SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

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

                                    FORM 10-K

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

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934.

                        Commission file number 000-26981

                           SILVERSTREAM SOFTWARE, INC.

             (Exact name of registrant as specified in its charter)

                      Delaware                              04-3318325
          (State or other jurisdiction of                (I.R.S. Employer
           incorporation or organization)             Identification Number)

                               Two Federal Street

                       Billerica, Massachusetts 01821-3559

                                 (978) 262-3000

    (Address, Including Zip Code, and Telephone Number, Including Area Code,
                  of Registrant's Principal Executive Offices)
                                 ---------------

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

                                      None.

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

                         Common Stock, $0.001 par value

                                (Title of Class)

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

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best  of  the  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. [ ]

                       Documents Incorporated by Reference

     Portions of the registrant's definitive proxy statement for its 2001 Annual
Meeting of  Stockholders  which will be filed with the  Securities  and Exchange
Commission  within 120 days after the end of the  registrant's  fiscal  year are
incorporated  by reference into Part III here of. As of March 6, 2001 there were
21,705,132 shares of the registrant's common stock outstanding.

     The   aggregate   market   value  of  the  voting   Common  Stock  held  by
non-affiliates  of the  registrant  was  approximately  $  million  based on the
closing sale price of the Common Stock on the Nasdaq National Market on March 6,
2001, as reported in the Wall Street Journal.

                                       1
<PAGE>


                           SILVERSTREAM SOFTWARE, INC.

                     FISCAL YEAR 2000 FORM 10K ANNUAL REPORT

                                TABLE OF CONTENTS

<TABLE>
         <S>                <C>                                                                                            <C>
                                                                                                                           PAGE

         PART I
             Item 1.        Business.................................................................................         3
             Item 2.        Properties...............................................................................        14
             Item 3.        Legal Proceedings........................................................................        14
             Item 4.        Submission of Matters to a Vote of Security Holders......................................        14

         PART II
             Item 5.        Market for Registrant's Common Equity and Related Stockholders Matters...................        15
             Item 6.        Selected Financial Data..................................................................        16
             Item 7.        Management's Discussion and Analysis of Financial Condition and Results of Operations....        17
             Item 7A.       Quantitative and Qualitative Disclosures about Market Risk...............................        23
             Item 8.        Financial Statements and Supplementary Data..............................................        24
             Item 9.        Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.....        42

         PART III
             Item 10.       Directors and Executive Officers of the Registrant.......................................        42
             Item 11.       Executive Compensation...................................................................        42
             Item 12.       Security Ownership of Certain Beneficial Owners and Management...........................        42
             Item 13.       Certain Relationships and Related Transactions...........................................        42

         PART IV
             Item 14.       Exhibits, Financial Statement Schedules and Reports on Form 8-K..........................        42
                            Signatures...............................................................................        45

</TABLE>


                                       2
<PAGE>


                                     PART I

ITEM 1. BUSINESS

OVERVIEW

    SilverStream  Software,  Inc., a Delaware  corporation  incorporated  in May
1996,  utilizes its eBusiness  Platform to deliver  leading  Web-based  business
solutions that unify relevant information and services for customers,  partners,
and  employees  across  an  organization.   Comprising  software  and  services,
SilverStream's  eBusiness  Platform  enables  businesses  to create,  deploy and
manage eBusiness  applications.  Used in corporations  throughout the world, our
products  are  changing  the way  business  is being  conducted  in Global  2000
companies  and large  organizations  across a variety  of  industries  including
insurance, financial services, telecommunications, retail and manufacturing.

    We believe our products and services help our  customers to rapidly  deliver
Web-based  applications  that are  scalable,  reliable  and  secure.  Using  our
products  and  services,   organizations   can  create  and  deploy  robust  Web
applications in diverse areas such as business-to-business integration, employee
self-service, supply chain management, customer service, and enterprise portals.
A brief summary of each product offering is as follows:

         SilverStream Application Server

          Supporting   the  complete  set  of  J2EE  1.2   specifications,   the
          SilverStream  Application  Server offers the tools and  infrastructure
          for rapid  application  development  and  deployment  on a  manageable
          platform  providing  a scalable,  reliable  and secure  platform.  The
          SilverStream  Application Server is certified with SunTM Microsystems'
          Compliance Test Suite.

         SilverStream xCommerceTM

          The  SilverStream  xCommerce  product  family  enables  enterprises to
          connect  directly with internal and external  business  communities by
          using  extensible  markup  language  (XML) for  information  exchange.
          xCommerce   integrations   incorporate   a  wide  range  of   business
          applications  and execute under the control of commercially  available
          application servers.

         SilverStream ePortal

          SilverStream  ePortal  is a flexible  framework  that  combines  rapid
          time-to-market  with   standards-based   extensibility.   SilverStream
          ePortal  simplifies  the  development  and  evolution  of an eBusiness
          strategy  and makes it  possible  to offer  relevant  information  and
          services to employees, partners and customers.

    The  above  product   offerings  also  include   comprehensive   application
engineering,  implementation,  training and support  services to help ensure the
successful implementation of Web applications by our customers.

    We market and sell our  products and  services  globally  through our direct
sales force and a network of independent  software vendors,  systems integrators
and  consulting  partners.  To date,  we have licensed our products to more than
1,500  customers  in a wide  variety  of  industries,  including  communication,
financial  services,  government,  manufacturing,  oil and gas,  pharmaceutical,
technology and transportation.

                                       3
<PAGE>

The SilverStream Solution

    SilverStream  Software is a leading  provider of software and services  that
enable organizations to more effectively do business using the Web. By providing
solutions  for  building,   deploying  and  managing   Web-based   applications.
SilverStream  allows  companies to deliver  Internet  experiences  that have the
breadth,   depth  and  richness  customers  and  trading  partners  expect.  The
SilverStream  eBusiness  Platform  is  a  complete  solution  for  building  and
deploying  eBusiness   applications  for  managing  customer  relationships  and
transacting  business  online.  Built  on top of a  standards-based  application
server and backed by a comprehensive services organization and worldwide partner
network, the SilverStream eBusiness Platform includes a wide range of electronic
customer relationship management (eCRM) and integration services to meet today's
eBusiness demands.

PRODUCTS AND SERVICES

PRODUCTS

    Our product offerings are summarized below:
<TABLE>
<S>                          <C>                                                   <C>

--------------------------   ---------------------------------------------------   -------------------------------
          Product                               Description                                Shipment Dates

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

   Application Server        A  comprehensive,  J2EE   certified   platform  for   Version 3.7 shipped in December
                             building   and   employing  enterprise - class  Web   2000.  First version shipped in
                             applications.                                         November 1997.

                             Available for Windows NT Workstation  4.0,  Windows
                             NT Server 4.0 or higher  (with the  latest  service
                             pack),  Windows  2000,  Solaris  2.6,  Solaris 7 or
                             Solaris 8, HP-UX  11.0,  AIX 4.3,  or Red Hat Linux
                             6.1.

                             Licensed  on a per  processor  basis for  unlimited
                             users with no per seat or per connection charges.

   xCommerce                 A   standards-based   B2B   eBusiness   integration   Version 2.0 shipped in November
                             platform - comprising xCommerce Designer, xCommerce   2000.  First version shipped in
                             Enterprise Enablers and  xCommerce  Server  -  that   July 2000.
                             delivers a single, unified  solution  for  creating
                             B2B  connections   between  Web  portals,   trading
                             exchanges,  vendor    packages    and    in - house
                             applications. eBusiness integrations  are  deployed
                             into J2EE application servers.

                             Each of the  xCommerce  products is priced and sold
                             separately.

   ePortal                   A  portal   component   framework  with  extensible   Version 2.0 shipped in November
                             eBusiness  services  including  content management,   2000.  First version shipped in
                             content  caching, personalization, user  profiling,   July 2000.
                             workflow and XML integration.

                             Licensed on a per user basis (minimum of 4 users).

---------------------------- ------------------------------------------------------------ -------------------------------
</TABLE>

   SERVICES

    As part of our ongoing  commitment  to provide a complete  solution  for our
customers,  we offer comprehensive  consulting,  education and technical support
services that  complement  our product  offerings.  As of December 31, 2000, our
services organization comprised 321 professionals.

    To complement our service organization, we train and promote a broad network
of SilverStream  partners,  ranging from international  systems  integrators and
consulting  firms to local  consultants  that offer  consulting,  education  and
technical support services.  Our customers are encouraged to engage consultants,
instructors  and  developers  whose  proficiency  with  our  products  has  been
certified by us and who have been designated Certified  SilverStream  Developers
or Certified SilverStream Field Application Engineers.

    CONSULTING SERVICES.  We provide application  engineering and implementation
services to assist our customers in developing and implementing Web applications
using our products. Consulting services include advisory,  prototyping,  design,
test and  configuration,  deployment and tuning services,  and technical account
management services.  We generally provide our consulting services on a time and
materials basis.

    TRAINING  SERVICES.  We offer our  customers and partners  introductory  and
advanced training in the use of our software products.  Our employees as well as
Certified  SilverStream Trainers offer our training classes around the world. We
price these services by the course.

                                       4
<PAGE>

    TECHNICAL  SUPPORT  SERVICES.  We  believe  that a high  level of  technical
support  services  is  critical  to our  customers'  success  and  an  important
competitive advantage. We offer technical support to our customers, ranging from
dedicated  on-site support  personnel,  to telephone support from our Billerica,
Belgium and Hong Kong offices during normal  business  hours, to 24-hour on-line
support  available  through our Website.  The pricing of our  technical  support
services varies according to the level of support required.

SALES, MARKETING AND DISTRIBUTION

    We market our  products  through a worldwide  combination  of a direct sales
force,  partners  and  distributors.  As of  December  31,  2000,  our sales and
marketing organization consisted of 215 employees, of whom:

    o  76 are located in our headquarters in Billerica, Massachusetts,

    o  54 are located in sales offices in North America, and

    o  85 are located in sales offices in the United Kingdom,  The  Netherlands,
       Belgium,  Germany,  Norway,  The   Czech  Republic,  France,  Luxembourg,
       Denmark, Sweden, Hong Kong, Singapore, Taiwan and Australia.

    We have three  types of  partners  that either  sell,  or help us sell,  our
products:

    o  value added reseller partners, or  VAR  partners,  resell our products to
       customers;

    o  system  integrator  and  consulting   partners  introduce  new  potential
       customers  to  us and provide  consulting  services to our customers; and

    o  independent software vendor  partners, or  ISV partners, use our products
       to create their own software products.

    We enter into partnership agreements with our partners which include some or
all of the following terms and conditions:

    o  term  of  agreement  is  generally  one  year  with  subsequent  one-year
       renewals;

    o  grant of license to demonstrate, use and resell SilverStream products;

    o  grant of license to include SilverStream products in partner products;

    o  grant of license to use SilverStream trademarks;

    o  payment to SilverStream of initial and annual partnership fees; and

    o  SilverStream  product discounts for value added resellers and independent
       software vendors.

    As of December 31, 2000, we had approximately 543 partners.

    Our products are also sold in Japan,  South Africa and South America through
distributors  who  sell  our  products  and  provide  consulting,  training  and
educational  courses to customers in those countries.  In Japan, our distributor
has translated our products into Kanji.  Our products allow  customers to create
applications in different  languages.  As of December 31, 2000, we also sold our
products  in Spain  through a  distributor;  however,  we  acquired  our Spanish
distributor  on January 26, 2001 and now sell our products in Spain  through our
wholly-owned subsidiary.  See Note 12 to the registrant's Consolidated Financial
Statements  in Item 8 for  additional  financial  information  about segment and
geographic areas.

    We also have marketing  relationships with other companies who have products
that work well with our products. Our technology alliance partners are comprised
of companies who have created commercial  products which complement our products
or who market and sell these complementary products. As of December 31, 2000, we
had  more  than  100  technology  alliance  partners,  including  Actuate,  IBM,
PeopleSoft, Rational and SAP. We work with these technology alliance partners to
help  make it easier  for  customers  to use our  products  with the  technology
alliance partners' products.

                                       5
<PAGE>

    Our marketing  programs are designed to attract potential  customers so that
we, or one of our partners,  can demonstrate  our solution and product  benefits
directly to potential customers.  We hold many seminars, some with our partners,
send out direct mail and attend trade shows, and provide  information  about our
company  and our  products on our Web site.  We also  conduct  public  relations
activities,  including  interviews and  demonstrations for industry analysts and
product reviewers.

RESEARCH AND DEVELOPMENT

    As of  December  31,  2000,  we had 123  employees  responsible  for product
development,  quality assurance and documentation.  Our research and development
organization   is  divided  into  five  teams:   server,   client,   application
development, quality assurance and documentation.

    We  are  very  focused  on  enhancing  the   scalability,   performance  and
reliability  of our  Application  Server,  xCommerce and ePortal  products.  Our
quality assurance  department has a dedicated  performance and tuning laboratory
designed to improve the  performance of our customers'  Web-based  applications.
This  laboratory  has the ability to simulate  up to 12,000  simultaneous  users
communicating  with  SilverStream  Application  Servers running on as many as 24
processors on a dedicated 100 megabits per second network.

    We have  made,  and will  continue  to make,  a  substantial  investment  in
research and development.  Research and development  expenses were $14.6 million
in 2000,  $7.1  million in 1999 and $5.1  million in 1998.  All of our  software
development costs have been expensed as incurred.

    While we have  developed,  and  expect  to  continue  to  develop,  most new
products and enhancements to existing products internally, we have licensed, and
continue to license, software technology from third parties.

COMPETITION

    The market for  Web-based  solutions  is intensely  competitive,  subject to
rapid   technological   change  and   significantly   affected  by  new  product
introductions  and other market activities of industry  participants.  We expect
competition  to persist and  intensify in the future.  We  encounter  current or
potential competition from a number of sources, including:

    o  vendors of application server products and services;

    o  internally developed applications; and

    o  companies that market business application software.

    Our software  products compete with products from other vendors,  including:
BEA Systems,  Inc. Vignette  Corporation,  Art Technology Group and Broadvision,
Inc. In addition,  we compete with various  methods of application  distribution
and management,  including the web browser, and with software vendors and others
that have introduced software distribution capabilities into their products.

    Potential competitors may bundle their products in a manner that discourages
users from  purchasing our products.  Furthermore,  new competitors or alliances
among competitors may emerge and rapidly acquire  significant  market share. Our
competitors may be able to respond more quickly to new or emerging  technologies
and changes in customer requirements than we can.

    We  believe  the  primary  factors  upon which we  compete  with  vendors of
Web-based application software and services are:

    o  product performance and functionality;

    o  ease of use of our products;

    o  ability   of  our  products  to   handle  large   volumes  of  users  and
       transactions;

    o  the extent to which our products adhere to industry standards;

    o  the  ability  of  our products to run on computer  hardware from  various
       manufacturers;

    o  the ability of our products to connect to various data sources;

    o  price; and

    o  customer service.

                                       6
<PAGE>

    In  addition,   we  believe  our  products  and  services   provide  shorter
development  time  and  lower  cost  of  ownership  in  comparison  to  in-house
development efforts.

PROPRIETARY RIGHTS AND LICENSING

    Our success and ability to compete are  dependent  on our ability to develop
and maintain  the  proprietary  aspects of our  technology  and operate  without
infringing on the  proprietary  rights of others.  We rely on a  combination  of
patent, trademark,  trade secret and copyright laws and contractual restrictions
to protect the proprietary  aspects of our technology.  These legal  protections
afford only limited protection for our technology.  We presently have one patent
issued,  one patent that has been allowed and will be issued  shortly,  and four
patent applications  pending in the United States. We cannot predict whether any
of the pending applications will result in any issued patents or, if patents are
issued,  any meaningful  protection.  We seek to protect our source code for our
software,  documentation  and other  written  materials  under trade  secret and
copyright laws. We license our software pursuant to "click-through" and, in some
cases,  signed license  agreements,  which impose restrictions on the licensee's
ability to utilize the  software.  Finally,  we seek to limit  disclosure of our
intellectual  property by requiring employees and consultants with access to our
proprietary  information to execute  confidentiality  agreements  with us and by
restricting  access to our source code. Due to rapid  technological  change,  we
believe  that  factors  such as the  technological  and  creative  skills of our
personnel,  new product  developments and enhancements to existing  products are
more  important  than  the  various  legal  protections  of  our  technology  to
establishing and maintaining a technology leadership position.

    Despite our efforts to protect our proprietary rights,  unauthorized parties
may attempt to copy  aspects of our  products  or to obtain and use  information
that we regard as  proprietary.  Policing  unauthorized  use of our  products is
difficult and while we are unable to determine the extent to which piracy of our
software exists,  software piracy can be expected to be a persistent problem. In
addition, the laws of many countries do not protect our proprietary rights to as
great an extent as do the laws of the United States. Litigation may be necessary
in the future to enforce our intellectual  property rights, to protect our trade
secrets, to determine the validity and scope of the proprietary rights of others
or to defend against claims of  infringement  or invalidity.  Any such resulting
litigation  could result in  substantial  costs and  diversion of resources  and
could have a material  adverse  effect on our  business,  operating  results and
financial condition.  There can be no assurance that our means of protecting our
proprietary   rights  will  be  adequate  or  that  our  competitors   will  not
independently  develop  similar  technology.  Any failure by us to  meaningfully
protect  our  property  could have a material  adverse  effect on our  business,
operating results and financial condition.

    There can be no assurance  that third  parties  will not claim  infringement
with respect to our current or future  products.  We expect that  developers  of
Web-based   application  software  products  will  increasingly  be  subject  to
infringement  claims as the number of products and  competitors  in our industry
segment grows and as the functionality of products in different  segments of the
software industry increasingly overlaps. Any such claims, with or without merit,
could  be  time-consuming  to  defend,  result  in  costly  litigation,   divert
management's  attention and resources,  cause product shipment delays or require
us to enter into  royalty or  licensing  agreements.  Such  royalty or licensing
agreements,  if required,  may not be available on terms  acceptable to us or at
all. A successful  infringement claim against us and our failure or inability to
license the infringed  rights or develop or license  technology  with comparable
functionality  could have a material  adverse effect on our business,  financial
condition and operating results.

    We  integrate  third-party  software  into our  products.  This  third-party
software may not continue to be available on commercially  reasonable terms. The
third-party  software that we license includes text search software, a database,
a Java compiler, a Java runtime  environment,  an internet browser and an object
request broker.  These licensed  components enhance features in our products but
are not critical to the operation of our products.  Some of these components are
available,  at no charge, to our customers from the supplier but are included in
our  products for customer  convenience.  In cases where the licensed  component
provides an operating  feature,  we believe there are alternative  suppliers for
the technology  who may license their software to us. In addition,  if we cannot
maintain  licenses to the other  third-party  software included in our products,
distribution of our products could be delayed until equivalent software could be
developed or licensed and integrated into our products,  which could  materially
adversely affect our business, operating results and financial condition.

