |  |   | 2,859  |  
|Other costs                                   |  |               | 114   |               |  |               | 58    |               |  |       | 32    |  |  |   |    |  |  |   | 204    |  
|Foreign exchange currency translation changes |  |               |      |               |  |               |      |               |  |       |      |  |  |   |    |  |  |   | (110   | )
|                                              |  |               |       |               |  |               |       |               |  |       |       |  |  |   |     |  |  |   |        |  
|                                              |  | $             | 2,928 |               |  | $             | 4,765 |               |  | $     | 4,115 |  |  | $ | 666 |  |  | $ | 12,364 |  
|                                              |  |               |       |               |  |               |       |               |  |       |       |  |  |   |     |  |  |   |        |  

F-18



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##### Table of Contents



DALEEN TECHNOLOGIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As of December 31, 2002, a restructuring
accrual remains on the consolidated balance sheet in accrued
payroll and other accrued expenses consisting of the following
components (in thousands):

|                                       |  |   |     | 
|-------------------------------------- |  | - | --- | 
|Employee termination benefits          |  | $ | 79  | 
|Facility costs/rent on idle facilities |  |   | 65  | 
|                                       |  |   |     | 
|                                       |  | $ | 144 | 
|                                       |  |   |     | 

(5)     Impairment
Charges

The Company recorded an impairment charge for the
year ended December 31, 2001 related to the following (in
thousands):

|                                      |  |   |        | 
|------------------------------------- |  | - | ------ | 
|Employee workforce  other intangible |  | $ | 1,545  | 
|Property and equipment                |  |   | 1,888  | 
|Goodwill                              |  |   | 31,171 | 
|                                      |  |   |        | 
|                                      |  | $ | 34,604 | 
|                                      |  |   |        | 

Due to the Companys operating results and
the various restructuring activities initiated as described in
note 4, the Company performed an evaluation of the
recoverability of the employee workforce intangible asset under
SFAS No. 121 in March 2001. Management determined that this
asset was impaired and recorded an impairment charge of
approximately $1.5 million for the year ended
December 31, 2001.

In March 2001, the Company determined that
certain property, leasehold improvements and equipment, which
mainly represented computer equipment and furniture from the
Toronto and Atlanta facilities, was impaired. The Company
recorded an impairment charge of approximately $1.9 million
for the difference between the fair value and the carrying value
of the assets for the year ended December 31, 2001.

In 2001, the Company reduced goodwill by
approximately $1.1 million due to its decision that it will
no longer promote and license certain gateway products that it
originally acquired as a result of its acquisition of Daleen
Canada in December 1999. The development of these gateway
products was in process at the time of the Daleen Canada
acquisition and was subsequently completed. In connection with
this decision, the Company accelerated the amortization for a
proportionate amount of goodwill related to these products. In
addition, due to economic conditions and the Companys past
revenue performance, the Company assessed the recoverability of
goodwill by determining whether the amortization of the goodwill
over the remaining life can be recovered through undiscounted
future operating cash flows. The Companys carrying value
of goodwill was reduced by the estimated shortfall of cash
flows, discounted at a rate commensurate with the associated
risks. This amounted to an additional reduction of goodwill in
the amount of $30.1 million for the year ended
December 31, 2001.

(6)     Series F
Preferred Stock

On March 30, 2001, the Company entered into
definitive agreements (collectively, the Purchase
Agreements) for the 2001 Private Placement of
$27.5 million of Series F preferred stock and
Series F Warrants. Pursuant to the terms of the Purchase
Agreements, the Company consummated the 2001 Private Placement
on June 7, 2001. The Company received net proceeds on
June 7, 2001 of approximately $25.7 million from the
2001 Private Placement. The consummation of the 2001 Private
Placement was subject to the receipt of approval from the
Companys stockholders, including approval of an amendment
to the Companys certificate of incorporation to increase
the number of authorized shares of common stock to
200 million shares and to create and designate the
Series F preferred stock. The Companys stockholders
approved the 2001 Private Placement and the related amendments
to the certificate of incorporation at the Companys annual
meeting of stockholders held on June 7, 2001.

F-19



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##### Table of Contents



DALEEN TECHNOLOGIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Pursuant to the terms of the Purchase Agreements,
the Company issued and sold (i) an aggregate of
247,882 shares of Series F preferred stock and
(ii) Series F Warrants to purchase an aggregate of
109,068 shares of Series F preferred stock, including
a Series F Warrant that the Company issued to the placement
agent. Purchasers of Series F preferred stock received
Warrants to purchase an aggregate of 99,153 shares of
Series F preferred stock. Additionally, we issued to
Robertson Stephens Warrants for the purchase of
9,915 shares of Series F preferred stock. The
Series F Warrants have an exercise price of
$166.41 per share of Series F preferred stock and are
exercisable at any time for a period of five years following the
closing of the Private Placement. The exercise price per share
is equal to 150% of the Original Price.

The purchase price per share of the Series F
preferred stock (without giving effect to the allocation of any
part of the purchase price to the Series F Warrants) was
$110.94, which is equal to (i) $1.1094, the average closing
price per share of the Companys common stock during the
ten trading days ending on March 30, 2001, multiplied by
(ii) 100, the number of shares of common stock initially
issuable upon conversion of a share of Series F preferred
stock.

Each share of Series F preferred stock is
convertible at any time at the option of the holder into shares
of the Companys common stock. The number of shares of
common stock issuable upon conversion of a single share of
Series F preferred stock is determined by dividing the
original price per share of the Series F preferred stock,
or $110.94, by the conversion price in effect on the date of
conversion. The current conversion price of the Series F
preferred stock is $0.9060 after giving effect to a one-time
reset following our earnings release for the quarter ended
June 30, 2001. Based on the reset conversion price
established by the July 26, 2001 final Earnings Release and
pursuant to the terms of the Purchase Agreements, each share of
Series F preferred stock is convertible into
122.4503 shares of common stock.

In the event the Company issues common stock or
securities convertible into common stock at a price per share
less than the conversion price of the Series F preferred
stock, the conversion price will be reduced to be equal to the
price per share of the securities sold by the Company. This
adjustment provision is subject to a number of exceptions,
including the issuance of stock or options to employees and the
issuance of stock or options in connection with acquisitions.
The conversion price will also be subject to adjustment as a
result of stock splits and stock dividends on the common stock.

The Series F preferred stock will
automatically convert into common stock at any time after
March 30, 2002 if the common stock trades on The Nasdaq or
a national securities exchange at a price per share of at least
$3.3282 for ten trading days within any twenty-day trading
period. The Series F preferred stock is not subject to
automatic conversion if our common stock is not then listed for
trading on the Nasdaq National Market or a national security
exchange.

In the event, and only in such event, the Company
pays dividends on its common stock, the holders of the
Series F preferred stock would be entitled to dividends on
an as-if-converted basis.

