DALEEN TECHNOLOGIES INC, 424B1, 1999-10-01

DALEEN TECHNOLOGIES INC
424B1, 1999-10-01
PREPACKAGED SOFTWARE

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<PAGE> 1
Filed pursuant to Rule 424(b)(1)
Registration No. 333-82487

4,100,000 SHARES

(DALEEN TECHNOLOGIES LOGO)

DALEEN TECHNOLOGIES, INC.

COMMON STOCK

This is our initial public offering and no public market currently exists
for our shares. The shares we are offering have been approved for quotation on
the Nasdaq National Market under the symbol DALN.

-------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING
ON PAGE 4.

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

<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----------
<S> <C> <C>
Public offering price....................................... $12.00 $49,200,000
Underwriting discounts and commissions...................... $ 0.84 $ 3,444,000
Proceeds to Daleen Technologies, Inc........................ $11.16 $45,756,000
</TABLE>

THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

We and three of our stockholders have granted the underwriters a 30-day
option to purchase up to an additional 615,000 shares of common stock to cover
over-allotments. We will not receive any proceeds from the sale of shares by the
selling stockholders. BancBoston Robertson Stephens Inc. expects to deliver the
shares of common stock to purchasers on October 6, 1999.

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

ROBERTSON STEPHENS

DONALDSON, LUFKIN & JENRETTE

HAMBRECHT & QUIST

The date of this prospectus is September 30, 1999
<PAGE> 2

Description of Graphics

Chart 1. Front Cover

The center of the graphic has "BillPlex" within a globe, and there are four
offshoots from the center graphic. At the top of the page is the phrase "FOCUSED
ON ADDING VALUE THROUGH:" The top of the page offshoot has an image of a man
using a conductor's baton in front of five personal computers. Underneath that
graphic are the phrases "STREAMLINED OPERATIONS," "WITH COMPREHENSIVE
INTEGRATION," "OF OPERATIONAL SUPPORT AND," and "BUSINESS SUPPORT SYSTEMS"
centered on sequential lines. The right offshoot has a graphic of a piece of
paper with a title "CONVERGENT INVOICE." Underneath the graphic are the
following lines of text centered on sequential lines: "INCREASED," "MARKET SHARE
AND," "ACCELERATED REVENUE," "WITH MULTI-SERVICE," "INTEGRATED BILLING AND,"
"CUSTOMER MANAGEMENT." The bottom graphic depicts a group of mainframe size
computers and other electronic equipment. Above this graphic are the following
lines of text centered on sequential lines: "SIMPLIFIED SERVICE DELIVERY," "WITH
INTEGRATED DATA COLLECTION AND PROVISIONING," "LOCAL - LONG DISTANCE - DATA -
INTERNET - WIRELESS - CABLE." The left side graphic has two separate images. The
first is a woman with a telephone headset on her head. The other is of two
overlapping images, a man with a child on his lap typing at a personal computer
and the other is a computer screen that reads "ABC Telecom". Between the two
images on the left side are the following lines of text centered on sequential
lines: "IMPROVED," "CUSTOMER SERVICE," WHILE REDUCING COSTS," "WITH SINGLE
POINT," "OF CONTACT AND WEB," and "ENABLED SELF-CARE." At the bottom of the page
in the right hand corner is the Daleen Technologies Logo with the following text
underneath "Ready.Set.Converge."

Chart 4. N-Tier, Version 2. - insert at Technology p40

This graphic is titled "BILLPLEX N-TIER ARCHITECTURE" across the top. The image
is of a graphical chart with column headings across the top which read "BillPlex
Client" with an image of a woman on the telephone underneath, "Self-Care User"
with an image of a computer screen with "ABC Telecom" displayed, "Sales Agent"
with the image of a woman using a laptop computer and talking to a man, "Network
Administrator" with an image of a man in front of three computer screens. The
first row has the caption "Client" after the previous images. The second row has
three boxes with text and the caption "Enterprise Applications" at the end. The
first box has the text "Web Applications," the second box has the text "Customer
Relationship Management Applications" and the last box has the text "OSS/BSS
Applications." The third row has the title "Object Transaction Manager" at the
beginning and "Enterprise Application Framework" at the end. Between those two
are three lines stacked on top of each other, "Business Process Objects,"
"Business Rule Objects," and "Business Data Objects" with EAF API at the end.
The fourth row has three phrases "BillPlex Database," "Third Party Databases"
and "Data" at the end. The last row has "Event Framework" as the beginning and
"Billing Application Framework" as the last phrase. In between those two is a
rectangular block with "Billing Applications" as the title with EAF API at the
end. Hanging from that rectangle are five circles with the following titles
within: "Rating," "Provisioning," "Address Validation," "Taxation," and
"...others."

Chart 6. Back Cover.

The center of the graphic has "BillPlex" within a globe. Above this graphic are
the following lines of text centered on sequential lines: "BILLPLEX IS DESIGNED
TO," "IMPROVE A SERVICE PROVIDER'S POWER TO COMPETE WHILE" and "LOWERING TOTAL
COST OF OWNERSHIP BY:" Underneath that are the following phrases in a bulleted
list: INCREASING REVENUE AND MARKET SHARE, IMPROVING CUSTOMER SERVICE AND
RETENTION, PROVIDING A PRE-CONFIGURED WHOLE PRODUCT SOLUTION, PROVIDING
COMPREHENSIVE INTEGRATION, PROVIDING FLEXIBILITY, RELIABILITY AND SCALABILITY
and INCREASING PRODUCTIVITY AND LOWERING TOTAL OPERATING COSTS. Underneath the
globe in two columns with the headings "LEADING CUSTOMERS" and "MARKETING
ALLIANCES." Under each heading are the names and logos of some of the companies
we have relationships with.

<PAGE> 3

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Summary..................................................... 1
Risk Factors................................................ 4
Special Note Regarding Forward-Looking Statements........... 12
Daleen Technologies, Inc.................................... 12
Use of Proceeds............................................. 13
Dividend Policy............................................. 13
Capitalization.............................................. 14
Dilution.................................................... 15
Selected Consolidated Financial Data........................ 16
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 18
Business.................................................... 29
Management.................................................. 45
Related Party Transactions.................................. 56
Principal Stockholders...................................... 59
Description of Capital Stock................................ 62
Shares Eligible for Future Sale............................. 65
Underwriting................................................ 67
Legal Matters............................................... 69
Experts..................................................... 69
Where You Can Find More Information......................... 69
Index to Consolidated Financial Statements.................. F-1
</TABLE>

i
<PAGE> 4

SUMMARY

Because this is only a summary, it does not contain all the information
that may be important to you. You should read the entire prospectus, especially
"Risk Factors" and the consolidated financial statements and notes, before
deciding to invest in shares of our common stock.

DALEEN TECHNOLOGIES, INC.

BillPlex is designed to enable service providers to capture the benefits
of:

- Increased revenue and market share by cutting the time to launch new
services and activate new subscribers and by enabling targeted marketing
and service bundles;

- A pre-configured, comprehensive software solution that reduces
implementation time, complexity and costs;

- Improved customer service and customer retention through convergent
invoicing, access to up-to-date subscriber account information, and
allowing subscribers to access their own account information over the
internet;

- Interoperability with other software applications to permit a service
provider to effectively integrate BillPlex into the core of its
information systems environment;

- Flexibility, scalability and reliability so that BillPlex can grow as a
service provider adds more users and communications service offerings;
and

- Increased productivity and lower total operating costs over the life of
the system.

Deregulation of the communications industry in the United States and abroad
has spurred the proliferation of new service providers that are fiercely
competing with each other and with existing service providers for market share.
Service providers now bundle a variety of communications services, such as
wireline and wireless voice, internet access and data, video, internet telephony
and application hosting to distinguish themselves and attract and retain
customers. We believe that existing and emerging service providers that offer
multiple communications services require a next-generation billing and customer
care solution that is designed to support these multiple services, to
interoperate with other components of their information system, to allow for
rapid implementation with little customization, and to be easily modified and
maintained without a costly information technology staff.
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<PAGE> 5

Our goal is to become the leading provider of billing and customer care, or
BACC, solutions to the ICP industry. We are pursuing this objective by:

- Aggressively targeting ICPs with a comprehensive software solution based
on BillPlex and its market-based packages;

- Building a scalable, software-based business model designed to meet our
customers' needs and to permit us to achieve rapid revenue growth with
high margins;

- Leveraging strategic marketing alliances to accelerate our growth and
extend our market coverage;

- Developing and maintaining long-term customer relationships to attract
and retain customers through all phases of their growth; and

- Expanding into new geographic markets and industry segments to pursue
market leadership and sustained profitable growth.

Our mailing address is 902 Clint Moore Road, Boca Raton, Florida 33487, and
our telephone number is (561) 999-8000.

THE OFFERING

Common stock offered............... 4,100,000 shares

Common stock to be outstanding
after this offering................ 18,375,549 shares

Use of proceeds.................... Working capital and other general
corporate purposes, including product
development, expansion of our sales and
marketing capabilities and potential
acquisitions.

Nasdaq National Market symbol...... DALN

The number of shares to be outstanding after this offering is based on
shares outstanding at August 31, 1999 and excludes shares that may be issued
upon exercise of the following options and warrants:

- 2,307,036 shares subject to outstanding options at a weighted average
exercise price of $3.51 per share;

- 1,865,083 shares subject to outstanding warrants at a weighted average
exercise price of $3.30 per share; and

- 989,381 additional shares reserved for issuance under our stock incentive
plan.
-------------------------

Except as otherwise indicated, all information in this prospectus:

- reflects the conversion of each outstanding share of preferred stock into
one share of common stock, which will occur automatically upon the
completion of this offering; and

- assumes no exercise of the underwriters' over-allotment option.
2
<PAGE> 6

SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following table is a summary of the financial data for our business.
You should read this information together with the consolidated financial
statements and the related notes appearing at the end of this prospectus and the
information under "Management's Discussion and Analysis of Financial Condition
and Results of Operations." The pro forma net loss applicable to common
stockholders per share calculations reflects the automatic conversion of all
outstanding shares of preferred stock into shares of common stock upon the
closing of this offering as if the closing occurred on January 1, 1998 or the
date preferred shares were issued if the issuance occurred after January 1,
1998. The pro forma balance sheet data assume the conversion of all outstanding
shares of our preferred stock into shares of common stock as of the closing of
this offering as if the closing occurred on June 30, 1999. The pro forma as
adjusted balance sheet data also reflect the sale of the common stock offered by
us, after deducting underwriting discounts and estimated offering expenses
payable by us. See note 1 to the consolidated financial statements appearing
elsewhere in this prospectus for information regarding net loss applicable to
common stockholders and shares used in computing net loss applicable to common
stockholders per share -- basic and diluted and pro forma net loss applicable to
common stockholders per share -- basic and diluted.

<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- -----------------
1996 1997 1998 1998 1999
------ ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
License fees........................................... $ -- $ -- $ 1,879 $ 487 $ 3,748
Professional services and other........................ 2,550 156 3,352 975 3,367
------ ------- -------- ------- -------
Total revenue................................... 2,550 156 5,231 1,462 7,115
Operating loss........................................... (2,809) (6,472) (12,923) (6,096) (4,607)
Net loss................................................. (1,526) (7,984) (12,169) (6,053) (4,508)
Net loss applicable to common stockholders............... (1,526) (7,984) (12,234) (6,053) (4,587)
Net loss applicable to common stockholders per
share -- basic and diluted............................. $(0.81) $ (3.48) $ (3.78) $ (1.87) $ (1.41)
Weighted average shares -- basic and diluted............. 1,879 2,295 3,240 3,240 3,242
Pro forma net loss applicable to common stockholders..... $(12,169) $(4,508)
Pro forma net loss applicable to common stockholders per
share -- basic and diluted............................. $ (1.22) $ (0.36)
Pro forma weighted average shares -- basic and diluted... 9,994 12,373
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 14,988 $14,988 $59,895
Working capital............................................. 13,530 13,530 58,437
Total assets................................................ 22,325 22,325 66,981
Total stockholders' (deficit) equity........................ (18,324) 16,980 61,636
</TABLE>

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<PAGE> 7

RISK FACTORS

You should carefully consider the following risks in addition to the
remainder of this prospectus before purchasing our common stock. This offering
involves a high degree of risk. If any of the following risks actually occur,
our business, financial condition and results of operations would likely suffer.
In this case, the market price of our common stock could decline, and you might
lose all or part of the money you paid to buy our common stock.

RISKS RELATED TO DALEEN

WE HAVE NOT ACHIEVED PROFITABILITY AND MAY CONTINUE TO INCUR NET LOSSES FOR AT
LEAST THE NEXT SEVERAL QUARTERS.

We incurred net losses of approximately $12.2 million in 1998, $8.0 million
in 1997 and $1.5 million in 1996. As of June 30, 1999, we had an accumulated
deficit of approximately $27.1 million. We have not yet realized any profit and
we cannot predict when, if ever, we will achieve profitability. We expect to
significantly increase our sales and marketing, product development and
administrative expenses. As a result, we will need to generate significant
additional revenue from sales of our products to achieve and maintain
profitability. For this reason, we expect to continue to incur net losses for at
least the next several quarters, even if sales of our products continue to grow.
Even if we do achieve profitability, we may not be able to sustain or increase
profitability on a quarterly or annual basis in the future.

IT IS DIFFICULT TO EVALUATE OUR BUSINESS BECAUSE WE HAVE A LIMITED HISTORY
OPERATING AS A SOFTWARE COMPANY.

We have a limited operating history as a software company. As a result, the
progress of our business to date and our historical financial information are of
limited value in predicting our future operating results. In 1996, we changed
our business from providing consulting services to operating as a software
company. We introduced our principal product, BillPlex, in 1997 and we had no
license revenue until 1998. As of August 31, 1999, we had signed contracts with
only 22 customers and, of these, only five had completed implementation and were
using BillPlex in their day-to-day operations. Because our software offering is
new, we have little revenue from recurring sources and must depend heavily on
revenue from new sales. Changing our business also required us to adjust our
business processes and make a number of significant personnel changes, including
changes and additions to our sales and marketing, professional services and
support, research and development and management teams. For all these reasons,
as you evaluate our business, you must consider the risks and difficulties
frequently encountered by early stage companies in new and rapidly evolving
markets. Our new business strategy may not be successful and we may not
successfully address these risks.

OUR QUARTERLY OPERATING RESULTS MAY FLUCTUATE IN FUTURE PERIODS, AND WE MAY FAIL
TO MEET EXPECTATIONS.

Our revenue and operating results may vary significantly from quarter to
quarter due to a number of factors. This fluctuation may cause our operating
results to be below the expectations of public market analysts and investors,
and the price of our common stock may fall. Factors that could cause quarterly
fluctuations include:

- variations in demand for our products and services;

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<PAGE> 8

- our ability to develop and attain market acceptance of enhancements to
BillPlex and any new products and services;

- the pace of product implementation and the timing of customer acceptance;

- changes in our pricing policies or the pricing policies of our
competitors;

- delays of purchases in 1999 and early 2000 by customers who temporarily
stop purchasing software or reduce information technology spending due to
year 2000 concerns; and

- the mix of sales channels through which our products and services are
sold.

In any given quarter, most of our revenue has been attributable to a small
number of relatively large contracts and we expect this to continue. As a
result, the cancellation or deferral of even a small number of contracts in a
particular quarter could significantly reduce our revenue, which would hurt our
quarterly financial performance. In addition, a substantial portion of our costs
are relatively fixed and based upon anticipated revenue. A failure to book an
expected order in a given quarter would not be offset by a corresponding
reduction in costs and could adversely affect our operating results. As a result
of these factors, we believe that period-to-period comparisons of our revenue
and operating results are not necessarily meaningful.

OUR BUSINESS IS HIGHLY DEPENDENT ON A LIMITED NUMBER OF CUSTOMERS.

All of our revenue is currently derived from a very limited number of
customers. If a large contract is cancelled or deferred, or if an anticipated
contract does not materialize, our financial results could be materially harmed.
In addition, continued industry consolidation or the formation of alliances
among network operators and service providers could reduce our customer base,
reduce the number of potential customers we can target and decrease the demand
for our products and services. We had two customers who accounted for 100% of
our total revenue in 1997, five customers who accounted for 99% of our total
revenue in 1998, and five customers who accounted for 64% of our total revenue
in the first six months of 1999. Most of our major customers typically pay us
up-front license fees and they do not have any obligation to purchase additional
licenses. There can be no assurance these customers will purchase licenses for
additional seats or processors or continue with our maintenance programs.

WE FACE SIGNIFICANT COMPETITION FROM COMPANIES THAT MAY HAVE GREATER RESOURCES
THAN WE DO.

The communications billing and customer care systems business is very
competitive. We expect competition to increase in the future. Our principal
competitors include other billing and customer care system providers, operation
support system providers, systems integrators and service bureaus, and the
internal information technology departments of larger communications companies,
which may elect to develop functionalities similar to those provided by our
product in-house rather than buying them from outside suppliers.

Many of our current and future competitors may have advantages over us,
including:

- longer operating histories;

- larger customer bases;

- substantially greater financial, technical, sales and marketing
resources;

- greater name recognition; and

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<PAGE> 9

- ability to more easily provide a comprehensive hardware and software
solution.

Our current and potential competitors have established, and may continue to
establish in the future, cooperative relationships among themselves or with
third parties that would increase their ability to compete with us. In addition,
competitors may be able to adapt more quickly than we can to new or emerging
technologies and changes in customer needs, or to devote more resources to
promoting and selling their products. If we fail to adapt to market demands and
to compete successfully with existing and new competitors, our business and
financial performance would suffer.

IF WE FAIL TO EFFECTIVELY MANAGE THE GROWTH OF OUR OPERATIONS, OUR ABILITY TO
PURSUE OUR STRATEGY WOULD BE COMPROMISED AND OUR BUSINESS WOULD SUFFER.

Our business could suffer if we fail to effectively manage our growth. We
continue to increase the scope of our operations, have grown our employee
headcount substantially, and expect to continue to hire new employees at a rapid
pace. Similarly, our revenue grew from $156,000 in 1997 to $5.2 million in 1998.
Our revenue for the six months ended June 30, 1999 was $7.1 million. Continued
growth could place a significant strain on our management systems and resources.
We will need to continue to improve our financial and managerial controls and
reporting systems and procedures, and will need to expand, train and manage our
work force.

OUR LENGTHY SALES CYCLE MAKES IT DIFFICULT TO ANTICIPATE THE TIMING OF SALES,
AND REVENUE MAY VARY FROM PERIOD TO PERIOD.

The sales cycle associated with the purchase of our products is lengthy,
and the time between the initial proposal to a prospective customer and the
signing of a license agreement can be as long as one year. Our products involve
a commitment of capital which may be significant to the customer, with attendant
delays frequently associated with large capital expenditures and implementation
procedures within an organization. These delays may reduce our revenue in a
particular period without a corresponding reduction in our costs, which could
hurt our results of operations for that period.

THE SKILLED EMPLOYEES THAT WE NEED MAY BE DIFFICULT AND EXPENSIVE TO HIRE AND
RETAIN IN TODAY'S TIGHT LABOR MARKET.

Our success depends in large part on our ability to attract, train,
motivate and retain highly-skilled information technology professionals,
software programmers and sales and marketing professionals. Qualified personnel
in these fields are in great demand and are likely to remain a limited resource.
We may be unable to attract or continue to retain the skilled employees we
require. Any inability to do so could prevent us from managing and competing for
existing and future projects or to compete for new customer contracts. In
addition, an increase in expenses required to attract and retain qualified
personnel may reduce our operating margins.

WE DEPEND IN SOME CASES ON STRATEGIC BUSINESS ALLIANCES TO SELL AND IMPLEMENT
OUR PRODUCTS, AND ANY FAILURE TO DEVELOP OR MAINTAIN THESE ALLIANCES COULD HURT
OUR FUTURE GROWTH.

Third parties such as operation support system providers, consulting firms
and systems integration firms help us with marketing, sales and implementation
of our products. To achieve our goals, we must maintain our relationships with
these firms, develop additional similar relationships and generate new business
opportunities through joint marketing and sales efforts.

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<PAGE> 10

We may encounter difficulties in forging and maintaining long-term
relationships with these firms for a variety of reasons. These firms may
discontinue their relationships with us, fail to devote sufficient resources to
market our products or develop relationships with our competitors. In addition,
these firms may delay the product implementation or negatively affect our
customer relationships. Our agreements with these firms typically are in the
form of a non-exclusive referral fee or license and package discount arrangement
that may be terminated by either party without cause or penalty and with limited
notice.

WE RELY HEAVILY ON SALES OF ONE PRODUCT.

Since our introduction of BillPlex in 1997, substantially all of our
revenue has been attributable to this product. We expect to continue to be
heavily dependent on this product. As a result, a decline in demand for BillPlex
or failure to achieve broad market acceptance of BillPlex would cause our
business and financial performance to suffer.

IF OUR CUSTOMERS CANNOT SECURE ADEQUATE FINANCING, WE MAY NOT GET THEIR
BUSINESS.

Many of our potential customers are new entrants into the communications
market and lack significant financial resources. These companies rely to a large
degree on access to the capital markets for growth. Their failure to raise
capital would hurt their financial viability and their demand for our products.
If our potential customers cannot obtain the resources to purchase our products,
they may turn to other options such as service bureaus, which would hurt our
business.

IF WE DO NOT CONTINUALLY ENHANCE OUR PRODUCT OFFERING TO MEET THE CHANGING NEEDS
OF SERVICE PROVIDERS, WE WILL LOSE FUTURE BUSINESS TO OUR COMPETITORS.

We believe that our future success will depend to a significant extent upon
our ability to enhance our product offering and to introduce new products and
features to meet the requirements of our customers in a rapidly developing and
evolving market. We devote significant resources to refining and expanding our
BillPlex software, developing additional pre-configured market-based packages
and investigating complimentary products and technologies. We believe our
product currently meets customer requirements regarding scalability and
throughput, and we are working to improve our system performance. However, the
requirements of our customers may change and our present or future products may
not satisfy the evolving needs of the communications market. If we are unable to
anticipate or respond adequately to customer needs, or achieve sufficient
throughput and scalability, we will lose business and our financial performance
will suffer.

IF WE CANNOT CONTINUE TO OBTAIN OR IMPLEMENT THE THIRD-PARTY SOFTWARE THAT WE
INCORPORATE INTO OUR PRODUCT OFFERING, WE MAY HAVE TO DELAY OUR PRODUCT
DEVELOPMENT OR REDESIGN EFFORTS.

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

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<PAGE> 11

LOSS OF OUR SENIOR MANAGEMENT PERSONNEL WOULD LIKELY HURT OUR BUSINESS.

Our future success depends to a significant extent on the continued
services of our senior management and other key personnel, particularly James
Daleen, our founder and chief executive officer. If we lost the services of Mr.
Daleen or other key employees it would likely hurt our business. We have
employment and non-compete agreements with some of our executive officers,
including Mr. Daleen. However, these agreements do not obligate them to continue
working for us.

WE MAY BE UNABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY, AND OUR COMPETITORS MAY
INFRINGE ON OUR TECHNOLOGY.

Any misappropriation of our technology or the development of competitive
technology could seriously harm our business. We regard a substantial portion of
our software product as proprietary and rely on a combination of patent,
copyright, trademark and trade secret laws, customer license agreements and
employee and third-party agreements to protect our proprietary rights. These
steps may not be adequate, and we do not know if they will prevent
misappropriation of our intellectual property, particularly in foreign countries
where the laws may not protect proprietary rights as fully as do the laws of the
United States. Other companies could independently develop similar or superior
technology without violating our proprietary rights. If we have to resort to
legal proceedings to enforce our intellectual property rights, the proceedings
could be burdensome and expensive and could involve a high degree of risk.

CLAIMS BY OTHERS THAT WE INFRINGE THEIR PROPRIETARY TECHNOLOGY COULD DIVERT OUR
RESOURCES, RESULT IN UNEXPECTED LICENSE FEES AND HARM OUR BUSINESS.

Third parties could claim that our current or future products or technology
infringe their proprietary rights. An infringement claim against us could be
costly even if the claim is invalid, and could distract our management from the
operation of our business. Furthermore, a judgment against us could require us
to pay substantial damages and could also include an injunction or other court
order that could prevent us from selling our product offering. If we faced a
claim relating to proprietary technology or information, we might seek to
license technology or information, or develop our own, but we might not be able
to do so. Our failure to obtain the necessary licenses or other rights or to
develop non-infringing technology could prevent us from selling our products and
could seriously harm our business.

PRODUCT DEFECTS OR SOFTWARE ERRORS COULD ADVERSELY AFFECT OUR BUSINESS DUE TO
COSTLY REDESIGNS, PRODUCTION DELAYS AND CUSTOMER DISSATISFACTION.

Design defects or software errors in our product may cause delays in
product introductions or damage customer satisfaction, either of which could
seriously harm our business. Our software products are highly complex and may,
from time to time, contain design defects or software errors that may be
difficult to detect and correct. We have a customer support organization that is
responsible for providing maintenance and support to our customers. Maintenance
and support includes identifying and correcting any reported product defects or
software errors.

Although we have license agreements with our customers that contain
provisions designed to limit our exposure to potential claims and liabilities
arising from customer problems, these provisions may not effectively protect us
against all claims. In addition, claims and liabilities arising from customer
problems could significantly damage our reputation and hurt our business.

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YEAR 2000 ISSUES MAY DISRUPT OUR OPERATIONS AND CAUSE US TO LOSE REVENUE.

Failure of BillPlex to be year 2000 compliant could result in a significant
decrease in market acceptance of our product and legal liability. If a claim
were to be brought against us, regardless of its merit, the claim would likely
be time-consuming and expensive to defend, would divert management time and
attention and could result in adverse publicity. We intend to have this testing
process completed during the third quarter of 1999. BillPlex operates in complex
network environments and directly and indirectly interacts with a number of
other hardware and software systems. We have not performed extensive tests on
all hardware, software, switches and other devices that may operate in
conjunction with BillPlex, or provide data to or receive data from BillPlex. We
also have not tested custom interfaces written for BillPlex. Some of our
customers may have year 2000 problems with products that we believe are year
2000 ready.

We may also be affected by year 2000 issues related to non-compliant
internal systems developed by us or by third-party vendors. If the internal
systems developed by us prove to be non-compliant, or if our third-party vendors
or any suppliers of non-information technology systems do not identify year 2000
problems with their products or fail to correct their year 2000 problems, we
could have failures that result in an interruption of our normal business
activities or operations.

OUR STRATEGY TO EXPAND INTO INTERNATIONAL MARKETS MAY NOT SUCCEED AS A RESULT OF
LEGAL, BUSINESS AND ECONOMIC RISKS SPECIFIC TO INTERNATIONAL OPERATIONS.

