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

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FORM 10-K

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(Mark One)

[ 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
SECURITES EXCHANGE ACT OF 1934
For the transition period from                 to
                 .
Commission File No. 000-30207

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SEEBEYOND TECHNOLOGY CORPORATION(Formerly, Software Technologies Corporation)
(Exact name of Registrant as Specified in Its Charter)

California(State or other jurisdiction of
incorporation or organization)

95-4249153(I.R.S. Employer
Identification Number)404 E. Huntington Drive
Monrovia, California 91016(Address, including zip code, of Principal Executive Office) (626) 471-6000


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

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

As
of March 27, 2001, there were 70,690,031 shares of the Registrant's Common Stock outstanding, and the aggregate market value of such shares held by non-affiliates of
the Registrant (based upon the closing sale price of such shares on the NASDAQ National Market as of March 27, 2001) was approximately $440,170,000. Shares of common stock held by each executive
officer and director and by each entity that owns 5% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliates
status is not necessarily a conclusive determination for other purposes.

DOCUMENT INCORPORATED BY REFERENCE

Certain sections of the Registrant's definitive Proxy Statement for the 2001 Annual Meeting of Shareholders to be held on May 1, 2001, are incorporated
by reference in Part III of this Form 10-K to the extent stated herein.

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SEEBEYOND TECHNOLOGY CORPORATION  For the Fiscal Year Ended December 31, 2000

Table of Contents

|Part I                                        |          | 4 
|--------------------------------------------- | -------- | --
|                                              | Item 1:  |   
|                                              | Item 2:  |   
|                                              | Item 3:  |   
|                                              | Item 4:  |   
|Part II                                       |          | 18
|                                              | Item 5:  |   
|                                              | Item 6:  |   
|                                              | Item 7:  |   
|                                              | Item 7A: |   
|                                              | Item 8:  |   
|                                              | Item 9:  |   
|Part III                                      |          | 57
|                                              | Item 10: |   
|                                              | Item 11: |   
|                                              | Item 12: |   
|                                              | Item 13: |   
|Part IV                                       |          | 58
|                                              | Item 14: |   
|SIGNATURES                                    |          | 60
|SCHEDULE IIValuation and Qualifying Accounts |          | 61

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FORWARD-LOOKING STATEMENTS

This report on Form 10-K contains forward-looking statements. These statements relate to future events or our future financial performance.
In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "expect," "plan," "intend," "anticipate," "believe," "estimate," "predict," "potential" or
"continue," the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially. In evaluating these statements, you
should specifically consider various factors, including the risks outlined in the Risk Factors section below. These factors may cause our actual results to differ materially from any forward-looking
statement.

Although
we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or
achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We are under no duty to update any of the
forward-looking statements after the date of this report to conform these statements to actual results or to changes in our expectations.

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PART I

Item 1: Business

Overview

SeeBeyond Technology Corporation (the "Company" or "SeeBeyond") is a leading provider of e-Business integration software that enables the seamless
flow of information within and among enterprises in real-time on a global basis. We believe that we offer the only comprehensive e-Business integration solution, encompassing
application-to-application integration, business-to-business integration ("B2B"), and business process management. As of December 31, 2000, we
had licensed our products to over 1,400 customers worldwide. In May 2000, we completed our initial public offering and in October 2000, we changed our name to SeeBeyond Technology
Corporation.

Industry Background

Escalating competitive pressures are requiring businesses to respond quickly to market dynamics. Corporate mergers and acquisitions, the ubiquity of the
Internet, shortened development and production cycles, shifting supplier relationships and diverse customer demands are forcing companies to adopt aggressive e-Business initiatives,
whereby business transactions and relationships are conducted electronically both within and among enterprises. The speed of e-Business demands higher levels of business process
integration, which is increasingly complex and dynamic. e-Business initiatives have evolved from relatively simple internal "intranets" and business-to-consumer
e-Commerce to intricate business-to-business relationships. Dynamic B2B exchanges have emerged, where multiple vendors, suppliers, partners and customers transact
business electronically in real-time. The goals of these initiatives are significant increases in efficiency and profitability. However, if business applications are not integrated, the
full potential of e-Business to automate and optimize falls short of being realized. As companies seek to capitalize on e-Business and drive toward enhanced profitability,
integration solutions that enable dynamic and real-time connections across systems, applications and enterprises, and allow for the automation and active management of business processes
have become critical.

e-Business Integration Challenges

Integrating business systems in order to automate and improve business processes presents major challenges. Companies have made significant investments in a
range of custom and packaged software applications, which generally were not designed to communicate with each other. The proliferation of packaged applications such as enterprise resource planning
("ERP"), supply chain management, customer relationship management, sales force automation, decision support and e-Commerce technologies has resulted in highly disconnected and disparate
information technology ("IT") infrastructures. These diverse systems and applications often reside on different hardware platforms with varying and incompatible data formats and communication methods.
As a result, information stays trapped within isolated systems. To enable truly automated e-Business processes, these isolated systems must be seamlessly integrated.

As
companies deploy new e-Business initiatives that extend beyond the confines of an enterprise, the need to integrate disparate IT systems will increase substantially.
These external integration challenges are exacerbated by the growth in corporate acquisition strategies and the subsequent need to integrate acquired systems, as well as by the growth of
geographically distributed companies. Examples of e-Business integration challenges are as follows:



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Limitations of Traditional Approaches for e-Business Integration

Companies have historically tried to bridge disparate systems through in-house or third-party custom development of
point-to-point interfaces. This approach is no longer viable for many companies given the large and growing number of applications and the cost, time and resources required to
create and maintain integration in a rapidly changing environment. Integrating systems outside of an enterprise is an additional challenge that requires expertise in Internet technologies and a
solution that is reliable, secure, centrally managed and scalable to a very large number of users.

The
integration demands of e-Business present major technical challenges. In an attempt to address these challenges, companies have implemented ERP, enterprise application
integration ("EAI") and electronic data interchange ("EDI"), technologies. However, these solutions each have their own limitations in terms of time-to-market, cost,
performance or flexibility, and no one approach fully addresses the entire e-Business integration challenge.

While
ERP software can automate business processes within an enterprise, it generally requires lengthy implementation times, is difficult to maintain, is difficult to integrate with
third-party technologies and was not designed to meet e-Business performance requirements, such as security and scalability. EAI software helps solve some aspects of enterprise integration
but generally does not have some key capabilities, such as security and business process management, which are necessary for rapid and cost-effective integration between enterprises. First
generation EAI solutions are also limited by their "hub and spoke" architecture, whereby a centralized software hub serves as the integration broker, limiting scalability and creating a single point
of failure. Historically, EDI has been used by large organizations for B2B integration, but it generally is expensive to implement and deploy, lacks the flexibility to quickly respond to business
changes, lacks real-time data exchange capabilities and is not scalable to large numbers of users.

We
believe there is a significant opportunity to provide companies with an e-Business integration solution that rapidly and cost-effectively addresses
integration challenges and enables the flow of information within and among enterprises. This system would provide a comprehensive integration platform, or suite, and provide the flexibility and
scalability to adjust to dynamic business needs and to enable companies to capitalize on e-Business opportunities.

The SeeBeyond Solution

We provide a comprehensive solution for e-Business integration, enabling the seamless flow of information across systems, applications and
enterprises in real-time on a global basis. Our eBusiness Integration Suite provides companies with a flexible and easily configurable software platform to connect applications and systems
not only within an organization, but also among geographically

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dispersed enterprises, allowing for continuous and reliable information exchange to meet today's fast-paced e-Business demands. In contrast to first generation EAI approaches,
our solution allows companies to integrate applications, business systems and resources over a distributed architecture without altering existing application code, as well as to automate, monitor and
optimize business processes. We believe that we offer the only comprehensive e-Business integration solution encompassing application-to-application integration,
B2B integration and business process management.

Our
application-to-application integration capability provides extensive pre-built application interfaces and facilitates rapid connectivity to
packaged applications, legacy applications, Web and object technologies and industry standard relational databases. This capability provides a robust and highly scalable integration platform that can
be fully distributed on a global basis, yet efficiently managed and configured from a single location.

In
addition, our B2B integration capability supports various trading partner business models, including direct partner-to-partner integration, trading exchange
or marketplace integration, as well as more traditional EDI integration. Trading partner management enables a company to maintain partner profiles that allow for the transformation, routing and
transportation of transactions to the appropriate recipients in a format or message structure that is appropriate for that recipient. We also provide support for a wide range of traditional and
emerging communications standards including TCP/IP, XML, EDI or EDI over the Internet, and e-Commerce standards such as X12, cXML, RosettaNet and Microsoft Biztalk.

Our
business process management capability enables our customers to model, monitor and manage business process flows of e-Business activities in real-time.
This capability allows users to initially define physical business processes with a graphical view into an organization's business environment. Users can then observe the status of each event and
process once a process has begun, detecting and correcting abnormal conditions as they occur. Real-time alerts or process exceptions from any business or system event can trigger faxes,
pages, e-mails or messages to system management tools. In addition, historical business processes can be archived, allowing users to analyze the impact of process changes and identify key
process trends.

Our
solution provides the following business benefits to our customers:

Enhanced Revenue, Profit and Customer Service.The open architecture and robust functionality of our solution allows
our customers to efficiently implement and adapt their business strategies in response to market dynamics and other factors. Customers can quickly react and easily adapt to operational and system
changes as a result of dynamic supplier and customer relationships, e-Business initiatives and mergers and acquisitions. Our flexible integration suite enables our customers to focus on
pursuing new business initiatives designed to enhance revenue, profit and customer service.

Scalable e-Business Integration Suite.Our modular solution is designed to be expandable not only within a
customer's organization, but also throughout its geographically dispersed and technologically diverse network of customers, suppliers and partners. Our eBusiness Integration Suite can grow to manage
the transaction levels required for global e-Business with minimal technical or administrative complexity. Our distributed architecture avoids the typical bottlenecks associated with first
generation approaches by distributing processing throughout a network and providing a central registry that manages this distributed configuration across the entire network.

Rapid Time to Market.Our solution is designed for easy and rapid deployment, enabling our customers to reduce time to
market for their products and services and to facilitate the implementation of e-Business strategies. Our eBusiness Integration Suite is designed to allow the efficient incorporation of,
and integration with, evolving technologies and standards, minimizing programming effort and enabling real-time integration of applications and systems. Our comprehensive solution was
developed as a unified suite, eliminating the need for disparate integration technologies from multiple vendors.

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Lower Operational Costs.Our solution is designed to enable customers to automate and streamline business processes for
increased operating efficiency, resulting in improved cycle times, optimized service level agreements and lower operational costs. Our suite builds upon companies' existing IT investments and
minimizes the need for expensive custom programming. As a result, our solution allows for efficient business modification in response to application, system or process changes, substantially reducing
the implementation and maintenance costs associated with traditional integration approaches.

Dependable Performance.With over 1,400 customers to date, we believe our solution provides the performance, security
and reliability necessary to integrate and manage mission-critical business
processes. Our e-Business integration solution builds upon more than ten years of dedication to the continuous development of application and systems integration solutions within and among
enterprises.

The SeeBeyond Strategy

Our objective is to provide the leading e-Business integration solution to manage the seamless flow of information within and among enterprises on
a global basis. Our strategy for achieving this objective includes the following elements:

Capitalize on e-Business Growth.An increasing number of companies are implementing e-Business
initiatives that require rapid integration of multiple software, hardware and networking technologies that interoperate and support a large number of users. We intend to capitalize on this growth
opportunity through our eBusiness Integration Suite, which supports all major aspects of e-Business integration and process automation. We are developing a number of new technologies that
are designed to further enable seamless B2B transactions and incorporate additional support for e-Business applications.

Maintain Technological Leadership.We are a leader in application integration within and among enterprises, and we have
extended this leadership to the emerging e-Business integration market. The fourth generation of our core product, e*Gate integration software, is a comprehensive and centrally managed
solution that addresses the need for a distributed, scalable, global e-Business infrastructure. We will continue to invest in e*Gate software and other products to enhance the
functionality of our solution. Our product architecture is open, and we intend to incorporate new technologies and standards for messaging, communications, process management and business application
connectivity to provide a complete solution for e-Business integration.

Enhance Presence in Targeted Vertical Markets.Our eBusiness Integration Suite is designed to be easily adaptable to
multiple vertical markets, and customers have adopted our products across a broad range of industry segments, including financial services/insurance, manufacturing, healthcare,
telecommunications/utilities, retail/e-Commerce and services. We intend to continue expanding penetration of vertical markets that we believe represent significant revenue opportunities.
We have dedicated sales and marketing resources targeted at specific vertical markets, and we plan to extend this approach to additional industry segments. We also intend to provide additional
industry-specific product functionality and partner with systems integrators that have expertise in particular vertical markets.

Build upon SeeBeyond's Awareness.We intend to leverage our installed base of customers and to make investments in
sales and marketing to increase our visibility and market share. We will focus on increasing our sales to existing customers and new customers, particularly by providing integration solutions for
their expansion into e-Business activities. We are also expanding our geographic coverage by increasing our presence internationally, including in Europe, the Middle East, Africa and the
Pacific Rim.

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Expand Distribution, Consulting and Implementation Through Strategic Alliances.We intend to expand and seek additional
strategic alliances with leading systems integrators, software vendors and infrastructure vendors to increase our market penetration. We believe that our eBusiness Integration Suite enables our
strategic partners to offer readily deployable, repeatable e-Business solutions. Consistent with our strategy to foster strategic alliances, Accenture, CSC and EDS have acquired equity
interests in and entered into alliances with us. Our alliance with Accenture provides for qualified customer introductions and the joint development and marketing of repeatable vertical industry
market offerings, our alliance with CSC provides for the generation of license revenues for us and the joint development and marketing of repeatable vertical industry market offerings, and our
alliance with EDS provides for the generation of license revenue for us. We have also signed reseller agreements with software vendors and infrastructure vendors, and will continue to pursue
opportunities to provide our e-Business integration capabilities to additional partners.

Products

Our eBusiness Integration Suite provides the following key capabilities:



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The
SeeBeyond eBusiness Integration Suite encompasses a combination of specialized product offerings that meet specific integration needs. Our specialized product offerings are as
follows:



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We
are continually enhancing our eBusiness Integration Suite. In particular, we are focused on enhancing the functionality of our eBusiness Integration Suite with additional trading
partner and business process management capabilities, extended B2B functionality and broader platform support. In addition, we are further developing reporting and analysis capabilities that will
leverage data stored in the business process warehouse within our eBusiness Integration Suite and facilitate process optimization activities. We will continue to develop new e*Way adapters for
packaged applications, Web technologies and data formats to provide even greater application and system connectivity as well as develop new Intelligent Bridge software.