In the event of an acquisition of the Company by
another entity, the Company will be required to redeem all of
the issued and outstanding shares of Series F preferred
stock unless the holders of the Series F preferred stock
otherwise consent.

The Company granted to the purchasers certain
demand and piggyback registration rights.

The Series F Warrants issued are exercisable
at any time for a period of five years. The fair value of all
warrants issued to the holders of the Series F preferred
stock was approximately $9.4 million using the
Black-Scholes at the grant date. The Company used the following
assumptions in the Black-Scholes model.

F-20



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##### Table of Contents



DALEEN TECHNOLOGIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                        |  |  |         | 
|----------------------- |  |  | ------- | 
|Expected life           |  |  | 5 years | 
|Dividends               |  |  | None    | 
|Risk-free interest rate |  |  | 4.96%   | 
|Expected volatility     |  |  | 68.6%   | 

Due to the reset conversion price established by
the July 26, 2001 final Earnings Release which resulted in
a final conversion price of $0.9060 the Company recorded a
beneficial conversion feature during the year ended December 31,
2001 in the amount of $19.1 million based on the proceeds
from the Series F preferred stock reduced by the amount
allocated to the warrants. This was recorded as a preferred
stock dividend.

(7)     Property and
Equipment, Net

Property and equipment, net consist of the
following at December 31 (in thousands):

|                                               |  |      |        |      |  |             |        |   |  |  |                         | 
|---------------------------------------------- |  | ---- | ------ | ---- |  | ----------- | ------ | - |  |  | ----------------------- | 
|                                               |  |      |        |      |  | Estimated  
|                                               |  | 2001 |        | 2002 |  | Useful Life
|                                               |  |      |        |      |  |            
|Computer hardware                              |  | $    | 4,327  |      |  | $           | 4,198  |   |  |  | 3-5 years or lease term | 
|Purchased computer software                    |  |      | 1,934  |      |  |             | 1,952  |   |  |  | 3-5 years               | 
|Office furniture and equipment                 |  |      | 1,367  |      |  |             | 1,116  |   |  |  | 5-7 years or lease term | 
|Leasehold improvements                         |  |      | 860    |      |  |             | 1,027  |   |  |  | lease term              | 
|Patents and trademarks                         |  |      | 69     |      |  |             | 107    |   |  |  | 20 years                | 
|                                               |  |      |        |      |  |             |        |   |  |  |                         | 
|                                               |  |      | 8,557  |      |  |             | 8,400  |   |  |  |                         | 
|Less accumulated depreciation and amortization |  |      | (5,853 | )    |  |             | (6,576 | ) |  |  |                         | 
|                                               |  |      |        |      |  |             |        |   |  |  |                         | 
|Property and equipment, net                    |  | $    | 2,704  |      |  | $           | 1,824  |   |  |  |                         | 
|                                               |  |      |        |      |  |             |        |   |  |  |                         | 

For the year ended December 31, 2000, 2001,
and 2002 depreciation and amortization expense related to
property and equipment was approximately $1.6 million,
$2.4 million and $3.0 million, respectively.

(8)     Income
Taxes

Pretax losses are derived from the following
sources (in thousands):

|         |  |      |        |      |  |      |        |  |  |   |       | 
|-------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ----- | 
|         |  | 2000 |        | 2001 |  | 2002
|         |  |      |        |      |  |     
|Domestic |  | $    | 33,626 |      |  | $    | 82,185 |  |  | $ | 9,146 | 
|Foreign  |  |      | 10,159 |      |  |      | 8,804  |  |  |   | 515   | 
|         |  |      |        |      |  |      |        |  |  |   |       | 
|         |  | $    | 43,785 |      |  | $    | 90,989 |  |  | $ | 9,661 | 
|         |  |      |        |      |  |      |        |  |  |   |       | 

The Company did not recognize an income tax
benefit for any of the years in the three year period ended
December 31, 2002. This differed from an income tax benefit
computed by applying the Federal income tax rate of
34 percent to pretax losses as a result of the following
(in thousands):

|                                                         |                                                                 |      |        |         |   |      |        |         |   |   |       |        |  
|-------------------------------------------------------- | --------------------------------------------------------------- | ---- | ------ | ------- | - | ---- | ------ | ------- | - | - | ----- | ------ | -
|                                                         |                                                                 | 2000 |        | 2001    |   | 2002
|                                                         |                                                                 |      |        |         |   |     
|Computed expected tax benefit                          |                                                                 | $    | 14,887 |         |   | $    | 30,936 |         |   | $ | 3,285 |       
|Increase (reduction) in income taxes
    resulting from: |                                                                 |      |        |         |   |      |        |         |   |   |       |       
|                                                         | State income taxes (net of federal benefit)                     |      |        | 1,562   |   |      |        | 3,197   |   |   |       | 328    |  
|                                                         | Increase in the valuation allowance for deferred
    tax assets |      |        | (16,876 | ) |      |        | (33,449 | ) |   |       | (3,389 | )
|                                                         | Other items                                                     |      |        | 427     |   |      |        | (684    | ) |   |       | (224   | )
|                                                         |                                                                 |      |        |         |   |      |        |         |   |   |       |       
|                                                         |                                                                 | $    |       |         |   | $    |       |         |   | $ |      |       
|                                                         |                                                                 |      |        |         |   |      |        |         |   |   |       |       

F-21



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##### Table of Contents



DALEEN TECHNOLOGIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The tax effects of temporary differences that
give rise to significant portions of the deferred tax assets at
December 31, 2001 and 2002, are presented below (in
thousands):

|                          |                                                   |                           |                          |        |        |         |   |        |        |         |  
|------------------------- | ------------------------------------------------- | ------------------------- | ------------------------ | ------ | ------ | ------- | - | ------ | ------ | ------- | -
|                          |                                                   | 2001                      |                          | 2002  
|                          |                                                   |                           |                          |       
|Deferred tax assets:      |                                                   |                           |                          |        |        |         |   |       
|                          | Net operating loss carryforwards                  |                           | $                        | 42,523 |        |         | $ | 47,527 |       
|                          | Depreciation and amortization                     |                           |                          | 560    |        |         |   | 136    |       
|                          | Daleen Canada goodwill                            |                           |                          | 20,133 |        |         |   | 18,146 |       
|                          | Allowance for doubtful accounts                   |                           |                          | 1,882  |        |         |   | 1,449  |       
|                          | Research and experimentation credit carryforwards |                           |                          | 1,664  |        |         |   | 1,664  |       
|                          | Accrued expenses                                  |                           |                          | 814    |        |         |   | 452    |       
|                          | Other                                             |                           |                          | 821    |        |         |   | 830    |       
|                          |                                                   |                           |                          |        |        |         |   |       
|                          |                                                   | Gross deferred tax assets |                          |        | 68,397 |         |   |        | 70,204 |        
|                          |                                                   |                           | Less valuation allowance |        |        | (67,887 | ) |        |        | (70,204 | )
|                          |                                                   |                           |                          |        |        |         |   |       
|                          |                                                   | Total deferred tax asset  |                          | $      | 510    |         |   | $      |       |        
|Deferred tax liabilities: |                                                   |                           |                          |        |        |         |   |       
|                          | Costs in excess of billings                       |                           |                          | 510    |        |         |   |       |       
|                          |                                                   |                           |                          |        |        |         |   |       
|                          |                                                   | Net deferred tax asset    |                          | $      |       |         |   | $      |       |        
|                          |                                                   |                           |                          |        |        |         |   |       

