EXTENSITY INC, S-1/A, 2000-01-03

EXTENSITY INC
S-1/A, 2000-01-03
PREPACKAGED SOFTWARE

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 3, 2000

REGISTRATION NO. 333-90979
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- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 2

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

EXTENSITY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 7372 68-0368868
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NUMBER)
</TABLE>

2200 POWELL STREET, SUITE 400
EMERYVILLE, CALIFORNIA 94608
(510) 594-5700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

ROBERT A. SPINNER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
EXTENSITY, INC.
2200 POWELL STREET, SUITE 400
EMERYVILLE, CALIFORNIA 94608
(510) 594-5700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

COPIES TO:

<TABLE>
<S> <C>
HOWARD S. ZEPRUN, ESQ. JOHN W. CAMPBELL III, ESQ.
CAINE T. MOSS, ESQ. CRAIG S. MORDOCK, ESQ.
WILSON SONSINI GOODRICH & ROSATI BRANDON C. PARRIS, ESQ.
PROFESSIONAL CORPORATION MORRISON & FOERSTER LLP
650 PAGE MILL ROAD 19900 MACARTHUR BOULEVARD, 12TH FLOOR
PALO ALTO, CALIFORNIA 94304 IRVINE, CALIFORNIA 92612
(650) 493-9300 (949) 251-7500
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

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- --------------------------------------------------------------------------------
<PAGE> 2

THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BECOMES EFFECTIVE. THIS
PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES NOR DOES
IT SEEK OFFERS TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER
OR SALE IS NOT PERMITTED.

Subject to Completion, Dated January 3, 2000

LOGO

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4,000,000 SHARES
COMMON STOCK
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This is the initial public offering of Extensity, Inc. and we are offering
4,000,000 shares of our common stock. We anticipate that the initial public
offering price will be between $8.00 and $10.00 per share. We have applied to
list our common stock on the Nasdaq National Market under the symbol "EXTN."

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

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS EXTENSITY
<S> <C> <C> <C>
Per Share $ $ $
Total $ $ $
</TABLE>

We have granted the underwriters the right to purchase up to 600,000 additional
shares to cover over-allotments.
DEUTSCHE BANC ALEX. BROWN
BEAR, STEARNS & CO. INC.
HAMBRECHT & QUIST

THE DATE OF THIS PROSPECTUS IS , 2000
<PAGE> 3

DESCRIPTION OF GRAPHICS FOR BACK-INSIDE COVER

At the top right-hand margin of the page appears the Extensity logo and to the
right of the logo appears "Extensity." On the right margin below the Extensity
logo and name appears the phrase in large print "Extensity at Work." Below and
to the far left-hand margin of "Extensity at Work" appears a small graphic
depiction of a human. Below the graphic depiction of the human appears the
phrase "1. Plan Business Trip." Below this phrase appears a graphic depiction of
a computer screen that contains the graphic of the Extensity Travel Plans
user-interface. To the lower right of this graphic appears the phrase "2. Book
Airline Tickets through Travel Service Partner." Below this phrase appears a
graphic depiction of a computer screen that contains the graphic of the
Extensity Travel Plans user-interface, which contains information regarding an
itinerary of a flight from San Francisco to New York. To the lower right of this
graphic appears the phrase "3. Order Supplies to Support Customer." Below this
phrase appears a graphic depiction of a computer screen that contains the
graphic of the Extensity Purchase Reqs user-interface. To the lower-left of this
graphic appears a graphic depiction of a Palm VII hand-held computing device.
Appearing on the screen of the Palm VII is the Extensity Expense Reports
user-interface, which contains purchase information for a hypothetical
transaction. To the right of this graphic appears the phrase "4. Enter Billable
Time on Handheld Device." To the left of the Palm VII graphic is a graphic
depiction of a computer screen that contains the graphic of the Extensity
Expense Reports user-interface. Below this graphic appears the phrase "5.
Complete Expense Report in Minutes and Get Paid in Days." To the upper left of
this graphic appears a graphic depiction of a computer screen that contains a
detailed report of the hypothetical trip as reported by Extensity Expense
Reports. At the top of this graphic appears the phrase "6. Gain Management
Insights from Reporting." The background of the entire graphic is a swirling set
of eight lines. Below all of the graphics appears the table of contents.

DESCRIPTION OF GRAPHICS FOR INSIDE-FRONT COVER

At the top left-hand margin of the page appears the Extensity logo and to the
right of the logo appears "Extensity." Below the Extensity name and logo appears
the phrase in large print "Internet-Based Workforce Optimization Software."
Below this phrase appear five bullet points in a vertical row. To the right of
the first bullet point appears the phrase "Designed and Delivered Using the
Internet." To the right of the second bullet point appears the phrase "Improving
Employee Productivity and Satisfaction." To the right of the third bullet point
appears the phrase "Enhancing Enterprise Operating Efficiency." To the right of
the fourth bullet point appears the phrase "Increasing Control Over Internal
Processes." To the right of the fifth bullet point appears the phrase
"Universally Accessible via Networked and Mobile PCs and Handheld Devices."
Below the five bullet points appears the graphic depiction of a very large oval
that is set at a forty-five degree angle. The oval is separated into four
sections, each a different shade. In the top-left section appears a graphic of
one square intersected by another square. On the top of the squares appears the
graphic depiction of a one hundred dollar bill. In the upper-left hand portion
of this section appears the phrase "Extensity Expense Reports Automates

<PAGE> 4

the Creation, Approval and Payment of Expense Reports While Enforcing Company
Policy." In the top right-hand section appears a graphic of one square
intersected by another square. On the top of the squares appears the graphic
depiction of an airplane. In the upper-right hand portion of this section
appears the phrase "Extensity Travel Plans Automates the Planning, Approval, and
Procurement Process for Corporate Travel Prior to Travel Expenses Being
Incurred." In the lower right-hand section appears a graphic of one square
intersected by another square. On the top of the squares appears the graphic
depiction of a wrist watch around another smaller square. In the lower-right
hand portion of this section appears the phrase "Extensity Timesheets Automates
the Reporting and Tracking of Billable Hours to Ensure Timely and Accurate
Client Billing." In the lower left-hand section appears a graphic of one square
intersected by another square. On the top of the squares appears the graphic
depiction of a computer screen, a computer mouse and a pencil. In the lower
left-hand portion of this section appears the phrase "Extensity Purchase Reqs
Automates and Optimizes the Requisitioning of Non-Production Goods and Services
While Enforcing Company Procurement Policies." Extending from the right of the
large sphere are four lines connecting to a half of a cloud which is located on
the far right-hand margin of the page. Extending to, and over the cloud, and to
the upper center of the page are four diagonal lines.

DESCRIPTION OF GRAPHICS FOR BACK GATEFOLD

On the inside back cover of the gatefold at the top left-hand margin of the page
appears the Extensity logo and to the right of the logo appears "Extensity."
Below the Extensity name and logo appears the phrase in large print "Extensity
Network of Employee Desktops." Below this phrase appears the phrase "Thousands
of Employees Across Multiple Organizations Leveraging Extensity's Integrated
Applications." Below this phrase appears the graphic depiction of a very large
oval that is set at a forty-five degree angle. The oval is separated into four
sections, each a different shade. In the top-left section appears a graphic of
one square intersected by another square. On the top of the squares appears the
graphic depiction of a one hundred dollar bill. In the upper-left hand portion
of this section appears the phrase "Extensity Expense Reports Allows Remote
Employees to Submit Expense Reports and Get Paid in Days." In the top right-hand
section appears a graphic of one square intersected by another square. On the
top of the squares appears the graphic depiction of an airplane. In the
upper-right hand portion of this section appears the phrase "Extensity Travel
Plans Allows Business Managers to Enforce Travel Policy Through Software and to
Deal with Exceptions Only." In the lower right-hand section appears a graphic of
one square intersected by another square. On the top of the squares appears the
graphic depiction of a wrist watch around another smaller square. In the
lower-right hand portion of this section appears the phrase "Extensity
Timesheets Allows Consultants to Easily Enter Time Worked and Accelerates Client
Bill-Back Cycle." In the lower left-hand section appears a graphic of one square
intersected by another square. On the top of the squares appears the graphic
depiction of a computer screen, a computer mouse and a pencil. In the lower
left-hand portion of this section appears the phrase "Extensity Purchase Reqs
Enables Procurement Managers to View Purchasing Reports and Gain Insights into
Buying Patterns." In the center of the oval appears the phrase in large print
"Extensity Workforce Optimization Applications Suite." Below this phrase appears
three vertically stacked bullet points. To the right of the first bullet point
appears the phrase "Consistent User Interface." To the right of the

<PAGE> 5

second bullet point appears the phrase "Integration into ERP, Financial, Credit
Card and Legacy Systems." To the right of the third bullet point appears the
phrase "Integrated Reporting and Management Intelligence." Extending from the
upper left-hand margin of the page to down and around the large oval are a
number of graphic depictions of human figures. Underneath and around the large
oval appear ten swirling lines. Extending from the right of the large oval to
the left hand margin of the page appear four lines. Within the four lines
appears the incomplete phrase "Provide Access to Pre-Qualified Users," which,
when connected to the inside back cover, creates the phrase "Providing Access to
Valuable, Pre-Qualified Users." Extending from the upper right hand margin of
the page and to the center of the right hand margin are four diagonal lines.

On the inside front cover of the gatefold extending from the left-hand margin of
the page to the lower right-hand margin of the page appears four diagonal lines.
The lines extend to, and over, a cloud. Extending from the right of the cloud to
the left hand margin appear four lines (connecting to the gatefold). Within the
four lines appears the incomplete phrase "Valuable, Users," which when connected
to the preceding page of the gatefold creates the phrase "Providing Access to
Valuable, Pre-Qualified Users." Below the cloud appears the phrase "Extensity
Content and Commerce Gateway for the Enterprise Workforce." To the right of the
cloud appear four lines, two of which extend to the top of the page, and two of
which extend to the right hand margin of the page. In between the two lines that
extend to the top of the page appears a graphic depiction of a bridge in a
square. Below the square appears the phrase "Content Providers." To the right of
the square, in the right-hand corner of the page appears the phrase "Extensity
Partner Network Third Party Content, Service and Commerce Providers." Below this
phrase appears a graphic depiction of a computer monitor within a square. Below
the square appears the phrase "Service Providers." To the lower right of this
square appears the graphic depiction of a one hundred dollar bill within a
square. Below the square appears the phrase "Commerce Providers."

<PAGE> 6

DESCRIPTION OF GRAPHICS FOR PAGE 45

The top left-hand margin of the graphic contains the phrase "Extensity
Architecture" in large bold font. Below the phrase "Extensity Architecture"
appears the graphic of three desktop computers. Each computer is linked together
by a solid bold line. Underneath the graphic depiction of the three computers
appears the phrase "Remote LAN." The solid bold line connecting the three
computers extends down below the computers to a cloud. Inside the cloud appears
the phrase "Internet." Extending from the left of the cloud is another solid
bold line connecting to a graphic depiction of a large rectangular box and a
small cube which represent a computer server. Under the rectangle and the cube
graphics appears the phrase "Content Partner." Extending from the cloud to the
lower left-hand corner of the graphic is a lightening bolt connecting the cloud
to a graphic depiction of a laptop computer. Underneath the laptop computer
appears the phrase "Mobile Travelers." Extending from the cloud to the lower
right-hand corner of the graphic is a lightening bolt connecting the cloud to a
graphic depiction of a handheld computing device. Underneath the handheld
computing device appears the phrase "Palm and Visor." Extending from the right
of the cloud is another solid line connecting the cloud to a graphic depiction
of a large rectangular box which represents a computer server. Under the
rectangle appears the phrase "Firewall." Extending from the right of the large
rectangular box is a solid bold line connecting to a large vertical solid bold
line. Appearing at the top of the large vertical solid bold line and extending
to the right of the graphic is another solid bold line connecting to the graphic
depiction of three desktop computers. Underneath the three computers appears the
phrase "LAN." Extending from the middle of the three computers up to the right
diagonally is a solid bold line. This solid bold line connects to a large
rectangular box in the right hand corner of the graphic. Within the large
rectangular box appears the phrase "Thin Client" in the upper left-hand corner
and two smaller rectangular boxes, one stacked upon the other, appear in the
bottom center of the box. In the center of the top stacked box appears the
phrase "GUI Presentation." In the center of the lower stacked box appears the
phrase "Business Rules." Appearing at the middle of the large vertical solid
bold line and extending to the right are three solid bold lines each connecting
to a rectangle box, each which represent a computer server. Under the three
rectangle boxes appears the phrase "Extensity Application Server(s)." Extending
from the right of the front rectangle box is a solid bold line connecting to a
large rectangular box. Within the large rectangular box appears the phrase
"Application Server" in the upper left-hand corner, and three smaller cubes
within another rectangular box in the lower center of the large rectangular box.
In the left-hand box appears the phrase "Business Rule System." In the center
box appears the phrase "Workflow System." In the right-hand box appears the
phrase "Advanced Data Management." Extending from the top of the large
rectangular box is a solid bold line connecting to another large rectangular
box. Within the large rectangular box appears the phrase "Extensity
Applications" in the upper left-hand corner, and four smaller rectangular boxes
stacked two-by-two in the center of the large rectangular box. In the upper
left-hand box appears the phrase "Extensity Expense Reports." In the lower
left-hand box appears the phrase "Extensity Travel Plans." In the upper
right-hand box appears the phrase "Extensity Purchase Reqs." . In the lower
right-hand box appears the phrase "Extensity Timesheets." Appearing at the
bottom of the large vertical solid bold line is a solid bold line extending to
the right and connecting to a rectangular box and a small cube, which represent
a computer server. Appearing under this rectangle and cube appears the phrase
"Enterprise Applications." Extending from the right of this rectangle and cube
is another solid bold line connecting to another rectangular box and a small
cube, which represent a computer server. Appearing under the rectangle and cube
appears the phrase "Database Server."

<PAGE> 7

[ARTWORK]

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management............................ 51
Certain Transactions.................. 60
Principal Stockholders................ 63
Description of Capital Stock.......... 65
Shares Eligible for Future Sale....... 68
Underwriting.......................... 70
Legal Matters......................... 72
Experts............................... 72
Where You Can Find Additional
Information......................... 72
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
<PAGE> 8

PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this
prospectus. This summary may not contain all of the information that you should
consider before investing in our common stock. You should carefully read the
entire prospectus, including "Risk Factors" and the financial statements, before
making an investment decision.

OUR BUSINESS

Extensity provides Internet-based software applications designed to improve
the productivity of employees across an enterprise and to enhance enterprise
operating efficiency. We sell an integrated application suite that automates
expense reporting, travel management, procurement and billable time management.
We refer to these applications that improve productivity and efficiency as
workforce optimization software. Our workforce optimization software solution
streamlines traditionally inefficient and largely paper-based processes, and
captures cost savings by automatically enforcing spending policies and tracking
information valuable to management.

In the intensely competitive global business environment, businesses have
increasingly adopted the Internet to streamline their business processes and
make their employees more productive. In this regard, Giga Information Group
estimates that in 1998, businesses worldwide realized $17.6 billion in
e-commerce driven cost savings and forecasts that by 2002 these savings will
total $1.25 trillion annually. According to preliminary estimates by
International Data Corporation, the worldwide market for workforce management
applications will grow from $766 million in 1998 to $4.0 billion in 2003, and
the Internet commerce procurement applications market will grow from $147
million in 1998 to $5.3 billion in 2003.

Our objective is to become the leading provider of Internet-based
communication and commercial activity between employees and third-party content,
commerce and service providers. We refer to this point of interactivity as a
content and commerce gateway. We have designed our applications to be readily
integrated with Internet-based third-party content, commerce and services. This
will enable us and our partners to deliver relevant and timely content and
business-to-business services targeted at the specific needs of employees. For
example, a consultant planning an engagement can obtain internal travel expense
approval, book airline tickets and hotel reservations through a travel service
partner, plan business entertainment through a content partner, track billable
time and record additional expenses for rapid approval and reimbursement - all
through our integrated application suite accessible at the office or on the
road. The growing network of organizations and employees using our applications
will constitute a valuable target market for our Internet-based content,
commerce and service partners.

Our applications can be readily integrated with enterprise resource
planning and other information technology software applications commonly used in
organizations, including older, legacy systems. Our applications are universally
accessible through a variety of devices including networked and mobile PCs and
handheld computing devices, such as a PalmPilot or Visor. The architecture of
our products enables us to complete a standard implementation of our software
applications in less than 90 days. Since the introduction of our first
application in 1998, we have licensed our products to 70 customers, the largest
of which include AirTouch, AT Kearney, BEA Systems, Brigham Young University,
Cendant Business Services, Cisco Systems, Clarify, Documentum, Gelco Information
Network, Genesys Telecommunications, Home Box Office, Sara Lee, Sybase,
TransCanada PipeLines and the University of California.

RECENT OPERATING RESULTS

We recently completed our 1999 fiscal year. Based on information that we
have to date, we estimate that our revenues for the quarter ended December 31,
1999 will be between $2.8 million and $3.0 million. These expected results are
preliminary, are subject to the completion of an audit of our December 31, 1999
financial statements, and are not necessarily indicative of the results to be
expected for future periods.

1
<PAGE> 9

THE OFFERING

Common stock offered by
Extensity.......................... 4,000,000 shares

Common stock to be outstanding
after this offering................ 22,779,350 shares

Use of proceeds.................... For repayment of indebtedness and general
corporate purposes, including working
capital, expansion of our sales and
marketing efforts and, potentially, for
acquisition opportunities that may arise
in the future.

Proposed Nasdaq National Market
Symbol............................. EXTN

The number of shares to be outstanding upon completion of this offering is
based on shares outstanding as of December 31, 1999. This number assumes the
conversion into common stock of all of our preferred stock outstanding on that
date and excludes:

- 7,000,000 shares of common stock that will be reserved for issuance under
our 1996 Stock Option Plan upon completion of this offering, of which
2,993,250 shares were subject to outstanding options;

- 500,000 shares of common stock that will be reserved for issuance under
our Employee Stock Purchase Plan 2000 upon completion of this offering;
and

- 183,888 shares subject to outstanding warrants to purchase preferred stock
which will convert into warrants to purchase common stock upon completion
of this offering.

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

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- ------------------
1995(1) 1996 1997 1998 1998 1999
------- ------ ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Licenses............................... $ -- $ -- $ -- $ 718 $ 542 $ 2,376
Services and maintenance............... -- -- -- 409 183 1,575
------ ------ ------- -------- ------- --------
Total revenues.................. -- -- -- 1,127 725 3,951
Gross profit (loss)...................... -- -- -- (517) (301) 732
Loss from operations..................... (4) (854) (3,335) (11,060) (7,377) (15,095)
Net loss................................. (1) (830) (3,228) (11,032) (7,375) (15,076)
Net loss per share:
Basic and diluted...................... $(0.01) $(3.79) $ (4.35) $ (8.25) $ (5.83) $ (7.42)
Weighted average shares................ 167 219 742 1,338 1,265 2,033
Pro forma net loss per share (unaudited):
Basic and diluted...................... $ (1.13) $ (1.14)
Weighted average shares................ 9,778 13,224
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(3)
------- ------------ --------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $22,282 $22,282 54,662
Working capital............................................. 16,177 16,177 48,557
Total assets................................................ 27,953 27,953 60,333
Notes payable and capital lease obligations, noncurrent
portion................................................... 1,692 1,692 1,692
Mandatorily redeemable convertible preferred stock.......... 43,648 -- --
Total stockholders' equity (deficit)........................ (27,244) 16,404 48,784
</TABLE>

- -------------------------
(1) Period from inception (November 13, 1995) to December 31, 1995.

(2) The pro forma column gives effect to the conversion of our preferred stock
outstanding as of September 30, 1999 into common stock upon the closing of
this offering. See Note 7 of Notes to Consolidated Financial Statements.

(3) The pro forma as adjusted column also reflects the receipt of the net
proceeds from the sale of 4,000,000 shares of common stock offered by us at
an assumed initial public offering price of $9.00 per share and the
application of the net proceeds from the offering, after deducting
underwriting discounts and commissions and estimated offering expenses.

2
<PAGE> 10

We were incorporated in Delaware as Celerity, Inc. on November 13, 1995,
changed our name to At Large Software, Inc. on April 12, 1996 and changed our
name to Extensity, Inc. on September 2, 1997. Our principal executive offices
are located at 2200 Powell Street, Suite 400, Emeryville, California 94608. Our
telephone number at that location is (510) 594-5700. Our website is located at
www.extensity.com. The information contained on our website does not constitute
part of this prospectus.

Extensity is a registered trademark, and Extensity Expense Reports,
Extensity Travel Plans, Extensity Timesheets, Extensity Purchase Reqs, and
Extensity System Administration Tool are trademarks of Extensity. All other
brand names or trademarks appearing in this prospectus are the property of their
respective holders.

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

Unless otherwise indicated, all information in this prospectus assumes:

- that the underwriters have not exercised their option to purchase
additional shares;

- conversion of all shares of preferred stock into shares of common stock
upon completion of this offering; and

- the filing of an amended and restated certificate of incorporation upon
completion of this offering to increase our authorized common stock and
decrease our authorized preferred stock.

3
<PAGE> 11

RISK FACTORS

Any investment in our common stock involves a high degree of risk. You
should consider carefully the following information about these risks, together
with the other information contained in this prospectus, before you decide
whether to buy our common stock. If any of the following risks actually occur,
our business, results of operations and financial condition could suffer
significantly. In any such case, the market price of our common stock could
decline, and you may lose all or part of the money you paid to buy our common
stock.

RISKS RELATED TO OUR BUSINESS

OUR EXTREMELY LIMITED OPERATING HISTORY AND THE FACT THAT WE OPERATE IN A NEW
INDUSTRY MAKES OUR BUSINESS PROSPECTS DIFFICULT TO EVALUATE.

We were incorporated in 1995 and commenced licensing of our software
applications in March 1998. Accordingly, we have an extremely limited operating
history. An investor in our common stock must consider the risks, uncertainties,
expenses and difficulties frequently encountered by companies in their early
stages of development, particularly companies in new and rapidly evolving
markets such as the market for Internet-based software applications. Risks and
difficulties include our ability to:

- expand our base of customers with fully installed and deployed systems
that can serve as reference accounts for our ongoing sales efforts;

- expand our pipeline of sales prospects in order to promote greater
predictability in our period-to-period sales levels;

- continue to offer new products that complement our existing product line,
in order to make our suite of applications more attractive to customers;

- continue to develop and upgrade our technology to add additional features
and functionality;

- continue to attract and retain qualified personnel;

- expand sales channels through geographic expansion and the development of
indirect channels such as relationships with OEM customers and
application service providers;

- increase awareness of our brand; and

- maintain our current, and develop new, third-party relationships.

We cannot assure you that our business strategy will be successful or that
we will successfully address these risks or difficulties. If we fail to address
these risks or difficulties adequately, our business will likely suffer.

WE HAVE A HISTORY OF LOSSES AND NEGATIVE CASH FLOW AND EXPECT THIS TO CONTINUE
FOR THE FORESEEABLE FUTURE.

Our business is new; we have offered products for a relatively short period
of time; and our base of customers and prospective customers is still relatively
small. We have spent significant funds to date to develop our current products
and to develop our sales and market resources. We have incurred significant
operating losses and have not achieved profitability. As of September 30, 1999,
we had an accumulated deficit of $30.2 million. We expect to continue to invest
in research and development to enhance current products and develop future
products.

