UNITED STATESSECURITIES AND EXCHANGE COMMISSION
  WASHINGTON, D.C. 20549

FORM 10
  - Q

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

For
  the quarterly period ended March 31, 2003

Commission
  File Number 000-26881

E.PIPHANY,
  INC. (Exact name of registrant as specified in its charter)

|Delaware                         | 77-0443392                                     
|-------------------------------- | -----------------------------------------------
|(State
        of incorporation) | (I.R.S.
        Employer Identification Number)

1900
  South Norfolk Street, Suite 310San Mateo, California 94403 (Address of principal executive offices)

(650)
  356-3800(Registrant's telephone number, including area code)

Indicate
  by check mark whether the registrant (1) has filed all reports required to be
  filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during
  the past 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 whether the registrant is an accelerated filer as defined in Rule
  12b-2 of the Exchange Act. YES |X| NO |_|

The
  number of shares outstanding of the registrant's common stock, par value $0.0001
  per share, as of April 30, 2003, was 73,592,647.



---

E.PIPHANY,
  INC.

QUARTERLY
  REPORT ON FORM 10-QQUARTER ENDED MARCH 31, 2003

TABLE
  OF CONTENTS

|                    |                                                                  | Page
      No.
|------------------- | ---------------------------------------------------------------- | --------------
|                   
|PART I              | FINANCIAL INFORMATION                                            |               
|                    |                                                                  |               
|Item 1.             | Financial
      Statements                                       | 3             
|                    |                                                                  |               
|                    | Condensed
      Consolidated Balance Sheets -                    |               
|                    | As
      of March 31, 2003 and December 31, 2002                 | 3             
|                    |                                                                  |               
|                    | Condensed
      Consolidated Statements of Operations -          |               
|                    | Three
      months ended March 31, 2003 and 2002                 | 4             
|                    |                                                                  |               
|                    | Condensed
      Consolidated Statements of Cash Flows -          |               
|                    | Three
      months ended March 31, 2003 and 2002                 | 5             
|                    |                                                                  |               
|                    | Notes
      to Condensed Consolidated Financial Statements       | 6             
|                    |                                                                  |               
|Item
      2.       | Managements
      Discussion and Analysis of                    |               
|                    | Financial
      Condition and Results of Operations              | 16            
|                    |                                                                  |               
|Item
      3.       | Quantitative
      and Qualitative Disclosures About Market Risk | 34            
|                    |                                                                  |               
|Item
      4.       | Controls
      and Procedures                                    | 36            
|                   
|                   
|PART II             | OTHER
      INFORMATION                                          |               
|                    |                                                                  |               
|Item
      1.       | Legal
      Proceedings                                          | 37            
|                    |                                                                  |               
|Item
      6.       | Exhibits
      and Reports on Form 8-K                           | 38            
|                    |                                                                  |               
|                   
|SIGNATURES          | 39                                                               |               
|                    |                                                                  |               
|Certifications      |                                                                  | 40            
|                    |                                                                  |               
|Exhibit
      Index |                                                                  | 42            
|                   



---

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL
  STATEMENTS

E.PIPHANY,
  INC.

CONDENSED
  CONSOLIDATED BALANCE SHEETS
  (in thousands)

|                                                   | March
      31, |  | December
        31,
|-------------------------------------------------- | --------------- |  | --------------------
|                                                   | 2003            |  | 2002                
|                                                   |                 |  |                     
|                                                   | (unaudited)     |  |                     
|ASSETS                                             |                 |  |                     
|Current assets:                                    |                 |  |                     
|Cash
      and cash equivalents                    |                 |  | $                   
|Short-term
      investments                       |                 |  |                     
|Accounts
      receivable, net                     |                 |  |                     
|Prepaid
      expenses and other assets            |                 |  |                     
|Short-term
      restricted cash                   |                 |  |                     
|                                                   |                 |  |                     
|Total
      current assets                         |                 |  |                     
|Long-term investments                              |                 |  |                     
|Long-term restricted
      cash                    |                 |  |                     
|Property and equipment,
      net                  |                 |  |                     
|Goodwill, net                                      |                 |  |                     
|Purchased intangibles,
      net                   |                 |  |                     
|Other assets                                       |                 |  |                     
|                                                   |                 |  |                     
|Total
      assets                                 |                 |  | $                   
|                                                   |                 |  |                     
|LIABILITIES AND
      STOCKHOLDERS EQUITY         |                 |  |                     
|Current liabilities:                               |                 |  |                     
|Current
      portion of capital lease obligations |                 |  | $                   
|Accounts
      payable                             |                 |  |                     
|Accrued
      compensation                         |                 |  |                     
|Accrued
      other                                |                 |  |                     
|Current
      portion of restructuring costs       |                 |  |                     
|Deferred
      revenue                             |                 |  |                     
|                                                   |                 |  |                     
|Total
      current liabilities                    |                 |  |                     
|Restructuring costs,
      net of current portion  |                 |  |                     
|Other long-term liabilities                        |                 |  |                     
|                                                   |                 |  |                     
|Total
      liabilities                            |                 |  |                     
|                                                   |                 |  |                     
|Stockholders equity:                              |                 |  |                     
|Common stock                                       |                 |  |                     
|Additional
      paid-in capital                   |                 |  |                     
|Stockholders
      notes receivable               |                 |  |                     
|Accumulated
      other comprehensive losses       |                 |  |                     
|Deferred
      compensation                        |                 |  |                     
|Accumulated
      deficit                          |                 |  |                     
|                                                   |                 |  |                     
|Total stockholders
      equity                   |                 |  |                     
|                                                   |                 |  |                     
|                                                   |                 |  | $                   
|                                                   |                 |  |                     

The accompanying
  notes are an integral part of the condensed consolidated financial statements.

3

---

E.PIPHANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
  (in thousands, except per share amounts)
   (unaudited)

|                                                                    | Three
      Months Ended
|------------------------------------------------------------------- | ------------------------
|                                                                    | March
      31,         
|                                                                    |                         
|                                                                    | 2003                    
|                                                                    |                         
|Revenues:                                                           |                         
|Product
      license                                               |                         
|Services                                                            |                         
|                                                                    |                         
|                                                                    |                         
|                                                                    |                         
|Cost of
      revenues:                                             |                         
|Product
      license                                               |                         
|Services                                                            |                         
|Amortization
      of purchased technology                          |                         
|                                                                    |                         
|                                                                    |                         
|                                                                    |                         
|Gross
      profit                                                  |                         
|                                                                    |                         
|Operating
      expenses:                                           |                         
|Research
      and development                                      |                         
|Sales
      and marketing                                           |                         
|General
      and administrative                                    |                         
|Restructuring
      charges                                         |                         
|Amortization
      of purchased intangibles                         |                         
|Stock-based
      compensation                                      |                         
|                                                                    |                         
|Total
      operating expenses                                      |                         
|                                                                    |                         
|Loss
      from operations                                          |                         
|Other income,
      net                                             |                         
|                                                                    |                         
|Net
      loss                                                      |                         
|                                                                    |                         
|                                                                    |                         
|Basic and
      diluted net loss per share                          |                         
|                                                                    |                         
|                                                                    |                         
|Shares
      used in computing basic and diluted net loss per share |                         
|                                                                    |                         

The accompanying
  notes are an integral part of the condensed consolidated financial statements.

4

---

E.PIPHANY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands)
  (unaudited)

|                                                                     | Three
      Months Ended
      March 31,
|-------------------------------------------------------------------- | ----------------------------------------
|                                                                    
|                                                                     |                                         
|                                                                     | 2003                                    
|                                                                     |                                         
|Cash flows
      from operating activities:                          |                                         
|Net
      loss                                                       |                                         
|Adjustments
      to reconcile net loss to net cash used for         |                                         
|operating
      activities:                                          |                                         
|Depreciation
      and amortization                                  |                                         
|Provision
      for doubtful accounts                                |                                         
|Stock-based
      compensation                                       |                                         
|Noncash
      restructuring costs                                    |                                         
|Amortization
      of purchased technology and purchased intangibles |                                         
|Changes
      in operating assets and liabilities:                   |                                         
|Accounts
      receivable                                            |                                         
|Prepaid
      expenses and other assets                              |                                         
|Accounts
      payable                                               |                                         
|Accrued
      liabilities and compensation                           |                                         
|Restructuring
      costs                                            |                                         
|Deferred
      revenue                                               |                                         
|                                                                     |                                         
|Net
      cash used in operating activities                          |                                         
|                                                                     |                                         
|Cash flows
      from investing activities:                          |                                         
|Purchases
      of property and equipment                            |                                         
|Restricted
      cash                                                |                                         
|Acquisition
      related costs and changes in accruals              |                                         
|Proceeds
      from maturities of investments                        |                                         
|Purchases
      of investments                                       |                                         
|                                                                     |                                         
|Net
      cash used in investing activities                          |                                         
|                                                                     |                                         
|Cash flows
      from financing activities:                          |                                         
|Principal
      payments on capital lease obligations                |                                         
|Repayments
      on notes receivable                                 |                                         
|Proceeds
      from sale of common stock, net of repurchases         |                                         
|                                                                     |                                         
|Net
      cash provided by financing activities                      |                                         
|                                                                     |                                         
|Effect
      of foreign exchange rates on cash and cash equivalents  |                                         
|                                                                     |                                         
|Net decrease
      in cash and cash equivalents                      |                                         
|Cash and
      cash equivalents at beginning of period               |                                         
|                                                                     |                                         
|Cash and
      cash equivalents at end of period                     |                                         
|                                                                     |                                         

The accompanying
  notes are an integral part of the condensed consolidated financial statements.

5

---

E.PIPHANY, INC.

NOTES
  TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  (unaudited)

1. Basis
  of Presentation

The
  condensed consolidated financial statements included herein have been prepared
  by E.piphany, Inc. (hereafter
  E.piphany or the Company), without audit, pursuant to
  the rules and regulations of the Securities and Exchange Commission (SEC).
  The condensed consolidated balance sheet as of December 31, 2002 is derived
  from audited consolidated financial statements. Certain information and footnote
  disclosures normally included in consolidated financial statements prepared
  in accordance with generally accepted accounting principles have been condensed
  or omitted pursuant to such rules and regulations. However, E.piphany believes
  that the disclosures are adequate to make the information presented not misleading.
  These condensed consolidated financial statements should be read in conjunction
  with the Companys audited consolidated financial statements and notes
  thereto included in E.piphanys Annual Report on Form 10-K for the fiscal
  year ended December 31, 2002, filed with the SEC on March 27, 2003.

The
  unaudited condensed consolidated financial statements included herein reflect
  all adjustments (which include only normal, recurring adjustments) which are,
  in the opinion of management, necessary to state fairly the financial position
  of E.piphany and its subsidiaries as of March 31, 2003, and the results of operations
  and cash flows for the quarter then ended. The results for the quarter ended
  March 31, 2003 are not necessarily indicative of the results expected for the
  full fiscal year.

Certain
  amounts from prior year have been reclassified to conform to current year presentation.

2. Summary of Significant
  Accounting Policies

Principles of Consolidation

The
  condensed consolidated financial statements include the accounts of E.piphany
  and its subsidiaries. As of March 31, 2003, the Company held 93% of the capital
  stock of its subsidiary, Nihon E.piphany, K.K. The Company maintains an ownership
  percentage of 100% for all other subsidiaries. Intercompany accounts and transactions
  have been eliminated.

Use of Estimates
  in Preparation of Financial Statements

The condensed consolidated financial statements have been prepared in accordance
  with United States Generally Accepted Accounting Principles (US GAAP). The preparation
  of these financial statements requires us to make estimates and assumptions
  that affect reported assets and liabilities, disclosure of contingent assets
  and liabilities as of the date of the financial statements, and reported expenses
  during the reporting period. Actual results in these particular areas could
  differ from those estimates.

Foreign Currency
  Translation

The functional currency of our foreign subsidiaries is the local currency. The
  Company translates the assets and liabilities of non-U.S. functional currency
  subsidiaries into dollars at the current rates of exchange in effect as of the
  balance sheet date. Revenues and expenses are translated using rates that approximate
  those in effect during the period. Gains and losses from translation adjustments
  are included in stockholders equity in the consolidated balance sheet
  caption Accumulated other comprehensive income (loss). Currency
  transaction gains or losses, derived from monetary assets and liabilities stated
  in a currency other than the functional currency, are recognized in current
  operations and have not been significant to the Companys operating results
  in any period. The effect of foreign currency rate changes on cash and cash
  equivalents has not been significant in any period.

6

---

Cash Equivalents,
  Short-Term Investments and Long-Term Investments

The
  Company considers all highly liquid investments with an original maturity of
  90 days or less to be cash equivalents. The Company has classified its short-term
  and long-term investments as available-for-sale. Short-term investments generally
  consist of highly liquid securities that the Company intends to hold for more
  than 90 days but less than 1 year. Long-term investments generally consist of
  securities that the Company intends to hold for more than one year. Such investments
  are carried at fair value with unrealized gains and losses reported, net of
  tax, as other comprehensive income (loss) in stockholders equity. Realized
  gains and losses and declines in value which are determined to be other-than-temporary
  on available-for-sale securities are included in other income, net and are derived
  using the specific identification method for determining the cost of securities.
  From time to time, we are required to obtain letters of credit that serve as
  collateral for our obligations to third parties under facility lease agreements.
  These letters of credit are secured by cash and cash equivalents. As of March
  31, 2003, we had $9.2 million securing letters of credit, which are classified
  as restricted cash in the accompanying condensed consolidated balance sheet.
  Classification of restricted cash as short-term or long-term is determined based
  on the termination date of the underlying lease agreement irrespective of expiration
  date on letter of credit, as the Company is contractually required to maintain
  letters of credit during the lease term.

Accounts Receivable
  and Deferred Revenue

Accounts
  receivable consists of amounts due from customers for which revenue has been
  recognized. Deferred revenue consists of amounts received from customers for
  which revenue has not been recognized. Deferred license revenue is recognized
  upon delivery of our product, as services are rendered, or as other requirements
  requiring deferral are satisfied. Deferred maintenance revenue is recognized
  ratably over the term of the maintenance agreement and deferred professional
  services revenue is recognized as services are rendered or as other requirements
  requiring deferral are satisfied.