Realization of deferred tax assets is dependent
upon generating sufficient taxable income. Management believes
that it is more likely than not that these assets will not be
realized and, therefore, has established a valuation allowance
for the entire deferred tax assets, net of the deferred tax
liabilities. The valuation allowance increased $2.3 million
and $33.4 million for the years ended December 31,
2002 and 2001, respectively. Of the total increase in the
valuation allowance (net of $1.1 million attributed to the
sale of PartnerCommunity) for the years ended December 31,
2002 and 2001, approximately $0 and $37,000 respectively was
attributed to net operating losses generated from the exercise
of non-statutory employee stock options, the benefit of which
will be credited to additional paid-in capital when realized.

Net operating loss carryforwards for U.S. and
State income tax purposes amount to approximately
$122.0 million and expire through year 2022. Of the total
net operating loss carry forward, the future utilization of
approximately $14,842,000 will be subject to an annual
limitation prescribed by the tax law as a result in a change in
the ownership of the Company which occurred in 1998. In
addition, approximately $66,900,000 of net operating losses will
be limited due to the 2001 Private Placement. Total net
operating loss carryforwards includes approximately $1,749,000
of tax benefits from the exercise of employee stock options that
expire through year 2021 and will be credited to additional
paid-in capital when they are realized. In addition, the Company
has net operating loss carryforwards for Canada of approximately
$22,000,000, which expire through year 2008.

F-22



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##### Table of Contents



DALEEN TECHNOLOGIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(9)     Accrued
Payroll and Other Accrued Expenses

Accrued payroll and other accrued expenses
consist of the following at December 31 (in thousands):

|                                     |  |      |       |      |  |   |       | 
|------------------------------------ |  | ---- | ----- | ---- |  | - | ----- | 
|                                     |  | 2001 |       | 2002
|                                     |  |      |       |     
|Accrued payroll and related expenses |  | $    | 1,322 |      |  | $ | 1,571 | 
|Due to subcontractors                |  |      | 167   |      |  |   | 194   | 
|Accrued bonuses                      |  |      | 214   |      |  |   |      | 
|Accrued accounts payable             |  |      | 15    |      |  |   | 15    | 
|Accrued software licenses            |  |      | 290   |      |  |   | 46    | 
|Sales tax payable                    |  |      | 201   |      |  |   | 72    | 
|Accrued professional fees            |  |      | 630   |      |  |   | 377   | 
|Restructuring accrual                |  |      | 652   |      |  |   | 144   | 
|Other accrued expenses               |  |      | 242   |      |  |   | 157   | 
|                                     |  |      |       |      |  |   |       | 
|                                     |  | $    | 3,733 |      |  | $ | 2,576 | 
|                                     |  |      |       |      |  |   |       | 

(10)     Commitments



| |           
| | ----------
| | (a) Leases

The Company entered into agreements to lease
office facilities and certain equipment in Boca Raton, Florida;
Atlanta, Georgia; St. Louis, Missouri; and Toronto,
Ontario, Canada. These operating leases expire on various dates
through August 2004. The facilities in Atlanta and Toronto were
closed during 2001. The leases were either bought out and
terminated or the space is currently being sublet. See
note 4 on restructuring activities.

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

|                              |  |   |        |  
|----------------------------- |  | - | ------ | -
|Furniture and Equipment       |  | $ | 1,515  |  
|Less accumulated amortization |  |   | (1,350 | )
|                              |  |   |        |  
|                              |  | $ | 165    |  
|                              |  |   |        |  

Future minimum lease payments under non
cancelable operating leases (with initial or remaining lease
terms in excess of one year) and future minimum capital lease
payments as of December 31, 2002 are as follows (in
thousands):

|                                                                         |                                                 |                |     |                  |  |   |       |  | 
|------------------------------------------------------------------------ | ----------------------------------------------- | -------------- | --- | ---------------- |  | - | ----- |  | 
|Year Ending December 31:                                                 |                                                 | Capital Leases |     | Operating Leases
|                                                                         |                                                 |                |     |                 
|2003                                                                     |                                                 | $              | 178 |                  |  | $ | 1,590 | 
|2004                                                                     |                                                 |                | 27  |                  |  |   | 710   | 
|                                                                         |                                                 |                |     |                  |  |   |       | 
|Total minimum lease payments                                             |                                                 |                | 205 |                  |  |   | 2,300 | 
|                                                                         |                                                 |                |     |                  |  |   |       | 
|Less amount representing interest                                        |                                                 |                | 15  |                  |  |   |       | 
|                                                                         |                                                 |                |     |                  |  |   |       | 
|                                                                         | Present value of minimum capital lease payments |                | $   | 190              |  |   |       |  | 
|Less current installment of obligations under
    capital lease payments |                                                 |                | 164 |                  |  |   |       | 
|                                                                         |                                                 |                |     |                  |  |   |       | 
|Obligation under capital leases, excluding
    current installment       |                                                 | $              | 26  |                  |  |   |       | 
|                                                                         |                                                 |                |     |                  |  |   |       | 

F-23



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##### Table of Contents



DALEEN TECHNOLOGIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Company subleases some office space in
Toronto and in Atlanta. The amounts of minimum operating lease
payments reflected in the above table are offset by future
minimum rental receipts from sub lessee of $233,089 and $131,511
in years 2003 and 2004, respectively.

Total rent expense for operating leases was
$2,648,113, $3,611,288 and $901,918 for the years ended
December 31, 2000, 2001 and 2002, respectively. The expense
for year 2001 and 2002 was offset by $137,606 and $268,154 of
sublet income. In addition to rent payments, the Company paid
$1,646,354 for lease termination agreements in Atlanta, Toronto
and Boca Raton, which was included in restructuring charges for
the year ended December 31, 2001. See note 4.



| |                       
| | ----------------------
| | (b) Contribution Plans

Daleen Technologies, Inc. 401(k) Profit Sharing
Plan (the Plan) covers substantially all of its U.S.
employees. In 2000, 2001, and through July 12, 2002 the
Company matched 35% of the employees contribution, up to a
maximum of 8 percent deferral made by the employees. The
Company match was terminated on July 13, 2002. The Plan
allows for discretionary contributions from the Company. The
total expense associated with the Plan for 2000, 2001, and 2002
was $571,587, $185,507, and $75,423 respectively.