Our strategy includes expansion into international markets through a
combination of strategic relationships and internal business expansion. In
addition to risks generally associated with international operations, our future
international operations might not succeed for a number of reasons, including:

- dependence on sales efforts of third party distributors;

- difficulties in localizing products and supporting customers in foreign
countries;

- greater difficulty in collecting accounts receivable; and

- legal uncertainties inherent in transnational operations such as export
and import regulations, taxation issues, tariffs and trade barriers.

ACQUISITIONS OF COMPANIES OR TECHNOLOGIES COULD RESULT IN DISRUPTIONS TO OUR
BUSINESS, DIVERSION OF MANAGEMENT AND COULD REQUIRE THAT WE ENGAGE IN FINANCING
TRANSACTIONS THAT COULD HURT OUR FINANCIAL PERFORMANCE.

Although we have not done so in the past, we may in the future make
acquisitions of other companies, products or technologies, or enter into
strategic relationship agreements that require substantial up-front investments.
If so, we will be required to assimilate the acquired businesses and may be
unable to maintain uniform standards, controls, procedures and policies if we
fail to do so effectively. Acquisitions may also disrupt our operations and
divert management's attention from the day-to-day operation of our business,
which could impair our relationships with our current employees, customers and
strategic marketing alliances.

We may have to incur debt or issue equity securities to pay for any future
acquisitions. The issuance of equity securities for any acquisition could be
substantially dilutive to our stockholders. In addition, our profitability may
suffer because of acquisition-related costs or amortization costs for acquired
goodwill and other intangible assets.

9
<PAGE> 13

RISKS RELATED TO THIS OFFERING AND TO OUR COMMON STOCK

THERE HAS BEEN NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK, THE MARKET PRICE OF
OUR COMMON STOCK MAY BE VOLATILE, AND YOU MAY EXPERIENCE INVESTMENT LOSSES.

Our common stock has never been sold in a public market. An active trading
market for our common stock may not develop or be sustained upon the completion
of this offering. Also, many factors could cause the market price of our common
stock to rise and fall. Some of these factors are:

- variations in our quarterly operating results;

- acquisitions or strategic alliances by us or others in our industry;

- changes in estimates of our performance or recommendations by financial
analysts; and

- market conditions and regulatory trends in the communications industry.

In addition, the stock market experiences significant price and volume
fluctuations. These fluctuations particularly affect the market prices of the
securities of many high-technology companies. These broad market fluctuations
could adversely affect the market price of our common stock. When the market
price of a stock has been volatile, holders of that stock have often instituted
securities class action litigation against the company that issued the stock. If
any of our stockholders brought a securities class action lawsuit against us, we
could incur substantial costs defending the lawsuit. The lawsuit could also
divert the time and attention of our management. Any of these events could
seriously harm our business.

OUR EXECUTIVE OFFICERS AND DIRECTORS OWN A LARGE PERCENTAGE OF OUR VOTING STOCK
AND COULD EXERT SIGNIFICANT INFLUENCE OVER MATTERS REQUIRING STOCKHOLDER
APPROVAL AFTER THIS OFFERING.

Following this offering, our officers and directors will beneficially own
approximately 56% of our common stock. As a result, our officers and directors
will significantly influence:

- the election of our directors;

- any decision to amend our certificate of incorporation or bylaws;

- any decision to engage in a merger, sale of assets or other corporate
transaction; and

- the outcome of other matters submitted for stockholders' vote.

The concentration of stock ownership by our officers and directors may
discourage a potential acquirer from making a tender offer or attempting to
obtain control of Daleen Technologies, which in turn could reduce our stock
price or prevent our stockholders from realizing a premium over our stock price.

FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE CAUSING INVESTOR
LOSSES.

Sales of a substantial number of shares of our common stock in the public
market following this offering could adversely affect the market price of our
common stock. After this offering, 18,375,549 shares of our common stock will be
outstanding. All of the 4,100,000 shares sold in this offering will be freely
tradable unless held by our affiliates. The remaining shares of common stock
outstanding after this offering will be restricted as a result of securities
laws or

10
<PAGE> 14

lock-up agreements signed by the holders and will be available for sale in the
public market from time to time. Please see Shares Eligible for Future Sale.

BancBoston Robertson Stephens Inc. may, in its sole discretion and at any
time without prior notice, release all or any portion of the common stock
subject to lock-up agreements.

ANTI-TAKEOVER PROVISIONS AND OUR RIGHT TO ISSUE PREFERRED STOCK COULD MAKE A
THIRD-PARTY ACQUISITION OF DALEEN TECHNOLOGIES DIFFICULT EVEN IF AN ACQUISITION
WOULD BE BENEFICIAL TO US.

We are a Delaware corporation. There are provisions in our charter and
bylaws and the anti-takeover provisions of Delaware law that could make it more
difficult for a third party to acquire control of us, even if a change in
control would be beneficial to stockholders. In addition, our bylaws provide for
a classified board, with board members serving staggered three-year terms. The
Delaware anti-takeover provisions and the existence of a classified board could
make it more difficult for a third party to acquire us.

After this offering, the board of directors will have the authority to
issue up to 10,000,000 shares of preferred stock. Without any further vote or
action on the part of the stockholders, the board of directors will have the
authority to determine the price, rights, preferences, privileges and
restrictions of the preferred stock. This preferred stock, if issued, may have
preference over the rights of the holders of common stock. Although the ability
to issue preferred stock provides us with flexibility in connection with
possible acquisitions and general corporate purposes, the issuance may also make
it more difficult for a third party to acquire a majority of our outstanding
voting stock.

11
<PAGE> 15

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements under Prospectus Summary, Risk Factors, Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Business in this prospectus are forward-looking statements. These statements
relate to future events or our future financial performance, and involve known
and unknown risks and uncertainties that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements.

In some cases, you can identify forward-looking statements by words such as
may, will, should, expects, plans, anticipates, believes, estimates, predicts,
potential or continue, or the negative of these and similar words.

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

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

DALEEN TECHNOLOGIES, INC.

In this prospectus, references to Daleen, Daleen Technologies, we, us and
our refers to Daleen Technologies, Inc. and our subsidiary.

Daleen(TM), Daleen Technologies(TM), BillPlex(TM), the Daleen logo and the
BillPlex logo are trademarks of Daleen Technologies, Inc. Each trademark,
tradename or service mark of any other company appearing in this prospectus
belongs to its holder. Our worldwide web address is www.daleen.com, although
information contained on our website does not constitute part of this
prospectus.

12
<PAGE> 16

USE OF PROCEEDS

We estimate the net proceeds that we will receive from the sale of shares
of common stock in this offering will be approximately $44.7 million, after
deducting the underwriting discounts and commissions and estimated offering
expenses. If the underwriters exercise their over-allotment option, we will
receive $4.8 million in additional net proceeds. We will not receive any
proceeds from the sale of shares by the selling stockholders in connection with
the exercise of the underwriters' over-allotment option.

We currently expect to use the net proceeds primarily for working capital
and general corporate purposes, including funding product development and
expanding our sales and marketing organization. In addition, we may use a
portion of the net proceeds for further development of our product lines through
acquisitions of products, technologies and businesses, although we have no
present commitments or agreements to make any acquisitions. The amount of net
proceeds that we actually expend for working capital purposes will vary
significantly depending on a number of factors, including future revenue growth,
if any, and the amount of cash we generate from operations. Thus, management
will have significant discretion in applying the net proceeds of this offering.
Pending the uses described above, we will invest the net proceeds in short-term,
investment grade, interest-bearing securities.

DIVIDEND POLICY

We have never paid any cash dividends on our common stock and do not
anticipate paying any cash dividends. We currently intend to retain future
earnings, if any, to fund the development and growth of our business.

13
<PAGE> 17

CAPITALIZATION

The following table describes our capitalization as of June 30, 1999:

- on an actual basis;

- on a pro forma basis to reflect the automatic conversion of all of our
outstanding shares of convertible preferred stock into common stock on
the closing of this offering as if the closing occurred on June 30, 1999;
and

- on a pro forma as adjusted basis to reflect the sale of the shares of
common stock offered by us in this offering and our receipt of the
estimated net proceeds, after deducting the underwriting discounts and
commissions and the estimated offering expenses that we expect to pay in
connection with this offering.

You should read this table along with Management's Discussion and Analysis
of Financial Condition and Results of Operations, our consolidated financial
statements and the related notes to them and the other financial information in
this prospectus. Par value is the minimum amount of capital allocated to a share
of stock under our certificate of incorporation.

<TABLE>
<CAPTION>
JUNE 30, 1999
-------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------- -------------- ----------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Long-term debt, including current maturities............... $ -- $ -- $ --
Redeemable preferred stock:
Mandatorily redeemable convertible series A preferred
stock; 3,000,000 shares authorized, issued and
outstanding, actual; no shares authorized issued and
outstanding, pro forma and pro forma as adjusted....... 7,500 -- --
Mandatorily redeemable convertible series D and D-1
preferred stock; 4,908,379 shares authorized, issued
and outstanding, actual; no shares authorized, issued
and outstanding, pro forma and pro forma adjusted...... 14,376 -- --
Mandatorily redeemable convertible series E preferred
stock; 1,496,615 shares authorized, issued and
outstanding, actual; no shares authorized, issued and
outstanding, pro forma and pro forma as adjusted....... 13,428 -- --
Stockholders' (deficit) equity:
Convertible series C preferred stock, $.01 par value per
share; 1,222,222 shares authorized, 1,213,584 shares
issued and outstanding, actual; no shares authorized,
issued and outstanding, pro forma and pro forma as
adjusted............................................... 5,301 -- --
Preferred stock, par value $0.01 per share; 11,250,000
shares authorized; none issued and outstanding, actual,
pro forma and pro forma as adjusted.................... -- -- --
Common stock, par value $0.01 per share; 70,000,000
shares authorized; 3,653,651 shares issued and
outstanding, actual; 14,272,229 shares issued and
outstanding, pro forma; 18,372,229 shares issued and
outstanding, pro forma as adjusted..................... 37 143 184
Stockholders notes receivable............................ (435) (435) (435)
Additional paid in capital............................... 3,868 44,367 88,982
Accumulated deficit...................................... (27,095) (27,095) (27,095)
-------- -------- --------
Total stockholders' (deficit) equity................. (18,324) 16,980 61,636
-------- -------- --------
Total capitalization.............................. $ 16,980 $ 16,980 $ 61,636
======== ======== ========
</TABLE>

The number of shares of common stock outstanding as of June 30, 1999 does
not reflect 4,188,986 shares issuable under options and warrants outstanding as
of June 30, 1999 at a weighted average exercise price of $3.42 per share and
238,381 additional shares reserved for issuance under our stock incentive plan.
On July 5, 1999, our board of directors increased the number of shares reserved
for issuance under our stock incentive plan by an additional 750,000 shares.

14
<PAGE> 18

DILUTION

Our pro forma net tangible book value as of June 30, 1999 was $16.7
million, or $1.17 per share of common stock. We have calculated this amount by:

- subtracting our total liabilities from our pro forma total tangible
assets; and

- then dividing the difference by the total pro forma number of shares of
common stock outstanding, including the number of shares of common stock
that will be issued upon the conversion of our preferred stock when we
complete this offering.

If we give effect to our sale of 4,100,000 shares of common stock in this
offering, our adjusted pro forma net tangible book value as of June 30, 1999
would have been $61.6 million, or $3.36 per share. This amount represents an
immediate increase in pro forma net tangible book value of $2.19 per share to
existing stockholders and an immediate dilution of $8.64 per share to new
investors. The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $12.00
Pro forma net tangible book value per share as of June 30,
1999................................................... $ 1.17
Pro forma increase in net tangible book value per share
attributable to this offering.......................... 2.19
------
Pro forma net tangible book value per share after the
offering............................................... 3.36
------
Dilution per share to new investors......................... $ 8.64
======
</TABLE>

The following table summarizes, on the pro forma basis discussed above, as
of June 30, 1999, the total number of shares of common stock purchased, the
total consideration paid and the average price per share paid by existing
stockholders and to be paid by new investors in this offering.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- --------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
----------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............. 14,272,229 77.7% $44,510,000 47.5% $ 3.12
New investors...................... 4,100,000 22.3 49,200,000 52.5 $12.00
----------- ----- ----------- -----
Total.................... 18,372,229 100.0% $93,710,000 100.0%
=========== ===== =========== =====
</TABLE>

If the underwriters exercise their over-allotment option in full, the
number of shares held by existing stockholders will decrease to 14,088,629, or
74.9% of the total shares outstanding, and the number of shares held by new
investors will increase to 4,715,000, or 25.1%, of the total shares outstanding.

The above computations exclude 4,188,986 shares of common stock issuable
upon the exercise of options or warrants outstanding as of June 30, 1999 at an
average exercise price of $3.42 per share. If any of those options and warrants
are exercised, investors will incur further dilution. From July 1, 1999 through
August 31, 1999, options were exercised to purchase an aggregate of 3,320 shares
of common stock.

15
<PAGE> 19

SELECTED CONSOLIDATED FINANCIAL DATA

You should read the following selected consolidated financial data together
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and related notes included
at the end of this prospectus. The consolidated statement of operations data and
balance sheet data in the table below as of and for each of the years in the
five year period ended December 31, 1998 have been derived from our consolidated
financial statements, which have been audited by KPMG LLP, independent certified
public accountants. Our consolidated balance sheets as of December 31, 1994,
1995 and 1996 and the consolidated statements of operations for the years ended
December 31, 1994 and 1995 are not included in this prospectus. The selected
financial data as of June 30, 1999 and for the six months ended June 30, 1998
and June 30, 1999 have been derived from our unaudited consolidated financial
statements, which appear elsewhere in this prospectus and which, in the opinion
of management, have been prepared on the same basis as the audited consolidated
financial statements and contain all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation. See note 1 to the
consolidated financial statements for a discussion of the shares and amounts
used to compute net loss applicable to common stockholders per share and pro
forma net loss applicable to common stockholders per share. The pro forma net
loss applicable to common stockholders per share calculation reflects the
automatic conversion of all outstanding shares of preferred stock into shares of
common stock upon the closing of this offering as if the closing occurred on
January 1, 1998 or the date preferred shares were issued if the issuance
occurred after January 1, 1998. The historical results are not necessarily
indicative of results to be expected for any future period.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------------- -----------------
1994 1995 1996 1997 1998 1998 1999
------ ------ ------- ------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
License fees............................. $ -- $ -- $ -- $ -- $ 1,879 $ 487 $ 3,748
Professional services and other.......... 2,090 4,324 2,550 156 3,352 975 3,367
------ ------ ------- ------- -------- ------- -------
Total revenue.................... 2,090 4,324 2,550 156 5,231 1,462 7,115
------ ------ ------- ------- -------- ------- -------
Cost of revenue:
License fees............................. -- -- -- -- 3 1 3
Professional services and other.......... 1,310 2,437 1,396 293 4,239 1,109 3,655
------ ------ ------- ------- -------- ------- -------
Total cost of revenue............ 1,310 2,437 1,396 293 4,242 1,110 3,658
------ ------ ------- ------- -------- ------- -------
Gross profit............................... 780 1,887 1,154 (137) 989 352 3,457
Operating expenses:
Sales and marketing...................... 210 359 450 962 2,435 1,217 1,282
Research and development................. -- -- 1,067 1,669 6,653 3,474 3,488
General and administrative............... 894 1,767 2,446 3,704 4,824 1,757 3,294
------ ------ ------- ------- -------- ------- -------
Total operating expenses......... 1,104 2,126 3,963 6,335 13,912 6,448 8,064
------ ------ ------- ------- -------- ------- -------
Operating loss............................. (324) (239) (2,809) (6,472) (12,923) (6,096) (4,607)
Nonoperating income (expense).............. (61) (154) 1,283 (1,512) 754 43 99
------ ------ ------- ------- -------- ------- -------
Net loss................................... (385) (393) (1,526) (7,984) (12,169) (6,053) (4,508)
------ ------ ------- ------- -------- ------- -------
Accretion of preferred stock............... -- -- -- -- (65) -- (79)
------ ------ ------- ------- -------- ------- -------
Net loss applicable to common
stockholders............................. $ (385) $ (393) $(1,526) $(7,984) $(12,234) $(6,053) $(4,587)
====== ====== ======= ======= ======== ======= =======
Net loss applicable to common stockholders
per share -- basic and diluted........... $(0.21) $(0.21) $ (0.81) $ (3.48) $ (3.78) $ (1.87) $ (1.41)
====== ====== ======= ======= ======== ======= =======
Weighted average shares -- basic and
diluted.................................. 1,879 1,879 1,879 2,295 3,240 3,240 3,242
====== ====== ======= ======= ======== ======= =======
</TABLE>

16
<PAGE> 20

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------- JUNE 30,
1994 1995 1996 1997 1998 1999
----- ----- ------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.......................... $ 121 $ 105 $ 813 $ 5,030 $ 723 $ 14,988
Total assets....................................... 406 833 2,065 8,516 11,025 22,325
Notes payable...................................... 300 271 3,200 1,618 -- --
Current portion of long-term debt and obligations
under capital leases............................. 42 151 146 -- -- --
Long-term debt and obligations under capital
leases, less current portion..................... 63 204 77 -- -- --
Stockholders' deficit.............................. (177) (556) (1,914) (1,946) (13,897) (18,324)
</TABLE>

17
<PAGE> 21

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

We are a leading provider of next-generation billing and customer care
software that can serve as the core of an enterprise solution for integrated
communications providers. From our founding in 1989 through 1996, we operated as
a software consulting company, performing contract consulting and software
development services and contract placement and staffing business. We
discontinued our consulting business and sold the contract placement and
staffing business to a third party in 1996. We began development work on our
flagship product, BillPlex, in 1996. In 1997, we introduced BillPlex and
installed the product at our first customer site. We recognized $156,000 in
revenue from the sale of third-party hardware and software products to this
customer during 1997. We recognized the first revenue from BillPlex license fees
and related professional services in 1998.

We derive our revenue primarily from license sales of BillPlex and from
related professional services, including implementation and customization
services, maintenance and support activities and training services. In addition,
professional services and other revenue include the revenue derived from the
sale of third-party software, which we provide when our customers require it.
Since the introduction of BillPlex, we had signed contracts with 22
communications service providers through August 31, 1999, 12 of which were
signed in 1999. As we have signed new contracts, our revenue from license fees
has grown both in absolute terms and as a percentage of total revenue.

Revenue from license fees is based on the number of authorized system users
and computer processors. We receive license fees from our customers upon initial
license, and we expect to receive additional license fees when our customers add
new users and processors. We also derive license fee revenue from existing
customers who purchase additional market packages to increase the functionality
of their current system. We have also entered into arrangements with service
bureau providers that will utilize our products to service their customers. We
expect to receive fees from these activities in the future.

The nature of each licensing arrangement determines how we recognize
revenue:

- If the contract requires us to perform significant production,
modification or customization of software, revenue is recognized using
the percentage of completion method, based on the ratio of total labor
hours incurred to date to total estimated labor hours. The total revenue
under these contracts represents license fees and professional services.
To date, most of our revenue has been recognized on this basis.

- If the contract requires us to deliver the product to the end user with
no future obligation to perform the implementation, we follow the current
provisions of Statement of Position 97-2 and recognize revenue upon
shipment of the product if the fee is fixed and determinable and
collectibility is probable.

- If the contract requires us to deliver the product to a third-party
integrator, we also follow the provisions of SOP 97-2, as amended by SOP
98-4 and SOP 98-9. However, we do not recognize revenue until the
software implementation is complete because of our obligation under the
contract to be available to assist the third-party integrator throughout
the implementation process. In the future, as our third-party systems
integrators gain more experience with our products, we may change our
contracts so that we have no

18
<PAGE> 22

further obligation after the delivery of the software. This will enable
us to recognize revenue when we ship our product.

Since late 1998, we have been investing heavily in our professional
services organization, including opening our Atlanta offices and the hiring of
consulting professionals, training professionals and customer support
professionals. We believe these investments are necessary to help insure the
satisfaction of our customers as we focus on increasing the number of our
BillPlex license transactions and expanding our business. We anticipate the
profit margin from our professional services organization to improve in future
quarters as the number of our BillPlex implementations increase and more
customers subscribe to our maintenance and support. We recognize revenue from
professional services associated with core BillPlex implementations on a
percentage of completion basis along with the license fees. Revenue from other
professional services and training services is recognized as those services are
performed. We recognize revenue from maintenance and customer support ratably
over the term of our maintenance and support agreements.

Sales and marketing expenses have been increasing since the introduction of
BillPlex in 1997, and are expected to increase in the future as we add
additional sales and marketing personnel and as we enter new geographical
markets.

Since 1996, we have invested heavily in research and development. All of
these costs have been expensed as incurred and we had no capitalized software
development costs as of August 31, 1999. To enhance our product offering and
market position, we believe that it will be essential for us to continue to make
significant investments in research and development. We anticipate that research
and development expenses are likely to increase in future periods.

As we grow and add additional facilities and personnel, we expect to incur
additional general and administrative expenses to support this growth.

We currently have a net operating loss carryforward for federal income tax
purposes in excess of $20 million, and are continuing to experience operating
losses for tax purposes. Therefore, we currently do not pay any federal income
taxes. However, the amount of the net operating loss and credit carryforwards
that we may utilize each year may be limited due to changes in stock ownership
that have occurred over the past several years.

19
<PAGE> 23

RESULTS OF OPERATIONS

The following table presents statement of operations data expressed as a
percentage of total revenue for the periods indicated:

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------- ------------------
1996 1997 1998 1998 1999
------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C>
Revenue:
License fees......................... --% --% 35.8% 33.3% 52.7%
Professional services and other...... 100.0 100.0 64.2 66.7 47.3
------ -------- ------ -------- ------
Total revenue................ 100.0 100.0 100.0 100.0 100.0
------ -------- ------ -------- ------
Cost of revenue:
License fees......................... -- -- 0.1 0.1 0.1
Professional services and other...... 54.8 187.8 81.0 75.9 51.4
------ -------- ------ -------- ------
Total cost of revenue........ 54.8 187.8 81.1 76.0 51.5
------ -------- ------ -------- ------
Gross profit........................... 45.2 (87.8) 18.9 24.0 48.5
Operating expenses:
Sales and marketing.................. 17.6 617.4 46.6 83.2 18.0
Research and development............. 41.8 1,069.8 127.2 237.6 49.0
General and administrative........... 95.9 2,374.5 92.2 120.2 46.3
------ -------- ------ -------- ------
Total operating expenses..... 155.4 4,061.7 266.0 441.0 113.3
Operating loss......................... (110.2) (4,149.5) (247.1) (417.0) (64.8)
------ -------- ------ -------- ------
Nonoperating income (expense).......... 50.3 (968.9) 14.4 2.9 1.4
------ -------- ------ -------- ------
Net loss............................... (59.9)% (5,118.4)% (232.7)% (414.1)% (63.4)%
====== ======== ====== ======== ======
</TABLE>

SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998

Revenue

Total revenue increased $5.6 million to $7.1 million for the six months
ended June 30, 1999 from $1.5 million for the six months ended June 30, 1998.
Revenue from both licenses and services accounted for this increase due to a
significant increase in the number of implementations and newly booked contracts
in the six months ended June 30, 1999 compared to the six months ended June 30,
1998.

License Fees. License fees increased $3.2 million to $3.7 million for the
six months ended June 30, 1999 from $487,000 for the six months ended June 30,
1998. License fees increased to 52.7% of total revenue for the six months ended
June 30, 1999 from 33.3% for the six months ended June 30, 1998. These increases
were due to having more booked contracts and product implementations for the six
months ended June 30, 1999 than for the six months ended June 30, 1998, shortly
after we introduced BillPlex. As our business grows and as we continue to pursue
our software-based business model, we expect license fees to account for an
increasing percentage of total revenue.

Professional Services and Other. Professional services and other revenue
increased $2.4 million to $3.4 million for the six months ended June 30, 1999
from $975,000 for the six months ended June 30, 1998. This increase was due to
increased implementation services directly related to increased sales of
BillPlex. Professional services and other revenue decreased to 47.3% of total

20
<PAGE> 24

revenue for the six months ended June 30, 1999 from 66.7% for the six months
ended June 30, 1998.

Cost of Revenue

Total cost of revenue increased $2.6 million to $3.7 million for the six
months ended June 30, 1999 from $1.1 million for the six months ended June 30,
1998. Total cost of revenue as a percentage of total revenue decreased to 51.4%
for the six months ended June 30, 1999 from 75.9% for the six months ended June
30, 1998.

Cost of License Fees. Cost of license fees includes direct cost of labor,
benefits and packaging material for fulfillment and shipment of the BillPlex
software and related documentation, which is typically an insignificant
component of total cost of license fees. Cost of license fees increased to
$3,000 for the six months ended June 30, 1999 from $1,000 for the six months
ended June 30, 1998. This increase was due to increased license sales of
BillPlex.

Cost of Professional Services and Other. Cost of professional services and
other revenue includes direct cost of labor, benefits, materials and related
corporate overhead costs to provide professional services to customers. Cost of
professional services and other increased $2.6 million to $3.7 million for the
six months ended June 30, 1999 from $1.1 million for the six months ended June
30, 1998. These costs increased as we deployed more resources to support the
greater number of implementations that we performed during the period. Cost of
professional services and other revenue as a percentage of professional services
and other revenue decreased to 51.5% for the six months ended June 30, 1999 from
75.9% for the six months ended June 30, 1998. Cost of professional services and
other revenue for both periods includes expenses related to the following
activities performed after the initial release of BillPlex:

- Buildup of the infrastructure of the professional services organization
to better serve anticipated customers; and

- Performing beta testing and engineering services for initial reference
customers.

Operating Expenses

Sales and Marketing. Sales and marketing expenses consist primarily of
salaries and commissions earned by sales and marketing personnel, travel,
promotional and related corporate overhead costs. These expenses increased
$65,000 or 5.3% to $1.3 million for the six months ended June 30, 1999 from $1.2
million for the six months ended June 30, 1998. The increase was primarily due
to costs associated with additional staffing. As a percentage of total revenue,
these expenses decreased to 18.0% for the six months ended June 30, 1999 from
83.2% for the six months ended June 30, 1998, due to the growth in our total
revenue.

Research and Development. Research and development expenses consist
primarily of salaries and benefits for software developers, management and
quality assurance personnel and related corporate overhead costs. Our research
and development expenses remained relatively constant at $3.5 million both for
the six months ended June 30, 1999 and for the six months ended June 30, 1998.
Expenses remained constant because the use of subcontractors was discontinued as
additional staff was hired. As a percentage of total revenue, these expenses
decreased to 49.0% for the six months ended June 30, 1999 from 237.6% for the
six months ended June 30, 1998.