Allowances for Doubtful
  Accounts

We
  evaluate the collectibility of our accounts receivable based on a combination
  of factors. When we believe a collectibility issue exists with respect to a
  specific receivable, we record an allowance to reduce that receivable to the
  amount that we believe to be collectible. For all other receivables, we record
  an allowance based on an assessment of the aging of such receivables, our historical
  experience with bad debts and the general economic environment.

Fair Value of Financial
  Instruments

The
  carrying value of the Companys financial instruments, including cash and
  cash equivalents, investments, and accounts receivable approximates fair market
  value. Financial instruments that subject the Company to concentrations of credit
  risk consist primarily of investments in debt securities and trade accounts
  receivable. Management believes the financial risks associated with these financial
  instruments are not significant. The Company invests its cash and investments
  in government agencies, U.S. treasuries, money market instruments, taxable municipal
  bonds and corporate debt rated A1/P1 or higher.

Concentration of Credit Risk and Significant Customers

The
  Companys customer base consists of businesses in Asia, Australia, Europe,
  Latin America and North America. The Company performs ongoing credit evaluations
  of its customers and generally does not require collateral on accounts receivable.
  The Company maintains reserves for potential credit losses; historically, such
  reserves have been adequate to cover the actual losses incurred. No individual
  customer accounted for more than 10% of our total revenues for the first quarter
  of 2003. However, one customer accounted for 12% of our revenues for the first
  quarter of 2002. In addition, one individual accounts receivable balance accounted
  for 15% of our total accounts receivable as of March 31, 2003. No individual
  customer accounts receivable balance accounted for more than 10% of our total
  accounts receivable as of December 31, 2002.

Impairment of Long-Lived
  Assets and Definite Lived Intangible Assets

The
  Company evaluates long-lived assets and certain definite lived intangible assets,
  for impairment on a periodic basis and whenever events or changes in circumstances
  indicate that the carrying amount of an asset may

7

---

not be recoverable. If such
  assets are considered to be impaired, the impairment to be recognized is measured
  by the amount by which the carrying amount of the asset exceeds its fair market
  value.

Revenue Recognition

E.piphany
  recognizes revenue according to the following policies:

Licenses.Fees from licenses are recognized as revenue upon contract execution, provided
  all delivery obligations have been met, fees are fixed or determinable and collection
  is probable. We consider all arrangements with payment terms extending beyond
  six months to not be fixed and determinable, and revenue is recognized as payments
  become due from the customer, assuming all other revenue recognition conditions
  are met. If collection is not considered probable, revenue is recognized when
  the fee is collected. The Company uses the residual method to recognize revenue
  when a license agreement includes one or more elements to be delivered at a
  future date and vendor specific objective evidence of the fair value of all
  undelivered elements exists. Vendor specific objective evidence for undelivered
  elements is based on normal pricing for those elements when sold separately
  and, for maintenance services, is additionally measured by the renewal rate.
  Under the residual method, the fair value of the undelivered elements is deferred
  and the remaining portion of the arrangement fee is recognized as revenue. If
  vendor specific objective evidence does not exist to allocate the total fee
  to all undelivered elements of the arrangement, revenue is deferred until the
  earlier of the time at which (1) such evidence does exist for the undelivered
  elements, or (2) all elements are delivered. We recognize license fees from
  resellers as revenue when the above criteria have been met and the reseller
  has sold the subject licenses through to the end-user.

When
  licenses are sold together with consulting and implementation services, license
  fees are recognized upon delivery, provided that (1) the criteria set forth
  in the above paragraph have been met, (2) payment of the license fees is not
  dependent upon the performance of the consulting or implementation services,
  and (3) the services are not essential to the functionality of the software.
  For arrangements that do not meet the above criteria, both the product license
  revenues and professional services revenues are recognized under the percentage
  of completion contract method in accordance with the provisions of Statement
  of Position 81-1, Accounting for Performance of Construction Type and
  Certain Production Type Contracts  (SOP 81-1). The Company
  follows the percentage of completion method since reasonably dependable estimates
  of progress toward completion of a contract can be made. We estimate the percentage
  of completion on contracts utilizing hours incurred to date as a percentage
  of the total estimated hours to complete the project. Recognized revenues and
  profit are subject to revisions as the contract progresses to completion. Revisions
  in profit estimates are charged to income in the period in which the facts that
  give rise to the revision become known. To date, when the Company has been primarily
  responsible for the implementation of the software, services have been considered
  essential to the functionality of the software products and therefore license
  and services revenues have been recognized pursuant to SOP 81-1.

Our
  license and service arrangements generally do not include acceptance provisions.
  However, when acceptance provisions exist, we apply judgment in assessing the
  significance of the provision. If we determine that the likelihood of non-acceptance
  in these arrangements is remote, we recognize revenue once all of the criteria
  described above have been met. If such a determination cannot be made, revenue
  is recognized upon the earlier of customer acceptance or expiration of the acceptance
  period, provided that all of the criteria described above have been met.

Maintenance
  Services.Maintenance services include technical support
  and unspecified software updates to customers. Revenue derived from maintenance
  services is recognized ratably over the applicable maintenance term, typically
  one year, and is included in services revenue in the accompanying consolidated
  statements of operations.

Consulting,
  Implementation and Training Services.E.piphany provides
  consulting, implementation and training services to its customers. Revenue from
  such services is generally recognized as the services are performed, except
  when such services are subject to acceptance provisions, as discussed above.

Warranties and Indemnification

The
  Company generally provides a warranty for its software products and services
  to its customers and accounts for its warranties under the FASBs Statement
  of Financial Accounting Standards No. 5, Accounting for Contingencies
  (SFAS No. 5). The Companys products are generally warranted
  to perform substantially as

8

---

described in the associated
  product documentation for a period of one year. The Companys services
  are generally warranted to be performed consistent with industry standards for
  a period of ninety days from delivery. In the event there is a failure of such
  warranties, the Company generally is obligated to correct the product or service
  to conform to the warranty provision or, if the Company is unable to do so,
  the customer is entitled to seek a refund of the purchase price of the product
  or service. The Company did not provide for a warranty accrual as of March 31,
  2003 or December 31, 2002. To date, the Companys product warranty expense
  has not been significant.

The
  Company generally agrees to indemnify its customers against legal claims that
  the Companys software products infringe certain third-party intellectual
  property rights and accounts for its indemnification obligations under SFAS
  No. 5. In the event of such a claim, the Company is generally obligated to defend
  its customer against the claim and to either settle the claim at the Companys
  expense or pay damages that the customer is legally required to pay to the third-party
  claimant. In addition, in the event of an infringement, the Company agrees to
  modify or replace the infringing product, or, if those options are not reasonably
  possible, to refund the cost of the software, as pro-rated over a five-year
  period. To date, the Company has not been required to make any payment resulting
  from infringement claims asserted against our customers. As such, the Company
  did not provide for an infringement indemnification accrual as of March 31,
  2003 or December 31, 2002 and has not deferred revenue recognition.

Stock-Based Compensation

The
  Company accounts for stock issued to employees in accordance with Accounting
  Principles Board Opinion No. 25 (APB 25), Accounting for Stock
  Issued to Employees. Under APB 25, compensation expense for fixed stock
  options is based on the difference between the market value of the Companys
  stock and the exercise price of the option on the date of grant, if any. The
  following table illustrates the effect on net loss and loss per share as if
  the Company had applied the fair value recognition provisions of SFAS No. 123
  (SFAS 123), Accounting for Stock-Based Compensation
  (in thousands except per share amounts):

|                                                        | Three
      months ended March 31,
|------------------------------------------------------- | ----------------------------------
|                                                        |                                   
|                                                        | 2003                              
|                                                        |                                   
|Net loss,
      as reported                             |                                   
|Add: Stock-based
      employee compensation            |                                   
|expense
      included in reported net loss, net of tax |                                   
|effects                                                 |                                   
|Deduct:
      Total stock-based employee compensation   |                                   
|expense
      determined under fair value based         |                                   
|method
      for all awards, net of tax effects         |                                   
|                                                        |                                   
|Pro forma
      net loss                                |                                   
|                                                        |                                   
|Loss per
      share:                                   |                                   
|Basic
      and dilutedas reported                     |                                   
|Basic
      and dilutedpro forma                       |                                   

9

---

3. Related Party Transactions

In
  connection with the employment of our chief executive officer, Roger Siboni,
  in 1998, the Company agreed to extend
  to Mr. Siboni credit in the form of two personal loans.

First,
  in July 1998, the Company loaned $640,000 to Mr. Siboni in order to purchase
  2,400,000 shares of common stock at $0.26 2/3 per share. This loan is due on
  July 1, 2008 and accrues interest at 5.88% per annum. As of March 31, 2003,
  the outstanding principal balance of this loan was $377,000 and accrued interest
  was $7,000. As of December 31, 2002, the outstanding principal balance of this
  loan was $377,000 and accrued interest was $6,000. This loan is secured by 1,245,661
  shares of E.piphany common stock. Mr. Siboni has indicated, and the Company
  expects, that this loan will be repaid by August 31, 2004.

Second,
  Mr. Siboni was offered a loan of $250,000 per year for a period beginning August
  1, 1998 and ending July 31, 2000, drawable on a monthly basis. This loan accrued
  interest at 5.6% per annum. As of December 31, 2002, the loan was repaid in
  full.

In
  addition, Mr. Siboni was extended a loan in the aggregate sum of $173,000 for
  the payment of taxes arising from bonus payments made to him during the years
  1999 and 2000. This loan bears interest at 5.6% per annum. As of December 31,
  2002, the outstanding balance was $43,000. As of March 31, 2003, this loan was
  repaid in full.

Mr.
  Siboni is currently a member of the board of directors of two of E.piphanys
  customers. Total revenues to E.piphany from these customers were $0.1 million
  and $0.1 million for the quarters ended March 31, 2003 and 2002, respectively.
  E.piphany had accounts receivable balances from these customers totaling $0
  and $0.1 million as of March 31, 2003 and December 31, 2002, respectively.

In
  addition, three of E.piphanys customers have board members or executive
  officers that are also on E.piphanys board of directors. Total revenues
  to E.piphany from these customers were $0 and $0.7 million for the quarters
  ended March 31, 2003 and 2002, respectively. E.piphany had accounts receivable
  balances from these customers totaling $0.4 million and $0.3 million as of March
  31, 2003 and December 31, 2002, respectively.

4. Computation of Basic
  and Diluted Net Loss Per Share

Basic
  and diluted net loss per common share has been computed using the weighted average
  number of shares of common stock outstanding during the period, less shares
  subject to repurchase. The following table presents the calculation of basic
  and diluted net loss per share (in thousands, except per share amounts):

|                                                          | Three
      Months Ended
      March 31,
|--------------------------------------------------------- | ----------------------------------------
|                                                         
|                                                          |                                         
|                                                          | 2003                                    
|                                                          |                                         
|Net loss                                                  |                                         
|                                                          |                                         
|Basic and
      diluted:                                  |                                         
|Weighted
      average shares of common stock outstanding |                                         
|Less: Weighted
      average shares subject to repurchase |                                         
|                                                          |                                         
|Weighted
      average shares used in computing basic and |                                         
|diluted
      net loss per common share                   |                                         
|                                                          |                                         
|Basic and
      diluted net loss per common share         |                                         
|                                                          |                                         

10

---

The
  Company excludes potentially dilutive securities from its diluted net loss per
  share computation when their effect would be antidilutive to net loss per share
  amounts. The following common stock equivalents were excluded from the net loss
  per share computation (in thousands):

|                                                             | Three
      Months Ended |       
|------------------------------------------------------------ | ------------------------ | ------
|                                                             | March
      31,          |       
|                                                             |                          |       
|                                                             | 2003                     |       
|                                                             |                          |       
|Options excluded due
      to the exercise price exceeding   |                          |       
|the
      average fair market value of the Companys         |                          |       
|common
      stock during the period                         |                          | 9,621 
|Options for which the
      exercise price was less than the |                          |       
|average
      fair market value of the Companys common      |                          |       
|stock
      during the period that were excluded as          |                          |       
|inclusion
      would decrease the Companys net loss per    |                          |       
|share                                                        |                          | 3,201 
|Common shares excluded
      resulting from common stock     |                          |       
|subject
      to repurchase                                  |                          | 35    
|                                                             |                          |       
|Total common stock equivalents
      excluded from diluted   |                          |       
|net
      loss per common share                              |                          | 12,857
|                                                             |                          |       

5. Commitments and
  Contingencies

Legal Proceedings

As
  of the date hereof, there is no material litigation pending against us other
  than as disclosed in the paragraphs below. From time to time, the Company may
  become a party to litigation and subject to claims incident to the ordinary
  course of our business. Although the results of litigation and claims cannot
  be predicted with certainty, the Company believes that the final outcome of
  such matters will not have a material adverse effect on our business, results
  of operations or financial condition.

The
  Company, two of its current officers, one of its former officers and three underwriters
  in its initial public offering (IPO) were named as defendants in a consolidated
  shareholder lawsuit in the United States District Court for the Southern District
  of New York, In re E.piphany, Inc. Initial Public Offering Securities Litigation,01-CV-6158. This is one of a number of actions coordinated for pretrial
  purposes as In re Initial Public Offering Securities Litigation, 21 MC
  92. Plaintiffs in the coordinated proceeding have brought claims under the federal
  securities laws against numerous underwriters, companies, and individuals, alleging
  generally that defendant underwriters engaged in improper and undisclosed activities
  concerning the allocation of shares in the IPOs of more than 300 companies during
  the period from late 1998 through 2000. Specifically, among other things, the
  plaintiffs allege that the prospectus pursuant to which shares of Company common
  stock were sold in the Companys IPO contained certain false and misleading
  statements regarding the practices of the Companys underwriters with respect
  to their allocation of shares of common stock in the Companys IPO to their
  customers and their receipt of commissions from those customers related to such
  allocations, and that such statements and omissions caused the Companys
  post-IPO stock price to be artificially inflated. The consolidated amended complaint
  in the Companys case seeks unspecified damages on behalf of a purported
  class of purchasers of the Companys common stock between September 21,
  1999 and December 6, 2000. The court has appointed a lead plaintiff for the
  consolidated action. The underwriter and issuer defendants have filed motions
  to dismiss. These motions were denied as to all the underwriter defendants and
  the majority of issuer defendants including the Company. The individual defendants
  have been dismissed from the action without prejudice pursuant to a tolling
  agreement. The Company believes it has meritorious defenses to the claims against
  it and will defend itself vigorously.