In 2000, Daleen Canada established a Group
Retirement Plan (the Daleen Canada Plan). The Daleen
Canada Plan consisted of a Deferred Profit Sharing Plan
(DPSP) and a Group Registered Retirement Savings Plan
(RRSP). The Daleen Canada Plan covered substantially all of its
Canadian employees. The Plan contributed to the DPSP $0.35 for
each $1.00 of employee contribution to the RRSP, to a maximum of
2.8% of total earnings subject to maximum limits set by the
Income Tax Act. The total expense for this plan was $25,489 in
the year 2000 and $28,854 in the year 2001. The Plan is
currently inactive due to the implementation of the April
Restructuring and termination of all of the Canadian employees.



| |                              
| | -----------------------------
| | (c) Employment
    Agreements

The Company has an employment agreement with
specified employment terms with one executive that provides for
an annual base salary which may be increased at the discretion
of the Companys Board of Directors or compensation
committee and periodic stock option grants subject to the
approval by the compensation committee of the Companys
Board of Directors. He will be eligible to receive a bonus for
meeting certain goals and will be eligible to receive
compensation under a long term incentive plan subject to the
approval of the Companys Board of Directors or
compensation committee. The term of the agreement is three years
with automatic one year extensions unless 90 day written
notice is given and provides for an annual base salary of
$350,000. This agreement provides for severance payments of up
to two years base salary.

The Company also has agreements with other
executive officers and senior management employees which provide
for severance payments of up to one years base salary and they
also have bonus provisions included.

(11)     Stockholders
Equity



| |                  
| | -----------------
| | (a) Stock Options

The Company has eight stock option plans: the
1994 Employee Non-Qualified Stock Option Plan (the 1994
Plan), the 1995 Qualified Employee Incentive Stock Option
Plan (the 1995 Plan), the 1996 Employee
Non-Qualified Stock Option Plan (the 1996 Plan), the
1997 Employee Incentive Stock Option Plan (the 1997
Plan), the 1998 Non-Qualified Employee Stock Option Plan
(the 1998 Plan), the 1998 Qualified Employee
Incentive Stock Option Plan (the 1998 ISO Plan), the
Amended and Restated 1999 Stock Incentive Plan (the 1999
Plan) and the 2001 Broad-Based Stock Incentive Plan
(the 2001 Plan). Each Plan provides that the
exercise price of the options granted will be issued at no less
than the fair market

F-24



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##### Table of Contents



DALEEN TECHNOLOGIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

value of the underlying common stock at the date
of grant. A summary of the Companys stock option plans is
presented below:

|              |  |              |           |                |  |                                                    |  |                    
|------------- |  | ------------ | --------- | -------------- |  | -------------------------------------------------- |  | -------------------
|              |  | Shares       |           |                |  |                                                   
|              |  | Authorized   |           |                |  |                                                   
|              |  | for Issuance |           |                |  | Contractual Life of                               
|              |  | Under Plan   |           | Vesting Period |  | Options                                           
|              |  |              |           |                |  |                                                   
|1994 Plan     |  |              | 125,000   |                |  | 100% upon grant                                    |  | 5 years from grant 
|1995 Plan     |  |              | 200,000   |                |  | 100% upon grant                                    |  | 5 years from grant 
|1996 Plan     |  |              | 400,000   |                |  | 100% upon grant                                    |  | 5 years from grant 
|1997 Plan     |  |              | 200,000   |                |  | 1/3 each year for first three years from
    grant |  | 5 years from grant 
|1998 Plan     |  |              | 500,000   |                |  | 23% to 50% per year beginning one year from grant  |  | 5 years from grant 
|1998 ISO Plan |  |              | 1,600,000 |                |  | 25% each year for first four years from grant      |  | 5 years from grant 
|1999 Plan     |  |              | 8,790,145 |                |  | 25% each year for first four years from grant      |  | 10 years from grant
|2001 Plan     |  |              | 2,000,000 |                |  | Discretion of the Board of Directors               |  | 10 years from grant

The 1999 Plan authorizes the Company to
automatically adjust the number of shares of common stock
available for issuance on the first day of each fiscal year
beginning in 2000, up to an annual increase of 5,000,000 shares
subject to a maximum of 20% of the fully-diluted shares
outstanding at the time. The annual increase in 2001 was reduced
to a maximum of 3,000,000 shares pursuant to an amendment to the
1999 Plan approved by Board of Directors. The number of shares
authorized under the 1999 Plan was increased to 8,790,145 shares
in 2002.

The options issued in 2001 under the 2001 Plan
have a vesting period of two years from grant. The options
issued in 2002 under the 2001 Plan have a vesting period of four
years from grant.

A summary of the status of the Companys
stock option plans, as of December 31, 2000, 2001 and 2002,
and changes during the years then ended, is presented below:

|                                   |  |        |           |           |  |        |       |           |  |        |            |           |  |  |       |  |  |  |            |   |  |  |      | 
|---------------------------------- |  | ------ | --------- | --------- |  | ------ | ----- | --------- |  | ------ | ---------- | --------- |  |  | ----- |  |  |  | ---------- | - |  |  | ---- | 
|                                   |  |        |           |           |  |       
|                                   |  | 2000   |           | 2001      |  | 2002  
|                                   |  |        |           |           |  |       
|                                   |  |        |           | Weighted- |  |        |       | Weighted- |  |        |            | Weighted-
|                                   |  |        |           | Average   |  |        |       | Average   |  |        |            | Average  
|                                   |  |        |           | Exercise  |  |        |       | Exercise  |  |        |            | Exercise 
|                                   |  | Shares |           | Price     |  | Shares |       | Price     |  | Shares |            | Price    
|                                   |  |        |           |           |  |        |       |           |  |        |            |          
|Outstanding at beginning of year   |  |        | 3,794,256 |           |  |        | 10.58 |           |  |        | 5,420,963  |           |  |  | 11.75 |  |  |  | 5,740,532  |   |  |  | 5.33 | 
|Granted                            |  |        | 2,702,076 |           |  |        | 13.35 |           |  |        | 4,196,851  |           |  |  | 0.96  |  |  |  | 162,500    |   |  |  | 0.19 | 
|Exercised                          |  |        | (391,006  | )         |  |        | 2.88  |           |  |        | (94,827    | )         |  |  | 0.23  |  |  |  |           |   |  |  |     | 
|Forfeited                          |  |        | (684,363  | )         |  |        | 17.04 |           |  |        | (3,782,455 | )         |  |  | 9.94  |  |  |  | (2,810,289 | ) |  |  | 5.53 | 
|                                   |  |        |           |           |  |        |       |           |  |        |            |           |  |  |       |  |  |  |            |   |  |  |      | 
|Outstanding at end of year         |  |        | 5,420,963 |           |  |        | 11.75 |           |  |        | 5,740,532  |           |  |  | 5.33  |  |  |  | 3,092,743  |   |  |  | 4.82 | 
|                                   |  |        |           |           |  |        |       |           |  |        |            |           |  |  |       |  |  |  |            |   |  |  |      | 
|Options exercisable at end of year |  |        | 1,252,384 |           |  |        | 7.58  |           |  |        | 1,730,079  |           |  |  | 8.24  |  |  |  | 1,556,270  |   |  |  | 6.29 | 
|                                   |  |        |           |           |  |        |       |           |  |        |            |           |  |  |       |  |  |  |            |   |  |  |      | 