Professional Services

Our customers typically purchase consulting services from us to support their implementation activities. We offer professional services with the initial
deployment of our product, as well as on an ongoing basis to address the continuing needs of our customers. Our consulting services range from architectural planning to complete development and
deployment of our products. In each case, our services are tailored to meet our customers' needs. Our professional services organization also provides comprehensive education at our
state-of-the-art training facility, as well as on-site courses for both customers and partners. As of December 31, 2000, our professional
services organization consisted of 188 experienced professionals. Many of our professional services employees have advanced degrees or substantial industry experience in systems architecture and
design. We expect that the number of service professionals and the scope of the services that we offer will increase as we continue to address the expanding enterprise infrastructure needs of large
organizations.

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Customers

We have directly or indirectly licensed our products to over 1,400 customers globally. The following is a representative list of our customers by industry:

|FINANCIAL
SERVICES/INSURANCEABN Amro Bank
Allstate
AXA Financial
Banque Nationale de Paris
Continental Casualty Company
CNA Insurance
Credit Agricole Luxembourg
Fidelity Investments
HypoVereinsbank
ING Barings
JP Morgan Chase
Lloyds Financial Systems
Nationwide Insurance
NGH Luxembourg
Northern Trust
Ord Minett
Thomas Weisel Partners
UBS A.G.
Visa
Westpac Banking Corp.
WestLB
Winterthur GOVERNMENTCounty of San Diego
Canada Post
DSS Accord
New South Wales
U.S. Department of Defense
U.S. Veterans Administration HEALTHCAREBlue Shield of California
Caregroup
Caritas Christi Hospital
Cedars-Sinai Hospital
Denticare of California
Diagnostics
Dominion Dental Care |  | HEALTHCARE (cont.)Duke University Health System
Empire Blue Cross Blue Shield
Fairview Health System
Kaleida Health
McLaren Health Corp.
Medicalogic
Mid-Michigan Medical Center
New York and Presbyterian
  Hospital
Northwest Med Info/Whatcom
Skagit
Oral Health
PacifiCare Dental & Vision
Promina Health System
Renal Care Group
Wentworth Area Health Service
United Health Group
University of Pennsylvania
  Healthsystem MANUFACTURINGAgilent
Amdahl Corporation
Amgen
Australian Co-operative
Bausch & Lomb
Dupont
Fluor Corporation
Foods Limited
Fujitsu
Goodrich Corporation
Hewlett-Packard Company
Maersk/AP Moller
Nike Inc.
O.C. Tanner
Pfizer
Raytheon
United Technologies
Warner Lambert |  | RETAIL/
E-COMMERCE/SERVICESAmes Dept Stores
Accenture
Barnes & Noble.com
Boots
Enterprise Rent-a-car
Hallmark
IAMA
MedicaLogic
Land's End
Onyx Software
PeopleSoft
PETsMART, Inc. TELECOMMUNICATIONS/
UTILITIESBHP
Chevron
Ercot
Ericsson
Florida Power & Light
Fluor Corporation
Global Crossing
National Power
Portland General Electric
Racal Telecom
Sprint
Scottish and Southern Energy plc.
Schlumberger
Tesion GmbH
Telstra
Transco
Texas Utilities
Versatel
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In 2000 and 1999, no single customer accounted for more than 10% of our revenues. Revenues from the sale of our products and services outside the United States accounted for
$29.5 million, or 26% of our total revenue in 2000, $14.9 million, or 27% of our total revenues in 1999 and $7.6 million, or 20% of our total revenues in 1998. Revenues from the
sale of our products and services in the United Kingdom as a percent of total revenues were 11.9% in 2000, 9.7% in 1999 and 9.9% in 1998, while revenues from the sale of our products and services in
Germany as a percent of total revenues were 3.2% in 2000, 10.6% in 1999 and 5.6% in 1998. We believe that revenues from sales outside the United States will continue to account for a material portion
of our total revenues for the foreseeable future. Long-lived assets located outside the United States, principally in Europe, were $2.8 million at December 31, 2000,
$1.4 million at December 31, 1999 and $933,000 at December 31, 1998.

Sales and Marketing

We license our products and sell our services primarily through our direct sales organization, complemented by the selling and support efforts of our systems
integrators and through our relationships with independent software vendors. As of December 31, 2000, our sales and marketing organization consisted of 301 professionals. In the United States,
we have sales offices in the greater metropolitan areas of San Francisco, Los Angeles, New York, Chicago, Dallas and Washington DC. In Europe, we have sales offices in Belgium, France, Germany, Italy,
the Netherlands, Spain, and the
United Kingdom. In the Asia Pacific region we have sales offices in Australia, Japan, New Zealand and Singapore. Our direct sales force works closely with our professional services organization, which
provides pre-sales support to potential customers on product information and deployment capabilities. We plan to expand the size of our direct sales organization and are hiring sales
personnel with expertise in vertical markets such as financial services, manufacturing, retail, telecommunications and utilities. We also may establish additional sales offices domestically and
internationally.

Our
sales process requires that we work closely with targeted customers to identify short-term technical needs and long-term goals. Our sales team, which
includes both sales and technical professionals, then works with the customer to develop a proposal to address these needs. The length of our sales cycle generally depends on the customer's industry
and the size of the project.

Through
our global software partner program, we license our technology to leading independent software vendors so that they can embed our eBusiness Integration Suite technology into
their product on a limited basis for seamless integration with specific applications. These relationships enable these companies to resell our products to their customers worldwide and provide our
sales force further opportunities to sell our products to these same customers. We have OEM and reseller agreements with a number of software vendors.

We
focus our marketing efforts on creating awareness of our products and their applications, identifying and educating potential customers and generating new sales opportunities. In
the past twelve months, we significantly increased our investment in promoting our brand and products. We will continue to invest to increase awareness of our eBusiness Integration Suite as a
comprehensive solution for e-Business application integration. Our marketing activities include advertising, direct mail, seminars, tradeshows and industry conferences. We also have a
public relations program focused on the trade and business press as well as industry analysts.

Our
marketing organization works closely with our systems integrator partners and independent software vendors to jointly develop targeted marketing programs to leverage the solutions
offered by our partners. We have trained more than 1,000 services professionals from our systems integrator partners who are now certified by us to implement our solutions. We plan to establish
additional programs to educate systems integrators and independent software vendors on the benefits of our eBusiness Integration Suite.

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Strategic Alliances with Leading Systems Integrators

To promote additional market penetration of our products, we have established strategic relationships with three of the largest independent systems
integrators, Accenture (formerly Andersen Consulting), Computer Sciences Corporation ("CSC") and Electronic Data Systems Corporation ("EDS"). Our relationships with these systems integrators position
us as a preferred e-Business integration technology. We believe these relationships will enable us to increase market awareness of our products and increase sales. As we work with these
firms, we intend to better utilize our professional services organization and more effectively implement our products with our customers. We have incentivized each of these integrators by issuing
warrants to purchase shares of our common stock, with the vesting of such warrants conditioned upon achievement of agreed upon milestones relating to the generation of qualified customer introductions
or revenues for us. In addition, Accenture purchased a total of $1.0 million of our stock in September 1998 and March 1999, and EDS purchased 1.2 million shares of our
common stock concurrently with our initial public offering. In addition to these strategic relationships, we have relationships with other systems integrators including Arthur Andersen,
Booz-Allen & Hamilton, Cap Gemini Ernst & Young, Deloitte Consulting, KPMG and PricewaterhouseCoopers.

Product Development

Our core software product was commercially introduced in 1991, and in November 1999, we released the 4.X version of e*Gate software. We are continually
enhancing our eBusiness Integration Suite. In particular, we are focusing on enhancing the functionality of e*Gate software by extending B2B functionality, business process management capabilities and
broader platform support. We will continue to develop new e*Way adapters for emerging packaged applications, Web technologies and data formats to provide even greater application and system
connectivity. As of December 31, 2000, our product development organization included 148 employees and consisted of the following departments:

Product Management.This group is the primary interface between the product development team and the rest of our
organization. Product management collects input from marketing, sales, services, support, pilot programs, partners and users to define product requirements. Product management defines product
strategies and works with technical staff to assess implementation effort.

Architecture and Research.This group is tasked with innovating new technology in our core areas of expertise,
including distributed architecture, security, scalability and performance. This group also performs advance prototyping and technical specification of new products.

Development.Our development team is responsible for building specified products. This team receives functional input
from our product management group and technical input from our architecture and research group. Our development team works very closely with our documentation group to ensure that all releases are
accurately described in user manuals and help systems. The development team releases its work to the quality assurance team, which verifies stability against defined acceptance criteria.

Customer Service and Support

We provide support for all of our products on a global basis 24 hours a day, seven days a week. Our support centers are located in California and the
United Kingdom. Each of these support centers tracks support incidents on one global system, providing a consistent level of service everywhere. Customers have the option to log, track and update
service and support inquiries electronically, via the Web, telephone, or a combination of both. Our customer service group handles incoming calls, shipping requests, call logging, maintaining customer
information and responding to basic product questions. Our technical support engineering group is responsible for all technical cases until the issue is resolved and is responsible for meeting
targeted response times and providing regular updates. Our technical

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support-engineering group interfaces with our research and development group for product maintenance and bug fixing. As of December 31, 2000, our support organization included 26 employees.

Competition

The market for our products is intensely competitive, evolving and subject to rapid technological change. The intensity of competition is expected to increase
in the future. Increased competition is likely to result in price reductions, reduced gross margins and loss of market share, any one of which could significantly reduce our future revenues and
increase operating losses. Our current competitors include:

EAI vendors.We face competition from vendors offering EAI software products. These vendors include CrossWorlds
Software, Mercator Software, New Era of Networks (which is in the process of being acquired by Sybase Inc.), Tibco Software Inc., Vitria Technology Inc. and webMethods Inc.
A number of other companies are offering products that address different aspects of our solution, including BEA Systems, IBM, and Microsoft. In the future, some of these companies may expand their
products to enhance their functionality to provide a solution more similar to ours.

B2B integration vendors.We face competition from vendors offering EDI software solutions. These vendors include
Sterling Commerce, a subsidiary of SBC Communications and Harbinger, a subsidiary of Peregrine Systems. These solutions may be entrenched in particular functions of a potential customer's organization
for its data exchange with third parties. We also face competition from a number of software vendors focused on aspects of B2B integration.

Other software vendors.We may in the future also encounter competition from major enterprise software developers
including Oracle, PeopleSoft, Sybase and SAP. These companies have significantly greater resources than we have.

Internal IT departments."In house" information technology departments of potential customers have developed or may
develop systems that provide for some of the functionality of our eBusiness Integration Suite. In particular, it can be difficult to sell our product to a potential customer whose internal development
group has already made large investments in and progress towards completion of systems that our product is intended to replace.

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

We
believe that the principal competitive factors affecting the market for our products and services include product functionality and features, product price and performance, ease of
implementation, market awareness, quality of professional services offerings, acceptance of product or vendor by leading system integrators, quality of customer support services, quality of training
and documentation and vendor and product reputation. Although we believe that our solutions generally compete favorably with respect to these factors, our market is evolving rapidly. We may not be
able to maintain our competitive position against current and potential competitors, especially those with significantly greater resources.

Intellectual Property and Proprietary Rights

Our success is dependent upon the technological and creative skills of our personnel in developing and enhancing our software products, as well as our ability
to protect the related proprietary

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technology and intellectual proprietary rights. We rely primarily on a combination of contractual provisions, confidentiality procedures, trade secrets, copyright and trademark laws to accomplish
these goals. We do not currently hold any issued or registered patents. We have filed one provisional patent application that is pending and four regular patent applications in the United States and
may file additional patent applications in the future. We cannot assure you that a patent will be issued from any patent application we submit. Moreover, we cannot assure you that we will develop
proprietary products or technologies that are patentable, that any patent issued to us will provide us with any competitive advantages, or that the patents of others will not seriously harm our
ability to do business.

We
license our products pursuant to license agreements that prohibit reverse engineering or decompilation of our software, impose restrictions on the licensee's ability to utilize the
software and provide for specific remedies in the event of a breach of these restrictions. In addition, we take measures to avoid disclosure of our trade secrets, including but not limited to
requiring employees, customers and others with access to our proprietary information to execute confidentiality agreements with us which define the unauthorized uses and disclosures of our trade
secrets and other proprietary materials and information. Additionally, we restrict access to our source code.

We
assert copyright in software, documentation and other works of authorship and periodically file for and are granted copyright from the U.S. Copyright Office in and to qualifying
works of authorship. We assert trademark rights in and to our name, product names, logos and other markings that are designed to permit consumers to identify our goods and services. We routinely file
for and have been granted trademark protection from the U.S. Patent and Trademark Office for qualifying marks.

Despite
our efforts to protect our proprietary rights, existing laws, contractual provisions and remedies afford only limited protection. In addition, effective copyright and trade
secret protection may be unavailable or limited in some foreign countries. Attempts may be made to copy or reverse engineer aspects of our product or to obtain and use information that we regard as
proprietary. Accordingly, we cannot assure you that we will be able to protect our proprietary rights against unauthorized third-party copying or use. Use by others of our proprietary rights could
materially harm our business. Furthermore, policing the unauthorized use of our product is difficult and expensive litigation may be necessary in the future to enforce our intellectual property
rights.

Although
we do not believe our products infringe the proprietary rights of third parties and are not aware of any currently pending claims that our products, trademarks or other
proprietary rights infringe upon the proprietary rights of third parties, it is possible that third parties will claim that we have infringed their current or future products. Any claims, with or
without merit, could be time-consuming, result in costly litigation, prevent product shipment, cause delays or require us to enter into royalty or licensing agreements, any of which could
harm our business. Patent litigation in particular has complex
technical issues and inherent uncertainties. Parties making claims against us could secure substantial damages, as well as injunctive or other equitable relief which could effectively block our
ability to license our products in the United States or abroad. Such a judgment could seriously harm our business. In the event an infringement claim against us were successful and we could not obtain
a license on acceptable terms or license a substitute technology or redesign to avoid infringement, our business would be harmed.

Employees

As of December 31, 2000, we had a total of 773 employees, including 148 in research and development, 301 in sales and marketing, 26 in customer support,
188 in professional services and training, and 110 in operations, administration and finance. None of our employees is represented by a collective bargaining agreement, nor have we experienced any
work stoppage. We consider our relations with our employees to be good.