Several
  governmental entities have initiated investigations related to the IPO allocation
  practices of Credit Suisse First Boston and other investment banks, and their
  personnel. In connection with some of these proceedings, E.piphany and several
  other public companies have been asked to provide information relevant to these
  proceedings. In response, the Company has provided information and is otherwise
  cooperating with these entities. Based on discussions with these entities, the
  Company does not believe that it, or any of its directors and officers, is the
  target of any of these investigations.

11

---



6.Restructuring

In
  the quarter ended September 30, 2001, the Company began restructuring worldwide
  operations to reduce costsand
  improve efficiencies in response to a slower economic environment. A detailed
  review was performed between the third quarter of 2001 and the second quarter
  of 2002 to improve the Companys cost structure in light of market conditions.
  Under Emerging Issues Task Force No. 94-3 (EITF 94-3), Liability
  Recognition for Certain Employee Termination Benefits and Other Costs to Exit
  an Activity, actions were deemed to be the commencement of two separate
  restructuring plans in the quarter in which those actions could be specifically
  identified. The first plan was initiated in the quarter ended September 30,
  2001 and was completed in the quarter ended March 31, 2002 (Plan 1).
  The second plan was initiated and completed during the quarter ended June 30,
  2002 (Plan 2). During the quarter ended March 31, 2003, the Company
  initiated a third restructuring plan to reduce direct sales and marketing costs
  in Japan, Australia, Asia and Latin America by transitioning these markets to
  an indirect sales model (Plan 3). Charges for these plans were based
  on assumptions and related estimates that were appropriate for the economic
  environment that existed at the time these charges were recorded. However, due
  to the continued deterioration of the commercial real estate market, primarily
  in the U.S., and the final settlement of certain lease obligations, we have
  made subsequent adjustments to the initial restructuring charges recorded under
  Plan 1 and Plan 2.

The
  following table summarizes the restructuring accrual as of March 31, 2003 (in
  thousands):

|                                                  | Severance
      and |   | Impairment
      of |   |                   |  |       |   |        |   | 
|------------------------------------------------- | ------------------- | - | ------------------- | - | ----------------- |  | ----- | - | ------ | - | 
|                                                  | Related             |   | property
      and  |   |                   |  |       |   |        |   | 
|                                                  | Charges             |   | equipment           |   | Lease
      Costs |  | Total
|                                                  |                     |   |                     |   |                   |  |      
|Accrued
      balance at December 31, 2000        |                     | $ |                    |   |                   |  |       | $ |       |   | 
|Charges
      accrued during 2001  Plan 1        |                     |   | 1,532               |   |                   |  |       |   | 3,714  |   | 
|Adjustments
      to previous estimates  Plan 1  |                     |   | 1,060               |   |                   |  |       |   | 670    |   | 
|Cash Payments
       Plan 1                      |                     |   | (2,109              | ) |                   |  |       |   |       |   | 
|Non-cash
      activity  Plan 1                  |                     |   | (425                | ) |                   |  |       |   | (4,384 | ) | 
|                                                  |                     |   |                     |   |                   |  |       |   |        |   | 
|Accrued
      balance at December 31, 2001        |                     | $ | 58                  |   |                   |  |       | $ |       |   | 
|                                                  |                     |   |                     |   |                   |  |       |   |        |   | 
|Charges
      accrued during 2002  Plan 1        |                     |   | 1,070               |   |                   |  |       |   | 157    |   | 
|Charges
      accrued during 2002  Plan 2        |                     |   | 1,542               |   |                   |  |       |   | 2,290  |   | 
|Adjustments
      to previous estimates  Plan 1  |                     |   |                    |   |                   |  |       |   |       |   | 
|Adjustments
      to previous estimates  Plan 2  |                     |   | 131                 |   |                   |  |       |   | 791    |   | 
|Cash payments
       Plan 1                      |                     |   | (914                | ) |                   |  |       |   |       |   | 
|Cash payments
       Plan 2                      |                     |   | (1,647              | ) |                   |  |       |   |       |   | 
|Non-cash
      activity  Plan 1                  |                     |   | (214                | ) |                   |  |       |   | (157   | ) | 
|Non-cash
      activity  Plan 2                  |                     |   |                    |   |                   |  |       |   | (3,081 | ) | 
|                                                  |                     |   |                     |   |                   |  |       |   |        |   | 
|Accrued
      balance at December 31, 2002        |                     | $ | 26                  |   |                   |  |       | $ |       |   | 
|                                                  |                     |   |                     |   |                   |  |       |   |        |   | 
|                                                  |                     |   |                     |   |                   |  |       |   |        |   | 
|Charges
      accrued during the quarter  Plan 3 |                     |   | 144                 |   |                   |  |       |   |       |   | 
|Adjustments
      to previous estimates  Plan 1  |                     |   |                    |   |                   |  |       |   |       |   | 
|Adjustments
      to previous estimates  Plan 2  |                     |   |                    |   |                   |  |       |   |       |   | 
|Cash payments
       Plan 1                      |                     |   |                    |   |                   |  |       |   |       |   | 
|Cash payments
       Plan 2                      |                     |   |                    |   |                   |  |       |   |       |   | 
|Cash payments
       Plan 3                      |                     |   | (72                 | ) |                   |  |       |   |       |   | 
|                                                  |                     |   |                     |   |                   |  |       |   |        |   | 
|Accrued
      balance at March 31, 2003           |                     | $ | 98                  |   |                   |  |       | $ |       |   | 
|Less: current
      portion                       |                     |   | (98                 | ) |                   |  |       |   |       |   | 
|                                                  |                     |   |                     |   |                   |  |       |   |        |   | 
|                                                  |                     |   |                     |   |                   |  |       |   |        |   | 
|Restructuring
      costs, net of current portion |                     | $ |                    |   |                   |  |       | $ |       |   | 
|                                                  |                     |   |                     |   |                   |  |       |   |        |   | 

Severance
  and related charges primarily result from involuntary termination benefits and
  related payroll taxes. The impairment of property and equipment primarily relates
  to leasehold improvements and other property and equipment impaired as a result
  of the abandonment of leased facilities and the reduction of headcount. Lease
  costs reflect remaining operating lease obligations and brokerage fees stated
  at actual costs reduced by estimated sublease income. The Company calculates
  the estimated costs of abandoning these leased facilities, including estimated
  sublease costs and income, with the assistance of market information trend analyses
  provided by commercial real estate brokerage firms retained by the Company.

12

---

Year ended December
  31, 2002

In
  the first quarter of 2002, the Company recorded a charge of $1.4 million consisting
  of $1.1 million of severance and related charges, $0.1 million for the impairment
  of property and equipment and $0.2 million of lease costs associated with Plan
  1. The Company reduced the number of employees by 19. Of these, 13 were engaged
  in sales and marketing activities, four were engaged in professional services
  activities and two were engaged in general and administrative activities. The
  reduction consisted primarily of sales employees located in Asia, Australia
  and the United States. Included in severance and related charges is a non-cash
  charge of $0.2 million for the acceleration of vesting of certain stock options
  in connection with terminated employees.

In
  the second quarter of 2002, the Company initiated Plan 2 under which it recorded
  a charge of $8.5 million consisting of $1.5 million of severance and related
  charges, $2.3 million for the impairment of property and equipment and $4.7
  million of lease costs. The Company reduced the number of employees by 91. Of
  these, 40 were engaged in sales and marketing activities, 21 were engaged in
  professional services activities, 20 were engaged in general and administrative
  activities and 10 were engaged in research and development activities. The reduction
  consisted of employees across all geographies. Lease costs were recorded related
  to the abandonment of leased facilities in Australia, the United Kingdom and
  the United States.

During
  2002, the Company recorded adjustments to previously recorded restructuring
  estimates totaling $6.2 million primarily to reflect changes in estimated lease
  costs related to the offices in or near Boston, New York, Chicago and the United
  Kingdom which resulted from continued deterioration of real estate markets in
  those locations.

Quarter ended March
  31, 2003

On
  January 1, 2003, the Company adopted the provisions of SFAS 146, Accounting
  for Costs Associated with Exit and Disposal Activities.This statement
  revises the accounting for activities relating to exiting or disposing of businesses
  or assets under EITF Issue No. 94-3, Liability Recognition for Certain
  Employee Termination Benefits and Other Costs to Exit an Activity.As
  of December 31, 2002, a formal commitment to a plan to exit an activity or dispose
  of long-lived assets is no longer sufficient to record a one-time charge for
  most exit and disposal costs. Instead, companies must record exit or disposal
  costs when they are incurred and can be measured at fair value, and must subsequently
  adjust the recorded liability for changes in estimated cash flows. The provisions
  of SFAS 146 are effective prospectively for exit or disposal activities initiated
  after December 31, 2002.

During
  the first quarter of 2003, in accordance with SFAS 146, the Company initiated
  Plan 3 which will result in the abandonment of leased facilities in Japan and
  Australia and will result in a reduction in the number of employees by 18. The
  Company estimates that total charges for this plan will be approximately $2.6
  million reflecting $1.7 million in lease abandonment costs, $0.6 million in
  asset impairment charges relating primarily to leasehold improvements impaired
  as a result of the abandonment of leased facilities, and $0.3 million in severance
  and related charges. Of the total employee reduction, most have been engaged
  in sales and marketing activities in Japan, Australia and Latin America. The
  Company expects the majority of the restructuring activities under Plan 3 to
  be completed by June 30, 2003 and the majority of the charges under Plan 3 to
  be recorded in the second quarter of 2003.

For
  the quarter ended March 31, 2003, the Company recorded a charge of $0.1 million
  for severance and related charges associated with Plan 3. In addition, the Company
  recorded adjustments to previously recorded restructuring estimates for Plans
  1 and 2 totaling $2.1 million primarily to reflect changes in estimated lease
  costs related to the offices in Boston which resulted from continued deterioration
  of the real estate market.

The
  accrued liability of $32.5 million at March 31, 2003 is net of $34.2 million
  of estimated sublease income. Of this total sublease income, $12.7 million represents
  future sublease income due under non-cancelable subleases and $21.5 million
  represents our estimates of future sublease income on excess facilities we expect
  to sublease in the future. Our ability to generate this amount of sublease income,
  as well as our ability to terminate certain lease obligations at the amounts
  we have estimated, is highly dependent upon the existing economic conditions,
  particularly lease market conditions in certain geographies, at the time we
  negotiate the lease termination and sublease arrangements with third parties.
  While the amount we have accrued is our best estimate, these estimates are subject
  to change and may require routine adjustment as conditions change through the
  implementation period. If

13

---

macroeconomic conditions,
  particularly as they pertain to the commercial real estate market, continue
  to worsen, we may be required to increase our estimated cost to exit certain
  facilities.

The
  remaining cash expenditures relating to workforce reductions are expected to
  be paid by June 30, 2003. The current estimates accrued for abandoned leases,
  net of anticipated sublease proceeds, will be paid over their respective lease
  terms through fiscal 2017.

7.Segment
  Information

E.piphany
  is organized and operates as one business segment, which manages the design,
  development,marketing
  and sale of software products and related services. The Company distributes
  its products in the United States and in foreign countries through direct sales
  personnel and indirect channel partners.

Revenue
  by geographic region is as follows (in thousands):

|                     | Three
      Months Ended
|-------------------- | ------------------------
|                     | March
      31,         
|                     |                         
|                     | 2003                    
|                     |                         
|Revenues:            |                         
|United
      States  |                         
|United
      Kingdom |                         
|Rest
      of World  |                         
|                     |                         
|Total                |                         
|                     |                         

8.Goodwill
  and Purchased Intangible Assets

In the first quarter
  of 2002, the Company adopted SFAS 142. SFAS 142 states that goodwill and intangible assets with indefinite lives
  are no longer amortized but are reviewed for impairment annually, or more frequently
  if impairment indicators arise. The Company completed a transitional and an
  annual impairment test during the first and fourth quarters of 2002 which did
  not result in an impairment charge. The Company plans to complete an annual
  impairment test during the fourth quarter of 2003 or earlier if impairment indicators
  arise. Definite lived intangible assets will continue to be amortized over their
  estimated useful lives.

Information regarding the
  Companys definite lived intangible assets is as follows (in thousands):

|                           | March
        31, 2003 |   | December
        31, 2002
|-------------------------- | ---------------------- | - | -------------------------
|                           |                        |   |                          
|                           | Gross                  |   |                          
|                           | Carrying               |   | Accumulated              
|                           | Amount
        (1)     |   | Amortization             
|                           |                        |   |                          
|Purchased
      technology |                        | $ | 17,652                   
|Customer
      list        |                        |   | 1,332                    
|                           |                        |   |                          
|Total                      |                        | $ | 18,984                   
|                           |                        |   |                          

(1) Gross carrying amount
  is presented net of an impairment charge, taken as of September 30, 2001 and
  accumulated amortization as of that date.

E.piphany
  will continue to amortize other intangible assets of $3.8 million on a straight-line
  basis over their remaining useful lives. Amortization of other intangible assets
  for the quarters ended March 31, 2003 and 2002 was $2.0 million and $2.6 million,
  respectively. Amortization related to these intangibles is expected to be $3.1
  million for the remaining three quarters of 2003 and $0.7 million for fiscal
  year 2004.

9.Other
  Income, Net

Other income, net consists primarily of interest income from investments.
  For the quarter ended March 31, 2003,other
  income also includes $0.8 million reflecting the termination of a partner
  agreement executed by Octane Software, Inc. in October 1999.

10. Comprehensive Income
  (Loss)

Comprehensive
  income (loss) consists of net income (loss) plus all other non-owner changes
  in equity. The components of comprehensive losses are as follows (in thousands):

14

---



|                                              | Three
      Months Ended
|--------------------------------------------- | ------------------------
|                                              | March
      31,         
|                                              |                         
|                                              | 2003                    
|                                              |                         
|Net loss                                      |                         
|Unrealized
      gain (loss) on investments   |                         
|Foreign
      currency translation adjustment |                         
|                                              |                         
|Comprehensive
      losses                    |                         
|                                              |                         

15

---

ITEM 2.MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
  OF OPERATIONS

The following discussion
  of our financial condition and results of operations should be read in conjunction
  with our financial statements and related notes. This document contains forward-looking
  statements that involve risks and uncertainties, as well as assumptions that,
  if prove incorrect or never materialize, could cause our results to differ materially
  from those expressed or implied by such forward-looking statements. Such forward-looking
  statements include, without limitation, projections of expenses or other financial
  items; any statements of the plans, strategies, and objectives of management
  for future operations, including the timing and execution of restructuring plans;
  any statements concerning proposed new products, services, developments, anticipated
  performance of products or services; any statements regarding future economic
  conditions or performance; statements of belief and any statement of assumptions
  underlying any of the foregoing. The risks, uncertainties and assumptions referred
  to above include, but are not limited to, those discussed under the heading
  Risk Factors in this quarterly report and the risks discussed from
  time to time in our other public filings. All forward-looking statements included
  in this document are based on information available to us as of the date hereof,
  and we assume no obligation to update these forward-looking statements.