F-25



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##### Table of Contents



DALEEN TECHNOLOGIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table summarizes information about
stock options outstanding and exercisable at December 31,
2002:

|                         |  |                     |           |                    |  |           |      |             |  |           |       |  |  |  |           |  |  |   |       | 
|------------------------ |  | ------------------- | --------- | ------------------ |  | --------- | ---- | ----------- |  | --------- | ----- |  |  |  | --------- |  |  | - | ----- | 
|                         |  |                     |           |                    |  |          
|                         |  | Options Outstanding |           |                   
|                         |  |                     |           | Option Exercisable
|                         |  |                     |           | Weighted-          |  |           |      |            
|                         |  |                     |           | Average            |  | Weighted- |      |             |  | Weighted-
|                         |  |                     |           | Remaining          |  | Average   |      |             |  | Average  
|                         |  | Number              |           | Contractual        |  | Exercise  |      | Number      |  | Exercise 
|Range of Exercise Prices |  | Outstanding         |           | Life (Years)       |  | Price     |      | Exercisable |  | Price    
|                         |  |                     |           |                    |  |           |      |             |  |          
|$.11-.18                 |  |                     | 87,500    |                    |  |           | 9.33 |             |  | $         | .16   |  |  |  |          |  |  | $ |      | 
|$.30-.35                 |  |                     | 545,500   |                    |  |           | 8.87 |             |  |           | .35   |  |  |  | 130,125   |  |  |   | .35   | 
|$.38-$.85                |  |                     | 241,675   |                    |  |           | 8.41 |             |  |           | .80   |  |  |  | 97,576    |  |  |   | .81   | 
|$.86 to .88              |  |                     | 870,125   |                    |  |           | 8.54 |             |  |           | .88   |  |  |  | 446,811   |  |  |   | .88   | 
|$1.03-$1.88              |  |                     | 225,154   |                    |  |           | 8.06 |             |  |           | 1.82  |  |  |  | 59,080    |  |  |   | 1.82  | 
|$2.19-$3.25              |  |                     | 313,760   |                    |  |           | .98  |             |  |           | 3.24  |  |  |  | 307,860   |  |  |   | 3.25  | 
|$3.44-$9.44              |  |                     | 311,323   |                    |  |           | 7.67 |             |  |           | 8.28  |  |  |  | 182,314   |  |  |   | 8.37  | 
|$10.38-$21.38            |  |                     | 460,456   |                    |  |           | 7.09 |             |  |           | 18.94 |  |  |  | 309,318   |  |  |   | 19.36 | 
|$21.88-$38.81            |  |                     | 36,250    |                    |  |           | 7.06 |             |  |           | 26.43 |  |  |  | 22,436    |  |  |   | 27.01 | 
|$52.69                   |  |                     | 1,000     |                    |  |           | 6.90 |             |  |           | 52.69 |  |  |  | 750       |  |  |   | 52.69 | 
|                         |  |                     |           |                    |  |           |      |             |  |           |       |  |  |  |           |  |  |   |       | 
|                         |  |                     | 3,092,743 |                    |  |           | 7.49 |             |  | $         | 4.82  |  |  |  | 1,556,270 |  |  | $ | 6.29  | 
|                         |  |                     |           |                    |  |           |      |             |  |           |       |  |  |  |           |  |  |   |       | 

In June 2000, the Company granted stock options
to a marketing executive under the 1999 Plan at an exercise
price less than the fair market value of the underlying common
stock of the Company at the date of grant. These grants resulted
in the recognition of compensation expense of $586,000 over
their one-year vesting period, which began in July 2000.
Approximately $293,000 and $293,000 was recorded as sales and
marketing expense for the years ended December 31, 2000 and
2001, respectively.



| |             
| | ------------
| | (b) Warrants

In addition to the Series F Warrants,
described in note 6 and the Investment Warrants, Asset Purchase
Warrants and Additional Warrants described in note 3, the
Company has outstanding warrants for the purchase of
1,229,147 shares of common stock at December 31, 2002.
750,000 of these warrants were issued in connection with a legal
settlement (see Note 16). Warrants for the purchase of
1,035,000 shares of common stock expire in 2003. The remaining
warrants were issued in connection with issuance of debt in 1997
and 1998 with exercise prices between $3 to $4 per share. These
warrants expire in 2003.



|     |                                   
|---- | ----------------------------------
|(12) | Business and Credit Concentrations

There were no sales during the year ended
December 31, 2000 to any customers which represented
greater than 10% of total revenue. For the year ended
December 31, 2001, 27% of the Companys total revenue
was attributed to two customers. Sales to two customers
accounted for 15% and 12%. For the year ended December 31,
2002, 14% of the Companys total revenue was attributed to
one customer. For the three-year period ended December 31,
2002, all of the Companys sales were to customers in or
related to the telecommunications industry. In addition, there
were accounts receivable from two customers and four customers
at December 31, 2001 and 2002 respectively, each of which
exceeded 10% of total accounts receivable and aggregated
approximately $3,154,212 and $4,566,262 respectively. See
unaudited proforma business concentration risk in Note 3.

The Company estimates an allowance for doubtful
accounts based on an analysis of collections in prior years, the
credit worthiness of its customers, general economic conditions
and other factors. The current financial difficulties in the
target markets the customers operate in and the recent economic
downturn caused

F-26



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##### Table of Contents



DALEEN TECHNOLOGIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the Company to increase its allowance for
doubtful accounts for the years ended December 31, 2001 and
2002. Consequently, the continuation of these factors could
affect the Companys estimate of its doubtful accounts.



|     |                           
|---- | --------------------------
|(13) | Related Party Transactions

Science Applications International Corporation
(SAIC) through its subsidiary SAIC Venture Capital
Corporation, is a significant stockholder of the Company.
Revenue related to SAIC for the years ended December 31,
2002, 2001 and 2000 was $101,800, $36,893, and $382,603,
respectively. SAIC owns 44% of the voting stock of Danet, Inc.
(Danet) and 100 percent of the voting stock of
Telcordia Technologies, Inc. (Telcordia). Danet is a
customer and a distributor of the Companys products.
Revenue related to Danet for each of the years in the three year
period ended was less than one percent. The Company paid Danet,
in its capacity as a subcontractor for assistance with product
development services $144,862, $249,018 and $0 for the years
ended December 31, 2000, 2001, and 2002 respectively. The
Company has a strategic alliance relationship and an OEM
Agreement with Telcordia. Revenue related to Telcordia for the
years ended December 31, 2002, 2001 and 2000 was $665,150,
$219,315, and $0.