General and Administrative. General and administrative expenses consist
primarily of salaries and benefits for our executive, finance, administrative,
human resources and information

21
<PAGE> 25

systems personnel, and related corporate overhead costs. Our general and
administrative expenses increased $1.5 million, or 87.5%, to $3.3 million for
the six months ended June 30, 1999 from $1.8 million for the six months ended
June 30, 1998. This increase was primarily due to the addition of finance,
executive, information systems and human resources personnel needed to support
the growth of our business. As a percentage of total revenue, general and
administrative expenses decreased to 46.3% for the six months ended June 30,
1999 from 120.2% for the six months ended June 30, 1998.

Nonoperating Income (Expense)

Nonoperating income consists primarily of interest income, net of interest
expense. Nonoperating income increased $56,000, or 130%, to $99,000 for the six
months ended June 30, 1999 from $43,000 for the six months ended June 30, 1998.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

Revenue

Total revenue increased $5.1 million to $5.2 million in 1998 from $156,000
in 1997. Revenue increases from both license fees and professional services
accounted for this increase due to the increased number of contracts and related
implementations of BillPlex, which began in 1998.

License Fees. License fees increased to $1.9 million in 1998 from none in
1997. License fees increased to 35.8% of total revenue in 1998 from 0% in 1997.
We recognized our first license revenues from BillPlex in 1998 after the
introduction of the BillPlex product in 1997.

Professional Services and Other. Professional services and other revenue
increased $3.2 million to $3.4 million in 1998 from $156,000 in 1997. This
increase was due to increased implementation services performed directly related
to increase in license fees. Professional services and other revenue decreased
to 64.2% of total revenue in 1998 from 100.0% in 1997.

Cost of Revenue

Total cost of revenue increased $3.9 million to $4.2 million in 1998 from
$293,000 in 1997. Total cost of revenue as a percentage of total revenue
decreased to 81.1% in 1998 from 187.8% in 1997.

Cost of License Fees. Cost of license fees increased to $3,000 in 1998
from none in 1997 due to initiation of BillPlex license sales in 1998.

Cost of Professional Services and Other. Cost of professional services and
other revenue increased $3.9 million to $4.2 million in 1998 from $293,000 in
1997. These costs increased with the increase in revenue from services for 1998.
Cost of professional services and other revenue decreased to 126.5% of
professional services and other revenue in 1998 compared to 187.8% in 1997.

Operating Expenses

Sales and Marketing. Sales and marketing expenses increased $1.5 million,
or 152.9%, to $2.4 million in 1998 from $962,000 in 1997. This increase was
primarily due to the addition of personnel in sales and marketing, and the costs
of recruiting and relocating these personnel. As a percentage of total revenue,
these expenses decreased to 46.6% in 1998 from 617.4% in 1997.

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<PAGE> 26

Research and Development. Research and development expenses increased $5.0
million, or 298.7%, to $6.7 million in 1998 from $1.7 million for 1997. The
increase in these expenses was due to the significantly increased investment in
software developers, quality assurance personnel and outside contractors to
support the continued development of BillPlex. As a percentage of total revenue,
these expenses decreased to 127.2% in 1998 from 1,069.8% in 1997.

General and Administrative. General and administrative expenses increased
$1.1 million, or 30.2%, to $4.8 million in 1998 from $3.7 million for 1997. This
increase was primarily due to the addition of finance, executive, information
services and human resources personnel to support the growth of our business. As
a percentage of total revenue, these expenses decreased to 92.2% in 1998 from
2,374.5% in 1997.

Nonoperating Income (Expense)

Nonoperating income was $754,000 in 1998 compared to nonoperating expense
of $1.5 million in 1997. Nonoperating income for 1998 was primarily attributable
to the investment of the proceeds of our preferred stock offering received
during 1998 and to a gain on sale of an unrelated software product. Interest
expense in 1997 was primarily attributable to interest on our notes payable.
Notes payable in the amount of $1.6 million plus accrued interest were repaid
from the proceeds of the preferred stock offering.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

Revenue

Total revenue decreased $2.4 million to $156,000 in 1997 from $2.6 million
in 1996. This decrease was due primarily to our discontinuance of contract
consulting services in June 1996 and the sale of our placement services business
in November 1996. We performed no contract consulting services in 1997 while we
were engaged in the development and release of BillPlex.

License Fees. We had no license fees in either period as our first
BillPlex license fees were recognized in 1998. We installed our first BillPlex
system in 1997, but we did not recognize any license revenue from this
installation.

Professional Services and Other. Professional services and other revenue
decreased $2.4 million to $156,000 in 1997 from $2.6 million in 1996. We derived
all of our 1996 revenue from our contract consulting and contract placement
services business, which we discontinued and sold in 1996. In 1997, we received
$156,000 in revenue, attributable entirely to the sale of third-party software
products in connection with our first BillPlex installation.

Cost of Revenue

Total cost of revenue decreased $1.1 million to $293,000 due to the
decrease in revenue generating activities discussed above. Personnel and other
resources that had previously performed contract consulting services for us were
primarily reassigned to research and development activities. The $293,000 in
total cost of revenue in 1997 represented compensation and travel expenses of
our professional services employees and the cost of third party software
products in connection with our first BillPlex installation.

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<PAGE> 27

Operating Expenses

Sales and Marketing. Sales and marketing expenses increased $512,000, or
113.9%, to $962,000 in 1997 from $450,000 in 1996. This increase was primarily
due to additional personnel in sales and marketing, and the costs of recruiting
and relocating these personnel. As a percentage of total revenue, these expenses
increased to 617.4% in 1997 from 17.6% in 1996.

Research and Development. Research and development expenses increased
$602,000, or 56.4%, to $1.7 million in 1997 from $1.1 million for 1996. The
increase in these expenses was primarily related to increases in the number of
software developers and quality assurance personnel required to support our
product development and testing activities for BillPlex. As a percentage of
total revenue, these expenses increased to 1,069.8% in 1997 from 41.8% in 1996.

General and Administrative. General and administrative expenses increased
$1.3 million, or 51.5%, to $3.7 million in 1997 from $2.4 million for 1996. This
increase was primarily the result of our addition of finance, executive, and
administrative personnel necessary to support the growth of our business during
this period. As a percentage of total revenue, these expenses increased to
2,374.5% in 1997 from 95.9% in 1996.

Nonoperating Income (Expense)

We had nonoperating expense of $1.5 million in 1997 compared to
nonoperating income of $1.3 million in 1996. The expense in 1997 was primarily
attributable to interest on our notes payable. The income in 1996 was primarily
attributable to gains on the sale of the placement division and the sale of
marketing rights to an unrelated software product for a combined total gain of
$1.8 million. In addition, interest expense was higher in 1997 than in 1996 due
to higher levels of debt during 1997.

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<PAGE> 28

QUARTERLY RESULTS OF OPERATIONS

The following table presents consolidated statement of operations data for
the last six quarters, expressed both in dollars and as a percentage of total
revenue for those periods. This data has been derived from our unaudited
consolidated financial statements, which have been prepared on the same basis as
the audited consolidated financial statements and, in the opinion of our
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the information.

<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1998 1998 1998 1998 1999 1999
--------- -------- --------- -------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
License fees........................... $ 57 $ 430 $ 973 $ 419 $ 949 $ 2,799
Professional services and other........ 138 837 1,557 820 830 2,537
------- ------- ------- ------- ------- -------
Total revenue................... 195 1,267 2,530 1,239 1,779 5,336
------- ------- ------- ------- ------- -------
Cost of revenue:
License fees........................... 0 1 0 2 2 1
Professional services and other........ 264 845 2,040 1,090 1,266 2,389
------- ------- ------- ------- ------- -------
Total cost of revenue........... 264 846 2,040 1,092 1,268 2,390
------- ------- ------- ------- ------- -------
Gross profit............................. (69) 421 490 147 511 2,946
Operating expenses:
Sales and marketing.................... 576 641 686 532 485 797
Research and development............... 1,388 2,086 1,411 1,768 1,577 1,911
General and administrative............. 998 759 1,329 1,738 1,465 1,829
------- ------- ------- ------- ------- -------
Total operating expenses........ 2,962 3,486 3,426 4,038 3,527 4,537
------- ------- ------- ------- ------- -------
Operating loss........................... (3,031) (3,065) (2,936) (3,891) (3,016) (1,591)
Nonoperating income (expense)............ 69 (26) 527 184 58 41
------- ------- ------- ------- ------- -------
Net loss................................. $(2,962) $(3,091) $(2,409) $(3,707) $(2,958) $(1,550)
======= ======= ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
(AS A PERCENTAGE OF TOTAL REVENUE)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
License fees........................... 29.2% 33.9% 38.5% 33.8% 53.3% 52.5%
Professional services and other........ 70.8 66.1 61.5 66.2 46.7 47.5
--------- ------- ------- ------- ------- -------
Total revenue................... 100.0 100.0 100.0 100.0 100.0 100.0
--------- ------- ------- ------- ------- -------
Cost of revenue:
License fees........................... 0.1 0.1 0.0 0.2 0.1 0.0
Professional services and other........ 135.2 66.7 80.6 88.0 71.2 44.8
--------- ------- ------- ------- ------- -------
Total cost of revenue........... 135.3 66.8 80.6 88.2 71.3 44.8
--------- ------- ------- ------- ------- -------
Gross profit............................. (35.3) 33.2 19.4 11.8 28.7 55.2
--------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing.................... 295.4 50.6 27.1 42.9 27.3 14.9
Research and development............... 711.8 164.6 55.6 124.7 88.6 35.8
General and administrative............. 511.8 59.9 52.5 140.3 82.3 34.3
--------- ------- ------- ------- ------- -------
Total operating expenses........ 1,519.0 275.1 135.4 325.9 198.2 85.0
--------- ------- ------- ------- ------- -------
Operating loss........................... (1,554.3) (241.9) (116.0) (313.9) (169.5) (29.8)
Nonoperating income (expense)............ 35.5 (2.1) 20.8 14.9 3.3 0.8
--------- ------- ------- ------- ------- -------
Net loss................................. (1,518.8)% (244.0)% (95.2)% (299.0)% (166.2)% (29.0)%
========= ======= ======= ======= ======= =======
</TABLE>

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<PAGE> 29

Our operating results have varied significantly from quarter to quarter in
the past and may continue to vary significantly from quarter to quarter in the
future due to a variety of factors. For example, our revenues decreased in the
fourth quarter of 1998 as compared to the second and third quarters of 1998
primarily because of delays in completing contract negotiations with several new
customers. Quarterly fluctuations have occurred as a result of the timing of the
completion of contracts with customers since we derive a large part of our
revenue each quarter from a small number of customers. Due to the recent
introduction of BillPlex, we have not experienced the same seasonal fluctuations
as some of our competitors, such as a slowdown during the summer months and an
increase in revenue during the last quarter of the year. However, as we grow, we
may experience similar quarterly fluctuations due to seasonality. For all these
reasons, we believe that results of operations for interim periods should not be
relied upon as any indication of the results to be expected in any future
period.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have funded our operations primarily through sales of
equity securities and, to a lesser degree, through notes payable. Through June
30, 1999, we have raised approximately $41.5 million of equity capital and have
raised $6.2 million through the issuance of notes payable. All notes payable had
been repaid or converted to equity securities as of June 30, 1999. From 1996
through June 30, 1999, we have invested $4.6 million in capital expenditures.
Beyond our capital expenditures, the funds we have raised have been applied to
support our working capital needs. Our working capital needs have expanded
significantly as our client base has grown. Our sources of liquidity as of June
30, 1999 consisted principally of cash and cash equivalents and securities
available for sale of $15.0 million.

Net cash used in operating activities was $3.9 million for the six months
ended June 30, 1999, $11.2 million in 1998, $5.9 million in 1997, and $1.3
million in 1996. The principal use of cash for all periods was to fund our
losses from operations.

Net cash used in investing activities was $6.0 million in 1998, $2.9
million in 1997 and $332,000 in 1996 and net cash provided by investing
activities was $4.6 million for the six months ended June 30, 1999.

Net cash provided by financing activities was $13.6 million for the six
months ended June 30, 1999, $12.9 million in 1998, $13.0 million in 1997 and
$2.4 million in 1996. Cash provided by financing activities was attributable to
sales of our common and preferred stock and the issuance of notes payable.

We believe that the net proceeds from this offering, together with our
current cash and cash equivalents, will be sufficient to meet our anticipated
cash needs for working capital and capital expenditures for at least the next 18
months. We may require additional funds to support our working capital
requirements or for other purposes and we may seek to raise additional funds
through public or private equity financing or from other sources. There can be
no assurance that additional financing will be available at all or that, if
available, the financing will be obtainable on terms favorable to us or that any
additional financing would not be dilutive.

YEAR 2000 READINESS

Some computers, software and associated equipment include programming code
in which calendar year data is abbreviated to only two digits. As a result of
this design decision, some of these systems could fail to operate or fail to
produce correct results if, for example, 00 is interpreted to mean 1900, rather
than 2000. These problems are widely expected to increase in

26
<PAGE> 30

frequency and severity as the year 2000 approaches and are commonly referred to
as the year 2000 problem.

State of Readiness of our BillPlex Product. Our review of the year 2000
readiness of BillPlex is performed as a part of our normal quality assurance
program. This program requires testing of computer processes with the hardware
system clock set to dates in the year 2000 and includes testing of dates in the
year 2000 as inputs. We have created version 2.3 of BillPlex on which we are
currently conducting systematic year 2000 tests based on a variety of test plans
and system test scenarios. We intend to have this testing process completed
during the third quarter of 1999. As of the date of this prospectus, we have
identified no material year 2000 compliance issues with BillPlex as currently
licensed. However, BillPlex operates in complex network environments and
directly and indirectly interacts with a number of other hardware and software
systems. We have not performed extensive tests on all hardware, software,
switches and other devices that may operate in conjunction with BillPlex, or
provide data to or receive data from BillPlex. We also have not tested custom
interfaces written for BillPlex. Some customers using BillPlex may have year
2000 problems.

State of Readiness of our Internal Information Technology Systems. We may
be affected by year 2000 issues related to non-compliant internal systems
developed by us or by third-party vendors. We believe that we have identified
substantially all major computers, software applications and related equipment
used with our internal operations that must be modified, upgraded or replaced to
minimize the possibility of a material disruption to our business. We have begun
modifying, upgrading and replacing these systems and expect to complete this
process before the end of the third quarter of 1999. We have also received
assurances from our third-party vendors for their material systems in use by us
that their systems are year 2000 ready.

Systems Other Than Information Technology Systems. Our internal operations
and businesses are also dependent upon computer-controlled systems of third
parties such as suppliers, customers and service providers. The operation of our
office and facilities equipment, such as fax machines, photocopiers, telephone
switches, security systems, elevators, other common devices and utilities, may
be affected by the year 2000 problem. We are currently assessing the potential
effect of, and costs of remediating, the year 2000 problem on this equipment. We
believe that, absent a critical failure beyond our control, such as prolonged
loss of electrical or telephone service, year 2000 problems experienced by third
parties will not have a material impact upon us.

Cost Assessment. We do not separately track expenditures to achieve year
2000 readiness. Those expenditures are primarily absorbed within our development
organization. To date, our costs related to year 2000 readiness have not been
material relative to our overall development expenditures. Furthermore, based on
our experience to date, and our assessment as of the date of this prospectus, we
do not anticipate that costs associated with remediating non-compliant products
or internal systems, if any, will be material. However, as we have not completed
the assessment of our internal systems, we cannot assure you of that outcome.

Risks. Any failure of our products to achieve year 2000 readiness could
result in a decrease of sales of our products, an increase in allocation of
resources to address year 2000 problems of our customers without additional
revenue commensurate with the dedication of resources, or an increase in
litigation costs relating to losses suffered by our customers due to these year
2000 problems. Failures of our internal systems could prevent us from processing
orders, issuing invoices, and developing products, and could require us to
devote significant resources to correcting these problems. Due to the general
uncertainty inherent in the year 2000

27
<PAGE> 31

computer problem, resulting from the uncertainty of the year 2000 readiness of
third-party suppliers and vendors, we are unable to determine at this time
whether the consequences of year 2000 failures will have a material impact on
our business, results of operation, and financial condition.

Contingency Plans. We are currently developing contingency plans to be
implemented as part of our efforts to identify and correct year 2000 problems
affecting our internal systems. We expect to complete our contingency plans by
the end of the third quarter of 1999. Depending on the systems affected, these
plans could include:

- accelerated replacement of affected equipment or software;

- the use of backup equipment and software;

- increased work hours for our employees or use of contract personnel to
correct on an accelerated schedule any year 2000 problems which arise or
to provide manual workarounds for information systems; and

- other similar approaches.

If we are required to implement any of these contingency plans, these plans
could have a material adverse effect on our business, financial condition and
operating results.

NEW ACCOUNTING PRONOUNCEMENTS

In March 1998, the AICPA issued Statement of Position 98-1, Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use, or SOP
98-1. We have adopted SOP 98-1 and its adoption did not have a material effect
on our financial position or results of operations.

In March 1998, the AICPA issued Statement of Position 98-5 Reporting on the
Costs of Start-Up Activities. SOP 98-5 states that all costs associated with
start-up activities, including organization costs, should be expensed as
incurred. Companies that previously capitalized these costs are required to
write off the unamortized portion of these costs as a cumulative effect of a
change of accounting principle. As of January 1, 1999, we had not capitalized
any of these costs. The adoption of this statement has not had any impact on our
consolidated financial statements.

In June 1998, the FASB issued SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 requires the recognition of all
derivatives as either assets or liabilities in the balance sheet and the
measurement of those instruments at fair value. The accounting change in the
fair value of a derivative depends on the planned use of the derivative and the
resulting designation. We are required to implement the statement in the first
quarter of 2000. We have not used derivative instruments and believe the
adoption of this statement will not have significant effect on our financial
statements.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our financial instruments consist of cash that is invested in institutional
money market accounts. At June 30, 1999, the carrying value of our financial
instruments approximated their fair values based on current market prices and
rates. We do not use derivative financial instruments in our operations or
investments and do not have significant operations subject to fluctuations in
commodities prices or foreign currency exchange rates.

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<PAGE> 32

BUSINESS

OVERVIEW

We are a leading provider of next-generation billing and customer care
software that can serve as the core of an enterprise solution for integrated
communications providers, or ICPs. Our flagship product, BillPlex, is designed
to enable providers of multiple communications services, such as voice, data,
internet access, video and application hosting, to compete more effectively
while lowering the total costs of their strategic billing and customer care
services. The bundling by communications providers of multiple service offerings
is referred to in the industry as convergence. The majority of our customers are
ICPs who have indicated to us that they use or plan to use BillPlex to support
internet access and data services in addition to traditional voice services.
BillPlex's innovative software architecture gives service providers the ability
to rapidly and cost-effectively launch convergent service offerings -- including
multiple, usage-based services; a single, unified invoice; and a single point
for customer management across all services. Our solution provides
mission-critical functions such as account and service provisioning, subscriber
care and management, rating, billing and payment processing. BillPlex is
designed to serve as the central integration point for a service provider's
enterprise information systems. We utilize our direct sales organization and a
variety of strategic marketing alliances to reach our targeted customer base of
companies that are seeking to provide multiple, convergent communications
services.

INDUSTRY BACKGROUND

The Communications Industry

There is significant competition in the communications industry today in
the United States, due to deregulation that began with the breakup of AT&T in
1984 and intensified as a result of the Telecommunications Act of 1996. These
events, along with similar deregulation and privatization trends in Canada,
Latin America, Europe and Asia, have increased competition worldwide by allowing
new entrants into the market. Many new service providers have emerged that seek
to gain market share from incumbent service providers, such as local exchange
carriers, long distance service providers, and wireless companies. At the same
time, customers have begun to demand, and service providers are making
available, an increasing variety of communications services, including:

- traditional voice services, such as local exchange and long distance;

- wireless services, such as cellular, paging, personal communication
services, or PCS, and satellite communications;

- data services, such as internet access and digital subscriber lines;

- video services, such as cable television and pay-per-view services;

- new voice services, such as voice over internet protocol, or internet
telephony; and

- application hosting services, such as those offered by third-party
application solution providers, or ASPs, providing end users with remote
access and usage of application software systems.

Customers now have greater freedom of choice for their communications needs
and, consequently, core communications services have become commoditized in this
highly competitive market. As customers seek the lowest priced communications
services, the rate of customer turnover among providers, or churn, has increased
dramatically. As a result, service providers must find new ways to distinguish
themselves from their competitors to win new customers and retain their existing
customers. Service providers are seeking to acquire new

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<PAGE> 33

customers by focusing on rapid new service deployment, increased marketing
activities, attractive new rate programs and creative discounting. These service
providers are also trying to attract new customers as well as retain existing
customers by providing superior customer care. In addition, many service
providers have increasingly begun to bundle together and cross-discount various
combinations of communications services to differentiate themselves.

Emergence of Integrated Communications Providers and Convergent Services

These vast changes in the communications environment, particularly the
growth of internet usage and other data services, have spawned a new generation
of integrated communications providers, or ICPs, that bundle a variety of
communications services. This merging of formerly separate services, known as
convergence, has created the framework for new market entrants and incumbent
providers to aggressively move toward multi-service market offerings. ICPs can
be incumbent service providers, such as AT&T, Worldcom, Sprint and BellSouth,
who historically offered a single service but are adding cable television,
wireless telephony, internet access or other services, or new market entrants,
such as Level 3 Communications and Qwest Communications International and other
emerging regional ICPs.

Service Provider Information Systems

Convergence has far-reaching effects on a service provider's business model
and the processes and systems that support it. Service providers rely on
information systems to perform mission-critical operations such as service
activation, provisioning, customer service and billing. Limitations in a
provider's information system can increase the provider's operating costs, as
well as prevent it from offering new services or marketing programs. This may
impair its competitiveness and financial performance.

Billing and customer care systems, or BACC systems, are among the key
components of a service provider's information systems because they enable the
provider to better manage its customers and revenues and to dynamically change
and grow service offerings, marketing programs and rate plans. In today's
intensely competitive communications market, we believe BACC systems can provide
a competitive advantage as service providers attempt to differentiate themselves
by providing superior features such as bundled service offerings,
cross-discounting, one-call customer service and a single bill for multiple
services.

Many BACC systems currently in use were created before the emergence of
today's competitive market, which we believe is seeking bundled services.
Service providers have been forced to repeatedly modify these legacy systems
over time as they have introduced new offerings, marketing promotions and rate
plans in response to intense competition. As a result, many existing service
providers maintain an extremely complex information systems environment
consisting of numerous proprietary systems. These systems have only a limited
interoperability with other elements of the information system that may be
acquired by a service provider or created as a result of a new product or
service offering. These patchwork systems frequently employ older technologies,
are costly to maintain and were designed to support a single communications
service. They require significant time, resources and effort to modify, making
it difficult for service providers to respond quickly and competitively with
innovative marketing promotions and new service offerings.

Next-Generation BACC Requirements

Over the past decade, a first-generation of third-party BACC vendors
emerged as service providers began to replace their older BACC software. While
several sizable and profitable BACC vendors have emerged, we believe the
first-generation BACC systems still have not delivered the performance and
functionality that service providers demand. In general, first-generation BACC
systems still employ older technologies and architectures, were designed

30
<PAGE> 34

before the proliferation of ICPs, are inflexible and require substantial amounts
of costly customization and maintenance.

BACC systems must enable service providers to respond quickly to
competition and changing market conditions in today's fast-growing, dynamic
environment. We believe that both existing and emerging ICPs are looking for
next-generation BACC solutions that are designed to:

- support multiple, convergent communications services;

- speed deployment of new services and pricing programs;

- interoperate with other components of the service provider's information
system; and

- enable easy modification and maintenance without a costly information
technology staff.

THE DALEEN SOLUTION

We are a leading provider of next-generation BACC software that can serve
as the core of an enterprise solution for integrated communications providers.
Our flagship product, BillPlex, enables our customers to provide comprehensive
billing, provisioning, and customer care for a wide array of communications
services that include local, long distance and wireless voice; internet access
and other data services; and application hosting. The majority of our customers
have indicated to us that they are utilizing or planning to utilize BillPlex to
support data services in addition to traditional voice services. BillPlex plays
a key strategic role in a service provider's business by improving its ability
to compete effectively while simultaneously lowering the total cost of providing
BACC services. BillPlex is designed to enable service providers to capture the
key business benefits of:

Increased revenue and market share. From inception, BillPlex has been
designed as a next-generation, convergent software solution to provide billing
and customer care for companies seeking to provide multiple communications
services. BillPlex's innovative architecture has the inherent flexibility to
enable the offering of new communications services and marketing programs and to
respond rapidly to dynamic market conditions without being constrained by its
BACC system. BillPlex enables a service provider to increase revenue and market
share by:

- shortening the initial time required for a new market entrant to launch
its business;

- shortening the time to market for an existing provider to offer new
promotions and services;

- allowing a provider to immediately activate services when a subscriber is
added to the system;

- enabling a provider to offer targeted marketing programs and service
bundles that are optimized for maximum revenue and market penetration;
and

- generating real-time bills that are accurate and easy to understand,
reducing fraud, disputed charges and uncollected revenue.

A pre-configured, whole-product solution. BillPlex is a complete BACC
solution, providing a comprehensive suite of functions and the ability to offer
multiple, convergent communications services under a single, unified invoice. In
addition, BillPlex is available in pre-configured market packages, which enable
providers to enter specific markets and rapidly launch customized services with
minimal system implementation costs. We currently offer a package for
competitive local exchange carriers, or CLECs, and are in the process of
developing packages for the

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<PAGE> 35

markets for internet service providers, or ISPs, integrated communications
providers, or ICPs, application service providers, or ASPs, and wireless
providers.

Improved customer service and customer retention. BillPlex enables a
service provider to offer superior customer care and responsiveness, thus
increasing customer retention. With BillPlex, service providers can create
flexible, unified invoices for all segments of their customer bases. For
example, BillPlex enables service providers to better serve business subscribers
through custom-tailored invoices that match individual organizational structures
and accounting needs. For residential customers, BillPlex allows service
providers to create personalized service bundles that increase customer loyalty
and the costs of switching to a different service provider. In addition,
BillPlex enables a customer service representative to provide superior customer
care and responsiveness through real-time access to all necessary subscriber
account information. Customers are also able to access their own account
information 24 hours per day over the internet.