Overview

We
  develop, market and sell the E.piphany E.6 suite of software products, a set
  of customer relationship management, or CRM, software products. These CRM products
  provide capabilities for the collection and analysis of customer data, the creation
  of inbound and outbound marketing campaigns, and the execution of sales and
  service customer interactions. Companies can implement the E.6 Suite to gain
  insight into their customers characteristics and preferences, and then
  take action on that insight to better and more profitably serve those customers.
  To gain insight into their customers, companies use our analytic CRM products,
  which collect customer data from existing software systems or other E.piphany
  solutions, as well as third party data providers. To take action on this insight,
  companies use our operational CRM products to more effectively interact with
  their customers across a variety of communication and distribution channels.

We
  were founded in November 1996 and were primarily engaged in research and development
  activities until early 1998 when we shipped our first software product and generated
  our first revenues from software license, consulting, and maintenance fees.
  In September 1999 and January 2000 we raised a total of approximately $426 million
  through the sale of our common stock in registered public offerings to fund
  growth and to acquire complementary businesses and technologies. During 2000
  and 2001, we completed several acquisitions in exchange for our stock consideration
  including the acquisition of RightPoint Software, Inc., Octane Software, Inc.,
  eClass Direct, Inc. and Moss Software, Inc. These acquisitions increased our
  customer base, increased the number of our employees and expanded our product
  suite. As a result of these acquisitions, we recorded goodwill and purchased
  intangible assets of approximately $3.3 billion representing the difference
  between the value of the consideration paid in our stock and the value of the
  assets and liabilities acquired.

From
  the shipment of our first software product in early 1998 through the fourth
  quarter of 2000, our revenues increased steadily each quarter due primarily
  to the market acceptance and success of our products such as E.piphany Insight
  and E.piphany Marketing, as well as the shipment of new products such as E.piphany
  Service which were introduced through a combination of acquisitions and internal
  development. Our annual revenues grew to $131 million in 2000 from $19 million
  in 1999 and $3 million in 1998.

During
  2001 and 2002, the worldwide economy weakened and a slowdown in technology spending
  by businesses occurred. As a result, our revenues declined from $131 million
  in 2000 to $129 million in 2001 and to $84 million in 2002. During this period
  of economic slowdown, we have initiated restructuring plans to reduce our workforce
  and consolidate our operating facilities. We also reviewed the impact of the
  change in market conditions on the carrying value of our goodwill and intangible
  assets. We determined that these assets were impaired and wrote down their fair
  value by record ing a non-cash charge of $1.7 billion in September 2001. Net
  losses for the years ended December 31, 2000, 2001 and 2002 were $768 million,
  $2.6 billion and $78 million, respectively. The net losses in 2000 and 2001
  were primarily a result of non-cash impairment and amortization of goodwill
  and purchased intangibles of $697 million and $2.5 billion, respectively.

16

---

For
  the first quarter of 2003, revenues were $22.5 million and were comparable to
  revenues recorded for the fourth quarter of 2002. The net loss for the first
  quarter of 2003 declined to $10.9 million from $14.8 million for the fourth
  quarter of 2002 due primarily to the decrease in both restructuring costs and
  in amortization of purchased technology and purchased intangibles.

During
  the first quarter of 2003, we initiated a restructuring plan to reduce direct
  sales and marketing costs in Japan, Australia, Asia and Latin America by transitioning
  these markets to an indirect sales channel model. This plan will result in the
  abandonment of leased facilities in Japan and Australia and will reduce the
  number of employees by 18. We estimate that total charges for this plan will
  be approximately $2.6 million and will consist of $1.7 million in lease abandonment
  costs, $0.6 million in asset impairment charges relating primarily to leasehold
  improvements impaired as a result of the abandonment of leased facilities, and
  $0.3 million in severance and related charges. Of the total employee reduction,
  most are engaged in sales and marketing activities in Japan, Australia and
  Latin America. We expect the plan to be completed by June 30, 2003 and the majority
  of the charges to be recorded in the quarter ended June 30, 2003. As a result
  of the plan, quarterly operating expenses are expected to decrease by approximately
  $1.8 million with the majority of the savings reflected in our sales and marketing
  expenses beginning in the third quarter of 2003.

As
  of March 31, 2003, we had licensed our software to approximately 460 customers
  and had a total of $277 million in cash and investments, including $9 million
  of restricted cash.

Sources of Revenue

We
  generate revenues principally from licensing our software products directly
  to customers and providing related services including implementation, consulting,
  maintenance and training services. Through March 31, 2003, substantially all
  of our revenues were generated by our direct sales force. Our license agreements
  generally provide that customers pay a software license fee to perpetually use
  one or more software products within specified limits. The amount of the license
  fee varies depending on which software products are purchased, the number of
  software products purchased and the scope of usage rights. Customers can subsequently
  pay additional license fees to expand the right to use previously licensed software
  products, or to purchase additional software products. Our software products
  are made available either on compact disc or electronically.

Customers
  generally require consulting and implementation services, which include evaluating
  their business needs, identifying the data sources necessary to meet these needs
  and installing the software solution in a manner that fulfills their requirements.
  Customers can purchase these services directly from third-party consulting organizations,
  such as Accenture, BearingPoint (formerly KPMG Consulting), Braxton (formerly
  Deloitte Consulting) or IBM. Alternatively, customers can purchase these services
  directly from us through our internal professional services organization. Consulting
  and implementation services can be acquired on either a fixed fee or a time
  and expense basis. We have also historically supplemented the capacity of our
  internal professional services organization by subcontracting some of these
  services to third-party consulting organizations.

Cost of Revenues and Operating Expenses

Our
  cost of product license revenues primarily consists of license fees payable
  to third parties for technology integrated into our products. Our cost of services
  revenues primarily consists of salaries and related expenses for our professional
  services, maintenance and training organizations, an allocation of facilities,
  information technology and depreciation expenses, cost of reimbursable expenses
  and costs of subcontracting to consulting organizations to provide consulting
  services to customers. Cost of revenues also includes the amortization of purchased
  technology arising from our acquisitions. Our operating expenses are classified
  into three general categories: sales and marketing, research and development,
  and general and administrative. We classify all charges to these operating expense
  categories based on the nature of the expenditures. We allocate the costs for
  overhead and facilities to each of the functional areas that use the overhead
  and facilities services based on headcount. These allocated charges include
  facilities, information technology, communications and depreciation expenses.

Software
  development costs incurred prior to the establishment of technological feasibility
  are included in research and development costs as they are incurred. Since license
  revenues from our software solutions are not recognized until after technological
  feasibility has been established, software development costs are not generally
  expensed in the same period in which license revenues for the developed products
  are recognized.

17

---

Critical Accounting Policies and Estimates

Accounting
  policies, methods and estimates are an integral part of the condensed consolidated
  financial statements prepared by management and are based upon managements
  current judgments. Those judgments are normally based on knowledge and experience
  with regard to past and current events and assumptions about future events.
  Certain accounting policies, methods and estimates are particularly sensitive
  because of their significance to the financial statements and because of the
  possibility that future events affecting them may differ markedly from managements
  current judgments. While there are a number of accounting policies, methods
  and estimates affecting our financial statements, areas that are particularly
  significant and subject to the exercise of judgment include revenue recognition
  policies, allowances for doubtful accounts, the measurement and recoverability
  of goodwill and purchased intangible assets, and restructuring accruals for
  the abandonment of certain leased facilities. These policies and our practices
  related to these policies are described below and in Note 2 of Notes to Condensed
  Consolidated Financial Statements.

Revenue Recognition

Our
  revenue recognition policy is significant because it determines if, and when,
  we can record revenue from the sale of software licenses and related services.
  We follow detailed guidelines discussed below and in Note 2 of Notes to Condensed
  Consolidated Financial Statements. We recognize revenue in accordance with generally
  accepted accounting principles, which have been prescribed for the software
  industry. The accounting rules related to revenue recognition are complex and
  are affected by interpretations of the rules and an understanding of industry
  practices, both of which are subject to change. Consequently, the revenue recognition
  accounting rules require management to make significant judgments.

We
  do not record revenue on sales transactions when collectibility is in doubt
  at the time of sale. Rather, revenue is recognized from these transactions as
  cash is collected. The determination of collectibility requires significant
  judgment.

To
  date, when we have been primarily responsible for the implementation of the
  software on an arrangement, both product license revenues and service revenues
  are recognized under the percentage of completion contract method in accordance
  with the provisions of Statement of Position 81-1, Accounting for Performance
  of Construction Type and Certain Production-Type Contracts (SOP
  81-1). This is based on our assessment that the implementation services
  for these arrangements are essential to the functionality of our software. From
  the first quarter of 2001 through the second quarter of 2002, third-party consulting
  organizations were primarily responsible for the implementation services for
  the majority of E.piphanys license arrangements. Since the second quarter
  of 2002, E.piphany has increasingly been responsible for implementation services,
  and therefore, we expect that the proportion of license revenue recognized
  under the percentage of completion method will increase for the year ended December
  31, 2003 compared to the year ended December 31, 2002. Approximately 28% of
  license revenue was recognized under SOP 81-1 during the quarter ended March
  31, 2003, compared to 6% and 19% for the first quarter of 2002 and fiscal year
  2002, respectively.

We
  estimate the percentage of completion on contracts utilizing hours incurred
  to date as a percentage of the total estimated hours to complete the project.
  The percentage of completion method of accounting involves an estimation process
  and is subject to risks and uncertainties inherent in projecting future events.
  A number of internal and external factors can affect our estimates, including
  the nature of the services being performed, the complexity of the customers
  information technology environment and the utilization and efficiency of our
  professional services employees. Recognized revenues and profit are subject
  to revisions as the contract progresses to completion. Revisions in profit estimates
  are charged to income in the period in which the facts that give rise to the
  revision become known.

Allowances for Doubtful Accounts

A
  considerable amount of judgment is required when we assess the realization of
  receivables, including assessing the probability of collection and the current
  creditworthiness of each customer. When we believe a collectibility issue exists
  with respect to a specific receivable, we record an allowance to reduce that
  receivable to the amount that we believe is collectible. For all other receivables,
  we record an allowance based on an assessment of the aging of such receivables,
  our historical experience with bad debts and the general economic environment.
  If

18

---

the financial condition
  of our customers were to deteriorate, resulting in an impairment of their ability
  to make payments, additional allowances may be required that would result in
  additional general and administrative expense in the period such determination
  is made.

Acquisitions, Goodwill and Purchased Intangible Assets

We
  record goodwill and purchased intangible assets when we acquire other companies.
  The cost of the acquisition is allocated to the assets and liabilities acquired,
  including purchased intangible assets, and the remaining amount is classified
  as goodwill. Certain purchased intangible assets such as purchased technology
  and customer lists are amortized to cost of revenues and operating expense over
  time, while in-process research and development is recorded as a one-time charge
  on the acquisition date. Goodwill is not amortized to expense but is periodically
  assessed for impairment. The allocation of the acquisition cost to purchased
  intangible assets , in-process research and development and goodwill, therefore,
  has a significant impact on our operating results. The allocation process involves
  an extensive use of estimates and assumptions, including estimates of future
  cash flows to be generated by the acquired assets.

We
  perform impairment tests annually or when impairment indicators are identified
  with respect to previously recorded intangible assets. If such assets are considered
  to be impaired, the impairment to be recognized is measured by the amount by
  which the carrying amount of the asset exceeds its fair market value. Fair market
  value is determined using, among other things, discounted future cash flow techniques.
  Estimating discounted future cash flows requires significant management judgment
  concerning revenue, profitability and discount rates. Differences between forecasted
  and actual results as well as changes in the general economic environment could
  result in material write downs of goodwill and purchased intangible assets.
  We performed transitional and annual impairment tests on January 1, 2002 and
  on December 31, 2002 and determined that no impairments existed at those times.

Restructuring Charges

As
  discussed in Note 6 of Notes to Condensed Consolidated Financial Statements,
  we have recorded significant restructuring charges , primarily in connection
  with our abandonment of certain leased facilities. The lease abandonment costs
  were estimated to include remaining lease liabilities and brokerage fees offset
  by estimated sublease income. Estimates related to sublease costs and income
  are based on assumptions regarding the period required to sublease the facilities
  and the likely sublease rates. These estimates are based on market trend information
  analyses provided by commercial real estate brokerage firms retained by us.
  We review these estimates each reporting period and, to the extent that market
  conditions and our assumptions change, adjustments to the restructuring accrual
  are recorded. If the real estate market continues to worsen and we are not able
  to sublease the properties as early as, or at the rates estimated, the accrual
  will be increased, which would result in additional restructuring costs in the
  period in which such determination is made. If the real estate market strengthens
  and we are able to sublease the properties earlier or at more favorable rates
  than projected, the accrual may be decreased, which would increase net income
  in the period in which such determination is made. The accrued liability of
  $32.5 million at March 31, 2003 is net of $34.2 million of estimated sublease
  income. Of this total sublease income, $12.7 million represents future sublease
  income due under non-cancelable subleases and $21.5 million represents our estimates
  of future sublease income on excess facilities we expect to sublease in the
  future.

Results of Operations

Revenues

The
  following table sets forth the Companys revenues for the quarters ended
  March 31, 2003 and March 31, 2002, expressed both in absolute dollars and as
  a percentage of total revenues (in thousands, except percentages):

|                      | **Three
      months ended March 31,**
|--------------------- | --------------------------------------
|                      |                                       
|                      | **2003**                              
|                      |                                       
|Revenues:             |                                       
|Product
      license |                                       
|Services              |                                       
|                      |                                       
|                      |                                       
|                      |                                       

19

---

Total
  revenues increased slightly to $22.5 million for the quarter ended March 31,
  2003, from $22.1 million for the quarter ended March 31, 2002. The increase
  was a result of an increase of $0.9 million in services revenues offset, in
  part, by a decrease of $0.5 million in license revenues.