EMPLOYEES

    As of December 31, 2000, we had a total of 740 employees of whom:

    o   123 were in research and development;

    o   215 were in sales and marketing;

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<PAGE>

    o   321 were in customer service and support; and

    o   81 were in finance and administration.

    Our future success will depend in part on our ability to attract, retain and
motivate  highly  qualified  technical  and  management   personnel,   for  whom
competition  is intense.  Our employees are not  represented  by any  collective
bargaining unit. We believe our relations with our employees are good.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

    We believe that this Annual  Report on Form 10-K  contains  "forward-looking
statements" within the meaning of the Private  Securities  Litigation Reform Act
of 1995. These statements are subject to risks and  uncertainties  and are based
on  the  beliefs  and  assumptions  of  management  of  the  Company,  based  on
information currently available to the Company's  management.  Use of words such
as  "believes,"  "expects,"   "anticipates,"  "intends,"  "plans,"  "estimates,"
"should," "likely" or similar expressions, indicate a forward-looking statement.
Forward-looking   statements  involve  risks,   uncertainties  and  assumptions.
Important  factors that could cause actual results to differ materially from the
forward-looking statements herein include the following:

RISKS RELATED TO OUR BUSINESS

   WE HAVE INCURRED SUBSTANTIAL LOSSES, WE EXPECT CONTINUED LOSSES AND CONTINUED
LOSSES WILL HARM OUR BUSINESS.

    We have never been  profitable.  Our failure to  significantly  increase our
revenue  would  seriously  harm our  business  and  operating  results.  We have
experienced operating losses in each quarterly and annual period since inception
and we expect to incur significant  losses in the future. We incurred net losses
of $28.4  million for the year ended  December 31, 2000,  $22.3  million for the
year ended  December 31, 1999 and $12.9 million for the year ended  December 31,
1998. As of December 31, 2000, we had an  accumulated  deficit of $72.5 million.
We expect to  significantly  increase our research  and  development,  sales and
marketing  and  general and  administrative  expenses  in future  periods.  As a
result, we will need to significantly  increase our quarterly revenue to achieve
and maintain profitability.  If our revenue grows more slowly than we anticipate
or if our operating  expenses  increase more than we expect or cannot be reduced
in the event of lower  revenue,  our business will be  materially  and adversely
affected.

   WE EXPECT TO DEPEND ON OUR  APPLICATION  SERVER,  AND  XCOMMERCE  AND EPORTAL
PRODUCTS  AND RELATED  SERVICES  FOR A MAJORITY  OF OUR LICENSE  REVENUE FOR THE
FORESEEABLE FUTURE AND IF OUR APPLICATION SERVER, XCOMMERCE AND EPORTAL PRODUCTS
DO NOT  ACHIEVE  WIDESPREAD  MARKET  ACCEPTANCE,  OUR  BUSINESS  AND  RESULTS OF
OPERATIONS WILL SUFFER.

    We expect to continue to derive a majority of our license  revenue  from our
Application Server, xCommerce and ePortal products and related services. Failure
to achieve  broad market  acceptance  of the  SilverStream  Application  Server,
SilverStream  xCommerce and SilverStream  ePortal, or a decline in the price of,
or demand for,  our  Application  Server,  xCommerce  and ePortal  products  and
related  services would  seriously harm our business and operating  results.  We
cannot  predict  the  level  of  market  acceptance  that  will be  achieved  or
maintained by our products and services.

   OUR  BUSINESS  AND  RESULTS  OF  OPERATION  WILL  SUFFER  IF  RECENT  PRODUCT
INTRODUCTIONS ARE NOT SUCCESSFUL.

    We  introduced  two  products  to the  marketplace  in July  2000.  They are
SilverStream   ePortal,  a  suite  of  eCRM  (Electronic  Customer  Relationship
Management) software for building e-business solutions,  and xCommerce, a family
of  B2B  integration   server  products  that  utilize  XML  (extensible  markup
language). The newness of these products, coupled with the fact that the markets
for them are at early  stages  of  development,  make it  difficult  to  predict
whether  they  will be  successful.  We  cannot  be  certain  that  SilverStream
xCommerce and ePortal will meet customer  performance  needs or  expectations or
that they will be free of  significant  bugs or defects.  We also cannot be sure
that our third party  distribution  partners will actively  market  SilverStream
xCommerce  and ePortal,  and it will be difficult  to track their  efforts.  Our
failure to achieve broad market  acceptance of these  products  would  seriously
harm our business and operating results.

                                       8
<PAGE>

   OUR BUSINESS WILL SUFFER IF WE DO NOT SUCCESSFULLY  INTRODUCE ENHANCEMENTS TO
OUR CURRENT PRODUCT OFFERINGS.

    Our future financial  performance will depend  significantly on revenue from
future  enhancements to our product offerings that we are currently  developing.
Any delays or difficulties in completing these enhancements would seriously harm
our business and operating results. We have recently released version 3.7 of our
Application Server, version 2.0 of our xCommerce and version 2.0 of our ePortal.
Version  3.7 of our  Application  Server  brings  our  server  to full  J2EE 1.2
compliance.  In addition,  this release  contains  new  functionality  including
improvements  to the  programming  environment  as well as improved  support for
computing  standards,  such as Enterprise  JavaBeans and Java2,  and third-party
development  tools.  Version 2.0 of our xCommerce  provides  enhanced support of
J2EE  standards and offers  broader  eBusiness  integration  of back-end  legacy
systems.  Version 2.0 of our ePortal includes a new workflow engine and enhanced
content management capabilities.

    We cannot be certain that enhanced versions of the SilverStream  Application
Server,  xCommerce  and  ePortal  and  other  complementary  products  will meet
customer  performance  needs or  expectations  when shipped or that new versions
will be free of significant software defects or bugs.

   WE HAVE ONLY BEEN IN BUSINESS  FOR A SHORT  PERIOD OF TIME AND YOUR BASIS FOR
EVALUATING US IS LIMITED.

    We began  commercial  shipments of our first  software  products in November
1997.  There are significant  risks,  expenses and  uncertainties  that an early
stage company like ours faces,  particularly  in the rapidly  evolving  Internet
market.  Because we have only  recently  commenced  commercial  sales,  our past
results and rates of growth may not be  meaningful  should not be relied upon as
an indication of our future performance.

   OUR LIMITED OPERATING HISTORY MAKES FORECASTING  DIFFICULT AND THE FAILURE TO
MEET EXPECTATIONS COULD CAUSE THE PRICE OF OUR COMMON STOCK TO DECLINE.

    As a result of our limited operating history,  it is difficult to accurately
forecast our revenues,  and we have limited meaningful historical financial data
upon which to base planned operating expenses. If we do not achieve our expected
revenues,  our  operating  results  will  be  below  our  expectations  and  the
expectations  of investors and market  analysts,  which could cause the price of
our common  stock to decline.  Specifically,  we were  founded in May 1996,  and
began shipping our first products,  the SilverStream  Application Server 1.0 and
related  software  development  tools,  in  November  1997.  We  began  shipping
SilverStream  xCommerce 1.0 and ePortal 1.0 in July 2000. Our operating expenses
are largely based on  anticipated  revenue  trends and a high  percentage of our
expenses are and will  continue to be fixed in the  short-term.  The revenue and
income  potential  of our products and business are unproven and the market that
we are addressing is rapidly evolving.

   THE MARKET FOR OUR PRODUCTS IS EMERGING  AND OUR  BUSINESS  WILL SUFFER IF IT
DOES NOT DEVELOP AS WE EXPECT.

    The market for Web  application  server  software has only recently begun to
develop,  is rapidly  evolving  and will  likely  have an  increasing  number of
competitors.  We cannot be certain that a viable  market for our  products  will
emerge or be sustainable.  If the application server market fails to develop, or
develops more slowly than expected,  our business and operating results would be
seriously harmed.

   THE  UNPREDICTABILITY OF OUR QUARTERLY OPERATING RESULTS MAY ADVERSELY AFFECT
THE TRADING PRICE OF OUR COMMON STOCK.

    Our quarterly  operating  results have varied  significantly in the past and
will likely vary  significantly  in the future,  making it  difficult to predict
future  performance.  These variations result from a number of factors,  many of
which are  outside of our  control.  Because of this  difficulty  in  predicting
future   performance,   our  operating   results  will  likely  fall  below  the
expectations  of  securities  analysts or  investors  in some future  quarter or
quarters.  Our failure to meet these  expectations would likely adversely affect
the market price of our common stock.

    Although we have  limited  historical  financial  data,  we believe that our
quarterly operating results may experience seasonal fluctuations.  For instance,
quarterly  results may fluctuate  based on our clients'  calendar year budgeting
cycles,  deferral of customer orders in anticipation of product  enhancements or
new products,  slow summer  purchasing  patterns in Europe and our  compensation
policies that tend to compensate sales  personnel,  typically in the latter half
of the year, for achieving annual quotas.

   WE DEPEND ON INCREASED  BUSINESS FROM OUR CURRENT AND NEW CUSTOMERS AND IF WE
FAIL TO GROW OUR  CUSTOMER  BASE OR  GENERATE  REPEAT  BUSINESS,  OUR  OPERATING
RESULTS COULD BE HARMED.

    If we  fail to grow  our  customer  base or  generate  repeat  and  expanded
business from our current and new customers,  our business and operating results
would be  seriously  harmed.  Many of our  customers  initially  make a  limited
purchase  of our  products  and  services  for  pilot  programs.  Many of  these
customers may not choose to purchase  additional licenses to expand their use of
our products. Many of these customers have not yet developed or deployed initial
applications  based on our  products.  If these  customers  do not  successfully
develop and deploy such  initial  applications,  they may choose not to purchase
deployment  licenses or  additional  development  licenses.  Our business  model
depends on the expanded use of our products within our customers' organizations.

                                       9
<PAGE>

    In addition,  as we introduce  new versions of our products or new products,
our current  customers may not require the functionality of our new products and
may  not  ultimately  license  these  products.  Because  the  total  amount  of
maintenance  and support fees we receive in any period  depends in large part on
the size and number of licenses that we have  previously  sold,  any downturn in
our  software  license  revenue  would  negatively  impact our  future  services
revenue.  In  addition,  if  customers  elect  not to  renew  their  maintenance
agreements, our services revenue could be significantly adversely affected.

   OUR MARKETS ARE HIGHLY  COMPETITIVE  AND OUR FAILURE TO COMPETE  SUCCESSFULLY
WILL LIMIT OUR ABILITY TO RETAIN AND INCREASE OUR MARKET SHARE.

    Our markets are new, rapidly evolving and highly competitive,  and we expect
this competition to persist and intensify in the future. Our failure to maintain
and  enhance  our  competitive  position  will  limit our  ability to retain and
increase  our  market  share  resulting  in  serious  harm to our  business  and
operating results.

    Some of our competitors  have longer operating  histories and  significantly
greater financial,  technical, marketing and other resources than we do. Many of
these   companies  have  more  extensive   customer  bases,   broader   customer
relationships and broader industry alliances that they could leverage, including
relationships with many of our current and potential customers.  These companies
also have  significantly  more  established  customer  support and  professional
services  organizations.  In  addition,  these  companies  may adopt  aggressive
pricing  policies,  may bundle their  competitive  products with broader product
offerings or may introduce new products and enhancements.

   OUR LENGTHY SALES CYCLE MAKES IT DIFFICULT TO PREDICT OUR QUARTERLY RESULTS.

    A  customer's  decision to purchase  our products  typically  involves  that
customer's  senior  information   technology  managers,   because  the  customer
applications to be built and deployed using our products are generally  critical
to the customer's business.  We generally need to educate potential customers on
the use and benefits of an application server and on the performance features of
the SilverStream  Application  Server,  and xCommerce and ePortal products.  Our
long sales  cycle makes it  difficult  to predict the quarter in which sales may
occur.  The sale of our  products  is also  subject to delays  from the  lengthy
budgeting,   approval  and  competitive   evaluation  processes  that  typically
accompany significant information technology purchasing decisions.  For example,
customers  frequently  begin by  evaluating  our products on a limited basis and
devote time and resources to testing our products  before they decide whether or
not to purchase a license for  deployment.  Customers may also defer orders as a
result of  anticipated  releases of new  products or  enhancements  by us or our
competitors.

   FAILURE TO DEVELOP AND EXPAND OUR SALES AND MARKETING CAPABILITIES WOULD HARM
OUR BUSINESS.

    We need to expand our sales and  marketing  operations  in order to increase
market awareness of our products,  market the SilverStream  Application  Server,
and  xCommerce and ePortal  products to a greater  number of  organizations  and
generate increased revenue.  However,  competition for qualified sales personnel
is intense and we may not be able to hire enough  qualified  individuals  in the
future.  If we are unable to attract or retain such qualified  sales  personnel,
our business and operating results would be seriously  harmed.  Our products and
services  require a sophisticated  sales effort  targeted at senior  information
technology management of our prospective customers.  New hires require extensive
training and typically require at least six months to achieve full productivity.
We have  limited  experience  managing  a large,  expanding  and  geographically
dispersed direct sales force. In addition,  we have limited experience marketing
our products broadly to a large number of potential customers.

   FAILURE  TO  MAINTAIN  EXISTING,  OR  INCREASE  THE  NUMBER  OF,  THIRD-PARTY
DISTRIBUTION RELATIONSHIPS MAY LIMIT OUR ABILITY TO PENETRATE THE MARKET.

    We have a limited number of third-party  distribution  agreements and we may
not be able to increase the number of our distribution relationships or maintain
our  existing  relationships.   Our  failure  to  increase  the  number  of  our
distribution  relationships or maintain our existing relationships may limit our
ability to penetrate the market.  Our current  agreements with our  distribution
partners  do  not  prevent  these  companies  from  selling  products  of  other
companies,  including  products that may compete with our  products,  and do not
generally require these partners to purchase minimum quantities of our products.
These distributors could give higher priority to the products of other companies
or to their own products,  than they give to our products. As a result, the loss
of,  or a  significant  reduction  in sales  volume  to our  current  or  future
distribution partners could seriously harm our revenue and operating results. In
addition,  a significant  increase in sales through  these  channels  could also
negatively impact our gross margins,  as sales through these channels  generally
have lower revenue per unit than direct sales.

                                       10
<PAGE>

   WE RECENTLY  HAVE BEGUN TO PROVIDE  SOLUTIONS  SERVICES  TO ADDRESS  CUSTOMER
ISSUES AND OUR FAILURE TO DELIVER SUCCESSFUL SOLUTIONS COULD HARM OUR BUSINESS.

    A more recent  aspect of our  business is to provide  customers  with unique
solutions  and   custom-tailored   applications  to  solve  customer  issues  in
connection  with  their  e-business  activities.   We  have  limited  experience
providing  solutions  services and cannot be certain that we will be  successful
generating  significant  revenue  from  such  services,  or if we do,  that such
services will be profitable.  We anticipate the need to offer solutions services
for negotiated sums,  determined in advance of actually providing such services,
as  opposed to pricing  contracts  based  directly  on time and  materials.  Our
limited experience, coupled with the nature of solutions services, makes pricing
contracts  in  such  manner  difficult.  Furthermore,  we  may  not  succeed  in
delivering solutions to issues we have not previously  encountered,  which could
harm  our  reputation  and  customer  relationships.   Our  failure  to  achieve
sufficient  revenues and profitability  rendering  solutions services may have a
material adverse effect on our business and operating results.

   FAILURE  TO ATTRACT  AND RETAIN  SERVICE  PERSONNEL  AND EXPAND OUR  SERVICES
OFFERINGS WOULD HARM OUR BUSINESS.

    We believe  that  growth in our  product  sales  depends  on our  ability to
provide  our  customers  with  comprehensive  services,   including  application
engineering,  implementation,  training and support,  and to educate third-party
resellers, instructors and consultants on how to provide similar services. If we
fail to  attract,  train and  retain  the  skilled  persons  who  deliver  these
services,  our  business  and  operating  results  would be  harmed.  We plan to
increase  the number of our services  personnel  to meet these  needs.  However,
competition for qualified service personnel is intense and we may not be able to
attract,  train or retain the number of highly qualified  service personnel that
our business needs.

    We expect our services  revenue to increase in dollar  amount as we continue
to provide consulting,  education and technical support services that complement
our products and as our installed  base of customers  grows.  Services cost as a
percentage of services revenue can be expected to vary significantly from period
to period depending on the mix of services we provide, whether such services are
provided by us or third-party contractors, and overall utilization rates.

   WE FACE  RISKS ASSOCIATED  WITH INTERNATIONAL  OPERATIONS THAT COULD HARM OUR
BUSINESS.

    To be  successful,  we believe we must expand our  international  operations
and,  therefore,  we expect  to  commit  significant  resources  to  expand  our
international  sales and marketing  activities.  However,  we may not be able to
maintain or increase market demand for our products which may harm our business.
We are increasingly  subject to a number of risks associated with  international
business  activities which may increase our costs,  lengthen our sales cycle and
require significant management attention. These risks generally include:

    o increased  expenses  associated  with  customizing  products  for  foreign
      countries;

    o general economic conditions in our international markets;

    o currency exchange rate fluctuations;

    o unexpected  changes in regulatory  requirements resulting in unanticipated
      costs and delays;

    o tariffs, export controls and other trade barriers;

    o longer  accounts receivable  payment cycles and difficulties in collecting
      accounts receivable;

    o potentially  adverse  tax  consequences,  including  restrictions  on  the
      repatriation of earnings; and

    o the risks related to the recent  global  economic  turbulence  and adverse
      economic circumstances in Asia.

   OUR  FUTURE  SUCCESS  DEPENDS ON  CONTINUED USE OF THE INTERNET AND GROWTH OF
ELECTRONIC BUSINESS.

    Our future  success  depends  heavily on the  acceptance and wide use of the
Internet for electronic  business.  If electronic  business does not continue to
grow or grows more slowly than  expected,  demand for our  products and services
will be reduced.  Consumers and  businesses  may reject the Internet as a viable
commercial  medium for a number of  reasons,  including  potentially  inadequate
network infrastructure, slow development of enabling technologies,  insufficient
commercial support or privacy concerns. The Internet's infrastructure may not be
able to support the demands placed on it by increased usage. In addition, delays
in the development or adoption of new standards and protocols required to handle
increased levels of Internet  activity,  or increased  governmental  regulation,
could cause the Internet to lose its viability as a commercial  medium.  Even if
the required  infrastructure,  standards,  protocols and complementary products,
services or facilities are developed, we may incur substantial expenses adapting
our solutions to changing or emerging technologies.

                                       11
<PAGE>

   IF WE FAIL TO RESPOND TO RAPID  TECHNOLOGICAL  CHANGE AND  EVOLVING  INDUSTRY
STANDARDS, OUR PRODUCTS MAY BECOME OBSOLETE.