15

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Executive Officers

The following table sets forth information with respect to our executive officers:

Name

Age

PositionJames T. Demetriades

38

Chairman of the Board, President and Chief Executive OfficerPaul J. Hoffman

50

President, AmericasKathleen M. Mitchell

49

Senior Vice President, Marketing and Business DevelopmentBarry J. Plaga

39

Senior Vice President, Finance, Chief Financial Officer and Assistant SecretaryAlex Demetriades

33

Senior Vice President, ProductsRangaswamy Srihari

44

Vice President, Engineering and Chief Technical OfficerDavid Bennett

42

Vice President and General Manager EMEAScott West

46

Vice President, Southeast Asia


James T. Demetriadeshas served as our Chairman of the Board, President and Chief Executive Officer since he founded SeeBeyond in 1989.
Prior to founding SeeBeyond, Mr. Demetriades was employed by Information Concepts, Inc. where he managed development of software for use in the insurance industry. Mr. Demetriades
then worked for a division of American Medical International designing and building custom interfaces between software systems. Mr. Demetriades is a founding member of the ANSI standards group
HL7 and a Cal Tech Fellow. Mr. Demetriades holds a B.S. degree in computer science and economics from Loyola Marymount University, Los Angeles.

Paul J. Hoffmanhas served as our President, Americas since April 1999. From September 1996 to April 1999,
Mr. Hoffman served as Vice President, Worldwide Sales for Documentum, a document management software company. From September 1994 to September 1996, Mr. Hoffman served as
Vice President, Worldwide Operations for Oracle Corporation. Mr. Hoffman holds a B.S. degree in finance from Fairfield University.

Kathleen M. Mitchellhas served as our Senior Vice President, Marketing and Business Development since April 1999. From
June 1997 to December 1998, Ms. Mitchell was President and Chief Executive Officer of Live Picture, Inc., an Internet imaging company which filed for bankruptcy protection
in 1999. From January 1995 to January 1997, Ms. Mitchell was employed with Ceridian Corporation, an information services company, as President of the Employer Services division.
Ms. Mitchell holds a B.A. degree in economics from Newton College (later merged with Boston College).

Barry J. Plagahas served as our Senior Vice President, Finance and Chief Financial Officer since November 1999. From
June 1999 to November 1999, Mr. Plaga served as Executive Vice President and Chief Financial Officer for Activision, Inc., a publisher and developer of interactive software
and video games. From June 1997 to June 1999, Mr. Plaga served as Senior Vice President and Chief Financial Officer for Activision. From January 1992 to June 1997,
Mr. Plaga served as Senior Vice President, Finance and Chief Administrative Officer of Activision. Mr. Plaga received his B.S. in accounting and his master of accounting degree from the
University of Southern California.

Alex Demetriadeshas served as our Senior Vice President, Products since January 2001 and as Vice President of Products since January
2000. From January 1985 to January 2000, Mr. Demetriades was employed in various other positions at SeeBeyond most recently as Director of Product Management,

16

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Architecture and Research. Mr. Demetriades holds B.S. degrees in cognitive science and biophysics, and a B.A. degree in psychology, each from the University of California at San Diego.

Rangaswamy Sriharihas served as our Vice President, Engineering and Chief Technology Officer since April 1998.
Mr. Srihari served as our Vice President, Technology and Services from July 1997 to March 1998, and as our Vice President, Commercial Markets from January 1997 to
June 1997. From November 1994 to December 1996, Mr. Srihari was employed with Delphi Info Systems as Vice President, Development and Chief Technical Officer.
Mr. Srihari holds a B.S. degree in chemical engineering from the University of Madras (India), and an M.S. in electrical engineering from the Illinois Institute of Technology.

David Bennetthas served as our Vice President and General Manager of Europe, Middle East and Africa since March 2000. Prior to joining
SeeBeyond, Mr. Bennett spent six years with Documentum Inc. At Documentum, he held a number of both European and worldwide sales management positions serving most recently as vice president and
general manager of EMEA. Mr. Bennett holds an honours degree in business studies and a diploma of the Institute of Marketing having attended Cheltenham College and the University of Southwest,
Bristol.

Scott Westhas served as our Vice President of Southeast Asia since June 2000. Mr. West has been responsible for successfully
growing SeeBeyond's international presence both in Europe and the Pacific Rim. Mr. West has been responsible for opening the majority of all SeeBeyond International offices since 1994. In
addition to international expansion, Mr. West has been responsible for global sales, infrastructure, support and business application development. A certified medical technologist and former
U.S. Navy Medical Corpsman, Mr. West trained at the U.S. Navy's Clinical Laboratory Technology and Hospital Corps School. Mr. West has also attended Southern Oregon University majoring
in computer science and the Western Washington University, majoring in chemistry. Mr. West graduated from the Stanford/AEA Executive program in 1998.

Item 2: Properties

Our principal executive and corporate offices are located in Monrovia, California, where we lease a total of approximately 137,000 square feet under leases
that expire from 2003 to 2005. We lease approximately 17,000 square feet in Redwood Shores, California for our sales and marketing offices under a lease that expires in September 2004. We also
have sales and marketing offices in Dallas, Chicago, Reston, Virginia, New York, Australia, Belgium, France, Germany, Italy, Japan, New Zealand, Singapore, Spain, and the United Kingdom under leases
that cover from 200 to 9,600 square feet and that expire from December 2001 to January 2009. We believe that these facilities are adequate for our current operations and that additional
space can be obtained on commercially reasonable terms if needed.

Item 3: Legal Proceedings

We are a party to routine claims and suits brought against us in the ordinary course of business. In the opinion of management, such routine claims should not
have any material adverse effect upon the results of operations, cash flows or our financial position.

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

No matters were submitted to a vote of security holders during the fourth quarter of the year ended December 31, 2000.

17

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PART II

Item 5: Market for the Company's Common Stock and Related Shareholders Matters

Our common stock is traded on the Nasdaq National Market under the symbol "SBYN". Public trading of our common stock commenced on April 28, 2000 under
the stock symbol "STCS". The following table shows, for the periods indicated, the high and low per share prices of our common stock, as reported by the Nasdaq National Market:

Quarter Ended:

High

LowJune 30, 2000

$
34.88

$
15.31September 30, 2000


34.50


18.75December 31, 2000


23.19


7.00


We
had 753 shareholders of record as of December 31, 2000.

We
have never declared or paid any cash dividends on our common stock. The Company currently intends to invest cash generated from operations, if any, to support the development of
its business and
does not anticipate paying cash dividends for the foreseeable future. Payment of future dividends, if any, will be at the discretion of the Company's Board of Directors after taking into account
various factors, including the Company's financial condition, operating results and current and anticipated cash needs.

18

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Item 6: Selected Consolidated Financial Data

The following selected consolidated financial data should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein. The Consolidated Statements of Operations Data for the years ended
December 31, 2000, 1999 and 1998, and the balance sheet data as of December 31, 2000 and 1999, are derived from the audited consolidated financial statements included elsewhere in this
Form 10-K. The Consolidated Financial Statements of Operations Data for the years ended December 31, 1997 and 1996, and the balance sheet data as of December 31, 1998,
1997 and 1996, are derived from the audited Consolidated Financial Statements not included elsewhere in this Form 10-K. The historical results are not necessarily indicative of
results to be expected for future periods.

|                                                                                 |                                          | Year Ended December 31,  |        
|-------------------------------------------------------------------------------- | ---------------------------------------- | ------------------------ | -------
|
|
|Consolidated Statements of Operations Data:                                      |                                          |                          |        
|Revenues:                                                                        |                                          |                          |        
|                                                                                 | License                                  |                          | $      
|                                                                                 | Services                                 |                          |        
|                                                                                 | Maintenance                              |                          |        
|                                                                                 | Other                                    |                          |        
|                                                                                 |                                          |                          |        
|                                                                                 |                                          | Total revenues           |        
|                                                                                 |                                          |                          |        
|Cost of revenues:                                                                |                                          |                          |        
|                                                                                 | License                                  |                          |        
|                                                                                 | Services                                 |                          |        
|                                                                                 | Maintenance                              |                          |        
|                                                                                 | Other                                    |                          |        
|                                                                                 |                                          |                          |        
|                                                                                 |                                          | Total cost of revenues   |        
|                                                                                 |                                          |                          |        
|Gross profit                                                                     |                                          |                          | 81,824 
|                                                                                 |                                          |                          |        
|Operating expenses:                                                              |                                          |                          |        
|                                                                                 | Research and development                 |                          |        
|                                                                                 | Sales and marketing                      |                          |        
|                                                                                 | General and administrative               |                          |        
|                                                                                 | Amortization of alliance warrants        |                          |        
|                                                                                 | Amortization of stock-based compensation |                          |        
|                                                                                 |                                          |                          |        
|                                                                                 |                                          | Total operating expenses |        
|                                                                                 |                                          |                          |        
|Income (loss) from operations                                                    |                                          |                          | (41,947
|Interest and other income (expense), net                                         |                                          |                          | (23    
|                                                                                 |                                          |                          |        
|Income (loss) before provision for taxes                                         |                                          |                          | (41,970
|Provision for income taxes                                                       |                                          |                          |       
|                                                                                 |                                          |                          |        
|Net income (loss)                                                                |                                          | $                        | (41,970
|Accretion on preferred stock                                                     |                                          |                          | 769    
|                                                                                 |                                          |                          |        
|Net income (loss) available to common shareholders                               |                                          | $                        | (42,739
|                                                                                 |                                          |                          |        
|Basic and diluted net income (loss) per share                                    |                                          | $                        | (0.69  
|Number of shares used in computing basic and diluted net income (loss) per share |                                          |                          | 61,909 

19

---



|                                       |  | As of December 31,
|-------------------------------------- |  | ------------------
|
|
|Consolidated Balance Sheet Data:       |  |                   
|Cash and cash equivalents              |  | $                 
|Working capital (deficit)              |  |                   
|Total assets                           |  |                   
|Deferred revenue                       |  |                   
|Long-term liabilities                  |  |                   
|Redeemable convertible preferred stock |  |                   
|Total shareholders' equity (deficit)   |  |                   

20

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Item 7: Management's Discussion and Analysis of Financial Condition and Results of Operations

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

Overview

We were founded in 1989 and sold our first products and services in 1991 under the name "Software Technologies Corporation." From 1991 to 1998 our sales and
marketing efforts were primarily focused on customers in the healthcare industry. In 1998, we began to significantly increase our sales and marketing expenses to target customers in other vertical
markets, such as financial services/insurance, manufacturing, retail/e-Commerce/services, telecommunications, energy services and government. As a result of these efforts, license sales to
non-healthcare customers accounted for approximately 89% of our license sales in 2000 compared to 68% of our license sales in 1999 and 35% of our license sales in 1998. In
November 1999, we launched the fourth generation of our primary product with the introduction of e*Gate 4.0 software and changed the name of this product from DataGate software to e*Gate
software. In anticipation of this release, we accelerated the growth of our product development, services and sales and marketing organizations. We incurred significant losses in 1999 and 2000, and as
of December 31, 2000, we had an accumulated deficit of $85.1 million. In October 2000, we changed our name to SeeBeyond Technology Corporation.

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

We
currently have sales offices in eleven countries outside of the United States. Revenues derived from international sales have grown to 26% in 2000 from 20% of total revenues in
1998. We believe that international revenues will continue to be significant in future periods. To date, we have not experienced significant seasonality of revenues. However, we expect that our future
results will fluctuate in response to the fiscal or quarterly budget cycles of our customers.

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

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

21

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In the past, we offered our healthcare customers our expertise in configuring hardware and software systems in conjunction with their purchase of our products. In these instances, we
would sell third-party hardware and software to our customers in addition to our products. Other revenues consist of these sales of third-party hardware and software. We discontinued offering this
service to our customers during the fourth quarter of 1999.

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

Cost
of revenues consists of cost of license revenues, cost of services revenues, cost of maintenance revenues and cost of other revenues. Cost of license revenues includes the cost
of third-party licensed software embedded or bundled with our products. Cost of services revenues consists of compensation and related overhead costs for personnel engaged in implementation consulting
and services and training. Cost of maintenance revenues includes compensation and related overhead costs for personnel engaged in maintenance and support activities. Cost of other revenues consists of
the cost of third-party hardware and software sales. In 2000, our gross margin was 99.1% on our license revenues, 12.3% on our services revenues and 79.8% on our maintenance revenues. We expect in the
future to continue to earn substantially higher gross margins on our license and maintenance revenues compared to our services revenues. As a result, our overall gross margin depends significantly on
our revenues mix.

Our
operating expenses are classified as research and development, sales and marketing and general and administrative. Each category includes related expenses for salaries, employee
benefits, incentive compensation, bonuses, travel, telephone, communications, rent and allocated facilities and professional fees. Our sales and marketing expenses include additional expenditures
specific to the marketing group, such as public relations and advertising, trade shows, and marketing collateral materials and expenditures specific to the sales group, such as commissions. To date,
all software product development costs have been expensed as incurred. Also included in our operating expenses are the amortization of alliance warrants and the amortization of stock compensation.

In
order to increase both our company's and our products' market presence, we entered into strategic alliances with Computer Sciences Corporation ("CSC") in March 2000,
Electronic Data Systems Corporation ("EDS") in January 2000 and Accenture, formerly Andersen Consulting, in November 1999. We granted each of these strategic partners a warrant to
purchase up to 1,200,000 shares of our common stock which becomes exercisable upon the achievement of various milestones, which include the creation of e*Gate software market offerings in the case of
Accenture and CSC and the generation of SeeBeyond license revenues by selling our products to third parties in the case of EDS and CSC. These warrants expire from July 2002 to
November 2003, and have a per share exercise price of $5.33 for Accenture, $6.67 for EDS and $14.00 for CSC. These warrants contain a significant economic disincentive for
non-performance, and accordingly, the fair value of these warrants was measured at the date of grant in accordance with Emerging Issues Task Force No. 96-18. Using the
Black-Scholes option-pricing model, we valued the warrants granted to Accenture in 1999 at $3.3 million and the warrants granted to EDS and CSC at $10.1 million. These amounts are
included in common stock and are being amortized by charges to operations over the vesting periods of the warrants. We recognized amortization of $6.8 million and $814,000 for 2000 and 1999,
respectively, and we will recognize additional amortization of $5.1 million in 2001 and $0.7 million in 2002. The amortization of the alliance warrants is classified as a separate
component of operating expenses in our consolidated statement of operations.

22

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In connection with stock option grants to our employees, we have recorded deferred stock compensation totaling $8.5 million through December 31, 2000, of which
approximately $2.9 million remains to be amortized. This amount represents the difference between the exercise price and the deemed fair value of our common stock on the date the options were
granted multiplied by the number of option shares granted. This amount is included as a component of shareholders' equity and is being amortized by charges to operations over the vesting period of the
options, consistent with the method described in Financial Accounting Standards Board Interpretation No. 28. We recognized amortization of deferred compensation expense of $3.9 million
and $1.7 million in 2000 and 1999, respectively. The amortization of the remaining deferred stock compensation at December 31, 2000 will result in additional charges to operations
through 2004. The amortization of stock compensation is classified as a separate component of operating expenses in our consolidated statement of operations.