Enterprise integration and interoperability. BillPlex was designed as a
next-generation BACC software platform, enabling seamless integration with other
applications in a service provider's enterprise operations environment. Our
industry standards-based, open application programming interfaces, or APIs,
allow BillPlex to interoperate with other software programs without writing
custom interfaces. Our open APIs lower the cost of installation and allow
customers to upgrade BillPlex and their enterprise applications independently,
reducing the lifetime costs of system operation and maintenance.

Flexibility, scalability and reliability. BillPlex can grow with a service
provider's needs, scaling down to the needs of the smallest new market entrant
or scaling up for the environment of a large, incumbent service provider. Under
our pricing model, customers have the ability to purchase additional licenses
and products as needed. In addition, BillPlex's flexible architecture enables
our customers to easily support additional communication service offerings,
should they choose to bundle more services in the future. BillPlex allows
providers to distribute database information and processing across multiple
servers, which minimizes the impact of a server failure and maximizes system
availability and reliability.

Increased productivity and lower total operating costs. BillPlex
simplifies system management and user training, because it is a comprehensive
billing solution that allows multi-service rating, customer management, and
invoicing from a common platform. Because additions and modifications to service
offerings, rate plans, and subscribers do not require changes to core BillPlex
software, customers have significantly lower maintenance costs in comparison
with first-generation systems due to reduced reprogramming and information
technology support required to operate and maintain the system. We provide a
toolkit and related training that allow our customers to perform all functions
necessary to adapt, extend, maintain and update their BillPlex solution.
Finally, the ability of BillPlex to integrate quickly with other existing
enterprise software programs and to operate in a Windows NT, Unix or mixed
configuration protects a customer's investment in software, hardware and
supporting personnel, knowledge and data.

STRATEGY

Our goal is to become the leading provider of BACC software solutions to
ICPs by:

Aggressively targeting ICPs. We believe our flagship product, BillPlex, is
well suited for the ICP market because it has been designed from inception as a
truly convergent, rapid time-to-market solution. BillPlex provides a
comprehensive product solution for billing and customer care that a
communications service provider needs to be competitive. We believe that our

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<PAGE> 36

innovative solution provides us with an opportunity for significant growth as
broad industry trends continue to drive the dynamic expansion of the ICP market.

Building a scalable, software-based business model. We provide
pre-configured software solutions that require minimal customization, as
compared to the highly customized nature of most legacy and first-generation
systems. We believe that our pre-integrated packaged solution provides us with a
competitive advantage that we intend to exploit as we pursue our market
leadership goal. This approach is designed to permit us to achieve the high
margins and rapid growth typical of software companies.

Leveraging strategic marketing alliances. We have established strategic
marketing alliances with industry-leading information systems integrators, such
as CAP Gemini, Danet and Unisys, and with providers of complementary information
system components, such as Eftia, Oracle, Telcordia and Vertex. These alliances
help extend our market coverage and provide us with new business leads and
access to a large pool of highly trained implementation personnel. We are
continually seeking to expand the number of partners we work with to further
penetrate the market and accelerate our growth.

Developing and maintaining long-term customer relationships. We seek to
develop and maintain long-term, mutually beneficial relationships with our
customers. Our pricing model is targeted to attract and retain customers through
all phases of their growth. We believe that long-term relationships with rapidly
growing customers will lead to additional product sales, customer references and
ongoing support and maintenance revenue.

Expanding into new geographic markets and industry segments. Our current
customers are located primarily in the United States and Latin America. We
intend to target and penetrate new geographic markets, particularly Europe and
other international markets, as these markets continue to experience market
trends similar to those that have driven growth in the United States. Our
current plans are for entry into Europe in 2000 and into Southeast Asia in 2001.
Further, we intend to penetrate additional market segments, such as the cable
television and utilities markets, through the development and release of
pre-configured packages specifically targeted at those market segments. We have
no scheduled entry dates for penetrating these markets at this time.

PRODUCTS

Our flagship product, BillPlex, is a next-generation BACC software platform
that provides centralized integration of a comprehensive enterprise solution,
enabling communications service providers to perform complex, mission-critical
functions such as account and service provisioning, subscriber care and
management, rating, billing and payment processing. BillPlex's design gives
service providers the ability to rapidly and cost effectively deploy a
convergent service offering -- including multiple, usage-based services, a
single, unified invoice, and a single point for customer relationship
management. The BillPlex system's flexible, distributed architecture supports
the Windows NT and Unix operating systems. Its industry-standard open APIs allow
rapid integration with a variety of operational and business support systems.
BillPlex also provides an optional web interface that allows subscribers to view
their account status and perform other self-care functions at any time over the
internet.

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<PAGE> 37

Key features of BillPlex are as follows:

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
CATEGORY DESCRIPTION
- ------------------------------------------------------------------------------------
<S> <C> <C>
ACCOUNT AND - Allows a service provider to add, change or delete
SERVICE residential and business subscribers and set up
PROVISIONING multi-tier organizational relationships; assign services
to each subscriber; and bundle services through an
easy-to-use Windows task-based graphical user interface
that utilizes icons to represent computer commands.
- Supports an easy-to-use interface for managing complex
accounting and organizational invoicing requirements
- Supports dynamically configurable subscriber
characteristics for capturing demographic information
customized to the provider's needs
- Enables commission calculation by allowing a service
provider to keep track of sales agent information for
each subscriber and service
- Manages inventory of connection numbers, such as
telephone numbers and internet protocol addresses
- Provisions services at network elements and application
servers through its network mediation interface and
optional third-party network mediation devices
- Enables subscriber access to account information through
the internet
- ------------------------------------------------------------------------------------
SUBSCRIBER - Allows a service provider to provide immediate, or
MANAGEMENT real-time, access to information about the account and
each service subscribed to a single customer service
representative
- Logs all customer interactions for quality assurance
- Enables analysis of marketing program effectiveness
- ------------------------------------------------------------------------------------
USAGE PROCESSING - Allows a service provider to collect and process usage
data for multiple services from a variety of sources in
real time, batch mode or both
- Provides a graphical user interface for configuring usage
data import formats to accommodate differences among the
network elements of various vendors
- Archives usage data based on a service provider's policy
- ------------------------------------------------------------------------------------
</TABLE>

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<PAGE> 38

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
CATEGORY DESCRIPTION
- ------------------------------------------------------------------------------------
<S> <C> <C>
BILLING - Provides an easy-to-read, accurate, unified bill that
enables flexible, competitive marketing programs through
bundling of convergent services, including cross-service
and volume discounting
- Supports flexible billing hierarchies so that volume
discounts can be applied to various organizational
structures
- Supports comprehensive taxation plans
- Allows a service provider to extend and adapt BillPlex
functions such as creating new rate plans and integrating
with existing enterprise applications, such as general
ledger
- Allows subscribers to access and view their account
statements from the internet
- ------------------------------------------------------------------------------------
PAYMENT PROCESSING - Enables fast, low-cost payment processing for cash,
credit card and batch lockbox payments
- Reduces potential losses through effective collection and
credit management
- Supports prepaid deposit, refund and returned check
processing
- Verifies customer credit information through BillPlex's
real-time credit bureau link
- Allows payment to one or more open invoices for a given
subscriber
- ------------------------------------------------------------------------------------
REPORTING - Offers 32 standard reports
- Provides a toolkit including a custom report generation
utility
- ------------------------------------------------------------------------------------
SYSTEM - Allows a service provider to assign different levels of
ADMINISTRATION authorization to customer service representatives so that
they can only access and perform functions for which they
are authorized
- Allows a service provider to define system-wide rules and
policies for system operation
- ------------------------------------------------------------------------------------
INTERNATIONAL - Encapsulates language sensitive components for easy
SUPPORT language translation
- Supports a different currency selection for each account
- ------------------------------------------------------------------------------------
</TABLE>

BillPlex Market Packages. Our current market packages and those under
development are designed to provide a complete, service-ready rating and billing
system that includes:

- pre-configured data reports that enable the provision of services, a
standard invoice, rate plans, payment applications and documentation
that tailor BillPlex to meet the requirements for particular markets;
and

- the ability to easily work with third-party applications, such as
taxation and address validation, for a particular market.

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<PAGE> 39

In addition, we provide standardized set-up, configuration and testing of
BillPlex and our market packages to ensure proper implementation and optimal
performance within predefined parameters.

We believe service providers gain a number of advantages from our
pre-configured market packages. Providers are able to launch service much faster
and at lower costs than if they implemented a traditional BACC system since all
of the business processes and program settings appropriate to their market model
have already been pre-configured in the BillPlex market package software.
Because the market packages are based on the core BillPlex product, the service
provider retains all of the system flexibility, adaptability, and low total cost
of ownership that the BillPlex architecture provides. Providers can quickly add
new services, rate plans, and promotional programs as needed without expensive
and time-consuming customization.

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<PAGE> 40

We currently have or plan to make available the following market packages:

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------
PACKAGE DESCRIPTION
- ----------------------------------------------------------------------------------
<S> <C>
CLEC A complete, service-ready BACC system that enables a CLEC to
currently bill for:
available - Residential and business local and long distance services,
such as switched and dedicated services and custom calling
features
- Calling card services
- Wholesale service offering support
- Includes basic local calling area taxation setup
- ----------------------------------------------------------------------------------
ISP/DATA SERVICES A complete, service-ready BACC system that will enable an
scheduled for ISP to bill for:
release in 3rd
quarter of 1999 - Residential and business dial-up, digital subscriber line,
or DSL, and dedicated internet access
- Web and content hosting
- Virtual private network, or VPN
- ----------------------------------------------------------------------------------
ICP A complete, service-ready BACC system that will enable an
scheduled for ICP to bill for:
release in 3rd
quarter of 1999 - Residential and business local and long distance services,
such as switched and dedicated services and custom calling
features,
- Calling card services
- Wholesale service offering support
- Residential and business dial-up, DSL, and dedicated
internet access
- Web and content hosting
- VPN
- Integrated voice and data services on a single invoice
- ----------------------------------------------------------------------------------
ASP A complete, service-ready BACC system that will enable an
scheduled for ASP to bill for:
release in 4th
quarter of 1999 - Flat-rate application hosting services
- Usage-sensitive application billing services
- ----------------------------------------------------------------------------------
WIRELESS A complete, service-ready BACC system that will enable a
scheduled wireless carrier to bill for:
for release in 1st
quarter of 2000 - Residential and business zoned wireless and personal
communications services, or PCS, such as free airtime
minutes and tiered airtime rating charges and discounts
- Long distance services, such as zoned toll areas and
custom calling wireless features
- The processing, clearing and billing of third party
network calls
- ----------------------------------------------------------------------------------
</TABLE>

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<PAGE> 41

CUSTOMER SERVICE AND TECHNICAL SUPPORT

Our customer services are designed to provide customers with superior
support while giving them the tools and knowledge they need to independently run
their day-to-day operations. We provide the following services:

Professional consulting services. We provide a variety of professional
consulting services to assist customers in the implementation, modification and
customization of the BillPlex product and its market-based packages. We work
with customers to establish business models and processes that utilize BillPlex
to increase their market power and lower their operating costs.

Training. We offer training programs for system operators, billing
administrators and supervisors of customer service representatives. Our training
programs are designed to provide customers with the tools and education they
need to be able to train their own personnel for maximum effectiveness.

Maintenance. We have a comprehensive maintenance and support program which
provides customers with timely and high-quality maintenance and support services
for our products. These services are generally provided under maintenance
agreements between our customers and us. These agreements entitle our customers
to multiple levels of telephone technical support for prompt and professional
response to customer questions or problems and maintenance. We also provide
customer self-service capabilities 24 hours per day through our on-line
maintenance tracking system.

Third-party software fulfillment. When our customers require it, we
provide a complete solution by offering third-party software products they may
need to rapidly implement their systems. We provide enabling platform products,
such as the Windows NT operating system and Oracle database software;
complementary products that integrate with BillPlex, such as QMS address
validation software; and tools that support development and reporting on the
data in BillPlex, like Crystal Reports or Borland's development toolkit
software.

TECHNOLOGY

BillPlex was developed using an open architecture with industry
standards-based application programming interfaces, or APIs, which enable it to
readily integrate with other software applications. These APIs create an
object-oriented, multi-layered architecture that supports an enterprise-wide,
distributed environment, with the following benefits:

- increased system price/performance, reliability, scalability and
manageability;

- a modular environment in which applications can be integrated rapidly and
upgraded independently;

- simplified, lower-cost application development and maintenance efforts;

- the ability to easily extend and adapt BillPlex functionality to a
customer's operational support system, or OSS, and business support
system, or BSS; and

- interoperability with a large number of applications and systems.

Our multi-layer, or N-tier, architecture consists of the following:

Billing application framework. This tier employs a flexible and scalable
messaging protocol to support a distributed, event-driven framework for
extending and adapting BillPlex functions to meet the most complex customer
requirements. The API provided by the billing application

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<PAGE> 42

framework allows a customer to tailor BillPlex's functions like rating and
enables its interoperability with external third-party systems like taxation or
mediation. The billing application framework allows applications to run on any
server in a network environment, offering greater scalability and throughput.

Data tier. Using a layer of business data objects, enterprise applications
can access not only BillPlex's Oracle relational database but also third-party
data sources, enabling the development of applications with transparent access
to any data source. Business data objects encapsulate data access functions for
entities such as subscriber, service and rate plans.

Enterprise application framework. This three-layer framework consists of
business process objects, business rule objects, and business data objects.
Business process objects encapsulate processes such as service order creation.
Business rule objects enforce rules required by customers and the underlying
data model. This partitioning offers greater flexibility by allowing dynamic
modification of business rules and processes without changing data objects. The
enterprise application framework supports transaction integrity and resource
pooling, offering a scalable, reliable environment for mission-critical
enterprise applications.

Enterprise application tier. This tier includes enterprise applications,
such as customer relationship management, decision support, enterprise resource
planning software and network management systems, that use the BillPlex
enterprise application framework API to access BillPlex's data and functions, as
well as other databases and applications supported by the framework.

Client tier. The client tier includes any application that allows an end
user to access BillPlex. For example, this application can be a customer service
representative using BillPlex's graphical user interface client, an internet
user browsing for self-care, a sales agent using a customer relationship
management application to sell services to customers or a network administrator
using an operational support system application to manage network inventory.

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<PAGE> 43

(BILLPLEX CHART)

CUSTOMERS

Our typical customers are companies that are seeking to provide multiple
communications services including local, long distance and wireless voice
communications, internet access and other data communications services. We
believe our customers benefit from BillPlex's design for multiple, convergent
services, as well as its scalability and flexibility. We also believe our
customers value BillPlex's comprehensive design, rapid installation time, ease
and speed of downstream changes, pre-integration with other enterprise
applications and low operating costs.

As of August 31, 1999, we had 22 customers, consisting of local and
competitive local exchange carriers, interexchange carriers, internet service
and other data services providers, wireless carriers, and ICPs. These customers
are located in the United States, Canada, Latin America and Europe. Our
customers include: America Latina Telecomunicacoes Avencades, SA; KINI L.C.;
PaeTec Corp.; Pac-West Telecomm, Inc.; NewSouth Communications Corp.; Network
Access Solutions; 2nd Century Communications, Inc., SteadFast.net Inc., a
subsidiary of BellSouth Corporation, and CAIS Internet, Inc.

For the six months ended June 30, 1999, CTC Communications, Inc., NewSouth
Communications Corp., Q-Comm Corporation, Pac-West Telecomm, Inc. and Gabriel
Communications, Inc. each accounted for 10% or more of our total revenue.

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<PAGE> 44

SALES AND MARKETING

Sales. Our sales strategy is focused on emerging ICPs, including carriers
who need a solution that supports multiple communications services, as well as
carriers with a single-service offering who plan to migrate to a
multiple-service offering. Through our direct sales approach, we have developed
relationships with service providers through a problem-solving sales process and
work closely with them to define and determine how their needs can be fulfilled
by our BillPlex product. Through our indirect sales channel approach, we have
developed relationships with leading professional services providers that can
sell, implement and customize our products. In addition, we have developed
relationships with other leading communications-focused companies that offer
products complementary to ours, and who can sell our products jointly with their
solutions.

Due to the sophisticated nature of our products and services, the duration
of a sales cycle can typically range anywhere from 30 days to one year. We
intend to gradually increase the size of our direct sales organization while
also focusing on the ongoing development of the indirect sales channel through
our marketing alliances.

Marketing. Our marketing programs are focused on creating awareness,
interest and preference for our products and services. We engage in a variety of
marketing activities, including:

- supporting our strategic marketing alliances;

- conducting seminars, trade shows and special events;

- creating and placing advertisements;

- creating direct mail and direct response programs;

- conducting ongoing public and press relations programs;

- creating, managing and maintaining our web site;

- participating in industry consortia and partnership programs with key
influencers; and

- establishing and maintaining close relationships with recognized industry
analysts.

STRATEGIC MARKETING ALLIANCES

We have developed strategic marketing alliances that expand the coverage of
our direct sales organization and provide implementation and customization
services for our products. These alliances enable us to focus our resources on
product development, enhancement and customer service. Our strategy is to
leverage our current marketing relationships and to develop new marketing
alliances to help achieve our sales and implementation targets.

Our marketing alliance program is based on two types of relationships,
business alliances and enterprise alliances:

- Our business alliances are primarily with systems integrators that can
sell, implement and customize our products, and include: American
Management Systems, Incorporated; CAP Gemini America, LLC; Danet, Inc.;
and Unisys Corp. These and our other business alliances have successfully
completed BillPlex projects to the satisfaction of our customers and
within our quality standards. To become an affiliate in our business
alliance program,

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<PAGE> 45

a company must establish an implementation team that has been trained and
certified by us.

- Enterprise alliances are with companies in the business of developing and
marketing enterprise information system products that are complementary
to and interoperable with our products. Some of our enterprise alliance
affiliates include Oracle, The Hutton Company and Vertex. These companies
are able to effectively market our products, because customers purchase
them together as part of the deployment of a comprehensive enterprise
information solution.

RESEARCH AND DEVELOPMENT

Our product development capabilities are essential to our strategy of
enhancing our core technology, developing additional applications incorporating
that technology and maintaining the competitiveness of BillPlex and related
products and services. We have invested heavily in software development to
ensure that we have the product design skills and tools for achieving our market
leadership objective. We recognize that our ability to create and extend our
products with each release comes from hiring exceptionally talented software
engineers, quality assurance testers and billing and telecommunications
specialists. We have also created a structured process for both platform and
market package releases that serves as a framework for minimizing our product
development cycle times and ensuring quality software releases that meet or
exceed our customers' requirements.

Our research and development expenses totaled approximately $1.1 million
for 1996, $1.7 million for 1997, and $6.7 million for 1998. As of August 31,
1999, approximately 60 employees were engaged in research and development
activities.

COMPETITION

The markets in which we compete are relatively new, intensely competitive,
highly fragmented and rapidly changing. We expect this competition to increase
in the future. Our products compete on the basis of performance, scalability,
extensibility, ease of integration and cost of ownership. The principal
competitive factors in our market include responsiveness to the needs of our
customers, product features, timeliness of implementation, quality and
reliability of products, price, project management capability and technical
expertise. We believe that our product features and our pricing strategy offer
competitive advantages.

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

Our main competitors include:

- Kenan Systems Corporation, a wholly-owned subsidiary of Lucent
Technologies Inc.;

- Saville Systems, PLC, the subject of a recently announced proposed
acquisition by ADC Telecommunications, Inc.;

- Portal Software, Inc.;

- LHS Group, Inc.;

- Amdocs Limited; and

- Intertech Management Group, Inc.

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<PAGE> 46

Other companies with which we compete are International Telecommunications
Data Systems, Inc., Sema Group, PLC and Intasys Corporation. We also compete
with systems integrators, service bureaus and with the internal information
technology departments of large communications companies, who may elect to
develop functionalities such as those provided by our product in-house rather
than buying them from outside suppliers. No competitor is dominant, and we
believe that each of the largest companies with whom we directly compete holds
less than a 10% share of the market.

We anticipate continued growth and competition in the communications
industry and the entrance of new competitors into the billing and customer care
software market, and that the market for our products will remain intensely
competitive. We compete with a number of companies that have longer operating
histories, larger customer bases, substantially greater financial, technical,
sales and marketing resources, and greater name recognition than we do.

In addition, as we expand, we will market our products and services to
service providers in geographic and industry markets that we do not currently
serve. Upon our entrance into these markets, we may encounter new competitors,
some of which could have significantly greater resources than we have.

INTELLECTUAL PROPERTY

We regard significant portions of our software products and related
processes as proprietary and rely on a combination of patent, copyright,
trademark and trade secret law, contractual provisions and nondisclosure
agreements to protect our intellectual property rights. We currently have four
patent applications pending in the United States. In addition, we have filed a
number of trademark applications to protect our trademarks and tradenames. There
is no guarantee that our pending patent or trademark applications will result in
issued patents or trademarks, or will provide us with any competitive
advantages. In addition, our patent and trademark applications may be challenged
by third parties.

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

EMPLOYEES

As of August 31, 1999, we had 187 full-time employees, of whom 69 were in
product implementation and support, 23 in sales and marketing, 60 in research
and product development and 35 in administration. We have never had a work
stoppage and none of our employees are represented under collective bargaining
agreements. We consider our relations with our employees to be good.

FACILITIES

We lease an aggregate of approximately 31,000 square feet in two separate
offices in an office complex located in Boca Raton, Florida. We occupy these
premises under two leases,

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which expire in May 2000 and January 2001. We recently subleased approximately
46,500 square feet in a three-story professional office building in Boca Raton.
The term of this sublease is from October 1, 1999 to May 30, 2008. In addition
to our corporate office space in Boca Raton, Florida, we also lease
approximately 24,000 square feet of office space in Atlanta, Georgia. The
Atlanta lease expires on August 31, 2004. We also have sales offices in Boston,
Massachusetts, Charlotte, North Carolina, and Chicago, Illinois.

LEGAL PROCEEDINGS

We are not a party to any material legal proceeding.

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MANAGEMENT

The following table presents information about our executive officers and
directors:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
James Daleen.............. 39 Chairman of the Board of Directors and Chief
Executive Officer
David B. Corey............ 39 President, Chief Operating Officer and Director
Richard A. Schell......... 48 Chief Financial Officer, Treasurer and Director
Stephen M. Wagman......... 39 Executive Vice President of Corporate Development
and Secretary
Manuel J. M. Andrade...... 44 Vice President of International Business
Development and Managing Director of Caribbean and
Latin America Regions
Phillip R. Davis.......... 32 Vice President of Human Resources
Frank D. Dickinson........ 29 Vice President of Development
David J. McTarnaghan...... 37 Vice President of Sales
Timothy C. Moss........... 33 Vice President of Operations
Timothy N. Murray......... 38 Vice President of Product Management and Marketing
John Z. Yin............... 40 Vice President of Technology
Paul G. Cataford.......... 35 Director
Neil E. Cox............... 49 Director
Daniel J. Foreman......... 40 Director
Stephen J. Getsy.......... 54 Director
Ofer Nemirovsky........... 41 Director
William A. Roper, Jr...... 53 Director
</TABLE>

JAMES DALEEN, our founder, has served as chairman of the board and chief
executive officer since our inception in 1989. Mr. Daleen served as president
and chief executive officer of Sound Impulse Company, an electrical construction
company, from 1983 until 1995.

DAVID B. COREY has served as president and chief operating officer since
February 1998 and as a director since June 1998. Before joining us, Mr. Corey
served as senior vice president of Global Marketing for Westell, Inc., a
telecommunications equipment company, from November 1996 to February 1998, and
as vice president and managing director/Asia Pacific for Westell International,
a telecommunications company, from January 1994 to November 1996.

RICHARD A. SCHELL has served as chief financial officer since November 1994
and as a director since December 1995. Mr. Schell was also elected secretary and
treasurer in December 1995 and resigned as secretary in June 1999. Mr. Schell
served as vice president of finance and chief financial officer of Fibercorp
International, Inc., a software and hardware company, from 1993 until 1994. Mr.
Schell has been a certified public accountant since 1973 and was an audit
partner with KPMG LLP until 1993.

STEPHEN M. WAGMAN joined us in June 1999 as executive vice president of
corporate development. Mr. Wagman was appointed secretary in June 1999. Before
joining us, Mr. Wagman served in various capacities with PowerCerv Corporation,
an enterprise resource

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<PAGE> 49

planning software company, from August 1995 to June 1999, including chief
financial officer, treasurer, senior vice president of administration, chief
counsel and secretary. Before that, Mr. Wagman served as vice president,
treasurer and secretary for International Data Matrix, Inc., a bar code and
machine vision technology company, from July 1988 until August 1995.

MANUEL J.M. ANDRADE has served as vice president of international business
development and managing director of Caribbean and Latin America regions since
September 7, 1999. Before joining us, Mr. Andrade served in various capacities
from August 1993 to August 1999 for Westell Technologies, Inc., a
telecommunications equipment company, last serving as vice president and general
manager for international and channel sales.

PHILLIP R. DAVIS joined us as vice president of human resources in June
1999. Before joining us, he served as the senior vice president of human
resources for HomeBanc Mortgage Corporation from December 1997 to June 1999.
Before that, Mr. Davis was human resources manager for Chase Manhattan Mortgage
Corporation from July 1995 to December 1997, director of human resources for
Main Street Mortgage, L.P., a mortgage service, from November 1994 to June 1995
and process manager of Chase Manhattan Bank from July 1989 to November 1994.

FRANK D. DICKINSON has served as vice president of development since
December 1996. Before assuming his current position, Mr. Dickinson worked for us
as director of research and development from April 1996 to December 1996, as
project manager from November 1994 to April 1996 and as a software engineer from
November 1991 to November 1993.

DAVID J. MCTARNAGHAN has served as vice president of global sales since
June 1998. Before joining us, Mr. McTarnaghan was employed by Fujitsu BCS, a
communications services company, from May 1991 to June 1998, last serving as a
district general manager.

TIMOTHY C. MOSS has served as vice president of operations since January
1999. Before joining us, Mr. Moss was employed by Carolina PCS, a wireless
communications company, as executive vice president of operations from April
1998 to December 1998. From June 1995 to January 1998, Mr. Moss was vice
president of information technology for Powertel, Inc., a wireless
communications company, and from January 1994 to June 1995, director of
information systems and customer support for InterCel, a cellular communications
company.

TIMOTHY N. MURRAY joined us as vice president of product management and
marketing in August 1999. Before joining us, Mr. Murray served as president of
Athena Information Systems, an application service provider, from December 1998
to June 1999. Mr. Murray was the vice president of marketing and product
management of Ariel Corporation, a data communications hardware and software
company, from December 1996 to October 1998. Mr. Murray served as business area
director for Voice Technologies Group, a computer telephony integration
supplier, from April 1994 to November 1996.