4
<PAGE> 12

We also plan to continue to grow our sales force and to spend significant funds
in marketing to promote our company and our products. We expect to continue to
hire additional people in all other areas of our company in order to support our
growing business. As a result, we will need to increase our revenues
significantly to achieve profitability. In addition, because we expect to
continue to invest in our business ahead of anticipated future revenues, we
expect that we will continue to incur operating losses for the foreseeable
future.

OUR BUSINESS IS CHANGING RAPIDLY, WHICH COULD CAUSE OUR QUARTERLY OPERATING
RESULTS TO VARY AND OUR STOCK PRICE TO FLUCTUATE.

Our revenues and operating results may vary significantly from quarter to
quarter due to a number of factors, many of which are beyond our control. We
expect to continue to expend significant sums in all areas of our business,
particularly in our sales and marketing operations, in order to promote future
growth. Because the expenses associated with these activities are relatively
fixed in the short-term, we may be unable to adjust spending quickly enough to
offset any unexpected shortfall in revenue growth or any decrease in revenue
levels. As a result, we expect our quarterly operating results to fluctuate. Our
financial results may as a consequence fall short of the expectations of public
market analysts or investors. If this occurs, the price of our common stock may
drop.

We also seek to develop and maintain a significant pipeline of potential
sales prospects, but it is difficult to predict when individual customer orders
will be closed. Our base of customers and the number of additional customer
licenses we enter into each quarter are still relatively small. Accordingly, the
loss or deferral of a small number of anticipated large customer orders in any
quarter could result in a significant shortfall in revenues for that quarter and
future quarters, which could result in a drop in the price of our stock.

Other important factors which could cause our quarterly results and stock
price to fluctuate materially include:

- our ability to grow our customer base and our base of referencing
customers, in light of our relatively limited number of customers to
date;

- our ability to successfully develop alternative sales channels for our
products (such as OEM sales through application service providers and
application vendors) in light of our limited sales to date other than
direct sales;

- our ability to expand our implementation and consulting resources through
third-party relationships, in light of the fact that we have no
third-party implementation or consulting relationships currently in
place; and

- technical difficulties or "bugs" affecting the operation of our software.

Due to our limited operating history, the early stage of our market and the
factors discussed above, you should not rely on quarter-to-quarter comparisons
of our results of operations as indicators of our future performance.

OUR BUSINESS WILL SUFFER IF WE DO NOT SIGNIFICANTLY EXPAND OUR SALES
CAPABILITIES.

We sell our workforce optimization applications primarily through our
direct sales force. We must significantly expand our direct sales operations to
increase our revenues. We cannot be certain that we will be successful in these
efforts. Our products and services require sophisticated sales efforts and our
ability to increase our direct sales operation will depend on our ability to
recruit, train and retain top sales people with effective sales skills and
advanced technical knowledge. Competition for qualified personnel is intense in
our industry. Moreover,

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new sales personnel require training and take time to achieve full productivity.
If we are unable to hire or retain qualified sales personnel, if newly hired
personnel fail to develop the necessary skills, or if they reach productivity
more slowly than anticipated, we may be unable to grow our revenues as rapidly
as planned, if at all, and our business could be harmed.

WE FACE INTENSE COMPETITION, WHICH COULD AFFECT OUR ABILITY TO INCREASE REVENUE,
MAINTAIN OUR MARGINS AND INCREASE OUR MARKET SHARE.

The market for our Internet-based workforce optimization applications is
intensely competitive and we expect competition to increase in the future.
Competitors vary in size and in the scope and breadth of the products and
services they offer. Companies offering one or more products directly
competitive with our products include Ariba, Captura Software, Concur
Technologies and IBM. We also expect to encounter competition in the near future
from major enterprise software vendors such as Oracle, PeopleSoft and SAP, to
the extent they enhance their existing product offerings with competitive
workforce optimization applications. As a result of the large market opportunity
for workforce optimization applications, we also expect competition from other
established and emerging companies. For example, as the emergence of the
application service provider (ASP) market enables hosted solutions from our
competitors to become broadly available, our future success may also depend upon
our ability to establish successful relationships with leading ASPs.

Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources, significantly greater name recognition and a larger installed base of
customers than us. In addition, many of our competitors have well-established
relationships with our current and potential customers and have extensive
knowledge of our industry. Current and potential competitors have established or
may establish cooperative relationships among themselves or with third parties
to increase the ability of their products to address customer needs.
Accordingly, it is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share. We also expect that
competition will increase as a result of industry consolidation. Increased
competition may result in price reductions, reduced margins and loss of market
share, any one of which could seriously harm our business.

IF WE DO NOT PROVIDE SOFTWARE APPLICATIONS AND RELATED SERVICES THAT MEET THE
CHANGING DEMANDS OF OUR CUSTOMERS, THE MARKET FOR OUR PRODUCTS WILL NOT GROW OR
MAY DECLINE, AND OUR PRODUCT SALES WILL SUFFER.

To successfully implement our business strategy, we have to provide
software applications and related services that meet the demands of our
customers and prospective customers as the market and customer requirements
evolve. We expect that competitive factors will create a continuing need for us
to improve and add to our suite of software applications. Not only will we have
to expend significant funds and other resources to continue to improve our
existing suite of applications, but we must also properly anticipate, address
and respond to consumer preferences and demands. As organizations' needs change
with respect to their enterprise applications, our existing suite of software
applications may become obsolete or inefficient relative to our competitors'
offerings and may require modifications or improvements. The addition of new
products and services will also require that we continue to improve the
technology underlying our applications. These requirements could be significant,
and we may fail to fulfill them quickly and efficiently. If we fail to expand
the breadth of our applications quickly in response to customer needs, or if
these offerings fail to achieve market acceptance, the market for our products
will not grow or may decline, and our business may suffer significantly.

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Our workforce optimization software products and related services have
accounted for all of our revenues to date. We anticipate that revenues from
these products and related services will continue to constitute substantially
all of our revenues for the foreseeable future. Consequently, our future
financial performance will depend, in significant part, upon the successful
development, introduction and customer acceptance of enhanced versions of our
workforce optimization applications and any new products or services that we may
develop or acquire. We cannot assure you that we will be successful in
enhancing, upgrading or continuing to effectively market our workforce
optimization applications, or that any new products or services that we may
develop or acquire will achieve market acceptance.

OUR REVENUES HAVE BEEN DERIVED FROM A RELATIVELY SMALL NUMBER OF CUSTOMERS, AND
THE LOSS OF A SMALL NUMBER OF MAJOR CUSTOMERS OR POTENTIAL CUSTOMERS COULD
ADVERSELY IMPACT OUR REVENUES OR OPERATING RESULTS.

We licensed our first workforce optimization application in March 1998 and
have fully implemented our applications for only a limited number of customers
to date. As of December 31, 1999 we had licensed our applications to a total of
70 customers and had implemented the solutions for a total of 30 of these
customers. Moreover, as of December 31, 1999, we had not completed an
implementation of our Extensity Purchase Reqs or Extensity Timesheets
applications for any customers. We expect that we will continue to derive a
significant portion of our revenues from a relatively small number of customers
in the future. Accordingly, the loss of a small number of major customers could
materially and adversely affect our business, and the deferral or loss of
anticipated orders from a small number of prospective customers could materially
and adversely impact our revenues and operating results in any period.

IF WE FAIL TO ACHIEVE POSITIVE MARGINS ON SERVICE REVENUES IN THE FORESEEABLE
FUTURE, OUR RESULTS OF OPERATIONS COULD SUFFER.

Our margins on service revenues to date have been negative and are expected
to continue to be negative for the foreseeable future. We cannot assure you that
we will achieve positive margins on our service revenues. Failure to achieve
positive margins on service revenues could cause our business to suffer. For
more information related to our costs associated with our service revenues, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."

WE HAVE LIMITED EXPERIENCE WITH LARGE-SCALE IMPLEMENTATIONS, WHICH ARE IMPORTANT
TO OUR FUTURE SUCCESS.

We have limited experience in implementing our applications on a large
scale. As of December 31, 1999, our largest implementation included
approximately 3,000 employee users. We believe that the ability of large
customers to roll-out our products across large numbers of users is critical to
our future success. If our customers cannot successfully deploy our applications
on a large scale, or if they determine for any reason that our products cannot
accommodate large-scale deployment, our business could be harmed.

WE HAVE ONLY RECENTLY UNDERTAKEN TO CREATE A CONTENT AND COMMERCE GATEWAY
BETWEEN OUR CUSTOMERS' EMPLOYEES AND THIRD-PARTY PROVIDERS, AND OUR FUTURE
OPERATING RESULTS WILL DEPEND ON OUR ABILITY TO SUCCEED IN THIS STRATEGY.

A key component of our business strategy includes establishing an
integrated point of access, or gateway, between the network of customer
employees that utilize our workforce optimization solution and third-party
content, commerce and service providers who consider
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<PAGE> 15

this employee base to be potentially valuable business customers. We have only
begun to establish this gateway and, to date, we have only established
relationships with two content providers (from which we have not yet derived
revenues). We cannot assure you that we will be successful in developing this
gateway. Moreover, we cannot assure you that our customers will consider a
content and commerce gateway to be a valuable feature of our workforce
optimization applications, or that third-party providers will choose to access
our network of customer employees to generate e-commerce. If a market for such a
gateway develops and we are unable to establish a compelling product offering
within this market, or if we build a gateway and the market for such an offering
fails to mature, our business could be seriously harmed.

We expect to depend increasingly on a number of third parties to expand our
content and commerce gateway and thereby generate revenues. We cannot assure you
that third parties will regard our relationship with them as important to their
own respective businesses and operations. They may choose not to partner with us
or, after having established a partnership with us, they may reassess their
commitment to us at any time in the future and may develop their own competitive
services or products. Also, we cannot assure you that the content, products or
services of those companies that provide access or links to our network will
achieve market acceptance or commercial success. Accordingly, we cannot assure
you that our existing or prospective relationships will result in sustained
business partnerships, successful product or service offerings or the generation
of significant revenues for us.

IF WE FAIL TO EXPAND OUR RELATIONSHIPS WITH THIRD PARTIES THAT CAN PROVIDE
IMPLEMENTATION AND CONSULTING SERVICES TO OUR CUSTOMERS, WE MAY BE UNABLE TO
GROW OUR REVENUES AND OUR BUSINESS COULD BE HARMED.

In order for us to focus more effectively on our core business of
developing and licensing software solutions, we need to establish relationships
with third parties that can provide implementation and consulting services to
our customers. Third-party implementation and consulting firms can also be
influential in the choice of workforce optimization applications by new
customers. If we are unable to establish and maintain effective, long-term
relationships with implementation and consulting providers, or if these
providers do not meet the needs or expectations of our customers, we may be
unable to grow our revenues and our business could be seriously harmed. As a
result of the limited resources and capacities of many third-party
implementation providers, we may be unable to attain sufficient focus and
resources from the third-party providers to meet all of our customers' needs,
even if we establish relationships with these third parties. If sufficient
resources are unavailable, we will be required to provide these services
internally, which could limit our ability to expand our base of customers. A
number of our competitors have significantly more established relationships with
these third parties and, as a result, these third parties may be more likely to
recommend competitors' products and services rather than our own. Even if we are
successful in developing relationships with third-party implementation and
consulting providers, we will be subject to significant risk, as we cannot
control the level and quality of service provided by third-party implementation
and consulting partners.

CUSTOMER SATISFACTION AND DEMAND FOR OUR PRODUCTS WILL DEPEND ON OUR ABILITY TO
EXPAND OUR PROFESSIONAL SERVICES ORGANIZATION.

We believe that growth in our product sales depends on our ability to
provide our customers with professional services to assist with support,
training, consulting and initial implementation and deployment of our products
and to educate third-party systems integrators in the use of our products. As a
result, we plan to increase the number of professional services personnel to
meet these needs. New professional services personnel will require training and

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<PAGE> 16

take time to reach full productivity. We may not be able to attract or retain a
sufficient number of highly qualified professional services personnel.
Competition for qualified professional services personnel is intense due to the
limited number of people who have the requisite knowledge and skills. To meet
our customers' needs for professional services, we may also need to use more
costly third-party consultants to supplement our own professional services
group. In addition, we could experience delays in recognizing revenue if our
professional services group fails to complete implementations in a timely
manner.

OUR EXPECTATIONS OF FUTURE GROWTH DEPEND ON OUR ABILITY TO EXPAND
INTERNATIONALLY, AND FACTORS SPECIFIC TO OUR INTERNATIONAL EXPANSION MAY PREVENT
US FROM ACHIEVING OUR ANTICIPATED GROWTH.

We intend to expand our international operations to achieve our anticipated
growth, but we may face significant challenges to our international expansion.
The expansion of our existing international operations and entry into additional
international markets will require significant management attention and
financial resources. To achieve broad acceptance in international markets, our
products must be internationalized to handle a variety of factors specific to
each international market, such as tax laws and local regulations. The
incorporation of these factors into our products is a complex process and often
requires assistance from third parties. We have limited experience in
internationalizing our products and we may not adequately address all of the
factors necessary to achieve broad acceptance in our target international
markets. Further, to achieve broad usage by employees across international
organizations, our products must be localized to handle native languages and
cultures in each international market. Localizing our products is also a complex
process and we intend to work with third parties to develop localized products.
To date, we have not localized our products for any international market and we
cannot assure you that our localization efforts will be successful.

We have only a limited history of marketing, selling and supporting our
products and services internationally. In the second quarter of 1999, we opened
a sales office in the United Kingdom and established a relationship with an
international reseller. As of December 31, 1999, we had eight employees in the
United Kingdom office. To date, we have not derived any revenues from our
international operations. To expand internationally we must hire and train
experienced international personnel as well as export qualified domestic
personnel to staff and manage our international operations. However, we may
experience difficulties in recruiting and training an international staff. We
must also be able to enter into strategic relationships with companies in
international markets. If we are not able to maintain successful strategic
relationships internationally or recruit additional companies to enter into
strategic relationships, our future growth could be limited.

We also face other risks inherent in conducting business internationally,
such as:

- difficulties in collecting accounts receivable and longer collection
periods;

- seasonal business activity in certain parts of the world;

- fluctuations in currency exchange rates; and

- trade barriers.

Any of these factors could seriously harm our international operations and,
consequently, our business.

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WE ARE GROWING RAPIDLY, AND OUR FAILURE TO MANAGE THIS GROWTH COULD HARM OUR
BUSINESS.

We have experienced and are currently experiencing a period of significant
growth. Our full-time employees increased from 35 at December 31, 1997 to 83 at
December 31, 1998 to 175 at December 31, 1999. This growth has placed a
significant strain on our resources. We expect that any future growth would
cause similar or increased strains on our resources. As part of this growth, we
will have to implement new operational and financial systems and procedures and
controls; expand, train and manage our employee base; and maintain close
coordination among our technical, accounting, finance, marketing and sales
staffs. If we are unable to manage our growth effectively, our business, results
of operations and financial condition could be adversely affected.

Several members of our senior management joined us in 1999, including David
Yarnold, our Vice President of Business Development and Mark Oney, our Vice
President of Engineering. Although we believe that these individuals are
currently integrated with the other members of our management team, we cannot
assure you that our management team will be able to continue to work together
effectively or to manage our growth successfully. We believe that the successful
integration of our management team is critical to our ability to manage our
operations effectively and support our anticipated future growth.

WE MAY BE UNABLE TO ATTRACT OR RETAIN HIGHLY SKILLED EMPLOYEES THAT ARE
NECESSARY FOR THE SUCCESS OF OUR GROWTH PLAN.

In addition to our dependence on our sales and professional services
personnel as previously discussed, our ability to execute our growth plan and be
successful also depends on our continuing ability to attract and retain highly
skilled employees. We depend on the continued services of senior management and
other personnel, particularly Robert A. Spinner, our Chief Executive Officer. As
we continue to grow, we will need to hire additional personnel in all
operational areas. Competition for personnel in our industry is intense. We have
in the past experienced, and we expect to continue to experience in the future,
difficulty in hiring and retaining highly skilled employees with appropriate
qualifications. If we do not succeed in attracting or retaining personnel, our
business could be adversely affected.

OUR SALES CYCLES ARE LONG AND UNPREDICTABLE, WHICH MAKES PERIOD-TO-PERIOD
REVENUES DIFFICULT TO PREDICT.

Because the market for our workforce optimization software products and
related services is new, we experience long and unpredictable sales cycles. The
sales cycle for our workforce optimization applications typically ranges from
two to six months. In the early stages of this market, our customers have
frequently viewed the purchase of our products as part of a long-term strategic
decision regarding the management of their workforce-related operations and
expenditures. This decision process has sometimes resulted in customers taking a
long period of time to assess alternative solutions by our competitors or
deferring a purchase decision until the market evolves. Sales cycles continue to
be long and the timing of purchase decisions by individual customers remains at
times uncertain. We must continue to educate potential customers on the use and
benefits of our products and services, as well as the integration of our
products and services with additional software applications utilized by the
individual customers. Because the sales cycle is long and the time of individual
orders is uncertain, our period-to-period revenues are difficult to predict.

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EVOLVING TECHNOLOGICAL DEVELOPMENTS AND EMERGING INDUSTRY STANDARDS WILL REQUIRE
US TO ENHANCE THE FUNCTIONALITY OF OUR WORKFORCE OPTIMIZATION APPLICATIONS, AND
ANY INABILITY TO ENHANCE FUNCTIONALITY COULD CAUSE OUR SALES TO DECLINE.

Because the market for our products is emerging and subject to rapid
technological change and evolving industry standards, the life cycles of our
products are difficult to predict. Competitors may introduce new products or
enhancements to existing products employing new technologies, which could render
our existing products and services obsolete and unmarketable. For example, our
currently available software applications are written entirely in the Java
computer language. While we believe that this provides our solution with
significant advantages in terms of functionality and flexibility, the market for
Java-based software is still relatively new and it is not clear whether
Java-based systems will continue to maintain commercial acceptance.

To be successful, our products and services must keep pace with
technological developments and emerging industry standards, address the
ever-changing and increasingly sophisticated needs of our customers and achieve
market acceptance. Our results of operations would be seriously harmed if we are
unable to develop, release and market new software product enhancements on a
timely and cost-effective basis, or if new products or enhancements do not
achieve market acceptance or fail to respond to evolving industry or technology
standards.

In developing new products and services, we may also fail to develop and
market products that respond to technological changes or evolving industry
standards in a timely or cost-effective manner, or experience difficulties that
could delay or prevent the successful development, introduction and marketing of
these new products and services.

SOFTWARE DEFECTS COULD LEAD TO LOSS OF REVENUE OR DELAY THE MARKET ACCEPTANCE OF
OUR APPLICATIONS.

Our enterprise applications software is complex and, accordingly, may
contain undetected errors or failures when first introduced or as new versions
are released. This may result in loss of, or delay in, market acceptance of our
products. We have in the past discovered software errors in our new releases and
new products after their introduction. In the event that we experience
significant software errors in future releases, we could experience delays in
release, customer dissatisfaction and potentially lost revenues during the
period required to correct these errors. We may in the future discover errors,
including Year 2000 errors and additional scalability limitations, in new
releases or new products after the commencement of commercial shipments. Any of
these errors or defects could cause our business to be materially harmed.

WE MAY BECOME INCREASINGLY DEPENDENT ON THIRD-PARTY SOFTWARE INCORPORATED IN OUR
PRODUCTS AND, IF SO, IMPAIRED RELATIONS WITH THESE THIRD PARTIES, ERRORS IN
THIRD PARTY SOFTWARE OR INABILITY TO ENHANCE THE SOFTWARE OVER TIME COULD HARM
OUR BUSINESS.

We incorporate third-party software into our products. Currently, the
third-party software we use includes application server software that we license
from BEA Systems. We expect to incorporate additional third-party software into
our products as we expand our product line and broaden the content and services
accessible through our gateway. The operation of our products would be impaired
if errors occur in the third-party software that we license. It may be more
difficult for us to correct any errors in third-party software because the
software is not within our control. Accordingly, our business would be adversely
affected in the event of any errors in this software. Furthermore, it may be
difficult for us to replace any third-party software if a vendor seeks to
terminate our license to the software.

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POTENTIAL YEAR 2000 ISSUES COULD INVOLVE SIGNIFICANT TIME AND EXPENSE AND MAY
AFFECT OUR OPERATIONS.

The risks posed by Year 2000 issues could adversely affect our business in
a number of significant ways. We believe after examining and testing our
products that our internally developed technology, as well as the third-party
technology incorporated into our products, is Year 2000 compliant. Nonetheless,
our products could experience unexpected Year 2000 issues that cause our
products to be substantially impaired or cease to operate. We also use
third-party financial and other systems in our internal business operations.
Although we have received assurances from most of our vendors that these systems
are Year 2000 compliant, these systems could suffer from unexpected Year 2000
issues. Any such Year 2000 issues could materially adversely affect our
business. Moreover, we may in the future be required to defend our products or
services in litigation or arbitration proceedings involving our products or
services related to Year 2000 compliance issues, or to negotiate resolutions of
claims based on Year 2000 issues. Defending or resolving Year 2000-related
disputes, regardless of the merits of such disputes, and any liability we have
for Year 2000-related damages, including consequential damages, could be
expensive. Additionally, the Internet could face serious disruptions arising
from the Year 2000 issue, which could severely harm our business.

Many of our customers and potential customers have implemented policies
that prohibit or strongly discourage making changes or additions to their
internal computer systems until after they have resolved all potential or actual
Year 2000 issues. We will experience fewer sales if potential customers, who
might otherwise purchase our software solutions delay the purchase and
implementation of our solutions, until they have assured themselves that their
internal computer systems cope adequately with the Year 2000 issue or in the
event their information technology budgets have been diverted to address Year
2000 issues. If our potential customers delay purchasing or implementing
solutions as a result of the Year 2000 issue, our business would be seriously
harmed.

We cannot guarantee that any of our participating partners or other
Internet vendors will be Year 2000 compliant in a timely manner, or that there
will not be significant interoperability problems among information technology
systems. We also cannot guarantee that our customers will be able to utilize our
software solutions without disruptions arising from the Year 2000 issue. Given
the pervasive nature of the Year 2000 issue, we cannot guarantee that
disruptions in other industries and market segments will not adversely affect
our business. Moreover, the costs related to Year 2000 compliance, which thus
far have not been material, could ultimately be significant. In the event that
we experience disruptions as a result of the Year 2000 issue, our business could
be seriously harmed. For more information regarding the state of our Year 2000
readiness, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

OUR SUCCESS DEPENDS IN PART UPON OUR ABILITY TO PROTECT OUR INTELLECTUAL
PROPERTY, BUT WE MAY NOT BE ABLE TO DO SO ADEQUATELY.

Our success depends in large part upon our proprietary technology. We rely
on a combination of copyright, trademark and trade secret protection,
confidentiality and nondisclosure agreements and licensing arrangements to
establish and protect our intellectual property rights. We license rather than
sell our solutions and require our customers to enter into license agreements,
which impose restrictions on their ability to utilize the software. In addition,
we seek to avoid disclosure of our trade secrets through a number of means,
including requiring those persons with access to our proprietary information to
execute nondisclosure agreements with us and restricting access to our source
code. We seek to protect our software, documentation and other written materials
under trade secret and copyright laws, which afford only limited protection.
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We currently have no patents, although we have filed eight provisional
patent applications with the U.S. Patent and Trademark Office relating to
various features and processes embodied in our applications. A provisional
patent application is a type of application under which a patent will not issue,
but which provides a priority date for a regular patent application that is
filed within a one year period following the filing of the provisional patent
application. We cannot assure you that any regular patents will be filed based
on our provisional applications, or that any patents will issue on our pending
provisional applications from any such regular patent applications. Further, we
cannot provide any assurance that any patents, if issued, will prevent the
development of competitive products or that our patents will not be successfully
challenged by others or invalidated through administrative process or
litigation.

Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is
difficult, and while we are unable to determine the extent to which piracy of
our software products exists, software piracy can be expected to be a persistent
problem. In addition, the laws of some foreign countries do not protect our
proprietary rights to as great an extent as do the laws of the United States.
Our means of protecting our proprietary rights may not be adequate and our
competitors may independently develop similar technology, duplicate our
products, or design around our proprietary intellectual property.

WE MAY FACE COSTLY DAMAGES OR LITIGATION COSTS IF A THIRD PARTY CLAIMS THAT WE
INFRINGE ITS INTELLECTUAL PROPERTY.

There has been a substantial amount of litigation in the software industry
and the Internet industry regarding intellectual property rights. It is possible
that in the future, third parties may claim that we or our current or potential
future products infringe upon their intellectual property. We expect that
software product developers and providers of Internet-based software
applications will increasingly be subject to infringement claims as the number
of products and competitors in our industry segment grows and the functionality
of products in different industry segments overlaps. Any claims, with or without
merit, could be time consuming, result in costly litigation, cause product
shipment delays or require us to enter into royalty or licensing agreements.
Royalty or licensing agreements, if required, may not be available on terms
acceptable to us or at all, which could seriously harm our business.

ANY FUTURE ACQUISITIONS OF COMPANIES OR TECHNOLOGIES MAY RESULT IN DISTRACTION
OF OUR MANAGEMENT AND DISRUPTIONS TO OUR BUSINESS.

We may acquire or make investments in complementary businesses,
technologies, services or products if appropriate opportunities arise. From time
to time we may engage in discussions and negotiations with companies regarding
our acquiring or investing in such companies' businesses, products, services or
technologies. We cannot make assurances that we will be able to identify future
suitable acquisition or investment candidates, or if we do identify suitable
candidates, that we will be able to make such acquisitions or investments on
commercially acceptable terms or at all. If we acquire or invest in another
company, we could have difficulty assimilating that company's personnel,
operations, technology or products and service offerings. In addition, the key
personnel of the acquired company may decide not to work for us. These
difficulties could disrupt our ongoing business, distract our management and
employees, increase our expenses and adversely affect our results of operations.
Furthermore, we may incur indebtedness or issue equity securities to pay for any
future acquisitions. The issuance of equity securities could be dilutive to our
existing stockholders. As of the date of this prospectus, we have no agreement
to enter into any material investment or acquisition transaction.

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WE HAVE ANTI-TAKEOVER PROVISIONS IN OUR CHARTER AND IN OUR CONTRACTS THAT COULD
DELAY OR PREVENT AN ACQUISITION OF OUR COMPANY, EVEN IF SUCH AN ACQUISITION
WOULD BE BENEFICIAL TO OUR STOCKHOLDERS.

Provisions of our certificate of incorporation, our bylaws, Delaware law
and the employment agreements of some of our key officers could make it more
difficult for a third party to acquire us, even if doing so might be beneficial
to our stockholders. Please see "Description of Capital Stock" and "Certain
Transactions -- Officer Transactions -- Officer Employment Arrangements."

OUR BUSINESS MAY FACE ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO
US WHICH COULD CAUSE OUR BUSINESS TO SUFFER.

In addition to the risks specifically identified in this Risk Factors
section or elsewhere in this prospectus, we may face additional risks and
uncertainties not presently known to us or that we currently deem immaterial
which ultimately may impair our business, results of operations and financial
condition.

RISKS RELATED TO OUR INDUSTRY

OUR SUCCESS WILL DEPEND UPON THE GROWTH AND ACCEPTANCE OF THE MARKET WE ADDRESS
AND OUR ABILITY TO MEET THE NEEDS OF THE EMERGING MARKET FOR OUR SOLUTIONS.

The market for our workforce optimization applications and services is at
an early stage of development. Our success will depend upon the continued
development of this market and the increasing acceptance by customers of the
benefits to be provided by workforce optimization applications and services. In
addition, as the market evolves, it is unclear whether the market will accept
our suite of applications as a preferred solution for workforce optimization
needs. Accordingly, our products and services may not achieve significant market
acceptance or realize significant revenue growth. Unless a critical mass of
organizations and their suppliers use our solutions and recommend them to new
customers, our solutions may not achieve widespread market acceptance, which may
cause our business to suffer.

CUSTOMERS MAY NOT ACCEPT THE INTERNET AS A MEANS TO ACCESS ENTERPRISE
APPLICATIONS, AND THIS WOULD LIKELY CAUSE OUR BUSINESS MODEL TO BE UNSUCCESSFUL.

To date, enterprises have generally managed operational functions through
internal computer systems rather than over the Internet. Our business model
assumes that enterprises and their employees will increasingly adopt the
Internet or corporate intranets as a means of managing important business
functions. This business model is not yet proven, and if we are unable to
successfully implement our business model, our business will be materially
adversely affected.

SECURITY RISKS AND CONCERNS MAY DETER THE USE OF THE INTERNET FOR CONDUCTING
ELECTRONIC COMMERCE.

A significant barrier to electronic commerce and communications is the
secure transmission of confidential information over public networks. Advances
in computer capabilities, new discoveries in the field of cryptography or other
events or developments could result in compromises or breaches of our security
systems or those of other websites to protect proprietary information. If any
well-publicized compromises of security were to occur, it could have the effect
of substantially reducing the use of the Internet for commerce and

14
<PAGE> 22

communications. Anyone who circumvents our security measures could
misappropriate proprietary information or cause interruptions in our services or
operations. The Internet is a public network, and data is sent over this network
from many sources. In the past, computer viruses and software programs that
disable or impair computers have been distributed and have rapidly spread over
the Internet. Computer viruses could be introduced into our systems or those of
our customers or suppliers, which could disrupt our software solutions or make
them inaccessible to customers or suppliers. We may be required to expend
significant capital and other resources to protect against the threat of
security breaches or to alleviate problems caused by breaches. To the extent
that our activities may involve the storage and transmission of proprietary
information, such as credit card numbers, security breaches could expose us to a
risk of loss or litigation and possible liability. Our security measures may be
inadequate to prevent security breaches, and our business would be harmed if we
do not prevent them.

INCREASING GOVERNMENT REGULATION COULD LIMIT THE MARKET FOR, OR IMPOSE SALES AND
OTHER TAXES ON THE SALE OF, OUR PRODUCTS AND SERVICES.

As Internet commerce evolves, we expect that federal, state or foreign
agencies will adopt regulations covering issues such as user privacy, pricing,
taxation of goods and services provided over the Internet, and content and
quality of products and services. It is possible that legislation could expose
companies involved in electronic commerce to liability, which could limit the
growth of electronic commerce generally. Legislation could dampen the growth in
Internet usage and decrease its acceptance as a communications and commercial
medium. If enacted, these laws, rules or regulations could limit the market for
our products and services.

RISKS RELATED TO THIS OFFERING

INVESTORS WILL BE RELYING ON OUR MANAGEMENT'S JUDGMENT REGARDING THE USE OF
PROCEEDS FROM THIS OFFERING.

Our management will have broad discretion with respect to the use of the
net proceeds from this offering, and investors will be relying on the judgment
of our management regarding the application of these proceeds. Uses we currently
anticipate include repayment in full of our currently outstanding indebtedness,
expansion of our sales and marketing operations, increased spending in the areas
of research and development and customer support, broadening our operational and
administrative infrastructure, the leasing of additional facilities and for
working capital and other general corporate purposes. We may also use a portion
of the proceeds for strategic alliances and acquisitions. These investments may
not yield a favorable return. We have not yet determined the amount of net
proceeds to be used specifically for each of the foregoing purposes.

THE LIQUIDITY OF OUR COMMON STOCK IS UNCERTAIN SINCE IT HAS NOT BEEN PUBLICLY
TRADED.

There has not been a public market for our common stock. We cannot predict
the extent to which investor interest in our company will lead to the
development of an active, liquid trading market. Active trading markets
generally result in lower price volatility and more efficient execution of buy
and sell orders for investors. The initial public offering price for the shares
will be determined by negotiations between us and the representatives of the
underwriters and may not be indicative of prices that will prevail in the
trading market.

15
<PAGE> 23

OUR NEED FOR ADDITIONAL FINANCING IS UNCERTAIN AS IS OUR ABILITY TO RAISE
FURTHER FINANCING IF REQUIRED.

We currently anticipate that our available cash resources, combined with
the net proceeds from this offering, will be sufficient to meet our anticipated
working capital and capital expenditure requirements for at least 12 months
after the date of this prospectus. We may need to raise additional funds,
however, to respond to business contingencies which may include the need to:

- fund more rapid expansion;

- fund additional marketing expenditures;

- develop new or enhance existing products and services;

- enhance our operating infrastructure;

- hire additional personnel;

- respond to competitive pressures; or

- acquire complementary businesses or necessary technologies.

If additional funds are raised through the issuance of equity or
convertible debt securities, the percentage ownership of our stockholders will
be reduced, and these newly-issued securities may have rights, preferences or
privileges senior to those of existing stockholders, including those acquiring
shares in this offering. We cannot assure you that additional financing will be
available on terms favorable to us, or at all. If adequate funds are not
available or are not available on acceptable terms, our ability to fund our
operations, take advantage of unanticipated opportunities, develop or enhance
our products and services or otherwise respond to competitive pressures would be
significantly limited.

MARKET PRICES OF INTERNET AND TECHNOLOGY COMPANIES HAVE BEEN HIGHLY VOLATILE,
AND THE MARKET FOR OUR STOCK MAY EXHIBIT VOLATILITY AS WELL.

The stock market has experienced significant price and trading volume
fluctuations, and the market prices of technology companies generally, and
Internet-related companies particularly, have been extremely volatile. Recent
initial public offerings by technology companies have been accompanied by
exceptional share price and trading volume changes in the first days and weeks
after the securities were released for public trading. Investors may not be able
to resell their shares at or above the initial public offering price. In the
past, following periods of volatility in the market price of a public company's
securities, securities class action litigation has often been instituted against
that company. Such litigation could result in substantial costs and a diversion
of management's attention and resources.

NEW INVESTORS WILL SUFFER IMMEDIATE AND SUBSTANTIAL DILUTION IN THE TANGIBLE NET
BOOK VALUE OF THEIR SHARES.

We expect the initial public offering price to be substantially higher than
the net tangible book value per share of the common stock. The net tangible book
value of a share of common stock purchased at an assumed initial public offering
price of $9.00 per share will be only $2.23. Additional dilution may be incurred
if holders of stock options, whether currently outstanding or subsequently
granted, exercise their options or if warrantholders exercise their warrants to
purchase common stock.

16
<PAGE> 24

THE LARGE NUMBER OF SHARES ELIGIBLE FOR PUBLIC SALE AFTER THIS OFFERING COULD
CAUSE OUR STOCK PRICE TO DECLINE.

The market price of our common stock could decline as a result of sales by
our existing stockholders of a large number of shares of our common stock in the
market after this offering or the perception that such sales could occur. These
sales also might make it more difficult for us to sell equity securities in the
future at a time and at a price that we deem appropriate. Please see "Shares
Eligible for Future Sale" for a description of sales that may occur in the
future.

MANY CORPORATE ACTIONS WILL BE CONTROLLED BY OFFICERS, DIRECTORS AND AFFILIATED
ENTITIES REGARDLESS OF THE OPPOSITION OF OTHER INVESTORS OR THE DESIRE OF OTHER
INVESTORS TO PURSUE AN ALTERNATIVE CAUSE OF ACTION.

Our executive officers, directors and entities affiliated with them will,
in the aggregate, beneficially own approximately 44.1% of our common stock
following this offering. If they were to act together, these stockholders would
be able to exercise control over most matters requiring approval by our
stockholders, including the election of directors and approval of significant
corporate transactions. This concentration of ownership may also have the effect
of delaying or preventing a change in control of our company, which could have a
material adverse effect on our stock price. These actions may be taken even if
they are opposed by the other investors, including those who purchase shares in
this offering.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
AND INDUSTRY DATA

We make many statements in this prospectus under the captions "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere that are
forward-looking and are not based on historical facts. These statements relate
to our future plans, objectives, expectations and intentions. We may identify
these statements by the use of words such as "believe," "expect," "will,"
"anticipate," "intend" and "plan" and similar expressions. These forward-
looking statements involve a number of risks and uncertainties. Our actual
results could differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those we discuss in "Risk
Factors" and elsewhere in this prospectus. These forward-looking statements
speak only as of the date of this prospectus, and we caution you not to rely on
these statements without also considering the risks and uncertainties associated
with these statements and our business that are addressed in this prospectus.

This prospectus contains estimates of market growth related to the Internet
and e-commerce, as well as cost savings expected to be realized through
e-commerce. These estimates have been included in studies published by the
market research and other firms including American Express, Forrester Research,
Giga Information Group, International Data Corporation and Killen & Associates.
These estimates have been produced by industry analysts based on trends to date,
their knowledge of technologies and markets, and customer research, but these
are forecasts only and are subject to inherent uncertainty.

17
<PAGE> 25

USE OF PROCEEDS

The net proceeds to us from the sale of the 4,000,000 shares being offered
by us at an assumed initial public offering price of $9.00 per share, after
deducting estimated underwriting discounts and commissions and estimated
offering expenses, are estimated to be approximately $32.4 million, or
approximately $37.4 million if the underwriters' over-allotment option is
exercised in full.

We intend to use a portion of the net proceeds of this offering to repay in
full outstanding indebtedness to Comdisco Ventures of approximately $2.0 million
under a loan and security agreement and approximately $1.3 million under various
capital leases. Indebtedness under the loan and security agreement has been
accruing interest at an average rate of 11.4% and matures through March 25,
2001, and indebtedness under the capital leases accrue interest at an average
rate of 7.4% and mature at various dates from March 2002 to July 2003.

We expect to use the remainder of the net proceeds for working capital and
general corporate purposes, including increased spending on sales and marketing,
customer support, research and development, expansion of our operational and
administrative infrastructure, and the leasing of additional facilities.
Specific amounts for these purposes have not yet been determined. In addition,
we may use a portion of the net proceeds to acquire or invest in complementary
businesses, technologies, product lines or products. However, we have no current
plans, agreements or commitments with respect to any such acquisition, and we
are not currently engaged in any negotiations with respect to any such
transaction. Pending these uses, we intend to invest the net proceeds in
short-term, interest-bearing, investment grade securities.

The principal purposes of this offering are:

- to obtain additional working capital;

- to create a public market for our common stock;

- to facilitate future access by Extensity to public equity markets; and

- to enhance our ability to use our stock to make future acquisitions due
to the fact that our shares will be publicly traded.

The amounts we actually spend for these purposes may vary significantly and
will depend on a number of factors, including our future revenue and cash
generated by operations and the other factors described in "Risk Factors."
Therefore, we will have broad discretion in the way we use the net proceeds.

DIVIDEND POLICY

The payment of dividends is within the discretion of our board of
directors. Our ability to pay any future dividends will depend on our earnings,
operating and financial condition, projected capital requirements, and
restrictions under our credit facilities. In this regard, our credit facility
with Comdisco Ventures restricts our ability to declare cash dividends without
the consent of Comdisco Ventures. Notwithstanding the foregoing, we have never
declared or paid any cash dividends on shares of our capital stock and do not
intend to do so at any time in the foreseeable future.

18
<PAGE> 26

CAPITALIZATION

The following table sets forth the following information:

- our actual capitalization as of September 30, 1999;

- our pro forma capitalization as of that date after giving effect to the
conversion of all outstanding shares of convertible preferred stock into
14,094,549 shares of common stock upon completion of this offering; and

- our pro forma capitalization as adjusted to reflect the receipt of the
net proceeds from our sale of 4,000,000 shares of common stock at an
assumed initial public offering price of $9.00 per share in this
offering, less underwriting discounts and commissions and estimated
offering expenses payable by us.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable and capital lease obligations,
noncurrent........................................... $ 1,692 $ 1,692 $ 1,692
Mandatorily redeemable convertible preferred stock;
14,094,549 shares issued and outstanding actual;
none issued and outstanding pro forma and pro forma
as adjusted........................................ 43,648 -- --
Stockholders' equity (deficit):
Common stock; $0.001 par value, 30,000,000 shares
authorized, 4,090,109 shares issued and
outstanding actual; 18,184,658 shares issued and
outstanding pro forma and 22,184,658 shares
issued and outstanding pro forma as adjusted.... 4 18 23
Additional paid-in capital........................... 6,757 50,391 82,766
Notes receivable from stockholders................... (230) (230) (230)
Deferred stock compensation.......................... (3,607) (3,607) (3,607)
Accumulated deficit.................................. (30,168) (30,168) (30,168)
-------- -------- --------
Total stockholders' equity (deficit)............ (27,244) 16,404 48,784
-------- -------- --------
Total capitalization.......................... $ 18,096 $ 18,096 $ 50,476
======== ======== ========
</TABLE>

This table does not include:

- 2,406,237 shares subject to outstanding options as of September 30, 1999
at a weighted average exercise price of $0.67;

- 1,401,357 additional shares available for grant as of September 30, 1999
under our 1996 Stock Option Plan which will increase to 2,301,357 shares
available as of that date pursuant to an amendment of the Plan to be
effective upon completion of this offering;

- 183,888 shares of common stock subject to outstanding warrants at a
weighted average exercise price of $3.08;

- 500,000 shares to be available for grant under our Employee Stock
Purchase Plan 2000 upon completion of this offering;

- 500,000 shares of Series F Preferred Stock (convertible into 500,000
shares of our common stock) sold to J.D. Edwards & Company on December
16, 1999 at a price of $9.00 per share; and

- the amendment to our certificate of incorporation upon completion of this
offering to increase our authorized common stock and to decrease our
authorized preferred stock.

Upon completion of this offering, each outstanding share of convertible
preferred stock will convert into one share of common stock.

19
<PAGE> 27

DILUTION

Our pro forma net tangible book value as of September 30, 1999, after
giving effect to the automatic conversion of our preferred stock upon the
closing of this offering, was $16.4 million, or $0.92 per share of common stock.
Net tangible book value per share is determined by dividing our tangible book
value (total tangible assets less total liabilities) by the number of
outstanding shares of common stock at that date. After giving effect to the sale
of the 4,000,000 shares of our common stock offered hereby at an assumed initial
public offering price of $9.00 per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses, our net
tangible book value at September 30, 1999 would have been $48.8 million, or
$2.23 per share. This represents an immediate increase in net tangible book
value to existing stockholders of $1.31 per share and an immediate dilution to
new investors of $6.77 per share. The following table illustrates the per share
dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $9.00
Pro forma net tangible book value per share as of September
30, 1999.................................................... $0.92
Increase per share attributable to new investors.......... 1.31
-----
Pro forma net tangible book value per share after this
offering.................................................. 2.23
-----
Net tangible book value dilution per share to new
investors................................................. $6.77
=====
</TABLE>

The following table summarizes, on a pro forma basis as of September 30,
1999, the differences between the number of shares of common stock purchased
from us, the total consideration paid and the average price per share paid by
the existing stockholders and by the new public investors (based upon an assumed
initial public offering price of $9.00 per share and before deducting estimated
underwriting discounts and commissions and estimated offering expenses):

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 18,184,658 82.0% $44,675,000 55.4% $2.46
New public investors...... 4,000,000 18.0% 36,000,000 44.6% 9.00
---------- ---- ----------- ---- -----
Total................... 22,184,658 100% $80,675,000 100% $3.64
========== ==== =========== ==== =====
</TABLE>

The above discussion and tables assume no exercise of stock options or
warrants outstanding as of September 30, 1999 and gives effect to the conversion
of all shares of our preferred stock outstanding as of that date into common
stock upon completion of this offering. As of September 30, 1999, there were
options outstanding to purchase a total of 2,406,237 shares of common stock at a
weighted average exercise price of $0.67 per share under our 1996 Stock Plan,
1,401,357 additional shares were reserved for grant of future options under such
plan which will increase to 2,301,357 shares available as of that date pursuant
to an amendment of the Plan to be effective upon completion of this offering,
and an aggregate of 500,000 shares of our common stock will be reserved for
issuance under our Employee Stock Purchase Plan 2000 upon completion of the
offering. To the extent that any of these options or warrants are exercised,
there will be further dilution to the new public investors. See
"Capitalization," "Management -- Compensation Plans" and Notes 9 and 11 of Notes
to Consolidated Financial Statements.

20
<PAGE> 28

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set forth below should be read
together with the consolidated financial statements and related notes,
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the other information contained in this prospectus. The statement
of operations data set forth below with respect to the years ended December 31,
1996, 1997 and 1998 and the nine months ended September 30, 1998 and 1999 and
the balance sheet data at December 31, 1997, 1998 and September 30, 1999 are
derived from, and are qualified by reference to, the audited consolidated
financial statements included elsewhere in this prospectus. The selected balance
sheet data at December 31, 1995 and 1996 are derived from our audited balance
sheets not included herein. The statement of operations data for the period from
inception (November 13, 1995) to December 31, 1995 is derived from our statement
of operations not included herein.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- ------------------
1995(1) 1996 1997 1998 1998 1999
------- ------ ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
REVENUES:
Licenses.................................... -- $ -- $ -- $ 718 $ 542 $ 2,376
Services and maintenance.................... -- -- -- 409 183 1,575
------ ------ ------- -------- ------- --------
Total revenues............................ -- -- -- 1,127 725 3,951
------ ------ ------- -------- ------- --------
COST OF REVENUES:
Licenses.................................... -- -- -- 90 37 145
Services and maintenance.................... -- -- -- 1,554 989 3,074
------ ------ ------- -------- ------- --------
Total cost of revenues.................... -- -- -- 1,644 1,026 3,219
------ ------ ------- -------- ------- --------
Gross profit (loss)........................... -- -- -- (517) (301) 732
OPERATING EXPENSES:
Sales and marketing......................... -- 102 1,082 4,703 3,266 6,406
Research and development.................... -- 519 1,713 4,401 2,865 4,986
General and administrative.................. 4 233 540 1,439 945 1,956
Amortization of non-cash stock based
compensation.............................. -- -- -- -- -- 2,479
------ ------ ------- -------- ------- --------
Total operating expenses.................. 4 854 3,335 10,543 7,076 15,827
------ ------ ------- -------- ------- --------
Loss from operations...................... (4) (854) (3,335) (11,060) (7,377) (15,095)
Interest income, net.......................... 3 24 107 28 2 19
------ ------ ------- -------- ------- --------
Net loss................................ $ (1) $ (830) $(3,228) $(11,032) $(7,375) $(15,076)
====== ====== ======= ======== ======= ========
Net loss per share:
Basic and diluted........................... $(0.01) $(3.79) $ (4.35) $ (8.25) $ (5.83) $ (7.42)
====== ====== ======= ======== ======= ========
Weighted average shares..................... 167 219 742 1,338 1,265 2,033
Pro forma net loss per share (unaudited):
Basic and diluted $ (1.13) $ (1.14)
======== ========
Weighted average shares 9,778 13,224
</TABLE>

- ---------------
(1) Period from inception (November 13, 1995) to December 31, 1995

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------- SEPTEMBER 30,
1995(1) 1996 1997 1998 1999
------- ------- ------ ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................... $1,005 $ 32 $2,560 $10,883 $ 22,282
Working capital................................... 988 26 2,061 7,319 16,177
Total assets...................................... 1,005 197 3,584 13,811 27,953
Notes payable and capital lease obligations,
noncurrent...................................... -- -- -- 2,471 1,692
Mandatorily redeemable convertible preferred
stock........................................... 1,000 1,000 6,983 21,269 43,648
Total stockholders' deficit....................... (1) (841) (4,040) (15,012) (27,244)
</TABLE>

- ---------------
(1) Period from inception (November 13, 1995) to December 31, 1995

21
<PAGE> 29

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

The following discussion and analysis of our financial condition and
results of operations should be read together with "Selected Consolidated
Financial Data" and our financial statements and related notes appearing
elsewhere in this prospectus. This discussion and analysis contains forward-
looking statements that involve risks, uncertainties and assumptions. The actual
results may differ materially from those anticipated in these forward-looking
statements as a result of many factors, including but not limited to those set
forth under "Risk Factors" and elsewhere in this prospectus.