In January 2001, the Company loaned $1,237,823 to
its then Chairman, President and Chief Executive Officer and his
limited partnership (collectively the Makers). The
loan bore interest at a rate of 8.75% per annum. The principal
was payable in full January 31, 2006 with interest payable
annually on January 31 of each year. The loan was secured
by 901,945 shares of the Companys common stock, and was
non-recourse to the Makers except to the extent of 901,945
shares of the Companys common stock held as the
collateral. On January 31, 2002, an interest payment of
$119,871 was due and payable. The interest payment was not made
and as a result the loan was in default. Pursuant to the terms
of the loan, the Company gave notice of default. On
September 11, 2002, the makers surrendered the
Companys common stock held as collateral for the loan to
the Company and the loan was deemed satisfied. The stock was
recorded as treasury stock at a value of $135,292 or $0.15 per
share (the closing price per share on The Nasdaq SmallCap Market
on September 11, 2002). As a result of the loan being
non-recourse, the Company had previously recorded a reserve for
the difference between the face value of the loan plus accrued
interest and the fair market value of the underlying collateral
at the end of each period. The loan was written off in 2002.

The Company has made loans to several executive
officers who are no longer employed with the Company and other
employees for purposes of providing funds primarily for the
payment of tax obligations resulting from the exercise of
options to purchase the Companys common stock. The loans
bear interest at a rate of 8.75% per annum. All principal and
accrued interest payable under the notes were due not later than
five years from their issue date. The loans are full recourse.
Additionally, each borrower has pledged the common stock issued
upon exercise of his options as security for the loan. As of
December 31, 2001 and 2002, the balance on these loans was
approximately $500,000, and $77,000 respectively with an
allowance for impairment of $113,793 and $0 at December 31,
2001 and 2002 respectively. During 2002, one of the original
loans was paid in its entirety; two of the loans were partially
paid, the collateralized stock surrendered, and the remainder
written off. The stock was recorded as treasury stock at various
values depending on the price per share on the surrender date.
All loans were deemed satisfied.

The Company also had loans to executive officers
who are longer employed with the Company for purposes of
providing funds for the exercise of vested, non-qualified stock
options. The loans bore interest at a rate of 8.75% per annum.
These loans were full recourse against the borrower. In
addition, each officer pledged the stock issued upon exercise of
the non-qualified option as security for his respective loan. As
of December 31, 2001, and 2002, the aggregate outstanding
balance on these loans was approximately $241,000 and $0
respectively. During 2002, two of these loans were partially
paid, the collateralized stock surrendered and the balance
written off. The stock was recorded as treasury stock at various
values depending on the price per share on the surrender date.

F-27



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##### Table of Contents



DALEEN TECHNOLOGIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Total bad debt expense related to the write-off
of notes receivable for the year ended December 31, 2002
was $458,426.

BizProLink.Com, Inc. (BizProLink), a
nonpublic entity, is a customer of the Company. BizProLink
purchased a software license from the Company. Revenue
recognized related to BizProLink during the years ended
December 31, 2000, 2001, and 2002 amounted to $897,500,
$422,300, and $0 respectively. In November 2000, the Company
purchased 296,699 shares of Series B Convertible Preferred
Stock, $.001 par value, from BizProLink for $1,500,000. The
purchase agreement contains a call provision, which states that
any time after the fifth anniversary of the Closing Date, and
before consummation of an initial public offering, BizProLink,
Inc. has the right but not the obligation, to repurchase all the
Series B Preferred Stock at a price per share equal to the
greater of (i) the fair value thereof as determined in
writing by an Independent Investment Bank mutually acceptable to
the Company and BizProLink and (ii) the price per share at
which the Series B Preferred Stock was issued as adjusted
for stock splits or similar transactions. The investment was
written down to $500,000 during 2001 due to BizProLink receiving
a lower valuation since the initial investment. The investment
in BizProLink is included in other assets in the accompanying
balance sheets.



|     |                   
|---- | ------------------
|(14) | Sale of Subsidiary

On June 24, 2002, the Company sold all of
its common and preferred stock in PartnerCommunity, a majority
owned subsidiary, in exchange for net cash proceeds of
approximately $69,000; a promissory note for $200,000 payable in
30 months which bears interest at a rate of 8% per year payable
annually; and five year warrants to purchase 1,200,000 shares of
PartnerCommunity preferred stock at a price of $0.10 per share.
The estimated fair value of the warrants of $165,700 was
recorded as an other asset in the accompanying balance sheet.
The fair value of the warrants was calculated using the
Black-Scholes model. The investment in PartnerCommunity was
evaluated for impairment and no write-down was necessary for the
year ended December 31, 2002. The Company recorded a gain
on sale of the subsidiary of approximately $391,000 in the year
ended December 31, 2002.

The Company placed a 100% reserve against the
note receivable due to the long term nature of the note and the
uncertainty of collectibility. As cash is received, the Company
will record an additional gain on the transaction.



|     |                                                
|---- | -----------------------------------------------
|(15) | Quarterly Financial Information
    (unaudited)