    The markets for our products and services are marked by rapid  technological
change,  frequent new product introductions and enhancements,  uncertain product
life cycles,  changes in customer demands and evolving industry  standards.  New
products based on new technologies or new industry  standards may quickly render
an existing  product  obsolete  and  unmarketable.  Any delays in our ability to
develop and release  enhanced or new products could  seriously harm our business
and operating results.  Our technology is complex,  and new products and product
enhancements can require long  development and testing  periods.  Our failure to
conform to prevailing standards could have a negative effect on our business and
operating results.

   IN ORDER TO MANAGE  OUR  GROWTH AND  EXPANSION,  WE WILL NEED TO IMPROVE  OUR
MANAGEMENT AND OPERATIONAL SYSTEMS ON A TIMELY BASIS.

    We have  expanded  our  operations  rapidly  since  inception.  We intend to
continue to expand in the  foreseeable  future to pursue  existing and potential
market  opportunities.   This  rapid  growth  places  a  significant  demand  on
management  and  operational  resources.  To be  successful,  we  will  need  to
implement  additional  management  information  systems,  improve our operating,
administrative, financial and accounting systems, procedures and controls, train
new employees and maintain close coordination among our executive,  engineering,
professional  services,  accounting,  finance,  marketing,  sales and operations
organizations.  In addition, our growth has resulted, and any future growth will
result, in increased responsibilities for management personnel.

   FAILURE TO RETAIN AND ATTRACT KEY PERSONNEL WOULD HARM OUR BUSINESS.

    Our success depends largely on the skills, experience and performance of the
members  of our  senior  management  and  other  key  personnel,  including  our
Chairman,  David Skok,  and our President  and Chief  Executive  Officer,  David
Litwack. If we lose one or more of the members of our senior management or other
key employees,  our business and operating results could be seriously harmed. In
addition,  our future  success  will  depend  largely on our ability to continue
attracting, training, motivating and retaining highly skilled personnel. None of
our  senior  management  or  other  key  personnel  is  bound  by an  employment
agreement.  Like other software companies in the Boston,  Massachusetts area, we
face intense competition for qualified personnel including software engineering,
service and support, and sales and marketing personnel.

   WE INCLUDE  THIRD-PARTY  SOFTWARE  AND  TECHNOLOGY  IN OUR  PRODUCTS  AND OUR
BUSINESS WOULD BE HARMED IF WE WERE NOT ABLE TO CONTINUE USING THIS  THIRD-PARTY
SOFTWARE AND TECHNOLOGY.

    Our products integrate third-party text search, object middleware, compiler,
encryption,  transaction  processing and  monitoring,  Java virtual  machine and
database technology and products.  There are inherent limitations in the use and
capabilities of much of the technology  that we license from third parties.  Our
business  would be  seriously  harmed  if the  providers  from  whom we  license
software and technology ceased to deliver and support reliable products, enhance
their  current  products  in a timely  fashion or respond to  emerging  industry
standards.  In  addition,  the  third-party  software  may  not  continue  to be
available  to us on  commercially  reasonable  terms  or at all.  Many of  these
licenses are subject to periodic renewal.  The loss of, or inability to maintain
or obtain this  software  for any reason could  result in  significant  shipment
delays or  reductions.  Furthermore,  we might be  forced to limit the  features
available in our current or future product  offerings.  Either alternative could
seriously harm our business and operating results.

    Almost all of our  products  are written in Java and require a Java  virtual
machine made  available  by Sun  Microsystems  in order to operate.  Sun may not
continue to make the Java virtual machines available at commercially  reasonable
terms or at all.  Furthermore,  if Sun were to make  significant  changes to the
Java  language  or its Java  virtual  machines,  or fail to correct  defects and
limitations in these  products,  our ability to continue to improve and ship our
products  could be impaired.  In the future,  our customers may also require the
ability to deploy our products on  platforms  for which  technically  acceptable
Java  implementations  either do not exist or are not available on  commercially
reasonable terms.

                                       12
<PAGE>

   WE MAY NOT ACHIEVE THE EXPECTED BENEFITS OF OUR RECENT ACQUISITIONS.

    In December 1999, we acquired ObjectEra, Inc., a developer of object request
broker  computer  products,  and GemLogic,  Inc., a developer of XML integration
server technology.  During 2000, we acquired Power 2000, Inc.,  Excelnet Systems
Limited  and  Bondi  Software,   Inc.,  providers  of  e-business  services  and
solutions,  and  eObject,  Inc.,  the  developer  of  "enTellect",  a java based
framework  for the access,  control,  personalization  and metering of corporate
resources.  Our failure to successfully  address the risks associated with these
acquisitions  could have a material adverse effect on our ability to develop and
market  products  based on the  acquired  technologies.  We have  just  recently
developed enhanced features to our Application Server, and ePortal and xCommerce
products  and   complementary   products   based  on  certain  of  the  acquired
technologies,  and will  continue  to devote  significant  resources  to product
development,  sales and marketing. The success of these acquisitions will depend
on our ability to:

    o successfully integrate and manage the acquired operations;

    o retain the software  developers and  other  key  employees  of  ObjectEra,
      GemLogic, Power 2000, eObject, Excelnet Systems, and Bondi Software;

    o develop, integrate and  market  products and product enhancements based on
      on the acquired technologies; and

    o control costs and expenses as well as demands on our management associated
      with the acquisitions.

    If we are  unable to  successfully  develop and market  products and product
enhancements  as a result of these  acquisitions,  we may not  achieve  enhanced
revenue or other anticipated benefits from our acquisitions.

   ANY ACQUISITIONS WE MAKE COULD DISRUPT OUR BUSINESS AND CONSEQUENTLY HARM OUR
FINANCIAL CONDITION.

    In the past, we have  acquired  businesses with  complementary  products and
technologies  and, in order to remain  competitive,  we may find it necessary to
acquire  additional  businesses,  products  or  technologies.  If we identify an
appropriate  acquisition candidate, we may not be able to negotiate the terms of
the acquisition successfully, finance the acquisition, or integrate the acquired
business,  products or technologies  into our existing  business and operations.
Furthermore,  completing a potential  acquisition  and  integrating  an acquired
business will cause significant diversions of management time and resources.  If
we consummate one or more  significant  acquisitions in which the  consideration
consists  of  stock or  other  securities,  our  stockholders'  equity  could be
significantly  diluted.  If we  were to  proceed  with  one or more  significant
acquisitions in which the  consideration  included cash, we could be required to
use a substantial  portion of our available  cash to consummate an  acquisition.
Acquisition  financing  may not be available on favorable  terms,  or at all. In
addition,  we may be required to amortize  significant  amounts of goodwill  and
other  intangible  assets in connection  with future  acquisitions,  which could
seriously harm our operating results.

   OUR SOFTWARE PRODUCTS MAY CONTAIN ERRORS OR DEFECTS THAT COULD RESULT IN LOST
REVENUES,  DELAYED OR LIMITED MARKET ACCEPTANCE OR PRODUCT LIABILITY CLAIMS WITH
SUBSTANTIAL LITIGATION COSTS.

    Complex  software   products  like  ours  can  contain  errors  or  defects,
particularly  when first  introduced  or when new versions or  enhancements  are
released.  Defects  or  errors in  current  or future  products,  including  the
SilverStream  Application  Server Version 3.7, ePortal Version 2.0 and xCommerce
Version 2.0 could result in lost revenue or a delay in market acceptance,  which
would  seriously  harm our business and operating  results.  We have in the past
discovered  software  errors in our new releases  and new  products  after their
introduction  and expect that this will continue.  Despite  internal testing and
testing by current and potential customers,  our current and future products may
contain serious defects.

    As  many  of  our   customers   use  our  products   for   business-critical
applications,  errors,  defects or other  performance  problems  could result in
financial or other damage to our customers and could significantly  impair their
operations.  Our customers could seek damages for losses related to any of these
issues.  A product  liability  claim brought against us, even if not successful,
would likely be time consuming and costly to defend and could  adversely  affect
our marketing efforts.

   OUR BUSINESS MAY SUFFER IF WE CANNOT PROTECT OUR INTELLECTUAL PROPERTY.

    We have one patent  issued and one  allowed  patent to be issued in the near
future,  and four pending U.S. patent  applications  but none may be issued from
our  existing  patent  applications.  We rely on a  combination  of  contractual
provisions,  confidentiality procedures, and patent, trademark, trade secret and
copyright laws to protect the proprietary aspects of our technology. These legal
protections  afford only limited  protection and  competitors may gain access to
our  intellectual  property  which may result in the loss of our  customers.  In
addition,  despite our efforts to protect our proprietary  rights,  unauthorized
parties  may  attempt to copy  aspects of our  products or to obtain and use our
proprietary information. Litigation may be necessary to enforce our intellectual
property rights,  to protect our trade secrets and to determine the validity and
scope of the  proprietary  rights of  others.  Any  litigation  could  result in
substantial  costs and  diversion of resources  with no assurance of success and
could seriously harm our business and operating  results.  In addition,  we sell
our products internationally,  and the laws of many countries do not protect our
proprietary rights as well as the laws of the United States. Our future patents,
if  any,  may be  successfully  challenged  or  may  not  provide  us  with  any
competitive advantages.

                                       13
<PAGE>

    We obtain a major portion of our software license revenue from licensing our
products under standardized "click-through" agreements that our customers do not
sign. If any of these agreements were deemed unenforceable,  those customers may
seek to use and copy our technology without appropriate limitations.

   WE COULD INCUR  SUBSTANTIAL  COSTS DEFENDING OUR  INTELLECTUAL  PROPERTY FROM
INFRINGEMENT OR A CLAIM OF INFRINGEMENT.

    Other  companies,  including our  competitors,  may obtain  patents or other
proprietary  rights that would  prevent,  limit or interfere with our ability to
make, use or sell our products.  As a result, we may be found to infringe on the
proprietary rights of others. In the event of a successful claim of infringement
against us and our failure or inability to license the infringed technology, our
business and operating results would be significantly  harmed.  Companies in the
software market and the Internet market are increasingly bringing suits alleging
infringement of their proprietary  rights,  particularly  patent rights. We have
been subject to such claims in the past.  Any  litigation or claims,  whether or
not valid,  could result in substantial costs and diversion of resources with no
assurance of success.  Intellectual property litigation or claims could force us
to do one or more of the following:

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

    o obtain a license from the holder of the  infringed  intellectual  property
      right, which license may not be available on reasonable terms; and

    o redesign products or services.

   WE MAY INCUR  SIGNIFICANT  COSTS  FROM  CLASS  ACTION  LITIGATION  DUE TO OUR
EXPECTED STOCK PRICE VOLATILITY.

    In the past, securities  class  action  litigation  has often  been  brought
against a company  following  periods of  volatility  in the market price of its
securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs and divert  management's  attention
and resources.

   ANTI-TAKEOVER  PROVISIONS  IN OUR CHARTER  DOCUMENTS  AND  DELAWARE LAW COULD
PREVENT OR DELAY A CHANGE IN CONTROL OF OUR COMPANY.

    Provisions  of our  certificate  of  incorporation  and  bylaws,  as well as
provisions  of Delaware law,  could make it more  difficult for a third party to
acquire us, even if doing so would be beneficial to our stockholders.

   INSIDERS HAVE  SUBSTANTIAL  INFLUENCE OVER  SILVERSTREAM  AND  COULD DELAY OR
PREVENT A CHANGE IN CORPORATE CONTROL.

    As  of  March 6, 2001,  our  executive  officers,  directors  and  principal
stockholders  beneficially owned, in the aggregate,  approximately  23.3% of our
outstanding  common stock. As a result,  these  stockholders have the ability to
exercise  significant  influence over matters  requiring  stockholder  approval,
including  the  election of  directors  and  approval of  significant  corporate
transactions.  This could have the effect of delaying or  preventing a change of
control of SilverStream.

ITEM 2.  PROPERTIES

    Our  headquarters  are currently  located in a leased facility in Billerica,
Massachusetts,  consisting of approximately 100,000 square feet under a sublease
that  expires  in 2006.  We have also  leased  offices  for  sales  and  support
personnel  in the United  States,  Canada,  Europe and Asia.  We leased space in
Burlington,  Massachusetts  until May 2000  when  we moved our  headquarters  to
Billerica,  Massachusetts.  The lease for the Burlington facility expired during
July 2000.

ITEM 3.  LEGAL PROCEEDINGS

    We are not a party to any material legal proceedings.

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

    None.


                                       14
<PAGE>


                                     PART II

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

    (a)  Price Range of Common Stock

    Our common  stock is listed on the Nasdaq  National  Market under the symbol
"SSSW." Public trading of our common stock  commenced on August 17, 1999.  Prior
to that,  there was no public market for our common stock.  The following  table
sets forth, for the periods indicated,  the high and low sale price per share of
the common stock on the Nasdaq National Market:

<TABLE>
<CAPTION>
                                                     High        Low
<S>                                                  <C>         <C>
Year Ended December 31, 2000
First Quarter                                        $124.63     $ 59.56
Second Quarter                                         57.75       25.38
Third Quarter                                          58.75       24.00
Fourth Quarter                                         29.06       15.06

Year Ended December 31, 1999
Third Quarter (From August 17, 1999)                 $ 42.75     $ 22.56
Fourth Quarter                                        123.00       26.88
</TABLE>


    As of March 6,  2001,  there  were  21,705,132  shares of the  Common  Stock
outstanding held by approximately 351 holders of record.

    We have never paid or declared  any cash  dividends  on our common  stock or
other securities and do not anticipate  paying cash dividends in the foreseeable
future.  We currently intend to retain all future  earnings,  if any, for use in
the operations of our business.  Our existing  equipment line of credit and term
loans prohibit the payment of dividends without the consent of the lender.

    (b)  Use of Proceeds from Sales of Registered Securities

    On August  20,  1999 we closed our  initial  public  offering  of our common
stock. The shares of common stock sold in the offering were registered under the
Securities  Act of 1933,  as amended,  on a  Registration  Statement on Form S-1
(Registration No.  333-80553) that was declared  effective by the Securities and
Exchange  Commission  on August  16,  1999.  After  deducting  the  underwriting
discounts and  commission  and the offering  expenses,  we received net proceeds
from the offering of approximately $49.6 million.

    The net proceeds  generated from the initial public  offering have been used
primarily  to  fund  our  working  capital,  capital  expenditures  and  general
corporate needs. In addition, we used $4.2 million as an initial payment related
to the  acquisition  of ObjectEra,  and we made a loan of $2.0 million to one of
our corporate collaborators pursuant to a convertible promissory note, which was
converted to an equity  investment on May 31, 2000. On February 1, 2000, we made
a second  payment to ObjectEra of $3.9 million,  as provided for in the purchase
and sale agreement. As part of the consideration for the purchase of eObject, we
made a payment of $1.0 million.  In connection  with the purchase of Power 2000,
we made a payment of $5.3  million,  as well as a payment of $665,000 to pay off
Power  2000's  line of credit,  a liability  we assumed as part of the  purchase
price. As part of the  consideration  for the purchase of Excelnet  Systems,  we
made a  payment  of $3.5  million.  We also made  payments  of  $500,000  during
December  2000 and $6 million  during  January  2001 for the  purchase  of Bondi
Software.  Our  capital  expenditures  included  $3.9  million  related  to  the
relocation   of  the   Company's   corporate   headquarters   from   Burlington,
Massachusetts   to   Billerica,   Massachusetts.   Specifically,   we   incurred
approximately $1.4 million on furniture, fixtures and office equipment, $760,000
on computer  equipment and $1.7 million on leasehold  improvements in connection
with the relocation.

    On January 31,  2000,  we closed a secondary  public  offering of our common
stock. The shares of common stock sold in the offering were registered under the
Securities  Act of 1933,  as amended,  on a  Registration  Statement on Form S-1
(Registration No.  333-94103) that was declared  effective by the Securities and
Exchange  Commission  on January 25,  2000.  After  deducting  the  underwriting
discounts and commission and the offering expenses  described above, we received
net proceeds from the offering of approximately $191.7 million.

    The net  proceeds to us generated  from the  secondary  public  offering are
currently invested in U.S. Government and Federal Agency obligations, tax-exempt
municipal obligations and corporate  obligations with contractual  maturities of
ten years or less.

                                       15
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

                      SELECTED CONSOLIDATED FINANCIAL DATA

    The  following  selected  consolidated  financial  data  should  be  read in
conjunction  with our  Consolidated  Financial  Statements and Notes thereto and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in Item 7 of this Form 10-K and the consolidated  financial
statements and notes thereto in Item 14 of this Form 10-K.
<TABLE>
<CAPTION>

                                                        Period from
                                                        May 8, 1996
                                                       (inception) to                      Years Ended
                                                        December 31,                       December 31,
                                                        ------------    ------------------------------------------------------
                                                            1996           1997           1998          1999          2000
                                                        ------------    -----------    -----------   -----------   -----------
                                                                  (in thousands, except share and per share data)
           <S>                                          <C>             <C>            <C>           <C>           <C>
           Consolidated Statement of Operations
           Data:
           Revenue:

             Software licenses........................    $     --       $      249     $    5,983    $   13,826    $   40,859
             Services.................................          --               --            825         9,239        39,725
                                                          --------       ----------     ----------    ----------    ----------
                     Total revenue....................          --              249          6,808        23,065        80,584

           Cost of revenue:
             Software licenses........................          --               90            767         1,412         2,501
             Services (exclusive of compensation
               charge shown below)....................          --              282          1,414        10,253        36,022
                                                          --------       ----------     ----------    ----------    ----------
                     Total cost of revenue............          --              372          2,181        11,665        38,523
                                                          --------       ----------     ----------    ----------    ----------
           Gross profit (loss)........................          --             (123)         4,627        11,400        42,061
           Operating expenses:
             Sales and marketing......................          35            3,854         10,776        20,419        45,279
             Research and development.................         850            2,622          5,070         7,090        14,577
             General and administrative...............         120            1,961          2,141         4,301         9,058
             Compensation charge for issuance of
               stock Options..........................          --               --             --           439         2,329
             Amortization of goodwill.................          --               --             --           385        11,309
             In-process research and development
               charge.................................          --               --             --         1,987            --
                                                          --------       ----------     ----------    ----------    ----------
                     Total operating expenses.........       1,005            8,437         17,987        34,621        82,552
                                                          --------       ----------     ----------    ----------    ----------
           Loss from operations.......................      (1,005)          (8,560)       (13,360)      (23,221)      (40,491)
           Other income, net..........................          53              225            475         1,232        12,125
                                                         ---------      -----------    -----------   -----------    ----------
           Net loss...................................   $    (952)     $    (8,335)   $   (12,885)  $   (21,989)  $   (28,366)
           Beneficial conversion feature in
             Series D preferred stock.................          --               --             --          (263)           --
                                                         ---------      -----------    -----------   -----------   -----------
           Net loss applicable to common
             stockholders.............................   $    (952)     $    (8,335)   $   (12,885)  $   (22,252)  $   (28,366)
                                                         =========      ===========    ===========   ===========   ===========
           Basic and diluted net loss per share
             applicable to common
             stockholders.............................   $   (5.12)     $    (10.61)   $     (4.89)  $     (2.64)  $     (1.44)
           Weighted-average common shares used
             in computing basic and diluted net
             loss per share...........................     185,686          785,548      2,632,496     8,419,116    19,697,498
</TABLE>


                                       16
<PAGE>


<TABLE>
<CAPTION>

                                                                               At December 31,

                                                           1996        1997        1998        1999        2000
                                                         ---------   ---------   ---------   ---------   ---------
                                                                                In Thousands
           <S>                                           <C>         <C>         <C>         <C>         <C>

           Consolidated Balance Sheet Data:

           Cash and cash equivalents...................  $   2,734   $  16,649   $   1,199   $  46,799   $  86,481
           Working capital.............................      2,591      16,349       5,119      40,549     188,302
           Total assets................................      3,056      18,956      10,014      80,663     313,738
           Long-term debt and obligations under
             capital leases, less current portion......        189         295         325         509         358
           Redeemable convertible preferred stock......      3,658      11,638      11,638           -           -
           Total stockholders' equity (deficit)........       (947)      5,944      (5,048)     63,585     280,141
</TABLE>


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

    The  following  discussion  should be read  together  with the  Consolidated
Financial  Statements and accompanying Notes thereto appearing elsewhere in this
Annual  Report  on  Form  10-K.   This  Annual  Report  on  Form  10-K  contains
forward-looking statements that involve risks and uncertainties.  Actual results
may differ materially from those indicated in such forward-looking statements as
a result of certain factors including, but not limited to, those set forth under
the heading "Certain Factors that may Affect Future Results."