OVERVIEW

Extensity was formed in November 1995 and introduced its first commercial
product for general availability in March 1998. During this period, our
operating activities consisted of the design and development of our product
architecture and our first application, the building of our corporate
infrastructure, and the development of our professional services and customer
support organizations. Our first application, Extensity Expense Reports, was
released for general availability in March 1998. We released Extensity Travel
Plans in December 1998, and Extensity Timesheets and Extensity Purchase Reqs in
July 1999.

We generate revenue principally from licensing our applications and
providing related services, including product installation, maintenance and
support, consulting and training. We license our applications individually or as
an integrated suite of products. The dollar amounts of our contracts depends on
number of users and applications being used. License revenues comprised 64% and
60% of our total revenues in the year ended December 31, 1998 and in the nine
months ended September 30, 1999, while services and other revenues comprised 36%
and 40% of our total revenues for the same periods.

Prior to the July 1999 release of Version 4.0 of our Extensity Application
Suite, we recognized revenues from customer contracts using the completed
contract method because, given our lack of history implementing our products, it
was difficult to reliably estimate the costs and efforts necessary to complete
product implementations. This recognition policy is consistent with the American
Institute of Certified Public Accountants Statement of Position 97-2, Software
Revenue Recognition, or SOP 97-2, as amended by Statements of Position 98-4 and
98-9, and the American Institute of Certified Public Accountants Statement of
Position 81-1, Accounting for Performance of Construction Type and Certain
Production Type Contracts, or SOP 81-1.

Following the introduction in July 1999 of the current version of our
application suite, Version 4.0, we concluded that the implementation services we
offer no longer included significant modifications or customization of our
software. At the same time, however, we believe that our limited contracting
history does not provide sufficient vendor-specific objective evidence for the
allocation of revenues to the various elements of our contracts. SOP 97-2
requires revenues to be recognized ratably over the maintenance period in
circumstances where vendor-specific objective evidence of the fair values of the
respective elements of the contract does not exist and the only remaining
undelivered element of such contract are the maintenance services. Accordingly,
for contracts in which we commenced implementation after our July 1999 release
of Version 4.0 of our Extensity Application Suite, we recognize revenues from
both licenses and related services ratably over the maintenance period, which is
typically one year. This recognition policy is consistent with SOP 97-2, as
amended by SOP 98-4 and SOP 98-9.

Payments received in advance of permitted revenue recognition are recorded
as deferred revenues until recognized. Our deferred revenues balances were $2.5
million and $5.7 million at December 31, 1998 and September 30, 1999. At
September 30, 1999, this deferred revenues balance included $1.7 million of
amounts to be recognized under the completed contract

22
<PAGE> 30

method. All of our customers enter into one-year maintenance and support
contracts when they purchase their initial Extensity applications and have the
option to purchase additional contracts after completion of the initial contract
period. Although we do not grant any rights to our customers to return products,
we do provide a 90-day warranty that our products will function according to
written documentation.

We promote and sell our software products through our direct sales force
and through indirect channels, including third-party outsourcers of expense
management services. We also have co-marketing arrangements with a number of
companies including Cisco Systems, First USA, GetThere.com and Netscape.

In the second quarter of 1999, we expanded our presence in international
markets by opening a sales office in the United Kingdom and by establishing a
relationship with a provider of enterprise financial applications. We hired our
Vice President and General Manager of European Operations in July 1999. We have
continued to hire staff in our United Kingdom office and expect to continue to
do so in advance of anticipated revenues. Hence, we expect our costs for
establishing international sales to exceed related revenues as we invest in
international operations. We have derived no revenues from international sales
to date.

We have incurred substantial research and development costs since inception
and have more recently invested in our sales and marketing and professional
services organizations in order to support our long-term growth strategy. Our
full-time employees increased from 35 at December 31, 1997 to 83 at December 31,
1998 to 175 at December 31, 1999. As a result of these investments, we have
incurred net losses in each fiscal quarter since inception and, as of September
30, 1999, we had an accumulated deficit of $30.2 million. We anticipate that our
operating expenses will continue to increase as we continue to expand our
product development and sales and marketing efforts. Accordingly, we expect to
continue to incur quarterly net losses for the foreseeable future.

23
<PAGE> 31

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth unaudited consolidated statement of
operations data for the six quarters following the general availability of our
products in March 1998 through September 30, 1999, as well as this information
expressed as a percentage of total revenues for the periods indicated. This
information has been derived from our unaudited consolidated financial
statements. The unaudited consolidated quarterly financial statements have been
prepared on the same basis as the audited consolidated financial statements
contained in this prospectus and include all adjustments, consisting only of
normal recurring adjustments, that we considered necessary for a fair
presentation of such information when read in conjunction with our audited
consolidated financial statements and related notes. Operating results for any
quarter are not necessarily indicative of results for any future period.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1998 1998 1998 1999 1999 1999
-------- --------- -------- --------- -------- ---------
(IN THOUSANDS, UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Licenses.................................... $ 75 $ 160 $ 176 $ 220 $ 800 $ 1,356
Service and maintenance..................... 49 118 226 206 673 696
------- ------- ------- ------- ------- -------
Total revenues........................ 124 278 402 426 1,473 2,052
Cost of revenues:
Licenses.................................... 9 22 55 28 40 77
Services and maintenance.................... 344 475 564 758 1,087 1,229
------- ------- ------- ------- ------- -------
Total cost of revenues................ 353 497 619 786 1,127 1,306
Gross profit (loss)........................... (229) (219) (217) (360) 346 746
Operating expenses:
Sales and marketing......................... 1,001 1,263 1,436 1,319 2,009 3,079
Research and development.................... 860 1,268 1,537 1,408 1,727 1,851
General and administrative.................. 342 376 495 427 658 870
Amortization of non-cash stock based
compensation.............................. -- -- -- 315 578 1,586
------- ------- ------- ------- ------- -------
Total operating expenses.............. 2,203 2,907 3,468 3,469 4,972 7,386
------- ------- ------- ------- ------- -------
Loss from operations.......................... (2,432) (3,126) (3,685) (3,829) (4,626) (6,640)
Interest income (expense), net................ (62) 57 27 (27) (49) 94
------- ------- ------- ------- ------- -------
Net loss...................................... $(2,494) $(3,069) $(3,658) $(3,856) $(4,675) $(6,546)
======= ======= ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1998 1998 1998 1999 1999 1999
-------- --------- -------- --------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
PERCENTAGE OF REVENUES:
Revenues:
Licenses................................... 60% 58% 44% 52% 54% 66%
Service and maintenance.................... 40 42 56 48 46 34
------ ------ ---- ---- ---- ----
Total revenues....................... 100 100 100 100 100 100
Cost of revenues:
Licenses................................... 7 8 14 7 3 4
Services and maintenance................... 277 171 140 178 74 60
------ ------ ---- ---- ---- ----
Total cost of revenues............... 285 179 154 185 77 64
Gross profit (loss).......................... (185) (79) (54) (85) 23 36
------ ------ ---- ---- ---- ----
Operating expenses:
Sales and marketing........................ 807 454 357 310 136 150
Research and development................... 694 456 382 331 117 90
General and administrative................. 276 135 123 100 45 42
Amortization of non-cash stock based
compensation............................. -- -- -- 74 39 77
------ ------ ---- ---- ---- ----
Total operating expenses............. 1,777 1,046 863 814 338 360
------ ------ ---- ---- ---- ----
Loss from operations......................... (1,961) (1,124) (917) (899) (314) (324)
Interest income (expense), net............... (50) 20 7 (6) (3) 5
------ ------ ---- ---- ---- ----
Net loss..................................... (2,011)% (1,104)% (910)% (905)% (317)% (319)%
====== ====== ==== ==== ==== ====
</TABLE>

24
<PAGE> 32

SIX QUARTERS ENDED SEPTEMBER 30, 1999

Revenues

LICENSE REVENUES. Our license revenues have increased in every quarter
following the introduction of our first product in March 1998. These increases
are attributable to the increasing market awareness of the benefits of workforce
optimization software and increasing market acceptance of our solutions. License
revenues in the quarters ended June 30 and September 30, 1999 in particular have
increased significantly as we have established a more visible market presence
and expanded our sales and marketing resources.

SERVICE AND MAINTENANCE REVENUES. Our service and maintenance revenues have
increased in each quarter in the periods presented, except for the first quarter
of 1999. The generally increasing trend resulted from increases in the number of
installations being completed for our growing customer base, and to a lesser
extent, a growing base of maintenance revenues. The increase in service revenues
on an absolute dollar basis and as a percentage of revenues from the quarter
ended September 30, 1998 to the quarter ended December 31, 1998 resulted from a
higher mix of service revenues for contracts completed in the quarter ended
December 31, 1998 as compared to other quarters. The decrease in service
revenues as a percentage of revenues in the quarter ended September 30, 1999 as
compared to the preceding quarter was due to a lower mix of service revenues for
contracts completed in the quarter ended September 30, 1999 as compared to
previous quarters.

Cost of Revenues

COST OF LICENSE REVENUES. Cost of license revenues consists primarily of
third-party license and support fees and, to a lesser extent, costs of
duplicating media and documentation. This cost has fluctuated within a small
absolute dollar range of $9,000 to $77,000 for the six quarters ended September
30, 1999. With a more substantial level of license revenues during the second
and third quarters of 1999, our cost of license revenues as a percentage of
license revenues has been less than 6%.

COST OF SERVICE AND MAINTENANCE REVENUES. Cost of service and maintenance
revenues consists of compensation and related overhead costs for personnel
engaged in consulting, training, maintenance and support services for our
customers as well as costs for third parties contracted to provide such services
to our customers. This cost has increased each quarter in the six quarters ended
September 30, 1999. The increase in cost of service revenues as a percentage of
revenues in the quarter ended March 31, 1999 was attributable to the expansion
of our professional services organization in advance of recognized revenues from
implementations during that period. Cost of service revenues has significantly
exceeded our service revenues as we have built our consulting and customer
support groups in advance of growing contract volume. Although cost of service
revenues has declined as a percentage of service revenues over time, this cost
continues to exceed the amount of related service revenues. We are seeking to
reduce our cost of service revenues and are also seeking to engage third parties
to provide a substantial portion of services related to our applications. We
expect, however, that cost of service revenues will continue to exceed service
revenues for the foreseeable future. In addition, we have not yet established
significant relationships with any third-party service provider, and we may not
be successful in doing so in the future.

Our bundled service revenues are generally recognized ratably over a
one-year period. However, implementation services typically represent a large
proportion of total cost of service revenues and are typically completed within
the first two quarters of that one-year period. This timing difference results
in higher cost of service revenues as a percentage of recognized service
revenues in the early portion of each contract. In addition, we plan to continue
to build our services capability, both internally and through third-party
implementation and consulting

25
<PAGE> 33

providers in advance of targeted revenue increases. We expect that cost of
service revenues will continue to exceed service revenues for the foreseeable
future. Furthermore, the mix of license versus service revenues may cause our
overall costs of service revenues as a percentage of total revenues to
fluctuate.

Operating Expenses

SALES AND MARKETING. Sales and marketing expenses consist primarily of
compensation and related costs for sales and marketing personnel, including
commissions and marketing program costs. Sales and marketing expenses have
increased steadily since the commercial introduction of our products in March
1998 as we have continued to build our sales and marketing resources. The
primary reasons for these increases are increased personnel and associated sales
commissions, expanded marketing programs, expansion of regional sales offices
and the addition of an international sales office. Our sales and marketing
expenses decreased slightly to $1.3 million in the first quarter of 1999 from
$1.4 million in the last quarter of 1998 due primarily to larger commissions and
bonuses in the fourth quarter of 1998. The increase in sales and marketing
expenses as a percentage of revenues in the quarter ended September 30, 1999 was
attributable to increased advertising expenditures relating to our first
national marketing program, and coincided with the roll-out of Version 4.0 of
our Extensity Application Suite. We expect our sales and marketing expenses to
increase in absolute dollars for the foreseeable future.

RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of compensation and related personnel costs and fees associated with
contractors. Research and development expenses continued to grow during the six
quarters ended September 30, 1999 as we continued to build on our underlying
technology platform, develop new applications and enhance existing applications.

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of compensation and related costs for our executive, finance and
administrative personnel and other related expenses. General and administrative
expenses have generally grown consistently during the six quarters ended
September 30, 1999. We have continued to increase the number of general and
administrative personnel to support our growing organization and transaction
volume. We expect general and administrative costs to increase in absolute
dollars as we continue to build the infrastructure necessary to support the
growth of our business and to operate as a public company.

You should not rely on quarter-to-quarter comparisons of our results of
operations as indicators of future performance due to our limited operating
history, the early stage of our market and the factors discussed in the section
entitled "Risk Factors" above. In particular, because our base of customers and
the number of additional customer licenses we enter into each quarter are still
relatively small, the loss or deferral of a small number of anticipated large
customer orders in any quarter could result in a significant shortfall in
revenues for that quarter. If in some future periods our operating results are
below the expectations of public market analysts and investors, the price of our
common stock may underperform or fall.

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<PAGE> 34

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the statement of
operations data as a percentage of total revenues.

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
YEAR ENDED ----------------
DECEMBER 31, 1998 1998 1999
----------------- ------ ----
<S> <C> <C> <C>
Revenues:
Licenses.......................................... 64% 75% 60%
Services and maintenance........................ 36 25 40
---- ------ ----
Total revenues............................... 100 100 100
---- ------ ----
Cost of revenues:
Licenses........................................ 8 5 4
Services and maintenance........................ 138 137 78
---- ------ ----
Total cost of revenues....................... 146 142 81
---- ------ ----
Gross profit (loss)............................... (46) (42) 19
---- ------ ----
Operating expenses:
Sales and marketing............................. 417 450 162
Research and development........................ 391 395 126
General and administrative...................... 128 130 50
Amortization of non-cash stock-based
compensation................................. -- -- 63
---- ------ ----
Total operating expenses..................... 935 976 401
---- ------ ----
Loss from operations.............................. (981) (1,017) (382)
Interest income, net.............................. 2 -- --
---- ------ ----
Net loss.......................................... 979% (1,017)% (382)%
==== ====== ====
</TABLE>

NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998

Revenues

Total revenues increased to $4.0 million for the nine months ended
September 30, 1999 from $725,000 for the nine months ended September 30, 1998.

LICENSE REVENUES. Our license revenues increased to $2.4 million for the
nine months ended September 30, 1999 from $542,000 for the nine months ended
September 30, 1998. This increase was due to increased market awareness of the
benefits of workforce optimization software and increasing market acceptance of
our solutions.

SERVICE AND MAINTENANCE REVENUES. Our service and maintenance revenues
increased to $1.6 million for the nine months ended September 30, 1999 from
$183,000 for the nine months ended September 30, 1998. This increase was
attributable to consulting fees associated with new customer installations, and
to a lesser extent, maintenance and support fees associated with a growing
customer base.

For the nine months ended September 30, 1998, sales to Scopus Technology,
Franklin Templeton and RELTEC Corporation accounted for 30%, 19% and 12% of our
total revenues. For the nine months ended September 30, 1999, sales to Sara Lee,
Gelco Information Network and Cisco Systems accounted for 19%, 18% and 11% of
our total revenues.

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<PAGE> 35

Cost of Revenues

Total cost of revenues increased to $3.2 million for the nine months ended
September 30, 1999 from $1.0 million for the nine months ended September 30,
1998.

COST OF LICENSE REVENUES. Cost of license revenues increased to $145,000
for the nine months ended September 30, 1999 from $37,000 for the nine months
ended September 30, 1998. As a percentage of license revenues, cost of license
revenues decreased from 6.8% to 6.1% for the nine months ended September 30,
1998 and 1999. Cost of license revenues as a percentage of total license
revenues may increase if we incorporate additional third-party software into our
products.

COST OF SERVICE AND MAINTENANCE REVENUES. Cost of service and maintenance
revenues increased to $3.1 million for the nine months ended September 30, 1999
from $989,000 for the nine months ended September 30, 1998. As a percentage of
service revenues, cost of service revenues decreased from 540% to 195% for the
nine months ended September 30, 1998 and 1999.

Operating Expenses

SALES AND MARKETING. Sales and marketing expenses increased to $6.4 million
for the nine months ended September 30, 1999 from $3.3 million for the nine
months ended September 30, 1998, an increase of 96%. The increase was primarily
attributable to increased compensation, commissions and other related costs
associated with hiring additional sales representatives, management and
marketing personnel, as well as increased spending on marketing programs.
Approximately 70% of the increase was due to an increase in sales and marketing
personnel. Sales and marketing expenses as a percentage of total revenues were
450% and 162% for the nine months ended September 30, 1998 and 1999. We expect
that the absolute dollar amount of sales and marketing expenses will continue to
increase as we expand our domestic and international sales force and marketing
efforts.

RESEARCH AND DEVELOPMENT. Research and development expenses increased to
$5.0 million for the nine months ended September 30, 1999 from $2.9 million for
the nine months ended September 30, 1998, an increase of 74%. The increase was
primarily attributable to the addition of personnel to our research and
development organization as we continued to develop new products and new
versions of existing products. Approximately 55% of the increase was due to an
increase in research and development personnel and approximately 35% was due to
an increase in consulting services. Research and development expenses as a
percentage of total revenues were 395% and 126% for the nine months ended
September 30, 1998 and 1999. We expect that the absolute dollar amount of
research and development expenses will continue to increase as we make
additional investments in our technology and products.

GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
to $2.0 million for the nine months ended September 30, 1999 from $945,000 for
the nine months ended September 30, 1998, an increase of 107%. The increase was
primarily attributable to hiring additional executive and financial personnel as
well as incurring additional general expenses, such as consulting and
professional service fees. Approximately 60% of the increase was due to an
increase in administrative personnel. General and administrative expenses as a
percentage of total revenues were 130% and 50% for the nine months ended
September 30, 1998 and 1999. We expect that the absolute dollar amount of
general and administrative expenses will continue to increase as we expand our
operations and incur the typical incremental costs of being a public company.

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<PAGE> 36

Amortization of Non-Cash Stock Based Compensation

We granted certain stock options to our officers and employees at prices
deemed to be below the fair value of the underlying stock. The cumulative
differential between the fair value of the underlying stock at the date the
options were granted and the exercise price of the granted options was $6.1
million at September 30, 1999. This amount is being amortized, on an accelerated
basis, over the four year vesting period of the granted options. Accordingly,
our results from operations will include deferred compensation expense at least
through 2003. We recognized $2.5 million of this expense during the nine months
ended September 30, 1999.

Interest and Other Income, Net

Net interest and other income was $19,000 for the nine months ended
September 30, 1999, and $2,000 for the nine months ended September 30, 1998. The
nominal income for the nine months ended September 30, 1998 resulted primarily
from the interest generated from funds raised in our May 1998 private placement,
partially offset by interest expense from our subordinated debt facility and
capital equipment loans and leases. Interest income for the nine months ended
September 30, 1999 primarily resulted from interest earned on the proceeds from
both our May 1998 and July 1999 private placements, partially offset by interest
expense from these same debt facilities.

FISCAL YEARS ENDED DECEMBER 31, 1998 AND 1997

Revenue and Cost of Revenues

We recognized $1.1 million of revenues for the year ended December 31,
1998, consisting of $718,000 in license revenues and $409,000 in service and
maintenance revenues. The 1998 revenue resulted from licenses and related
services for Extensity Expense Reports, released in March 1998. We did not
recognize any revenues in 1997. For the year ended December 31, 1998 sales to
Scopus Technology, Baltimore Gas & Electric, Gelco Information Network and
Franklin Resources accounted for 20%, 19%, 14% and 13% of total revenues. Total
cost of revenues was $1.6 million for the year ended December 31, 1998. Cost of
license revenues was $90,000, or 13% of license revenues, for the year ended
December 31, 1998. Cost of service revenues was $1.6 million, or 380% of service
revenues, for the year ended December 31, 1998. Total cost of service revenues
significantly exceeded related revenues as we built our service and support
group in advance of revenues.

Operating Expenses

SALES AND MARKETING. Sales and marketing expenses increased to $4.7 million
for the year ended December 31, 1998 from $1.1 million for the year ended
December 31, 1997. The increase was primarily attributable to building our sales
and marketing capabilities for our newly launched products, including increased
compensation, commissions and other related costs for sales representatives,
marketing personnel and management and, to a lesser degree, increased spending
on marketing programs. Approximately 60% of the increase was due to an increase
in sales and marketing personnel and 29% was due to an increase in spending on
marketing programs. Sales and marketing expenses as a percentage of total
revenues were 417% for the year ended December 31, 1998.

RESEARCH AND DEVELOPMENT. Research and development expenses increased to
$4.4 million for the year ended December 31, 1998 from $1.7 million for the year
ended December 31, 1997. The increase was primarily attributable to the addition
of personnel to our research and development organization in connection with
development of new products and enhancement of existing products. Approximately
70% of the increase was due to an increase

29
<PAGE> 37

in research and development personnel. Research and development expenses as a
percentage of total revenues were 391% for the year ended December 31, 1998.

GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
to $1.4 million for the year ended December 31, 1998 from $540,000 for the year
ended December 31, 1997, an increase of 166%. The increase was attributable to
hiring additional executive and financial personnel as well as incurring
additional general expenses, such as consulting and professional service fees.
Approximately 45% of the increase was due to an increase in administrative
personnel and 30% of the increase was due to an increase in consulting and
professional service fees. General and administrative expenses as a percentage
of total revenues were 128% for the year ended December 31, 1998.

Amortization of Non-Cash Based Stock Compensation

Our results of operations will include amortization of deferred non-cash
stock-based compensation expense at least through 2003. There was no
amortization of deferred non-cash stock-based compensation in 1997 or 1998.

Interest and Other Income, Net

Net interest and other income was $107,000 for the year ended December 31,
1997 and $28,000 for the year ended December 31, 1998. These nominal income
amounts resulted primarily from the interest generated from funds raised in our
prior equity offerings, partially offset by interest expense.

INCOME TAXES

Since inception, we have incurred net losses for federal and state tax
purposes and have not recognized any material tax provision or benefit. As of
December 31, 1998, we had net operating loss carryforwards of approximately
$14.1 million and $8.7 million for federal and state income tax purposes,
respectively. The federal and state net operating loss carryforwards, if not
utilized, expire through 2018 and 2003, respectively. We also have research and
development credit carryforwards of approximately $220,000 and $145,000 for
federal and state tax purposes. Federal and state tax laws impose significant
restrictions on the utilization of net operating loss carryforwards in the event
of a shift in our ownership that constitutes an ownership change, as defined in
Section 382 of the Internal Revenue Code. See Note 4 of Notes to Consolidated
Financial Statements for additional information regarding these carryforwards.

We have placed a valuation allowance against our net deferred tax assets
due to the uncertainty of the realization of these assets. The allowance totaled
$5.8 million at December 31, 1998, resulting in no net deferred asset. We
evaluate on a quarterly basis the recoverability of net deferred tax assets and
the level of the valuation allowance. When we have determined that it is more
likely than not that the net deferred tax assets are realizable, we will reduce
the valuation allowance.