Results of Operations

The following table sets forth our results of operations expressed as a percentage of total revenues:

Year Ended December 31,2000

1999

1998Revenues:License

57
%
44
%
48
%Services

29

37

29Maintenance

14

16

14Other



3

9Total revenues

100

100

100Cost of revenues:License

1

1

2Services

25

38

30Maintenance

3

4

2Other



2

5Gross profit

71

55

61Operating expenses:Research and development

17

22

23Sales and marketing

67

52

43General and administrative

15

22

25Amortization of alliance warrants

6

2

Amortization of stock based compensation

3

3

Total operating expenses

108

101

91Loss from operations

(37
)
(46
)
(30
)Interest and other income (expense), net



(1
)
Loss before tax provision

(37
)
(47
)
(30
)Provision for income taxes





Net loss

(37
)%
(47
)%
(30
)%


Comparison of Years Ended December 31, 2000, 1999 and 1998



Total revenues were $114.8 million for 2000, $55.2 million for 1999 and $37.5 million for 1998, representing increases of
$59.6 million, or 108% from 1999 to 2000 and $17.7 million, or 47%, from 1998 to 1999. We had no customer that accounted for more than 10% of our total revenues in 2000, 1999 or 1998.

23

---

License Revenues.License revenues were $65.4 million for 2000, $24.1 million for 1999, and
$18.1 million for 1998 representing increases of $41.3 million, or 171% from 1999 to 2000, and increases of $6.0 million, or 33%, from 1998 to 1999. License revenues as a
percentage of total revenues were 57% in 2000, 44% for 1999 and 48% for 1998. The increase in license revenues from 1998 to 1999 was due
to the continued licensed sales of e*Gate 3.6 software during 1999 and the introduction of e*Gate 4.0 software in November 1999. The increase in license revenues from 1999 to 2000 was due to
continued licensed sales of e*Gate 4.0 software , the introduction of our B2B and Business Process Management product offering and the increasing acceptance of our products in key vertical markets and
the expansion of our relationships with leading systems integrators.

Services Revenues.Services revenues were $33.1 million for 2000, $20.3 million for 1999, and
$10.9 million for 1998, representing increases of $12.8 million or 63%, from 1999 to 2000 and $9.4 million, or 86%, from 1998 to 1999. Services revenues as a percentage of total
revenues were 29% in 2000, 37% in 1999, and 29% in 1998. The increases in the absolute dollar amount of services revenues from 1998 to 1999 and 1999 to 2000 were primarily due to increases in our
professional services staff and the growth of consulting revenues associated with increased license revenues from 1998 to 1999 and from 1999 to 2000.

Maintenance Revenues.Maintenance revenues were $16.2 million for 2000, $9.1 million for 1999 and
$5.1 million for 1998, representing increases of $7.1 million, or 78% from 1999 to 2000, $4.0 million, or 78% from 1998 to 1999. Maintenance revenues as a percentage of total
revenues were 14% in 2000, 16% in 1999 and 14% in 1998. The increases in the absolute dollar amount of maintenance revenues from 1999 to 2000 and 1998 to 1999 were primarily due to increased licenses
sales of our products, and, to a lesser extent, to renewals of prior period maintenance contracts.

Other Revenues.Other revenues were $0 for 2000, $1.8 million for 1999 and $3.3 million for 1998
representing a decrease of $1.8 million, or 100%, from 1999 to 2000, and a decrease of $1.5 million, or 45%, from 1998 to 1999. Other revenues as a percentage of total revenues were 0%
in 2000, 3% in 1999 and 9% in 1998. The decrease in other revenues from 1998 to 1999 was due to a decrease in our customer mix of the type of customer that required us to provide third party hardware
with our software. In the fourth quarter of 1999, we discontinued providing this service.



Cost of revenues were $32.9 million for 2000, $25.2 million for 1999 and $14.7 million for 1998. Gross margin was 71% in 2000, 55% in 1999
and 61% in 1998. The increase in gross margin from 1999 to 2000 was due to primarily to an increase in license revenues and a decrease in services revenue as a percentage of total revenues. The
decrease in gross margin from 1998 to 1999 was due to the continued use of our services organization in the selling cycle combined with an increase in services revenues as a percentage of total
revenues.

Cost of License Revenues.Cost of license revenues were $569,000 for 2000, $690,000 for 1999 and $959,000 for 1998.
Cost of license revenues as a percentage of total revenues were 1% in 2000, 1% in 1999 and 2% in 1998. The decrease in cost of license revenues from 1998 to 1999 and from 1999 to 2000 were primarily
due to the change in the sales mix of products which contain third-party software which is embedded or bundled with our software product offerings.

Cost of Services Revenues.Cost of services revenues were $29.1 million for 2000, $20.9 million for 1999
and $11.3 million for 1998, These increases in cost of services revenues were primarily due to increases in professional services staff and the related increases in revenues. Cost of services
revenues as a percentage of total revenues were 25% in 2000, 38% in 1999 and 30% in 1998. The decrease in cost of services revenues as a percentage of total revenues from 1999 to 2000 was primarily
due to the decrease in services revenue in the overall mix of total revenues. The increase in cost of services

24

---

revenues as a percentage of total revenues from 1998 to 1999 was primarily due to an increase in services personnel assisting our sales organization in the sales cycle by performing
non-billable services to potential customers in the form of proof of concepts and software pilots.

Cost of Maintenance Revenues.Cost of maintenance revenues were $3.3 million in 2000, $2.4 million for
1999 and $587,000 for 1998. The increase in the absolute dollar amount in the cost of maintenance revenues from 1998 to 1999 was primarily due to the increases in maintenance revenue. Cost of
maintenance revenues as a percentage of total revenues was 3% in 2000, 4% in 1999 and 2% in 1998. The decrease in cost of maintenance revenue as a percentage of total revenues from 1999 to 2000 was
due to the decrease of maintenance revenues in the overall mix of total revenues.

Cost of Other Revenues.Cost of other revenues were $0 for 2000, $1.2 million for 1999 and $1.9 million
for 1998. Cost of other revenues as a percentage of total revenues were 0% in 2000, 2% in 1999 and 5% in 1998. The decrease from 1999 to 2000 was due to the Company discontinuing this service in the
fourth quarter of 1999. The decrease from 1998 to 1999 was primarily due to the decrease in other revenues.



Research and Development Expenses.Research and development expenses were $19.2 million for 2000,
$12.0 million for 1999 and $8.5 million for 1998. Research and development expenses as a percentage of
total revenues were 17% in 2000, 22% in 1999 and 23% in 1998. The increases in research and development expenses from 1998 to 1999 and 1999 to 2000 were primarily due to the increase in the number of
software developers and quality assurance personnel to support our product development, documentation and testing activities related to the development of current and future versions of our products.
We anticipate that research and development expenses will continue to increase in absolute dollars in the foreseeable future as we continue to expand our product suites, upgrade the performance of
existing products and add research and development staff.

Sales and Marketing Expenses.Sales and marketing expenses were $76.7 million for 2000, $28.7 million for
1999 and $16.3 million for 1998. Sales and marketing expenses as a percentage of total revenues were 67% in 2000, 52% in 1999 and 43% in 1998. The increases in sales and marketing expenses from
1998 to 1999 and 1999 to 2000 were due to the expansion of our domestic and international direct sales forces and the increase in marketing staff, promotional and public relations activities and
product and corporate communications. We anticipate that our sales and marketing expenses will increase in absolute dollars for the foreseeable future as we expand our domestic and international sales
forces, expand our marketing staff, develop product marketing and awareness campaigns for both the company and our products and increase promotional activities.

General and Administrative Expenses.General and administrative expenses were $17.2 million for 2000,
$12.2 million for 1999 and $9.2 million for 1998. General and administrative expenses as a percentage of total revenues were 15% in 2000, 22% in 1999 and 25% in 1998. The increases in
the absolute dollar amounts from 1998 to 1999 and from 1999 to 2000 were primarily due to hiring additional executive, finance, information technology and administrative personnel to support the
growth of our business and worldwide infrastructure. We expect that general and administrative expenses will increase in absolute dollars for the foreseeable future as we continue to expand our global
operations.

25

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Amortization of Stock-Based Compensation.In connection with stock option grants to employees and
non-employee directors during 2000 and 1999, we recorded total deferred compensation of $8.5 million, of which $3.9 million and $1.7 million was expensed as
amortization of stock compensation in 2000 and 1999, respectively. In connection with the grant of common stock warrants to certain strategic alliance partners during 2000 and 1999, we recorded
deferred compensation related to the warrants of $10.1 million and $3.3 million in 2000 and 1999, respectively, of which approximately $6.8 million and $814,000 was expensed as
amortization of alliance warrants in 2000 and 1999, respectively.



Interest and other income (expense), net primarily consists of interest income (expense). Interest and other income (expense), net, was approximately $(23,000)
in 2000, $(515,000) in 1999 and $16,000 in 1998. The decrease in interest expense, net from 1999 to 2000 was primarily due to an increase in interest income due to larger cash balances as a result of
the Company's initial public offering in April, 2000. The increase in interest and other expense, net from 1998 to 1999 was primarily due to higher balances on a line of credit and a
long-term note payable during 1999, resulting in increased interest expense in 1999.



No provision for income taxes has been recorded since our inception because we have incurred net losses in all periods, except 1997. As of December 31,
2000, we had net operating loss carryforwards for federal income tax reporting purposes of approximately $54.5 million that expire in various amounts beginning in 2018. We also had net
operating loss carryforwards for state income tax reporting purposes of approximately $26.4 million that expire in various amounts beginning in 2003. The U.S. tax laws contain provisions that
limit the use in any future period of net operating loss and credit carryforwards upon the occurrence of certain events, including a significant change in ownership interests. We had deferred tax
assets, including our net operating loss carryforwards and tax credits of approximately $36.3 million as of December 31, 2000. A valuation allowance has been recorded for the entire
deferred tax asset as a result of uncertainties regarding the realization of the asset balance. See Note 5 of Notes to Consolidated Financial Statements.

Liquidity and Capital Resources

As of December 31, 2000, the Company had cash and cash equivalents of $29.4 million, an increase of $27.8 million from $1.6 million
of cash and cash equivalents held as of December 31, 1999.

Net
cash used in operating activities was $23.1 million during the twelve months ended December 31, 2000, as compared with $21.9 million in the same period in the
previous year. This increase in cash used in operating activities reflects an increase in net loss and increases in accounts receivable and prepaid expenses and other current assets, offset by
increases in accounts payable, other accrued expenses and deferred revenue.

Net
cash used in investing activities was $7.2 million during the twelve months ended December 31, 2000, as compared with $4.4 million in the same period in the
previous year. The increase primarily was due to an increase in capital expenditures as a result of the expansion of the Company's office facilities and the headcount expansion in research and
development and sales and marketing.

Net
cash provided by financing activities was $58.3 million during the twelve months ended December 31, 2000, as compared with $24.7 million in the same period in
the previous year. This increase was due primarily to the completion of the Company's initial public offering and a concurrent private placement in May 2000, offset by the repayment of its line
of credit and note payable during the year.

26

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

In
November 2000, the Company established a $15.0 million line of credit facility (the "New Line") with a lending institution that bears interest at an annual rate of either
prime plus 0.5% or the London InterBank Offered Rate ("LIBOR") rate plus 2.50% (payable monthly) and expires May 31, 2002. As of December 31, 2000, $15.0 million was available
under the New Line and there were no borrowings outstanding. The Company may use up to $5,000,000 of the New Line to issue letters of credit. The New Line is secured by intellectual property rights,
accounts receivable and certain other assets and is
subject to certain borrowing base restrictions. The New Line requires maintenance of certain financial covenants pertaining to key financial ratios. The New Line replaced a $10.0 million line
of credit facility (the "Prior Line") with another lending institution that bore interest at an annual rate of prime plus 2% (payable monthly) and would have expired on February 1, 2001. The
outstanding balance on the Prior Line was repaid in May 2000, using a portion of the proceeds from the Company's IPO.

As
of December 31, 2000, the Company also had a $3.0 million equipment line (the "Equipment Line") with the same lending institution as the New Line that bears interest
at an annual rate of either prime plus 0.75% or the LIBOR rate plus 2.75% (payable monthly) and expires on November 30, 2004. The Company may draw against the Equipment Line through
November 30, 2001. Interest is payable monthly and principal is payable in 36 monthly installments commencing in December 2001. As of December 31, 2000, there was $400,000
outstanding under the Equipment Line. The Equipment Line is secured by certain assets of the Company.

In
September 2000, the Company also repaid, in its entirety, a $10.0 million note payable it had with a lending institution, using a portion of the proceeds from its
IPO.

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

Euro Currency Conversion

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

The
Company and certain of its European subsidiaries are currently evaluating the Euro conversion and the potential impact on their operations. At the present time, the Company
believes the

27

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necessary changes and costs incurred thus far, and expected to be incurred in the future, are not significant.

Recently Issued Accounting Pronouncements

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

In
December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements." SAB 101 provides
guidance on the recognition, presentation, and disclosure of revenue in financial statements. SAB 101, as amended, effective for years beginning after December 15, 1999 and was adopted in the
quarter beginning October 1, 2000. The adoption of SAB 101 did not have a significant effect on the Company's consolidated results of operations, financial position or cash flows.

Risks Related To SeeBeyond

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

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

We Have A Large Accumulated Deficit, We May Incur Future Losses And We May Not Achieve Or Maintain Profitability.

We
incurred substantial losses in 1999 and 2000 as we increased funding of the development of our products and technologies and expanded our sales and marketing organization. As of
December 31, 2000, we had an accumulated deficit of $85.1 million. We intend to continue to invest heavily in sales and marketing and research and development. As a result, we may incur
future losses.

We Experience Long And Variable Sales Cycles, Which Could Have A Negative Impact On Our Results Of Operations For Any Given
Quarter.

Our
products are often used by our customers throughout their organizations to address critical business problems. Customers generally consider a wide range of issues before
committing to purchase our products, including product benefits, the ability to operate with existing and future computer systems, the ability to accommodate increased transaction volumes and product
reliability. Many customers are addressing these issues for the first time when they consider whether to buy our products and services. As a result, we or other parties, including systems integrators,
must educate potential customers on the use and benefits of our products and services. In addition, the purchase of our products generally involves a significant commitment of capital and other
resources by a customer. This commitment often requires significant technical review, assessment of competitive products and approval at a number of management levels within a customer's organization.
Our sales cycle may vary based on the industry in which the potential customer operates and is difficult to predict for any particular license transaction. The length and variability of our sales
cycle makes it difficult to predict whether particular sales will be concluded in any given quarter. If one or more of our license

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transactions are not consummated in a given quarter, our results of operations for that quarter may be below our expectations and the expectations of analysts and investors.