JOHN Z. YIN joined us as director of technology in April 1997 and was
promoted to vice president of technology in June 1997. Before joining us, Mr.
Yin served as vice president of technology of Fleet.Net, Inc., a software
development and internet service company, from October 1996 until April 1997.
Mr. Yin was a senior member of the technical staff of Pacific Communications
Sciences, Inc., a hardware and software development company in the wireless
communications market, from August 1995 until October 1996. From December 1987
until August 1995, Mr. Yin held various positions with IBM Corp., a
multinational hardware and software services company, last serving as senior
programmer.

46
<PAGE> 50

PAUL G. CATAFORD has served as a director since August 1998. Mr. Cataford
has served as vice president of investments for BCE Capital, Inc., a management
company charged with all venture capital activities of Bell Canada, from August
1997 to present. From January 1994 until July 1997, Mr. Cataford was the team
leader of investments of Working Ventures Canadian Fund, a venture capital fund.
Mr. Cataford also serves on the board of directors of the audit committee of
Sierra Wireless Inc., a company that develops wireless data modems.

NEIL E. COX has served as a director since August 1999. Mr. Cox has served,
since January 1998, as the president of SecurityLink from Ameritech, a business
unit of Ameritech Corporation that provides international security and
monitoring services. From 1987 to January 1998, Mr. Cox served in various
management capacities at Ameritech, a full-service communications company, last
serving as president of information services.

DANIEL J. FOREMAN has served as a director since June 1998. Mr. Foreman has
served as a managing director of ABN AMRO, Inc., an investment firm, since
October 1997 and was previously vice president of investments and acquisitions
for Ameritech Corporation, a communications company, from October 1987 to
October 1997.

STEPHEN J. GETSY has served as a director since October 1997. Mr. Getsy has
been the president and chief executive officer of On-Line Ventures, Inc., a
business consulting and investment company, from November 1993 to present.

OFER NEMIROVSKY has served as a director since September 1997. Mr.
Nemirovsky has been a managing director of HarbourVest Partners, LLC since
January 1997. HarbourVest Partners, LLC was formed by the management team of
Hancock Venture Partners where Mr. Nemirovsky had served in various capacities
since 1986. Mr. Nemirovsky is a director of The Ultimate Software Group,
Paradigm Geophysical Ltd. and Primix Solutions, Inc.

WILLIAM A. ROPER, JR. has served as a director since July 1999. Mr. Roper
has been the senior vice president and chief financial officer of Science
Applications International Corporation, or SAIC, a technology research and
development company, since April 1990. Before joining SAIC, Mr. Roper served as
executive vice president and chief financial officer of Intelogic Trace, Inc.,
from 1987 to 1990. Mr. Roper is also a director of Network Solutions, Inc. a
provider of internet address registration, intranet development and network
security services, and ODS Networks, Inc., a provider of high performance
telecommunications and security products.

Under agreements that will terminate upon completion of this offering:

- Holders of common stock were entitled to elect three directors, who are
currently Messrs. Daleen, Corey and Schell;

- Holders of series A convertible preferred stock were entitled to elect
three directors and have elected Messrs. Nemirovsky, Getsy and Cox to
serve on the board of directors;

- BCE Capital, Inc., a holder of series D convertible preferred stock, was
entitled to elect one director, who is currently Mr. Cataford;

- Holders of series D and D-1 convertible preferred stock, other than BCE
Capital, Inc., were entitled to elect one director, who is currently Mr.
Foreman; and

- Holders of series E convertible preferred stock were entitled to elect
one director, who is currently Mr. Roper.

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<PAGE> 51

OBSERVER RIGHTS AFTER THE OFFERING

After the offering, several existing stockholders will have a right under
their preferred stock purchase agreements to have one representative attend each
meeting of the board of directors so long as they continue to own a specified
number of shares of the common stock they receive upon the automatic conversion
in the offering of the convertible preferred stock held by them. Specifically,
St. Paul Venture Capital IV, L.L.C. and JK&B Capital, L.P. each have the right
to have an observer present so long as they continue to hold 198,891 and 163,612
shares of common stock.

COMMITTEES OF THE BOARD OF DIRECTORS

The audit committee consists of Mr. Foreman, the chairman, and Mr. Roper.
The audit committee reviews the scope and timing of our audit services and any
other services our independent auditors are asked to perform. In addition, the
audit committee reviews and evaluates our audit and control functions and makes
recommendations to the board of directors for the selection of independent
auditors for the following year.

The compensation committee consists of Mr. Getsy, the chairman, and Messrs.
Cataford and Nemirovsky. The compensation committee reviews and evaluates the
compensation and benefits of all our officers, reviews general policy matters
relating to compensation and benefits of our employees and makes recommendations
concerning these matters to the board of directors. The compensation committee
also administers our stock option plans.

COMPENSATION OF DIRECTORS

Neither employee nor non-employee directors receive compensation for
services performed in their capacity as directors. We reimburse each director
for reasonable out-of-pocket expenses incurred in attending meetings of the
board of directors and any of its committees. In addition, it is our policy that
outside directors who are not employed by venture capital firms are eligible to
receive options to purchase our common stock under our amended and restated
stock incentive plan. The board of directors determines the vesting schedule for
options granted to non-employee directors under our amended and restated stock
incentive plan.

In October 1997, the board of directors granted Mr. Getsy an option to
purchase 75,000 shares of common stock at $3.25 per share. Our board of
directors also granted Mr. Getsy an option to purchase 15,000 shares at $3.25
per share in December 1998. The options become exercisable at the rate of 25% of
the total number of shares per year. None of these options have been exercised.

TERMS OF DIRECTORS AND EXECUTIVE OFFICERS

Immediately after this offering, our board of directors will be divided
into three classes, each of whose members will serve for a staggered three-year
term. At each annual meeting of stockholders, a class of directors will be
elected for a three-year term to succeed the directors of the same class whose
terms are then expiring. Our bylaws provide that each class of directors

48
<PAGE> 52

will be elected by a plurality of all votes cast at the meeting. The board will
initially consist of the following directors:

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
EXPIRATION OF
CLASS DIRECTORS TERM
<S> <C> <C>
- -----------------------------------------------------------------------------------------
Class I Paul G. Cataford 2000
William A. Roper, Jr.
Richard A. Schell
- -----------------------------------------------------------------------------------------
Class II David B. Corey 2001
Daniel J. Foreman
Neil E. Cox
- -----------------------------------------------------------------------------------------
Class III James Daleen 2002
Stephen J. Getsy
Ofer Nemirovsky
- -----------------------------------------------------------------------------------------
</TABLE>

Each executive officer serves at the discretion of the board of directors
and holds office until his successor is elected and qualified or until his
earlier resignation or removal. There are no family relationships among any of
our directors or executive officers.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the compensation committee of the board of directors are
currently Messrs. Cataford, Getsy and Nemirovsky, none of whom have ever been an
officer or employee of Daleen Technologies.

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<PAGE> 53

EXECUTIVE COMPENSATION

The following table presents the total compensation paid or accrued by us
in 1998 for our chief executive officer and our four other most highly
compensated executive officers who were serving as executive officers as of
December 31, 1998 and whose total annual salary and bonuses were in excess of
$100,000 in 1998. Information on Mr. Wagman, executive vice president of
corporate development and secretary, is not provided below because he was not an
employee of Daleen Technologies on December 31, 1998.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS SECURITIES
COMPENSATION ------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
- --------------------------- ---- ------------ ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C>
James Daleen...................... 1998 $260,000 $136,500 201,459 $ --
Chairman of the Board and
Chief Executive Officer
David B. Corey.................... 1998 176,154 93,500 304,500 101,725(2)
President and Chief Operating
Officer(1)
Richard A. Schell................. 1998 165,000 86,625 81,000 --
Chief Financial Officer
and Treasurer
Frank D. Dickinson................ 1998 105,000 29,183 30,000 --
Vice President of Development
John Z. Yin....................... 1998 115,000 30,454 30,000 --
Vice President of Technology
</TABLE>

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

(1) Mr. Corey commenced employment with Daleen on February 10, 1998; his
annualized base salary for fiscal 1998 was $200,000.
(2) Includes closing cost reimbursement for relocation expenses of $58,554 and a
payment of $43,171 to reimburse Mr. Corey for taxes paid by him.

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<PAGE> 54

OPTION GRANTS IN LAST FISCAL YEAR

The following table presents all individual grants of stock options during
the year ended December 31, 1998 to each of the named executive officers. These
options were granted with an exercise price equal to the fair market value of
our common stock on the date of grant as determined by our board of directors.
The 5% and 10% assumed annual rates of compound stock price appreciation are
prescribed by the rules and regulations of the Securities and Exchange
Commission and do not represent our estimate or projection of the future trading
prices of our common stock. There can be no assurance that the actual stock
price appreciation over the ten-year option term will be at the assumed 5% and
10% levels or at any other defined level. Actual gains, if any, on stock option
exercises are dependent on numerous factors, including our future performance,
overall market conditions and the option holder's continued employment with us
throughout the entire vesting period and option term, none of which are
reflected in this table. The potential realizable value is calculated by
multiplying the fair market value per share of the common stock on the date of
grant as determined by the board of directors, which is equal to the exercise
price per share, by the stated annual appreciation rate compounded annually for
the option term, subtracting the exercise price per share from the product, and
multiplying the remainder by the number of shares underlying the option granted.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
OPTION GRANTS IN LAST FISCAL YEAR VALUE AT ASSUMED
--------------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED EXERCISE FOR OPTION TERM
OPTIONS TO EMPLOYEES PRICE EXPIRATION --------------------
NAME GRANTED(#) IN FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ---- ---------- ---------------- ------------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
James Daleen................... 76,923(1) 6.8% $2.50 1/5/03 $ 53,131 $117,406
124,536(2) 11.0 3.25 12/31/08 254,540 645,055
David B. Corey................. 86,923(1) 7.7 2.50 2/5/03 60,038 132,668
94,500(2) 8.3 3.25 12/31/08 193,149 489,478
123,077(2) 10.8 3.25 2/5/03 110,513 244,204
Richard A. Schell.............. 81,000(2) 7.1 3.25 12/31/08 165,557 419,553
Frank D. Dickinson............. 30,000(2) 2.6 3.25 12/31/08 61,317 155,390
John Z. Yin.................... 30,000(2) 2.6 3.25 12/31/08 61,317 155,390
</TABLE>

- -------------------------
(1) This option is a nonqualified stock option, vests over two years and has a
five-year term.
(2) This option is an incentive stock option, vests over four years and has a
ten-year term.

AGGREGATE OPTION EXERCISES IN 1998 AND YEAR-END OPTION VALUES

The following table summarizes the value of the outstanding options held by
the named executive officers at December 31, 1998. No stock options were
exercised by any of these individuals during 1998. The value columns represent
the difference between the fair market value of the shares of common stock
underlying the options at December 31, 1998 as

51
<PAGE> 55

determined by our board of directors, $3.25 per share, less the exercise price
payable upon exercise of these options.

<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
-----------------------------------------------------------------------
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FY-END(#) AT FY-END($)
--------------------------------- -----------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------------- ---------------- --------------- -----------------
<S> <C> <C> <C> <C>
James Daleen........................ 330,909 146,536 $515,394 $63,192
David B. Corey...................... -- 304,500 -- 65,192
Richard A. Schell................... 84,559 182,199 91,750 3,333
Frank D. Dickinson.................. 29,921 62,917 20,897 1,667
John Z. Yin......................... 12,850 68,750 659 1,667
</TABLE>

STOCK OPTION AND OTHER COMPENSATION PLANS

Amended and Restated Stock Incentive Plan. We have established a new stock
incentive plan, the amended and restated stock incentive plan. The plan is
intended to promote our interests by providing employees and key persons the
opportunity to purchase shares of common stock and to receive compensation based
upon appreciation in the value of those shares. We have reserved 1,348,881
shares of common stock for issuance under this plan. The plan provides for the
grant of four types of awards:

- incentive stock options that qualify for tax benefits;

- non-qualified stock options;

- restricted stock awards; and

- stock appreciation rights.

This plan supercedes a number of prior plans that we adopted which are
described below. Under this new plan, options have been granted to purchase
359,500 shares of our common stock at a weighted average exercise price of $5.50
per share.

Beginning in year 2000, this plan authorizes us to automatically adjust the
number of shares of common stock available for issuance under this plan on the
first day of each fiscal year so that the total number of shares reserved for
issuance under this plan will equal the sum of:

- the aggregate number of shares previously issued under this plan;

- the aggregate number of shares subject to outstanding options granted
under this plan; and

- 5% of the number of shares outstanding on the last day of the preceding
fiscal year;

with a maximum annual increase of 800,000 shares.

Prior Stock Option Plans. We adopted six stock option plans between 1994
and 1998. Some of these plans provided for incentive stock options within the
meaning of Subsection 422 of the Internal Revenue Code while others provided for
non-qualified stock options. All of these plans are administered by a stock
option committee consisting of not less than two nor more than five members
appointed by our board of directors.

As of August 31, 1999, options to purchase an aggregate of 1,947,536 shares
of common stock were outstanding under these plans at a weighted average
exercise price of $3.14 per share.

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<PAGE> 56

416,951 shares of common stock have been issued upon exercise of options granted
under these plans. We are not authorized to issue any more options under any of
these plans.

EMPLOYMENT AGREEMENTS

We entered into a five-year employment agreement with James Daleen, our
chief executive officer, on December 1, 1994, which was amended on September 5,
1997 and March 1, 1999. Upon expiration of the current term in December 1999,
the agreement automatically renews for additional terms of three years each
unless either party notifies the other of its intent to terminate the agreement.
The agreement provides for a base salary of $286,000 in 1999 and an annual bonus
to be determined by our compensation committee, with the annual bonus targeted
at 50% of his base salary. The agreement also provides for annual salary
increases, as determined by our compensation committee, and option grants under
our stock option plans, as determined by our board of directors. In the event of
the termination of his employment without substantial cause, Mr. Daleen is
entitled to severance payment equal to two years' base salary in effect at the
time of termination and a bonus in addition to the payment of all related
excise, federal or state income taxes incurred by the executive as a result of
the lump sum cash payment.

We entered into a three-year employment agreement with Richard Schell, our
chief financial officer and treasurer, on November 15, 1994, which was amended
on January 31, 1997. Upon expiration of the current term in November 2000, the
agreement automatically extends for additional three-year terms unless either
party notifies the other of its intent to terminate the agreement. The agreement
provides for a base salary of $181,000 per year and an annual bonus to be
determined by our compensation committee, with the annual bonus targeted at 50%
of his base salary. The agreement also provides for salary increases as
determined by our compensation committee. In the event of the termination of Mr.
Schell's employment without substantial cause, he is entitled to a severance
payment equal to one year's base salary in effect at the time of termination.

We entered into an employment agreement with David Corey, our president and
chief operating officer, on January 31, 1998. This agreement may be terminated
by either party at any time. The agreement provides for a base salary of
$220,000 per year, an annual salary increase to be determined by our
compensation committee, and an annual bonus to be determined by our compensation
committee, with the annual bonus targeted at 50% of his base salary. In the
event of the termination of his employment without substantial cause, Mr. Corey
is entitled to a severance payment equal to one year's base salary in effect at
the time of termination. We can elect to pay Mr. Corey only six months of
severance if we release him from his non-compete agreement.

We entered into an employment agreement with Stephen Wagman, our executive
vice president of corporate development and secretary, on April 28, 1999. The
agreement can be terminated by either party at any time. The agreement provides
for a base salary of $170,000 per year and an annual salary increase to be
determined by our compensation committee, with an annual bonus targeted at 40%
of the executive's base salary. In addition to his base salary, benefits and
bonus compensation, Mr. Wagman was granted a stock option to purchase 100,000
shares of common stock at an exercise price of $6.00 per share. The option vests
over a four-year period. In the event of the termination of his employment
without substantial cause, Mr. Wagman is entitled to a severance payment equal
to one year's base salary in effect at the time of termination, or six months'
base salary if he has been employed for less than 180 days. We can elect to pay
Mr. Wagman only six months of severance if we release him from his non-compete
agreement.

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<PAGE> 57

We entered into an employment agreement with Manuel Andrade, our vice
president of international business development and managing director of
Caribbean and Latin America regions, on September 7, 1999. This agreement may be
terminated by either party at any time. The agreement provides for a base salary
of $150,000 per year, an annual salary increase to be determined by our
compensation committee, with an annual bonus targeted at $60,000. In the event
of the termination of his employment without substantial cause, Mr. Andrade may
be entitled to a severance payment equal to his base salary for the length of
time of the non-compete agreement we have with Mr. Andrade. The severance
payment and non-compete period will be 6 months if Mr. Andrade is employed more
than 90 days, and one year if he is employed more than 180 days. There will be
no severance payment or non-compete period if Mr. Andrade is employed less than
90 days. We have reserved the right to waive the non-compete period contained in
the agreement, in which case we would not have any obligations to make severance
payments to Mr. Andrade.

We entered into an employment agreement with Frank D. Dickinson, our vice
president of development, in August 1997. The agreement can be terminated by
either party at any time. The agreement was renewed in 1998 and 1999 and
currently provides for an annual base salary of $125,000 and an annual bonus of
up to 25% of that amount. In the event of the termination of his employment
without substantial cause, Mr. Dickinson is entitled to a lump sum severance
payment ranging from two to ten weeks base pay.

We entered into an employment with Dr. John Z. Yin, our vice president of
technology, on April 7, 1997. The agreement can be terminated by either party at
any time. The agreement was renewed in 1998 and 1999 and currently provides for
an annual base salary of $130,000 and an annual bonus of up to 25% of that
amount. In the event of the termination of his employment without substantial
cause, Dr. Yin is entitled to a lump sum severance payment ranging from two to
nine weeks base pay.

We entered into an employment agreement with David J. McTarnaghan, our vice
president of sales, in June 1998. The agreement can be terminated by either
party of at any time. The agreement provides for a current base salary of
$140,000 per year and an annual bonus to be determined by our compensation
committee. The agreement also provides for annual salary increases, as
determined by our compensation committee, and option grants under our stock
option plans, as determined by our board of director. In the event of the
termination of his employment without substantial cause, Mr. McTarnaghan is
entitled to a lump sum severance payment equal to six months of base pay.

We entered into an employment agreement with Timothy C. Moss, our vice
president of operations in December 1998. The agreement can be terminated by
either party at any time. The agreement provides for a current base salary of
$150,000 per year and an annual bonus to be determined by our compensation
committee. The agreement also provides for annual salary increases, as
determined by our compensation committee, and option grants under our stock
option plans, as determined by our board of directors. In the event of the
termination of his employment without substantial cause, Mr. Moss is entitled to
a lump sum severance payment equal to twelve months pay.

We entered into an employment agreement with Timothy N. Murray, our vice
president of product management and marketing, in August 1999. The agreement can
be terminated by either party at any time. The agreement provides for a current
base salary of $140,000 per year and annual bonus to be determined by our
compensation committee. The agreement also provides for annual salary increases,
as determined by our compensation committee, and option grants under our stock
option plans, as determined by our board of directors. In the event of the

54
<PAGE> 58

termination of his employment without substantial cause, Mr. Murray is entitled
to a lump sum severance payment of up to one year base pay according to his
length of service.

Our executive officers and some of our other employees have signed
invention assignment and confidentiality agreements as well as non-compete
agreements. Under the invention assignment and confidentiality agreement, these
individuals have assigned to us all of their copyrights, trade secrets and
patent rights that relate to our business. Under the terms of the non-compete
agreement, each of these individuals have agreed not to compete, directly or
indirectly, with us in the billing and customer care industry during the term of
employment and for one year after termination of employment. Each also has
agreed not to solicit our customers or employees, directly or indirectly, during
the period of employment and for one year following termination of employment.

LIMITATION OF LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS

Our certificate of incorporation provides that the liability of the
directors for monetary damages shall be eliminated to the fullest extent
permissible under Delaware law and that we shall indemnify our officers,
employees and agents to the fullest extent permitted under the Delaware law.

Our certificate of incorporation provides that our directors will not be
personally liable to Daleen Technologies or any stockholder for monetary damages
for breach of fiduciary duty as a director, except if the director:

- is liable under Section 174 of the Delaware General Corporation Law;

- has breached the director's duty of loyalty to Daleen or its
stockholders;

- has acted in a manner involving intentional misconduct or a knowing
violation of law or, in failing to act, has acted in a manner
involving intentional misconduct or a knowing violation of law; or

- has derived an improper personal benefit.

Any amendment, modification or repeal of these provisions will not
eliminate or reduce the effect of these provisions for any act or failure to
act, or any cause of action, suit or claim that would accrue or arise before any
amendment, repeal or adoption of this inconsistent provision. If Delaware law is
amended to provide for further limitations on the personal liability of
directors of corporations for breach of duty of care or other duty as a
director, then the personal liability of the directors will be so further
limited to the greatest extent permitted by Delaware law.

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<PAGE> 59

RELATED PARTY TRANSACTIONS

SERIES A PREFERRED STOCK AND WARRANTS FOR SERIES B PREFERRED STOCK

In September 1997, we issued and sold 3,000,000 shares of series A
preferred stock and warrants to purchase up to 1,250,000 shares of series B
preferred stock to HarbourVest Partners V Direct Fund, L.P. The aggregate
purchase price was $7.5 million, of which $7.4 million was allocated to the
series A preferred stock and $100,000 was allocated to the warrants. The
warrants have an exercise price of $3.056 per share. Ofer Nemirovsky, one of our
directors, is associated with HarbourVest. Immediately before the consummation
of this offering, each outstanding share of series A preferred stock will be
automatically converted into one share of common stock and the warrant will
become exercisable to purchase 1,250,000 shares of common stock.

SERIES C PREFERRED STOCK

From November 1997 to January 1998, we issued and sold 1,213,584 shares of
series C preferred stock at an aggregate purchase price of approximately $5.5
million, or $4.50 per share, to accredited investors in a private offering.
Stephen J. Getsy, one of our directors, purchased 22,223 shares of series C
preferred stock in this offering at $4.50 per share. Immediately before the
consummation of this offering, each outstanding share of series C preferred
stock will be automatically converted into one share of common stock.

SERIES D AND D-1 PREFERRED STOCK

From June 1998 to August 1998, we issued and sold 4,221,846 shares of
series D preferred stock to the investors below and 686,533 shares of series D-1
preferred stock to ABN AMRO for aggregate net proceeds of $15.0 million, or
approximately $3.06 per share. The complete list of investors in this offering
is as follows:

<TABLE>
<CAPTION>
NAME OF INVESTOR NO. OF SHARES PURCHASE PRICE
- ---------------- ------------- --------------
<S> <C> <C>
JK&B Capital, L.P......................................... 654,450 $ 1,999,999
JK&B Capital II, L.P...................................... 327,225 1,000,000
I Eagle Trust............................................. 248,459 759,291
ABN AMRO, Inc............................................. 46,685 142,669
ABS Ventures IV, L.P...................................... 523,561 1,600,002
ABX Fund, L.P............................................. 130,890 400,000
St. Paul Venture Capital IV, L.L.C........................ 795,566 2,431,250
St. Paul Venture Capital Affiliates Fund I, L.L.C......... 22,497 68,751
HarbourVest Partners V Direct Fund, L.P................... 818,063 2,500,001
BCE Capital, Inc.......................................... 654,450 1,999,999
ABN AMRO Capital (U.S.A.) Inc............................. 686,533 2,098,045
--------- -----------
Total........................................... 4,908,379 $15,000,006
</TABLE>

Mr. Nemirovsky of HarbourVest Partners, Mr. Foreman of ABN AMRO and Mr.
Cataford of Bell Canada currently serve on our board of directors. In June 1999,
BCE Capital, Inc. transferred all of its shares to Bell Canada. Immediately
before the consummation of this offering, each outstanding share of series D and
series D-1 preferred stock will be automatically converted into one share of
common stock.

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<PAGE> 60

SERIES E PREFERRED STOCK

In June 1999, we issued and sold 1,496,615 shares of series E preferred
stock to a strategic investor, SAIC, for an aggregate purchase price of $13.5
million, or $9.00 per share. Mr. Roper, one of our directors, is senior vice
president and chief financial officer of SAIC.

TRANSACTIONS WITH COMPANIES ASSOCIATED WITH SAIC

Mr. Roper, a member of our board of directors, is the senior vice president
and chief financial officer of SAIC and SAIC is a significant stockholder of
Daleen Technologies. SAIC owns 43% of all voting stock of Danet, Inc. and 100%
of the voting stock of Telcordia. Danet is both a customer of ours as well as a
distributor of our products. As a customer, Danet paid us $334,794 in 1998 and
$295,807 in 1999. We paid Danet, in its capacity as distributor of our products,
$2.2 million in 1998 and approximately $96,000 in 1999. While we had a strategic
alliance relationship with Telcordia, we had no revenue and made no payments in
connection with this relationship as of August 31, 1999.

REGISTRATION RIGHTS

Holders of shares of preferred stock are entitled to request registration
of the common stock issued or issuable upon conversion of the preferred stock.
These rights are explained more fully under Description of Capital Stock.

LOANS TO EXECUTIVES

In June 1999, we offered loans to our employees for the purposes of
providing funds for the exercise of vested, non-qualified stock options and for
the payment of tax obligations resulting from the exercise of those options.
Messrs. Daleen, Schell, and Dickinson have entered into loan agreements with us
in connection with the exercise of their options in the amounts of $356,976,
$54,347 and $21,332. We expect to enter into loan agreements with these officers
and with Mr. Corey for reimbursement of their tax liabilities incurred from the
exercise of these options when these amounts become due. It is anticipated that
the loan to Mr. Daleen will be $520,000, the loan to Mr. Schell will be $84,000,
the loan to Mr. Dickinson will be $21,000, and the loan to Mr. Corey will be
$62,000. The existing loans are, and all future tax-related loans will be,
evidenced by promissory notes that bear interest at a rate of 8.75% per year and
that require interest to be paid annually. All principal and accrued interest
payable under the notes for the option exercises is due no later than June 2004
and all principal and accrued interest payable on the tax-related notes will be
due five years from the date of the loans. The executive officers are fully
liable and each officer has pledged the stock issued upon exercise of his
options as security for his loan and has agreed to repay the portion of the
principal and unpaid interest for any shares of the pledged stock that he may
transfer before to repayment of the entire principal and interest amounts owed.
Our board of directors considered and approved the loan requests and forms of
the loan documents.

OTHER RELATED PARTY TRANSACTIONS

We intend to enter into an indemnification agreement with each of our
executive officers and directors containing provisions that may require us to
indemnify these individuals against liabilities that may arise by reason of
their status or service as officers and directors, other than liabilities
arising from willful misconduct of a culpable nature, and to advance expenses
incurred as a result of any proceedings against them for which they could be
indemnified.