RECENT OPERATING RESULTS

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<PAGE> 38

LIQUIDITY AND CAPITAL RESOURCES

Since inception, we have financed our operations and funded our capital
expenditures through the private sale of equity securities, supplemented by loan
facilities and equipment leases. Aggregate net proceeds to date from private
equity financings total $42.3 million. As of September 30, 1999, we had $22.3
million in cash, cash equivalents and short term investments and $16.2 million
in working capital.

Net cash used in operating activities was $779,000 in 1996, $2.5 million in
1997, $8.6 million in 1998 and $9.6 million for the nine months ended September
30, 1999. For such periods, net cash used in operating activities was primarily
used to fund ongoing operations including increases in deferred revenues.

Net cash used in investing activities was $195,000 in 1996, $917,000 in
1997, $6.1 million in 1998 and $2.2 million for the nine months ended September
30, 1999. Investing activities consisted primarily of purchases of short term
investments and capital expenditures.

We received no financing in 1996. Net cash provided by financing activities
was $6.0 million in 1997, $17.4 million in 1998 and $21.8 million for the nine
months ended September 30, 1999, and consisted primarily of proceeds from the
issuance of preferred stock and proceeds from loans as offset by repayments on
loans and capital leases. In December 1999, we raised $4.5 million in proceeds
through the private sale of our Series F Preferred Stock. During 1998, we
entered into a loan and security agreement with Comdisco Ventures for $3.5
million and borrowed the total amount. These borrowings bear an average annual
interest rate of approximately 11.4% and are payable in equal monthly
installments through 2001. We have also entered into capital lease agreements
with Comdisco to finance up to $1,750,000 of capital expenditures. Interest
accrues under the terms of these agreements at an average of approximately 7.4%
per annum based on the outstanding utilized capital lease line. Each borrowing
under the capital lease line shall have a term of up to four years, with
interest and principal payable monthly. As of September 30, 1999, we had drawn
approximately $1,736,000 of these lines. We plan to repay all amounts
outstanding under these loans and capital leases with part of the proceeds of
this offering. In connection with these financings, we issued to Comdisco
warrants to purchase a total of 160,303 shares of our Series D Preferred Stock,
each at an exercise price of $3.30 per share, subject to adjustments.

As we execute our strategy, we expect significant increases in our
operating expenses, especially in sales, marketing and engineering. Presently,
we anticipate that our existing capital resources and the proceeds from this
offering will meet our operating and investing needs for at least the next 12
months. After that time, we cannot be certain that additional funding will be
available on acceptable terms or at all. If we require additional capital
resources to grow our business, execute our operating plans, or acquire
complimentary technologies or businesses at any time in the future, we may seek
to sell additional equity or debt securities or secure additional lines of
credit, which may result in additional dilution to our stockholders.

YEAR 2000 COMPLIANCE

Many currently installed computer systems and software products are coded
to accept only two-digit entries in the date code field and cannot reliably
distinguish dates beginning on January 1, 2000 from dates prior to 2000. Many
companies' software and computer systems may need to be upgraded or replaced in
order to correctly process dates beginning in 2000.

ASSESSMENT. We define Year 2000 compliance to mean that systems or products
can accurately process date data from, into and between the years 1999 and 2000,
including leap

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<PAGE> 39

years, provided that all other products with which they are used, such as
hardware, software, operating systems and firmware, properly exchange date data
with the systems or products.

We designed all of our products from inception for Year 2000 compliance and
have tested our applications for Year 2000 compliance. We have tested software
obtained from third parties that is incorporated into our applications and
obtained assurances from our vendors that licensed software is Year 2000
compliant. We have received assurances from our vendors of financial systems,
databases, development tools, groupware and hardware systems regarding Year 2000
compliance. We were unable to obtain assurances from the vendor of our customer
support and defect tracking system regarding Year 2000 compliance, but have
performed internal testing and detected no material errors. We have
substantially completed our Year 2000 compliance initiatives and have not become
aware of any material errors in our applications, the third-party software
incorporated into our products or our internal management systems. However,
despite our testing and assurances from our vendors, we cannot be certain that
our applications or the products we use to run our business do not contain
undetected errors associated with processing date-sensitive data.

COSTS. We have not incurred any material costs directly associated with
Year 2000 compliance efforts, except for compensation costs for certain
employees who have dedicated time to our assessment of Year 2000 compliance and
associated remedies. We do not expect to incur additional material costs
associated with Year 2000 compliance; however, in the event that we have not
identified and corrected any significant Year 2000 compliance issues, such
unresolved issues could materially harm our business.

RISKS. Numerous risks associated with Year 2000 issues could negatively
impact our business. These risks include, but are not limited to:

- reduced contract sales during the last quarter of 1999 and first quarter
of 2000 as potential or existing customers prepare for 2000 or are
focused on remedying potential issues;

- inability of our products to process date-sensitive information, despite
our efforts to ensure Year 2000 compliance of our products;

- claims from our customers asserting our liability, with potential legal
costs or settlements, regardless of whether our applications have Year
2000 compliance issues;

- diversion of information system, engineering or management resources to
remedy unanticipated problems;

- management information system failures; infrastructure failures,
including our phone system; or external system failures, including
utilities and transportation, that would hinder our operations; or

- damage to our reputation resulting from any of the above.

The most significant potential adverse situation would include the
inability of our customers to use our products, material legal fees or
settlements, or system failures that render us unable to run our business.

CONTINGENCY PLANS. We have not developed contingency plans for the Year
2000 compliance risks previously discussed, either because our assessments have
not detected material issues or because we have not determined cost effective
solutions in light of our assessment of the risks. In the event that we
encounter significant Year 2000 compliance issues for which we have not
developed contingency plans, our business and financial condition could be
materially harmed.

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<PAGE> 40

MARKET RISK

We develop products in the United States and market our products in North
America and, to a lesser extent, in Europe and the rest of the world. As a
result, our financial results could be affected by factors such as changes in
foreign currency rates or weak economic conditions in foreign markets. Because
all of our revenues are currently denominated in U.S. dollars, a strengthening
of the dollar could make our products less competitive in foreign markets.

INTEREST RATE RISK

We have an investment portfolio of money market funds and fixed income
certificates of deposit. The fixed income certificates of deposit, like all
fixed income securities, are subject to interest rate risk and will fall in
value if market interest rates increase. We attempt to limit this exposure by
investing primarily in short-term securities. In view of the nature and mix of
our total portfolio, a 10% movement in market interest rates would not have a
significant impact on the total value of our portfolio as of September 30, 1999.

Our interest expense is not sensitive to changes in the general level of
U.S. interest rates because all of our debt arrangements are based on fixed
rates of interest.

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<PAGE> 41

BUSINESS

OVERVIEW

Extensity provides a suite of Internet-based software applications that
automates expense reporting, travel management, procurement and billable time
management for the enterprise employee. These workforce optimization
applications increase employee productivity by streamlining these traditionally
paper-based processes, and enhance operational efficiency by enforcing spending
policies and tracking information that is valuable to management. We have
designed our software from inception to leverage the ease-of-use, accessibility
and open architecture of the Internet. By taking advantage of the Internet as an
application platform, we enable employees to use our applications in their
environment, whether at the office through a networked PC, at home or on the
road through a laptop or with a handheld device, such as a PalmPilot or Visor.
Further, our software design allows our application to be readily integrated
with enterprise resource planning and other information technology systems.

Since the introduction of our first application in 1998, we have licensed
our applications to 70 customers, the largest of which include AirTouch, AT
Kearney, BEA Systems, Brigham Young University, Cendant Business Services, Cisco
Systems, Clarify, Documentum, Gelco Information Network, Genesys
Telecommunications, Home Box Office, Sara Lee, Sybase, TransCanada PipeLines and
the University of California. Our customers' employees constitute a growing
network of targeted business users who could benefit from access to relevant
content, commerce and services in completing their daily tasks associated with
expense reporting, travel planning, procurement and time sheet management. Our
objective is to become a leading provider of applications that optimize an
enterprise's workplace and that facilitate exchange between our customers'
employees and third-party content, commerce and service providers. We refer to
this point of exchange as a content and commerce gateway.

INDUSTRY BACKGROUND

Growth of the Internet as a Platform for Efficient Business-to-Business
E-Commerce

The Internet has emerged as a universal communications medium and has
become a catalyst for fundamental business change for companies of all sizes.
The efficient, pervasive and interactive nature of the Internet make it a
necessary platform for relevant content exchange and e-commerce transactions
from business to business. Forrester Research estimates that
business-to-business e-commerce will generate $1.3 trillion in revenues by 2003.
In the intensely competitive global business environment, businesses have
increasingly adopted the Internet to streamline their business processes and
make their employees more productive. Giga Information Group estimates that in
1998, businesses worldwide realized $17.6 billion in e-commerce driven cost
savings and forecasts that by 2002 these savings will total $1.25 trillion
annually. According to preliminary estimates by International Data Corporation,
the worldwide market for workforce management applications will grow from $766
million in 1998 to $4.0 billion in 2003, and the Internet commerce procurement
applications market will grow from $147 million in 1998 to $5.3 billion in 2003.

Traditional Areas of Business Process Automation

Businesses have traditionally made significant investments in ERP and other
enterprise software applications to automate processes in functions such as
manufacturing, sales, human resources and finance. These systems typically have
been focused on specific individual functional areas and only address the
business processes unique to each functional area. Also, they offer limited
integration of information across functional areas. These systems have been
significantly limited in their ability to integrate information external to the
enterprise. ERP and

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<PAGE> 42

other enterprise software systems have also traditionally required lengthy and
expensive customization and implementation and are expensive to maintain because
their client-server architecture requires installation and continued maintenance
on each desktop. While these systems are in place in many companies, they have
not focused historically on certain pervasive business processes, such as
expense reporting, travel management, procurement and billable time management,
which touch large numbers of employees in any organization.

These employee-centric business processes have been left largely
unautomated to date, resulting in processes that are time-consuming, inefficient
and costly. Most organizations today conduct travel expense, procurement and
billable time management through paper-based processes that require actions by
many individuals both inside and outside the enterprise. These processes involve
re-keying of data, manual tracking of forms, limited data capture and reporting,
and limitations on the ability to track and enforce corporate spending policies.
Without business process automation, expense reporting, procurement and time
management transactions can have significant processing costs. For example,
American Express has estimated that the average company spends $36 to process an
expense report using traditional paper-based methods. In addition, traditional
processes do not generally feature automated spending and procurement controls
and, as a result, may fail to direct spending to preferred vendors and may
permit spending on unapproved goods and services. The inefficiencies associated
with traditional processes can involve significant total cost, as operating
resource expenditures typically represent 33% of a company's total revenues,
according to Killen & Associates.

Opportunity for Workforce Optimization Applications

A significant market opportunity exists for workforce optimization
applications that streamline processes within the organization and across the
extended enterprise and provide integrated access to third-party content,
commerce and services. At the same time, the rapid adoption of the Internet by
businesses has radically changed the business environment. The growth of the
Internet in conjunction with increasing business globalization and technological
advancements has increased competitive pressures for all businesses by lowering
barriers to market entry, rewarding innovative business models and providing an
easily accessible commerce channel over the Internet. Accordingly, the rapid
growth of the Internet has both enabled the introduction of Internet-based
workforce optimization solutions and made their adoption a strategic imperative.

A comprehensive workforce optimization solution must provide benefits
inside and outside a business organization, to employee users, business managers
and third-party content, commerce and service providers. Such a solution must:

- give companies a highly scalable, easily implemented and widely
accessible set of applications that streamlines workforce processes by
linking employees, approvers and administrative personnel;

- reduce the time employees spend on general workforce management tasks,
freeing them to focus on their core responsibilities;

- provide data to business managers for contract negotiation and for
enforcing discounts with preferred vendors;

- provide business managers with information on individual employee and
overall workforce utilization, in order to better manage employee
productivity and profitability;

- enable business administrators to enforce policies actively and
efficiently; and

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- provide an end-to-end solution by connecting the employee to third-party
content, commerce and service providers over the Internet.

A comprehensive workforce optimization solution should benefit both
employees and third-party providers by directing information, services and
focused commerce opportunities to employees while delivering valuable business
customers and business spending to participating providers. We refer to this
integrated point of exchange between employees and third-party providers as a
content and commerce gateway.

THE EXTENSITY SOLUTION

We provide an integrated suite of Internet-based, workforce optimization
software applications designed to improve the productivity of employees across
the enterprise and to enhance enterprise operating efficiency. Our Extensity
Application Suite currently includes applications for expense reporting,
business travel, procurement and billable time management. In addition, our
solution can leverage the Internet to serve as a gateway between employees and
third-party content, commerce and service providers through buying exchanges,
online marketplaces, specialized portals and supplier sites. We believe our
solution makes our customers' employees more productive and companies more
efficient, while providing better information to management.

The Extensity Application Suite

Our application suite is currently comprised of the Extensity Expense
Reports, Extensity Travel Plans, Extensity Timesheets and Extensity Purchase
Reqs applications and the Extensity System Administration Tool. The application
suite is fully integrated so that each application works with and shares
information with all the other applications. In addition, our applications
aggregate and integrate information for management reporting and analysis. Our
applications are easy to learn for the user, as users can access all
applications through a common, intuitive, browser-based user interface. The
integration of the suite to online services such as travel bookings, credit card
feeds and content services provides a true end-to-end workforce optimization
solution. Our applications are designed to be rapidly implemented by us for our
customers, and cost-effectively deployed by our customers to their end users.
Moreover, our applications are designed to be scalable for organizations of all
sizes. We offer a guarantee to all of our customers that we will complete a
standard implementation for each application within 90 days.

Our workforce optimization solution provides direct and indirect cost
savings by:

- streamlining and automating traditional paper-based processes, thereby
reducing the time and personnel requirements associated with processing
expense reports, travel plans, purchase requisitions and timesheets;

- increasing accuracy through automation of error-checking, data import and
business rule compliance;

- providing greater control of expenditure policy administration and
enforcement;

- supporting analysis of business purchasing and utilization patterns to
enhance decision-making capabilities and to increase leverage in
negotiating vendor and service provider contracts; and

- promoting and enforcing the use of preferred vendors.

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Our workforce optimization solution also increases productivity throughout
the enterprise by:

- reducing employee time spent on tasks outside of their core
responsibilities;

- providing a consistent, intuitive, browser-based user interface to all
applications;

- supporting remote access via Palm Pilot and other mobile computing
devices; and

- enabling exception-based management that allows business managers to
review only those expenditures which fall outside of a company's
policies.

The Extensity Partner Network

We have recently begun to develop our Extensity Partner Network to
establish an Internet gateway between a company's workforce and third-party
content, commerce and service providers. We believe this network will benefit
both our customers' employees and third-party providers by directing relevant
information, services and focused commerce opportunities to our customers'
employees while delivering valuable business customers and spending to
participating providers.

We will continue to develop this gateway to provide benefits to employees
and third-party providers by:

- providing users with seamless, integrated access to relevant content,
services and e-commerce capabilities;

- delivering to our partners access to a network of employees that are
likely to engage in specific commercial transactions;

- reducing transaction costs to both our customers' employees and content,
commerce and service providers by utilizing the Internet to enhance
information flow; and

- enabling open access to multiple online markets to minimize reliance on a
single marketplace.

As more companies implement our solution, the Extensity network of our
customers' employees continues to grow. We believe that this network of
employees will become a valuable aggregated base of potential customers for
additional third-party content, commerce and service providers. As these
providers offer additional products and services through our network, customers
are encouraged to join, establishing a cycle that increases the value of the
Extensity solution to both our customers and third-party providers.

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EXTENSITY STRATEGY

Our objectives are to gain broad market acceptance of our workforce
optimization applications and to build the largest Internet-based network of
organizations and employees. By building this network, we plan to become the
leading content and commerce gateway for the enterprise workforce. This will
allow our partners and us to deliver valuable content and business-to-business
services to our growing network.

Key elements of our growth strategy include:

EXPANDING OUR WORKFORCE OPTIMIZATION SOLUTIONS. We intend to continue
to enhance the Internet-based architecture of our technology platform in
order to provide a comprehensive, functionally-rich solution for
employee-centric business processes. We also intend to continue to enhance
the functionality of our existing application suite and, by leveraging the
existing platform, to introduce additional integrated workforce
optimization applications.

AGGRESSIVELY PENETRATING THE LARGE AND UNTAPPED WORKFORCE OPTIMIZATION
MARKET. We believe that the market for automated workforce optimization
solutions is large and underpenetrated for enterprises of all sizes. In
order to address this market opportunity, we intend to aggressively expand
our direct and indirect sales channels. We plan to focus our direct sales
efforts on large multinational organizations across a variety of
industries. In addition, we plan to address small and mid-size
organizations through a combination of telesales and relationships with
application service providers, OEMs and other resellers.

STRENGTHENING INTERNATIONAL PRESENCE THROUGH STRATEGIC PARTNERSHIPS
AND DIRECT DISTRIBUTION. We plan to capitalize on international market
opportunities by establishing additional international sales offices,
expanding our international direct sales force and building strategic
overseas partnerships. We will continue to staff our international
organization with senior local management and experienced domestic
management with specific product and market expertise. Our application
suite is internationalized and we plan to localize it for certain European
languages during 2000.

INCREASING MARKET ADOPTION THROUGH STRATEGIC PARTNERSHIPS WITH
APPLICATION SERVICE PROVIDERS. Because customers are increasingly utilizing
application service providers to host or outsource their applications, we
intend to partner with application service providers as an additional
indirect sales channel. We believe that our readily-implemented,
Internet-based architecture and easy-to-learn end-user solution is
attractive to application service providers. We currently have two
application service provider partners, Gelco Information Network and
Cendant Business Services, and intend to develop strategic relationships
with others.

OFFERING A SINGLE GATEWAY FOR THE MOST COMPREHENSIVE NETWORK OF
EXTERNAL CONTENT, COMMERCE AND SERVICE PROVIDERS. Our applications are
designed to provide a single, Internet standards-based point of access, or
gateway, for online providers of indirect goods and services, including
travel and entertainment, office equipment and supplies, professional
services, information and technology equipment, and other repeat purchase
items. This gateway will give our customers flexibility in the suppliers
with which they choose to integrate, without requiring point-to-point
integration or a commitment to a proprietary single solution. We believe
our gateway will provide to our customers a superior e-commerce solution as
online transactions gain market acceptance and as online vertical
marketplaces emerge.

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EXTENSITY PRODUCT AND SERVICES

Integrated Suite of Applications

We provide an integrated suite of Internet-based workforce optimization
applications designed to enhance employee productivity and corporate efficiency.
Our product suite currently includes the Extensity Expense Reports, Extensity
Travel Plans, Extensity Timesheets and Extensity Purchase Reqs applications and
the Extensity System Administration Tool. Our applications can be licensed
individually or in any combination to provide a complete solution. All
applications share a consistent and easy-to-use, browser-based graphical user
interface and are launched from a unifying screen. The applications share a
common underlying technology architecture and a common data model which allow
them to work together and share information. In addition, our applications are
universally accessible, allowing employees to work anywhere, through desktop or
mobile computing and via Palm Pilots or other handheld devices.

Once deployed, our applications are quickly configured, easily customized,
and easily upgraded, regardless of the degree of customization. Our
Internet-based architecture also keeps system administration costs to a minimum.
For example, customers can automatically install and update new versions via the
Internet.

Our application suite provides real-time comprehensive data regarding
spending, suppliers, policy violations, resource utilization and budgets. We
offer pre-configured reports, and our database approach facilitates further
query and analysis using standard report writing applications. We believe that
this information can improve an organization's strategic management and
decision-making processes and can enhance vendor negotiation.

COMMON FEATURES OF OUR APPLICATIONS

<TABLE>
<CAPTION>
FEATURES DESCRIPTION
-------- -----------
<S> <C>
Employee self service Employees can track in real time the status of any document
that has been submitted, reducing the number of calls and
inquiries to managers and processing departments.
Document linking Documents can be linked -- for example, a travel plan for
conference attendance and an expense report for the trip, a
time sheet and expense report for a project or purchase
requisition and an expense report associated with the
purchase.
Proxy user creation Employees can appoint another person to create documents for
them.
Project and cost center allocation Expenses and time can be allocated across multiple cost
centers and project codes as percentages or absolute dollar
amounts.
Configurable interface and data capture The application suite is fully configurable to incorporate
each organization's specific data capture needs.
Intelligent personalization Each employee's application becomes customized, maintaining
previously used information, such as prior travel
itineraries, cities traveled to, purposes and previously
used vendors.
Online help Context sensitive online help is provided for all
applications.
</TABLE>

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<PAGE> 47

EXTENSITY EXPENSE REPORTS. Extensity Expense Reports is a
full-featured application providing automation of the entire expense
reporting process. Extensity Expense Reports brings accuracy, efficiency
and control to this process. Using Extensity Expense Reports, employees,
whether operating as a remote, off-line or local user, can quickly and
easily create an expense report. This process is expedited and made more
accurate through the use of online credit card data for automatic data
entry. Compliance to business policy is checked as the expense report is
created. Compliant reports can be automatically approved, and only
noncompliant reports are routed to managers for approval. In reviewing
noncompliant reports, managers need only focus on highlighted exceptions.
Re-keying data and auditing of expense reports are reduced or eliminated so
the accounting team can spend time analyzing the centralized travel and
entertainment expense data and leveraging that knowledge into cost savings.
Employees can receive reimbursement rapidly through seamless integration
with the organization's financial, payroll and human resources systems.

<TABLE>
<CAPTION>
FEATURES DESCRIPTION
-------- -----------
<S> <C>
Credit card integration and pre- Uses the data feed from corporate card vendors to
population enable travelers to select charges and automatically
populate the expense report, reducing creation time
and avoiding data entry errors.
Foreign currency support Enables users to complete reports using local
currencies.
Itemization and allocation Supports expense itemization for more accurate
accounting and allows allocations to be made at the
line item level without requiring a separate expense
report for each project.
Receipt reconciliation Guides users through itemizing receipts to ensure
the expense is fully allocated.
</TABLE>

EXTENSITY TRAVEL PLANS. Extensity Travel Plans automates the planning,
approval and procurement process for corporate travel. The application
enables users to plan, request and book travel and allows managers to
approve business travel through a streamlined method that enforces
corporate travel policies before travel expenses are incurred. Extensity
Travel Plans provides an immediate link to information and resources needed
by a business traveler, such as corporate travel policies, online booking
systems and general travel information resources. Extensity Travel Plans
can be seamlessly integrated with Extensity Expense Reports for an
end-to-end business travel solution. Through this integration with
Extensity Expense Reports, Extensity Travel Plans is designed to provide a
seamless flow of information, from pre-trip planning to post-trip expense
reimbursement, and a view of projected and actual costs for variance
analysis, providing an efficient and accurate travel management system.

<TABLE>
<CAPTION>
FEATURES DESCRIPTION
-------- -----------
<S> <C>
Industry average cost data Integrates benchmark costs into the product to
create an accurate itinerary for domestic and
international travel, which allows the user to
better estimate travel costs.
Policy enforcement Streamlines pre-trip approval process for cost
savings and increased business efficiency, warning
the user of out-of-policy items before costs are
incurred.
Integrated with Extensity Expense Reports Automatically approves expense reports that fall
within the specified parameters of an approved
travel plan.
</TABLE>

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EXTENSITY PURCHASE REQS. Extensity Purchase Reqs automates and
optimizes the requisitioning of non-production goods and services while
enforcing a company's procurement policies. The application is designed to
minimize rogue purchasing and to ensure usage of preferred vendors for
volume discounts. Extensity Purchase Reqs allows employees to quickly and
easily submit purchase requisitions so that materials and services can be
obtained when they are needed. Corporate expenditure policies are
automatically applied, approvals are accelerated and employees can have
their orders fulfilled in a fraction of the time required for paper-based
procurement. Extensity Purchase Reqs centrally captures key purchasing
information that can be analyzed to continually evaluate and improve the
procurement processes for further optimization and savings. Through
automation, Extensity Purchase Reqs significantly reduces administrative
hassle, freeing purchasing professionals to focus on more strategic
activities such as reducing redundant sources, selecting better vendors and
negotiating contracts.