Our Operating Results Are Highly Dependent On License Revenues From One Software Suite, And Our Business Could Be Materially Harmed By Factors That
Adversely Affect The Pricing And Demand For This Software Suite.

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

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

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

We Must Continue To Successfully Sell Our Products To Commercial Customers Outside Of The Healthcare Industry Or Our Revenues May
Decline.

Since
1998, we have invested a significant amount of our sales and marketing resources to target various commercial markets outside of the healthcare industry, particularly for
business-to-business integration. As a result, license sales from customers to non-healthcare industries accounted for approximately 89% and 68% of total license
sales in 2000 and 1999, respectively, up from approximately 35% of total license sales in 1998. We expect that license sales for non-healthcare customers will continue to increase as a
percentage of license sales as a result of this continued investment. A license to a commercial customer is expected to involve a longer sales cycle and higher revenues compared to a license to a
healthcare customer. We must continue to increase the size of our direct sales force to implement our strategy of increased sales to commercial customers. In addition, because the healthcare industry,
which has historically represented our largest customer base, has generally not required business-to-business capabilities, e*Xchange software has been deployed to a greater
extent in intra-enterprise environments than in business-to-business environments. We cannot assure you that e*Xchange software will be commercially successful for
business-to-business environments, and we expect to devote significant resources to the continued development, support, sales and marketing of e*Xchange software for these
environments. If we fail to increase our sales

29

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force or to penetrate additional commercial accounts in a meaningful way, our operating results will suffer.

The
revenue potential from the healthcare market and the various commercial markets may fluctuate due to industry-specific conditions. For example, in 1999 the healthcare market
reduced spending on IT systems because of a downturn in the healthcare industry. Given our limited market penetration and experience in other commercial markets, such as financial services,
telecommunications and manufacturing, and the high degree of competition and the rapidly changing environment in these industries, we cannot assure you that we will be able to expand sales with
respect to these markets. If we fail to successfully penetrate commercial accounts in these markets, we may experience decreased sales in future periods. Moreover, if we penetrate additional markets,
our results of operations may fluctuate with the economic conditions in those markets.

Our Revenues Will Likely Decline If We Do Not Develop And Maintain Successful Relationships With Our Systems Integration Partners and Other Strategic
Partners, And These Partners Also Have Relationships With Our Competitors.

We
recently entered into agreements with Accenture (formerly Andersen Consulting) CSC and EDS for them to install and deploy our products and perform custom integration of systems and
applications. These systems integrators will also engage in joint marketing and sales efforts with us. If these
relationships fail, we will have to devote substantially more resources to the sales and marketing, and implementation and support of our products than we would otherwise, and our efforts may not be
as effective as those of the systems integrators. In many cases, these parties have extensive relationships with our existing and potential customers and influence the decisions of these customers. We
rely upon these firms to recommend our products during the evaluation stage of the purchasing process, as well as for implementation and customer support services.

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

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

The
Company recently entered into a strategic marketing agreement and established a relationship with General Motors Corporation ("GMC"). Under this agreement, GMC will assist us in
our sales and marketing efforts to affiliates within the GMC family of companies and their suppliers. If this relationship with GMC fails to develop as we anticipate, we will have to devote more
resources to the sales and marketing of our products than we would otherwise, and our efforts may not be as effective as those of GMC in marketing our products to these divisions and companies
affiliated with GMC. Our failure to maintain this relationship with GMC could harm our ability to increase our revenues from the license and successful implementation of our software products in this
key commercial market.

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Our Markets Are Highly Competitive And, If We Do Not Compete Effectively, We May Suffer Price Reductions, Reduced Gross Margins And Loss Of Market
Share.

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

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

Our Growth Continues To Place A Significant Strain On Our Management Systems And Resources. If We Fail To Manage Our Growth, Our Ability To Market And
Sell Our Products And Develop New Products May Be Harmed.

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

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



In
addition, in September 1999, we opened an office in Redwood Shores, California, where our sales and marketing organization is located. This move has resulted and will
continue to result in higher expenses and has required and will continue to require us to coordinate these activities with our other operations in Monrovia, California.

31

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Our Operating Results Fluctuate Significantly, And An Unanticipated Decline In Revenues Or Gross Margin May Disappoint Securities Analysts Or Investors
And Result In A Decline In Our Stock Price.

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

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

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

If We Fail To Attract And Retain Qualified Personnel, Our Ability To Compete Will Be Harmed.

We
depend on the continued service of our key technical, sales and senior management personnel, including our founder and Chief Executive Officer, James T. Demetriades. The loss of
any of our senior management or other key research and development or sales and marketing personnel could adversely affect our future operating results. We must attract, retain and motivate highly
skilled employees, including sales personnel and software engineers. We face significant competition for individuals with the skills required to develop, market and support our products and services.
We cannot assure you that we will be able to recruit and retain sufficient numbers of these highly skilled employees. If we fail to do so, our ability to compete will be significantly harmed.

Our Substantial And Expanding International Operations Are Subject To Uncertainties Which Could Adversely Affect Our Operating
Results.

Revenues
from the sale of our products and services outside the United States accounted for approximately 25.7% of our total revenues in 2000, 27.1% of our total revenues in 1999 and
20.3% of our total revenues in 1998. Revenues from the sale of our products and services in the United Kingdom as a percent of total revenues were 11.9% in 2000, 9.7% in 1999 and 9.9% in 1998 while
revenues from the sale of our products and services in Germany as a percent of total revenues were 3.2% in 2000, 10.6% in 1999 and 5.6% in 1998. We believe that revenues from sales outside the United

32

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States will continue to account for a material portion of our total revenues for the foreseeable future. We are exposed to several risks inherent in conducting business internationally, such as:



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

We Could Suffer Losses And Negative Publicity If New Versions Or Releases Of Our Products Contain Errors Or Defects.

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

If Our Products Do Not Operate With The Many Hardware And Software Platforms Used By Our Customers And Keep Pace With Technological Change, Our Business
May Fail.

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



33

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

The Market For E-Business Integration Software May Not Grow As Quickly As We Anticipate, Which Would Cause Our Revenues To Fall Below
Expectations.

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

If We Fail To Adequately Protect Our Proprietary Rights, We May Lose These Rights And Our Business May Be Seriously Harmed.

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

Our Products Could Infringe The Intellectual Property Rights Of Others, Causing Costly Litigation And The Loss Of Significant
Rights.

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

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Item 7A: Quantitative and Qualitative Disclosure about Market Risk

The Company develops products in the United States and sells them in North America, Europe, Africa and the Pacific Rim. As a result, our financial results
could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. If any of the events described above were to occur, our revenues could
be seriously impacted, since a significant portion of our revenues are derived from international customers. In 2000 we incurred net gains of approximately $5,000 in 2000 and $12,000 in 1999 due to
foreign currency fluctuations, as compared to a net loss of approximately ($22,000) in 1998. Revenues from international customers represented 26% of total revenues in 2000.

Our
new line of credit carries a floating interest rate based on the prime rate plus 0.5%. Accordingly, we are subject to the risk of incurring additional interest expense should the
prime interest rate increase in the future. The interest rate on our lines of credit as of December 31, 2000 was 10.25%.

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Item 8: Financial Statements and Supplementary Data

SEEBEYOND TECHNOLOGY CORPORATION        INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                          |  | Page
|--------------------------------------------------------- |  | ----
|Report of Ernst & Young LLP, Independent Auditors         |  | 37  
|Consolidated Balance Sheets                               |  | 38  
|Consolidated Statements of Operations                     |  | 39  
|Consolidated Statements of Shareholders' Equity (Deficit) |  | 40  
|Consolidated Statements of Cash Flows                     |  | 41  
|Notes to Consolidated Financial Statements                |  | 42  

36

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REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The
Board of Directors and Shareholders
SeeBeyond Technology Corporation and Subsidiaries

We
have audited the accompanying consolidated balance sheets of SeeBeyond Technology Corporation (formerly Software Technologies Corporation) and subsidiaries as of
December 31, 2000 and 1999 the related consolidated statements of operations, shareholders' equity (deficit), and cash flows for each of the three years in the period ended December 31,
2000. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. 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 SeeBeyond Technology Corporation and
subsidiaries as of December 31, 2000 and 1999, and the consolidated results of their operations and their 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, present fairly in all material respects, the information set forth therein.



Woodland
Hills, California
January 24, 2001

37

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SEEBEYOND TECHNOLOGY CORPORATION AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS

|                                                                                        |                                                                                                                                                                                 | December 31,                                                                                                                                              |                                                                                             
|--------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------
|
|
|Assets:                                                                                 |                                                                                                                                                                                 |                                                                                                                                                           |                                                                                             
|                                                                                        | Current assets:                                                                                                                                                                 |                                                                                                                                                           |                                                                                             
|                                                                                        |                                                                                                                                                                                 | Cash and cash equivalents                                                                                                                                 |                                                                                             
|                                                                                        |                                                                                                                                                                                 | Accounts receivable, net of allowances of $1,127 and $1,055 at December 31, 2000 and 1999, respectively                                                   |                                                                                             
|                                                                                        |                                                                                                                                                                                 | Prepaid expenses and other current assets                                                                                                                 |                                                                                             
|                                                                                        |                                                                                                                                                                                 |                                                                                                                                                           |                                                                                             
|                                                                                        |                                                                                                                                                                                 |                                                                                                                                                           | Total current assets                                                                        
|                                                                                        | Property and equipment, net                                                                                                                                                     |                                                                                                                                                           |                                                                                             
|                                                                                        | Related party receivable                                                                                                                                                        |                                                                                                                                                           |                                                                                             
|                                                                                        | Other assets                                                                                                                                                                    |                                                                                                                                                           |                                                                                             
|                                                                                        |                                                                                                                                                                                 |                                                                                                                                                           |                                                                                             
|                                                                                        |                                                                                                                                                                                 |                                                                                                                                                           | Total assets                                                                                
|                                                                                        |                                                                                                                                                                                 |                                                                                                                                                           |                                                                                             
|Liabilities, redeemable convertible preferred
stock and shareholders' equity (deficit): |                                                                                                                                                                                 |                                                                                                                                                           |                                                                                             
|                                                                                        | Current liabilities:                                                                                                                                                            |                                                                                                                                                           |                                                                                             
|                                                                                        |                                                                                                                                                                                 | Bank line of credit                                                                                                                                       |                                                                                             
|                                                                                        |                                                                                                                                                                                 | Accounts payable                                                                                                                                          |                                                                                             
|                                                                                        |                                                                                                                                                                                 | Compensation and related expenses                                                                                                                         |                                                                                             
|                                                                                        |                                                                                                                                                                                 | Other accrued expenses                                                                                                                                    |                                                                                             
|                                                                                        |                                                                                                                                                                                 | Deferred revenue                                                                                                                                          |                                                                                             
|                                                                                        |                                                                                                                                                                                 |                                                                                                                                                           |                                                                                             
|                                                                                        |                                                                                                                                                                                 |                                                                                                                                                           | Total current liabilities                                                                   
|                                                                                        | Note payable and other obligation                                                                                                                                               |                                                                                                                                                           |                                                                                             
|                                                                                        | Commitments and contingencies                                                                                                                                                   |                                                                                                                                                           |                                                                                             
|                                                                                        | Redeemable convertible preferred stock, no par value10,000,000 shares authorized; 0 and 5,452,798 shares issued and outstanding as of December 31, 2000 and 1999, respectively |                                                                                                                                                           |                                                                                             
|                                                                                        | Shareholders' equity (deficit):                                                                                                                                                 |                                                                                                                                                           |                                                                                             
|                                                                                        |                                                                                                                                                                                 | Preferred stock, no par value10,000,000 shares authorized; no shares issued and outstanding as of December 31, 2000 and 1999                             |                                                                                             
|                                                                                        |                                                                                                                                                                                 | Common stock, no par value200,000,000 shares authorized; 69,678,315 and 46,531,377 issued and outstanding as of December 31, 2000 and 1999, respectively |                                                                                             
|                                                                                        |                                                                                                                                                                                 | Deferred stock compensation                                                                                                                               |                                                                                             
|                                                                                        |                                                                                                                                                                                 | Accumulated other comprehensive loss                                                                                                                      |                                                                                             
|                                                                                        |                                                                                                                                                                                 | Accumulated deficit                                                                                                                                       |                                                                                             
|                                                                                        |                                                                                                                                                                                 |                                                                                                                                                           |                                                                                             
|                                                                                        |                                                                                                                                                                                 |                                                                                                                                                           | Total shareholders' equity (deficit)                                                        
|                                                                                        |                                                                                                                                                                                 |                                                                                                                                                           |                                                                                             
|                                                                                        |                                                                                                                                                                                 |                                                                                                                                                           | Total liabilities, redeemable convertible preferred stock and shareholders' equity (deficit)
|                                                                                        |                                                                                                                                                                                 |                                                                                                                                                           |                                                                                             