Supplementary Financial Information-Reg
SK229.302

|                                           |  |                    |        |              |  |                    |         |                    |  |               |        |               |  |              |         |              |  |   |        |   |  |   |         |   |  |   |        |   |  |   |         |  
|------------------------------------------ |  | ------------------ | ------ | ------------ |  | ------------------ | ------- | ------------------ |  | ------------- | ------ | ------------- |  | ------------ | ------- | ------------ |  | - | ------ | - |  | - | ------- | - |  | - | ------ | - |  | - | ------- | -
|                                           |  |                    |        |              |  |                    |         |                    |  |               |        |               |  |             
|                                           |  |                    |        | Three Months |  |                    |         |                   
|                                           |  | Three Months Ended |        | Ended        |  | Three Months Ended |         | Three Months Ended
|                                           |  |                    |        |              |  |                    |         |                   
|                                           |  | March 31,          |        | March 31,    |  | June 30,           |         | June 30,           |  | September 30, |        | September 30, |  | December 31, |         | December 31,
|                                           |  | 2002               |        | 2001         |  | 2002               |         | 2001               |  | 2002          |        | 2001          |  | 2002         |         | 2001        
|                                           |  |                    |        |              |  |                    |         |                    |  |               |        |               |  |              |         |             
|                                           |  |                    |        |              |  |                    |         |                   
|                                           |  | (Unaudited)        |        | (Unaudited)  |  | (Unaudited)        |         | (Unaudited)       
|Net Sales                                  |  | $                  | 1,900  |              |  | $                  | 5,174   |                    |  | $             | 2,043  |               |  | $            | 3,414   |              |  | $ | 1,246  |   |  | $ | 2,204   |   |  | $ | 1,283  |   |  | $ | 1,638   |  
|                                           |  |                    |        |              |  |                    |         |                    |  |               |        |               |  |              |         |              |  |   |        |   |  |   |         |   |  |   |        |   |  |   |         |  
|Gross profit                               |  |                    | 861    |              |  |                    | 1,690   |                    |  |               | 1,372  |               |  |              | 1,485   |              |  |   | 808    |   |  |   | (319    | ) |  |   | 768    |   |  |   | 626     |  
|                                           |  |                    |        |              |  |                    |         |                    |  |               |        |               |  |              |         |              |  |   |        |   |  |   |         |   |  |   |        |   |  |   |         |  
|Operating loss                             |  |                    | (2,802 | )            |  |                    | (22,503 | )                  |  |               | (2,251 | )             |  |              | (18,378 | )            |  |   | (1,745 | ) |  |   | (34,793 | ) |  |   | (3,006 | ) |  |   | (16,504 | )
|                                           |  |                    |        |              |  |                    |         |                    |  |               |        |               |  |              |         |              |  |   |        |   |  |   |         |   |  |   |        |   |  |   |         |  
|Net loss applicable to common stockholders |  | $                  | (2,802 | )            |  | $                  | (22,308 | )                  |  | $             | (2,251 | )             |  | $            | (44,070 | )            |  | $ | (1,745 | ) |  | $ | (36,793 | ) |  | $ | (3,006 | ) |  | $ | (16,329 | )
|                                           |  |                    |        |              |  |                    |         |                    |  |               |        |               |  |              |         |              |  |   |        |   |  |   |         |   |  |   |        |   |  |   |         |  
|Net loss per share  basic and
    diluted |  | $                  | (0.13  | )            |  | $                  | (1.02   | )                  |  | $             | (0.10  | )             |  | $            | (2.02   | )            |  | $ | (0.07  | ) |  | $ | (1.68   | ) |  | $ | (0.11  | ) |  | $ | (0.75   | )
|                                           |  |                    |        |              |  |                    |         |                    |  |               |        |               |  |              |         |              |  |   |        |   |  |   |         |   |  |   |        |   |  |   |         |  



---



|      |                                                                                                                     
|----- | --------------------------------------------------------------------------------------------------------------------
|Note: | These numbers do not agree to the years ended
    December 31, 2002 and 2001 due to foreign currency
    adjustment.

F-28



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##### Table of Contents



DALEEN TECHNOLOGIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The results of operations in the three months
ended December 31, 2002 include the acquisition of Abiliti
on December 20, 2002 through December 31, 2002.

In the three months ended December 31, 2002,
the Company recorded a severance expense of $696,500 related to
James Daleens termination of employment in connection with
the Asset Purchase of Abiliti. In December 2002, $328,900 of
that amount was paid. The remainder will be paid over
twenty-four months beginning January 1, 2004.

In the three months ended December 31, 2002,
the Company recorded bad debt expense of $220,000 related to an
accounts receivable that was deemed to be uncollectible.

In the three months ended December 31, 2001
the Company recorded a restructuring charge related to the
October Restructuring in the amount of $4.1 million. See note 4.

The Company recorded a goodwill impairment charge
in the three months ended December 31, 2001 in the amount
of $6.6 million. This was a result of the Company
performing an assessment of the recoverability of their
intangible assets by determining the amortization of the
goodwill over the remaining life could not be recovered through
undiscounted future operating cash flows over the remaining
amortization period.

(16)     Legal
Proceedings



| |                      
| | ---------------------
| | Settlement of Lawsuit

On June 6, 2001, the Company settled a
lawsuit against Mohammad Aamir, 1303949 Ontario Inc. and the
Vengrowth Investment Fund Inc. (collectively, the
Defendants). In connection with the settlement, on
June 8, 2001, the Company granted to the Defendants
warrants to purchase an aggregate of 750,000 shares of the
Companys common stock with an exercise price of $1.134 per
share. The warrants are exercisable for a period of two years.
The issuance of the warrants resulted in the recognition of
non-cash expense of approximately $495,000 in the year ended
December 31, 2001, and represents the fair value of such
warrants. The Company also executed a license to an affiliate of
certain of the Defendants for a version of one of the
Companys software products as part of the settlement. The
Defendants also released the Company from any claims they may
have had against the Company.



| |                                        
| | ---------------------------------------
| | Fazari v. Daleen Technologies,
    Inc.

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

The complaint includes allegations of violations
of (i) Section 11 of the Securities Act of 1933 by all
named defendants, (ii) Section 15 of the Securities
Act of 1933 by the individual defendants and
(iii) Section 10(b) of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder by the
underwriter defendants.

F-29



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##### Table of Contents



DALEEN TECHNOLOGIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Specifically, the plaintiffs allege in the
complaint that, in connection with the IPO, the defendants
failed to disclose excessive commissions purportedly
solicited by and paid to the underwriter defendants in exchange
for allocating shares of the Companys common stock in the
IPO to the underwriter defendants preferred customers.
Plaintiffs further allege that the underwriter defendants had
agreements with preferred customers tying the allocation of
shares sold in the IPO to the preferred customers
agreements to make additional aftermarket purchases at
pre-determined prices. Plaintiffs further allege that the
underwriters used their analysts to issue favorable reports
about the Company to further inflate the Companys share
price following the IPO. Plaintiffs claim that the defendants
knew or should have known of the underwriters actions and that
the failure to disclose these alleged arrangements rendered the
prospectus included in the Companys registration statement
on Form S-1 filed with the SEC in September 1999 materially
false and misleading. Plaintiffs seek unspecified damages and
other relief.