<TABLE>
<CAPTION>
FEATURES DESCRIPTION
-------- -----------
<S> <C>
Purchase requisition templates Accelerates document creation by pre-populating
requests with a user's most frequent purchases or
with template purchases such as "new hire" packages.
Sourcing requests Generates requests for quotes from professional
buyers using the organization's specific
requirements.
Catalog repository Creates a catalog as items are ordered or supports a
centrally created catalog for easy reference by
employees.
Default shipment locales Creates default shipping locations from the user
profile for additional control over corporate
purchasing. Any change to a ship-to address can be
treated as a policy exception.
</TABLE>

EXTENSITY TIMESHEETS. Extensity Timesheets is a full-featured time
management application that quickly and accurately tracks billable hours.
Extensity Timesheets streamlines processes to ensure timely and accurate
client billing, which helps improve cash flow. Users can quickly identify
charge codes from potentially thousands of options with an easy-to-use
project code chooser. Extensity Timesheets centralizes time and expense
information so that project managers can leverage critical data to evaluate
employee utilization and productivity, as well as profitability on
individual, project and organizational levels. Resources can then be
deployed more effectively and projects can be managed to finish on time and
under budget. Extensity Timesheets integrates with existing financial
systems and with Extensity Expense Reports to ensure accurate bill-back to
clients and reduction of administrative errors. By integrating with
Extensity Expense Reports, Extensity Timesheets provides a complete time
and expense management solution for service organizations.

<TABLE>
<CAPTION>
FEATURES DESCRIPTION
-------- -----------
<S> <C>
Templates for timesheet creation Allows users to create a template with commonly used
project codes, minimizing data entry and eliminating
errors.
Drill-down project chooser Enables users to quickly identify detailed project
and task codes from thousands of options using
drill-down menus and business rules to ensure
accuracy.
Multiple viewing and data entry options Allows users to enter and track time by line item or
calendar view. Accommodates customized billing
periods and billing rates and multiple work
schedules.
</TABLE>

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<PAGE> 49

EXTENSITY SYSTEM ADMINISTRATION TOOL. The Extensity System
Administration Tool is a robust application administration tool designed to
allow the business users within an organization to maintain the Extensity
applications, minimizing reliance on the internal information technology
staff. The interface is graphical and easy to use. Single or multiple
administrators can be created for various departments, groups or functional
areas. All systems changes are recorded in an audit log for further
security.

<TABLE>
<CAPTION>
FEATURES DESCRIPTION
-------- -----------
<S> <C>
User and group setup and maintenance Maintains all aspects of user and group information,
such as department identification, group-specific
business rules and individual approval authority.
Allows administrators to perform group-wide editing.
Corporate data setup and maintenance Enables a system administrator to modify corporate
data values such as cost centers, departments,
mileage rates and permitted charge codes.
Business rules setup and maintenance Enables a system administrator to modify business
rules and policies.
Document viewing and modification Allows an administrator to view and modify work
items by reassigning access privileges of a
particular document.
</TABLE>

Services

Our customer satisfaction is essential to our long-term success and we
offer customers a comprehensive selection of implementation services, support
and training. Our professional services organization consisted of 37
professionals as of December 31, 1999.

EXTENSITY EXPRESS -- GUARANTEED 90-DAY IMPLEMENTATION. Extensity
Express is our rapid implementation program that allows us to guarantee to
our customers that we will implement any of our applications within 90
days. A standard implementation requires tailoring of business rules,
configuring the workflow, integrating customer data and integration with a
financial system, a human resources system and an external corporate credit
card system. We guarantee to our customers that, for a standard
implementation, we will complete the process within 90 days, or we will
refund a portion of the implementation fee for each day over 90 days until
completion, up to a full refund of the implementation fee. To date, we have
never failed to meet our implementation guarantee.

ENHANCED IMPLEMENTATION SERVICES. Customizations beyond our standard
implementation, such as integration with more than one financial system,
can be completed by our professional services organization and are billed
based on a daily rate.

CUSTOMER SUPPORT AND MAINTENANCE. We provide support and maintenance
services for each customer to whom we license an application. Support and
maintenance contracts are required for one year and can be renewed by the
customer thereafter. Our customer support provides timely and accurate
resolution of customer inquiries and is available via telephone and e-mail
during normal business hours. We also provide self-service Internet
support. At a customer's request and for an additional fee, we provide more
comprehensive 24 hours per day, 7 days per week customer support services.

TRAINING. We offer a comprehensive training program designed to
quickly train our customers' end-users, support staff and internal
trainers. The training program includes an end-user curriculum to teach
end-users how to use all key application features; an application
administration curriculum that teaches accounting personnel, help desk
staff and the implementation team how to modify the dynamic aspects of
Extensity applications; and a trainer curriculum that prepares company
trainers for the roll-out and delivery of our applications within the
organization. The curriculum is also available as computer-based

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<PAGE> 50

training, providing convenient access to training for local and remote
users, new employees, travelers and managers.

CUSTOMERS

We have licensed our applications to 70 customers in a broad range of
industries. The following is a list of our current customers.

<TABLE>
<CAPTION>
TECHNOLOGY FINANCIAL SERVICES CONSUMER PRODUCTS/MANUFACTURING
<S> <C> <C>
America Online Advent International Ademco
BEA Systems Atlantic Mutual Insurance Bestfoods
Channelpoint Software Eaton Vance Embraer Aircraft
Cisco Systems Franklin Resources Gannett
Clarify MBIA International Home Foods
Cybercash John Hancock Sara Lee
Documentum Royal Bank of Canada
Epoch Internet Volpe, Brown, Whelan & Company PUBLIC SECTOR
Excite@Home Weiss, Peck & Greer
Exodus Communications Wellington Management Brigham Young University
Extreme Networks Center for Technology Access
Icarian SERVICES/ENTERTAINMENT/RETAIL Lawrence Berkeley National Laboratories
Ikos Systems Lawrence Livermore National Laboratories
Incyte Pharmaceuticals AMB Property University of California
Litton Data Systems AT Kearney University of Pennsylvania
Macromedia Cendant Business Services
Mylex Four Seasons TELECOMMUNICATIONS/UTILITIES
NEC Systems Gelco Information Network
Sterling Commerce Home Box Office AirTouch Support Services
Sybase Ogilvy & Mather Worldwide Aspect Communications
Trimble Navigation Parson Group BT North America
Wall Data SFX Entertainment Baltimore Gas & Electric
WhiteOak Semiconductor Starz Encore Media Group Berk-Tek
Tribune Company Genesys Telecommunications
WORLDSPAN RELTEC Corporation
TransCanada PipeLines
</TABLE>

Customer case studies

BESTFOODS. International food giant Bestfoods, with revenue of $8.4
billion, uses our applications to streamline its travel expense reporting
and automatically enforce corporate travel expense policies. In North
America, Bestfood's 3,000 regular travelers generate over 68,000 expense
reports each year. In 1998, Bestfoods began to evaluate several Internet-
based software applications to implement on its worldwide corporate
intranet, including expense report applications. After evaluating several
expense reporting applications, Bestfoods selected Extensity because of its
web-based solution and high ratings from its user panel. Bestfoods chose
Extensity Expense Reports in November 1998, re-engineered its expense
reporting procedures and began to deploy our application to its U.S. users
in May 1999.

By using Extensity Expense Reports, Bestfoods can now reimburse
employees within three days of travel and enforces Bestfood's travel and
expense policies in a less intrusive way. Bestfoods integrates Extensity
Expense Reports with American Express, allowing traveling employees to
automatically download their receipts from American Express on a daily
basis, fill out their reports and submit them without waiting for monthly
credit card statements to arrive by mail. Using Extensity business rules,
the application is set up to authorize expenses within certain parameters.
If the report falls within those guidelines it is automatically approved by
the system and managers only need to review expense reporting

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<PAGE> 51

exceptions. Because employees are reimbursed within two to three days,
Bestfoods is able to eliminate most travel advances and a significant
amount of accounting overhead. Bestfoods also uses the reporting
capabilities to minimize re-keying of data and auditing of expense reports,
so it can spend time analyzing travel and entertainment data and leverage
that knowledge into cost savings.

EXCITE@HOME. Excite@Home is a leading provider of broadband Internet
services over the cable television infrastructure. One of Excite@Home's key
operational goals is to implement best practices and eliminate paper-based
processes across its organization. In March 1998, Excite@Home selected
Extensity Expense Reports to manage travel, entertainment and other
corporate expenses. Prior to the merger with Excite, @Home had its employee
base on the Extensity applications. As the two companies continue to
integrate their systems, all Excite@Home employees will become users of the
Extensity application. Excite@Home currently has 500 employees on the
Extensity system. By using our application, Excite@Home has been able to
process more than twice the volume of expense reports in half the time
without increasing its accounting staff. Excite@Home is integrating its
accounting system with Extensity for seamless information flow and plans to
implement direct deposit capabilities to further remove paper from its
workforce processes. Due to our database approach, finance personnel can
query their centralized database using their standard tools and can gather
valuable information for consolidation and budgeting. This analysis has
proven to be extremely valuable in negotiations with airline and lodging
vendors.

TECHNOLOGY

Our applications are fully standards-based, designed for the Internet and
built upon an underlying architecture that is written entirely in Java. Our
applications run on standard Web browsers and servers and support leading
relational database management systems (RDBMS), including Oracle, Sybase and
Microsoft SQL Server. The multi-tier architecture connects browser-based
applications to application servers and the RDBMS through a corporate local area
network (LAN), wide area network (WAN), intranet or a secure Internet
connection. Our technology performs messaging between clients and the
application engine in real time over TCP/IP, and makes database connections via
standard Java database drivers. Our applications are inherently scalable, due to
our multi-tier architecture employing thin clients, multi-threaded application
servers and relational databases. In addition, our Java-based architecture
enables the Extensity Application Suite to operate across multiple platforms
within any organization, including Windows 95, 98 or NT, Macintosh, Solaris and
Palm Pilot operating systems.

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<PAGE> 52

The Extensity Architecture

Building on a standards-based foundation, we have designed a
component-based application infrastructure composed of readily-configurable
business rules, a workflow system and advanced data management capabilities.
Each of these core elements plays a crucial role in deploying enterprise-wide
solutions that can model a company's unique policies and processes and manage
key business functions.

The following diagram illustrates the multi-tiered architecture of our
software applications, the use of the Internet for deployment and the
relationship of the application server to our other application components.

[EXTENSITY ARCHITECTURE GRAPHIC]

BUSINESS RULES SYSTEM. Our business rules system allows each Extensity
application to be configured so that companies can effectively monitor
their processes and policies. This system is also flexible and can be
edited and modified as a company's processes and policies evolve. Employees
are presented with appropriate warnings, explanations and message prompts
to guide data entry and encourage conformance with corporate policies. The
business rules dramatically reduce reworking of procedures, track and
resolve policy exceptions online and eliminate re-keying of data into
back-end systems. The business rules system permits management by
exception, in which items requiring managerial attention are automatically
highlighted so that managers need not review items that are clearly in
compliance with established business rules.

WORKFLOW SYSTEM. Our workflow system ensures that information flows
through the organization in a timely, secure and efficient manner. Robust
enterprise applications require database-driven workflow, rather than
e-mail-based messaging, to provide increased

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<PAGE> 53

security and reliability, data and transaction integrity, real-time
availability, optimization for high performance and usage reporting.
Workflow processes can be configured to reflect the unique process flow of
documents and business processes in any organization. Our applications also
permit e-mail notification to users of the status of a procedure or of
events requiring attention, alteration and action, such as notifying the
creator of an expense report of its location in the process cycle or
notifying a manager of a document requiring attention.

ADVANCED DATA MANAGEMENT. Data management ensures that all Extensity
applications can be customized and extended to add, delete or modify
buttons, type-in fields or other controls on an application's user
interface, in each case as required by a customer's unique business
objectives. New functionality can also be assigned to existing controls, or
new controls, with little application modification and minimal programming.
The Extensity Application Suite can integrate with enterprise systems such
as ERP systems and other financial, human resources (for user information
and organizational structure) and project accounting systems and corporate
credit card systems. These interfaces allow for the automatic exchange of
data between the Extensity system and other enterprise systems and for the
downloading of data managed by these enterprise systems into the Extensity
application suite. These integration processes are scheduled according to
the needs of our customer's information services and finance departments.

STRATEGIC RELATIONSHIPS

To rapidly deliver a comprehensive, robust solution to our customers, we
have established strategic relationships with companies in three general
categories: e-business providers; content, commerce and service providers; and
marketing and distribution partners.

E-BUSINESS PROVIDERS. We have established relationships with key solutions
providers to deliver integrated workforce optimization solutions to our
customers. Cisco Systems has selected Extensity as one of four solutions
providers to support its workforce optimization effort. We have an agreement
with Cisco that establishes Extensity as Cisco's strategic Internet business
solutions software partner and Cisco as Extensity's strategic networking
partner. This relationship includes a mutual agreement to integrate each party's
sales and marketing plans and obligates each party to review the other party's
respective architectures for possible product integration. In this initiative,
Cisco has taken an active role in communicating to its customers the benefits of
Extensity Expense Reports. Cisco also supports Extensity through sales
assistance, customer referrals and co-marketing activities. In the procurement
card market, we work with American Express to integrate the Extensity
Application Suite with the American Express Procurement card. We have agreed to
a product integration workplan with American Express, which enhances the quality
of integration for our customers. We are also a strategic partner with IBM, a
leader in defining e-business in the marketplace. We have a co-marketing
agreement with IBM that is designed to ensure compatibility of our complementary
solutions. This agreement obligates Extensity to support IBM's DB2 database, and
obligates IBM to pay a co-marketing fee to Extensity for agreed upon marketing
activities.

CONTENT, COMMERCE AND SERVICE PROVIDERS. We have formed strategic
relationships with several content, commerce and service providers to allow our
network of customer employees to conduct commerce efficiently over the Internet.

Commerce One -- We support Commerce One's open platform by bringing
employee buyers and suppliers of indirect goods and services together. Our
suite of products is integrated with MarketSite.net, Commerce One's online
marketplace. In addition, Commerce One has chosen us to be the preferred
provider of expense reporting applications to its customers and prospects.
Commerce One also refers its prospects to us for joint selling.

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<PAGE> 54

Under a fee agreement, Commerce One and Extensity have each agreed to pay
to the other party reciprocal business referral fees.

GetThere.com -- We partner with GetThere.com to deliver an online booking
solution as a key integrated component in our Extensity Travel Plans
application. As a leader in business-to-business online booking,
GetThere.com provides airline, hotel and car rental bookings for our
customers. Under a fee agreement, Extensity and GetThere.com have each
agreed to pay to the other party reciprocal business referral fees.

Ontheroad.com -- Ontheroad.com is a premier provider of travel information
for the business traveler. Ontheroad.com provides travel information
content for the Extensity Application Suite.

Runzheimer International -- Extensity is the only integrated application
suite that provides access to Runzheimer benchmarking travel data. This
data is integrated with our application suite to provide cost comparison
detail for hotels, cars and meals both domestically and internationally.
Runzheimer and Extensity also have entered a marketing referral agreement.

MARKETING AND DISTRIBUTION PARTNERS. We have established relationships
with solutions providers to resell our products and to provide prospect
referrals to us.

J.D. Edwards -- We recently entered into a worldwide distribution
arrangement with J.D. Edwards World Solution Company. J.D. Edwards is
headquartered in Denver, Colorado and has over 50 offices worldwide
supporting its 5,500 customers in more than 100 countries. Under the
agreement, J.D. Edwards purchases our products at a discount and resells
the products to its customers. J.D. Edwards also purchased $4.5 million of
our Series F Preferred Stock in December 1999.

QSP -- We have a worldwide distribution arrangement in place with QSP. QSP
is headquartered in the United Kingdom and has satellite offices in London,
Raleigh, NC, and Sydney, Australia supporting its 200 worldwide customers.
QSP purchases Extensity's applications at a discount and resells them
together with implementation services to QSP's customers.

Niku -- We have an OEM arrangement in place with Niku Corporation. Niku is
a leading provider of e-business software applications that serve
professional service organizations and individuals. Under this agreement,
Niku has a non-exclusive right to bundle Extensity's applications with
Niku's products. We receive royalty fees from Niku for sales of Niku
products that incorporate Extensity applications.

We also have marketing referral arrangements in place with Visa
International, US Bank, Xtra Online, Sabre BTS and Rosenbluth International.

MARKETING AND SALES

We focus our marketing efforts on achieving brand recognition, market
awareness and lead generation. The market for our Extensity Application Suite
includes enterprises of all sizes in many industries. We typically market to the
senior financial officer in an organization, such as the Chief Financial Officer
or Vice President of Finance. We also conduct public relations campaigns to keep
the market aware of our product developments and major initiatives. Programs we
use to attract customers include advertising in business and financial
publications,

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<PAGE> 55

trade shows, seminars, and direct mail. We also participate in various
co-marketing initiatives with strategic partners. We maintain close
relationships with industry analysts and frequently participate in industry
conferences and events. Our website serves as another sales tool for prospective
customers.

We sell our Extensity Application Suite primarily through our direct sales
organization. Our U.S. sales force is organized under three regional directors
and a Vice President of Sales. We have sales offices in Boston, Chicago,
Emeryville, CA, London, Los Angeles and Mahwah, NJ. Our U.S. sales organization
included 21 direct sales representatives as of December 31, 1999. Our direct
sales representatives are supported by field-based sales engineers and sales
development staff. Our European sales organization includes a general manager,
two sales professionals and a marketing manager.

PRODUCT DEVELOPMENT

We have been developing and enhancing the Java-based architecture of our
applications for the Internet since 1996. We released our first Extensity
application, Extensity Expense Reports, in March 1998. Extensity Expense Reports
was one of the first workforce optimization applications to be architected
specifically for the Internet. We introduced Extensity Travel Plans in December
1998 and Extensity Timesheets and Extensity Purchase Reqs in July 1999. These
four applications, together with the Extensity System Administration Tool,
comprise our Extensity Application Suite, Version 4.0.

As of December 31, 1999, our engineering organization consisted of 53
employees and is grouped according to the following areas of focus: product
development, core technology, release engineering, mobile engineering,
architecture, tools development, quality assurance and technical documentation.
Each group within Extensity's engineering organization regularly shares
resources and collaborates with other groups on code development, quality
assurance and documentation. Our engineering organization includes a number of
key individuals that have developed Internet applications and services and have
extensive experience with Java-based application development. We believe that a
technically skilled and experienced engineering organization is a key factor in
the market acceptance of our applications and, accordingly, we plan to continue
to make significant investments in our engineering organization and efforts to
promote the success of our products. If we are unsuccessful in hiring and
training a sufficient number of personnel to staff our engineering organization,
our business could suffer.

To date, we have made significant investments in our technology
architecture and applications, and we believe they provide us with a significant
competitive advantage. Our research and development expenses totaled $5.0
million for the nine months ended September 30, 1999, $4.4 million in 1998, $1.7
million in 1997 and $519,000 in 1996. We intend to maintain our competitive
advantage by continuing to focus on and refine our development efforts. Our
engineering organization employs a defined product development methodology to
each application, which includes technology and architectural roadmaps, product
planning, requirement specifications, prototyping, design specifications, code
review, identified program review points and beta testing.

To successfully implement our business strategy, we have to provide
software applications and related services that meet the demands of our
customers and prospective customers. We expect that competitive factors will
create a continuing need for us to improve and add to our suite of software
solutions. We will have to, among other things, expend significant funds and
engineering and other resources to continue to improve our suite of
applications, and properly anticipate and respond to consumer preferences and
demands. As organizations' needs change with respect to their enterprise
applications, our existing suite of software applications may require
modifications or improvements. The addition of new products and services will
also

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<PAGE> 56

require that we continue to improve the technology underlying our applications.
These requirements are significant, and we may fail to execute on them quickly
and efficiently. If we fail to expand the breadth of our applications quickly in
response to customer needs, or these offerings fail to achieve market
acceptance, our business will suffer significantly.

COMPETITION

The markets for Internet-based workforce optimization applications are
intensely competitive, and we expect the intensity of competition to increase in
the future. Increased competition may result in price reductions, reduced
margins and loss of market share, any one of which could seriously harm our
business. Competitors vary in size and in the scope and breadth of the products
and services offered. Companies offering one or more products directly
competitive with our products include Ariba, Captura Software, Concur
Technologies and IBM. We also expect to encounter competition in the near future
from major enterprise software vendors such as Oracle Corporation, PeopleSoft
Corporation and SAP Corporation, to the extent they enhance their existing
product offerings with competitive workforce optimization applications. As a
result of the large market opportunity, we also expect competition from other
established and emerging companies. For example, as the emergence of the ASP
market enables hosted solutions from our competitors to become broadly
available, our future success may also depend upon our ability to establish
successful relationships with leading ASPs.

We believe that the key competitive factors affecting our market include a
significant base of reference customers, breadth and depth of products and
product features, product quality and performance, core technology underlying
our applications, customer service and ability to rapidly implement our
solutions. We believe that our workforce optimization applications currently
compete favorably with respect to these factors. However, because the market for
our solutions is at an early stage of development and evolving rapidly, we
cannot assure you that we will be able to maintain our competitive position
against our current and potential competitors, particularly those with greater
financial, marketing, technical service and other resources.

Many of our current and potential competitors have longer operating
histories, significantly greater financial, technical, marketing and other
resources, significantly greater name recognition and a larger installed base of
customers than us. In addition, many of our competitors have well-established
relationships with our current and potential customers and have extensive
knowledge of our industry. Moreover, current and potential competitors have
established or may establish cooperative relationships among themselves or with
third parties to increase the ability of their products to address customer
needs. Accordingly, it is possible that new competitors or alliances among
competitors may emerge and rapidly acquire significant market share. We also
expect that competition will increase as a result of industry consolidations. We
may fail to successfully compete against our current and future competitors.

INTELLECTUAL PROPERTY RIGHTS

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We currently have no patents, although we have filed eight provisional
patent applications with the U.S. Patent and Trademark Office relating to
various features and processes embodied in our applications. A provisional
patent application is a type of application under which a patent will not issue,
but which provides a priority date for a regular patent application that is
filed within a one year period following the filing of the provisional patent
application. We cannot assure you that any regular patents will be filed based
on our provisional applications, or that any patents will issue on our pending
provisional applications from any such regular applications. Further, we cannot
provide any assurance that any patents, if issued, will prevent the development
of competitive products or that our patents will not be successfully challenged
by others or invalidated through administrative process or litigation.

Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy aspects of our products or to obtain and use information
that we regard as proprietary. Policing unauthorized use of our products is
difficult, and while we are unable to determine the extent to which piracy of
our software products exists, software piracy can be expected to be a persistent
problem. In addition, the laws of some foreign countries do not protect our
proprietary rights to as great an extent as do the laws of the United States.
Our means of protecting our proprietary rights may not be adequate and our
competitors may independently develop similar technology, duplicate our products
or design around our proprietary intellectual property.

EMPLOYEES

As of December 31, 1999, we had a total of 175 employees, including 53 in
research and development, 64 in sales and marketing and business development, 37
in professional services and 21 in finance and administration. None of our
employees are subject to a collective bargaining agreement and we believe our
relations with our employees are good.