Product
  license revenues decreased to $10.4 million, or 46% of total revenue, for the
  quarter ended March 31, 2003 from $10.9 million, or 49% of total revenue, for
  the quarter ended March 31, 2002. This decrease in product license revenues
  was primarily due to fewer sales of our product licenses resulting from the
  continued economic slowdown and weakness in information technology spending,
  partially offset by an increase in revenue from licenses sold in previous periods
  that are being recognized under SOP 81-1.

Services
  revenues increased to $12.1 million, or 54% of total revenues, for the quarter
  ended March 31, 2003 from $11.2 million, or 51% of revenues, for the quarter
  ended March 31, 2002. The increase was due primarily to an increase in maintenance
  revenue attributable to maintenance contracts sold with new licenses in addition
  to a high rate of maintenance agreement renewals by our existing install base.

Cost of Revenues

The
  following table sets forth the Companys cost of revenues for the quarters
  ended March 31, 2003 and March 31, 2002, expressed both in absolute dollars
  and as a percentage of total revenues (in thousands, except percentages):

|                                           | **Three
      months ended March 31,**
|------------------------------------------ | --------------------------------------
|                                           |                                       
|                                           | **2003**                              
|Cost of
      revenues:                    |                                       
|Product
      license                      |                                       
|Services                                   |                                       
|Amortization
      of purchased technology |                                       
|                                           |                                       
|Total cost
      of revenues               |                                       
|                                           |                                       
|Gross profit                               |                                       
|                                           |                                       

Total
  cost of revenues decreased to $9.6 million for the quarter ended March 31, 2003
  as compared to $10.8 million for the quarter ended March 31, 2002. Cost of revenues
  include the cost of license revenues, the cost of services revenues and the
  amortization of purchased technology.

Cost
  of product license revenues consists primarily of license fees paid to third
  parties under technology license arrangements, and, as a percentage of license
  revenues, have not been significant to date.

Cost
  of services revenues consists primarily of personnel and related costs of providing
  professional, maintenance and training services. Cost of services revenues decreased
  to $7.6 million, or 62% of services revenues, for the quarter ended March 31,
  2003 from $8.2 million, or 73% of services revenues, for the quarter ended March
  31, 2002. The decrease was the result of a reduction in the number of internal
  professional services employees and the related overhead and facilities costs
  , offset, in part, by an increase in the rise of services subcontracted from
  third parties. The decrease in cost of services as a percentage of revenue is
  primarily due to a higher proportion of maintenance revenue, which has more
  favorable margins than professional services and training revenue, as well as
  a reduction of the number of services employees to 135 at March 31, 2003 from
  166 at March 31, 2002. Of the total reduction in the number of services employees
  during the past year, 21 related to the restructuring of our operations and
  the remainder related to voluntary and other terminations.

Amortization
  of purchased technology decreased to $1.8 million for the quarter ended March
  31, 2003 from $2.4 million for the quarter ended March 31, 2002 primarily due
  to the purchased technology assets of Rightpoint which were fully amortized
  as of December 31, 2002. Purchased technology assets of $3.7 million are included
  in purchased intangibles on our Condensed Consolidated Balance Sheet and are
  being amortized on a straight-line basis over their remaining useful lives.
  Amortization of purchased technology is expected to be a total of $3.0 million
  for the remaining three quarters of 2003 and $0.7 million for 2004.

20

---

Operating Expenses

Research and Development

The
  following table sets forth the Companys research and development expenses
  for the quarters ended March 31, 2003 and March 31, 2002, expressed both in
  absolute dollars and as a percentage of total revenues (in thousands, except
  percentages):

|                               | **Three
      months ended March 31,**
|------------------------------ | --------------------------------------
|                               |                                       
|                               | **2003**                              
|                               |                                       
|Research
      and development |                                       

Research
  and development expenses consist primarily of personnel and related costs associated
  with our product development efforts. Research and development expenses remained
  consistent at $8.6 million for the first quarter of 2003 as compared to the
  first quarter of 2002. Research and development expenses as a percentage of
  total revenues decreased slightly to 38% for the first quarter of 2003 from
  39% for the first quarter of 2002 due to the increase in total revenues from
  the prior year. The number of research and development employees decreased to
  168 at March 31, 2003 from 178 at March 31, 2002. This decrease was due to the
  restructuring of our operations. The decrease in costs resulting from restructuring
  was offset by an increase in consulting fees associated with international development
  efforts. We believe that investments in product development are essential to
  our future success, and these expenses may increase in the future.

Sales and Marketing

The
  following table sets forth the Companys sales and marketing expenses for
  the quarters ended March 31, 2003 and March 31, 2002, expressed both in absolute
  dollars and as a percentage of total revenues (in thousands, except percentages):

|                          | **Three
      months ended March 31,**
|------------------------- | --------------------------------------
|                          |                                       
|                          | **2003**                              
|                          |                                       
|Sales and
      marketing |                                       

Sales
  and marketing expenses consist primarily of employee salaries, benefits and
  commissions, and the costs of trade shows, seminars, promotional materials and
  other sales and marketing programs. Sales and marketing expenses decreased to
  $12.3 million for the first quarter of 2003 from $16.9 million for the first
  quarter of 2002. Sales and marketing expenses as a percentage of total revenues
  decreased to 55% for the first quarter of 2003 from 76% for the first quarter
  of 2002. The decrease was primarily due to a reduction in the number of sales
  and marketing employees to 148 at March 31, 2003 from 231 at March 31, 2002.
  Of the total reduction, 40 related to the restructuring of our operations and
  the remainder related to voluntary and other terminations. The decrease was
  also due to lower overhead and facilities costs as a result of our restructuring
  plans and lower spending on sales and marketing programs.

General and Administrative

The following table sets
  forth the Companys general and administrative expenses for the quarters
  ended March 31, 2003 and March 31, 2002, expressed both in absolute dollars
  and as a percentage of total revenues (in thousands, except percentages):

|                                 | **Three
      months ended March 31,**
|-------------------------------- | --------------------------------------
|                                 |                                       
|                                 | **2003**                              
|                                 |                                       
|General
      and administrative |                                       

General
  and administrative expenses consist primarily of employee salaries and related
  expenses for executive, finance, legal and administrative personnel. General
  and administrative expenses decreased to $2.6 million for the

21

---

first quarter of 2003 from
  $3.2 million for the first quarter of 2002. General and administrative expenses
  as apercentage of
  total revenues decreased to 11% for the first quarter of 2003 from 15% for the
  first quarter of 2002. The decrease in general and administrative expenses was
  primarily due to the reduction in spending on external professional services
  such as legal, tax and temporary services as well as a reduction in the number
  of general and administrative employees to 62 at March 31, 2003 from 87 at March
  31, 2002. Of this reduction, 20 related to the restructuring of our operations
  and the remainder related to voluntary and other terminations.

Restructuring Charges

The
  following table sets forth the Companys restructuring charges for the
  quarters ended March 31, 2003 and March 31, 2002, expressed both in absolute
  dollars and as a percentage of total revenues (in thousands, except percentages):



|                            | **Three
      months ended March 31,**
|--------------------------- | --------------------------------------
|                            |                                       
|                            | **2003**                              
|                            |                                       
|Restructuring
      charges |                                       

In
  the quarter ended September 30, 2001, we began restructuring worldwide operations
  to reduce costs and improve efficiencies in response to a slower economic environment.
  A detailed review was performed between the third quarter of 2001 and the second
  quarter of 2002 to improve our cost structure in light of market conditions.
  Under EITF No. 94-3, Liability Recognition for Certain Employee Termination
  Benefits and Other Costs to Exit an Activity, actions were deemed to be
  the commencement of separate restructuring plans in the quarter in which those
  actions could be specifically identified. The first plan was initiated in the
  quarter ended September 30, 2001 and was completed in the quarter ended March
  31, 2002 (Plan 1). The second plan was initiated and completed during
  the quarter ended June 30, 2002 (Plan 2). In accordance with EITF
  No. 94-3, charges were recorded to restructuring expense as the costs associated
  with each plan could be reasonably estimated. These charges were based on assumptions
  and related estimates that were appropriate for the economic environment that
  existed at the time these charges were recorded. However, due to the continued
  deterioration of the commercial real estate market, primarily in the U.S., and
  the final settlement of certain lease obligations, we have made subsequent adjustments
  to the initial restructuring charges recorded.

During
  the current quarter, we initiated a restructuring plan to reduce direct sales
  and marketing costs in Japan, Australia, Asia and Latin America by transitioning
  these markets to an indirect sales model (Plan 3). This plan will
  result in the abandonment of leased facilities in Japan and Australia and will
  reduce the number of employees by 18. We estimate that total charges for this
  plan will be approximately $2.6 million and will consist of $1.7 million in
  lease abandonment costs, $0.6 million in asset impairment charges relating primarily
  to leasehold improvements impaired as a result of the abandonment of leased
  facilities, and $0.3 million in severance and related charges. Of the total
  employee reduction, most are engaged in sales and marketing activities located
  in Japan, Australia and Latin America. We expect the restructuring activities
  under Plan 3 to be completed by June 30, 2003 and the majority of the charges
  to be recorded in the quarter ended June 30, 2003.

Restructuring
  charges increased to $2.2 million for the quarter ended March 31, 2003 as compared
  to $0.5 million for the quarter ended March 31, 2002. In the first quarter of
  2003, we initiated Plan 3 under which we recorded a charge of $0.1 million for
  severance and related charges. In addition, we recorded adjustments to previously
  recorded restructuring estimates totaling $2.1 million primarily to reflect
  changes in estimated lease costs related to the offices in Boston which resulted
  from continued deterioration of the real estate market. Restructuring charges
  for the first quarter of 2002 consisted of $1.4 million in charges associated
  with Plan 1 and primarily reflected severance and related charges. These charges
  were offset by a decrease in estimated lease termination fees of $0.9 million
  primarily related to our Chicago office.

22

---

Stock-Based Compensation

The
  following table sets forth the Companys stock-based compensation expenses
  for the quarters ended March 31, 2003 and March 31, 2002, expressed both in
  absolute dollars and as a percentage of total revenues (in thousands, except
  percentages):

|                               | **Three
      months ended March 31,**
|------------------------------ | --------------------------------------
|                               |                                       
|                               | **2003**                              
|                               |                                       
|Stock-based
      compensation |                                       

Stock-based
  compensation consists of amortization of deferred compensation in connection
  with stock option grants and sales of stock to employees at exercise or sales
  prices below the deemed fair market value of our common stock and compensation
  related to equity instruments issued to non-employees for services rendered.
  As of March 31, 2003, deferred compensation remaining to be amortized totaled
  $0.1 million. This amount is being amortized over the respective vesting periods
  of these equity instruments in a manner consistent with Financial Accounting
  Standards Board Interpretation No. 28. See Note 2 of Notes to Condensed Consolidated
  Financial Statements for further discussion regarding the accounting treatment
  for stock-based compensation.

We
  account for stock issued to employees in accordance with Accounting Principles
  Board Opinion No. 25 (APB 25), Accounting for Stock Issued
  to Employees and complies with the disclosure provisions of SFAS No. 123
  (SFAS 123), Accounting for Stock-Based Compensation
  and SFAS No. 148 (SFAS 148), Accounting for Stock-Based Compensation
   Transition and Disclosure. Under APB 25, compensation expense for
  fixed stock options is based on the difference between the market value of the
  Companys stock and the exercise price of the option on the date of grant,
  if any. Had we recognized stock-based compensation expense under SFAS 123, our
  stock-based compensation expense would have been $10.4 million and $17.4 million
  for the quarters ended March 31, 2003 and 2002, respectively.

The
  accounting profession and regulatory agencies continue to consider whether companies
  will be required to record an expense for stock options granted with an exercise
  price equal to the fair market value of their stock on the date of grant, as
  well as the methodology under which the amount of such expense will be determined.
  We believe that the use of equity compensation is important to our ability to
  attract and retain a sufficient number of qualified personnel and expect to
  continue to grant meaningful equity compensation to our employees in the future.

Other Income, Net

The
  following table sets forth the Companys other income, net for the quarters
  ended March 31, 2003 and March 31, 2002, expressed both in absolute dollars
  and as a percentage of total revenues (in thousands, except percentages):

|                        | **Three
      months ended March 31,**
|----------------------- | --------------------------------------
|                        |                                       
|                        | **2003**                              
|                        |                                       
|Other income,
      net |                                       

Other
  income, net consists primarily of interest income from investments. For the
  quarter ended March 31, 2003, other income also includes $0.8 million reflecting
  the termination of a partner agreement executed by Octane Software, Inc.
  in October 1999.

Liquidity and Capital Resources

As
  of March 31, 2003, our primary sources of liquidity consisted of $114.8 million
  in cash, cash equivalents and short-term investments and $152.7 million in long-term
  investments for a total of $267.5 million in cash and investments.

Net
  cash used in operating activities totaled $10.4 million and $17.5 million for
  the quarters ended March 31, 2003 and 2002, respectively. Cash used in operating
  activities for each period was primarily the result of net losses in those periods,
  less non-cash charges for amortization of purchased technology and intangibles
  and depreciation

23

---

and stock-based compensation.
  Cash used in operating activities for each period was also a result of an increase
  in accounts receivable and decreases in accrued restructuring costs, accounts
  payable and accrued liabilities. Cash used in operating activities for the quarter
  ended March 31, 2003 was offset, in part, by cash provided by the decrease in
  prepaid expenses and other assets.

We
  expect to incur significant operating expenses, particularly research and development
  and sales and marketing expenses, for the foreseeable future in order to execute
  our business plan. We anticipate that such operating expenses will comprise
  a material expenditure of our cash resources. As a result, our net cash flows
  will depend on the level of future revenues and our ability to effectively manage
  infrastructure costs.

Net
  cash used in investing activities totaled $2.8 million and $20.8 million for
  the quarters ended March 31, 2003 and 2002, respectively. Cash used in investing
  activities for these periods resulted primarily from the purchases of investments,
  net of sales of investments. Net investments purchased are primarily comprised
  of investment grade securities such as government notes and bonds with maturities
  which do not exceed 24 months. To a lesser extent, cash used from investing
  activities resulted from the purchase of property and equipment.