OVERVIEW

    We  provide  software  and  services  that  enable   organizations  to  more
effectively  do business  using the Web. By providing  solutions  for  building,
deploying  and managing  Web-based  application,  we allow  companies to deliver
applications  that have the breadth,  depth and richness  customers  and trading
partners expect.  Our eBusiness Platform is a complete solution for building and
deploying  eBusiness   applications  for  managing  customer  relationships  and
transacting business online. Built atop a standards-based application server and
backed by a comprehensive  services  organization and worldwide partner network,
our eBusiness Platform includes a wide range of electronic customer relationship
management (eCRM) and integration services to meet today's eBusiness demands.

    We derive our revenue  from the sale of software  product  licenses and from
professional  consulting,  education and technical support services.  We plan to
generate  future  revenue  from both new and  existing  customers.  As  existing
customers create new software applications based on the SilverStream Application
Server, they may require more application servers to run these applications.  We
plan to  widen  our  customer  base by  selling  licenses  and  services  to new
customers.  We anticipate that we will continue to sell annual update  assurance
and support agreements to most customers.

    We recognize our software  license  revenue in accordance  with Statement of
Position (SOP) 97-2, "Software Revenue  Recognition," as amended by SOP 98-4 and
SOP 98-9 and with  Staff  Accounting  Bulletin  (SAB)  101.  SOP 97-2  generally
requires revenue earned on software arrangements  involving multiple elements to
be allocated to each element  based on the relative fair values of the elements.
We generally  recognize  revenue allocated to software licenses upon delivery of
the  software  products,  provided  that  (i) we have no  remaining  significant
obligations  with  regard to  implementation,  (ii) the  license fee is fixed or
determinable and (iii) collection of the fee is probable.  However, when we sell
software  product  licenses to a reseller,  revenue is not recognized  until the
product is shipped to the  ultimate  customer.  This is because the  reseller is
functioning as a distributor and may order products without a specific customer.

    Our customers often contract for update assurance,  which provides them with
new releases of software for a period of typically  one year.  These  agreements
are separately  negotiated and priced.  We recognize  update  assurance  revenue
ratably over this 12-month period.

    Sales to  independent software vendors (ISVs) are deferred and recognized as
product revenue ratably over the anticipated  period of performance for services
under the agreement,  which is generally 12 months. ISV-related partner fees are
deferred  and  recognized  on a straight  line basis as an offset to the related
expenses  over the life of the  agreement,  since we  consider  such  fees to be
reimbursement for costs incurred,  primarily  marketing  support,  in connection
with its ISV partner program.

    We  also  earn  partner  fees,  which  are  deferred  and  recognized  on  a
straight-line  basis as an offset  to  operating  expenses  over the life of the
agreement,  typically one year. We consider  such fees to be  reimbursement  for
costs incurred in connection with our partner program.

                                       17
<PAGE>

    We recognize  revenue from the sale of technical  support  services  ratably
over the maintenance  term and revenue from the sale of consulting and education
services as the services are performed.

    We record cash receipts and billed  amounts due from  customers in excess of
recognized  revenue as  deferred  revenue.  Specific  contract  terms can have a
significant impact on the amount of deferred revenue in any given period.

    Our  cost of  software  license  revenue  includes  royalties  paid to third
parties for  technology  included in our  products,  cost of manuals and product
documentation,  media used to deliver our  products,  shipping  and  fulfillment
costs and costs  associated  with license  revenues  from  independent  software
vendors. Our cost of services revenue includes salaries and related expenses for
our consulting, education and technical support services organizations, costs of
third  parties  contracted  to provide  consulting  services to customers and an
allocation of our facilities, communications and depreciation expenses.

    Our operating  expenses are classified into five general  categories:  sales
and   marketing,   research  and   development,   general  and   administrative,
compensation  charge for issuance of stock  options and  goodwill  amortization.
Sales and  marketing  expenses  consist  primarily of salaries and other related
costs for sales and  marketing  personnel,  sales  commissions,  travel,  public
relations, marketing materials,  advertising campaigns and tradeshows.  Research
and development expenses consist primarily of personnel costs to support product
development.  General and administrative  expenses consist primarily of salaries
and  other  related  costs  for  operations  and  finance  employees,  legal and
accounting services and facilities-related expenses. Compensation charge for the
issuance of stock options  represents the difference  between the exercise price
of options granted and the estimated fair market value of the underlying  common
stock on the date of the grant or the fair value of the award,  depending on the
facts and circumstances.  Goodwill amortization relates to our acquisitions made
to support our business strategy.

    Since our  inception,  we have  incurred  substantial  costs to develop  our
technology  and products,  to recruit and train  personnel for our  engineering,
sales and marketing and professional services  departments,  and to establish an
administrative  organization.  As a result,  we have incurred net losses in each
fiscal quarter since  inception and had an accumulated  deficit of $72.5 million
as of December 31, 2000. We anticipate that our operating expenses will continue
to increase in future  quarters as we increase  sales and marketing  operations,
expand  distribution  channels,  increase  research  and  development,   broaden
professional  services,  expand facilities and support,  and improve operational
and financial systems. Accordingly, we expect to incur additional losses for the
foreseeable  future.  In  addition,  our  limited  operating  history  makes  it
difficult for us to predict future operating results and, accordingly, there can
be no assurance that we will sustain revenue growth or achieve profitability.

RESULTS OF OPERATIONS

    The following  table sets forth for the periods  indicated the percentage of
revenues  represented  by  certain  lines  in  our  consolidated  statements  of
operations.
<TABLE>
<CAPTION>

                                                                        Year Ended
                                                                       December 31,

                                                                  2000      1999      1998
                                                                 ------    ------    ------
<S>                                                               <C>       <C>      <C>

    Revenue:
      Software licenses........................................   50.7%      59.9%    87.9%
      Services.................................................   49.3       40.1     12.1
                                                                 ------    ------    ------
              Total revenue....................................  100.0      100.0    100.0
                                                                 ------    ------    ------
    Cost of revenue:
      Software licenses........................................    3.1        6.1     11.2
      Services ................................................   44.7       44.5     20.8
                                                                 ------    ------    ------
              Total cost of revenue............................   47.8       50.6     32.0
                                                                 ------    ------    ------
    Gross profit (loss)........................................   52.2       49.4     68.0
    Operating expenses:
      Sales and marketing......................................   56.2       88.5    158.3
      Research and development.................................   18.1       30.7     74.5
      General and administrative...............................   11.2       18.6     31.4
      Compensation charge for issuance of stock options........    2.9        1.9      0.0
      Amortization of goodwill.................................   14.0        1.7      0.0
      In-process research and development charge...............    0.0        8.7      0.0
                                                                 ------    ------    ------
              Total operating expenses.........................  102.4      150.1    264.2
                                                                 ------    ------    ------
    Loss from operations.......................................  (50.2)    (100.7)  (196.2)
    Other income, net..........................................   15.0        5.4      6.9
                                                                 ------    ------    ------
    Net loss...................................................  (35.2)%    (95.3)% (189.3)%
                                                                 ======    ======    ======
</TABLE>


                                       18
<PAGE>

YEAR ENDED DECEMBER 31, 2000 COMPARED TO 1999

   REVENUE

    Total revenue  increased  249% to $80.6 million for the year ended  December
31, 2000 from $23.1 million for the year ended  December 31, 1999.  The increase
is  attributable  to an increase in our customer base, as well as the release of
our ePortal and xCommerce  products.  Revenue from international sales increased
to $26.5 million, or 33% of total revenue,  for the year ended December 31, 2000
from $8.1  million,  or 35% of total  revenue,  for the year ended  December 31,
1999. The increase in international sales is primarily  attributable to the same
factors noted above.

    SOFTWARE  LICENSE.  Software license revenue increased 196% to $40.9 million
for the year  ended  December  31,  2000 from $13.8  million  for the year ended
December 31, 1999. The increase is  attributable  to increased unit sales of our
products  following the release of ePortal Version 2.0 and xCommerce Version 2.0
in November of 2000, along with the release of Application Server Version 3.7 in
December  2000, as well as higher prices for our products in 2000 as compared to
1999.

    SERVICES.  Services  revenue  increased  330% to $39.7  million for the year
ended  December 31, 2000 from $9.2 million for the year ended December 31, 1999.
The increase is  attributable  to the  continued  expansion of our  professional
consulting organization (both internally and through our acquisition of Excelnet
Systems,  Power  2000 and Bondi  Software),  the  offering  of a wider  range of
consulting services to customers,  the introduction of our ePortal and xCommerce
products, and an increase in the number of customers and support contracts.

    We  believe  that  growth in our  software  license  revenue  depends on our
ability to  provide  our  customers  with  support,  education,  and  consulting
services  and to  educate  third-party  consulting  partners  on how to use  our
products. As a result, we intend to continue to expand our services organization
in the future. We expect that revenue from professional consulting services will
increase  in the future to the extent  that  additional  customers  license  our
products and as we expand both our capacity for the delivery of these  services,
as well as the scope of our services offerings.  We expect that services revenue
from  support  agreements  will  increase  in the  future as a result of new and
existing license agreements.

   COST OF REVENUE

    SOFTWARE  LICENSE.  Cost of software  license revenue  increased 77% to $2.5
million  for the year ended  December  31,  2000 from $1.4  million for the year
ended December 31, 1999.  This increase is  attributable  to increased  product,
shipping  and  third-party  royalty  costs from a larger  volume of sales and to
costs associated with our independent software vendors. Cost of software license
revenue decreased as a percentage of software license revenue to 6% from 10% for
the year ended  December  31, 2000 as compared  to the year ended  December  31,
1999.  This decrease  occurred  because  product license revenue growth outpaced
increases in product  license costs and because of a higher  average sales price
in 2000 versus 1999. In addition,  our new products (ePortal and xCommerce) have
lower  costs  associated  with  them,  due to the fact that they  contain  fewer
sublicensed  components than our  traditional  Application  Server  product.  We
expect software license costs to increase,  in conjunction with license revenue,
in  the  future  due  to  additional  customers  licensing  our  products,  both
domestically  and  internationally,  as  well  as the  licensing  of  additional
third-party technology that we may choose to embed in our product offerings.

    SERVICES.  Cost of services revenue  increased 251% to $36.0 million for the
year ended  December 31, 2000 from $10.3 million for the year ended December 31,
1999.  The  increase  is due  to  additional  education  and  technical  support
personnel and the rapid expansion of our consulting services business, including
an  increase in the number of  consultants,  due in part to our  acquisition  of
Excelnet Systems, Power 2000 and Bondi Software.  Services costs as a percentage
of services revenue can be expected to vary  significantly from period to period
depending on the mix of services we provide,  whether such services are provided
by us or third-party contractors, and overall utilization rates.

   OPERATING EXPENSES

    SALES AND MARKETING.  Sales and marketing  expenses  increased 122% to $45.3
million for the year ended  December  31,  2000 from $20.4  million for the year
ended  December  31, 1999.  The increase is  attributable  to  additional  sales
employees in North America,  as well as the expansion of our international sales
operations.  We believe  these  expenses  will  continue  to  increase in future
periods because we expect to continue to expand our sales and marketing efforts.
We also  anticipate  that  sales  and  marketing  expenses  may  fluctuate  as a
percentage  of total  revenue from period to period as new sales  personnel  are
hired and become more productive.

                                       19
<PAGE>

    RESEARCH AND DEVELOPMENT.  Research and development  expenses increased 106%
to $14.6 million for the year ended  December 31, 2000 from $7.1 million for the
year ended  December  31,  1999.  The  increase  is  primarily  attributable  to
additional research and development personnel to support our product development
activities,  including our new ePortal and xCommerce  products.  We believe that
continued  investment in research and  development  is critical to attaining our
strategic  objectives,  and, as a result,  we expect  research  and  development
expenses to increase in future periods.

    GENERAL AND  ADMINISTRATIVE.  General and administrative  expenses increased
111% to $9.1 million for the year ended  December 31, 2000 from $4.3 million for
the year ended  December 31, 1999.  The  increase is  attributable  to a growing
number of  administrative  employees.  We  believe  general  and  administrative
expenses will  increase as we hire  additional  personnel  and incur  additional
costs to support our expanding operations and the growth of our business.

    COMPENSATION  CHARGE FOR ISSUANCE OF STOCK OPTIONS.  We incurred a charge of
$2.3  million for the year ended  December  31, 2000 and  $439,000  for the year
ended December 31, 1999,  related to the issuance of stock options with exercise
prices  below  fair  market  value on the  date of  grant.  Additional  unvested
outstanding  options  will  continue  to vest over the next  three to five years
resulting in aggregate  compensation  expense of approximately  $11.3 million in
periods subsequent to December 31, 2000. The additional compensation expense for
each grant will be amortized to operations ratably over the next five years.

    AMORTIZATION  OF  GOODWILL.  We  recognized  $11.3  million of  amortization
related to  goodwill  for the year  ended  December  31,  2000as a result of our
acquisition of three of our European distributors in The Czech Republic,  Norway
and France, along with six private companies;  ObjectEra,  GemLogic, Power 2000,
eObject, Excelnet Systems and Bondi Software. We recognized $385,000 in goodwill
amortization  for the year ended  December 31, 1999.  Goodwill of  approximately
$78.9 million in the aggregate will continue to be charged to operations ratably
over the next five years.  The Financial  Accounting  Standards  Board (FASB) is
contemplating  a new  approach  to  goodwill in its  Exposure  Draft,  "Business
Combinations  and  Intangible  Assets",  which may result in goodwill  not being
amortized, but reviewed for impairment. When the final statement is issued, will
adjust our policies accordingly.

    IN-PROCESS  RESEARCH  AND DEVELOPMENT  CHARGE.  We incurred a charge of $2.0
million for the year ended  December 31, 1999 related to an in-process  research
and development charge as a result of our acquisition of GemLogic. There were no
such charges for the year ended December 31, 2000.

   INTEREST AND OTHER INCOME

    Interest and other income increased 884% to $12.1 million for the year ended
December  31, 2000 from $1.2 million for the year ended  December 31, 1999.  The
increase is  attributable  to an increase in interest  income due to higher cash
balances during the years ended December 31, 2000 versus December 31, 1999.

Year Ended December 31, 1999 Compared to 1998

   REVENUE

    Total revenue  increased  239% to $23.1 million for the year ended  December
31, 1999 from $6.8 million for the previous  year ended  December 31, 1998.  The
increase  was  attributable  to an increase in our  customer  base  resulting in
substantial  growth in  software  license and  services  revenue.  Revenue  from
international sales increased to $8.1 million, or 35% of total revenue,  for the
year ended December 31, 1999 from $1.8 million, or 27% of total revenue, for the
year ended December 31, 1998. The increase in  international  sales is primarily
due to increased selling and related activities in The United Kingdom,  Germany,
Belgium, The Netherlands,  The Czech Republic,  Norway, France,  Singapore, Hong
Kong and Taiwan.

    SOFTWARE  LICENSE.  Software license revenue increased 131% to $13.8 million
for the year  ended  December  31,  1999 from $6.0  million  for the year  ended
December 31, 1998. The increase was  attributable to increased unit sales of our
products following the release of Version 2.0 in October of 1998 and Version 2.5
in May of 1999,  as well as higher  prices  realized for our products in 1999 as
compared to 1998.

    SERVICES.  Services revenue  increased  10,199% to $9.2 million for the year
ended  December 31, 1999 from $825,000 for the year ended December 31, 1998. The
primary  factor  for  the  increase  was  the  creation  and  expansion  of  our
professional  consulting  organization  and the  provision  of a wider  range of
consulting  services  to  customers,  as well as an  increase  in the  number of
customers and support contracts.

                                       20
<PAGE>

   COST OF REVENUE

    SOFTWARE  LICENSE.  Cost of software  license revenue  increased 84% to $1.4
million for the year ended  December  31, 1999 from  $767,000 for the year ended
December 31, 1998. Cost of software license revenue decreased as a percentage of
software license revenue to 10% from 13% for the year ended December 31, 1999 as
compared to the previous year ended December 31, 1998.  The dollar  increase was
attributable to increased product, shipping and third party royalty costs from a
larger  volume of sales  orders  and to costs  associated  with our  independent
software vendors.  In addition,  the dollar increase reflects higher fulfillment
costs associated with the increase in international orders.

    SERVICES.  Cost of services revenue  increased 625% to $10.3 million for the
year ended  December 31, 1999 from $1.4 million for the year ended  December 31,
1998.  The  increase was due to an increase in the number of our  education  and
technical  support  personnel  and to the  creation  and rapid  expansion of our
consulting services business in late 1998 and all of 1999.

   OPERATING EXPENSES

    SALES AND  MARKETING.  Sales and marketing  expenses  increased 89% to $20.4
million for the year ended  December  31,  1999 from $10.8  million for the year
ended  December 31, 1998.  The  increase  was  attributable  to increases in the
number of sales employees in North America,  as well as the company's  expansion
of its international sales operations.