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<PAGE> 61

POLICY ON FUTURE TRANSACTIONS

Our board of directors has adopted a resolution providing that all future
transactions with related parties, including our officers, directors, principal
stockholders or affiliates, must be approved by a majority of the board of
directors, including a majority of the independent and disinterested members of
the board of directors, or a majority of the disinterested stockholders and must
be on terms no less favorable to us than could be obtained from unaffiliated
third parties.

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<PAGE> 62

PRINCIPAL STOCKHOLDERS

The following table presents information about the beneficial ownership of
our common stock as of August 31, 1999 by:

- each stockholder known by us to be the beneficial owner of more than 5%
of the outstanding shares of common stock;

- each director and each executive officer named in the summary
compensation table; and

- all of our executive officers and directors as a group.

Three of our stockholders, including James Daleen, have granted to the
underwriters the option to purchase up to 183,600 shares of common stock to
cover over-allotments. Footnote 3 to the Principal Stockholders table on page 60
provides information concerning the stock holdings of these stockholders after
the offering if the over-allotment option is exercised in full.

Beneficial ownership is determined under the rules of the Securities and
Exchange Commission. The number of shares beneficially owned by a person
includes shares of common stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of August 31, 1999. The
shares issuable under these options are treated as if outstanding for computing
the percentage ownership of the person holding these options but are not treated
as if outstanding for the purposes of computing the percentage ownership of any
other person.

For purposes of calculating the percentage beneficially owned, the number
of shares of common stock treated as if outstanding before and after the
offering consists of 14,275,549 shares outstanding as of August 31, 1999,
including shares issuable upon automatic conversion of our preferred stock as a
result of this offering. Except as noted below, the business address of the
named beneficial owner is c/o Daleen Technologies, Inc., 902 Clint Moore Road,
Boca Raton, Florida 33487.

<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY
OWNED
-------------------
NUMBER OF BEFORE AFTER
NAME OF BENEFICIAL OWNER SHARES BENEFICIALLY OWNED OFFERING OFFERING
- ------------------------ ------------------------- -------- --------
<S> <C> <C> <C>
HarbourVest Partners V-Direct Fund L.P.(1).... 5,068,063 35.5% 27.6%
One Financial Center, 44th Floor
Boston, MA 02111
James Daleen(2)(3)............................ 1,772,117 12.4 9.6
Science Applications International
Corporation................................. 1,496,615 10.5 8.1
10260 Campus Pointe Drive
San Diego, CA 92121
ABN AMRO Capital (U.S.A.) Inc.(4)............. 981,677 6.9 5.3
208 S. LaSalle St, 10th Floor
Chicago, IL 60604
JK&B Capital L.P.(5).......................... 981,675 6.9 5.3
205 North Michigan Avenue, Suite 808
Chicago, Illinois 60601
St. Paul Venture Capital IV, L.L.C.(6)........ 818,063 5.7 4.5
10400 Viking Drive, Suite 5500
Eden Prairie, MN 55344
Bruns Grayson(7).............................. 654,451 4.6 3.6
1 South Street, Suite 2150
Baltimore, MD 21202
</TABLE>

59
<PAGE> 63

<TABLE>
<CAPTION>
PERCENT
BENEFICIALLY
OWNED
-------------------
NUMBER OF BEFORE AFTER
NAME OF BENEFICIAL OWNER SHARES BENEFICIALLY OWNED OFFERING OFFERING
- ------------------------ ------------------------- -------- --------
<S> <C> <C> <C>
Bell Canada................................... 654,450 4.6 3.6
200 Bay Street, Suite 3120
Toronto, Ontario, Canada MSJ 2J2
Ofer Nemirovsky(8)............................ 5,068,063 35.5 27.6
William A. Roper, Jr.(9)...................... 1,496,615 10.5 8.1
Daniel J. Foreman(10)......................... 981,667 6.9 5.3
Paul G. Cataford(11).......................... 654,450 4.6 3.6
Richard A. Schell(12)......................... 128,675 * *
Stephen J. Getsy(13).......................... 97,223 * *
David B. Corey(14)............................ 74,230 * *
Frank D. Dickinson(15)........................ 32,168 * *
John Z. Yin(16)............................... 12,850 * *
Neil E. Cox................................... -- -- --
All directors and executive officers as a
group
(17 persons)(17)............................ 10,345,558 71.1% 55.5%
</TABLE>

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

* Represents beneficial ownership of less than 1% of the outstanding shares of
common stock.

(1) Includes 1,250,000 shares issuable upon exercise of a warrant within 60
days after August 31, 1999.

(2) Includes 57,961 shares issuable upon exercise of an option that will be
exercisable within 60 days of August 31, 1999, 37,584 shares held by Linda
Brodsky over which Mr. Daleen has sole voting power and 1,804 shares held
by Judith Daleen, wife of Mr. Daleen. Mr. Daleen disclaims ownership of all
shares held by his wife.

(3) If the underwriters exercise their over-allotment option in full, James
Daleen will sell 150,000 shares of common stock in this offering and would
beneficially own 1,622,117 shares, representing 8.6% of the total shares
outstanding, and B.V.H. Holdings and Crescent Capital Company, LLC would
each sell 16,800 shares, representing all of the shares held by them. The
address for B.V.H. Holdings is 234 E. Linden Ave., Englewood, NJ 07631. The
address for Crescent Capital Company, LLC is 135 Wood Road, Braintree, MA
02184.

(4) Consists of 686,533 shares held by ABN AMRO Capital (U.S.A.) Inc., 248,459
by I Eagle Trust, and 46,685 by ABN AMRO, Inc.

(5) Consists of 654,450 shares held by JK&B Capital L.P. and 327,225 by JK&B
Capital II L.P.

(6) Consists of 795,566 shares held by St. Paul Venture Capital IV, L.L.C. and
22,497 by St. Paul Venture Capital Affiliates Fund I, L.L.C.

(7) Consists of 523,561 shares held by ABS Ventures IV, L.P. and 130,890 shares
held by ABX Fund, L.P. Mr. Grayson is the managing member of Calvert
Capital L.L.C., the general partner of ABS, and is the managing member of
Calvert Capital II, L.L.C., the general partner of ABX, and therefore may
be considered to share beneficial ownership of the shares held by ABS and
ABX. Mr. Grayson disclaims beneficial ownership of these shares.

(8) Consists of 5,068,063 shares held by HarbourVest Partners V-Direct Fund
L.P. HarbourVest Partners, LLC is the managing member of the general
partner of HarbourVest Partners V-Direct Fund L.P. Mr. Nemirovsky is a
managing director of HarbourVest Partners, LLC and a member of the general
partner of HarbourVest Partners V-Direct Fund L.P. and therefore may be
considered to share beneficial ownership of the shares held by HarbourVest.
Mr. Nemirovsky disclaims beneficial ownership of these shares.

(9) Consists of 1,496,615 shares held by Science Applications International
Corporation, of which Mr. Roper is a senior vice president and the chief
financial officer.

(10) Consists of 981,677 shares held by ABN AMRO Inc. Mr. Foreman is a managing
director of this firm and therefore may be considered to share beneficial
ownership of these shares.

(11) Consists of 654,450 shares held by Bell Canada. Mr. Cataford is the vice
president of investments for BCE Capital, Inc., a management company
charged with all venture capital activities of Bell Canada, and therefore
may be considered to share beneficial ownership of these shares.

(12) Includes 46,998 shares issuable upon exercise of an option that will be
exercisable within 60 days of August 31, 1999.

60
<PAGE> 64

(13) Consists of 75,000 shares issuable upon exercise of options that will be
exercisable within 60 days of August 31, 1999 and 22,223 shares held by
Stephen Getsy Living Trust.

(14) Includes 30,769 shares issuable upon exercise of an option that will be
exercisable within 60 days of August 31, 1999. Also includes 3,000 shares
held by The Luke Corey Irrevocable Trust and 3,000 shares held by The
Sydney Corey Irrevocable Trust. Mr. Corey disclaims beneficial ownership of
these shares.

(15) Includes 19,856 shares issuable upon exercise of an option that will be
exercisable within 60 days of August 31, 1999.

(16) Consists of 12,850 shares issuable upon exercise of an option that will be
exercisable within 60 days of August 31, 1999.

(17) Includes 270,934 shares issuable upon exercise of options that will be
exercisable within 60 days of August 31, 1999. See also footnotes (2), (3)
and (8) through (16) above.

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<PAGE> 65

DESCRIPTION OF CAPITAL STOCK

GENERAL

Our authorized capital stock upon the closing of this offering will consist
of 70,000,000 shares of common stock, par value $0.01 per share, and 10,000,000
shares of preferred stock. The following summary describes all material
provisions of our common and preferred stock. However, we encourage you to read
the provisions of our certificate of incorporation and bylaws, which have been
filed as exhibits to the registration statement of which this prospectus is a
part.

Upon the closing of this offering, and based upon shares outstanding at
August 31, 1999, 18,375,549 shares of common stock will be outstanding. At
August 31, 1999, we had 179 stockholders.

COMMON STOCK

The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. There are no
cumulative voting rights. Subject to preferences that may be applicable to any
outstanding shares of preferred stock, the holders of common stock are entitled
to receive ratably such dividends, if any, as may be declared by the board of
directors out of funds legally available for the payment of dividends. In the
event of a liquidation, dissolution or winding up, the holders of common stock
are entitled to share ratably in all assets remaining after payment of
liabilities and liquidation preferences of any outstanding shares of preferred
stock. Holders of common stock have no preemptive rights or rights to convert
their common stock into any other securities. There are no redemption or sinking
fund provisions applicable to the common stock. All outstanding shares of common
stock are fully paid and nonassessable, and the shares of common stock to be
sold in this offering will be fully paid and nonassessable.

PREFERRED STOCK

Under our certificate of incorporation, the board of directors has the
authority, without further action by the stockholders, to issue up to 10,000,000
shares of preferred stock in one or more series and to fix the designations,
powers, preferences, privileges and relative, participating, optional or special
rights and the qualifications, limitations or restrictions, including dividend
rights, conversion rights, voting rights, terms of redemption and liquidation
preferences, any or all of which may be greater than the rights of the common
stock. The board of directors, without stockholder approval, can issue preferred
stock with voting, conversion or other rights that could adversely affect the
voting power and other rights of the holders of common stock. Preferred stock
could be issued quickly with terms calculated to delay or prevent a change of
control or make removal of management more difficult. Additionally, the issuance
of preferred stock may have the effect of decreasing the market price of the
common stock and may adversely affect the voting and other rights of the holders
of common stock. We have no plans to issue any preferred stock.

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<PAGE> 66

WARRANTS

As of August 31, 1999 there were outstanding warrants to purchase 1,865,083
shares of stock, including:

- warrants to purchase 90,000 shares of common stock at an exercise price
of $3.25 per share;

- warrants to purchase 25,000 shares of common stock at an exercise price
of $4.00 per share;

- warrants to purchase 215,083 shares of common stock at an exercise price
of $3.056 per share;

- warrants to purchase 1,250,000 shares of series B preferred stock at an
exercise price of $3.056 per share; and

- warrants to purchase 285,000 shares of series C preferred stock at an
exercise price of $4.50 per share.

ANTI-TAKEOVER PROVISIONS OF OUR CERTIFICATE OF INCORPORATION, BYLAWS, AND
DELAWARE LAW

Our certificate of incorporation authorizes the board to establish one or
more series of undesignated preferred stock, the terms of which can be
determined by the board at the time of issuance. The certificate of
incorporation also provides that all stockholder action must be effected at a
meeting of the stockholders and not by a consent in writing. In addition, our
bylaws do not permit our stockholders to call a special meeting of stockholders.
Only our chief executive officer, president, chairman of the board or a majority
of the board are permitted to call a special meeting of stockholders. The
certificate of incorporation also provides that the board is divided into three
classes, with each director assigned to a class with a term of three years. The
bylaws also require that stockholders give advance notice to our secretary of
any nominations for director or other business to be brought by stockholders at
any stockholders' meeting, and that the chairman has the authority to adjourn a
meeting. The bylaws also require a supermajority vote of stockholders or a
majority vote of the board of directors to amend the bylaws. These provisions of
the certificate of incorporation and the bylaws could discourage potential
acquisition proposals and could delay or prevent a change in control of Daleen
Technologies. These provisions also may have the effect of preventing changes in
the management of Daleen Technologies.

EFFECT OF DELAWARE ANTI-TAKEOVER STATUTE

We are subject to Section 203 of the Delaware General Corporation Law,
which generally prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three years
following the date that the stockholder became an interested stockholder,
unless:

- before that date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;

- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for

63
<PAGE> 67

purposes of determining the number of shares outstanding those shares
owned by persons who are directors and also officers; or

- on or after that date, the business combination is approved by the board
of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.

A business combination generally includes a merger, asset or stock sale, or
other transaction resulting in a financial benefit to the interested
stockholder. In general, an interested stockholder is a person who, together
with affiliates and associates, owns, or within three years before the
determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock.

REGISTRATION RIGHTS

Under stock purchase agreements entered into among Daleen Technologies and
the holders of our series A preferred stock, series D and D-1 preferred stock
and series E preferred stock, investors holding an aggregate of 9,121,963 shares
of common stock they will receive upon the conversion of their preferred stock
are entitled to rights to register these shares under the Securities Act. At any
time after this offering, any investor or group of investors described above may
request that we file a registration statement that covers the sale of at least
50% of the shares of common stock held by those investors. These investors may
require the we register our common stock for resale only twice, other than as
described below. After we qualify to file our registration statements on Form
S-3, the investors may request an unlimited number of times that we register
their common stock for resale using a Form S-3, except that the investors cannot
request more that two Form S-3 registrations in any year. In addition, if we
propose to register any of our securities under the Securities Act, either for
our own account or for the account of other security holders, the investors
described above and additional stockholders holding 697,684 shares of our common
stock are entitled to notice of the registration and to include shares of common
stock in the registration at our expense. All of these registration rights are
subject to conditions and limitations, including the right of the underwriters
of an offering to limit the number of shares included in the registration.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the common stock is SunTrust Bank,
Atlanta, Georgia.

NASDAQ NATIONAL MARKET LISTING

Our common stock has been approved for quotation on the Nasdaq National
Market under the symbol DALN.

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<PAGE> 68

SHARES ELIGIBLE FOR FUTURE SALE

Before this offering, there has been no market for our common stock. Future
sales of substantial amounts of common stock in the public market could
adversely affect the prevailing market price of our common stock and impair our
ability to raise equity capital in the future.

Upon completion of the offering, we will have 18,375,549 outstanding shares
of common stock. Of these shares, the 4,100,000 shares sold in the offering,
plus any shares issued upon exercise of the underwriters' over-allotment option,
will be freely tradable without restriction under the Securities Act, unless
purchased by our affiliates. The term affiliates is defined in Rule 144 under
the Securities Act. In general, affiliates include officers, directors or 10%
stockholders.

The remaining 14,275,549 shares outstanding are restricted securities
within the meaning of Rule 144. Restricted securities may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Rules 144, 144(k) or 701 promulgated under the Securities Act, which are
summarized below. Sales of restricted securities in the public market, or the
availability of these shares for sale, could adversely affect the market price
of the common stock.

Our directors, officers and stockholders have entered into lock-up
agreements in connection with this offering generally providing that they will
not offer, sell, contract to sell or grant any option to purchase or in any way
transfer or dispose of our common stock or any securities exercisable for or
convertible into our common stock owned by them for a period of 180 days after
the date of this prospectus without the prior written consent of BancBoston
Robertson Stephens Inc. Notwithstanding possible earlier eligibility for sale
under the provisions of Rules 144, 144(k)and 701, shares subject to lock-up
agreements will not be salable until these agreements expire or are waived by
BancBoston Robertson Stephens Inc. Taking into account the lock-up agreements,
and assuming BancBoston Robertson Stephens Inc. does not release stockholders
from these agreements, the following restricted shares will be eligible for sale
in the public market at the following times:

- Beginning on the effective date of this prospectus, approximately 249,250
shares will be immediately available for sale in the public market.

- Beginning 90 days after the effective date, approximately 50,370 shares
will be eligible for sale, subject to volume, manner of sale and other
limitations under Rule 144.

- Beginning 180 days after the effective date, approximately 11,927,618
shares will be eligible for sale, approximately 9,532,420 of which will
be subject to volume, manner of sale and other limitations under Rule
144.

- The remaining 2,048,311 shares will become eligible for sale under Rule
144 upon the expiration of various one-year holding periods.

In general, under Rule 144 a person who has beneficially owned restricted
securities for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:

- 1% of the number of shares of common stock then outstanding, which will
equal approximately 183,755 shares immediately after the offering; or

- the average weekly trading volume of the common stock during the four
calendar weeks preceding the sale.

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<PAGE> 69

Sales under Rule 144 are also subject to requirements which govern the manner of
sale, notice and the availability of current public information about Daleen
Technologies.

Under Rule 144(k), a person who is not considered to have been our
affiliate at any time during the three months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years, is
entitled to sell his shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.

Rule 701, as currently in effect, permits our employees, officers,
directors or consultants who purchased shares under a written compensatory plan
or contract to resell these shares in reliance upon Rule 144 but without
compliance with specific restrictions. Rule 701 provides that affiliates may
sell their Rule 701 shares under Rule 144 without complying with the holding
period requirement and that non-affiliates may sell their shares in reliance on
Rule 144 without complying with the holding period, public information, volume
limitation or notice provisions of Rule 144.

In addition, we intend to file registration statements under the Securities
Act as promptly as possible after the effective date to register shares to be
issued under our employee benefit plans. As a result, any options or rights
exercised under any of our existing stock option plans or any other benefit plan
after the effectiveness of the registration statements will also be freely
tradable in the public market. However, shares held by affiliates will still be
subject to the volume limitation, manner of sale, notice and public information
requirements of Rule 144 unless otherwise exempt under Rule 701. As of August
31, 1999 there were outstanding options for the purchase of 2,307,036 shares of
common stock, of which options to purchase 596,237 shares were exercisable.

Following this offering, the holders of an aggregate of 9,819,647 shares of
outstanding common stock will have rights to require us to register their shares
for future sale.

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<PAGE> 70

UNDERWRITING

The underwriters named below acting through their representatives,
BancBoston Robertson Stephens Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and Hambrecht & Quist LLC, have each agreed with us, subject to the
terms and conditions of the underwriting agreement, to purchase from us the
number of shares of common stock opposite their names below. The underwriters
are committed to purchase and pay for all shares if any are purchased.

<TABLE>
<CAPTION>
NUMBER OF FIRM
COMMON SHARES
UNDERWRITERS TO BE PURCHASED
- ------------ ---------------
<S> <C>
BancBoston Robertson Stephens Inc........................... 1,740,000
Donaldson, Lufkin & Jenrette Securities Corporation......... 870,000
Hambrecht & Quist LLC....................................... 870,000
Salomon Smith Barney Inc.................................... 120,000
Gruntal & Co., L.L.C........................................ 90,000
Needham & Company, Inc...................................... 90,000
Raymond James & Associates, Inc............................. 90,000
Tucker Anthony Incorporated................................. 90,000
E*trade Securities, Inc..................................... 70,000
Suretrade................................................... 70,000
---------
Total............................................. 4,100,000
=========
</TABLE>

We have been advised by the representatives that the underwriters propose
to offer the shares of common stock to the public at the public offering price
shown on the cover page of this prospectus and to other dealers at that price
less a concession of not more than $0.50 per share, of which $0.10 may be
reallowed to other dealers. After this offering, the public offering price,
concession, and reallowance to dealers may be reduced by the representatives.
Any reductions would not change the amount of proceeds to be received by us as
presented on the cover page of this prospectus.

We and three of our stockholders, including James Daleen, our chief
executive officer, have granted to the underwriters an option, exercisable
during the 30-day period after the date of this prospectus, to purchase up to
615,000 additional shares of common stock to cover over-allotments, if any, at
the public offering price less the underwriting discount presented on the cover
page of this prospectus. If the underwriters exercise the option in full, we
will sell 431,400 additional shares and the selling stockholders will sell
183,600 additional shares. If the underwriters exercise this option only in
part, the option shares will be sold first by the selling stockholders and we
will sell shares only if, and to the extent, the underwriters exercise the
option to purchase more than 183,600 shares. To the extent that the underwriters
exercise the option, each of the underwriters has committed to purchase
approximately the same percentage of the additional shares that the number of
shares of common stock to be purchased by it shown in the above table represents
as a percentage of the 4,100,000 shares offered. If purchased, these additional
shares will be sold by the underwriters on the same terms as those on which the
4,100,000 shares are being sold. We and the selling stockholders will be
obligated under the option to sell shares to the extent the option is exercised.
The underwriters may exercise this option only to cover over-allotments made in
connection with the sale of the shares of common stock offered in this offering.

The underwriting agreement contains covenants of indemnity among the
underwriters, us and the selling stockholders against civil liabilities,
including liabilities under the Securities Act

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<PAGE> 71

and liabilities arising from breaches of representations and warranties
contained in the underwriting agreement.

Our directors, officers and most of our stockholders, all of whom will
together hold 13,945,310 shares immediately after this offering, have entered
into lock-up agreements in connection with this offering generally providing
that they will not offer, sell, contract to sell or grant any option to purchase
or in any way transfer or dispose of our common stock or any securities
exercisable for or convertible into our common stock owned by them for a period
of 180 days after the date of this prospectus without the prior written consent
of BancBoston Robertson Stephens Inc. In addition, we have agreed that during
the same 180-day period we will not, without the prior written consent of
BancBoston Robertson Stephens Inc., issue, sell, contract to sell, or in any way
transfer or dispose of, any shares of common stock, any options to purchase any
shares of common stock or any securities convertible into, exercisable for or
exchangeable for shares of common stock. We are, however, permitted under these
lock-up agreements to issue shares in this offering, to issue common stock upon
the exercise of outstanding options or warrants, and to issue options and shares
under existing stock option and incentive plans.

The underwriters do not intend to confirm sales to any accounts over which
they exercise discretionary authority.

Before this offering, there has been no public market for the common stock.
Consequently, the public offering price for the common stock offered by this
prospectus has been determined through negotiations among the representatives
and us. Among the factors considered in the negotiations were prevailing market
conditions, our financial information, market valuations of other companies that
we and the representatives believe to be comparable to us, estimates of our
business potential, the present state of our development and other factors that
we and the representatives considered relevant at the time.

The representatives have advised us that, under Regulation M under the
Exchange Act of 1934, some persons participating in this offering may engage in
transactions that may have the effect of stabilizing or maintaining the market
price of the common stock at a level above that which might otherwise prevail in
the open market. These transaction may include stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, as described below:

- A stabilizing bid is a bid for or the purchase of common stock on behalf
of the underwriters for the purpose of fixing or maintaining the price of
the common stock.

- A syndicate covering transaction is the bid for or the purchase of common
stock on behalf of the underwriters to reduce a short position incurred
by the underwriters in connection with this offering.

- A penalty bid is an arrangement permitting the representatives to reclaim
the selling concession otherwise accruing to an underwriter or syndicate
member in connection with this offering if the common stock originally
sold by that underwriter or syndicate member is purchased by the
representatives in a syndicate covering transaction and has therefore not
been effectively placed by that underwriter or syndicate member.

These transactions may be effected on the Nasdaq National Market or through
other means such as privately negotiated transactions. If commenced, these
transactions may be discontinued at any time.

68
<PAGE> 72

LEGAL MATTERS

The validity of the common stock in this offering will be passed upon for
Daleen Technologies by Morris, Manning & Martin, LLP, Atlanta, Georgia. Hale and
Dorr LLP, Washington, D.C. will serve as legal counsel to the underwriters for
this offering.

EXPERTS

The consolidated financial statements and financial statement schedule of
Daleen Technologies, Inc. and subsidiary as of December 31, 1997 and 1998, and
for each of the years in the three-year period ended December 31, 1998, have
been included in this prospectus and in the registration statement in reliance
upon the reports of KPMG LLP, independent certified public accountants,
appearing elsewhere in this prospectus and upon the authority of said firm as
experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act to offer shares of our common
stock. This prospectus is only a part of the registration statement and does not
contain all of the information included in the registration statement. Further
information about Daleen Technologies and our common stock can be found in the
registration statement. Statements made in this prospectus about the contents of
any contract, agreement or other document are summaries of all material
information about the documents summarized, but are not complete descriptions of
all terms. The registration statement and its exhibits and schedules may be
inspected without charge at the Public Reference Room maintained by the
Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following regional offices of the Commission: Seven World Trade Center, Room
1400, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of this material can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, Room 1024, at prescribed rates. You may obtain
information on the operation of the Commission's Public Reference Room by
calling the Commission at 1-800-SEC-0330. In addition, we are required to file
electronic versions of these documents with the Commission through the
Commission's Electronic Data Gathering, Analysis, and Retrieval, EDGAR, system.
The Commission maintains an internet site at http://www.sec.gov, which contains
reports, proxy and information statements regarding registrants that file
electronically with the Commission.

69
<PAGE> 73

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets as of December 31, 1997 and
1998 and as of June 30, 1999 (unaudited) and pro forma
as of June 30, 1999 (unaudited)........................ F-3
Consolidated Statements of Operations for each of the
years in the three-year period ended December 31, 1998,
and the six months ended June 30, 1998 and 1999
(unaudited)............................................ F-4
Consolidated Statements of Redeemable Preferred Stock and
Stockholders' Deficit for each of the years in the
three-year period ended December 31, 1998, and the six
months ended June 30, 1999 (unaudited)................. F-5
Consolidated Statements of Cash Flows for each of the
years in the three-year period ended December 31, 1998,
and the six months ended June 30, 1998 and 1999
(unaudited)............................................ F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>

F-1
<PAGE> 74

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Daleen Technologies, Inc.:

We have audited the accompanying consolidated balance sheets of Daleen
Technologies, Inc. and Subsidiary as of December 31, 1997 and 1998, and the
related consolidated statements of operations, redeemable preferred stock and
stockholders' deficit and cash flows for each of the years in the three-year
period ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Daleen
Technologies, Inc. and Subsidiary as of December 31, 1997 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.