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

38

---



SEEBEYOND TECHNOLOGY CORPORATION AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                        |                                                                                                                        | Year Ended December 31, |                         
|----------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- | ----------------------- | ------------------------
|
|
|Revenues:                                                               |                                                                                                                        |                         |                         
|                                                                        | License                                                                                                                |                         | $                       
|                                                                        | Services                                                                                                               |                         |                         
|                                                                        | Maintenance                                                                                                            |                         |                         
|                                                                        | Other                                                                                                                  |                         |                         
|                                                                        |                                                                                                                        |                         |                         
|                                                                        |                                                                                                                        |                         | Total revenues          
|                                                                        |                                                                                                                        |                         |                         
|Cost of revenues:                                                       |                                                                                                                        |                         |                         
|                                                                        | License                                                                                                                |                         |                         
|                                                                        | Services (exclusive of stock-based compensation expense of $604 in 2000, $157 in 1999 and $0 in 1998)                  |                         |                         
|                                                                        | Maintenance                                                                                                            |                         |                         
|                                                                        | Other                                                                                                                  |                         |                         
|                                                                        |                                                                                                                        |                         |                         
|                                                                        |                                                                                                                        |                         | Total cost of revenues  
|                                                                        |                                                                                                                        |                         |                         
|                                                                        | Gross profit                                                                                                           |                         |                         
|                                                                        |                                                                                                                        |                         |                         
|Operating expenses:                                                     |                                                                                                                        |                         |                         
|                                                                        | Research and development (exclusive of stock-based compensation expense of $667 in 2000, $112 in 1999 and $0 in 1998)  |                         |                         
|                                                                        | Sales and marketing (exclusive of stock-based compensation expense of $2,262 in 2000, $1,390 in 1999 and $0 in 1998)   |                         |                         
|                                                                        | General and administrative (exclusive of stock-based compensation expense of $345 in 2000, $49 in 1999 and $0 in 1998) |                         |                         
|                                                                        | Amortization of alliance warrants                                                                                      |                         |                         
|                                                                        | Amortization of stock-based compensation                                                                               |                         |                         
|                                                                        |                                                                                                                        |                         |                         
|                                                                        |                                                                                                                        |                         | Total operating expenses
|                                                                        |                                                                                                                        |                         |                         
|Loss from operations                                                    |                                                                                                                        |                         | (41,947                 
|Interest and other income                                               |                                                                                                                        |                         | 1,657                   
|Interest expense                                                        |                                                                                                                        |                         | (1,680                  
|                                                                        |                                                                                                                        |                         |                         
|Net loss                                                                |                                                                                                                        |                         | (41,970                 
|                                                                        |                                                                                                                        |                         |                         
|Accretion on preferred stock                                            |                                                                                                                        |                         | 769                     
|                                                                        |                                                                                                                        |                         |                         
|Net loss available to common shareholders                               |                                                                                                                        | $                       | (42,739                 
|                                                                        |                                                                                                                        |                         |                         
|Basic and diluted net loss per share                                    |                                                                                                                        | $                       | (0.69                   
|                                                                        |                                                                                                                        |                         |                         
|Number of shares used in computing basic and diluted net loss per share |                                                                                                                        |                         | 61,909                  
|                                                                        |                                                                                                                        |                         |                         

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

39

---



SEEBEYOND TECHNOLOGY CORPORATION AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)        (in thousands)

|                                |                                                                                                                                                    | Common Stock                            |                          |   |         | Accumulated
Other
Comprehensive
Income (Loss) |   |        |         | Total
Shareholders'
Equity (Deficit) |     
|------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------- | ------------------------ | - | ------- | --------------------------------------------- | - | ------ | ------- | ------------------------------------ | ----
|
|
|Balance as of January 1, 1998   |                                                                                                                                                    | 43,742                                  |                          | $ | 6,682   |                                               | $ |       |         | $                                    | (104
|                                | Components of comprehensive loss                                                                                                                   |                                         |                          |   |         |                                               |   |        |         |                                      |     
|                                |                                                                                                                                                    | Net loss                                |                          |  |         |                                               |  |        |         |                                     |     
|                                |                                                                                                                                                    | Foreign currency translation adjustment |                          |  |         |                                               |  |        |         |                                     |     
|                                |                                                                                                                                                    |                                         |                          |   |         |                                               |   |        |         |                                      |     
|                                |                                                                                                                                                    |                                         | Total comprehensive loss |   |         |                                               |   |        |         |                                      |     
|                                | Accretion on preferred stock                                                                                                                       |                                         |                         |   |         |                                              |   |        |        |                                      |     
|                                | Issuance of common stock pursuant to Employee Stock Option Plan                                                                                    |                                         | 13                       |   |         | 16                                            |   |        |        |                                      |     
|                                | Issuance of stock options                                                                                                                          |                                         |                         |   |         | 68                                            |   |        |        |                                      |     
|                                |                                                                                                                                                    |                                         |                          |   |         |                                               |   |        |         |                                      |     
|Balance as of December 31, 1998 |                                                                                                                                                    | 43,755                                  |                          |   | 6,766   |                                               |   |       |         |                                      | (52 
|                                | Components of comprehensive loss                                                                                                                   |                                         |                          |   |         |                                               |   |        |         |                                      |     
|                                |                                                                                                                                                    | Net loss                                |                          |  |         |                                               |  |        |         |                                     |     
|                                |                                                                                                                                                    | Foreign currency translation adjustment |                          |  |         |                                               |  |        |         |                                     |     
|                                |                                                                                                                                                    |                                         |                          |   |         |                                               |   |        |         |                                      |     
|                                |                                                                                                                                                    |                                         | Total comprehensive loss |   |         |                                               |   |        |         |                                      |     
|                                | Issuance of common stock                                                                                                                           |                                         | 2,703                    |   |         | 4,074                                         |   |        |        |                                      |     
|                                | Issuance of common stock warrants                                                                                                                  |                                         |                         |   |         | 3,944                                         |   |        | (3,256  | )                                    |     
|                                | Amortization of common stock warrants                                                                                                              |                                         |                         |   |         |                                              |   |        | 814     |                                      |     
|                                | Deferred stock compensation related to stock options                                                                                               |                                         |                         |   |         | 4,645                                         |   |        | (4,645  | )                                    |     
|                                | Amortization of deferred stock compensation                                                                                                        |                                         |                         |   |         |                                              |   |        | 1,708   |                                      |     
|                                | Accretion on preferred stock                                                                                                                       |                                         |                         |   |         |                                              |   |        |        |                                      |     
|                                | Issuance of common stock pursuant to Employee Stock Option Plan                                                                                    |                                         | 73                       |   |         | 90                                            |   |        |        |                                      |     
|                                |                                                                                                                                                    |                                         |                          |   |         |                                               |   |        |         |                                      |     
|Balance as of December 31, 1999 |                                                                                                                                                    | 46,531                                  |                          |   | 19,519  |                                               |   | (5,379 | )       |                                      | (237
|                                | Components of comprehensive loss                                                                                                                   |                                         |                          |   |         |                                               |   |        |         |                                      |     
|                                |                                                                                                                                                    | Net loss                                |                          |  |         |                                               |  |        |         |                                     |     
|                                |                                                                                                                                                    | Foreign currency translation adjustment |                          |  |         |                                               |  |        |         |                                     |     
|                                |                                                                                                                                                    |                                         |                          |   |         |                                               |   |        |         |                                      |     
|                                |                                                                                                                                                    |                                         | Total comprehensive loss |   |        |                                               |   |       |         |                                      |    
|                                | Issuance of common stock pursuant to Initial Public Offering and concurrent offer, net of issuance costs including underwriters discount of $5,854 |                                         | 5,800                    |   |         | 63,746                                        |   |        |        |                                      |     
|                                | Conversion of convertible preferred stock in connection with Initial Public Offering                                                               |                                         | 13,972                   |   |         | 25,450                                        |   |        |        |                                      |     
|                                | Issuance of common stock pursuant to Employee Stock Option Plan                                                                                    |                                         | 3,068                    |   |         | 4,396                                         |   |        |        |                                      |     
|                                | Issuance of common stock pursuant to Employee Stock Purchase Plan                                                                                  |                                         | 307                      |   |         | 3,110                                         |   |        |        |                                      |     
|                                | Issuance of common stock warrants                                                                                                                  |                                         |                         |   |         | 10,107                                        |   |        | (10,107 | )                                    |     
|                                | Deferred stock compensation related to options                                                                                                     |                                         |                         |   |         | 3,813                                         |   |        | (3,813  | )                                    |     
|                                | Amortization of common stock warrants                                                                                                              |                                         |                         |   |         |                                              |   |        | 6,798   |                                      |     
|                                | Amortization of deferred stock compensation                                                                                                        |                                         |                         |   |         |                                              |   |        | 3,878   |                                      |     
|                                | Accretion on preferred stock                                                                                                                       |                                         |                         |   |         |                                              |   |        |        |                                      |     
|                                |                                                                                                                                                    |                                         |                          |   |         |                                               |   |        |         |                                      |     
|Balance as of December 31, 2000 |                                                                                                                                                    | 69,678                                  |                          | $ | 130,141 |                                               | $ | (8,623 | )       | $                                    | (416
|                                |                                                                                                                                                    |                                         |                          |   |         |                                               |   |        |         |                                      |     

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

40

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SEEBEYOND TECHNOLOGY CORPORATION AND SUBSIDIARIES        CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                             |                                                                                 | For the Years Ended
December 31,           |        
|------------------------------------------------------------ | ------------------------------------------------------------------------------- | ------------------------------------------ | -------
|
|
|Cash flows from operating activities:                        |                                                                                 |                                            |        
|                                                             | Net loss                                                                        |                                            | $      
|                                                             | Adjustments to reconcile net loss to net cash
used in operating activities:     |                                            |        
|                                                             |                                                                                 | Depreciation and amortization              |        
|                                                             |                                                                                 | Provision for doubtful accounts receivable |        
|                                                             |                                                                                 | Amortization of alliance warrants          |        
|                                                             |                                                                                 | Amortization of stock based compensation   |        
|                                                             | Changes in assets and liabilities:                                              |                                            |        
|                                                             |                                                                                 | Accounts receivable                        |        
|                                                             |                                                                                 | Prepaid expenses and other current assets  |        
|                                                             |                                                                                 | Accounts payable                           |        
|                                                             |                                                                                 | Other accrued expenses                     |        
|                                                             |                                                                                 | Deferred revenue                           |        
|                                                             |                                                                                 |                                            |        
|Net cash used in operating activities                        |                                                                                 |                                            | (23,098
|                                                             |                                                                                 |                                            |        
|Cash flows from investing activities:                        |                                                                                 |                                            |        
|                                                             | Purchases of property and equipment                                             |                                            |        
|                                                             | Other                                                                           |                                            |        
|                                                             |                                                                                 |                                            |        
|Net cash used in investing activities                        |                                                                                 |                                            | (7,157 
|                                                             |                                                                                 |                                            |        
|Cash flows from financing activities:                        |                                                                                 |                                            |        
|                                                             | Net borrowings (repayments) under bank line of credit                           |                                            |        
|                                                             | Proceeds from issuance of redeemable convertible preferred stock, net           |                                            |        
|                                                             | Proceeds from issuance of common stock, net                                     |                                            |        
|                                                             | Proceeds from issuance of common stock pursuant to stock option plan            |                                            |        
|                                                             | Proceeds from notes payable and equipment line                                  |                                            |        
|                                                             | Payments on notes payable and other obligations                                 |                                            |        
|                                                             | Proceeds from issuance of common stock pursuant to Initial Public Offering, net |                                            |        
|                                                             | Proceeds from issuance of common stock pursuant to concurrent offer             |                                            |        
|                                                             | Proceeds from issuance of common stock pursuant to Employee Stock Option Plan   |                                            |        
|                                                             | Proceeds from issuance of common stock pursuant to Employee Stock Purchase Plan |                                            |        
|                                                             |                                                                                 |                                            |        
|Net cash provided by financing activities                    |                                                                                 |                                            | 58,290 
|Effect of exchange rate changes on cash and cash equivalents |                                                                                 |                                            | (179   
|                                                             |                                                                                 |                                            |        
|Net increase (decrease) in cash and cash equivalents         |                                                                                 |                                            | 27,856 
|Cash and cash equivalents at beginning of year               |                                                                                 |                                            | 1,572  
|                                                             |                                                                                 |                                            |        
|Cash and cash equivalents at end of year                     |                                                                                 | $                                          | 29,428 
|                                                             |                                                                                 |                                            |        
|Supplemental cash flow disclosure:                           |                                                                                 |                                            |        
|                                                             | Income taxes paid                                                               |                                            | $      
|                                                             | Interest paid                                                                   |                                            | $      

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

41

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SEEBEYOND TECHNOLOGY CORPORATION AND SUBSIDIARIES        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. The Company and Summary of Significant Accounting Policies



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

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



The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany
transactions have been eliminated in consolidation. Certain reclassifications have been made to the 1999 and 1998 information to conform to the current period's presentation.



In February 2000, the Company's Board of Director's approved a three-for-two stock split payable in the form of a dividend of
three shares of the Company's common stock for every two shares owned by shareholders which became effective on March 15, 2000.



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



The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.



Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of temporary cash investments and accounts
receivable. The Company places its temporary cash investments with financial institutions. The Company's accounts receivable are derived from revenues earned from customers located primarily in the
United States, Europe, Australia and Japan. The Company performs ongoing credit evaluations of its customers' financial condition and maintains

42

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allowances for potential credit losses. Credit losses have historically been within management's expectations. The Company generally does not require collateral or other security from its customers.



The Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are carried at cost,
which approximates their fair value, due to the relatively short maturity of these instruments. As of December 31, 2000 and 1999 the Company's short-term line of credit and
long-term debt had variable interest rates and, accordingly, the Company believes the carrying value of the short-term line of credit and long-term debt
approximates its fair value.



Costs related to the research and development of new software products and enhancements to existing software products are expensed as incurred until
technological feasibility of the product has been established, at which time such costs are capitalized, subject to expected recoverability. To date, the Company has not capitalized any development
costs related to its software products since the time period between technological feasibility and general release of a product is not significant and related costs incurred during that time period
have not been material.

For
software developed for internal use, certain qualifying costs incurred in the application development stage are capitalized and amortized over a period of three years.



In October 1997, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 97-2, Software
Revenue Recognition. SOP 97-2, as amended by SOP 98-4 "Deferral of the Effective Date of a Provision of SOP 97-2," was adopted by the company as of
January 1, 1998. In December 1998, the AICPA issued SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions,"
which requires recognition of revenue using the "residual method" when (1) there is vendor-specific objective evidence of the fair values of all undelivered elements in a multiple-element
arrangement that is not accounted for using long-term contract accounting, (2) vendor-specific objective evidence of fair value does not exist for one or more of the delivered
elements in the arrangement, and (3) all revenue-recognition criteria in SOP 97-2 other than the requirement for vendor-specific objective evidence of the fair value of each
delivered element of the arrangement are satisfied.

In
December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements." SAB 101 provides
guidance on the recognition, presentation, and disclosure of revenue in financial statements. SAB 101, as amended, is effective for years beginning after December 15, 1999 and was adopted in
the quarter beginning October 1, 2000. SAB 101 did not have a significant effect on the Company's consolidated results of operations, financial position or cash flows.

The
Company enters into arrangements with end users, which may include the sale of licenses of software, maintenance and services under the arrangement or various combinations of each
element, including the sale of such elements separately. For each arrangement, revenues are recognized when an

43

---

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

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

License Revenues:Amounts allocated to license revenues under the residual method are recognized at the time of
delivery of the software when vendor-specific objective evidence of fair value exists for the
undelivered elements, if any, and all the other revenue recognition criteria discussed above have been met.

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

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

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

44

---



Basic and diluted net loss per share has been computed using the weighted-average number of shares of common stock outstanding during the period. The Company
has excluded all redeemable convertible preferred stock, warrants and outstanding stock options from the calculation of diluted net loss per share because all such securities are antidilutive for all
periods presented.