    RESEARCH AND DEVELOPMENT. Research and development expenses increased 40% to
$7.1 million for the year ended December 31, 1999 from $5.1 million for the year
ended December 31, 1998. The increase was primarily attributable to increases in
the number of  research  and  development  personnel  to support  SilverStream's
product development activities.

    GENERAL AND  ADMINISTRATIVE.  General and administrative  expenses increased
101% to $4.3 million for the year ended  December 31, 1999 from $2.1 million for
the year ended  December 31, 1998.  The increase was  attributable  to a growing
number  of  administrative  employees,  as well as an  increase  in the bad debt
reserve as our revenue and accounts receivable grew.

    COMPENSATION  CHARGE FOR ISSUANCE OF STOCK OPTIONS.  We incurred a charge of
$439,000  for the year ended  December 31, 1999 related to the issuance of stock
options with exercise prices below fair market value on the date of grant. There
were no such charges for the year ended December 31, 1998.

    AMORTIZATION  OF  GOODWILL.  We incurred a charge of  $385,000  for the year
ended December 31, 1999 related to the amortization of goodwill,  as a result of
the company's  acquisition  of three of its European  distributors  in The Czech
Republic,  Norway and France,  along with two domestic companies;  ObjectEra and
GemLogic.

    IN-PROCESS  RESEARCH AND  DEVELOPMENT  CHARGE.  We incurred a charge of $2.0
million for the year ended  December 31, 1999 related to an in-process  research
and development charge as a result of our acquisition of GemLogic. There were no
such charges for the year ended December 31, 1998.

   INTEREST AND OTHER INCOME

    Interest and other income  increased 159% to $1.2 million for the year ended
December  31, 1999 from  $475,000  for the year ended  December  31,  1998.  The
increase was  attributable  to an increase in interest income due to higher cash
balances during the years ended December 31, 1999 versus December 31, 1998.

NET OPERATING LOSSES AND TAX CREDIT CARRYFORWARDS

    As of December  31,  2000,  we had net  operating  losses and  research  and
development  credit  carryforwards  of  approximately  $49.9  million  and  $1.4
million,  respectively.  The net  operating  loss and research  and  development
credit  carryforwards  will expire at various  dates,  beginning in 2012, if not
utilized.  Under the provisions of the Internal Revenue Code of 1986, as amended
(the "Code"),  substantial  changes in our ownership may limit the amount of net
operating  loss  carry-forwards  that can be utilized  annually in the future to
offset  taxable  income.  A valuation  allowance has been  established  to fully
reserve  the  potential  benefits  of  these   carryforwards  in  our  financial
statements  to reflect the  uncertainty  of future  taxable  income  required to
utilize available tax loss carryforwards and other deferred tax assets.

LIQUIDITY AND CAPITAL RESOURCES

    Since inception, we have funded our operations primarily through the private
sale of our equity  securities,  our initial  public  offering and our secondary
public offering with proceeds  aggregating  approximately  $286.9 million. As of
December  31,  2000,  we had  $191.3  million  in  cash,  cash  equivalents  and
marketable securities, and $188.3 million in working capital.

                                       21
<PAGE>

    We have entered into various lease and financing  arrangements which provide
for the  acquisition of furniture and equipment.  At December 31, 2000, we had a
total of approximately $1.0 million outstanding under these  arrangements.  Such
borrowings are secured by substantially all of our tangible assets. In addition,
in connection with our  acquisition of Bondi  Software,  we assumed a $2 million
line of credit,  which was used to fund Bondi Software's  working capital needs.
The  outstanding  balance  under this  facility  at  December  31, 2000 was $1.2
million and is secured by substantially all of our tangible assets.

    Net cash used in  operating  activities  was $27.1  million  in 2000,  $17.2
million  in 1999 and  $13.0  million  in 1998.  Net cash  flows  from  operating
activities in each period reflect increasing net losses and, to a lesser extent,
accounts receivable offset in part by increases in deferred revenue.

    Net cash used in  investing  activities  was $126.0  million  in 2000,  $2.0
million in 1999 and $4.3 million in 1998.  Investing  activities  in each period
reflect  purchases of property and equipment,  as well as purchases and sales of
short-term investments.  Investing activities in 2000 also reflect the purchases
of Power  2000,  eObject,  Excelnet  Systems  and  Bondi  Software  as well as a
contingent payment to ObjectEra.

    Net cash provided by financing  activities was $192.8 million in 2000, $64.9
million in 1999 and $1.9 million in 1998. Cash provided by financing  activities
includes proceeds from the issuance of preferred and common stock, offset by the
payments on long-term  debt in each period,  as well as proceeds from  equipment
financings.

    Capital  expenditures  were $10.1 million in 2000,  $2.2 million in 1999 and
$1.0 million in 1999. Of the $10.1 million  incurred during 2000,  approximately
$3.9  million  related to the  relocation  of our  corporate  headquarters  form
Burlington, Massachusetts to Billerica, Massachusetts. Specifically, we expended
approximately $1.4 million on furniture, fixtures and office equipment, $760,000
on computer  equipment and $1.7 million on leasehold  improvements in connection
with the relocation.  Our other capital  expenditures  consisted of purchases of
computer  hardware and  software,  office  furniture and equipment and leasehold
improvements.   Purchases  of  computer  equipment  and  leasehold  improvements
represent the largest  component of our capital  expenditures and we expect that
such  expenditures  will  continue as we increase  the number of our  employees,
increase the size of our development and quality  assurance  testing  facilities
and  improve  and expand  our  information  systems.  Since  inception,  we have
generally funded capital  expenditures either with the use of working capital or
equipment bank loans.

    We expect  to  experience  significant  growth  in our  operating  expenses,
particularly research and development and sales and marketing expenses,  for the
foreseeable  future in order to  execute  our  business  plan.  As a result,  we
anticipate that such operating expenses, as well as planned capital expenditures
and the expansion of our professional services  organization,  will constitute a
material use of our cash resources.  In addition,  we may utilize cash resources
to  fund   acquisitions  of,  or  investments  in,   complementary   businesses,
technologies or product lines. We believe that the net proceeds from the sale of
the common stock by our initial and secondary public stock  offerings,  together
with funds  generated  from  operations,  will be sufficient to meet our working
capital requirements for at least the next 12 months. Thereafter, we may find it
necessary to obtain additional equity or debt financing. In the event additional
financing is required,  we may not be able to raise it on acceptable terms or at
all.

    We  do  not  believe  that  inflation  has  had a  material  impact  on  our
operations.

CONVERSION TO THE EURO

    As of January 1, 2001,  twelve of the fifteen common member countries of the
European  Union have agreed to adopt the Euro as their legal  currency.  We have
arranged for the necessary  modifications of our internal information technology
and other systems to accommodate Euro-denominated transactions. In addition, our
products  support the Euro currency  symbol.  We are also assessing the business
implications  of the  conversion to the Euro,  including  long-term  competitive
implications   and  the  effect  of  market  risk  with   respect  to  financial
instruments.  Based on the  foregoing,  we do not  believe  the Euro will have a
significant effect on our business, financial position, cash flows or results of
operations.  We will continue to assess the impact of Euro conversion  issues as
the applicable accounting, tax, legal and regulatory guidance evolves.

                                       22
<PAGE>

RECENT ACCOUNTING PRONOUNCEMENTS

    In  March  2000,  the  Financial  Accounting  Standards  Board  issued  FASB
Interpretation  No. 44,  "Accounting  for Certain  Transactions  Involving Stock
Compensation" ("Interpretation 44"), an interpretation of APB 25. Interpretation
44 clarifies  guidance for certain  issues that arose in the  application of APB
25. Areas of focus within Interpretation 44 include repricings, modifications to
extend the option term,  change of grantee status,  modifications  to accelerate
vesting and options exchanged in a purchase business  combination.  The adoption
of  Interpretation  44 as of July 1, 2000 did not have a material  effect on the
Company's financial condition or results of operations.

    In June 1998, the Financial Accounting  Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging  Activities" ("SFAS No. 133") as amended
by  SFAS  No.  137 and No.  138,  which  establishes  accounting  and  reporting
standards for derivative instruments,  including derivative instruments embedded
in other  contracts,  (collectively  referred to as derivatives) and for hedging
activities.  SFAS No. 133 is effective  for all fiscal  quarters of fiscal years
beginning after June 15, 2000. The Company does not believe that the adoption of
SFAS No. 133 will have a material  impact on its financial  condition or results
of operations.

    In  December  1999,  the  Securities  and Exchange  Commission  issued Staff
Accounting Bulletin (SAB) No. 101 "Revenue Recognition in Financial Statements."
The SAB  formalizes  positions  the staff has  expressed in speeches and comment
letters.  The Company adopted Staff  Accounting  Bulletin (SAB) No. 101 "Revenue
Recognition  in  Financial  Statements",  in the  fourth  quarter  of 2000.  The
adoption of SAB 101 did not have a material  impact on the  Company's  financial
condition or results of operations.


ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

    SilverStream  does not currently use derivative  financial  instruments.  We
generally  place our  marketable  security  investments  in high credit  quality
instruments,   primarily  U.S.   Government  and  Federal  Agency   obligations,
tax-exempt  municipal  obligations and corporate  obligations  with  contractual
maturities  of ten years or less.  We do not expect any  material  loss from our
marketable  security  investments  and  therefore  believe  that  our  potential
interest rate exposure is not material.

    Internationally,   SilverStream   invoices  customers   primarily  in  local
currency.  We are  exposed  to  foreign  exchange  rate  fluctuations  from when
customers are invoiced in local  currency  until  collection  occurs.  We do not
currently enter into foreign currency hedge  transactions.  Through December 31,
2000,  foreign  currency  fluctuations  have not had a  material  impact  on our
financial position or results of operations.

    Investments   in  both  fixed  rate  and  floating  rate  interest   earning
instruments carry a degree of interest rate risk. Fixed rate securities may have
their fair market  value  adversely  impacted  due to a rise in interest  rates,
while floating rate securities may produce less income than expected if interest
rates fall. Due in part to these factors,  our future investment income may fall
short of  expectations  due to changes in interest rates or we may suffer losses
in  principal  if forced to sell  securities  that have seen a decline in market
value due to changes in interest rates. A hypothetical  10% increase or decrease
in interest  rates,  however,  would not have a material  adverse  effect on our
financial condition.

    Interest  income on the  Company's  investments  is carried in "Interest and
other  income."  The  Company  accounts  for  cash  equivalents  and  marketable
securities in accordance with Statement of Financial Accounting Standards (SFAS)
No. 115,  "Accounting  for Certain  Investments in Debt and Equity  Securities."
Cash  equivalents  are  short-term,  highly  liquid  investments  with  original
maturity dates of three months or less.  Cash  equivalents  are carried at cost,
which  approximates fair market value. The Company's  marketable  securities are
classified  as  available-for-sale  and are  recorded  at fair  value  with  any
unrealized  gain  or  loss  recorded  as  an  element  of  stockholder's  equity
(deficit).


                                       23
<PAGE>


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>


                           SILVERSTREAM SOFTWARE, INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
           <S>                                                                                                       <C>

                                                                                                                     Page
                                                                                                                     ----

           Report of Independent Auditors....................................................................         25
           Consolidated Balance Sheets.......................................................................         26
           Consolidated Statements of Operations.............................................................         27
           Consolidated Statements of Redeemable Convertible
             Preferred Stock and Stockholders' Equity (Deficit)..............................................         28
           Consolidated Statements of Cash Flows.............................................................         29
           Notes to Consolidated Financial Statements........................................................         30
</TABLE>


                                       24
<PAGE>


                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
SilverStream Software, Inc.

    We   have  audited  the   accompanying   consolidated   balance   sheets  of
SilverStream  Software,  Inc. as of December 31, 2000 and 1999,  and the related
consolidated  statements of operations,  redeemable  convertible preferred stock
and stockholders'  equity (deficit),  and cash flows for each of the three years
in the period ended  December  31,  2000.  These  financial  statements  are the
responsibility  of the  Company's  management.  Our  audits  also  included  the
financial   statement   schedule  listed  in  the  Index  at  Item  14(a).   Our
responsibility  is to  express  an opinion  on these  financial  statements  and
schedule based on our audits.

    We conducted our audits in  accordance  with  auditing  standards  generally
accepted in the United States.  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 financial statements referred to above present fairly,
in all material  respects,  the consolidated  financial position of SilverStream
Software,  Inc. at December 31, 2000 and 1999, and the  consolidated  results of
its  operations  and its cash  flows for each of the three  years in the  period
ended  December 31, 2000, in conformity  with  accounting  principles  generally
accepted in the United  States.  Also,  in our  opinion,  the related  financial
statement  schedule,   when  considered  in  relation  to  the  basic  financial
statements taken as a whole,  presents  fairly,  in all material  respects,  the
information set forth therein.

                                                           /s/ ERNST & YOUNG LLP

Boston, Massachusetts
January 30, 2001



                                       25
<PAGE>


<TABLE>
<CAPTION>

                           SILVERSTREAM SOFTWARE, INC.

                           CONSOLIDATED BALANCE SHEETS

                                                                                               December 31,
                                                                                       ---------------------------
                                                                                           2000           1999
                                                                                       ------------   ------------

                                        Assets
         <S>                                                                           <C>            <C>

         Current assets:
           Cash and cash equivalents................................................   $ 86,480,910   $ 46,798,806
           Marketable securities....................................................    104,848,077        246,690
           Accounts receivable; net of allowances of $1,055,472 and $763,245 at
             December 31, 2000 and 1999, respectively...............................     25,652,513      6,938,308
           Prepaid expenses.........................................................      2,945,184      1,130,809
           Other current assets.....................................................      1,614,832      2,003,263
                                                                                       ------------   ------------
                  Total current assets..............................................    221,541,516     57,117,876

         Furniture, equipment and leasehold improvements, net.......................     11,234,943      2,835,698
         Other assets...............................................................      2,080,500              -
         Intangible assets, net.....................................................     78,881,365     20,708,961
                                                                                       ------------   ------------

                  Total assets......................................................   $313,738,324   $ 80,662,535
                                                                                       ============   ============

                           Liabilities and stockholders' equity

         Current liabilities:
           Accounts payable.........................................................   $  3,864,815   $  7,140,194
           Accrued expenses.........................................................     16,168,727      3,899,570
           Deferred revenue.........................................................     11,337,795      5,078,728
           Current portion of long-term debt and obligations under capital leases...      1,867,735        450,773
                                                                                       ------------   ------------
                  Total current liabilities.........................................     33,239,072     16,569,265

         Long-term debt and obligations under capital leases, less current portion..        358,325        508,526

         Common stock, $.001 par value - authorized  100,000,000 shares; issued
             and outstanding 21,053,626 at December 31, 2000 and 17,689,870 at
             December 31, 1999......................................................         21,054         17,689
         Additional paid-in capital.................................................    364,067,512    115,185,253
         Deferred compensation......................................................    (11,292,604)    (7,213,359)
         Accumulated deficit........................................................    (72,526,756)   (44,161,019)
         Accumulated other comprehensive loss.......................................        (96,779)      (140,320)
         Notes receivable from stockholders                                                 (31,500)      (103,500)
                                                                                       ------------   ------------
                  Total stockholders' equity........................................    280,140,927     63,584,744
                                                                                       ------------   ------------

                  Total liabilities and stockholders' equity........................   $313,738,324   $ 80,662,535
                                                                                       ============   ============
</TABLE>


                             See accompanying notes.


                                       26
<PAGE>


                           SILVERSTREAM SOFTWARE, INC.

                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                            Year ended
                                                                            December 31,
                                                          -----------------------------------------------
                                                               2000             1999             1998
                                                          -------------    -------------    -------------
<S>                                                       <C>              <C>              <C>

Revenue:
  Software licenses....................................   $  40,859,059    $  13,825,676    $   5,982,534
  Services.............................................      39,724,938        9,238,731          825,365
                                                          -------------    -------------    -------------
          Total revenue................................      80,583,997       23,064,407        6,807,899
Cost of revenue:
  Software licenses....................................       2,500,859        1,412,175          767,225
  Services.............................................      36,022,475       10,252,589        1,413,962
                                                          -------------    -------------    -------------

          Total cost of revenue........................      38,523,334       11,664,764        2,181,187
                                                          -------------    -------------    -------------

Gross profit...........................................      42,060,663       11,399,643        4,626,712
Operating expenses:
  Sales and marketing..................................      45,279,070       20,419,430       10,776,396
  Research and development.............................      14,576,892        7,090,691        5,069,465
  General and administrative...........................       9,057,758        4,300,713        2,141,187
  Compensation charge for issuance of stock options....       2,329,018          438,594                -
  Amortization of goodwill.............................      11,309,026          384,729                -
  In-process research and development charge...........               -        1,986,659                -
                                                          -------------    -------------    -------------
          Total operating expenses.....................      82,551,764       34,620,816       17,987,048
                                                          -------------    -------------    -------------

Loss from operations...................................     (40,491,101)     (23,221,173)     (13,360,336)

Interest and other income..............................      12,207,315        1,421,743          559,495
Interest expense.......................................         (81,951)        (189,863)         (84,206)
                                                          --------------   -------------    -------------

Net loss...............................................   $ (28,365,737)   $ (21,989,293)   $ (12,885,047)

Beneficial conversion feature in Series D preferred
     stock.............................................              -          (263,158)               -
                                                          --------------   -------------    -------------

Net loss applicable to common stockholders.............   $ (28,365,737)   $ (22,252,451)   $ (12,885,047)
                                                          ==============   =============    =============
Basic and diluted net loss per share applicable to
     common stockholders...............................   $       (1.44)   $       (2.64)   $       (4.89)
                                                          ==============   =============    =============
Weighted-average common shares used in computing basic
     and diluted net loss per share applicable to
     common stockholders...............................      19,697,498        8,419,116        2,632,496


</TABLE>

                             See accompanying notes.

                                       27
<PAGE>


                           SILVERSTREAM SOFTWARE, INC.