The Company believes that they are entitled to
indemnification by the underwriters under the terms of the
underwriting agreements. The Company has notified the
underwriters of the action, but the underwriters have not yet
agreed to indemnify the Company. The Company is participating in
discussions with the underwriters regarding an agreement by the
underwriters to indemnify the issuers. However, the lead
underwriter, BancBoston Robertson Stephens Inc., has ceased
doing business and there is no assurance it will have the
financial resources to provide indemnification. The Company is
also monitoring the progress of proposed settlement involving
the plaintiffs, the insurance companies and other issuers that
includes a waiver by the insurance companies of any retention
amounts under the policies. In that case, there would be no
liability to be recorded by us other than legal fees incurred in
the initial defense of the action, which are immaterial.
Currently a loss cannot be determined because the lawsuit is in
its initial stages and there is no guarantee that either the
indemnification agreement or a settlement with the plaintiffs
will be finalized. In the event that the litigation is not
dismissed or the settlement discussions are unsuccessful, the
Company intends to defend vigorously against the
plaintiffs claims.



| |                   
| | ------------------
| | General litigation

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

(17)     New
Accounting Pronouncements

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

In July 2002, the FASB issued a Statement of
Financial Accounting Standards No. 146, Accounting
for Exit or Dismissal Activities (SFAS
No. 146). SFAS No. 146 will be effective for
disposal activities initiated by the Company after
December 31, 2002. The Company does not anticipate any exit
or dismissal activities at this time and therefore the Company
believes that adoption will not have an impact on the
Companys consolidated financial statements.

In October 2002, the Emerging Issues Task Force
issued tentative conclusions regarding EITF Issue 00-21,
Accounting for Revenue Arrangements with Multiple
Deliverables (EITF 00-21).

F-30



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##### Table of Contents



DALEEN TECHNOLOGIES, INC. AND
SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

EITF 00-21 relates to accounting for
multiple-deliverable arrangements and specifies circumstances
under which a revenue arrangement should be separated into
different revenue-generating deliverables or units of
accounting and how the revenue arrangement should be
allocated to the different deliverables or units of accounting.
EITF 00-21 is tentatively scheduled to be effective for
revenue arrangements entered into in fiscal periods beginning
after June 15, 2003. The Company is currently evaluating
the impact EITF 00-21 will have on the Companys
consolidated financial statements.

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

In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock Based
Compensation  Transition and Disclosure, an amendment
of SFAS No. 123.This Statement amends SFAS
No. 123, to provide alternative methods of transition for a
voluntary change to the fair value method of accounting for
stock based employee compensation. In addition, this Statement
amends the disclosures in both annual and interim financial
statements. We are currently using the provisions of APB
No. 25 and have included the disclosure modifications in
notes 1(j) and 11(a).

F-31



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##### Table of Contents



DALEEN TECHNOLOGIES, INC. AND
SUBSIDIARIES






SCHEDULE II: VALUATION AND QUALIFYING
ACCOUNTS


For Each of the Years in the Three Year
Period


Ended December 31, 2002


|             |                                                          |              |                                 |            |   |                  |           |               |  |            |           |  |  |         |         |  |  |            |            |   |  |           |           | 
|------------ | -------------------------------------------------------- | ------------ | ------------------------------- | ---------- | - | ---------------- | --------- | ------------- |  | ---------- | --------- |  |  | ------- | ------- |  |  | ---------- | ---------- | - |  | --------- | --------- | 
|             |                                                          | Balance at   |                                 |            |   |                  |           |               |  | Balance at
|             |                                                          | Beginning of |                                 |            |   | Daleen Solutions |           |               |  | End of    
|             |                                                          | Year         |                                 | Charges(a) |   | Acquisitions(b)  |           | Deductions(c) |  | Year      
|             |                                                          |              |                                 |            |   |                  |           |               |  |           
|Description: |                                                          |              |                                 |            |   |                  |           |               |  |            |           |  |  |         |         |  |  |            |            |  
|             | Reserves and allowances deducted from asset
    accounts |              |                                 |            |   |                  |           |               |  |            |           |  |  |         |         |  |  |            |            |   | 
|             |                                                          | 2000         |                                 |            |   |                  |           |               |  |            |           |  |  |         |         |  |  |            |            |   |  |          
|             |                                                          |              | Allowance for doubtful accounts |            | $ | 706,935          |           |               |  | 4,439,405  |           |  |  |        |         |  |  | (546,340   | )          |   |  | 4,600,000 |          
|             |                                                          |              |                                 |            |   |                  |           |               |  |            |           |  |  |         |         |  |  |            |            |  
|Description: |                                                          |              |                                 |            |   |                  |           |               |  |            |           |  |  |         |         |  |  |            |            |  
|             | Reserves and allowances deducted from asset
    accounts |              |                                 |            |   |                  |           |               |  |            |           |  |  |         |         |  |  |            |            |   | 
|             |                                                          | 2001         |                                 |            |   |                  |           |               |  |            |           |  |  |         |         |  |  |            |            |   |  |          
|             |                                                          |              | Allowance for doubtful accounts |            | $ | 4,600,000        |           |               |  | 1,675,000  |           |  |  |        |         |  |  | (2,486,346 | )          |   |  | 3,788,654 |          
|             |                                                          |              | Reserve for notes receivable    |            |   |                 |           |               |  | 1,188,102  |           |  |  |        |         |  |  |           |            |   |  | 1,188,102 |          
|             |                                                          |              |                                 |            |   |                  |           |               |  |            |           |  |  |         |         |  |  |            |            |  
|             |                                                          |              |                                 | Total      |   | $                | 4,600,000 |               |  |            | 2,863,102 |  |  |         |         |  |  |            | (2,486,346 | ) |  |           | 4,976,756 | 
|             |                                                          |              |                                 |            |   |                  |           |               |  |            |           |  |  |         |         |  |  |            |            |  
|Description: |                                                          |              |                                 |            |   |                  |           |               |  |            |           |  |  |         |         |  |  |            |            |  
|             | Reserves and allowances deducted from asset
    accounts |              |                                 |            |   |                  |           |               |  |            |           |  |  |         |         |  |  |            |            |   | 
|             |                                                          | 2002         |                                 |            |   |                  |           |               |  |            |           |  |  |         |         |  |  |            |            |   |  |          
|             |                                                          |              | Allowance for doubtful accounts |            |   | 3,788,654        |           |               |  | 270,000    |           |  |  | 348,956 |         |  |  | (431,893   | )          |   |  | 3,975,717 |          
|             |                                                          |              | Reserve for notes receivable    |            |   | 1,188,102        |           |               |  | 343,516    |           |  |  |        |         |  |  | (1,531,618 | )          |   |  |          |          
|             |                                                          |              |                                 |            |   |                  |           |               |  |            |           |  |  |         |         |  |  |            |            |  
|             |                                                          |              |                                 | Total      |   |                  | 4,976,756 |               |  |            | 613,516   |  |  |         | 348,956 |  |  |            | (1,963,511 | ) |  |           | 3,975,717 | 
|             |                                                          |              |                                 |            |   |                  |           |               |  |            |           |  |  |         |         |  |  |            |            |  



---

|    |  |                                                                                                                                       
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Charges to the reserve account represent increase
    in reserve levels and establishment of specific reserves charged
    to expense.
|   
|(b) |  | Amount acquired in Abiliti Acquisition.                                                                                               
|   
|(c) |  | Deductions to this reserve account represent
    write-offs net of recoveries which occurred during the year.                         

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