Pro forma net loss per share for the years ended December 31, 2000 and 1999 was computed using the weighted average number of common shares outstanding,
including the pro forma effects of the automatic conversion of the Company's redeemable convertible preferred stock into shares of common stock effective upon the closing of the initial public
offering, as if such conversion had occurred on January 1, 1999 or at the date of original issuance, if later. The resulting pro forma adjustment includes an increase in the weighted average
shares used to compute basic and diluted net loss per share of 4,657,000 and 12,516,000 shares for the years ended December 31, 2000 and 1999, respectively. The unaudited pro forma basic and
diluted net loss per share were $(0.63) and $(0.44) for the year ended December 31, 2000 and 1999, respectively. The pro forma basic and diluted weighted average shares were 66,567,000 and
58,470,000, for the year ended December 31, 2000 and 1999, respectively.



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



The cost of advertising is expensed as incurred. The Company incurred approximately $2.4 million, $199,000 and $294,000 in advertising costs during
2000, and 1999 and 1998, respectively.



The Company reviews for impairment long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. The recoverability test is performed at the lowest level at which undiscounted net cash flows can be attributable to long-lived assets.



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

45

---





The functional currency for the Company's foreign operations is the local currency. Foreign currency financial statements are converted into United States
dollars by translating asset and liability accounts at the current exchange rate at year-end and statement of operations accounts at the average exchange rate for the year, with the
resulting translation adjustment reflected in accumulated other comprehensive income (loss) in shareholders' equity (deficit). Realized and unrealized transaction gains and losses, other than
intercompany debt deemed to be of a long-term nature, are included in operations in the period they occur.



The Company accounts for its stock-based compensation arrangements in accordance with the provisions of SFAS No. 123 "Accounting for Stock Based
Compensation," which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of the grant. Alternatively, SFAS No. 123 allows
entities to continue to apply the provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and provide pro forma net income (loss) and pro
forma earnings (loss) per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.



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

In
December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements." SAB 101 provides
guidance on the recognition, presentation, and disclosure of revenue in financial statements. SAB 101, as amended, effective for years beginning after December 15, 1999 and was adopted in the
quarter beginning October 1, 2000. The adoption of SAB 101 did not have a significant effect on the Company's consolidated results of operations, financial position or cash flows.

Note 2. Property and Equipment

Property and equipment are recorded at cost. Property and equipment purchased under capital leases are recorded at cost (based on the present value of minimum
lease payments discounted at the contractual interest rate). Depreciation is computed using the straight-line method over the shorter of the estimated useful lives or the lease term of the
assets: computer equipment, three years; office

46

---

furniture and equipment, five years; leasehold improvements, through the lesser of useful life or life of the lease. Property and equipment, stated at cost, was as follows (amounts in thousands):

As of
December 31,2000

1999Computer equipment (hardware and software)

$
12,178

$
8,530Office furniture and equipment


3,543


1,785Leasehold improvements


1,265


846Total cost of property and equipment


16,986


11,161Less accumulated depreciation and amortization


(6,924
)

(3,955
)Property and equipment, net

$
10,062

$
7,206


Depreciation
and amortization expense for the years ended December 31, 2000, 1999 and 1998 was approximately $3.0 million, $1.9 million and $1.1 million,
respectively.

Note 3. Operations by Reportable Segments and Geographic Area

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

The
Company maintains operations in North America and eleven countries in Europe and the Pacific Rim including: United Kingdom, Germany, France, Belgium, Italy, Australia and Japan.
Information about the Company's operations in North America and international territories for the years ended December 31, 2000, 1999 and 1998 are presented below.

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

Years Ended December 31,2000

1999

1998Revenues:North America

$
85,261

$
40,223

$
29,858Europe


21,921


12,406


6,613Pacific Rim


7,570


2,542


990Total revenues

$
114,752

$
55,171

$
37,461


December 31,2000

1999Long-lived assets:North America

$
9,468

$
6,806Europe


2,605


1,234Pacific Rim


233


137Total long-lived assets

$
12,306

$
8,177


47

---

No
single customer accounted for more than 10% of the Company's revenues during the years ended December 31, 2000, 1999 and 1998. Included in revenues from
operations in Europe are approximately $13.7 million, $5.4 million and $3.7 million of revenues from the Company's operations in the United Kingdom and approximately
$3.6 million, $5.8 million and $2.1 million of revenues from the Company's operations in Germany, for the years ended December 31, 2000, 1999 and 1998, respectively.

Note 4. Computation of Net Loss Per Share

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

Years Ended December 31,2000

1999

1998Numerator:Net loss

$
(41,970
)
$
(25,865
)
$
(11,243
)Accretion on preferred stock


769


2,410


686Net loss available to common shareholders

$
(42,739
)
$
(28,275
)
$
(11,929
)Denominator:Denominator for basic and diluted net loss per share  weighted average shares outstanding


61,909


45,954


43,748Basic and diluted net loss per share

$
(0.69
)
$
(0.62
)
$
(0.27
)


Options
to purchase 14,872,876, 12,525,921 and 7,993,841 shares of common stock were outstanding as of December 31, 2000, 1999 and 1998 respectively, but were not included in
the calculations of diluted net loss per share because their effect would be antidilutive. Redeemable convertible preferred stock was not included in the calculations of diluted net loss per share in
1999 and 1998 because its effect would be antidilutive. There was no convertible preferred stock outstanding as of December 31, 2000. Common stock warrants were not included in the calculations
of diluted net loss per share because their effect would be antidilutive.

Note 5. Income Taxes

As of December 31, 2000, the Company had net operating loss ("NOL") carryforwards for federal and state purposes of approximately
$54.5 million and $26.4 million, respectively, expiring commencing in the year 2018 for federal and 2003 for state. The Company also had federal and state research and development credit
carryforwards of approximately $1.4 million and $1.1 million, respectively, expiring in years beginning in 2008. The realization of the benefits of the NOLs is dependent on sufficient
taxable income in future years. Possible lack of future earnings or a change in the ownership of the Company could adversely affect the Company's ability to utilize the NOLs. Accordingly, the Company
has recorded a valuation allowance against its otherwise recognizable deferred tax assets. Thus, no deferred tax asset has been recorded in the accompanying balance sheet.

Deferred
income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used
for income tax

48

---

purposes. The tax effect of each temporary difference as of December 31, 2000 and 1999 is as follows (amounts in thousands):

2000

1999Deferred tax liabilities:Tax over book depreciation

$
(288
)
$
(255
)Total deferred tax liabilities


(288
)

(255
)Deferred tax assets:Net operating loss carryforwards


28,077


11,784Accrued liabilities and deferred revenue


2,215


791Allowance for doubtful accounts


402


337Warrant compensation expense


3,067


359Tax credits


2,507


1,423Miscellaneous


72


38Total deferred tax assets


36,340


14,732Valuation allowance


(36,052
)

(14,477
)Net deferred taxes

$


$



The
valuation allowance increased by approximately $21.6 million and $9.2 million in 2000 and 1999, respectively. Approximately $3.1 million of the valuation
allowance relates to stock option compensation deductions incurred in our net operating loss carryfowards. If and when the Company reduces any portion of the valuation allowance related to stock
option compensation deduction, the benefit will be added to shareholders' equity, rather than being shown as a reduction of future income tax expense.

Loss
before provision for income taxes of the Company's foreign operations amounted to approximately $10.4 million, $6.4 million and $1.2 million, respectively,
for the years ended December 31, 2000, 1999 and 1998.

The
Company has incurred a net loss in each year of operation presented resulting in no current or deferred tax expense. The benefit for income taxes differs from the amount obtained
by applying the federal statutory income tax rate to loss before benefit for income taxes as follows:

2000

1999

1998Tax benefit computed at the statutory federal rate

34
%
34
%
34
%Change in valuation allowance

(39
)
(39
)
(40
)State taxes, net of federal benefit

6

5

6Non-deductible expense

(1
)


Income tax provision


%

%

%


Because
of the "change of ownership" provision of the Tax Reform Act of 1986, utilization of the Company's net operating loss and research credit carryfowards may be subject to an
annual limitation in future periods. As a result of the annual limitation, if any, a portion of these carryfowards may expire before ultimately becoming available to reduce future tax liabilities.

49

---

Note 6. Commitments, Contingencies and Debt



In November 2000, the Company established a $15.0 million line of credit facility (the "New Line") with a lending institution that bears interest
at an annual rate of either prime plus 0.5% or the London InterBank Offered Rate ("LIBOR") rate plus 2.50% (payable monthly) and expires May 31, 2002. As of December 31, 2000,
$15.0 million was available under the New Line and there were no borrowings outstanding. The Company may use up to $5,000,000 of the New Line to issue letters of credit. The New Line is secured
by intellectual property rights, accounts receivable and certain other assets and is subject to certain borrowing base restrictions. The New Line requires maintenance of certain financial covenants
pertaining to key financial ratios.

The
New Line replaced a $10.0 million line of credit facility (the "Prior Line") with another lending institution that bore interest at an annual rate of prime plus 2% (payable
monthly) and would have expired on February 1, 2001. The outstanding balance on the Prior Line was repaid in May 2000, using a portion of the proceeds from the Company's IPO.

As
of December 31, 2000, the Company also had a $3.0 million equipment line (the "Equipment Line") with the same lending institution as the New Line that bears interest
at an annual rate of either prime plus 0.75%, or the LIBOR rate plus 2.75% (payable monthly) and expires on November 30, 2004. The interest rate at December 31, 2000 was 10.25%. The
Company may draw against the Equipment Line through November 30, 2001. Interest is payable monthly and principal is payable in 36 monthly installments commencing in December 2001.
As of December 31, 2000, there was $400,000 outstanding under the Equipment Line, which is secured by certain assets of the Company.



The Company leases office facilities, computers and office equipment under non-cancelable operating lease agreements with third parties expiring
through 2005. The Company leases, from a related party, a 4,000-square-foot office facility under a non-cancelable operating lease agreement expiring in
December 2002. The Company also leases certain storage space and computer and office equipment under month-to-month leases.

Future
minimum payments, by year and in the aggregate, on non-cancelable operating leases with initial terms of one year or more, consisted of the following at
December 31, 2000 (in thousands):

Operating LeasesRelated
Party

Non-related
Party

TotalYear ended December 31,2001

$
51

$
7,389

$
7,4402002





5,414


5,4142003





4,084


4,0842004





2,528


2,5282005





2,117


2,117Thereafter





2,422


2,422$
51

$
23,954

$
24,005


50

---

Total rent expense was approximately $7.1 million in 2000, $4.3 million in 1999 and $1.6 million in 1998 of which approximately $58,000, $50,000 and $65,000 was
paid to related parties in 2000, 1999 and 1998, respectively.



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

Note 7. Shareholders' Equity (Deficit)



In February 2000, the Company authorized 10,000,000 shares of undesignated preferred stock, none of which was outstanding as of December 31,
2000.



In February 2000, the Company increased its authorized shares of common stock to 200,000,000 and affected a three-for-two split
of the Company's common stock. All shares and per share amounts have been restated for all periods presented to reflect this stock split.



In May 2000, the Company completed its IPO of 4,600,000 shares of common stock at $12 per share and realized proceeds, net of underwriting discounts,
commissions and issuance costs, of approximately $49.6 million.



Concurrent with the IPO, the Company completed the sale of 1,200,000 shares of common stock to a purchaser in a private transaction (the "Concurrent Offering")
at a price of $12 per share and realized proceeds, net of underwriting discounts, commissions and issuance costs, of approximately $14.1 million.



In May 2000, upon the completion of the Company's IPO, the outstanding shares of the Company's redeemable convertible preferred stock converted into
13,972,162 shares of common stock.



In October 1999, the Company issued a warrant to a lending institution (the "Lender Warrant") to purchase 262,500 shares of common stock at $1.89 per
share. The Lender Warrant vested immediately on the date of the grant. The fair market value of the Lender Warrant was determined using the Black-Scholes pricing model, assuming a risk free interest
rate of 5.3% and a volatility factor of 0.6, resulting in an estimated fair value at the time of the grant of $4.00 per common share.

51

---

In November 1999, the Company issued a warrant to a strategic alliance partner (the "1999 Alliance Warrant") to purchase up to 1,200,000 shares of common stock at $5.33 per
share. The 1999 Alliance Warrant vests contingently upon the achievement of various milestones, which include the creation of
certain product marketing offerings and new customer introductions. The fair value of the 1999 Alliance Warrant was determine using the Black-Scholes pricing model, assuming a risk free interest rate
of 5.3% and a volatility factor of 0.6, resulting in a fair value at the time of the grant of $5.33 per share.

In
January 2000, the Company issued a warrant (the "January 2000 Alliance Warrant") to a strategic alliance partner to purchase up to 1,200,000 shares of common stock at
$6.67 per share. The January 2000 Alliance Warrant vests contingently upon the achievement of certain milestones, primarily the generation of license revenue for the Company, and expires on
July 31, 2002. The fair value of the January 2000 Alliance Warrant was determined using the Black-Scholes pricing model, assuming a risk free interest rate of 5.3%, a volatility factor
of 0.6 and an estimated fair value at the time of grant of $9.25 per common share.

In
March 2000, the Company issued a warrant (the "March 2000 Alliance Warrant") to another strategic alliance partner to purchase up to 1,200,000 shares of common stock
at $14.00 per share. The March 2000 Alliance Warrant vests contingently upon the achievement of certain milestones, primarily the creation of e*Gate software market offerings and the generation
of license revenue for the Company, and expires on September 22, 2002. The November 1999, January 2000 and the March 2000 Alliance Warrant's contain a significant
disincentive for non-performance, and, accordingly, the fair value of these warrants was measured at the date of grant in accordance with Emerging Issues Task Force
No. 96-18. The fair value of the March 2000 Alliance Warrant was determined using the Black-Scholes pricing model, assuming a risk free interest rate of 5.3%, a volatility
factor of 0.6 and an estimated fair value at the time of grant of $11.08 per common share.

Amortization
of alliance warrants was $6.8 million, $814,000 and $0, for the years ending December 31, 2000, 1999 and 1998, respectively. The amortization of alliance
warrants is classified as a separate component of operating expenses in the Consolidated Statement of Operations.



In February 2000, the Board of Directors approved the Company's 2000 Employee Stock Purchase Plan (the "ESPP"). The ESPP became effective on
April 28, 2000. A total of 2,250,000 shares of common stock were initially available for issuance under the ESPP. The number of shares of common stock available for issuance under the ESPP will
be increased on the first day of each calendar year during the term of the ESPP to 2,250,000 shares of common stock.