                      CONSOLIDATED STATEMENTS OF REDEEMABLE
            CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS EQUITY (DEFICIT)

<TABLE>
<CAPTION>


                                                               Redeemable
                                                              Convertible               Convertible
                                                            Preferred Stock            Preferred Stock           Common Stock
                                                        -----------------------    -----------------------   ----------------------
                                                          Shares       Amount        Shares      Amount         Shares     Amount
                                                        ---------   -----------    ----------  -----------   -----------  ---------
<S>                                                     <C>         <C>            <C>         <C>           <C>          <C>

Balance at December 31, 1997..........................  5,183,988   $11,638,050     1,728,283  $15,154,325     5,086,391  $   5,086
Issuance of common stock in January and                                                                           64,863         65
 December 1998........................................
Issuance of Series C preferred stock in
 March 1998 (net of issuance costs of $4,000).........                                194,305    1,701,998
Exercise of stock options in June through
 December 1998........................................                                                            55,525         56
Net loss..............................................
                                                        ---------   -----------    ----------  -----------   -----------  ---------
Balance at December 31, 1998..........................  5,183,988    11,638,050     1,922,588   16,856,323     5,206,779      5,207
Issuance of Series D preferred stock in
 March, April and May 1999
 (net of issuance costs of $22,000)...................                              1,552,632   14,727,997
Repurchase and retirement of common stock
 in March 1999........................................                                                           (10,754)       (11)
Exercise of stock options.............................                                                           130,181        129
Issuance of common stock in June, July,
 August and December 1999.............................                                                         3,704,456      3,705
Conversion of redeemable convertible
 preferred stock in August 1999....................... (5,183,988)  (11,638,050)   (3,475,220) (31,584,320)    8,659,208      8,659
Deferred compensation on grant of stock options.......
Amortization of deferred compensation.................
Net Loss..............................................
Currency translation adjustment.......................
Comprehensive loss....................................
                                                        ---------   -----------    ----------  -----------   -----------  ---------
Balance at December 31, 1999..........................          -             -             -            -    17,689,870     17,689
Issuance of common stock in secondary
 offering.............................................                                                         1,775,851      1,776
Issuance of common stock and stock options
 in acquisitions of subsidiaries......................                                                         1,233,398      1,234
Issuance of common stock in connection with
 employee stock purchase plan ........................                                                            75,945         76
Exercise of stock options ............................                                                           278,562        279
Deferred compensation on grant of stock options ......
Amortization of deferred compensation.................
Receipt of amounts due from stockholdere .............
Net loss..............................................
Currency translation adjustment.......................
Comprehensive loss....................................
                                                        ---------   -----------    ----------  -----------   -----------  ---------
Balance at December 31, 2000..........................          -   $         -             -  $         -    21,053,626  $  21,054
                                                        =========   ===========    ==========  ===========   ===========  =========

                                                                                                       Accumulated
                                                                                                          Other          Notes
                                                         Additional                                    Comprehensive   Receivable
                                                          Paid-in         Deferred       Accumulated      Income         from
                                                          Capital       Compensation      (Deficit)       (Loss)      Stockholders
                                                        ------------   --------------   -------------  -------------  ------------
<S>                                                     <C>            <C>              <C>            <C>            <C>

Balance at December 31, 1997..........................  $    174,796                    $  (9,286,679)                $   (103,500)
Issuance of common stock in January and
 December 1998........................................       181,887
Issuance of Series C preferred stock in
 March 1998 (net of issuance costs of $4,000).........
Exercise of stock options in June through
 December 1998........................................         9,302
Net loss..............................................                                    (12,885,047)
                                                        ------------   --------------   -------------  -------------  ------------
Balance at December 31, 1998..........................       365,985                      (22,171,726)                    (103,500)
Issuance of Series D preferred stock in
 March, April and May 1999
 (net of issuance costs of $22,000)...................
Repurchase and retirement of common stock
 in March 1999........................................
Exercise of stock options.............................       269,852
Issuance of common stock in June, July,
 August and December 1999.............................    63,683,752
Conversion of redeemable convertible
 preferred stock in August 1999.......................    43,213,711
Deferred compensation on grant of stock options.......     7,651,953   $   (7,651,953)
Amortization of deferred compensation.................                        438,594
Net Loss..............................................                                    (21,989,293)
Currency translation adjustment.......................                                                 $    (140,320)
                                                                                                       -------------
Comprehensive loss....................................
                                                        ------------   --------------   -------------  -------------  ------------
Balance at December 31, 1999..........................   115,185,253       (7,213,359)    (44,161,019)      (140,320)     (103,500)
Issuance of common stock in secondary
 offering.............................................   191,594,826
Issuance of common stock and stock options
 in acquisitions of subsidiaries......................    48,663,254
Issuance of common stock in connection with
 employee stock purchase plan ........................     1,327,427
Exercise of stock options ............................       888,489
Deferred compensation on grant of stock options ......     6,408,263       (6,408,263)
Amortization of deferred compensation.................                      2,329,018
Receipt of amounts due from stockholdere .............                                                                      72,000
Net loss..............................................                                    (28,365,737)
Currency translation adjustment.......................                                                        43,541
                                                                                                       -------------
Comprehensive Loss....................................
                                                        ------------   --------------   -------------  -------------  ------------
Balance at December 31, 2000..........................  $364,067,512   $  (11,292,604)  $ (72,526,756) $     (96,779) $    (31,500)
                                                        ============   ==============   =============  =============  ============


                                                           Total
                                                        Stockholders'
                                                          Equity
                                                         (Deficit)
                                                        -------------
<S>                                                     <C>

Balance at December 31, 1997..........................  $   5,944,028
Issuance of common stock in January and
 December 1998........................................        181,952
Issuance of Series C preferred stock in
 March 1998 (net of issuance costs of $4,000).........      1,701,998
Exercise of stock options in June through
 December 1998........................................          9,358
Net loss..............................................    (12,885,047)
                                                        -------------
Balance at December 31, 1998..........................     (5,047,711)
Issuance of Series D preferred stock in
 March, April and May 1999
 (net of issuance costs of $22,000)...................     14,727,997
Repurchase and retirement of common stock
 in March 1999........................................            (11)
Exercise of stock options.............................        269,981
Issuance of common stock in June, July,
 August and December 1999.............................     63,687,457
Conversion of redeemable convertible
 preferred stock in August 1999.......................     11,638,050
Deferred compensation on grant of stock options.......              -
Amortization of deferred compensation.................        438,594
Net Loss..............................................    (21,989,293)
Currency translation adjustment.......................       (140,320)
                                                        -------------
Comprehensive loss....................................    (22,129,613)
                                                        -------------
Balance at December 31, 1999..........................     63,584,744
Issuance of common stock in secondary
 offering.............................................    191,596,602
Issuance of common stock and stock options
 in acquisitions of subsidiaries......................     48,664,488
Issuance of common stock in connection with
 employee stock purchase plan ........................      1,327,503
Exercise of stock options ............................        888,768
Deferred compensation on grant of stock options ......              -
Amortization of deferred compensation.................      2,329,018
Receipt of amounts due from stockholdere .............         72,000
Net loss..............................................    (28,365,737)
Currency translation adjustment.......................         43,541
                                                        -------------
Comprehensive Loss....................................    (28,322,196)
                                                        -------------
Balance at December 31, 2000..........................  $ 280,140,927
                                                        =============
</TABLE>



                                       28
<PAGE>


                           SILVERSTREAM SOFTWARE, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                            Year Ended

                                                                                           December 31,
                                                                           --------------------------------------------
                                                                               2000            1999            1998
                                                                           ------------    ------------    ------------
     <S>                                                                   <C>             <C>             <C>

     Operating activities

     Net loss.........................................................     $(28,365,737)   $(21,989,293)   $(12,885,047)
     Adjustments to reconcile net loss to net cash used in operating
     activities:
       Depreciation and amortization..................................       13,874,422       1,673,163         724,045
       Provision for allowances on accounts receivable................          292,227         287,252         431,333
       In-process research and development charge......................               -       1,986,659               -
       Operating expenses paid with issuance of common stock...........               -               -         181,952
       Compensation charge for issuance of stock options..............        2,329,018         438,594               -
       Changes in operating assets and liabilities:
         Accounts receivable..........................................      (17,296,990)     (3,328,390)     (3,577,745)
         Other current assets.........................................          447,399      (1,832,327)        166,824
         Prepaid expenses.............................................       (1,675,542)       (722,227)         69,837
         Other assets.................................................       (2,080,500)              -               -
         Accounts payable and accrued expenses........................         (800,042)      3,556,812         870,286
         Deferred revenue.............................................        6,162,530       2,731,856       1,026,571
                                                                           ------------    ------------    ------------
     Net cash used in operating activities............................      (27,113,215)    (17,197,901)    (12,991,944)

     Investing activities

     Purchase of businesses, net of cash acquired.....................      (11,502,140)     (3,089,598)              -
     Cash acquired through acquisitions of businesses.................          198,296         255,310               -
     Purchase of furniture and equipment..............................      (10,126,453)     (2,208,906)       (992,236)
     (Purchase) sale of available-for-sale securities.................     (104,601,388)      3,083,913      (3,330,603)
                                                                           -------------   ------------    -------------
     Net cash used in investing
       activities.....................................................     (126,031,685)     (1,959,281)     (4,322,839)

     Financing activities

     Net proceeds from issuance of preferred stock....................                -      14,727,997       1,701,998
     Net proceeds from issuance of common stock.......................      193,812,236      50,006,058           9,358
     Repurchase and retirement of common stock........................                -             (11)              -
     Payment of note receivable from stockholders.....................           72,000               -               -
     Proceeds from line of credit.....................................                -         750,000         602,317
     Payments on long-term debt.......................................       (1,100,773)       (551,309)       (449,647)
                                                                           ------------    ------------    -------------
     Net cash provided by financing activities........................      192,783,463      64,932,735       1,864,026

     Effects of exchange rate on cash and cash equivalents............           43,541        (175,331)              -
                                                                           ------------    ------------    ------------

     Net increase (decrease) in cash and cash equivalents.............       39,682,104      45,600,222     (15,450,757)

     Cash and cash equivalents at beginning of year...................       46,798,806       1,198,584      16,649,341
                                                                           ------------    ------------    ------------
     Cash and cash equivalents at end of year.........................     $ 86,480,910    $ 46,798,806    $  1,198,584
                                                                           ============    ============    ============

     Supplemental Information Cash paid during the period for:

         Income taxes.................................................     $    172,341    $     21,110    $     14,283
                                                                           ============    ============    ============
         Interest.....................................................     $     66,867    $     78,891    $     84,206
                                                                           ============    ============    ============

</TABLE>


                             See accompanying notes.



                                       29
<PAGE>


                           SILVERSTREAM SOFTWARE, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  NATURE OF BUSINESS

    SilverStream  Software,  Inc. (the Company) was incorporated on May 8, 1996.
The Company provides solutions for building,  deploying and managing large-scale
Internet,  e-commerce,  business-to-business,  enterprise  portal  and  intranet
applications.  The Company markets its software  worldwide and has sales offices
in the United States, Canada, United Kingdom, The Netherlands, Belgium, Germany,
Norway, The Czech Republic,  France,  Luxembourg,  Denmark,  Sweden,  Hong Kong,
Singapore, Taiwan and Australia.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   PRINCIPLES OF CONSOLIDATION

    The consolidated  financial  statements  include the accounts of the Company
and its U.S.  and  international  subsidiaries,  all of which are wholly  owned,
located in North America,  Europe, Asia and Australia. All intercompany accounts
and transactions have been eliminated in consolidation.

    The accompanying  consolidated  financial statements reflect the application
of  certain  significant  accounting  policies  as  described  in this  note and
elsewhere in the accompanying consolidated financial statements and notes.

   RECLASSIFICATIONS

   Certain  amounts from 1998 and 1999 have been  reclassified to conform to the
2000 presentation.

   USE OF ESTIMATES

    The preparation of the consolidated  financial statements in conformity with
generally accepted  accounting  principles requires management to make estimates
and assumptions that affect the amounts  reported in the consolidated  financial
statements  and  accompanying  notes.  Actual  results  could  differ from those
estimates.

   CASH EQUIVALENTS AND MARKETABLE SECURITIES

    The Company  accounts for cash  equivalents  and  marketable  securities  in
accordance  with  Statement of Financial  Accounting  Standards  (SFAS) No. 115,
"Accounting  for  Certain  Investments  in Debt  and  Equity  Securities."  Cash
equivalents are short-term,  highly liquid  investments  with original  maturity
dates of three  months or less.  Cash  equivalents  are  carried at cost,  which
approximates fair market value. The Company's marketable  securities,  which, as
of  December  31,  2000,   consisted  of  U.S.  Government  and  Federal  Agency
obligations,  tax-exempt municipal obligations,  and investment-grade  corporate
bonds,  are  classified  as  available-for-sale  and are recorded at fair market
value with any  unrealized  gain or loss  recorded  as a separate  component  of
comprehensive loss.

    As of December 31, 2000, the Company had a $631,010  restriction on its cash
balance, as a result of four secured letters of credit.  These letters of credit
were issued by the Company's  primary bank to certain landlords as part of lease
negotiations.

   CONCENTRATION OF CREDIT RISK

    Financial  instruments that  potentially  subject the Company to significant
concentrations of credit risk consist of cash and cash  equivalents,  marketable
securities,  accounts receivable and other receivables.  Concentration of credit
risk with respect to cash  equivalents  and marketable  securities is limited as
these assets are  primarily  U.S.  Government  and Federal  Agency  obligations,
tax-exempt  municipal  obligations  and  investment-grade  corporate  bonds with
high-credit, quality financial institutions.

                                       30
<PAGE>

    There is no  significant  concentration  of  credit  risk  with  respect  to
accounts  receivable  due  to the  large  number  of  companies  comprising  the
Company's  customer base.  On-going credit  evaluations of customers'  financial
condition are performed  and  collateral is generally not required.  The Company
maintains  reserves  for  potential  credit  losses  and  such  losses,  in  the
aggregate, have not exceeded management's expectations.

   FURNITURE AND EQUIPMENT

    Furniture and equipment is stated at cost.  Depreciation  is computed by use
of the straight-line method over the following estimated useful lives:

Leasehold improvements........................      Lesser of remaining
                                                    lease-term or useful life
Furniture and fixtures........................      5 years
Computer equipment and software...............      3 years
Telephone equipment...........................      3 years


   ADVERTISING COSTS

    The Company expenses  advertising costs as incurred.  Advertising costs were
$2,521,288,  $805,000 and $858,000 for the years ended  December 31, 2000,  1999
and 1998, respectively.

   CAPITALIZED SOFTWARE

    Capitalization  of software  development costs under SFAS No. 86 begins upon
the  establishment of technological  feasibility.  Technological  feasibility is
established  upon the  completion  of a  working  model.  The  establishment  of
technological  feasibility  and the  ongoing  assessment  of  recoverability  of
capitalized  software   development  costs  require  considerable   judgment  by
management with respect to certain external factors,  including, but not limited
to,  technological  feasibility,  anticipated  future gross revenues,  estimated
economic life, and changes in software and hardware technologies. Costs incurred
by the Company between  completion of a working model and the point at which the
product is ready for general release have been insignificant. Therefore, through
December 31, 2000,  all research  and  development  costs have been  expensed as
incurred.

   REVENUE RECOGNITION

    Revenue  recognition  from software  license fees and from sales of software
products  is  recognized  when  persuasive  evidence of an  arrangement  exists,
delivery of the product has occurred,  no significant  Company  obligations with
regard  to  implementation   remain,  the  fee  is  fixed  or  determinable  and
collectibility  is probable.  The Company's  software  arrangements  may contain
multiple elements such as software products, services and post-contract customer
support  (PCS).  Revenue  earned on  software  arrangements  involving  multiple
elements  which  qualify for  separate  element  treatment  is allocated to each
element  based on the  relative  fair values of those  elements  based on vendor
specific  objective  evidence.  For the year ended  December  31,  2000,  vendor
specific  objective evidence is limited to the price charged when the element is
sold  separately  or,  for an  element  not  being  sold  separately,  the price
established by management having the relevant  authority.  Accordingly,  revenue
from software  products is recognized when the product is shipped.  Revenue from
services is recognized as the services are provided to the customer. Revenue for
PCS is recognized ratably over the term of the agreement.

    Certain arrangements requiring significant customization or modifications of
the Company's software products are accounted for using percentage of completion
contract accounting as defined by Statement of Position (SOP) 81-1,  "Accounting
for  Performance  of  Construction-Type  Contracts  and Certain  Production-Type
Contracts."  Under SOP 81-1,  revenue is recognized  based on the costs incurred
during the  reporting  period as a percentage  of the total  estimated  contract
costs.

    Customer advances and billed amounts due from customers in excess of revenue
recognized  are recorded as deferred  revenue and recognized as the services are
delivered.

    Revenue  derived  from  arrangements  with  resellers of our products is not
recognized until the software is shipped to the customer.

                                       31
<PAGE>

    Sales to  independent software vendors (ISVs) are deferred and recognized as
product revenue ratably over the anticipated  period of performance for services
under the agreement,  which is generally 12 months. ISV-related partner fees are
deferred  and  recognized  on a straight  line basis as an offset to the related
expenses over the life of the agreement,  since the Company  considers such fees
to  be  reimbursement  for  costs  incurred,  primarily  marketing  support,  in
connection with its ISV partner program.

    Customer  returns  are  estimated  and accrued  for as a  percentage  of net
product revenues based upon historical trends.

    The Company adopted SOP 97-2,  "Software Revenue  Recognition" as of January
1, 1998, and SOP 98-9,  "Modification of SOP 97-2, Software Revenue Recognition,
with Respect to Certain  Transactions,"  as of January 1, 2000. SOP 97-2 and SOP
98-9  provide  guidance for  recognizing  revenue on software  transactions  and
supersede SOP 91-1.

    The  Company  adopted  Staff  Accounting  Bulletin  (SAB) No.  101  "Revenue
Recognition  in Financial  Statements",  as of October 1, 2000. SAB 101 provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements.

    The  adoption  of SOP  97-2,  SOP 98-9  and SAB 101 did not have a  material
impact on the Company's financial results.

   LICENSING AGREEMENTS

    The Company has entered into various  licensing  agreements with third-party
software  and  technology  companies,   primarily  for  encryption   technology,
full-text  searching  technology and the use of J2EE elements.  Royalty payments
under such  licensing  agreements  are based on either a  percentage  of product
revenue  or per unit  sales.  Royalty  expenses,  which are  charged  to cost of
revenue  under  these  license  agreements,  totaled  $1,059,391,  $310,000  and
$168,000 for the years ended  December 31,  2000,  1999 and 1998,  respectively.
Prepaid  royalties  related to these  licensing  agreements  were  $837,641  and
$399,000 for the years ended December 31, 2000 and 1999, respectively.

   EARNINGS PER SHARE

    The Company  computes  earnings per share in  accordance  with SFAS No. 128,
"Earnings per Share".  SFAS 128 requires  calculation and  presentation of basic
and diluted earnings per share.  Basic earnings per share is calculated based on
the  weighted  average  number of common  shares  outstanding  and  excludes any
dilutive effects of warrants,  stock options, common stock subject to repurchase
or other type securities.  Diluted earnings per share is calculated based on the
weighted average number of common shares  outstanding and the dilutive effect of
warrants,  stock  options,  and  related  securities.  Dilutive  securities  are
excluded  from the diluted  earnings  per share  calculation  if their effect is
anti-dilutive.