Net
  cash provided by financing activities totaled $0.4 million and $2.0 million
  for the quarters ended March 31, 2003 and 2002, respectively. Cash provided
  by financing activities for each period resulted primarily from the receipt
  of proceeds from the issuance of common stock pursuant to the exercise of stock
  options and our employee stock purchase plan.

From
  time to time, we are required to obtain letters of credit that serve as collateral
  for our obligations to third parties under facility lease agreements. These
  letters of credit are secured by cash and cash equivalents and are recorded
  as restricted cash in the balance sheet. As of March 31, 2003, we had $9.2 million
  of restricted cash, $1.2 million of which are classified as short-term and relate
  to facility lease agreements that have expiration dates within 12 months, and
  $8.0 million of which are classified as long-term and relate to facility lease
  agreements that have expiration dates greater than twelve months from March
  31, 2003.

We
  lease certain equipment and our facilities under capital and operating lease
  agreements, which expire at various dates through 2017. In addition, we receive
  sublease income from noncancelable subleases of excess facilities. Future minimum
  lease payments due and receivable under these leases as of March 31, 2003 were
  as follows (in thousands):

|                                 |  |                    |   |                    |  |            |  |        |   |        |  | Sublease |  | 
|-------------------------------- |  | ------------------ | - | ------------------ |  | ---------- |  | ------ | - | ------ |  | -------- |  | 
|                                 |  | Capital            |   | Operating          |  | Income     |  | Total,
|Year
        Ending December 31, |  | Leases
        Due |   | Leases
        Due |  | Receivable |  | Net   
|                                 |  |                    |   |                    |  |            |  |       
|2003                             |  |                    | $ | 89                 |  |            |  |        | $ | 11,076 |  |          |  | 
|2004                             |  |                    |   |                   |  |            |  |        |   | 11,578 |  |          |  | 
|2005                             |  |                    |   |                   |  |            |  |        |   | 9,006  |  |          |  | 
|2006                             |  |                    |   |                   |  |            |  |        |   | 6,328  |  |          |  | 
|2007                             |  |                    |   |                   |  |            |  |        |   | 6,345  |  |          |  | 
|2008 and
      thereafter        |  |                    |   |                   |  |            |  |        |   | 28,586 |  |          |  | 
|                                 |  |                    |   |                    |  |            |  |        |   |        |  |          |  | 
|                                 |  |                    | $ | 89                 |  |            |  |        | $ | 72,919 |  |          |  | 
|                                 |  |                    |   |                    |  |            |  |        |   |        |  |          |  | 

Net
  operating lease commitments shown above include $32.5 million of operating lease
  commitments under leases for abandoned facilities, which are recorded as restructuring
  costs in the accompanying balance sheet as of March 31, 2003. We do not have
  commercial commitments under lines of credit, standby lines of credit, guarantees,
  standby repurchase obligations or other such arrangements.

Although
  our existing cash, cash equivalents and investment balances are expected to
  decline in the aggregate, we believe that these balances will be sufficient
  to meet our anticipated liquidity needs for working capital and capital expenditures
  for at least 12 months. If we require additional capital resources to grow our
  business internally or to acquire complementary technologies and businesses
  at any time in the future, we may seek to liquidate our long-term investments,
  issue additional equity or debt securities or secure a bank line of credit.
  The sale of additional equity or convertible debt securities could result in
  additional dilution to our stockholders. We cannot assure you that any financing
  arrangements will be available in amounts or on terms acceptable to us in the
  future.

24

---

RISK
  FACTORS

An
  investment in our common stock is very risky. You should carefully consider
  the risks discussed below, together with all of the other information included
  in this Quarterly Report on Form 10-Q and our other public filings before buying
  or selling our securities. If any of the following risks actually occur, our
  business, financial condition or results of operations could be materially adversely
  affected, the trading price of our common stock could decline, and you may lose
  all or part of your investment.

We have a history of
  losses, expect losses in the future and may not ever become profitable.

We
  incurred net losses of $10.9 million for the quarter ended March 31, 2003, $71.7
  million for the year ended December 31, 2002, $2.6 billion for the year ended
  December 31, 2001 and $768.5 million for the year ended December 31, 2000. We
  had an accumulated deficit of $3.5 billion as of March 31, 2003. We expect to
  continue to incur losses in the foreseeable future. These losses may be substantial
  and we may never become profitable. Our operating results will be harmed if
  our revenues do not keep pace with our expenses or are not sufficient for us
  to achieve profitability. If we do achieve profitability in any period, it cannot
  be certain that we will sustain or increase profitability on a quarterly or
  annual basis.

Our revenues may be
  harmed if general and industry specific economic conditions do not improve or
  continue to worsen.

Our
  revenues are dependent on the health of the economy and the growth of our customers
  and potential future customers. If the economy does not improve, our customers
  may continue to delay or reduce their spending on customer relationship management
  software. When economic conditions weaken, sales cycles for software products
  tend to lengthen and companies information technology budgets tend to
  be reduced. When this happens, our revenues suffer and our stock price may decline.
  Further, if the economic conditions in the United States or in other territories
  in which we do business worsen or do not improve, we may experience a material
  adverse impact on our business, operating results and financial condition.

Competition from other
  software vendors could adversely affect our ability to sell our products and
  services and could result in pressure to price our products in a manner that
  reduces our margins.

Competitive
  pressures could prevent us from growing, reduce our market share or require
  us to reduce prices of our products and services, any of which could harm our
  business. We compete principally with vendors of traditional customer relationship
  management software, enterprise resources planning software and data analysis
  and marketing software. Our competitors include, among others, companies such
  as Chordiant, Kana Communications, NCR, Onyx, Oracle, PeopleSoft, Pivotal, SAP
  AG, SAS Institute, Siebel Systems and Unica.

Many
  of these companies have significantly greater financial, technical, marketing,
  sales, service and other resources than we do. Many of these companies also
  have a larger installed base of users, have been in business longer and/or have
  greater name recognition than we do. In addition, some large companies have
  and will continue to attempt to build capabilities into their products that
  are similar to the capabilities of our products. Some of our competitors
  products may be more effective than our products at performing particular functions
  or be more customized for customers particular needs. Even if these functions
  are more limited than those provided by our products, our competitors
  software products could discourage potential customers from purchasing our products.
  Further, our competitors may be able to respond more quickly than we can to
  changes in customer requirements.

We
  have recently experienced price erosion with respect to some of our products
  as new competitors enter the market and existing competitors reduce prices.
  Our strategy is to develop, market and support a broad set of customer relationship
  management products. If we are not able to effectively develop, market and support
  a diversified portfolio of products, our revenues and operating margins will
  be harmed.

Our
  competitors have made and may continue to make strategic acquisitions or establish
  cooperative relationships among themselves or with other software vendors. This
  may increase the ability of their products and reduce or eliminate the need
  for our software products. Our competitors may also establish or strengthen
  cooperative relationships with our current or future distributors, partners
  or other parties with whom we have relationships,

25

---

thereby limiting our ability
  to sell through these channels, reducing the promotion of our products and limiting
  the number of personnel available to implement our software.

Variations in quarterly
  operating results may cause our operating results to fall below the expectations
  of market analysts and investors and our stock price to decline.

We
  expect our quarterly operating results to fluctuate. We believe, therefore,
  that quarter-to-quarter comparisons of our operating results may not be a good
  indication of our future performance, and you should not rely on them to predict
  our future performance or the future performance of our stock price. Our short-term
  expense levels are relatively fixed and are based on our expectations of future
  revenues. As a result, a reduction in revenues in a quarter may harm our operating
  results for that quarter. Our quarterly revenues, expenses and operating results
  could vary significantly from quarter to quarter. If our operating results in
  future quarters fall below the expectations of market analysts and investors,
  the trading price of our common stock will fall. Factors that may cause our
  operating results to fluctuate on a quarterly basis or fall below the expectations
  of market analysts and investors in a particular quarter are:

- varying size, timing and
    contractual terms of orders for our products and services,
- our ability to timely
    complete our service obligations related to product sales,
- changes in the mix of
    revenue attributable to higher-margin product license revenue as opposed to
    substantially lower-margin service revenue,
- customers decisions
    to defer or cancel orders or implementations, particularly large orders or
    implementations, from one quarter to the next,
- changes in demand for
    our software or for enterprise software generally,
- reductions in the rate
    at which opportunities in our pipeline convert into binding license agreements,
- announcements or introductions
    of new products by us or our competitors,
- software defects and other
    product quality problems,
- our ability to integrate
    acquisitions,
- our ability to release
    new, competitive products on a timely basis,
- any increase in our need
    to supplement our professional services organization by subcontracting to
    more expensive consulting organizations to help provide implementation services
    when our own capacity is constrained,
- restructuring and other
    non-recurring costs, including severance and lease abandonment costs,
- changes in accounting,
    legal and regulatory requirements, and
- our ability to hire, train
    and retain qualified engineering, consulting, training, sales and other personnel.

Our financial results
  for a particular quarter may be materially adversely affected by the delay or
  cancellation of large transactions.

Although
  no single customer accounted for more than 10% of total revenues for the quarter
  ended March 31, 2003 or for the year ended December 31, 2002, a few large license
  transactions may from time to time account for a substantial amount of our license
  revenues. For example, for the quarter ended March 31, 2002, revenues from one
  customer accounted for 12% of total revenues. For the quarter ended December
  31, 2002, revenues from one customer accounted for 17% of total revenues. If
  a customer or potential customer cancels or does not enter into an

26

---

anticipated large transaction,
  or delays the transaction beyond the end of the quarter, our financial results
  may be materially adversely affected.

Our limited operating
  history makes financial forecasting and evaluation of our business difficult.

Our
  limited operating history makes it difficult to forecast our future operating
  results. We were founded in November 1996 and began developing products in 1997.
  Our revenue and income potential is unproven. We received our first revenues
  from licensing our software and performing related services in early 1998. Since
  we do not have a long history upon which to base forecasts of future operating
  results, any predictions about our future revenues and expenses may not be as
  accurate as they would be if we had a longer business history.

If our internal professional
  services organization does not provide implementation services effectively and
  according to schedule, our revenues and profitability would be harmed.

Customers
  that license our products typically require consulting and implementation services
  and can obtain them from our internal professional services organization, or
  from outside consulting organizations. When we are primarily responsible for
  implementation services, we generally recognize software license revenue as
  the implementation services are performed. If our internal professional services
  organization does not effectively implement our products, or if we are unable
  to maintain our internal professional services organization as needed to meet
  our customers needs, the recognition of revenue from such transactions
  will be delayed. In addition, our ability to sell software, and accordingly
  our revenues, will be harmed. We may be required to increase our use of subcontractors
  to help meet our implementation and service obligations, which would result
  in lower gross margins. In addition, we may be unable to negotiate agreements
  with subcontractors to provide a sufficient amount and quality of services.
  If we fail to retain sufficient qualified subcontractors, our ability to sell
  software for which these services are required will be harmed and our revenues
  will suffer.

Our products are new,
  and if they contain defects, or our services are not perceived as high quality,
  we could lose potential customers or be subject to damages.

We
  began shipping our first products in early 1998. Our products are complex and
  may contain currently unknown errors, defects or failures, particularly since
  they are new and recently released. In the past, we have discovered software
  errors in our products after introduction. We may not be able to detect and
  correct errors before releasing our products commercially. If our commercial
  products contain errors, we may be required to:

- expend significant resources
    to locate, correct or work around the error,
- delay introduction of
    new products or commercial shipment of products, or
- experience reduced sales
    and harm to our reputation from dissatisfied customers.

Our
  customers also may encounter system configuration problems that require us to
  spend additional consulting or support resources to resolve these problems.

Because
  our software products are used for important decision-making processes and enable
  our customers to interact with their customers, product defects may also give
  rise to liability claims. Although our license agreements with customers typically
  contain provisions designed to limit our exposure, some courts may not enforce
  all or part of these limitations. Although we have not experienced any such
  liability claims to date, we may encounter these claims in the future. Liability
  claims, whether or not successful, could:

- divert the attention of
    our management and key personnel from our business,
- be expensive to defend,
    and
- result in large damage
    awards.

27

---

Our
  liability insurance may not be adequate to cover all of the expenses resulting
  from a claim. In addition, if our customers do not find our services to be of
  high quality or are otherwise dissatisfied with our services, we may lose revenues.

We do not have substantial
  experience in international markets.

We
  have limited experience in marketing, selling and supporting our products and
  services abroad. Doing business internationally involves greater expense and
  many additional risks and challenges, particularly:

- unexpected changes in
    regulatory requirements, taxes, trade laws and tariffs,
- differing intellectual
    property rights,
- differing labor regulations,
- changes in a specific
    countrys or regions political or economic conditions,
- greater difficulty in
    managing foreign operations,
- the complexity and cost
    of developing and maintaining international versions of our products, and
- fluctuating exchange rates.

Our
  international operations require a significant amount of attention from our
  management and substantial financial resources. As of March 31, 2003, we had
  103 emp loyees located in Asia, Australia, Canada, Europe and Latin America.

Our service revenues
  have a substantially lower margin than our product license revenues, and a decrease
  in license revenues relative to service revenues could harm our gross margins.

Our
  service revenues, which includes fees for professional, maintenance and training
  services, were 54% of our revenues for the quarter ended March 31, 2003, 60%
  of our revenues for the year ended December 31, 2002, 45% of our revenues for
  the year ended December 31, 2001 and 44% of our revenues for the year ended
  December 31, 2000. Our service revenues have substantially lower gross margins
  than our license revenues. Our cost of service revenues as a percentage of our
  service revenues for the quarter ended March 31, 2003 and the years ended December
  31, 2002, 2001 and 2000 was 63%, 98% and 101%, respectively. A decrease in license
  revenues relative to service revenues could adversely affect our overall gross
  margins.

Service
  revenues as a percentage of total revenues and cost of service revenues as a
  percentage of total service revenues have varied significantly from quarter
  to quarter. The amount and profitability of services can depend in large part
  on:

- the number of licenses
    sold,
- the extent to which customers
    obtain services directly from us rather than from third party consulting organizations,
- the nature of the products
    licensed,
- the complexity of the
    customers information technology environment,
- the resources allocated
    by customers to their implementation projects,
- the extent to which customers
    desire to customize our products,
- the scope of licensed
    rights, and

28

---

 the extent to which
  customers expand rights to use our previously installed software products.