KPMG LLP

Miami, Florida
May 10, 1999 except as to note 2 and the
third paragraph of note 9 which are as of
June 30, 1999 and the last paragraph of note 1(m)
which is as of August 16, 1999

F-2
<PAGE> 75

DALEEN TECHNOLOGIES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31, HISTORICAL PRO FORMA
------------------- JUNE 30, JUNE 30,
1997 1998 1999 1999
-------- -------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5,030 $ 723 $ 14,988 $ 14,988
Restricted cash........................................... -- -- 120 120
Securities available for sale............................. 1,770 5,753 -- --
Accounts receivable, less allowance for doubtful accounts
of $17 at December 31, 1997, $9 at December 31, 1998 and
(unaudited) $167 at June 30, 1999....................... 19 1,202 2,154 2,154
Costs in excess of billings............................... -- 503 1,298 1,298
Other current assets...................................... 229 176 316 316
-------- -------- -------- --------
Total current assets................................ 7,048 8,357 18,876 18,876
Property and equipment, net (note 3)........................ 1,379 2,516 2,958 2,958
Deferred offering costs..................................... -- -- 250 250
Other assets................................................ 89 152 241 241
-------- -------- -------- --------
Total assets........................................ $ 8,516 $ 11,025 $ 22,325 $ 22,325
======== ======== ======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Notes payable (note 5).................................... $ 1,618 $ -- $ -- $ --
Accounts payable.......................................... 292 459 457 457
Accrued payroll and other accrued expenses................ 905 2,237 3,366 3,366
Billings in excess of costs............................... -- 429 1,492 1,492
Other current liabilities................................. 147 -- 30 30
-------- -------- -------- --------
Total current liabilities........................... 2,962 3,125 5,345 5,345
-------- -------- -------- --------
Commitments and contingencies (notes 7 and 8)
Redeemable preferred stock (note 9):
Mandatorily redeemable convertible Series A Preferred
Stock -- 3,000,000 shares authorized, issued and
outstanding ($7,500 liquidation value) as of December
31, 1997 and 1998 and (unaudited) June 30, 1999; none
issued and outstanding pro forma as of June 30, 1999
(unaudited)............................................. 7,500 7,500 7,500 --
Mandatorily redeemable convertible Series D and D-1
Preferred Stock -- 4,908,379 shares authorized, issued
and outstanding at December 31, 1998 and (unaudited)
June 30, 1999 ($15,000 liquidation value); none issued
and outstanding pro forma as of June 30, 1999
(unaudited)............................................. -- 14,297 14,376 --
Mandatorily redeemable convertible Series E Preferred
Stock -- 1,496,615 authorized; none issued and
outstanding at December 31, 1998 and 1,496,615 shares
issued and outstanding at June 30, 1999 (unaudited);
none issued and outstanding pro forma as of June 30,
1999 (unaudited)........................................ -- -- 13,428 --
Stockholders' (deficit) equity (note 8):
Series C Convertible Preferred stock -- $.01 par value.
Authorized 1,222,222 shares; issued and outstanding
1,150,493 shares in 1997 and 1,213,584 shares in 1998
($4.50 per share liquidation value) and (unaudited) as
of June 30, 1999; and none issued and outstanding pro
forma as of June 30, 1999 (unaudited)................... 5,092 5,301 5,301 --
Preferred stock -- $.01 par value. Authorized 11,250,000
shares; none issued or outstanding...................... -- -- -- --
Common stock -- $.01 par value. Authorized 70,000,000
shares; issued and outstanding 3,209,987 shares in 1997
and 3,240,020 shares in 1998 and 3,653,651 shares at
June 30, 1999 (unaudited); issued and outstanding
14,272,229 shares pro forma as of June 30, 1999
(unaudited)............................................. 32 32 37 143
Stockholders notes receivable............................. -- -- (435) (435)
Additional paid-in capital................................ 3,204 3,278 3,868 44,367
Accumulated deficit....................................... (10,274) (22,508) (27,095) (27,095)
-------- -------- -------- --------
Total stockholders' (deficit) equity................ (1,946) (13,897) (18,324) 16,980
-------- -------- -------- --------
Total liabilities, redeemable preferred stock and
stockholders' (deficit) equity...................... $ 8,516 $ 11,025 $ 22,325 $ 22,325
======== ======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements

F-3
<PAGE> 76

DALEEN TECHNOLOGIES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
License fees............................. $ -- $ -- $ 1,879 $ 487 $ 3,748
Professional services and other.......... 2,550 156 3,352 975 3,367
------- ------- -------- ------- --------
Total revenue......................... 2,550 156 5,231 1,462 7,115
------- ------- -------- ------- --------
Cost of revenue:
License fees............................. -- -- 3 1 3
Professional services and other.......... 1,396 293 4,239 1,109 3,655
------- ------- -------- ------- --------
Total cost of revenue................. 1,396 293 4,242 1,110 3,658
------- ------- -------- ------- --------
Gross profit............................... 1,154 (137) 989 352 3,457
Operating expenses:
Sales and marketing...................... 450 962 2,435 1,217 1,282
Research and development................. 1,067 1,669 6,653 3,474 3,488
General and administrative............... 2,446 3,704 4,824 1,757 3,294
------- ------- -------- ------- --------
Total operating expenses.............. 3,963 6,335 13,912 6,448 8,064
------- ------- -------- ------- --------
Operating loss............................. (2,809) (6,472) (12,923) (6,096) (4,607)
------- ------- -------- ------- --------
Nonoperating income (expense):
Interest income (expense)................ (528) (1,570) 249 (30) 79
Other income (notes 12 and 13)........... 1,811 58 505 73 20
------- ------- -------- ------- --------
Total nonoperating income (expense)... 1,283 (1,512) 754 43 99
------- ------- -------- ------- --------
Net loss................................... (1,526) (7,984) (12,169) (6,053) (4,508)
Accretion of preferred stock............... -- -- (65) -- (79)
------- ------- -------- ------- --------
Net loss applicable to common
stockholders............................. $(1,526) $(7,984) $(12,234) $(6,053) $ (4,587)
======= ======= ======== ======= ========
Net loss applicable to common stockholders
per share -- basic and diluted........... $ (0.81) $ (3.48) $ (3.78) $ (1.87) $ (1.41)
======= ======= ======== ======= ========
Weighted average shares -- basic and
diluted.................................. 1,879 2,295 3,240 3,240 3,242
======= ======= ======== ======= ========
Pro forma data:
Pro forma net loss applicable to common
stockholders (unaudited).............. $(12,169) $ (4,508)
======== ========
Pro forma net loss applicable to common
stockholders per share -- basic and
diluted (unaudited)................... $ (1.22) $ (0.36)
======== ========
Pro forma weighted average shares --basic
and diluted (unaudited)............... 9,994 12,373
======== ========
</TABLE>

See accompanying notes to consolidated financial statements

F-4
<PAGE> 77

DALEEN TECHNOLOGIES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>

REDEEMABLE PREFERRED STOCK
------------------------------------------------------------------------
SERIES A SERIES D AND D-1 SERIES E
------------------ ------------------- -------------------
NUMBER NUMBER NUMBER
OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES AMOUNT TOTAL
--------- ------ --------- ------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995........................... -- $ -- -- $ -- -- $ -- $ --
Stock options granted............................... -- -- -- -- -- -- --
Stock purchase warrants granted..................... -- -- -- -- -- -- --
Net loss............................................ -- -- -- -- -- -- --
--------- ------ --------- ------- --------- ------- -------
Balance, December 31, 1996........................... -- -- -- -- -- -- --
Warrants issued on bridge loan...................... -- -- -- -- -- -- --
Warrants issued as part of inducement on bridge
loan.............................................. -- -- -- -- -- -- --
Exercise of bridge loan warrants.................... -- -- -- -- -- -- --
Stock issued for convertible debt................... -- -- -- -- -- -- --
Issuance of preferred stock -- Series A............. 3,000,000 7,500 -- -- -- -- 7,500
Issuance of preferred stock -- Series C............. -- -- -- -- -- -- --
Stock options issued for consulting services........ -- -- -- -- -- -- --
Stock options exercised............................. -- -- -- -- -- -- --
Net loss............................................ -- -- -- -- -- -- --
--------- ------ --------- ------- --------- ------- -------
Balance, December 31, 1997........................... 3,000,000 7,500 -- -- -- -- 7,500
Issuance of preferred stock -- Series D and D-1..... -- -- 4,908,379 14,232 -- -- 14,232
Accretion of preferred stock -- Series D and D-1.... -- -- -- 65 -- -- 65
Issuance of preferred stock -- Series C............. -- -- -- -- -- -- --
Stock issued for consulting services................ -- -- -- -- -- -- --
Redemption of bridge warrants....................... -- -- -- -- -- -- --
Stock issued for options and bridge loan warrants
exercised......................................... -- -- -- -- -- -- --
Net loss............................................ -- -- -- -- -- -- --
--------- ------ --------- ------- --------- ------- -------
Balance, December 31, 1998........................... 3,000,000 7,500 4,908,379 14,297 -- -- 21,797
Accretion of preferred stock -- Series D and D-1
(unaudited)....................................... -- -- -- 79 -- -- 79
Issuance of preferred stock -- Series E
(unaudited)....................................... -- -- -- -- 1,496,615 13,428 13,428
Stock issued for options exercised for notes
receivable and cash (unaudited)................... -- -- -- -- -- -- --
Net loss (unaudited)................................ -- -- -- -- -- -- --
--------- ------ --------- ------- --------- ------- -------
Balance, June 30, 1999 (unaudited)................... 3,000,000 $7,500 4,908,379 $14,376 1,496,615 $13,428 $35,304
========= ====== ========= ======= ========= ======= =======

<CAPTION>
STOCKHOLDERS' DEFICIT
-------------------------------------------------------
SERIES C
PREFERRED STOCK COMMON STOCK
------------------ ------------------ STOCKHOLDERS
NUMBER NUMBER PAR NOTES
OF SHARES AMOUNT OF SHARES VALUE RECEIVABLE
--------- ------ ---------- ----- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995........................... -- $ -- 1,879,153 $19 $ --
Stock options granted............................... -- -- -- -- --
Stock purchase warrants granted..................... -- -- -- -- --
Net loss............................................ -- -- -- -- --
--------- ------ ---------- --- -----
Balance, December 31, 1996........................... -- -- 1,879,153 19 --
Warrants issued on bridge loan...................... -- -- -- -- --
Warrants issued as part of inducement on bridge
loan.............................................. -- -- -- -- --
Exercise of bridge loan warrants.................... -- -- 619,080 6 --
Stock issued for convertible debt................... -- -- 688,264 7 --
Issuance of preferred stock -- Series A............. -- -- -- -- --
Issuance of preferred stock -- Series C............. 1,150,493 5,092 -- -- --
Stock options issued for consulting services........ -- -- -- -- --
Stock options exercised............................. -- -- 23,490 -- --
Net loss............................................ -- -- -- -- --
--------- ------ ---------- --- -----
Balance, December 31, 1997........................... 1,150,493 5,092 3,209,987 32 --
Issuance of preferred stock -- Series D and D-1..... -- -- -- -- --
Accretion of preferred stock -- Series D and D-1.... -- -- -- -- --
Issuance of preferred stock -- Series C............. 63,091 279 -- -- --
Stock issued for consulting services................ -- (70) 21,600 -- --
Redemption of bridge warrants....................... -- -- -- -- --
Stock issued for options and bridge loan warrants
exercised......................................... -- -- 8,433 -- --
Net loss............................................ -- -- -- -- --
--------- ------ ---------- --- -----
Balance, December 31, 1998........................... 1,213,584 5,301 3,240,020 32 --
Accretion of preferred stock -- Series D and D-1
(unaudited)....................................... -- -- -- -- --
Issuance of preferred stock -- Series E
(unaudited)....................................... -- -- -- -- --
Stock issued for options exercised for notes
receivable and cash (unaudited)................... -- -- 413,631 5 (435)
Net loss (unaudited)................................ -- -- -- -- --
--------- ------ ---------- --- -----
Balance, June 30, 1999 (unaudited)................... 1,213,584 $5,301 3,653,651 $37 $(435)
========= ====== ========== === =====

<CAPTION>
STOCKHOLDERS' DEFICIT
-----------------------------------

ADDITIONAL
PAID-IN ACCUMULATED
CAPITAL DEFICIT TOTAL
---------- ----------- --------
<S> <C> <C> <C>
Balance, December 31, 1995........................... $ 189 $ (764) $ (556)
Stock options granted............................... 81 -- 81
Stock purchase warrants granted..................... 87 -- 87
Net loss............................................ -- (1,526) (1,526)
------ -------- --------
Balance, December 31, 1996........................... 357 (2,290) (1,914)
Warrants issued on bridge loan...................... 120 -- 120
Warrants issued as part of inducement on bridge
loan.............................................. 375 -- 375
Exercise of bridge loan warrants.................... 613 -- 619
Stock issued for convertible debt................... 1,714 -- 1,721
Issuance of preferred stock -- Series A............. -- -- --
Issuance of preferred stock -- Series C............. -- -- 5,092
Stock options issued for consulting services........ 25 -- 25
Stock options exercised............................. -- -- --
Net loss............................................ -- (7,984) (7,984)
------ -------- --------
Balance, December 31, 1997........................... 3,204 (10,274) (1,946)
Issuance of preferred stock -- Series D and D-1..... -- -- --
Accretion of preferred stock -- Series D and D-1.... -- (65) (65)
Issuance of preferred stock -- Series C............. -- -- 279
Stock issued for consulting services................ 70 -- --
Redemption of bridge warrants....................... (4) -- (4)
Stock issued for options and bridge loan warrants
exercised......................................... 8 -- 8
Net loss............................................ -- (12,169) (12,169)
------ -------- --------
Balance, December 31, 1998........................... 3,278 (22,508) (13,897)
Accretion of preferred stock -- Series D and D-1
(unaudited)....................................... -- (79) (79)
Issuance of preferred stock -- Series E
(unaudited)....................................... -- -- --
Stock issued for options exercised for notes
receivable and cash (unaudited)................... 590 -- 160
Net loss (unaudited)................................ -- (4,508) (4,508)
------ -------- --------
Balance, June 30, 1999 (unaudited)................... $3,868 $(27,095) $(18,324)
====== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements

F-5
<PAGE> 78

DALEEN TECHNOLOGIES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- -------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(1,526) $(7,984) $(12,169) $ (6,053) $(4,508)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 300 352 918 370 691
Stock compensation...................................... 81 26 -- -- --
Amortization of financing costs and warrants issued on
bridge loan........................................... -- 413 -- -- --
Warrants issued as inducement for bridge loan........... -- 375 -- -- --
Bad debt expense........................................ 359 167 247 -- 167
Changes in assets and liabilities:
Restricted cash....................................... 65 36 -- -- (120)
Accounts receivable................................... (449) 1 (1,431) (1,217) (1,197)
Costs in excess of billings........................... -- -- (503) (254) (795)
Other current assets.................................. 87 (193) 53 186 (390)
Other assets.......................................... (13) (2) (63) 62 (89)
Accounts payable...................................... (408) 161 166 (156) (2)
Accrued payroll and other accrued expenses............ 164 627 1,332 1,696 1,129
Billings in excess of costs........................... -- -- 429 617 1,063
Other current liabilities............................. 38 103 (147) 127 108
------- ------- -------- -------- -------
Net cash used in operating activities.............. (1,302) (5,918) (11,168) (4,622) (3,943)
------- ------- -------- -------- -------
Cash flows from financing activities:
Proceeds from issuance of notes payable................... 5,000 1,160 -- -- --
Proceeds from sale of mandatorily redeemable convertible
preferred stock -- Series A, net........................ -- 7,500 -- -- --
Proceeds from sale of preferred stock -- Series C, net.... -- 5,092 279 279 --
Proceeds from sale of mandatorily redeemable convertible
preferred stock -- Series D and D-1, net................ -- -- 14,232 10,231 --
Proceeds from sale of preferred stock -- Series E, net.... -- -- -- -- 13,428
Proceeds from exercise of stock options and bridge
warrants................................................ -- 619 8 4 160
Deferred financing costs.................................. (332) -- -- -- --
Redemption of bridge warrants............................. -- -- (4) -- --
Principal payments on notes payable and capital lease
obligations............................................. (2,260) (1,347) (1,618) -- --
------- ------- -------- -------- -------
Net cash provided by financing activities.......... 2,408 13,024 12,897 10,514 13,588
------- ------- -------- -------- -------
Cash flows from investing activities:
Purchase of securities available for sale................. -- (1,770) (48,697) (16,752) (18,974)
Sales and maturities of securities available for sale..... -- -- 44,715 17,800 24,727
Investment in joint venture............................... (14) 30 -- -- --
Capital expenditures...................................... (318) (1,113) (2,054) (1,183) (1,133)
------- ------- -------- -------- -------
Net cash (used in) provided by investing
activities....................................... (332) (2,853) (6,036) (135) 4,620
------- ------- -------- -------- -------
Net increase (decrease) in cash and cash equivalents........ 774 4,253 (4,307) (5,757) 14,625
Cash and cash equivalents at beginning of period............ 3 777 5,030 5,030 723
------- ------- -------- -------- -------
Cash and cash equivalents at end of period.................. $ 777 $ 5,030 $ 723 $ 10,787 $14,988
======= ======= ======== ======== =======
Supplemental disclosures of cash flow information:
Cash paid during the period for Interest.................. $ 273 $ 640 $ 142 $ 1 $ 1
======= ======= ======== ======== =======
Non-cash Investing and Financing Activities (in thousands):
The Company entered into capital leases for new equipment of
$56 in 1996.
In 1997, notes payable in the amount of $1,618 and accrued
interest of $103 were converted into common stock.
</TABLE>

See accompanying notes to consolidated financial statements

F-6
<PAGE> 79

DALEEN TECHNOLOGIES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX-
MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(A) BUSINESS

Daleen Technologies, Inc. (the "Company") is a provider of next-generation
billing and customer care software that can serve as the core of an enterprise
solution for integrated communication service providers. The Company provides
comprehensive billing, provisioning and customer care systems for wireline and
wireless network operators and service providers. It also provides customer care
and billing systems to companies that offer multiple service packages, commonly
referred to as convergent services, such as wireline and wireless voice,
internet access and data, video, internet telephony and application hosting.

Prior to the development of the Company's products, the Company was a
computer consulting company which provided software and hardware development
services to customers on a contract basis. The Company ceased performing these
contract consulting services in June 1996. The Company also provided temporary
software and hardware computer specialists to companies on a contract basis
until the sale of the Company's placement services division in November 1996
(note 13).

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

In February 1996, the Company formed a foreign sales corporation, Daleen
International, Inc., which is wholly owned. Daleen International, Inc. had no
operations for each of the years in the three-year period ended December 31,
1998.

(B) PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts and operations
of the Company and its wholly owned subsidiary. The Company accounted for the
investment in the Indian joint venture discussed in note 10 on the equity method
of accounting. All intercompany accounts and transactions have been eliminated.

The Company recognizes revenue from long-term contracts involving
significant production, modification or customization of software under
Statement of Position 81-1 using the percentage of completion method, based on
the ratio of total labor hours incurred to date to total estimated labor hours.
Changes in job performance, job conditions, estimated profitability and final
contract settlement may result in revisions to costs and income and are
recognized in the period in which the revisions are determined. Contract costs
include all direct material and labor costs and those indirect costs related to
contract performance, such as indirect labor and supplies. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined. Amounts billed in excess of revenue recognized to date
are classified as "Billings in

F-7
<PAGE> 80
DALEEN TECHNOLOGIES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX-
MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

excess of costs", whereas revenue recognized in excess of amounts billed are
classified as "Costs in excess of billings" in the accompanying consolidated
balance sheets.

In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 97-2, Software Revenue Recognition (SOP
97-2). Effective January 1, 1998, the Company adopted SOP 97-2 for all software
transactions entered into that did not require significant production,
modification or customization. SOP 97-2 generally requires revenue earned on
software arrangements involving multiple elements to be allocated to each
element based on vendor specific objective evidence (VSOE) of the relative fair
values of the elements. VSOE is determined by the price charged when the element
is sold separately. The revenue allocated generally is recognized when the
software has been delivered and installed, the fee is fixed and determinable and
collectibility is probable.

Revenue related to customer maintenance agreements is deferred and
recognized ratably on a straight-line basis over the maintenance period of the
agreement.

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

For license fee revenue sold to end users, the Company recognizes revenue
upon shipment when it has no further obligations under the contract. In these
arrangements a third-party integrator contracts directly with the customer to
perform the installation. Upon shipment, delivery has occurred, persuasive
evidence of an arrangement exists, collectibility is probable and the fee is
fixed and determinable.

The Company recognizes revenue after installation is complete if the
Company sells the license to a third-party integrator. Under these types of
arrangements, the Company's involvement in the integration is on an as-needed
basis throughout the integration process. Therefore, the obligation is not
complete until the software has been installed and accepted by the end user.

In March 1999, the Company adopted SOP 98-9, Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions. SOP 98-9
amends SOP 97-2 to require recognition of revenue using the "residual method"
when (1) there is VSOE of the fair values of all undelivered elements in a
multiple-element arrangement that is not accounted for using long-term contract
accounting, (2) VSOE of fair value does not exist for one or more of the
delivered elements in the arrangement, and (3) all revenue-recognition criteria
in SOP 97-2 other than the requirement for VSOE of the fair value of each
delivered element of the arrangement are satisfied. Under the residual method,
the arrangement fee is recognized as follows: (1) the total fair value of the
undelivered elements, as indicated by VSOE, is deferred and subsequently
recognized in accordance with the relevant sections of SOP 97-2 and (2) the
difference between the total arrangement fee and the amount deferred for the
undelivered elements is recognized as revenue related to the delivered elements.
The adoption of SOP 98-9 did not have a material impact on results of
operations.

F-8
<PAGE> 81
DALEEN TECHNOLOGIES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX-
MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

(D) CASH AND CASH EQUIVALENTS

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

(E) SECURITIES AVAILABLE FOR SALE

Securities available for sale are recorded at fair value. Unrealized gains
and losses are recorded as other comprehensive income in stockholders' deficit.
The fair value of securities available for sale approximated the historical cost
for all periods presented and thus, no significant unrealized gains or losses
existed.

(F) PROPERTY AND EQUIPMENT, NET

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

(G) SOFTWARE DEVELOPMENT COSTS

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

(H) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Impairment of assets to be held and used is determined by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. 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 assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell.

(I) INCOME TAXES

The Company uses the asset and liability method of accounting for income
taxes. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their

F-9
<PAGE> 82
DALEEN TECHNOLOGIES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX-
MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.

(J) STOCK OPTION PLANS

The Company accounts for its stock option plans in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. As such, compensation
expense would be recorded on the date of grant only if the current market price
of the underlying stock exceeded the exercise price. Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation, ("SFAS
No. 123") permits entities to recognize as expense over the vesting period the
fair value of all stock-based awards on the date of grant. Alternatively, SFAS
No. 123 also allows entities to continue to apply the provisions of APB Opinion
No. 25 and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future years as if
the fair-value-based method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the provisions of APB Opinion No. 25
and provide the pro forma disclosures of SFAS No. 123.

(K) FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, Disclosures About Fair
Value of Financial Instruments, requires disclosure of fair value of certain
financial instruments. Cash and cash equivalents, accounts receivable,
securities available for sale and prepaid expenses and other current assets, as
well as accounts payable, accrued expenses and other current liabilities, as
reflected in the consolidated financial statements, approximate fair value
because of the short-term maturity of these instruments.

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

(L) USE OF ESTIMATES

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

(M) BASIC AND DILUTED NET LOSS PER SHARE

Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, Earnings Per Share ("SFAS No. 128"). SFAS No. 128
establishes new standards designed to improve the earnings per share ("EPS")
information provided in financial

F-10
<PAGE> 83
DALEEN TECHNOLOGIES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX-
MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

statements by simplifying the existing computational guidelines, revising the
disclosure requirements and increasing the comparability of EPS data on an
international basis. The adoption of SFAS No. 128 did not have a significant
impact on the Company's reported EPS.

In accordance with Securities and Exchange Commission ("SEC") Staff
Accounting Bulletin No. 98, certain common stock and common stock equivalents
issued for nominal consideration prior to the initial filing of a registration
statement relating to an IPO are treated as outstanding for the entire period.
The Company had no nominal issuances during this period.

Basic and diluted net loss applicable to common stockholders per share were
computed by dividing net loss applicable to common stockholders by the
weighted-average number of shares of common stock outstanding for each period
presented. Common stock equivalents were not considered for each of the years in
the three year period ended December 31, 1998 since their effect would be
antidilutive. Net loss applicable to common stockholders differs from net loss
in the year ended December 31, 1998 and the six months ended June 30, 1999 due
to accretion on the preferred stock.

On August 16, 1999, the Company filed its Agreement and Plan of Merger with
the Secretaries of State in Florida and Delaware, the effect of which increased
the authorized number of shares of common stock to 70,000,000 and decreased the
authorized number of shares of preferred stock to 21,877,216.

(N) UNAUDITED PRO FORMA FINANCIAL INFORMATION

Unaudited pro forma basic and diluted net loss applicable to common
stockholders per share for the year ended December 31, 1998, and for the six
months ended June 30, 1999 were computed by dividing pro forma net loss
applicable to common stockholders by the pro forma weighted average number of
shares of common stock outstanding, which reflects the conversion of preferred
stock as described below:

<TABLE>
<CAPTION>
(IN THOUSANDS)
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 JUNE 30, 1999
----------------- --------------
<S> <C> <C>
Net loss applicable to common stockholders......... $(12,234) $(4,587)
Reversal of accretion of preferred stock........... 65 79
-------- -------
Pro forma net loss applicable to common
stockholders..................................... $(12,169) $(4,508)
======== =======
Weighted average shares............................ 3,240 3,242
Common stock to be issued upon conversion of
preferred stock.................................. 6,754 9,131
-------- -------
Pro forma weighted average shares.................. 9,994 12,373
======== =======
Pro forma basic and diluted net loss applicable to
common stockholders per share.................... $ (1.22) $ (0.36)
======== =======
</TABLE>

Pro forma net loss applicable to common stockholders reflects the automatic
conversion of all outstanding shares of preferred stock into shares of common
stock as if such conversion

F-11
<PAGE> 84
DALEEN TECHNOLOGIES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX-
MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

occurred on January 1, 1998 or the date preferred shares were issued if such
issuance occurred subsequent to January 1, 1998.

The unaudited pro forma consolidated balance sheet at June 30, 1999
reflects the conversions of the Series A, D, D-1, and E Mandatorily Redeemable
Convertible Preferred Stock and Series C Convertible Preferred Stock to common
stock which conversions will automatically occur upon the closing of an initial
public offering as if such closing occurred on June 30, 1999.

(O) CAPITAL STRUCTURE

The Company has a total of 21,877,216 authorized shares of preferred stock.
In September 1997, the Company designated 3,000,000 shares of preferred stock as
Mandatorily Redeemable Convertible Series A Preferred Stock (see note 9). In
November 1997, the Company designated 1,222,222 shares of preferred stock as
Series C Convertible Preferred Stock (see note 8(b)). In June 1998, the Company
designated 4,221,846 shares and 686,533 shares, respectively, of preferred stock
as Series D and D-1 Preferred Stock (see note 9). In June 1999, the Company
designated 1,496,615 shares of preferred stock as Series E Preferred Stock (see
note 9). The Board has the ability to set the rights, preferences, and dividends
of preferred stock without shareholder approval.