   INCOME TAXES

    The Company  provides for income taxes under SFAS No. 109,  "Accounting  for
Income  Taxes." Under SFAS 109, the liability  method is used in accounting  for
income  taxes.  Under this  method,  deferred  tax assets  and  liabilities  are
determined based on differences between the financial reporting and tax basis of
assets and  liabilities  and are  measured  using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse.

   FINANCIAL INSTRUMENTS

    The fair value of the Company's  financial  instruments,  which include cash
and  cash  equivalents,   marketable  securities,   accounts  receivable,  other
receivables,  accounts  payable  and long term  debt,  are based on  assumptions
concerning  the amount and timing of  estimated  future  cash flows and  assumed
discount rates reflecting  varying degrees of perceived risk. The carrying value
of these  financial  instruments  approximated  their fair value at December 31,
2000 and 1999 due to the short term nature of these instruments and the variable
interest rate on the long term debt.

   FOREIGN CURRENCY TRANSLATIONS

    Financial  statements  of  foreign  subsidiaries  are  translated  into U.S.
dollars at the exchange rate as of the balance  sheet dates,  with the exception
of revenues, costs and expenses. All revenues, costs and expenses are translated
at a weighted-average  of exchange rates in effect during the year. Net exchange
gains  or  losses  resulting  from  the  translation  of the  foreign  financial
statements  are  recorded  as a  separate  component  of  comprehensive  income.
Transaction adjustments for all foreign subsidiaries are included in income.

                                       32
<PAGE>

   ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS

    The carrying  value of  long-lived  assets used in  operations,  such as the
excess cost over net assets of businesses acquired, and furniture,  fixtures and
leasehold  improvements,  is  periodically  reviewed by the Company based on the
expected  future  undiscounted  operating cash flows of the related asset. If an
impairment  is  indicated,  the Company  will adjust the  carrying  value of the
long-lived  assets to fair value.  No event has  occurred  that would impair the
value of long-lived assets recorded in the accompanying  consolidated  financial
statements.

   STOCK COMPENSATION ARRANGEMENTS

    The  Company  adopted  the  disclosure-only  provisions  of  SFAS  No.  123,
"Accounting  for  Stock-Based  Compensation."  As permitted by SFAS No. 123, the
Company has continued to account for employee  stock options in accordance  with
Accounting  Principles Board Opinion (APB) No. 25,  "Accounting for Stock Issued
to  Employees,"  and related  interpretations,  and has  included  the pro forma
disclosures required by SFAS No. 123 for all periods presented.

   NON-MONETARY TRANSACTIONS

    The Company has entered into certain non-monetary transactions involving the
issuance of preferred  or common stock in  consideration  for  professional  and
marketing  services  provided to the Company by third  parties.  The Company has
accounted for these  non-monetary  transactions in accordance with SFAS No. 123.
All  transactions  are  accounted  for  based on the fair  value of the goods or
services  received  or on the  fair  value  of the  equity  instruments  issued,
whichever is more  reliably  measurable.  All expenses  related to  non-monetary
transactions were recognized in the period incurred.

   COMPREHENSIVE INCOME

    As of  January  1,  1998,  the  Company  adopted  SFAS No.  130,  "Reporting
Comprehensive Income," which establishes new rules for the reporting and display
of comprehensive  income and its components.  SFAS 130 requires unrealized gains
and  losses  on the  Company's  available-for-sale  securities  and the  foreign
currency  translation  adjustments,   which  prior  to  adoption  were  reported
separately  in  shareholders'  equity,  to be  included  in other  comprehensive
income.  Prior to the year  ended  December  31,  1999,  amounts  pertaining  to
comprehensive  income were not material and have  therefore not been  separately
stated.

   SEGMENT REPORTING

    The Company reports  segments in accordance with SFAS No. 131,  "Disclosures
about Segments of an Enterprise and Related  Information."  SFAS 131 establishes
standards for the way that public business  enterprises report information about
operating  segments  in  interim  financial  reports.   The  Company  views  its
operations and manages its business as one segment: the development and delivery
of e-business platform solutions, that include software and related products and
services.  Factors  used to identify  the  Company's  single  operating  segment
include  the   organizational   structure  of  the  Company  and  the  financial
information  available for evaluation by the chief  operating  decision maker in
making  decisions  about  how to  allocate  resources  and  assess  performance.
Disclosure of segment information is included in Note 11.

   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

    In  March  2000,  the  Financial  Accounting  Standards  Board  issued  FASB
Interpretation  No. 44,  "Accounting  for Certain  Transactions  Involving Stock
Compensation" ("Interpretation 44"), an interpretation of APB 25. Interpretation
44 clarifies  guidance for certain  issues that arose in the  application of APB
25. Areas of focus within Interpretation 44 include repricings, modifications to
extend the option term,  change of grantee status,  modifications  to accelerate
vesting and options exchanged in a purchase business  combination.  The adoption
of  Interpretation  44 as of July 1, 2000 did not have a material  effect on the
Company's financial condition or results of operations.

    In June 1998, the Financial  Accounting Standards Board issued SFAS No. 133,
"Accounting for  Derivatives and Hedging  Activities" as amended by SFAS No. 137
and SFAS No. 138,  which  establishes  accounting  and  reporting  standards for
derivative  instruments,  including  derivative  instruments  embedded  in other
contracts, (collectively referred to as derivatives) and for hedging activities.
SFAS No. 133 is  effective  for all fiscal  quarters of fiscal  years  beginning
after June 15, 2000.  The Company does not believe that the adoption of SFAS No.
133 will have a  material  impact  on its  financial  condition  or  results  of
operations.


                                       33
<PAGE>


3.  LONG-TERM INVESTMENT

    On  May  31,  2000,  SilverStream   converted  a  $2.0  million  Convertible
Promissory Note Receivable from one of its corporate  collaborators to an equity
investment.  Since no public market exists for these securities,  the Company is
accounting for this investment under the cost method. The value of the Company's
investment  is assessed  and  reviewed  for  impairment  based on the  financial
condition and operating  results of the issuer,  the prices at which  securities
purchased in subsequent  financing,  if any,  were issued and estimates  made by
management. None of these measures indicate that the value of the investment has
been impaired as of December 31, 2000.


4.  FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

    Furniture, equipment and leasehold improvements consists of the following:
<TABLE>
<CAPTION>

                                                                      December 31,
                                                                -------------------------
                                                                   2000          1999
                                                                -----------   -----------
              <S>                                               <C>           <C>

              Furniture and fixtures.................           $ 3,506,487   $   763,291
              Computer equipment and software........            10,936,616     4,037,403
              Telephone equipment....................               416,696       171,613
              Leasehold improvements.................             1,688,564       251,114
                                                                -----------   -----------
                                                                 16,548,363     5,223,421
              Less accumulated depreciation..........            (5,313,420)   (2,387,723)
                                                                -----------   -----------
                                                                $11,234,943   $ 2,835,698
</TABLE>


5.  ACCRUED EXPENSES

    Accrued expenses include the following:

<TABLE>
<CAPTION>


                                                                          December 31,
                                                                    ------------------------
                                                                       2000         1999
                                                                    -----------  -----------
              <S>                                                   <C>          <C>


              Fringe benefits....................................   $ 3,680,864  $ 1,372,637
              Occupancy..........................................       241,725      139,089
              Professional fees..................................       317,860      130,431
              Bonuses............................................       563,996      175,000
              Commissions........................................     1,403,551      600,000
              Sales and VAT taxes payable........................     1,257,517      410,724
              Other tax liability................................       853,000      853,000
              Amounts due to owners of acquired businesses.......     7,206,397            -
              Other..............................................       643,817      218,689
                                                                   -----------  -----------
                                                                    $16,168,727  $ 3,899,570
</TABLE>


6.  DEBT

   LONG-TERM DEBT

    Under terms of a credit  facility,  negotiated in 1997 and expiring March 1,
2001,  borrowings of approximately  $602,000 converted fully into a term loan on
March 31, 1998.  Principal  repayments  began April 1, 1998 in 36 equal  monthly
payments.  Interest  on the loan  accrues  at prime  rate  plus  0.5%  (9.50% at
December 31, 2000) and is payable monthly in arrears.  The  outstanding  balance
under the  facility  at December  31,  2000 and 1999 was  $50,667 and  $250,965,
respectively.

    Under terms of a credit facility, negotiated in 1999 and expiring October 1,
2002,  borrowings of approximately  $750,000 converted fully into a term loan on
October  31,  1999.  Principal  repayments  began  November  1, 1999 in 36 equal
monthly payments. Interest on the loan accrues at prime rate plus 0.5% (9.50% at
December 31, 2000) and is payable monthly in arrears.  The  outstanding  balance
under the  facility at December  31, 2000 and 1999 was  $458,359  and  $708,334,
respectively.

    In connection with the acquisition of Bondi Software Inc. (See Note 13), the
Company assumed a $2,000,000 credit facility. Borrowings under this facility are
due in full on May 1, 2001,  with  interest  payable  monthly at prime rate plus
 .75% (9.50% at December 31, 2000).  The outstanding  balance under this facility
at December 31, 2000 was $1,200,000.

    Borrowings  under  the  terms  of  all  credit  facilities  are  secured  by
substantially all the Company's tangible assets.

                                       34
<PAGE>

    The aggregate maturities of long term debt are as follows:

                2001.........................................    1,650,772
                2002.........................................       58,254
                                                                ----------
                                                                $1,709,026
                                                                ==========

7.  LEASES

    The Company leases equipment under  non-cancelable lease agreements that are
accounted for as capital  leases.  Equipment  under capital lease  arrangements,
which is included in furniture, equipment and leasehold improvements, aggregated
approximately $517,034 and $0 at December 31, 2000 and 1999, respectively.

    The Company leases office space and certain  equipment under  non-cancelable
operating  leases expiring  through  February 2006. Some of these leases contain
renewal options. Rent expense charged to operations for the years ended December
31, 2000, 1999 and 1998 was $3,051,641, $1,506,000 and $602,000, respectively.

    Future minimum  payments under  non-cancelable  operating leases and capital
leases as of December 31, 2000 are as follows:


                                                  Operating        Capital
                                                   Leases          Leases
                                                -------------   ------------
                                                -------------   ------------
  2001......................................        4,632,727        258,474
  2002......................................        3,781,152        195,649
  2003......................................        3,643,576         68,865
  2004......................................        3,551,871         67,100
  2005......................................        3,058,061         39,199
  2006 and thereafter.......................        1,176,793              -
                                                -------------   ------------
  Total minimum lease payments..............    $  19,844,180   $    629,287
                                                =============
  Less amount representing interest.........                         112,253
                                                                ------------
                                                                     517,034

  Less current portion......................                         216,963
                                                                ------------
                                                                $    300,071
                                                                ============

8.  EMPLOYEE BENEFITS

   RESTRICTED STOCK ISSUED TO FOUNDER

    In May and July 1996, the Company sold  1,123,000  shares of common stock to
the founder  pursuant to a founder's  stock  restriction  agreement  at the fair
value of the stock at the date of the  issuance.  The shares  were issued in the
name of the  founder,  who has all rights of a  stockholder,  subject to certain
repurchase and transfer provisions.  If the founder ceases to be employed by the
Company,  the  Company  shall have the option to  repurchase  from the founder a
portion of the shares  based upon a  predetermined  formula.  In  addition,  the
founder  shall not sell any of the shares that are subject to  repurchase by the
Company.

    An  aggregate  of 0 and  168,450  shares of  common  stock  are  subject  to
repurchase at December 31, 2000 and 1999, respectively.

   1996 FOUNDERS STOCK INCENTIVE PLAN

    The 1996 Founders  Stock  Incentive Plan (the 1996 Plan) covers all eligible
employees,  officers,  directors  consultants and advisors.  At inception of the
1996 Plan,  the Company  authorized  the issuance of up to  3,877,000  shares of
common stock.  The Company  issued and sold an aggregate of 3,775,031  shares of
common  stock  under  the 1996  Plan  pursuant  to  founders  stock  restriction
agreements  at the fair  value of the  stock  at the date of the  issuance.  The
shares  were  issued  in the  name of the  employee,  who has  all  rights  of a
stockholder,  subject to certain  repurchase  and  transfer  provisions.  If the
employee ceases to be employed by the Company, the Company shall have the option
to  repurchase  from  the  employee  a  portion  of  the  shares  based  upon  a
predetermined  formula.  In  addition,  the  employee  shall not sell any of the
shares that are subject to  repurchase  by the Company.  An aggregate of 145,394
shares of common stock have been  repurchased  and retired by the Company  under
the 1996 Plan.

    An  aggregate  of 0 and  681,199  shares of  common  stock  are  subject  to
repurchase at December 31, 2000 and 1999, respectively.

                                       35
<PAGE>

   1997 STOCK INCENTIVE PLAN

    The Company  adopted the 1997 Stock  Incentive  Plan,  which was amended and
restated on June 9, 1999 (as amended and  restated,  the 1997 Plan),  covers all
eligible  employees,  officers,  directors,  consultants  and  advisors.  As  of
December 31, 2000 the Company has reserved  6,000,000 shares of common stock for
issuance  under the 1997 Plan.  Under the 1997 Plan, the Company may grant stock
options to purchase  shares of the  Company's  common stock,  restricted  common
stock awards and other  stock-based  awards  having terms and  conditions at the
discretion of the Company's  Board of Directors.  The prices,  terms and vesting
periods  of stock  awards  under  the 1997 Plan are  determined  by the Board of
Directors at the date of the grant. The 1997 Plan also contains provisions which
stipulate that upon an acquisition event the Board of Directors is authorized to
determine that any stock option,  restricted  stock or other  stock-based  award
granted  under the 1997 Plan may become  immediately  exercisable  in full or in
part.

    The Company  issued and sold an aggregate of 300,000  shares of common stock
under the 1997 Plan  pursuant to founders  stock  restriction  agreements at the
fair  value of the stock at the date of  issuance.  The shares are issued in the
name of the employee,  who has all rights of a  stockholder,  subject to certain
repurchase and transfer provisions. If the employee ceases to be employed by the
Company,  the Company  shall have the option to  repurchase  from the employee a
portion of shares based upon a predetermined  formula. In addition, the employee
shall not sell any of the shares that are subject to repurchase by the Company.

    An  aggregate  of 17,875 and 89,375  shares of common  stock are  subject to
repurchase at December 31, 2000 and 1999, respectively.

    The Company  has recorded deferred compensation of $6,408,263 and $7,651,953
relating to  option  grants during  December  31,  2000 and 1999,  respectively.
Deferred  compensation  is being charged  ratably to operations over the vesting
period of the options.

    The Company  incurred a charge to  operations of $2,329,018 and $438,594 for
the years ended  December  31, 2000 and 1999,  respectively.  For the year ended
December  31, 2000  $579,489 of this  charge,  relates to services , $118,429 to
sales and  marketing,  $1,586,483  to research  and  development  and $44,617 to
general  and  administrative  expenses.  For the year ended  December  31,  1999
$125,574 of this charge,  relates to services,  $145,057 to sales and marketing,
$129,790 to research and development  and $38,173 to general and  administrative
expenses.

   ASSUMED STOCK INCENTIVE PLANS

    In connection with  the acquisition of certain  businesses  during 2000 (See
Note 13), the Company assumed two stock incentive plans.  Under these plans, the
Company has reserved  640,120  shares of common stock for issuance and may grant
stock  options  to  purchase  shares  of the  Company's  common  stock and other
stock-based  awards  having  terms  and  conditions  at  the  discretion  of the
Company's  Board of Directors.  The prices,  terms and vesting  periods of stock
awards under these plans are determined by the Board of Directors at the date of
the grant.

   1999 EMPLOYEE STOCK PURCHASE PLAN

    In accordance with the 1999 Employee Stock Purchase Plan, eligible employees
may  authorize  payroll  deductions of up to 10% of their  compensation  (not to
exceed $12,500 in a six-month  period) to purchase shares at the lower of 85% of
the fair market value of the  Company's  common stock at the beginning or end of
the six-month  option period.  Shares issued to employees under the plan totaled
75,945  during 2000.  At December 31, 2000, a total of 300,000  shares of common
stock were reserved for issuance under the plan.

   401(K) PLAN

    The Company has a 401(k) plan (the Plan),  whereby  eligible  employees  may
contribute  up to 15% of  their  annual  compensation,  subject  to  limitations
established  by the Internal  Revenue  Code.  The Company may also  contribute a
discretionary  matching  contribution,   to  each  such  participant's  deferred
compensation equal to a discretionary  percentage  determined by the Company. As
of  December  31,  2000,  the Company  had not made any  discretionary  matching
contributions in any of the fiscal periods presented.

                                       36
<PAGE>

   STOCK OPTION DISCLOSURES

    The Company has adopted the disclosure provisions only of SFAS 123. The fair
values  for  these  options  were  estimated  at the  date of  grant  using  the
Black-Scholes  option-pricing model in 2000 and the minimum value method in 1999
and 1998 with the following assumptions:
<TABLE>
<CAPTION>

                                                                        Year Ended
                                                                       December 31,
                                                               ----------------------------
                                                                2000       1999       1998
                                                               -------    -------    -------

    <S>                                                        <C>        <C>        <C>

    Expected life (years)..................................      8.28       8.94       5.35
    Risk free interest rate................................      5.50%      6.34%      4.75%
    Volatility.............................................    505.00%        --         --
    Dividend yield.........................................        --         --         --
</TABLE>


    For  purposes  of pro forma  disclosures,  the  estimated  fair value of the
options is amortized to expense over the options' vesting period.  The Company's
pro forma information is as follows:
<TABLE>
<CAPTION>

                                                               Year Ended
                                                              December 31,
                                               --------------------------------------------
                                                   2000            1999           1998
                                               -------------   -------------  -------------
    <S>                                        <C>             <C>            <C>

    Pro forma net loss...................      $(62,334,652)   $(26,713,375)  $(12,996,310)
    Pro forma net loss per share.........      $      (3.16)   $      (3.17)  $      (4.94)
</TABLE>

    Compensation  expense  under  SFAS  123  for  2000,  1999  and  1998  is not
representative  of future expense,  because it includes three, two and one years
of  expense,   respectively.   In  future  years,   the  effect  of  determining
compensation  cost using the fair value method will include  additional  vesting
and associated expense.