FACILITIES

Our primary administrative, sales, marketing, research and development
facility is located in Emeryville, California and consists of approximately
24,000 square feet of office space held under a lease that expires in June 2003.
As of December 31, 1999, we also leased sales offices in Boston, Chicago,
London, Los Angeles and Mahwah, NJ. We believe our existing facilities meet our
current needs and that we will be able to obtain additional commercial space as
needed.

LEGAL PROCEEDINGS

Although we are not currently a party to any litigation, we may from time
to time become involved in litigation relating to claims arising from our
ordinary course of business. These claims, even if not meritorious, could result
in the expenditure of significant financial and managerial resources.

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MANAGEMENT

EXECUTIVE OFFICERS, DIRECTORS AND OTHER KEY EMPLOYEES

The names, ages and positions of our executive officers and other key
employees as of December 31, 1999 are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Executive Officers and Directors
Robert A. Spinner............... 42 President and Chief Executive Officer and Director
Sharam I. Sasson................ 44 Chairman of the Board of Directors and Founder
Kenneth R. Hahn................. 33 Chief Financial Officer
Elizabeth A. Ireland............ 41 Vice President of Marketing
Allen F. Nordgren............... 54 Vice President of Professional Services
Eric C. Ruud.................... 40 Vice President of Sales
John R. Hummer.................. 51 Director
Mitchell E. Kertzman............ 50 Director
Ted E. Schlein.................. 35 Director
Maynard G. Webb................. 44 Director

Other Key Employees
Brian H. Mort................... 41 Vice President and General Manager of European
Operations
Mark K. Oney.................... 41 Vice President of Engineering
David A. Yarnold................ 39 Vice President of Business Development
</TABLE>

Executive Officers

ROBERT A. SPINNER has served as Extensity's President, Chief Executive
Officer and as director since April 1999. Prior to joining Extensity, from
January 1995 to January 1999, Mr. Spinner served as Senior Vice President of
Worldwide Sales and International Operations at Clarify, Inc., a provider of
integrated sales and service solutions for the front office. From October 1988
to December 1994, Mr. Spinner served as Director of Western Regional Sales at
Sybase, Inc., a relational database management software company. Mr. Spinner has
also held technical positions at Applied Data Research, Inc. and Chevron
Corporation. Mr. Spinner received a B.A. in mathematics from Washington
University.

SHARAM I. SASSON is the founder and Chairman of the board of directors of
Extensity and has served as a director since our inception in 1995. Mr. Sasson
served as our President and Chief Executive Officer until March 1999. Prior to
founding Extensity, Mr. Sasson was an executive at Scopus Technology, a provider
of enterprise customer information management systems which he co-founded in
1991. Mr. Sasson has also served as a research scientist at Lockheed Missile and
Space Company and as a developer of structural modeling software at PMB/Bechtel
Corporation. Mr. Sasson received a B.S. in civil engineering from Queen Mary
College, University of London, an M.S. in structural engineering from City
University in London, and an M.S. in engineering from the University of
California at Berkeley.

KENNETH R. HAHN was appointed Extensity's Chief Financial Officer in
December 1999, has served as Vice President of Finance and Administration since
January 1999 and previously served as Corporate Controller from January 1998 to
January 1999. From September 1995 to December 1997, Mr. Hahn was employed as a
management consultant with The Boston Consulting Group, a strategy consulting
firm. Mr. Hahn attended the Stanford Graduate School

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of Business, where he earned an MBA and was named an Arjay Miller Scholar. Mr.
Hahn also held various positions at PriceWaterhouse LLP, most recently as an
Audit Manager. He received a B.A. in business administration from California
State University, Fullerton and is a Certified Public Accountant and a Certified
Management Accountant.

ELIZABETH A. IRELAND has served as Extensity's Vice President of Marketing
since January 1998. Prior to joining Extensity, Ms. Ireland was employed at
MapInfo Corporation, a software company, from 1989 to October 1997, most
recently as Vice President and General Manager of Internet Business. Additional
positions held by Ms. Ireland at MapInfo Corporation include Vice President of
Marketing and Business Development and Vice President of Information Products.
Ms. Ireland received a B.S. in business administration from the University of
South Carolina and is a Certified Public Accountant.

ALLEN F. NORDGREN has served as Extensity's Vice President of Professional
Services since November 1997. Prior to joining Extensity, Mr. Nordgren was
employed from June 1996 to November 1997 at Logica, Inc., a systems integrator,
as Vice President and General Manager of Western U.S. Operations. From October
1992 to May 1996, Mr. Nordgren was employed at Sybase, most recently as Practice
Director of Professional Services for the Northwest Region. Mr. Nordgren
attended Bernard Baruch University and served four years in the U.S. Military.

ERIC C. RUUD has served as Extensity's Vice President of Sales since June
1997. Prior to joining Extensity, from September 1995 to June 1997, Mr. Ruud
served as Sales Director for Documentum, a provider of document management
solutions. From September 1992 to June 1995, Mr. Ruud served as District Sales
Manager at Sybase. Mr. Ruud has also worked at System Industries and Xerox
Corporation. Mr. Ruud received a B.S. from the University of Utah.

Other Key Employees

BRIAN H. MORT has served as Extensity's Vice President and General Manager
of European Operations since July 1999. Prior to joining Extensity, Mr. Mort was
employed from June 1996 to June 1999 at SAP (UK) Ltd., a provider of ERP
applications, most recently as Global Access Director. From February 1994 to May
1996, Mr. Mort served as Global Account Sales Manager at Oracle Corporation, a
relational database and software applications provider. Mr. Mort has also held
senior sales positions at Dell Computer Corporation, Xerox Corporation and
Granada Plc. Mr. Mort received a B.A. in history and politics from London
University.

MARK K. ONEY has served as Extensity's Vice President of Engineering since
July 1999. Prior to joining Extensity, from May 1999 to June 1999, Mr. Oney
served as the Vice President of Engineering for Ringer Software, a consumer
information Internet company. From September 1998 through January 1999, Mr. Oney
was a co-founder of and served as Vice President of Software Engineering for
Crag Technologies, Inc., a developer and supplier of data storage solutions.
Crag Technologies was acquired by Western Digital Corporation in February 1999.
From July 1997 through May 1998, Mr. Oney was a co-founder of and served as Vice
President of Software Engineering for Ridge Technologies, a Windows NT storage
company which was acquired by Adaptec, Inc., in May 1998. Prior to founding
Ridge, from May 1988 through June 1997, Mr. Oney served in a variety of
engineering and management roles at Apple Computer, Inc., most recently as
Director of Software Development for the PowerBook line of business. Mr. Oney
received a B.S. in electrical engineering from Rochester Institute of
Technology.

DAVID A. YARNOLD has served as Extensity's Vice President of Business
Development since August 1999. Prior to joining Extensity, from January 1996 to
July 1999, Mr. Yarnold was employed at Clarify, Inc., most recently as Vice
President of Northern American Sales. From January 1993 to October 1995, Mr.
Yarnold served as Regional Vice President of Platinum

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Software Corporation, a financial software provider. Mr. Yarnold received a B.S.
in accounting from San Francisco State University and is a Certified Public
Accountant.

Directors

JOHN R. HUMMER has served as a director of Extensity since January 1996.
Mr. Hummer is a managing member of Hummer Winblad Venture Partners, a venture
capital firm, which he co-founded in 1989. Mr. Hummer played professional
basketball for the Buffalo Braves and Seattle Supersonics. Mr. Hummer holds a
B.A. in English from Princeton and an MBA from Stanford University.

MITCHELL E. KERTZMAN has served as a director of Extensity since August
1998. Mr. Kertzman has been President, Chief Executive Officer and a director of
Liberate Technologies, a developer and marketer of software products, since
November 1998. Prior to joining Liberate, Mr. Kertzman was a member of the board
of directors of Sybase, from March 1995 to November 1998, and served as chairman
of the board of directors from July 1997 to November 1998. Between February 1998
and August 1998, Mr. Kertzman served as Co-Chief Executive Officer of Sybase,
and from July 1996 until February 1997 he served as Chief Executive Officer.
From July 1996 until July 1997 he also served as President of Sybase. Between
February 1995 and July 1996, Mr. Kertzman served as an Executive Vice President
of Sybase. Prior to joining Sybase in March 1995 upon the acquisition by Sybase
of Powersoft Corporation, Mr. Kertzman served as Chief Executive Officer and
chairman of the board of directors of Powersoft, a provider of application
development tools which he founded. Mr. Kertzman is also a director of CNET,
Inc.

TED E. SCHLEIN has served as a director of Extensity since May 1997. Mr.
Schlein is a general partner at Kleiner Perkins Caufield & Byers, a venture
capital firm, which he joined in November 1996. Mr. Schlein also manages the
KPCB Java Fund, formed to invest in Java technology-based companies and related
Internet, intranet, networking and communications companies. From June 1986 to
October 1996, Mr. Schlein served in a variety of executive positions at Symantec
Corporation, a provider of Internet security technology and business management
technology solutions, most recently as Vice President, Networking and Client/
Server Solutions. Mr. Schlein holds a B.S. in economics from the University of
Pennsylvania.

MAYNARD G. WEBB has served as a director of Extensity since November 1999.
Mr. Webb is currently President of eBay Technologies, which he joined in August
1999. Prior to his tenure at eBay, Mr. Webb was Senior Vice President and Chief
Information Officer at Gateway, Incorporated from July 1998 to August 1999. From
February 1995 to July 1998, Mr. Webb served as Vice President and Chief
Information Officer at Bay Networks. Mr. Webb holds a B.A. degree in criminal
justice from Florida Atlantic University.

BOARD OF DIRECTORS

Our board of directors is currently comprised of six directors. In October
1999, the board of directors designated a Compensation Committee and an Audit
Committee. Prior thereto, there were no such committees of the board of
directors, and decisions regarding the compensation of executive officers were
made by the board of directors as a whole. The Compensation Committee, which
consists of Messrs. Hummer, Kertzman and Schlein, makes recommendations to the
Board concerning the compensation of our officers and directors and the
administration of our 1996 Stock Option Plan and Employee Stock Purchase Plan
2000. The Audit Committee, which consists of Messrs. Hummer, Kertzman and
Schlein, reviews our financial controls, evaluates the scope of the annual
audit, reviews audit results, consults with management and our independent
auditors prior to the presentation of financial statements to

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stockholders and, as appropriate, initiates inquiries into aspects of our
internal accounting controls and financial affairs.

DIRECTOR COMPENSATION

Directors currently do not receive any cash compensation from Extensity for
their services as members of the board of directors, although members are
reimbursed for expenses in connection with attendance at board of directors and
committee meetings. Directors are eligible to participate in Extensity's stock
plans. On August 20, 1998, Mr. Kertzman was granted an option to purchase
100,000 shares of common stock at an exercise price of $0.33 per share, pursuant
to the 1996 Stock Option Plan. On November 18, 1999, Maynard Webb was granted an
option to purchase 50,000 shares of common stock at an exercise price of $6.00
per share, pursuant to the 1996 Stock Option Plan. Option grants to directors
are at the discretion of Extensity, and we have no specific plans regarding
amounts to be granted to our directors in the future.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee currently consists of Messrs. Hummer, Kertzman
and Schlein. Prior to the formation of the Compensation Committee, the board of
directors performed the functions typically assigned to a compensation
committee. Each of Mr. Sasson and Mr. Spinner participated in the board's
deliberations concerning compensation of officers other than themselves. For a
description of the transactions between us and members of the Compensation
Committee or entities affiliated with such members, see the discussion under the
heading "Certain Transactions." No member of the Compensation Committee and none
of our executive officers has a relationship that would constitute an
interlocking relationship with executive officers and directors of another
entity.

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EXECUTIVE COMPENSATION

The following table sets forth in summary form information concerning the
compensation paid by us during the fiscal years ended December 31, 1999, 1998
and 1997 to our Chief Executive Officer and each of our other most highly
compensated executive officers. These individuals are referred to as the named
executive officers in this prospectus.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
NAME AND -------------------- UNDERLYING
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS
------------------ ---- -------- -------- ------------
<S> <C> <C> <C> <C>
Robert A. Spinner......................... 1999 $210,417 $ -- 1,266,070
President & Chief Executive Officer 1998 -- -- --
1997 -- -- --
Sharam I. Sasson.......................... 1999 142,365 -- --
Chairman of the Board of Directors 1998 120,000 -- --
1997 120,000 -- --
Elizabeth A. Ireland...................... 1999 151,218 45,000 110,000
Vice President of Marketing 1998 135,872 40,000 150,000
1997 -- -- --
Allen F. Nordgren......................... 1999 151,250 42,897 85,000
Vice President of Professional Services 1998 125,000 15,000 75,000
1997 12,820 -- 100,000
Eric C. Ruud.............................. 1999 125,000 213,697 50,000
Vice President of Sales 1998 125,000 107,675 50,000
1997 32,211 30,000 200,000
</TABLE>

Mr. Spinner joined Extensity as its President and Chief Executive Officer
in April 1999. Mr. Sasson served as President and Chief Executive Officer of
Extensity from November 1995 until March 1999. In March 1999, Mr. Sasson
resigned as President and Chief Executive Officer and was appointed Chairman of
the board of directors.

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth, as to the named executive officers,
information concerning stock options granted during the fiscal year ended
December 31, 1999.

The information regarding stock options granted to named executive officers
as a percentage of total options granted to employees in the fiscal year, as
disclosed in the table is based upon options to purchase an aggregate of
2,993,250 shares of common stock that were granted to all employees as a group,
including the named executive officers, in the fiscal year ended December 31,
1999.

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<PAGE> 63

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE
----------------------------------------------------------------- AT ASSUMED ANNUAL RATE
NUMBER OF PERCENT OF DEEMED OF
SECURITIES TOTAL OPTIONS FAIR MARKET STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE VALUE ON FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE PER DATE OF EXPIRATION -------------------------
GRANTED FISCAL YEAR SHARE GRANT DATE 5% 10%
---------- ------------- --------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert A. Spinner........ 1,188,764 41.2% $0.33 $1.95 2/18/09 $3,383,632 $5,620,236
77,306 2.7 0.33 $1.95 2/18/09 220,040 365,487
Sharam I. Sasson......... -- -- -- -- -- -- --
Elizabeth A. Ireland..... 50,000 1.7 0.70 $5.22 7/1/09 390,142 641,967
60,000 2.1 6.00 $7.02 10/28/09 326,090 732,484
Allen F. Nordgren........ 85,000 2.9 6.00 $7.02 10/28/09 461,961 1,037,686
Eric C. Ruud............. 50,000 1.7 6.00 $7.02 10/28/09 271,742 610,404
</TABLE>

The 5% and 10% assumed annual rates of compounded stock appreciation are
mandated by the rules of the Securities and Exchange Commission based on the
deemed value of the common stock used by us for accounting purposes and do not
represent our estimate or projection of our future stock prices.

Except for options granted to Mr. Spinner, all options indicated in the
table above have a ten year term, vest as to 25% of the shares one year from the
vesting commencement date and vest at the rate of 1/48 of the shares at the end
of each month thereafter, subject to continued service as an employee or
consultant. Our board of directors has permitted Robert Spinner, Elizabeth
Ireland, Allen Nordgren and Eric Ruud to exercise these options prior to vesting
in exchange for shares of restricted common stock. We have a right to repurchase
all unvested shares of restricted stock if executive officers are terminated for
any reason. The repurchase right must be exercised by us within ninety days of
termination of the executive officer. Our repurchase right lapses on the same
terms as the option vesting period discussed above.

In February 1999, Extensity granted to Mr. Spinner an option to purchase
1,188,764 shares of common stock, which vested as to 12.5% on September 1, 1999
and vest as to 1/48 of these shares on each month thereafter, so that all of
these shares are fully vested and exercisable on the fourth anniversary of the
vesting commencement date. Extensity also granted Mr. Spinner at such time an
option to purchase an additional 77,306 shares of common stock. These shares
vest in full on March 1, 2006, provided that if the board of directors
determines that Mr. Spinner has achieved performance milestones specified for
his first year as Chief Executive Officer of Extensity, then these shares shall
vest in accordance with the same schedule as Mr. Spinner's option to purchase
1,188,764 shares of common stock. For additional details on Mr. Spinner's
employment agreement, see "Certain Transactions -- Officer
Transactions -- Officer Employment Arrangements."

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

The following table sets forth information concerning option exercises and
unexercised options for the fiscal year ended December 31, 1999 with respect to
each of the named executive officers.

The value realized represents the difference between the deemed value of
the common stock on the date of exercise used by us for accounting purposes and
the exercise price of the option.

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The value of unexercised in-the-money options was calculated by determining
the difference between $9.00 (the assumed initial public offering price and the
exercise price of the option).

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert A. Spinner..... 900,433 $2,266,753 -- 365,637 $ -- $3,170,073
Sharam I. Sasson...... -- -- -- -- -- --
Elizabeth A.
Ireland............. 75,000 168,000 -- 110,000 -- 595,000
Allen F. Nordgren..... 75,000 159,250 -- 85,000 -- 255,000
Eric C. Ruud.......... 75,000 168,000 12,500 87,500 108,375 475,125
</TABLE>

COMPENSATION PLANS

1996 STOCK OPTION PLAN

Extensity's 1996 Stock Option Plan provides for the granting to employees
of incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the Code), and for the granting to employees,
directors and consultants of nonstatutory stock options and stock purchase
rights (SPRs). The 1996 Option Plan was approved by the board of directors in
February 1996 and by the stockholders in February 1996. Unless terminated
sooner, the 1996 Option Plan will terminate automatically in 2006. A total of
6,100,000 shares of our common stock is currently reserved for issuance pursuant
to the 1996 Option Plan. In October 1999, our board of directors approved an
amendment, subject to stockholder approval, to amend the 1996 Stock Option Plan
to increase the maximum number of shares issuable under the plan to 7,000,000.
This amendment will be effective at the completion of this offering. The
following discussion reflects additional changes to the Plan made by such
amendment. In addition, the 1996 Option Plan provides for automatic annual
increases in the number of shares reserved for issuance under the plan, in an
amount each year equal to the lesser of (1) 4% of the outstanding shares on such
date, (2) 1,300,000 shares and (3) such lesser amount as may be determined by
the board.

The 1996 Option Plan may be administered by the board of directors or a
committee of the Board (as applicable, the Administrator), which shall, in the
case of options intended to qualify as "performance-based compensation" within
the meaning of Section 162(m) of the Code, consist of two or more "outside
directors" within the meaning of Section 162(m) of the Code. The Administrator
has the power to determine the terms of the options or SPRs granted, including
the exercise price, the number of shares subject to each option or SPR, the
exercisability thereof, and the form of consideration payable upon such
exercise. In addition, the Administrator has the authority to amend, suspend or
terminate the 1996 Option Plan, provided that no such action may affect any
share of common stock previously issued and sold or any option previously
granted under the 1996 Option Plan.

Options and SPRs granted under the 1996 Option Plan are not generally
transferable by the optionee, and each option and SPR is exercisable during the
lifetime of the optionee only by the optionee. Options granted under the 1996
Option Plan must generally be exercised within three months of the end of
optionee's status as an employee or consultant of Extensity, or within twelve
months after an optionee's termination by death or disability, but in no event
later than the expiration of the option's ten year term. In the case of SPRs,
unless the Administrator determines otherwise, the restricted stock purchase
agreement shall grant Extensity a repurchase option exercisable upon the
voluntary or involuntary termination of the purchaser's employment with us for
any reason (including death or disability). The purchase price for shares
repurchased under the restricted stock purchase agreement shall be the original
price

57
<PAGE> 65

paid by the purchaser and may be paid by cancellation of any indebtedness of the
purchaser to us. The repurchase option shall lapse at a rate determined by the
Administrator. The exercise price of all incentive stock options granted under
the 1996 Option Plan must be at least equal to the fair market value of the
common stock on the date of grant. The exercise price of nonstatutory stock
options and SPRs granted under the 1996 Option Plan is determined by the
Administrator, but with respect to nonstatutory stock options intended to
qualify as "performance-based compensation" within the meaning of Section 162(m)
of the Code, the exercise price must at least be equal to the fair market value
of the common stock on the date of grant. With respect to any participant who
owns stock possessing more than 10% of the voting power of all classes of our
outstanding capital stock, the exercise price of any incentive stock option
granted must equal at least 110% of the fair market value on the grant date and
the term of such incentive stock option must not exceed five years. The term of
all other options granted under the 1996 Option Plan may not exceed ten years.

The 1996 Option Plan provides that in the event of a merger of Extensity
with or into another corporation, a sale of substantially all of our assets,
each option or right shall be assumed or an equivalent option or right
substituted by the successor corporation. If the outstanding options or rights
are not assumed or substituted, the Administrator shall provide for the Optionee
to have the right to exercise the option or SPR as to all of the optioned stock,
including shares as to which it would not otherwise be exercisable for a period
of at least 15 days from the date of such notice, and the option or SPR will
terminate upon the expiration of such period.

EMPLOYEE STOCK PURCHASE PLAN 2000

Extensity's Employee Stock Purchase Plan 2000 was adopted by the board of
directors and stockholders of Extensity in November 1999 and will become
effective upon the closing of this offering. A total of 500,000 shares of common
stock have been reserved for issuance under the Purchase Plan. The Purchase Plan
provides for automatic annual increases in the number of shares reserved for
issuance under the plan, in an amount each year equal to the lesser of (1) 1.5%
of the outstanding shares on such date, (2) 500,000 shares or (3) such lesser
amount as may be determined by the board.

The Purchase Plan, which is intended to qualify under Section 423 of the
Code, contains consecutive, overlapping, twenty-four month offering periods.
Each offering period generally includes four six-month purchase periods. The
offering periods generally start on the first trading day after April 15 and
October 15 of each year, except for the first such offering period. The first
offering period commences on the first trading day on or after the effective
date of this offering and ends on the last trading day on or before April 15,
2002. The first purchase period ends on the last trading day on or before
October 15, 2000.

Employees are eligible to participate in the Purchase Plan if they are
customarily employed by Extensity or any participating subsidiary for at least
20 hours per week and more than five months in any calendar year. However, any
employee who (1) immediately after grant owns stock possessing 5% or more of the
total combined voting power or value of all classes of our capital stock, or (2)
whose rights to purchase stock under all of our employee stock purchase plans
accrues at a rate which exceeds $25,000 worth of stock for each calendar year
may be not be granted an option to purchase stock under the Purchase Plan. The
Purchase Plan permits participants to purchase common stock through payroll
deductions of up to 15% of the participant's "compensation." Compensation is
defined as the participant's total compensation including base straight time
gross earnings, bonuses and commissions, overtime, shift premium payments,
incentive compensation, incentive payments and other compensation. The maximum
aggregate number of shares that may be issued to employees during the first
purchase period is

58
<PAGE> 66

1.5% of the then outstanding shares of capital stock; thereafter, the maximum
number of shares that may be issued to employees during a single purchase period
is 1%.

Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each purchase period. The price of stock
purchased under the Purchase Plan is generally 85% of the lower of the fair
market value of the common stock (1) at the beginning of the offering period or
(2) at the end of the purchase period. In the event the fair market value at the
end of a purchase period is less than the fair market value at the beginning of
the offering period, the participants will be withdrawn from the current
offering period following exercise and automatically re-enrolled in a new
offering period. The new offering period will use the lower fair market value as
of the first date of the new offering period to determine the purchase price for
future purchase periods. Participants may end their participation at any time
during an offering period, and they will be paid their payroll deductions to
date. Participation ends automatically upon termination of employment with us.