(P) COMPREHENSIVE INCOME

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

(Q) SEGMENT INFORMATION

Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information ("SFAS No. 131"). SFAS No. 131 establishes standards for the
way that public business enterprises report information about operating segments
in annual financial statements and requires those enterprises to report selected
information about operating segments in interim financial reports issued to
stockholders. The Company operates in one segment for management reporting
purposes.

F-12
<PAGE> 85
DALEEN TECHNOLOGIES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX-
MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

(R) UNAUDITED INTERIM FINANCIAL INFORMATION

The unaudited consolidated balance sheet as of June 30, 1999, the unaudited
consolidated statements of operations and cash flows for the six months ended
June 30, 1998 and 1999 and the unaudited consolidated statement of redeemable
preferred stock and stockholders' deficit for the six months ended June 30, 1999
include, in the opinion of management, all adjustments (consisting of normal
recurring adjustments) necessary to present fairly the Company's consolidated
financial position, results of operations and cash flows. Operating results for
the six months ended June 30, 1999 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1999.

2. LIQUIDITY

The Company has incurred substantial losses and utilized substantial
amounts of cash in its operating activities for the years ended December 31,
1997 and 1998, and has an accumulated deficit of $22,508,291 at December 31,
1998. An additional loss was incurred in the amount of $4,508,821 during the six
months ended June 30, 1999. During these loss periods, the Company incurred
significant costs related to the development of its current primary product. The
Company plans to increase sales and profitability by marketing its current
primary product and increasing sales in the United States, United Kingdom and
Latin America. During the year ended December 31, 1998, the Company's revenue
from license fees increased due to certain major contracts that were entered
into in 1998. In addition, as discussed in note 9, the Company received $13.5
million in June 1999 from the proceeds of a private placement offering of
mandatorily redeemable preferred stock.

3. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consist of the following at December 31:

<TABLE>
<CAPTION>
(IN THOUSANDS) ESTIMATED
1997 1998 USEFUL LIFE
------ ------- -----------
<S> <C> <C> <C>
Computer hardware........................... $ 787 $ 2,093 3 - 5 years
Purchased computer software................. 300 472 3 - 5
Office furniture and equipment.............. 383 755 5 - 7
Transportation equipment.................... 43 43 5
Leasehold improvements...................... 194 757 lease term
Construction in progress.................... 459 8 --
------ -------
2,166 4,128
Less accumulated depreciation and
amortization.............................. (787) (1,612)
------ -------
Property and equipment, net................. $1,379 $ 2,516
====== =======
</TABLE>

F-13
<PAGE> 86
DALEEN TECHNOLOGIES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX-
MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

4. INCOME TAXES

The Company did not have income tax expense for the years ended December
31, 1996, 1997 and 1998. This differed from an income tax benefit computed by
applying the Federal income tax rate of 34% to pretax losses as a result of the
following:

<TABLE>
<CAPTION>
(IN THOUSANDS)
1996 1997 1998
----- ------- -------
<S> <C> <C> <C>
Computed "expected" tax benefit............................ $ 519 $ 2,715 $ 4,137
Increase (reduction) in income taxes resulting from:
State income taxes....................................... 55 594 439
Increase in the valuation allowance for deferred tax
assets................................................ (564) (3,016) (4,360)
Other items.............................................. (10) (293) (216)
----- ------- -------
$ -- $ -- $ --
===== ======= =======
</TABLE>

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets at December 31, 1997 and 1998 are presented
below:

<TABLE>
<CAPTION>
(IN THOUSANDS)
1997 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................ $ 3,682 $ 7,791
Depreciation and amortization........................... 28 106
Allowance for doubtful accounts......................... 112 3
Accrued expenses........................................ -- 274
Other................................................... (8) --
------- -------
Gross deferred tax assets............................... 3,814 8,174
Less valuation allowance................................ (3,814) (8,174)
------- -------
Total net deferred tax asset.................... $ -- $ --
======= =======
</TABLE>

Realization of deferred tax assets associated with net operating loss and
credit carryforwards is dependent upon generating sufficient taxable income
prior to their expiration. Management believes that there is a risk that these
net operating loss and credit carryforwards may expire unused and has
established a valuation allowance for the deferred tax assets.

Net operating loss carryforwards for Federal and state income tax purposes
amount to approximately $20,843,000 and expire through year 2018. The
utilization of the Company's net operating loss carryforwards may be limited due
to the defined changes in ownership that have occurred over the past several
years.

5. NOTES PAYABLE

During 1996, the Company completed a private placement of 60 units of
subordinated promissory notes (the "1996 Notes"), along with warrants to
purchase shares of the Company's common stock. The gross proceeds of the
placement were $3,000,000 and the expenses related to

F-14
<PAGE> 87
DALEEN TECHNOLOGIES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX-
MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

the placement were $381,424. Each unit consisted of a $50,000 note payable and a
warrant to purchase 8,400 shares of the Company's common stock at a price equal
to the greater of $3.00 per share or one-half of the initial offering price per
share in the event that the Company completes an initial public offering ("IPO")
of its common stock. The proceeds were allocated between the estimated value of
the warrants and the note payable. The estimated value of the warrants is
reflected as a discount to the note payable. The expenses and discount related
to the private placement were amortized into interest expense over the term of
the 1996 Notes.

During June 1997, the Company completed an offering of subordinated notes
payable with aggregate proceeds of $375,000. The notes were due in June 1998
with interest payable in arrears at 10%. The Company also granted 90,000
warrants for the purchase of common stock at $3.25 per share to the investors of
the subordinated notes payable. These notes were repaid with proceeds from the
September 1997 offering discussed in note 9.

On July 10, 1997, the Company completed a restructuring of the 1996 Notes
and an additional offering of the new units described below. The Company offered
each holder of the 1996 units the right to exchange the old units for new units
comprised of a $50,000 convertible subordinated note payable ("1997 Notes") with
a new maturity date which was one year from the original maturity date, thereby
extending the maturity dates on the converted notes from September through
November 1997 to September through November 1998. One half of the 1997 Notes
plus accrued interest converts to the Company's common stock at the rate of
$3.00 per share upon completion of a private or public equity financing of at
least $2,500,000. If the equity financing is for less than $3.00 per share, the
conversion rate is for the lesser amount. The fair value of the underlying stock
was less than the conversion price. Should any portion of the 1997 Notes remain
outstanding after the maturity date, the Company was obligated to issue common
shares to the holder at a rate of 700 common shares per month for each $50,000
outstanding. The 8,400 warrants associated with each 1996 Note converted to the
1997 Note were required to be immediately exercised on July 10, 1997 at a
purchase price of $1.00 per share. The Company recorded inducement expense of
$375,000 related to the reduction of the exercise price of these warrants from
the original exercise price of $3.00 per share to the reduced exercise price of
$1.00 per share. This inducement expense is included in interest expense in the
accompanying consolidated statement of operations for the year ended December
31, 1997 and as a credit to additional paid-in capital. Of the 60 original units
of 1996 Notes, 49 were converted to the new units of 1997 Notes and the related
warrants were exercised. At the same time, the Company also offered the new
units of 1997 Notes to certain additional investors. A total of 15.7 new units
was sold to investors. Total proceeds from the offering of the new units of 1997
Notes and from the warrants exercised was $1,328,480 and a total of 543,480 new
shares of common stock was issued to the investors.

Because of the completion of the financing on September 12, 1997, described
in note 9, one half of the 1997 Notes amounting to $1,617,500 plus associated
interest of approximately $100,000 were converted on that date to common stock
at $2.50 per share, amounting to approximately 690,000 new shares of common
stock. In addition to the conversion of one half of the new units of 1997 Notes
to common stock, the new unit holders received a total of 215,000 warrants to
purchase common stock at $4.00 per share, similar to the Series B Preferred
Stock

F-15
<PAGE> 88
DALEEN TECHNOLOGIES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX-
MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

warrants described in note 8. As a result of the offering of the Series D
preferred stock, as discussed in note 9, the warrants have been repriced at
$3.056.

Notes payable at December 31, 1997 consisted of the 1997 Notes of
$1,617,500, due at the earlier of the closing of an IPO or at dates ranging from
September 1998 to November 1998, and bore interest at 9%, due at maturity.

Upon completion of the financing in June 1998, described in note 9, the
outstanding balance of the 1997 Notes amounting to $1,617,500, plus associated
interest of approximately $180,000 was repaid.

6. ACCRUED PAYROLL AND OTHER ACCRUED EXPENSES

Accrued payroll and other accrued expenses consist of the following at
December 31:

<TABLE>
<CAPTION>
(IN THOUSANDS)
1997 1998
----- -------
<S> <C> <C>
Accrued payroll and related expenses........................ $266 $ 249
Due to subcontractors....................................... 138 760
Accrued bonuses............................................. 457 953
Other accrued expenses...................................... 44 275
---- ------
$905 $2,237
==== ======
</TABLE>

7. COMMITMENTS

(A) LEASES

The Company leases office space and certain equipment under operating
leases that expire through January, 2001. Future minimum lease payments under
noncancelable operating leases (with initial or remaining lease terms in excess
of one year) for the years ending December 31, are as follows:

<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1999........................................................ $220
2000........................................................ 203
2001........................................................ 15
----
Total minimum lease payments...................... $438
====
</TABLE>

Total rent expense for operating leases was $185,498, $279,708, and
$370,919, for the years ended December 31, 1996, 1997 and 1998, respectively.

(B) 401(K) PROFIT SHARING & TRUST

The Daleen Technologies, Inc. 401(k) Profit Sharing & Trust plan covers
substantially all of its employees. The Company matches 25% of the employees'
contribution, up to a maximum of 8% deferral made by the employees. In addition,
the Plan allows discretionary contributions

F-16
<PAGE> 89
DALEEN TECHNOLOGIES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX-
MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

from us. The total expense associated with this plan for 1996, 1997 and 1998 was
$0, $36,277, and $71,923, respectively.

The Company has employment agreements with specified employment terms with
two executives that provide for annual base salaries, annual salary increases,
an annual bonus and periodic stock option grants subject to the approval by the
compensation committee of the Company's board of directors. The terms of their
agreements vary in length up to five years and provide for aggregate annual base
salaries of $467,500. These agreements, and other employment agreements with
other executives that do not have specified employment terms, provide for
severance payments of up to two years base salary.

(8) STOCKHOLDERS' DEFICIT

(A) STOCK OPTIONS

The Company has six fixed stock option plans: the 1994 Employee
Non-Qualified Stock Option Plan ("the 1994 Plan"), the 1995 Qualified Employee
Incentive Stock Option Plan ("the 1995 Plan"), the 1996 Employee Non-Qualified
Stock Option Plan ("the 1996 Plan"), the 1997 Employee Incentive Stock Option
Plan ("the 1997 Plan"), the 1998 Non-Qualified Employee Stock Option Plan ("the
1998 Plan") and the 1998 Qualified Employee Incentive Stock Option Plan ("the
1998 ISO Plan"). Each Plan provides that the exercise price of the options
granted will be issued at no less than the fair market value of the underlying
common stock at the date of grant. A summary of the Company's stock option plans
is presented below:

<TABLE>
<CAPTION>
SHARES
AUTHORIZED
FOR ISSUANCE CONTRACTUAL LIFE
UNDER PLAN VESTING PERIOD OF OPTIONS
------------ ------------------------- -------------------
<S> <C> <C> <C>
1994 Plan...................... 125,000 100% upon grant 5 years from grant
1995 Plan...................... 200,000 100% upon grant 5 years from grant
1996 Plan...................... 400,000 100% upon grant 5 years from grant
1997 Plan...................... 200,000 33.3% each year for first 5 years from grant
three years from grant
1998 Plan...................... 500,000 2 to 4 years from grant 5 years from grant
1998 ISO Plan.................. 1,600,000 25% each year for first 5 years from grant
four years from grant
</TABLE>

On February 25, 1999 the Company established a new stock incentive plan
("the 1999 Plan"). The number of shares reserved for grants under the 1999 Plan
was initially 598,881. In July 1999, the Board authorized an additional 750,000
shares to be issued under this plan. In addition, the 1999 Plan authorizes the
Company to automatically adjust the number of shares of common stock available
for issuance on the first day of each fiscal year beginning in 2000, up to an
annual increase of 800,000 shares. The contractual life of the options under
this plan is up to ten years from the date of grant.

F-17
<PAGE> 90
DALEEN TECHNOLOGIES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX-
MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

A summary of the status of the Company's stock option plans, as of December
31, 1996, 1997 and 1998, and changes during the years then ended, is presented
below:

<TABLE>
<CAPTION>
1996 1997 1998
-------------------- ---------------------- ----------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
-------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year.... 113,425 $0.87 520,303 $1.73 1,476,498 $2.67
Granted................ 422,293 1.94 988,732 3.18 1,012,600 3.25
Exercised.............. -- -- -- -- -- --
Forfeited.............. (15,415) 0.92 (32,537) 3.00 (125,401) 3.13
-------- ---------- ----------
Outstanding at end of
year................. 520,303 $1.73 1,476,498 $2.67 2,363,697 $2.89
======== ========== ==========
Options exercisable at
end of year.......... 459,478 503,885 957,814
Weighted average fair
value of options
granted during the
year................. $0.50 $0.38 $0.61
</TABLE>

The following table summarizes information about stock options outstanding
and exercisable at December 31, 1998:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- -----------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- -------- ----------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.10 to $1.00......... 319,305 2.28 $0.97 319,305 $0.97
$2.00 to $3.00......... 403,733 3.01 2.98 349,624 2.97
$3.25 to $4.00......... 1,640,659 4.45 3.25 288,885 3.25
--------- -------
2,363,697 3.91 2.89 957,814 2.39
========= =======
</TABLE>

The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock option plans. The fair value of each option granted to
employees is estimated on the date of grant using the Black-Scholes model with
the following assumptions: expected dividends of zero; a risk-free interest rate
ranging from 4.4% to 6.6%; and an expected life of five years.

F-18
<PAGE> 91
DALEEN TECHNOLOGIES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX-
MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

Had compensation expense for the Company's plans been determined consistent
with FASB Statement No. 123, the Company's net loss and net loss per share would
have been increased to pro forma amounts indicated below:

<TABLE>
<CAPTION>
(IN THOUSANDS)
PRO FORMA DISCLOSURES 1996 1997 1998
- --------------------- ------- ------- --------
<S> <C> <C> <C>
Net loss:
As reported.................................... $(1,526) $(7,984) $(12,169)
Pro forma...................................... (1,761) (8,342) (12,444)
Net loss applicable to common stockholders per
share:
As reported.................................... (0.81) (3.48) (3.78)
Pro forma...................................... (0.94) (3.64) (3.84)
</TABLE>

The Company accounts for stock options granted to nonemployees based on the
fair value of the stock options granted. During 1996 and 1997, the Company
recorded $81,000 and $25,782, respectively, of stock compensation expense
related to stock options for the purchase of 23,490 and 113,756 shares of common
stock, respectively, granted to nonemployees. The fair value of such stock
options was estimated on the dates of grant using the Black-Scholes model.

(B) COMMON AND PREFERRED STOCK

In November 1997, the Company began an offering of Series C convertible
preferred stock ("Series C Preferred Stock"). The Series C Preferred Stock was
offered for $4.50 per share and is convertible at the option of the holder to
common stock on a one-for-one basis. The Series C Preferred Stock automatically
converts to common stock upon the completion of an IPO. The Company raised a
total of approximately $5,301,000 for 1,213,584 shares of Series C Preferred
Stock, of which approximately $5,092,000 and $279,000 was received in 1997 and
1998, respectively. Dividends on the Series C Preferred Stock are payable if and
when declared by the Company's board of directors, at an amount to be determined
by the Company's board of directors. In connection with this offering the
Company issued warrants to purchase an additional 285,000 shares of the
Company's common stock at $4.50 per share.

In January 1998, the Company issued 21,600 shares of common stock to
certain individuals for consulting services. The fair value of $70,200 of the
shares of common stock issued was reclassified from the carrying value of the
Series C Preferred Stock to common stock and additional paid-in capital.

9. REDEEMABLE PREFERRED STOCK

On September 12, 1997, the Company completed a sale of mandatorily
redeemable convertible Series A preferred stock ("Series A Preferred Stock") to
a venture capital fund. The Company issued 3,000,000 shares of Series A
Preferred Stock to the fund at $2.50 per share for total proceeds of $7,500,000.
The Series A Preferred Stock is convertible on a one to one basis into the
Company's common stock at the option of the holder, until an IPO occurs, at
which time the Series A Preferred Stock is automatically converted. The Series A
Preferred Stock is redeemable at the option of the holder if an IPO is not
completed within five years from the

F-19
<PAGE> 92
DALEEN TECHNOLOGIES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX-
MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

date of issuance at $2.50 per share which is the fair market value of the common
stock on the date of issuance. In addition, the Company issued to the venture
capital fund 1,250,000 warrants to purchase Series B Preferred Stock at $4.00
per share. As a result of the offering of the Series D preferred stock, the
warrants have been repriced to $3.056. The Series B Preferred Stock is also
convertible to common stock on a one to one basis and has the same automatic
conversion and redemption features as the Series A Preferred Stock.

In June 1998, the Company completed a private placement with a group of
venture capital funds for an investment of $15,000,006 in the Company. Under the
terms of the private placement, the Company issued 4,221,846 shares and 686,533
shares, respectively, of newly authorized Series D and D-1 redeemable
convertible preferred stock ("Series D and D-1 Preferred Stock"). The Series D
and D-1 Preferred Stock is convertible on a one to one basis into the Company's
common stock at the option of the holder and will be automatically convertible
to common stock in the event of an IPO of at least $20,000,000 at a price per
share of at least three times the Series D and D-1 Preferred Stock conversion
price ($9.00). The fair market value was equal to the conversion price per share
at the date of issuance. The Company is required to redeem one-third of the
Series D and D-1 Preferred Stock on each of June 18, 2002, 2003 and 2004. Costs
of the offering were $768,275 and were recorded as a discount to the fair value
of the Series D and D-1 Preferred Stock at its date of issuance. This discount
is being accreted into the carrying value of the Series D and D-1 Preferred
Stock, using the effective interest method, so that one-third of the carrying
value of the Series D and D-1 Preferred Stock will equal its redemption value on
each of June 18, 2002, 2003 and 2004. The net proceeds of the private placement
after payment of expenses, were used for working capital and to repay notes
payable and accrued interest of approximately $1,800,000, as discussed in note
5.

On June 30, 1999, the Company completed a sale of mandatorily redeemable
convertible Series E Preferred Stock ("Series E Preferred Stock") to a strategic
partner. The Company issued 1,496,615 shares of Series E Preferred Stock at
$9.00 per share for total proceeds of $13.5 million. The Series E Preferred
Stock is convertible on a one to one basis into the Company's common stock at
the option of the holder, until an IPO occurs, at which time the Series E
Preferred Stock is automatically converted. The Series E Preferred Stock is
redeemable at the option of the holder if an IPO is not completed within five
years from the date of issuance at $9.00 per share.

Dividends on the Series A Preferred Stock, Series B Preferred Stock, Series
D and D-1 Preferred Stock and the Series E Preferred Stock are payable if and
when declared by the Company's board of directors, at an amount to be determined
by the Company's board of directors.

10. JOINT VENTURE

On September 21, 1995, the Company entered into a joint venture agreement
with Macmet India Ltd., an Indian company, to form a new joint venture company
in India to market telecommunications products and services. The Indian joint
venture was named Macmet Daleen Teleware Ltd. In July 1997, the Company was
reimbursed for our investment in the Indian joint

F-20
<PAGE> 93
DALEEN TECHNOLOGIES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX-
MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

venture and as of that date, the joint venture was terminated. The Company
incurred an immaterial loss related to this sale of the joint venture.

11. BUSINESS AND CREDIT CONCENTRATIONS

Historically, when the Company was a consulting company, a substantial
amount of the Company's business activity was with customers located within the
state of Florida and with customers in various industries. Over the past year, a
greater percentage of business was done with customers located in different
areas of the United States and in Latin America and Europe, and the Company has
focused on customers in the communications industry. Foreign revenue is less
than 10% of total revenue in each period presented.

Normal credit terms are granted to customers. Project retainers are
received on most contracts. The Company has the right to cancel software
licenses in the event that the customer is in default of its license agreement
with the Company.

During the years ended December 31, 1996, 1997 and 1998, 54%, 100% and 99%,
respectively, of the Company's total revenue were attributed to two, two and
five customers, respectively. Sales to the two customers in 1996 represented 40%
and 14% of total revenue. Sales to two customers in 1997 accounted for 74% and
26% of total sales. Sales to five customers in 1998 accounted for 19%, 22%, 27%,
15% and 15%. In addition, there were accounts receivable from four customers and
one customer at December 31, 1997 and 1998, respectively, each of which exceeded
10% of total accounts receivable and aggregated approximately $19,000 and
$1,130,000, respectively. These amounts were collected subsequent to December
31, 1998 and 1997, respectively.

The Company estimates an allowance for doubtful accounts generally based on
an analysis of collections in prior years, the credit worthiness of its
customers as well as general economic conditions. Consequently, an adverse
change in those factors could effect the Company's estimate of its bad debts.

12. RELATED PARTY TRANSACTIONS

A member of the board of directors is the Senior Vice President and Chief
Financial Officer of Science Applications International Corporation (SAIC). SAIC
is a significant stockholder of the Company. SAIC owns 43 percent of all voting
stock of Danet, Inc. and 100 percent of the voting stock of Telecordia. Danet is
a customer and distributor of the Company.

Sales to Danet for the years ended December 31, 1998, 1997, and 1996
amounted to $334,794, $0 and $0. The Company paid Danet, in its capacity as
distributor of its products, $2.2 million, $0 and $0 for the years ended
December 31, 1998, 1997 and 1996. The Company had a strategic alliance
relationship with Telecordia. No revenue was received and no payments were made
in connection with this relationship for the three year period ended December
31, 1998.

F-21
<PAGE> 94
DALEEN TECHNOLOGIES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX-
MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

13. SALE OF PLACEMENT DIVISION

Effective November 30, 1996, the Company sold all of the net assets
relating to its placement services division at a sale price of $1.3 million in
cash. The net assets related to the division were primarily customer contracts
relating to ongoing temporary placements of personnel, along with the employment
contracts for the personnel in the placement services division. Therefore, there
were no recorded assets or liabilities on our balance sheet related to the sale
and the resulting gain of $1,300,000 was recorded as other nonoperating income.
Costs of the sale were insignificant and the Company has no further
responsibilities for the operations of the placement services division.

14. SALE OF UNRELATED SOFTWARE PRODUCT

In May 1996, the Company sold the marketing rights to an unrelated software
product for an initial cash payment of $500,000, guaranteed minimum sales levels
by the buyer of this product for a three-year period and common stock in a
publicly-traded company affiliated with the buyer. The fair value of the common
stock at the date of the license agreement was $289,464. At December 31, 1996,
the Company wrote down the common stock to its fair value of $165,408 and
recorded the resulting loss of $124,056. Subsequently, during 1997, such stock
became worthless and the Company wrote off the asset, recording a loss of
$165,408. The Company entered into a related settlement and release agreement
with the buyer. Under the terms of this agreement, the sale of the marketing
rights and all related obligations were canceled. However, the Company retained
the initial $500,000 payment and the common stock received in the transaction.

In July 1998, the Company sold the source code and all rights to this
unrelated software product to another buyer for $400,000.

These amounts are included in other income in the accompanying consolidated
statements of operations.

15. NEW ACCOUNTING PRONOUNCEMENTS

In March 1998, the AICPA issued Statement of Position 98-5 Reporting on the
Costs of Start-Up Activities (SOP 98-5). Pursuant to the provisions of SOP 98-5,
all costs associated with start-up activities, including organization costs,
should be expensed as incurred. Companies that previously capitalized such costs
are required to write off the unamortized portion of such costs as a cumulative
effect of a change of accounting principle. The Company has no start-up costs
capitalized at December 31, 1998.

In March 1998, the AICPA issued Statement of Position 98-1 (SOP 98-1),
accounting for the costs of software developed or obtained for internal use.
This standard requires companies to capitalize qualifying computer software
costs, which are incurred during the application development stage, and amortize
them over the software's estimated useful life. SOP 98-1 is effective for fiscal
years beginning after December 15, 1998. The Company expects no impact on its
financial statements related to SOP 98-1.

F-22
<PAGE> 95
DALEEN TECHNOLOGIES, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX-
MONTH PERIODS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 requires the
recognition of all derivatives as either assets or liabilities in the balance
sheet and the measurement of those instruments at fair value. Gains and losses
resulting from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. SFAS No. 133 is expected to be effective for the Company's year
ending December 31, 2000. The Company expects this SFAS to have no material
impact on its financial statements.

16. SUBSEQUENT EVENTS

In June 1999, the Company offered loans to three executive officers and
other employees for an aggregate amount of approximately $435,000 for the
purpose of providing funds for the exercise of vested, non-qualified stock
options and payment of tax obligations resulting from the exercise of those
options. The loans bear interest at the rate of 8.75 percent per annum and
require interest to be paid annually. All principal and accrued interest payable
under the notes is due no later than June 2004. The loans are full recourse and
each officer has pledged the stock issued upon exercise of this option as
security for his loan. In addition, the Company has agreed to loan these
officers and other employees an amount to pay the income tax related to the
exercise of these options. Such amount is estimated to be up to approximately
$750,000.

In June 1999, the Company entered into a lease for its Atlanta office. The
lease has a five year initial term with options for two renewal periods of three
years each. Monthly base rent is approximately $47,000 during the first year and
increases by 2% per year after the initial year.

In August 1999, the Company entered into a sublease for its new Boca Raton
office space. The remaining sublease term begins October 1999 and ends May 2008.
The sublease may be cancelled in March 2005 and September 2006 with penalties in
accordance with the terms of the sublease. Monthly base rent is $61,000 per
month plus operating expenses. These amounts will increase by 3% per year after
the initial year.

Certain option grants made during the six months ended June 30, 1999 had an
exercise price that was less than the fair market value of the underlying common
stock at date of grant which will result in the recognition of compensation
expense amounting to approximately $318,000. Such amount will be recognized as
compensation expense over a four year vesting period.

F-23
<PAGE> 96

(DALEEN TECHNOLOGIES LOGO)

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF THE COMMON STOCK.

UNTIL OCTOBER 25, 1999, ALL DEALERS THAT BUY, SELL OR TRADE OUR COMMON
STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WHEN SELLING THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.