    Option activity under the 1997 Plan and assumed plans is summarized below:
<TABLE>
<CAPTION>


                                                                           Year Ended December 31,
                                                  -----------------------------------------------------------------------

                                                         2000                      1999                    1998
                                                  ---------------------    --------------------     ---------------------
                                                              Weighted                Weighted                  Weighted
                                                              Average                 Average                   Average
                                                              Exercise                Exercise                  Exercise
                                                   Options     Price       Options     Price         Options     Price
                                                  ---------  ----------   ---------  ----------     ---------  ----------
         <S>                                      <C>        <C>          <C>        <C>            <C>        <C>

         Outstanding, beginning of
           year...............................    1,796,969     $ 14.61     895,175     $  1.15       607,000     $  0.34
         Granted..............................    4,074,666       34.70   1,095,300       23.63       381,950        2.21
         Expired or canceled..................     (516,254)      40.60     (63,325)       6.25       (38,250)       0.37
         Exercised............................     (275,561)       3.26    (130,181)       2.03       (55,525)       0.17
                                                  ---------               ---------                 ---------
         Outstanding, end of year.............    5,079,820       27.99   1,796,969       14.61       895,175        1.15
                                                  =========               =========                 =========
         Exercisable at end of year...........      637,568                 272,599                   159,850
         Available for future grants..........      799,032               1,217,325                    55,019

         Weighted-average fair value of
           options granted during year........                  $ 35.80                 $ 23.63                   $  2.16
</TABLE>



                                       37
<PAGE>


    The following  table presents  weighted-average  price and life  information
about significant option groups outstanding at December 31, 2000:
<TABLE>


                                                    Options Outstanding                  Options Exercisable
                                        --------------------------------------------   -------------------------
                                                         Weighted-

                                                          Average        Weighted-                     Weighted-
                                                         Remaining        Average                       Average
                     Range of              Number        Contractual      Exercise       Number        Exercise
                  Exercise Prices        Outstanding        Life            Price      Exercisable       Price
                 ------------------     -------------   -------------    -----------   ------------    ---------
<S>              <C>                    <C>             <C>              <C>           <C>             <C>

                 $  0.00 - $  5.00          927,100       7.3 Years      $     1.72       439,391       $  1.47
                 $  5.01 - $ 10.00          341,790       8.5 Years            7.89        73,155          8.05
                 $ 10.01 - $ 50.00        3,432,974       9.4 Years           30.35        73,292         21.32
                 $ 50.01 - $ 90.00          197,506       8.8 Years           72.19        27,205         66.02
                 $ 90.01 - $130.00          180,450       8.8 Years          107.62        24,525        104.58
                 ------------------     -------------   -------------    -----------   ------------    ---------
                 $  0.00 - $130.00        5,079,820       8.9 Years      $    27.99       637,568       $ 11.23
</TABLE>



9.  PREFERRED STOCK

    On August 20,  1999,  the Company  completed an initial  public  offering in
which the Company sold 3,000,000  shares of its common stock for net proceeds to
the Company of  $44,640,000.  On August 26,  1999,  the  Company's  underwriters
exercised  their  over-allotment  option,  which  resulted  in  the  sale  of an
additional  450,000  shares of the Company's  stock which  generated  additional
proceeds of  $6,696,000,  net of  issuance  costs.  Upon  closing of the initial
public offering,  each outstanding share of the Company's Redeemable Convertible
Preferred Stock and Convertible Preferred Stock was automatically converted into
one share of common stock of the Company  resulting in the issuance of 8,659,208
shares of common stock.

10.  INCOME TAXES

    Deferred  income taxes reflect the net tax effects of temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
and income tax purposes.  A valuation  allowance has been established to reflect
the  uncertainty  of  future  taxable  income  to  utilize  available  tax  loss
carryforwards  and other  deferred  tax assets.  Significant  components  of the
Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>


                                                                                     Year Ended
                                                                                    December 31,
                                                                            ---------------------------
                                                                                2000           1999
                                                                            ------------   ------------
              <S>                                                           <C>            <C>

              Deferred tax assets:
                Net operating loss carryforward........................     $ 19,978,000   $ 17,187,000
                Research and development credit carryforward...........        1,451,000        901,000
                Deferred revenue.......................................        2,456,000              -
                Other..................................................        1,302,000        340,000
              Deferred tax liabilities:
                Depreciation...........................................         (210,000)      (404,000)
                Amortization...........................................                -       (256,000)
                                                                            ------------   ------------
                                                                              24,977,000     17,768,000
                Less valuation allowance for deferred tax assets.......      (24,977,000)   (17,768,000)
                                                                            ------------   ------------
              Total....................................................     $         --   $         --
                                                                            ============   ============
</TABLE>


    As of December 31, 2000,  the Company has net operating  loss  carryforwards
and research and development tax  carryforwards of  approximately  $49.9 million
and $1.4  million,  respectively,  available to offset  future  Federal  taxable
income.  These  carryforwards  begin to  expire  in 2012 and may be  subject  to
certain  limitations.  The valuation  allowance increased by $7.2 million during
the twelve  months  ended  December 31, 2000,  due  primarily to the  additional
allowance for the Net Operating Losses incurred.

    The Company  believes  that,  based upon a number of factors,  the available
objective evidence creates sufficient  uncertainty  regarding the realization of
the deferred tax assets such that a full valuation  allowance has been recorded.
The Company will continue to assess the  realization  of the deferred tax assets
based on actual and forecasted operating results.

                                       38
<PAGE>

<TABLE>
<CAPTION>

                                                                                     Year Ended
                                                                                    December 31,
                                                                             ---------------------------
                                                                                 2000          1999
                                                                             ------------   ------------
              <S>                                                            <C>            <C>
              The  difference  between the  Company's  "expected"  tax provision
               (benefit), as computed by applying the U.S. federal corporate tax
               rate of 34% to income (loss) and  actual tax is reconciled in the
               following chart:

              Net loss.................................................      $(28,365,737)  $(22,252,451)
                                                                             ------------   ------------
              Expected benefit at 34%..................................        (9,644,350)    (7,565,833)
              State tax net of federal benefit.........................        (1,701,960)    (1,335,120)
              Goodwill.................................................         4,523,600              -
              Stock compensation expense...............................           932,000        175,000
              Other non-deductible expenses............................           141,800        106,800
              Change in valuation allowance............................         5,748,910      8,619,153
                                                                             ------------   ------------
              Total....................................................      $         --   $         --
                                                                             ============   ============
</TABLE>



11.  SEGMENT AND GEOGRAPHIC INFORMATION

    As discussed in Note 2, the Company  operates in one business  segment:  the
development and delivery of e-business  platform solutions that include software
and related  products and services.  In making this  determination,  the Company
considered  the  information  which  management  uses to oversee  the  Company's
operations as well as the manner in which the business is managed.

    Foreign  operations in 1999 were conducted in seven  countries in Europe and
three countries in the Asia Pacific region. During 2000, foreign operations were
expanded.  Operations are currently conducted in ten countries in Europe,  three
countries in the Asia Pacific region and in Australia.

    Revenues by geographic region are as follows:

                                        Year Ended December 31,
                                 -------------------------------------

                                    2000         1999         1998
                                 -----------  -----------  -----------

United States...............     $54,117,423  $14,984,459  $ 4,999,717
Europe......................      22,642,893    5,700,391      817,556
Other.......................       3,823,681    2,379,557      990,626
                                 -----------  -----------  -----------
Total.......................     $80,583,997  $23,064,407  $ 6,807,899
                                 ===========  ===========  ===========

    Total long lived assets by geographic region are as follows:

                                        Year Ended December 31,
                                 -------------------------------------
                                    2000         1999         1998
                                 -----------  -----------  -----------

United States...............     $88,643,023  $22,907,826  $ 1,733,471
Europe......................       1,176,196      529,440       62,876
Other.......................         297,089      107,393            -
                                 -----------  -----------  -----------
Total.......................     $90,116,308  $23,544,659  $ 1,796,347
                                 ===========  ===========  ===========

    Net income (loss) by geographic region are as follows:

                                         Year Ended December 31,
                                 ----------------------------------------
                                     2000          1999         1998
                                 ------------  ------------  ------------

United States...............     $(33,920,949) $(21,840,977) $(12,421,546)
Foreign subsidiaries........        5,555,212      (148,316)     (463,501)
                                 ------------  ------------  ------------
Total.......................     $(28,365,737) $(21,989,293) $(12,885,047)
                                 ============  ============  ============

                                       39
<PAGE>


12.  LOSS PER SHARE

    The following table sets forth the computation of basic and diluted loss per
share:
<TABLE>
<CAPTION>

                                                            Year Ended December 31,
                                                 -------------------------------------------
                                                     2000           1999           1998
                                                 ------------   ------------   -------------
             <S>                                 <C>            <C>            <C>

             Numerator:
               Net loss.......................   $(28,365,737)  $(21,989,293)   $(12,885,047)
               Beneficial conversion
                 feature in series D
                 preferred stock..............              -       (263,158)              -
                                                 ------------   ------------    ------------
               Net loss applicable to
                 common stockholders..........    (28,365,737)   (22,252,451)    (12,885,047)
                                                 ============   ============    ============
             Denominator:
               Weighted average common
                 shares outstanding...........     20,159,868      9,943,728       5,122,480
               Weighted average common
                 shares subject to
                 repurchase...................       (462,370)    (1,524,612)     (2,489,984)
                                                 ------------   ------------    ------------
             Denominator for basic and
               diluted loss per share
               applicable to common
               stockholders...................     19,697,498      8,419,116       2,632,496
                                                 ============   ============    ============
               Basic and diluted net
                 loss per share
                 applicable to common
                 stockholders.................   $      (1.44)  $      (2.64)   $      (4.89)
                                                 ============   ============    ============
</TABLE>


    The Company has excluded  all preferred stock, outstanding stock options and
shares  subject to  repurchase by the Company from the  calculation  of loss per
share because all such securities are  antidilutive  for all periods  presented.
Shares subject to repurchase by the Company will be included in the  computation
of earnings  per share when the  Company's  option to  repurchase  these  shares
expires.  Weighted-average options outstanding to purchase 3,370,090,  1,332,992
and 348,880 shares of common stock for the years ended  December 31, 2000,  1999
and 1998, were not included in the computation of net loss per share because the
effect would be  antidilutive.  Such securities,  had they been dilutive,  would
have been  included in the  computation  of diluted net loss per share using the
treasury stock method.

13.  ACQUISITIONS

    During  2000 and  1999,   the  Company  completed  several  acquisitions  of
businesses  complementary to the Company's business strategy.  The cost of these
acquisitions  aggregated  $62.8  million in 2000 and $20.2  million in 1999.  In
certain cases, the purchase price included  contingent  consideration based upon
operating  performance of the acquired business.  The Company presently has $8.5
in additional  consideration  contingently  payable at December 31, 2000,  which
will be recorded as additional purchase price when the contingency is met.

    These  acquisitions  have been  accounted for using the purchase  method and
the  results of  operations  have been  included in the  Company's  consolidated
statement of operations from the date of acquisition. The excess of the purchase
price over the fair  value of the net  assets  acquired  has been  allocated  to
identifiable intangible assets and goodwill and is being amortized on a straight
line basis over five years.

    The  following  unaudited  pro forma  results of operations  gives effect to
these acquisitions as if they had occurred at January 1, 1999:

                                                   Pro Forma      Pro Forma
                                                  December 31,   December 31,
                                                     2000           1999
                                                  ------------   ------------

Revenue........................................   $ 90,296,533   $ 39,196,027
Net loss applicable to common stockholders.....    (31,354,646)   (27,230,283)
                                                  ------------   ------------

Basic and diluted net loss per share
 applicable to common stockholders.............   $      (1.54)  $      (2.80)


Weighted-average common shares used in
 computing basic and diluted net loss per
 share applicable to common stockholders.......     20,333,284      9,721,204


                                       40
<PAGE>


14.  QUARTERLY INFORMATION (UNAUDITED)

    A summary  of  operating  results  and net loss per share for the  quarterly
periods in the two years ended December 31, 2000 is set forth below:
<TABLE>
<CAPTION>


                                                                  Quarter Ended
                                           -------------------------------------------------------------

                                              March 31        June 30       September 30    December 31
                                           --------------  --------------  --------------  -------------
             <S>                           <C>             <C>             <C>             <C>


             Year ended December 31, 2000
             Total revenues..............   $ 13,003,345    $ 18,028,859    $ 23,500,891    $26,050,902
             Gross profit................      7,148,436       8,375,493      12,482,172     14,054,562
             Net loss applicable to
              common stockholders........     (6,609,286)     (7,482,001)     (6,681,467)    (7,592,983)
             Net loss per share
              applicable to common
              stockholders - basic and              (.36)           (.38)           (.33)          (.37)
              diluted....................

             Year ended December 31, 1999
             Total revenues..............   $  3,474,292    $  4,308,147    $  6,251,924    $ 9,030,044
             Gross profit................      1,841,401       2,089,189       2,565,186      4,903,867
             Net loss applicable to
              common stockholders........     (4,322,956)     (5,279,252)     (5,020,099)    (7,630,144)
             Net loss per share
              applicable to common
              stockholders - basic and
              diluted....................          (1.27)          (1.44)           (.51)          (.46)
</TABLE>


                                       41
<PAGE>

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

    None.


                                    PART III

    Certain  information  required  by Part III is  omitted  from this Form 10-K
because  the  Company  will  file  a  definitive  Proxy  Statement  pursuant  to
Regulation 14A (the "Proxy  Statement") not later than 120 days after the end of
the fiscal year covered by this Form 10K, and certain information to be included
therein is incorporated herein by reference.

ITEM 10.  Directors and Executive Officers of the Registrant

    The  information  required by this Item is  incorporated by reference to the
Proxy Statement under the section captioned "Election of Directors."

ITEM 11.  Executive Compensation

    The  information  required by this Item is  incorporated by reference to the
Proxy Statement under the section captioned "Executive Compensation."

ITEM 12.  Security Ownership of Certain Beneficial Owners and Management

    The  information  required by this Item is  incorporated by reference to the
Proxy  Statement  under the section  captioned  "Security  Ownership  of Certain
Beneficial Owners and Management."

ITEM 13.  Certain Relationships and Related Transactions

    The  information  required by this Item is  incorporated by reference to the
Proxy Statement under the section captioned  "Certain  Relationships and Related
Transactions."


                                       42
<PAGE>


                                     PART IV

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


(a)      FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULE AND EXHIBITS

     1.  Financial Statements - see "Index to Financial Statements."

     2.  Financial  Statement  Schedule  for the Years Ended  December 31, 2000,
         1999, and 1998:

         Schedule II - Valuation and Qualifying Accounts.

         Financial  statement  schedules  not included  herein have been omitted
         because of  the absence of conditions  under which they are required or
         because  the  required  information,  where  material,  is shown in the
         financial statements or notes

     3.  Exhibits:  Exhibits  submitted  with the Annual  Report on Form 10-K as
         filed   with   the   Securities   and  Exchange  Commission  and  those
         incorporated  by  reference to other  filings are listed on the Exhibit
         Index.


                                       43
<PAGE>



                                  EXHIBIT INDEX
<TABLE>
<CAPTION>



      Exhibit
        No.                                  Description
     --------                                -----------
     <S>       <C>

       3.1(1)  Second Amended and Restated Certificate of Incorporation of the Registrant

       3.2(1)  Amended and Restated By-Laws of the Registrant

       4.1(2)  Specimen common stock certificate

       4.2(2)  Third Amended and Restated Investor Rights Agreement dated March 1, 1999, as amended

     *10.1(2)  1996 Founders Stock Incentive Plan

     *10.2(2)  Amended and Restated 1997 Stock Incentive Plan, and forms of agreements thereunder

     *10.3(2)  Amended and Restated 1999 Employee Stock Purchase Plan

     *10.4(2)  Form of Founders Stock Restriction Agreement

      10.5(2)  Term Loan Agreement and Commercial Promissory Note, dated March 1, 1999, between Fleet National Bank and the
               Registrant

      10.6(2)  Term Loan Agreement and Commercial Promissory Note, dated August 11, 1997, between Fleet National Bank and the
               Registrant

     +10.7(2)  OEM Master License Agreement between RSA Data Security, Inc. and the Registrant, dated as of September 30, 1997, as
               amended

     +10.8(2)  Support Agreement between RSA Data Security, Inc. and the Registrant, dated as of June 30, 1999

         10.9  Lease dated November 9, 1999 between BCIA New England Holdings LLC and the Registrant

        10.10  Form of Master Business Partner Agreement, with VAR Partner Exhibit, Consulting Partner Exhibit and System
               Integrator Partner Exhibit

        10.11  Form of ISV Software Distribution Agreement

         21.1  Subsidiaries of the Registrant

         23.1  Consent of Ernst & Young LLP

         27.1  Financial Data Schedule
</TABLE>




                                       44
<PAGE>


                                   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,  in  Billerica,
Massachusetts, on this 9th day of March 2001.

                                           SILVERSTREAM SOFTWARE, INC.


                                           By: /s/ DAVID A. LITWACK
                                           David A. Litwack
                                           President and Chief Executive Officer

    Pursuant to the  requirements  of the Securities  Exchange Act of 1934, this
report has been signed by the  following  persons in the  capacities  and on the
dates indicated.
<TABLE>
<CAPTION>


             Signature                                               Title                                            Date
             ---------                                               -----                                            ----
<S>                                   <C>                                                                        <C>


 /s/ David R. Skok                    Chairman of the Board of Directors                                         March 16, 2001
--------------------------------
David R. Skok

 /s/ David A. Litwack                 President, Chief Executive Officer and Director                            March 16, 2001
--------------------------------      (Principal Executive Officer)
David A. Litwack



/s/ CRAIG A. DYNES                    Vice President, Chief Financial Officer and Treasurer (Principal           March 16, 2001
--------------------------------      Financial and Accounting Officer)
Craig A. Dynes

 /s/ Timothy Barrows                  Director                                                                   March 16, 2001
--------------------------------
Timothy Barrows

 /s/ Richard A. D'Amore               Director                                                                   March 16, 2001
--------------------------------
Richard A. D'Amore

 /s/ Paul J. Severino                 Director                                                                   March 16, 2001
--------------------------------
Paul J. Severino
</TABLE>


                                       45
<PAGE>


<TABLE>
<CAPTION>

                        VALUATION AND QUALIFYING ACCOUNTS

                           SILVERSTREAM SOFTWARE, INC.

                                                                              Additions
                                                                      -------------------------
                                                          Balance at   Charged to   Charged to                 Balance
                                                          Beginning    Costs and      Other                    at End
                             Description                  of Period     Expenses     Accounts    Deductions   of Period
             ----------------------------------------    ------------ ------------ ------------ ------------ ------------
             <S>                                         <C>          <C>          <C>          <C>          <C>

             December 31, 2000 Allowances for Returns
             and Doubtful Accounts...................      $763,245     $      0    $1,804,178   $1,511,951   $1,055,472

             December 31, 1999 Allowances for Returns
             and Doubtful Accounts...................      $475,993     $355,000    $  649,634   $  717,382   $  763,245

             December 31, 1998 Allowances for Returns
             and Doubtful Accounts...................      $ 44,660     $218,614    $  592,500   $  379,781   $  475,993

</TABLE>

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