The
ESPP, which is intended to qualify under Section 423 of the IRS Code, will be implemented by a series of overlapping offering periods of 24 months duration, with new
offering periods, other than the first offering period, commencing on or about May 16 and November 16 of each year. Each offering period will consist of four consecutive purchase periods
of approximately six months duration, and at the end of each offering period, an automatic purchase will be made for participants. The initial offering period commenced on April 28, 2000 and
will end on May 15, 2002; the initial purchase period began on April 28, 2000 and ended on November 15, 2000. Participants generally may not purchase more than 1,500 shares in any
calendar year or stock having a value measured at the beginning of the offering period greater than $25,000 in any calendar year.

The
purchase price per share will be 85% of the lower of (1) the fair market value of our common stock on the purchase date and (2) the fair market value of a share of
our common stock on the last trading day before the offering date.

52

---



In July 1998, the Board of Directors of the Company adopted the 1998 Stock Option Plan (the "Plan"), which replaced the 1997 Stock Option Plan (the
"1997 Plan") as to future grants. Under the Plan, the maximum aggregate number of shares of common stock available for the grant of options is 18,205,784 shares, which includes any unused shares
reserved for issuance under the 1997 Plan that were not covered by grants prior to the termination of the 1997 Plan. In addition, any forfeited shares pursuant to terms and conditions of the 1997 Plan
will also be available under the Plan. Under the Plan, stock options may be granted to employees, directors and consultants of the Company. At December 31, 2000, there were options to purchase
3,332,908 shares of common stock that were available for grant under the Plan.

The
exercise price of options granted under the Plan may not be less than fair market value of the common stock at the time of grant with respect to incentive stock options and not
less than 85% of the fair market value with respect to nonstatutory options. Options granted under the Plan carry a maximum term of 10 years from the date of grant and typically vest and become
exercisable at the rate of at least 25% per year from the date of grant.

Activity
of the Plan for the last three years was as follows:

Options OutstandingNumber
of Shares

Weighted Average
Exercise PriceBalance as of January 1, 1998

4,753,166

$
1.15Granted

4,654,350


1.36Cancelled

(1,400,175
)

1.33Exercised

(13,500
)

1.16Balance as of December 31, 1998

7,993,841


1.24Granted

6,901,088


2.59Cancelled

(2,296,070
)

1.29Exercised

(72,938
)

1.24Balance as of December 31, 1999

12,525,921


1.98Granted

5,994,953


12.13Cancelled

(580,222
)

4.84Exercised

(3,067,776
)

12.89Balance as of December 31, 2000

14,872,876


5.94


Information
regarding stock options outstanding as of December 31, 2000 was as follows:

|Options Outstanding |  | Options Exercisable
|------------------- |  | -------------------
|
|
|$.03 to $1.27       |  | 1,828              
|$1.37 to $1.51      |  | 2,427              
|$1.67               |  | 2,307              
|$2.50 to $4.00      |  | 2,220              
|$5.33 to $6.67      |  | 1,953              
|$7.00 to $12.00     |  | 2,915              
|$12.38 to $31.69    |  | 1,223              

53

---

Options exercisable under the Plan were approximately 3,967,000, 4,096,500 and 2,355,000, as of December 2000, 1999 and 1998, respectively.



The weighted average exercise prices and fair market value of stock options granted using the Black-Scholes option pricing model were as follows:

2000

1999

1998Fair
Value

Exercise
Price

Fair
Value

Exercise
Price

Fair
Value

Exercise
PriceExercise price equals market value of stock at date of grant

$
7.47

$
13.28

$
0.74

$
3.22

$
0.36

$
1.36Exercise price exceeds market value of stock at date of grant

$
6.02

$
12.00











Exercise price was less than market value of stock at date of grant

$
6.38

$
7.43

$
1.10

$
2.36

$


$



Pro
forma information regarding net loss and net loss per share is required by SFAS No.123. Had compensation expense for the years ended December 31, 2000, 1999
and 1998 been determined based on the fair value at the grant dates as prescribed by SFAS No.123, the Company's net loss and net loss per share would have increased to the pro forma amounts indicated
below (amounts in thousands, except for net loss per share).

Years Ended December 31,2000

1999

1998Net loss, as reported

$
(41,970
)
$
(25,865
)
$
(11,243
)Pro forma net loss


(45,293
)

(27,151
)

(11,508
)Pro forma net loss available to common shareholders


(46,002
)

(29,561
)

(12,194
)Pro forma basic and diluted net loss per share


(0.74
)

(0.51
)

(0.28
)


The
Company estimated the fair value of options granted in the years ended December 31, 2000, 1999 and 1998 using the Black-Scholes option-pricing model with
the following assumptions:

Stock Option PlansESPP Plan
20002000

1999

1998Expected lives (in years)

5

5

5

0.5Risk-free interest rate

5.3
%
5.3
%
6.0
%
5.3
%Dividend yield

0

0

0

0Expected volatility

60
%
0
%
0
%
60
%


These
pro forma amounts may not be representative of the effects on pro forma disclosures in future years as options vest over several years and additional grants are
generally made every year. Prior to the Company's initial public offering, the Company used the minimum value method (it assumed a zero volatility) as allowed under SFAS 123.



As of December 31, 2000, the Company had reserved the following shares of authorized but unissued common stock for future issuance:

Stock option plans

18,205,784Stock purchase plan

1,693,409Common stock warrants

3,862,50023,761,693


54

---



When the exercise price of an employee stock option is less than the estimated fair value of the underlying stock on the date of grant, deferred compensation
is recognized and amortized to expense in accordance with the aggregation methodology prescribed by the Financial Accounting Standards Board Interpretation No. 28 over the vesting period of the
individual option grants which is generally four years.

During
the year ended December 31, 2000 and 1999, in connection with the grant of certain stock options, the Company recorded deferred stock compensation of approximately
$3.8 million and $4.6 million, respectively, representing the difference between the exercise price of the option and the estimated fair value of the Company's common stock on the date
of grant. Amortization of deferred
stock compensation was approximately $3.9 million and $1.7 million for the years ended December 31, 2000 and 1999 respectively.

Note 8. 401(K) Plan

The Company has a 401(K) plan covering substantially all of its eligible employees. Under this plan, employees may defer up to 15% of their pre-tax
salary, subject to statutory limits. The Company contributes an amount equal to 50% of each participant's elective contribution, up to 4% of compensation. On January 1, 2000, the Company
modified the Plan to provide for company matching contributions equal to 50% of each participant's elective contribution, up to 8% of compensation. The Company's matching contributions to the plan
were $1.0 million, $257,000 and $168,000 during the years ended December 2000, 1999 and 1998, respectively.

Note 9. Subsequent Events

In January 2001, the lending institution holding the Lender Warrant exercised the entire warrant and converted its right to purchase 262,500 shares of
common stock at $1.89 per share into 225,579 shares of common stock.

On
March 16, 2001, the Company entered into a four-year co-marketing agreement with a strategic marketing partner and issued a warrant to purchase 625,000 shares of
common stock at $11.34 per share. The warrant expires in March 2006 and 175,000 warrants are exercisable immediately. The remaining 450,000 warrants are performance based and shall vest
and become exercisable over the 36-month period following the issuance of the warrant provided the warrant holder has achieved various milestones. The immediately exercisable portion of the warrant
will be valued as of the date of issuance which will be charged against revenues generated from sales to this strategic marketing partner, while the remaining portion of the warrant will be valued as
the warrant vests and will be
recorded as a charge to sales and marketing expense over the term of the co-marketing agreement. There is no obligation for future purchases.

55

---

Note 10. Interim Financial Results (unaudited)

The following table sets forth certain unaudited consolidated financial information for each of the four quarters for the years ended December 31, 2000
and 1999.

|                                     |  | Quarter ended 2000 |        | Quarter ended 1999 |  
|------------------------------------ |  | ------------------ | ------ | ------------------ | -
|
|
|Net revenues                         |  | $                  | 42,692 |                    | $
|Gross profit                         |  |                    | 33,184 |                    |  
|Net loss                             |  |                    | (6,229 | )                  |  
|Basic and diluted net loss per share |  | $                  | (0.09  | )                  | $

Quarterly
data may not sum to the full year data reported in the Company's consolidated financial statements due to rounding.

56

---



Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not Applicable.

PART III

Certain information required by Part III is omitted from this report on Form 10-K in that the registrant will file its definitive
Proxy Statement for its Annual Meeting of Shareholders to be held on May 1, 2001, pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended (the "Proxy Statement"),
not later than 120 days after the end of the fiscal year covered by this report, and certain information contained in the Proxy Statement is incorporated herein by reference.

Item 10: Directors and Executive Officers of the Registrant



Item 11: Executive Compensation of the Registrant

The information required by this item regarding executive compensation is incorporated by reference to the sections entitled "Compensation of Executive
Officers" and "Compensation of Directors" in the Proxy Statement.

Item 12: Security Ownership of Certain Beneficial Owners and Management

The information required by this item regarding security ownership of certain beneficial owners and management is incorporated by reference to the section
entitled "Stock Ownership" in the Proxy Statement.

Item 13: Certain Relationships and Related Transactions

The information required by this item regarding certain relationships and related transactions is incorporated by reference to the section entitled "Certain
Transactions" in the Proxy Statement.

57

---



PART IV

Item 14: Exhibits, Financial Statement Schedule and Reports on Form 8-K



|Exhibit No. |  | Description                                                                                                                                                  
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1*        |  | Restated Articles of Incorporation of the Registrant                                                                                                         
|3.3*        |  | Bylaws of the Registrant                                                                                                                                     
|4.1*        |  | Specimen common stock certificates                                                                                                                           
|10.1*       |  | Form of Indemnification Agreement between the Registrant and each of its directors and officers                                                              
|10.2*+      |  | 1997 Stock Plan                                                                                                                                              
|10.3*+      |  | 1998 Stock Plan                                                                                                                                              
|10.4*+      |  | 2000 Employee Stock Purchase Plan and form of agreements there under                                                                                         
|10.5*       |  | Warrant dated November 16, 1999 issued to Accenture, formerly Andersen Consulting                                                                            
|10.6*       |  | Warrant dated January 31, 2000 issued to EDS                                                                                                                 
|10.7*       |  | Loan and Security Agreement, dated October 29, 1999, between the Registrant and Greyrock Capital                                                             
|10.8*       |  | Registration Rights Agreement dated May 8, 1998, as amended.                                                                                                 
|10.9*       |  | Lease Agreement dated June 6, 1997 between the Registrant and Boone/Fetter/Occidental I for premises in Monrovia, California                                 
|10.10*      |  | Lease Agreement dated June 10, 1999 between the Registrant and Franklin Select Realty Trust for premises in Redwood Shores, California.                      
|10.11*      |  | Lease Agreement dated December 30, 1991 between the Registrant and the Demetriades Family Trust (dated December 20, 1983) for premises in Arcadia, California
|10.12*      |  | Warrant dated March 23, 2000 issued to Computer Sciences Corporation                                                                                         
|10.13*      |  | Warrant purchase agreement dated November 16, 1999 between the Registrant and Accenture (formerly Andersen Consulting)                                       
|10.14*      |  | Warrant purchase agreement dated January 31, 2000 between the Registrant and EDS                                                                             
|10.15*      |  | Warrant purchase agreement dated March 23, 2000 between the Registrant and Computer Sciences Corporation                                                     
|10.16**     |  | Lease Agreement between The Employees Retirement System of The State of Hawaii and the Registrant dated July 21, 2000 for premises in Monrovia, California   
|10.17**     |  | Lease Agreement between Grant Regent, LLC and the Registrant dated August 2, 2000 for premises in New York, New York                                         
|10.18       |  | Lease Agreement dated October 9, 2000 between S & F Huntington Millennium LLC and the Registrant for premises in Monrovia, California                        
|10.19+      |  | Employment Agreement between the Registrant and Rangaswamy Srihari                                                                                           
|10.20       |  | Loan and Security Agreement, dated December 4, 2000, between the Registrant and Comerica BankCalifornia                                                     
|21.1        |  | List of subsidiaries of the Registrant                                                                                                                       
|23.1        |  | Consent of Ernst & Young, LLP, Independent Auditors                                                                                                          

58

---

|24.1 |  | Power of Attorney (see page 60)
|---- |  | -------------------------------

---

59

---





SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 28, 2001.

| |  | SEEBEYOND TECHNOLOGY CORPORATION
| |  | --------------------------------
| |  | BY:                             

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints James T. Demetriades and
Barry J. Plaga, and each of them acting individually, as his attorney-in-fact, each with full power of substitution for him in any and all capacities, to sign any and all amendments to this
report on Form 10-K, and file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our attorney to any and all amendments to said Report. In accordance with the Securities Exchange Act of 1934, this report has been signed below on March 28,
2001 by the following persons on behalf of the Registrant and in the capacities indicated.

|Signature                                     |  | Title                                                                                      
|--------------------------------------------- |  | -------------------------------------------------------------------------------------------
|/s/JAMES T. DEMETRIADESJames T. Demetriades   |  | Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) 
|/s/BARRY J. PLAGABarry J. Plaga               |  | Senior Vice President, Chief Financial Officer (Principal Financial and Accounting Officer)
|/s/STEVEN A. LEDGERSteven A. Ledger           |  | Director                                                                                   
|/s/STERGE T. DEMETRIADESSterge T. Demetriades |  | Director                                                                                   
|/s/GEORGE J. STILL, JR.George J. Still, Jr.   |  | Director                                                                                   
|/s/GEORGE ABIGAILGeorge Abigail               |  | Director                                                                                   
|/s/SALAH M. HASSANEINSalah M. Hassanein       |  | Director                                                                                   
|/s/RAYMOND J. LANERaymond J. Lane             |  | Director                                                                                   
|/s/JACKSON L. WILSONJackson L. Wilson         |  | Director                                                                                   

60

---



SEEBEYOND TECHNOLOGY CORPORATION

SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS        Year Ended December 31, 2000, 1999 and 1998        (amounts in thousands)

|                             |                                 | Balance at
Beginning of Period |   | Additions |  | Deductions (A) |     | Balance at End
of Period
|---------------------------- | ------------------------------- | ------------------------------ | - | --------- |  | -------------- | --- | ------------------------
|Year ended December 31, 2000 |                                 |                                |   |           |  |                |     |                         
|                             | Allowance for doubtful accounts |                                | $ | 1,055     |  | $              | 72  |                         
|Year ended December 31, 1999 |                                 |                                |   |           |  |                |     |                         
|                             | Allowance for doubtful accounts |                                |   | 391       |  |                | 685 |                         
|Year ended December 31, 1998 |                                 |                                |   |           |  |                |     |                         
|                             | Allowance for doubtful accounts |                                |   | 349       |  |                | 416 |                         

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