If customers do not
  contract directly with third-party consulting organizations to implement our
  products, our revenues, profitability and margins may be harmed.

We
  focus on providing software products rather than services. As a result, we encourage
  our customers to purchase consulting and implementation services directly from
  third party consulting organizations instead of purchasing these services from
  us. While we do not receive any fees directly from these consulting organizations
  when they contract directly with our customers, we believe that these consulting
  organizations increase market awareness and acceptance of our software products
  and allow us to focus on software development, marketing, licensing and support.

From
  time to time, our customers nonetheless require that we provide services directly
  to them, especially when such customers have licensed new releases of our products.
  If consulting organizations are unwilling or unable to provide a sufficient
  amount and quality of services directly to our customers or if customers are
  unwilling to contract directly with these consulting organizations, we may not
  realize these benefits and our revenues and profitability may be harmed.

When
  we provide consulting and implementation services to our customers, we do so
  either directly through our internal professional services organization or indirectly
  through subcontractors we hire to perform these services on our behalf. Because
  our margins on service revenues are less than our margins on license revenues,
  our overall margins decline when we provide these services to customers. This
  is particularly true if we hire subcontractors to perform these services because
  it costs us more to hire subcontractors to perform these services than to provide
  the services ourselves.

Our products have long
  sales cycles that make it difficult to plan expenses and forecast results.

It
  typically takes us between six and twelve months to complete our sales, but
  it can take us longer. It is difficult, therefore, to predict if, and the quarter
  in which, a particular sale will occur and to plan expenditures accordingly.
  The period between initial contact with a potential customer and their purchase
  of products and services is relatively long due to several factors, including:

- the complex nature of
    our products,
- our need to educate potential
    customers about the uses and benefits of our products,
- the purchase of our products
    requires a significant investment of resources by a customer,
- our customers have budget
    cycles which affect the timing of purchases,
- uncertainty regarding
    future economic conditions,
- many of our potential
    customers require competitive evaluation and internal approval before purchasing
    our products,
- potential customers delay
    purchases due to announcements or planned introductions of new products by
    us or our competitors, and
- many of our potential
    customers are large organizations, which may require a long time to make decisions.

The
  delay or failure to complete sales in a particular quarter could reduce our
  revenues in that quarter, as well as subsequent quarters over which revenues
  for the sale would likely be recognized. Our sales cycles lengthen when economic
  conditions worsen and spending on information technology declines. If our sales
  cycles unexpectedly lengthen in general, or for one or more large orders, our
  revenues could be adversely affected.

29

---

If the market for our
  products does not grow, our revenues will be harmed.

If
  the market for customer relationship management software does not grow as quickly,
  or become as large, as we anticipate, our revenues will be lower than our expectations.
  Our market is still emerging, and our success depends on its growth. Our potential
  customers may:

- not understand or see
    the benefits of using these products,
- not achieve favorable
    results using these products,
- experience technical difficulty
    in implementing or using these products,
- use alternative methods
    to solve the same or similar business problems, or
- attribute less priority
    to customer relationship management products relative to other enterprise
    software products and services.

If we fail to establish,
  maintain or enhance our relationships with third parties, our ability to grow
  revenues could be harmed.

In
  order to grow our business, we must generate, retain and strengthen relationships
  with third parties. To date, we have established relationships with several
  companies, including consulting organizations and system integrators that implement
  our software, including Accenture, BearingPoint (formerly KPMG Consulting),
  Deloitte Consulting and IBM; resellers, including Accenture, EDS, Harte-Hanks
  and Hewlett-Packard; hardware and software technology partners, including BEA
  Systems, IBM and Sun Microsystems, as well as outsourcing or application services
  providers that use our software products to provide hosted services to their
  customers over the internet, including Harte-Hanks. If the third parties with
  whom we have relationships do not provide sufficient, high-quality service or
  integrate and support our software correctly, our revenues may be harmed. In
  addition, the third parties with whom we have relationships may offer products
  of other companies, including products that compete with our products. We typically
  enter into contracts with third parties that generally set out the nature of
  our relationships. Our contracts, however, do not typically require these third
  parties to devote substantial resources to promoting, selling or supporting
  our products. We, therefore, have little control over the actions of these third
  parties. We cannot assure you that we can generate and maintain relationships
  that offset the significant time and effort that are necessary to develop these
  relationships. In addition, our pricing policies and contract terms with our
  distribution partners are designed to support each partner with a minimum level
  of channel conflict. If we fail to minimize channel conflicts between our direct
  sales force and our channel partners, or among our channel partners, our operating
  results and financial condition could be harmed.

If we fail to manage
  reductions in the size of our business, our operating results will be harmed.

We
  have grown quickly, both through acquisitions and hiring, at times since our
  inception. Recently, however, we have restructured our operations by, among
  other things, reducing the size of our workforce. Although we have significantly
  reduced our expenses, we may need to further reduce expenses in the future.
  If we are unable to effectively address the effects of reducing the workforce,
  such as the deterioration of employee morale and productivity, unfavorable publicity
  and the general reduction of available human resources, our business may be
  harmed. In addition, future expansion in the size of our business will require
  that we hire, train and integrate new personnel in key areas. If future expansion
  becomes necessary and we are unable to successfully expand our workforce, our
  revenues will be harmed.

If we fail to develop
  new products or improve our existing products to meet or adapt to the changing
  needs and standards of our industry, sales of our products may decline.

Our
  future success depends on our ability to address the rapidly changing needs
  of our customers and potential customers. We must maintain and improve our existing
  products and develop new products that include new technological developments,
  keep pace with products of our competitors and satisfy the changing requirements
  of our customers. If we do not, we may not achieve market acceptance of our
  products and we may be unable to attract

30

---

new customers. We may also
  lose existing customers to whom we seek to sell additional software products
  and services. To achieve increased market acceptance of our products, we must,
  among other things, continue to:

- introduce new and improved
    customer relationship management software products,
- improve the effectiveness
    and performance of our software, particularly in implementations involving
    very large databases and large numbers of simultaneous users,
- enhance the flexibility
    and configurability of our software to enable our customers to better address
    their needs at a lower cost of deployment and maintenance,
- enhance our softwares
    ease of use and administration,
- develop software for vertical
    markets,
- make available international
    versions of our software,
- improve our softwares
    ability to extract data from existing software systems, and
- adapt to rapidly changing
    computer operating system and database standards and Internet technology.

We
  may not be successful in developing and marketing these or other new or improved
  products. If we are not successful, we may lose sales to competitors.

If our products do
  not stay compatible with currently popular software programs, we may lose sales
  and revenues.

Our
  products must work with commercially available software programs that are currently
  popular. If these software programs do not remain popular, or we do not update
  our software to be compatible with newer versions of these programs, we may
  lose customers.

E.piphany
  has made a strategic decision to base its products on the Java 2, Enterprise
  Edition (J2EE) family of technologies. Although J2EE is a widely adopted industry
  standard, a competing technology from Microsoft called .NET seeks to challenge
  J2EE as an enterprise IT architecture. If .NET gains competitive advantage over
  J2EE in the marketplace at large, E.piphany may be competitively disadvantaged,
  and may need to re-engineer its products to adopt the .NET architecture. This
  capability affords our customers greater flexibility in the deployment of our
  software products. If we fail to successfully develop and maintain products
  compatible with these operating systems, database versions or programming standards,
  we may lose sales and revenues. In addition, users access our products on their
  network through standard Internet browsers such as Microsoft Internet Explorer.
  If we fail to obtain access to developer versions of any of these software products,
  we may be unable to build and enhance our products on schedule. After installation,
  our products collect and analyze data to profile customers characteristics
  and preferences. This data may be stored in a variety of our customers
  existing software systems, including systems from Oracle, PeopleSoft, Siebel
  Systems and SAP, running on a variety of computer operating systems. If we fail
  to enhance our software to collect data from new versions of these products,
  we may lose potential and existing customers. If we lose customers, our revenues
  and profitability may be harmed.

If we fail to enhance
  our market awareness and sales effectiveness, we will not be able to increase
  revenues.

In
  order to grow our business, we need to increase market awareness of our company
  and products and enhance the effectiveness and productivity of our direct sales
  force and indirect sales channels. If we fail to do so, this failure could harm
  our revenues. We currently receive substantially all of our revenues from direct
  sales, but we may increase sales through indirect sales channels in the future.

31

---

If we acquire additional
  companies or technologies in the future, they could prove difficult to integrate,
  disrupt our business, dilute stockholder value or adversely affect our operating
  results.

In
  addition to the acquisitions that we have already completed, we may acquire
  or make investments in other complementary companies, services and technologies
  in the future. If we fail to successfully integrate acquired technologies and
  employees, our business and operating results will be harmed. To successfully
  complete and integrate acquired technologies and employees, we must:

- properly evaluate the
    business, personnel and technology of the company to be acquired,
- accurately forecast the
    financial impact of the transaction, including accounting charges and transaction
    expenses,
- integrate and retain personnel,
- combine potentially different
    corporate cultures,
- effectively integrate
    products, research and development, sales, marketing and support operations,
    and
- maintain focus on our
    day-to-day operations.

Further,
  the financial consequences of our acquisitions and investments may include potentially
  dilutive issuances of equity securities, one-time write-offs, impairment charges,
  amortization expenses related to other intangible assets and contingent liabilities.

If others claim that
  we are infringing their intellectual property, we could incur significant expenses
  or be prevented from selling our products.

We
  cannot assure you that others will not claim that we are infringing their intellectual
  property rights or that we do not in fact infringe those intellectual property
  rights. We have not conducted a search for existing intellectual property registrations
  and we may be unaware of intellectual property rights of others that may cover
  our technology.

From
  time to time, patent holders contact us for the purpose of licensing to us various
  intellectual property rights. We cannot assure you that the holder of the patents
  will not file litigation against us or that we would prevail in the case of
  such litigation. Any litigation regarding intellectual property rights could
  be costly and time-consuming and divert the attention of our management and
  key personnel from our business operations. This is true even if we are ultimately
  successful in defending against such litigation. The complexity of the technology
  involved and the uncertainty of intellectual property litigation increase these
  risks. Claims of intellectual property infringement might also require us to
  enter into costly royalty or license agreements. Further, we may not be able
  to obtain royalty or license agreements on terms acceptable to us, or at all.
  We also may be subject to significant damages or an injunction limiting or prohibiting
  the distribution or use of our products. A successful claim of patent or other
  intellectual property infringement against us would have an immediate material
  adverse effect on our business and financial condition.

If we are unable to
  protect our intellectual property rights, this inability could weaken our competitive
  position, reduce our revenues and increase our costs.

Our
  success depends in large part on our proprietary technology. We rely on a combination
  of patents, copyrights, trademarks and trade secrets, confidentiality procedures
  and licensing arrangements to establish and protect our proprietary rights.
  We may be required to spend significant resources to monitor and police our
  intellectual property rights. If we fail to successfully enforce our intellectual
  property rights, our competitive position may be harmed.

Our
  pending patent and trademark applications may not be allowed or competitors
  may successfully challenge the validity or scope of these applications. In addition,
  our patents may not provide a significant competitive advantage. Other software
  providers could copy or otherwise obtain and use our products or technology
  without

32

---

authorization. They also
  could develop similar technology independently, which may infringe our proprietary
  rights. We may not be able to detect infringement and may lose a competitive
  position in the market before we do so. In addition, competitors may design
  around our technology or develop competing technologies. The laws of some foreign
  countries do not protect proprietary rights to the same extent as do the laws
  of the United States.

In
  addition, we typically charge for our software based on the number of users
  at a particular site that are authorized to use the software. Customers that
  have licenses to use our products could allow unauthorized use of our software.
  Unauthorized use is difficult to detect and, to the extent that our software
  is used without authorization, we may lose potential license fees.

The loss of key personnel,
  or inability to attract and retain additional personnel, could affect our ability
  to successfully grow our business.

Our
  future success will depend in large part on our ability to hire and retain a
  sufficient number of qualified personnel, particularly in sales, marketing,
  research and development, service and support. If we are unable to do so, our
  ability to advance our business could be affected. Our future success also depends
  upon the continued service of our executive officers and other key sales, engineering
  and technical staff. The loss of the services of our executive officers and
  other key personnel would harm our operations. None of our officers or key personnel
  are bound by an employment agreement and we do not maintain key person insurance
  on any of our employees. We would also be harmed if one or more of our officers
  or key employees decided to join a competitor or otherwise compete with us.

The
  market price of our common stock has fluctuated substantially since our initial
  public offering in September 1999. Consequently, potential employees may perceive
  our equity incentives, such as stock options, as less attractive and current
  employees whose stock options are priced above market value may choose not to
  remain employed by us. In that case, our ability to attract or retain employees
  will be adversely affected.

Privacy and security
  concerns, particularly relate d to the use of our software, may limit the effectiveness
  of, and reduce the demand for, our products.

The
  effectiveness of our software products relies on the storage and use of customer
  data collected from various sources, including information collected on web
  sites, as well as other data derived from customer registrations, billings,
  purchase transactions and surveys. The collection and use of such data for customer
  profiling may raise privacy and security concerns. Our customers generally have
  implemented security measures to protect customer data from disclosure or interception
  by third parties. However, the security measures may not be effective against
  all potential security threats. If a well-publicized breach of customer data
  security were to occur, our software products may be perceived as less desirable,
  impacting our future sales and profitability.

Provisions in our charter
  documents and Delaware law may delay or prevent an acquisition of E.piphany.

Our
  certificate of incorporation and bylaws contain provisions that could make it
  harder for a third party to acquire us without the consent of our board of directors.
  For example, if a potential acquirer were to make a hostile bid for us, the
  acquirer would not be able to call a special meeting of stockholders to remove
  members of our board of directors or act by written consent without a meeting.
  In addition, the members of our board of directors have staggered terms, which
  makes it difficult to remove them all at once. The acquirer also would be required
  to provide advance notice of its proposal to remove directors at an annual meeting.
  The acquirer also would not be able to cumulate votes at a meeting, which would
  require the acquirer to hold more shares to gain representation on our board
  of directors than if cumulative voting were permitted.

Our
  board of directors also has the ability to issue preferred stock without stockholder
  approval. As a result, we could adopt a shareholder rights plan that could significantly
  dilute the equity ownership of a hostile acquirer. In addition, Section 203
  of the Delaware General Corporation Law limits business combination transactions
  with 15% stockholders that have not been approved by the board of directors.
  These provisions and other similar provisions make it more difficult for a third
  party to acquire us without negotiation. These provisions may apply even if
  the offer may be considered beneficial by some stockholders.

Our
  board of directors could choose not to negotiate with an acquirer that it did
  not feel was in the strategic interests of our company. If the acquirer was
  discouraged from offering to acquire us, or prevented from

33

---

successfully completing
  a hostile acquisition by the anti-takeover measures, you could lose the opportunity
  to sell your shares at a favorable price.

ITEM 3. QUANTITATIVE
  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The
  following discusses our exposure to market risk related to changes in foreign
  currency exchange rates and interest rates. This discussion contains forward-looking
  statements that are subject to risks and uncertainties. Actual results could
  vary materially as a result of a number of factors including those set forth
  in the Risk Factors section of this quarterly report on Form 10-Q.

Foreign Currency Exchange
  Rate Risk

The
  majority of our operations are based in the United States and, accordingly,
  the majority of our transactions are denominated in U.S. dollars. However, we
  do have foreign-based operations where transactions are denominated in foreign
  currencies and are subject to market risk with respect to fluctuations in the
  relative value of currencies. As of March 31, 2003, we had international operations
  in Asia, Australia, Europe and Latin America and conduct transactions in the
  local currency of each location. To date, our exposure to fluctuations in the
  relative value of other currencies has been limited because substantially all
  of our assets are denominated in U.S. dollars, and those assets which are not
  denominated in U.S. dollars have generally been denominated in historically
  stable currencies. The impact to our financial statements has therefore not
  been material. To date, we have not entered into any foreign exchange hedges
  or other derivative financial instruments. We will continue to evaluate our
  exposure to foreign currency exchange rate risk on a regular basis.

Interest Rate Risk

Our
  exposure to market risk for changes in interest rates primarily affects our
  investment portfolio. The primary objective of our investment activities is
  to preserve principal while maximizing yields without significantly increasing
  risk. This is accomplished by investing in diversified investments, consisting
  only of investment grade securities. We do not use derivative financial instruments
  in our investment portfolio.

As
  of March 31, 2003, we held $89.8 million in cash, cash equivalents and restricted
  cash consisting of highly liquid short-term investments having original maturity
  dates of no more than 90 days. Declines of interest rates over time would reduce
  our interest income from our highly liquid short-term investments. Based upon
  our balance of cash and cash equivalents, a decrease in interest rates of 100
  basis points would cause a corresponding decrease in our annual interest income
  of approximately $0.9 million. Due to the nature of our highly liquid cash equivalents,
  a change in interest rates would not materially change the fair market value
  of our cash, cash equivalents and restricted cash.

As
  of March 31, 2003, we held $187.0 million in short-term investments and long-term
  investments, each of which consisted of taxable fixed income securities having
  original maturity dates between three months and two years. A decline in interest
  rates over time would reduce our interest income from our short-term investments
  and long-term investments. A decrease in interest rates of 100 basis points
  would cause a corresponding decrease in our annual interest income of approximately
  $1.9 million. An increase in interest rates over time would cause the fair market
  value of our portfolio to decline. An immediate and uniform increase in interest
  rates of 100 basis points would cause the fair market value of these items to
  decrease by approximately $2.3 million.

As of March 31, 2003, we
  did not have any debt outstanding other than capital lease obligations.

34

---

The
  following summarizes our short-term and long-term investments and the weighted
  average yields of each category of such investments as of March 31, 2003 (in
  thousands, except interest rates):

|                                  | **Expected
        Maturity Dates**
|--------------------------------- | -----------------------------------
|                                  | **2003**                           
|                                  |                                    
|Corporate
      bonds             |                                    
|Weighted
      average yield      |                                    
|                                  |                                    
|Government
      notes/bonds(1)   |                                    
|                                  |                                    
|Weighted
      average yield      |                                    
|                                  |                                    
|Total investment
      securities |                                    
|                                  |                                    

(1) Government notes/bonds
  consists primarily of government agency notes and includes, to a lesser extent,
  taxable municipal bonds.

35

---

ITEM 4.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Within
  the 90 days prior to the date of this quarterly report, we carried out an evaluation,
  under the supervision and with the participation of our management, including
  our Chief Executive Officer and Chief Financial Officer, of the effectiveness
  of the design and operation of our disclosure controls and procedures (pursuant
  to Rules 13a -14(c) and 15d-14(c) of the Securities Exchange Act of 1934, as
  amended). Based upon that evaluation, our Chief Executive Officer and Chief
  Financial Officer concluded that our current disclosure controls and procedures
  are effective and timely.

Changes in Internal Controls

There
  have been no significant changes in our internal controls or in other factors
  that could significantly affect internal controls subsequent to the date we
  carried out this evaluation.

36

---

PART  II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

As
  of the date hereof, there is no material litigation pending against us other
  than as disclosed in the paragraph below. From time to time, we may become a
  party to litigation and subject to claims incident to the ordinary course of
  our business. Although the results of litigation and claims cannot be predicted
  with certainty, we believe that the final outcome of such matters will not have
  a material adverse effect on our business, results of operations or financial
  condition.

E.piphany,
  two of our current officers, one of our former officers and three underwriters
  in our initial public offering (IPO) were named as defendants in a consolidated
  shareholder lawsuit in the United States District Court for the Southern District
  of New York, In re E.piphany, Inc. Initial Public Offering Securities Litigation,01-CV-6158. This is one of a number of actions coordinated for pretrial
  purposes as In re Initial Public Offering Securities Litigation, 21 MC
  92. Plaintiffs in the coordinated proceeding have brought claims under the federal
  securities laws against numerous underwriters, companies, and individuals, alleging
  generally that defendant underwriters engaged in improper and undisclosed activities
  concerning the allocation of shares in the IPOs of more than 300 companies during
  the period from late 1998 through 2000. Specifically, among other things, the
  plaintiffs allege that the prospectus pursuant to which shares of our common
  stock were sold in our IPO contained certain false and misleading statements
  regarding the practices of our underwriters with respect to their allocation
  of shares of common stock in our IPO to their customers and their receipt of
  commissions from those customers related to such allocations, and that such
  statements and omissions caused our post-IPO stock price to be artificially
  inflated. The consolidated amended complaint in our case seeks unspecified damages
  on behalf of a purported class of purchasers of our common stock between September
  21, 1999 and December 6, 2000. The court has appointed a lead plaintiff for
  the consolidated action. The underwriter and issuer defendants have filed motions
  to dismiss. These motions were denied as to all of the underwriter defendants
  and the majority of issuer defendants including E.piphany. The individual defendants
  have been dismissed from the action without prejudice pursuant to a tolling
  agreement. We believe we have meritorious defenses to the claims against us
  and will defend ourselves vigorously.

On
  February 28, 2003, a purported securities class action lawsuit entitled Liu
  v. Credit Suisse First Boston et al., Civil Action Number 03-20459, was
  filed in the United States District Court for the Southern District of Florida.
  Among the 166 parties named as defendants are Credit Suisse First Boston and
  its personnel, issuers that completed IPOs underwritten by Credit Suisse First
  Boston, and certain directors and officers of these issuers, including E.piphany
  and two of its current officers. The complaint alleges that the defendants violated
  federal and state laws by, among other things, publishing false and misleading
  information regarding the issuers projected financial performance and
  revenue potential and by incorrectly pricing issuers IPOs. The complaint
  relates generally to the ongoing IPO-related litigation currently pending in
  the United States District Court for the Southern District of New York. We anticipate
  that this action will be transferred to the United States District Court for
  the Southern District of New York and coordinated with existing IPO-related
  litigation, discussed above. We believe that we have meritorious defenses to
  the claims against us and intend to defend the action vigorously.

Several
  governmental entities have initiated investigations related to the IPO allocation
  practices of Credit Suisse First Boston and other investment banks, and their
  personnel. In connection with some of these proceedings, E.piphany and several
  other public companies have been asked to provide information relevant to these
  proceedings. In response, we have provided information and are otherwise cooperating
  with these entities. Based on discussions with these entities, we do not believe
  that E.piphany or any of its directors and officers is the target of any of
  these investigations.

37

---

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

|  | (a) | Exhibits                                
|- | --- | ----------------------------------------
|  |     |                                         
|  |     | See
      Exhibit Index attached hereto.
|  |     |                                         
|  | (b) | Reports
      on Form 8-K               
|  |     |                                         
|. |     | None.                                   

38

---

SIGNATURES

Pursuant
  to the requirements 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.

|      |               |  | E.PIPHANY, INC.
|----- | ------------- |  | ---------------
|      |               |  |                
|      |               |  |                
|DATE: | May ___, 2003 |  | SIGNATURE:     
|      |               |  |                
|      |               |  |                
|      |               |  |                
|      |               |  |                
|      |               |  |                
|      |               |  |                
|      |               |  |                
|DATE: | May ___, 2003 |  | SIGNATURE:     
|      |               |  |                
|      |               |  |                
|      |               |  |                

39

---

CERTIFICATIONS

I, Roger S. Siboni, certify that:

1.
  I have reviewed this quarterly
  report on Form 10-Q of E.piphany, Inc.;

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

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

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

(a)designed such disclosure controls and procedures to ensure that material information
  relating to the registrant, including its consolidated subsidiaries, is made
  known to us by others within those entities, particularly during the period
  in which this quarterly report is being prepared;

(b)
  evaluated the effectiveness of the registrants disclosure controls and procedures
  as of a date within 90 days prior to the filing date of this quarterly report
  (the Evaluation Date); and

(c)
  presented in this quarterly report our conclusions about the effectiveness of
  the disclosure controls and procedures based on our evaluation as of the Evaluation
  Date;

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

(a)
  all significant deficiencies in the design or operation of internal controls
  which could adversely affect the registrants ability to record, process, summarize
  and report financial data and have identified for the registrants auditors
  any material weaknesses in internal controls; and

(b)
  any fraud, whether or not material, that involves management or other employees
  who have a significant role in the registrants internal controls; and

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

Date: May ___, 2003

| | /s/ Roger S. Siboni    
| | -----------------------
| |                        
| | Roger S. Siboni        
| | Chief Executive Officer

40

---

I, Kevin J. Yeaman, certify
  that:

1.
  I have reviewed this quarterly
  report on Form 10-Q of E.piphany, Inc.;

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

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

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

(a)
  designed such disclosure controls and procedures to ensure that material information
  relating to the registrant, including its consolidated subsidiaries, is made
  known to us by others within those entities, particularly during the period
  in which this quarterly report is being prepared;

(b)
  evaluated the effectiveness of the registrants disclosure controls and procedures
  as of a date within 90 days prior to the filing date of this quarterly report
  (the Evaluation Date); and

(c)
  presented in this quarterly report our conclusions about the effectiveness of
  the disclosure controls and procedures based on our evaluation as of the Evaluation
  Date;

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

(a)
  all significant deficiencies in the design or operation of internal controls
  which could adversely affect the registrants ability to record, process, summarize
  and report financial data and have identified for the registrants auditors
  any material weaknesses in internal controls; and

(b)
  any fraud, whether or not material, that involves management or other employees
  who have a significant role in the registrants internal controls; and

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

Date: May ___, 2003

| | /s/ Kevin J. Yeaman    
| | -----------------------
| |                        
| | Kevin J. Yeaman        
| | Chief Financial Officer

41

---



EXHIBIT
  INDEX

|Number |     | Exhibit
        Title |                                                                                                                                                                                                
|------ | --- | --------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       |     |                       |                                                                                                                                                                                                
|3.1    | *   |                       | Restated
      Certificate of Incorporation of the Registrant, as amended on December 18,
      2000                                                                                           
|3.2    | **  |                       | Restated
      Bylaws of the Registrant.                                                                                                                                                       
|4.1    | *** |                       | Form
      of Stock Certificate.                                                                                                                                                               
|99.1   |     |                       | Certifications
      of Chief Executive Officer and Chief Financial Officer Pursuant to 18U.S.C.
      Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
      of2002.
|      
|      

|    |                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*   | Incorporated
      by reference to the Registrants annual report on Form 10-K for the
      year ended December 31, 2002 (Registration No. 000-27183) filed with the
      Securities and Exchange Commission on March 27, 2003.          
|    |                                                                                                                                                                                                                                            
|**  | Incorporated
      by reference to the Registrants quarterly report on Form 10-Q for
      the quarter ended September 30, 2002 (Registration No. 000-27183) filed
      with the Securities and Exchange Commission on November 13, 2002.
|    |                                                                                                                                                                                                                                            
|*** | Incorporated
      by reference to the Registrants Registration Statement on Form S-1
      (Registration No. 333-82799) declared effective by the Securities and Exchange
      Commission on September 21, 1999.                        

42

---

Exhibit 99.1

CERTIFICATION OF

CHIEF EXECUTIVE OFFICER

I, Roger S. Siboni, hereby
  certify, pursuant to Section 1350 of Chapter 63 of title 18, United States Code,
  that:

| | 1. |  | The
      quarterly report on Form 10-Q to which this statement is an exhibit fully
      complies with the requirements of Section 13(a) and 15(d) of the Securities
      Exchange Act of 1934; and
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. |  | The
      information contained in such quarterly report on Form 10-Q fairly presents,
      in all material respects, the financial condition and results of operations
      of E.piphany, Inc.    

May ___, 2003

| | /s/ Roger S. Siboni    
| | -----------------------
| |                        
| | Roger S. Siboni        
| | Chief Executive Officer

CERTIFICATION OF

CHIEF FINANCIAL OFFICER

I, Kevin J. Yeaman, hereby
  certify, pursuant to Section 1350 of Chapter 63 of title 18, United States Code,
  that:

| | 1. |  | The
      quarterly report on Form 10-Q to which this statement is an exhibit fully
      complies with the requirements of Section 13(a) and 15(d) of the Securities
      Exchange Act of 1934; and
| | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2. |  | The
      information contained in such quarterly report on Form 10-Q fairly presents,
      in all material respects, the financial condition and results of operations
      of E.piphany, Inc.    

May ___, 2003

| | /s/ Kevin J. Yeaman    
| | -----------------------
| |                        
| | Kevin J. Yeaman        
| | Chief Financial Officer

44

---