Rights granted under the Purchase Plan are not transferable by a
participant other than by will, the laws of descent and distribution, or as
otherwise provided under the Purchase Plan. The Purchase Plan provides that, in
the event of a merger of Extensity with or into another corporation or a sale of
substantially all of our assets, each outstanding option may be assumed or
substituted for by the successor corporation. If the successor corporation
refuses to assume or substitute for the outstanding options, the offering period
then in progress will be shortened and a new exercise date will be set. The
Purchase Plan will terminate in 2009. The board of directors has the authority
to amend or terminate the Purchase Plan, except that no such action may
adversely affect any outstanding rights to purchase stock under the Purchase
Plan.

LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS

Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except for any liability arising with
respect to (1) any breach of their duty of loyalty to the corporation or its
stockholders, (2) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law or (3) any transaction from
which the director derived an improper personal benefit.

Our certificate of incorporation further provides that we are authorized to
indemnify our directors and executive officers and may indemnify our other
officers and employees and agents to the fullest extent permitted by Delaware
law. We believe that indemnification under our certificate of incorporation
covers negligence and gross negligence on the part of indemnified parties.

We have entered into agreements to indemnify our directors and officers, in
addition to indemnification provided for in our certificate of incorporation.
These agreements, among other things, require us to indemnify these directors
and officers for certain expenses (including attorneys' fees), judgments, fines
and settlement amounts incurred by any such person in any action or proceeding,
including any action by or in the right of Extensity, arising out of that
person's services as a director or officer of Extensity, any subsidiary of
Extensity or any other company or enterprise to which the person provides
services at the request of Extensity.

At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of Extensity where indemnification would be
required or permitted. We are not aware of any pending or threatened litigation
or proceeding that might result in a claim for such indemnification. We believe
that these provisions and agreements are necessary to attract and retain
qualified directors and officers.

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<PAGE> 67

CERTAIN TRANSACTIONS

PREFERRED STOCK SALES

The share numbers and price per share set forth below reflect the
two-for-one stock split of our capital stock effected in April 1996.

Series A Convertible Preferred Stock. In December 1995, we sold shares of
our Series A Preferred Stock convertible into an aggregate of 2,000,000 shares
of common stock at a price of $0.50 per share, to raise capital to finance our
operations. The holders of our Series A Preferred Stock were allotted one seat
on our board of directors, currently filled by John Hummer, in connection with
their investment. This right expires upon closing of this offering.

Series B and Series C Convertible Preferred Stock. In September 1997, we
sold shares of our Series B Preferred Stock convertible into an aggregate of
3,750,000 shares of common stock at a price of $1.59 per share, to raise capital
to finance our operations. In September 1997 we also sold warrants to purchase
937,500 shares of our Series C Preferred Stock at an exercise price of $2.00 per
share to raise capital to finance our operations. The Series C warrants were
converted to Series C Preferred Stock at the time of our Series D financing and
are convertible into an aggregate of 937,500 shares of common stock. The holders
of our Series B Preferred Stock and Series C Preferred Stock, voting together,
were allotted one seat on our board of directors, currently filled by Ted
Schlein, in connection with their investment. This right expires upon closing of
this offering.

Series D Convertible Preferred Stock. In June 1998, we sold shares of our
Series D Preferred Stock convertible into an aggregate of 3,674,229 shares of
common stock at a price of $3.30 per share, to raise capital to finance our
operations. The holders of our Series D Preferred Stock were allotted one seat
on our board of directors, currently filled by Mitchell Kertzman, in connection
with their investment. This right expires upon closing of this offering.

Series E Convertible Preferred Stock. In July 1999, we sold shares of our
Series E Preferred Stock convertible into an aggregate of 3,732,820 shares of
common stock at a price of $6.00 per share, to raise capital to finance our
operations.

INDEMNIFICATION AGREEMENTS

We have entered into indemnification agreements with our officers and
directors containing provisions which may require us, among other things, to
indemnify them against certain liabilities that may arise by reason of their
status or service as officers or directors. See "Management -- Limitation of
Liability and Indemnification Matters" on page 59 for more information regarding
indemnification of our officers and directors.

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<PAGE> 68

The following 5% stockholders purchased shares in the financings:

<TABLE>
<CAPTION>
NO. OF NO. OF NO. OF NO. OF NO. OF
SHARES OF SHARES OF SHARES OF SHARES OF SHARES OF
SERIES A SERIES B SERIES C SERIES D SERIES E TOTAL AGGREGATE
PURCHASER PREFERRED PREFERRED PREFERRED PREFERRED PREFERRED SHARES CONSIDERATION
--------- --------- --------- --------- --------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Funds Affiliated with Hummer
Winblad Venture Partners
Hummer Winblad Venture
Partners II, L.P. ............ 1,728,000 600,000 150,000 257,575 -- 2,735,575 $3,537,998

Hummer Winblad Technology
Fund II, L.P. ............ 72,000 21,250 5,312 4,242 -- 102,804 $ 119,999

Hummer Winblad Technology
Fund IIA, L.P. ........... -- 3,750 938 4,242 -- 8,930 $ 19,999

Hummer Winblad Venture
Partners III, L.P. ....... -- -- -- 341,603 725,000 1,066,603 $5,477,290

Hummer Winblad Technology
Fund III, L.P. ........... -- -- -- 17,979 -- 17,979 $ 59,331

Funds Affiliated with Weiss
Peck & Greer

WPG Enterprise Fund III,
L.L.C. ................... -- 550,162 137,543 204,654 128,640 1,020,999 $2,345,198

Weiss Peck & Greer Venture
Associates IV, L.L.C. .... -- 596,438 149,107 234,006 147,090 1,126,641 $2,628,760

WP&G Venture Associates IV
Cayman, L.P. ............. -- 78,400 19,600 29,543 18,570 146,113 $ 336,912

WPG Information Sciences
Entrepreneur Fund,
L.P. ..................... -- 25,000 6,250 9,068 5,700 46,018 $ 64,124

Funds Affiliated with Kleiner
Perkins Caufield & Byers

KPCB Java Fund, L.P......... -- 1,203,125 300,782 196,969 183,333 1,884,209 $3,674,996

Kleiner Perkins Caufield &
Byers VIII, L.P. ......... -- 446,799 111,700 176,878 164,633 900,010 $2,327,745

KPCB Information Sciences
Zaibatsu Fund II, L.P..... -- 42,969 10,742 9,848 9,166 72,725 $ 156,244

Kleiner Perkins Caufield &
Byers VIII Founder's Fund,
L.P. ..................... -- 25,857 6,464 10,242 9,533 52,096 $ 90,997

Berkeley International Capital
Limited..................... -- -- -- -- 1,333,333 1,333,333 $7,999,998

Funds Affiliated with Lehman
Brothers Venture Capital
Partners

LBI Group, Inc.............. -- -- -- 863,207 -- 863,207 $2,848,583

Lehman Brothers MBG Venture
Capital Partners 1998(A)
L.P....................... -- -- -- 40,522 -- 40,522 $ 133,723

Lehman Brothers MBG Venture
Capital Partners 1998(B)
L.P....................... -- -- -- 748 -- 748 $ 2,468

Lehman Brothers MBG Venture
Capital Partners 1998(C)
L.P....................... -- -- -- 4,613 -- 4,613 $ 15,223

Lehman Brothers VC Partners
L.P....................... -- -- -- -- 166,667 166,667 $1,000,002
</TABLE>

In connection with the above transactions, we entered into agreements with
the investors providing for registration rights with respect to these shares.
The most recent such agreement is an Amended and Restated Investor Rights
Agreement dated December 16, 1999, which restates and incorporates the
registration rights of all investors. For more information regarding this
agreement, see "Description of Capital Stock -- Registration Rights."

Our director, Mr. Hummer, is a managing member of Hummer Winblad Venture
Partners and our director, Mr. Schlein, is a general partner of Kleiner Perkins
Caufield & Byers.

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<PAGE> 69

OFFICER TRANSACTIONS

Officer Employment Arrangements

Under Robert Spinner's offer letter dated February 16, 1999, Mr. Spinner is
entitled to an initial annual base salary of $300,000 and up to $100,000 in
performance bonuses based upon satisfaction of agreed upon milestones. However,
Mr. Spinner elected to reduce his initial annual base salary to $275,000
effective June 16, 1999 and declined an initial $50,000 bonus to which he was
otherwise entitled payable in November 1999. Pursuant to the offer letter, Mr.
Spinner was granted (1) an option to purchase 1,188,764 shares of common stock,
subject to vesting over a four year period, and (2) a special option to purchase
an additional 77,306 shares of common stock vesting on March 1, 2006 or sooner
if milestones set by the board relating to his performance are achieved. Each
option has an exercise price of $0.33 per share. In the event that Extensity
terminates Mr. Spinner's employment other than for cause or Mr. Spinner's
employment is constructively terminated, then Mr. Spinner is entitled to receive
severance payment equal to six months' continuation of salary. In addition, in
the event that Extensity involuntarily terminates Mr. Spinner's employment
within one year following a change of control of Extensity, Mr. Spinner is
entitled to accelerated vesting of one half of the portion of the option to
purchase 1,188,764 shares of common stock that is otherwise unvested on the date
of termination.

Officer Loan Transactions

On March 12, 1999, Extensity loaned to Mr. Spinner an aggregate of $100,000
in order for Mr. Spinner to early exercise 303,030 shares of common stock which
were granted to him under his offer letter. In connection with this loan, Mr.
Spinner executed a promissory note in favor of Extensity. The promissory note
bore interest at a rate of 4.77%, compounded semi-annually, was to mature on
February 28, 2004 and was secured by a pledge of the common stock purchased by
Mr. Spinner for cash, under the terms of a security agreement between Mr.
Spinner and Extensity. Mr. Spinner repaid this loan in full, including interest
of $3,081, on November 9, 1999. Mr. Spinner also early exercised at such time
454,576 shares for an aggregate of $150,000 in cash.

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<PAGE> 70

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of December 31, 1999 and as adjusted
to reflect the sale of common stock offered for (1) each person who we know to
beneficially own more than 5% of our common stock, (2) each of our directors,
(3) each of the named executive officers and (4) all directors and executive
officers as a group. Except as indicated in the table below or the footnotes
thereto and pursuant to applicable community property laws, the stockholders
named in the table have sole voting and investment power with respect to the
shares set forth opposite each stockholder's name.

<TABLE>
<CAPTION>
PERCENTAGE
OF SHARES
OUTSTANDING(2)
NUMBER OF SHARES -------------------
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OWNED(1) OFFERING OFFERING
---------------- ---------------- -------- --------
<S> <C> <C> <C>
Berkeley International Capital Limited..................... 1,333,333 7.1% 5.9%
c/o Minden House
6 Minden Place
St. Helier, Jersey, Channel Islands
Entities affiliated with Hummer Winblad Venture Partners,
and John R. Hummer(3).................................... 3,931,891 20.9 17.3
2 South Park, 2nd Floor
San Francisco, CA 94107
Entities affiliated with Kleiner Perkins Caufield & Byers,
and Ted E. Schlein(4).................................... 2,909,040 15.5 12.8
2750 Sand Hill Road
Menlo Park, CA 94025
Entities affiliated with Lehman Brothers Venture Capital
Partners(5).............................................. 1,075,757 5.7 4.7
555 California Street
San Francisco, CA 94104
Entities affiliated with Weiss Peck & Greer Venture
Associates(6)............................................ 2,339,771 12.5 10.3
555 California Street, Suite 4760
San Francisco, CA 94104
Robert A. Spinner(7)....................................... 974,225 5.2 4.3
Sharam I. Sasson(8)........................................ 1,577,000 8.4 6.9
Elizabeth A. Ireland(9).................................... 158,333 * *
Allen F. Nordgren(10)...................................... 166,500 * *
Mitchell E. Kertzman(11)................................... 37,500 * *
Maynard G. Webb............................................ -- * *
Eric C. Ruud(12)........................................... 213,583 1.1 *
All executive officers and directors as a group (10
persons)(13)............................................. 10,056,772 53.6 44.1
</TABLE>

- -------------------------
* Less than 1% of the outstanding shares of common stock.

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of our common stock subject to options or warrants held by that
person that are currently exercisable or exercisable within 60 days of
December 31, 1999 are deemed outstanding. Such shares, however, are not
deemed outstanding for the purposes of computing the percentage ownership
of each other person. Percentage ownership is based on 18,779,350 shares of
common stock outstanding at December 31, 1999, assuming the conversion of
all outstanding shares of preferred stock into common stock.

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<PAGE> 71

(2) Assumes no exercise of the Underwriters' over-allotment option.

(3) Consists of 2,735,575 shares held by Hummer Winblad Venture Partners II,
L.P., 102,804 shares held by Hummer Winblad Technology Fund II, L.P., 8,930
shares held by Hummer Winblad Technology Fund IIA, L.P., 1,066,603 shares
held by Hummer Winblad Venture Partners III, L.P. and 17,979 shares held by
Hummer Winblad Technology Fund III, L.P. John Hummer, a member of our board
of directors, is a Managing Member of Hummer Winblad Venture Partners. Mr.
Hummer disclaims beneficial ownership of the shares held by funds
affiliated with Hummer Winblad Venture Partners, except to the extent of
his pecuniary interest therein.

(4) Consists of 1,884,209 shares held by KPCB Java Fund, L.P., 900,010 shares
held by Kleiner Perkins Caufield & Byers VIII, L.P., 52,096 shares held by
KPCB VIII Founder's Fund, L.P. and 72,725 shares held by KPCB Information
Sciences Zaibatsu Fund II, L.P. Ted Schlein is a member of our board of
directors and a general partner of Kleiner Perkins Caufield & Byers. Mr.
Schlein disclaims beneficial ownership of the shares held by funds
affiliated with Kleiner Perkins Caufield & Byers, except to the extent of
his pecuniary interest therein.

(5) Consists of 863,207 shares held by LBI Group, Inc., 40,522 shares held by
Lehman Brothers MBG Venture Capital Partners 1998 (A) L.P., 748 shares held
by Lehman Brothers MBG Venture Capital Partners 1998 (B) L.P., 4,613 shares
held by Lehman Brothers MGB Venture Capital Partners 1998 (C) L.P., and
166,667 shares held by Lehman Brothers VC Partners L.P.

(6) Consists of 1,020,999 shares held by WPG Enterprise Fund III, L.L.C.,
1,126,641 shares held by Weiss Peck & Greer Venture Associates IV, L.L.C.,
146,113 shares held by WP&G Venture Associates IV Cayman, L.P. and 46,018
shares held by WPG Information Sciences Entrepreneur Fund, L.P.

(7) Includes 727,576 shares held by the Spinner Family Trust U/D/T dated August
3, 1999. Also includes 10,000 shares held by the Jacqueline Nicole Spinner
Trust UTA dated August 3, 1999, 10,000 shares held by the Amanda Spinner
Trust UTA dated August 3, 1999 and 10,000 shares held by the Samantha
Sidney Spinner Trust UTA dated August 3, 1999, as to which shares Mr.
Spinner disclaims beneficial ownership. Includes 604,302 shares subject to
a right of repurchase in favor of Extensity which lapses over a period of
time, and options to purchase 66,076 shares of our common stock that will
vest within 60 days of December 31, 1999.

(8) Includes 1,057,000 shares held by the Sasson Family Trust U/D/T dated
December 28, 1994, 250,000 shares held by the Fariba J. Sasson Annuity
Trust I U/I dated October 19, 1999 and 250,000 shares held by the Sharam I.
Sasson Annuity Trust I U/I dated October 19, 1999. Also includes 10,000
shares held by the DAS Trust UTA dated September 24, 1998 and 10,000 shares
held by the EIS Trust UTA dated September 24, 1998, as to which shares Mr.
Sasson disclaims beneficial ownership.

(9) Includes 71,875 shares subject to a right of repurchase in favor of
Extensity which lapses over a period of time.

(10) Includes 96,875 shares subject to a right of repurchase in favor of
Extensity which lapses over a period of time.

(11) Includes options to purchase 37,500 shares of our common stock that will
vest within 60 days of December 31, 1999.

(12) Includes 79,167 shares subject to a right of repurchase in favor of
Extensity which lapses over a period of time, and options to purchase
14,583 shares of our common stock that will vest within 60 days of December
31, 1999.

(13) Includes an aggregate of 907,635 shares subject to a right of repurchase in
favor of Extensity which lapses over a period of time, and options to
purchase an aggregate of 135,875 shares of our common stock that will vest
within 60 days of December 31, 1999.

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<PAGE> 72

DESCRIPTION OF CAPITAL STOCK

AUTHORIZED AND OUTSTANDING CAPITAL STOCK

Our authorized capital stock as of December 31, 1999 consisted of
30,000,000 shares of common stock, and 15,082,970 shares of preferred stock. As
of December 31, 1999, there were outstanding 4,184,801 shares of common stock
and 14,594,549 shares of preferred stock. Such shares were held of record by a
total of 228 stockholders.

Upon the closing of this offering:

- our certificate of incorporation will be amended and restated to provide
for total authorized capital consisting of 75,000,000 shares of common
stock and 5,000,000 shares of preferred stock; and

- all shares of preferred stock will convert into common stock, and a total
of 22,779,350 shares of common stock and no shares of preferred stock
will be outstanding, based on the number of shares outstanding as of
December 31, 1999 and assuming no exercise of the underwriters'
over-allotment option, after giving effect to the sale of common stock we
are offering.

Common Stock

The holders of our common stock are entitled to receive dividends as may be
declared by our board of directors and paid out of legally available funds.
Holders of shares of common stock are entitled to one vote per share upon all
matters upon which stockholders have the right to vote. Cumulative voting of
shares is not permitted. In the event of a voluntary or involuntary liquidation,
dissolution or winding up of Extensity, the holders of our common stock are
entitled to receive and share ratably in all assets remaining available for
distribution to stockholders after payment of any preferential amounts to which
the holders of preferred stock may be entitled. Our common stock has no
preemptive rights and is not redeemable, assessable or entitled to the benefits
of any sinking fund. Shares of our common stock held by all other persons are
not convertible. All outstanding shares of our common stock are, and the common
stock to be issued in this offering will be, validly issued, fully paid and
nonassessable.

Preferred Stock

As of the closing date of this offering, each outstanding share of
preferred stock will automatically convert into one share of common stock.
Pursuant to an amended and restated certificate of incorporation to be filed
upon the closing date, a total of 5,000,000 shares of preferred stock will be
authorized for issuance, none of which has been designated in any series. Our
board of directors is authorized, without further stockholder action, to
authorize and issue any of the 5,000,000 undesignated shares of preferred stock
in one or more series and to fix the voting rights, liquidation preferences,
dividend rights, repurchase rights, conversion rights, preemption rights,
redemption rights and terms, including sinking fund provisions and certain other
rights and preferences of such shares of our preferred stock. The issuance of
any class or series of preferred stock could adversely affect the rights of the
holders of common stock by restricting dividends on, diluting the power of,
impairing the liquidation rights of common stock, or delaying, deferring or
preventing a change in control of Extensity. We have no present plans to issue
any preferred stock.

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<PAGE> 73

WARRANTS

In connection with certain credit arrangements, we issued to Comdisco
warrants to purchase a total of 160,303 shares of Series D Preferred Stock at an
exercise price, subject to certain adjustments, of $3.30 per share. Following
the closing of the offering, the warrants automatically will become exercisable
for a similar number of shares of common stock at the same exercise price per
share. Comdisco may exercise such warrants by means of (1) a cash payment in an
amount equal to the exercise price or (2) in the event the common stock is
publicly traded, a net issue exercise whereby Comdisco would receive shares
equal to the value of the warrant, as calculated pursuant to the terms set forth
therein. The warrants expire upon the earlier to occur of (A) various dates
ranging from March 25, 2008 to December 25, 2008, (B) 5 years after the
effective date of our initial public offering, or (C) a change in control of
Extensity.

In connection with certain credit arrangements, we issued to Silicon Valley
Bank a warrant to purchase 23,585 shares of Series B Preferred Stock at an
exercise price, subject to certain adjustments, of $1.59 per share. Following
the closing of this offering, the warrant automatically will become exercisable
for a similar number of shares of Common Stock at the same exercise price per
share. Silicon Valley Bank may exercise the warrant by means of (1) a cash
payment in an amount equal to the exercise price or (2) in the event our common
stock is publicly traded, a net issue exercise whereby Silicon Valley Bank would
receive shares equal to the value of the warrant, as calculated pursuant to the
terms set forth therein. The warrant expires on January 28, 2002.

REGISTRATION RIGHTS

The holders of approximately 14,594,549 shares of outstanding common stock
held by investors who purchased shares of Series A, Series B, Series C, Series
D, Series E and Series F Preferred Stock and by certain current and former
officers, and the holders of warrants to purchase preferred stock convertible
into 183,888 shares of our common stock will be entitled to certain rights with
respect to the registration of such shares of common stock under the Securities
Act. Under the terms of the Amended and Restated Investor Rights Agreement dated
December 16, 1999, if we propose to register any of our common stock under the
Securities Act, the holders of the registrable securities are entitled to notice
of the registration and have the right to include their registrable securities
in the registration. However, the underwriters have certain rights to limit the
number of shares included in any registration. Beginning 180 days after the
closing of the offering, the holders of at least 40% of the registrable
securities (other than Comdisco or Silicon Valley Bank), have the right to
require us on no more than two occasions, to file a registration statement under
the Securities Act in order to register all or any part of their registrable
securities, subject to certain conditions and limitations. Comdisco and Silicon
Valley Bank may include their shares acquired pursuant to warrant agreements
where we have been required to file a registration statement. We may in certain
circumstances defer such registrations, and the underwriters have the right
(subject to certain limitations) to limit, and in the case of our initial public
offering, to exclude entirely, the number of shares included in such
registrations. Further, the holders of registrable securities may require us to
register all or any portion of their registrable securities on Form S-3, when
such form becomes available to us, subject to certain conditions and
limitations.

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<PAGE> 74

ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, AND
BYLAWS AND OF DELAWARE LAW

Certain provisions of our certificate of incorporation, bylaws and Delaware
law, described below, may have the effect of delaying, deferring or discouraging
another person from acquiring control of our company.

Certificate of Incorporation and Bylaws

Certain provisions of our certificate of incorporation and Bylaws are
designed to enhance the likelihood of continuity and stability of our board of
directors and in the policies formulated thereby. Accordingly, such provisions
may have the effect of preventing, discouraging or delaying any potential
acquisition proposals or changes in the control of our company and of preventing
changes in our management.

Effect of Delaware Anti-Takeover Statute

We are subject to Section 203 of the Delaware General Corporation Law
which, subject to certain exceptions, 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:

- the transaction is approved by the board of directors prior to the date
the interested stockholder attained such status;

- upon the closing 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; or

- on or subsequent to such date the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders by at least two-thirds of the outstanding voting stock that
is not owned by the interested stockholder.

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

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is Equiserve.

LISTING

We have applied to list our common stock on the Nasdaq National Market
under the trading symbol EXTN.

67
<PAGE> 75

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, we will have 22,779,350 shares of common
stock outstanding. Of these shares, the 4,000,000 shares sold in this offering
will be freely tradable without restriction under the Securities Act, unless
purchased by our "affiliates," as that term is defined in Rule 144 under the
Securities Act. Substantially all shares of our stock outstanding prior to this
offering is subject to 180-day lock-up agreements, and may not be sold in the
public market prior to the expiration of the lock-up agreements. Deutsche Bank
Securities Inc. may release the shares subject to the lock-up agreements in
whole or in part at any time without prior public notice. However, Deutsche Bank
Securities Inc. has no current plans effect such a release. Upon the expiration
of the lock-up agreements, approximately 13,935,887 additional shares will be
available for sale in the public market, subject in some cases to compliance
with the volume and other limitations of Rule 144.

<TABLE>
<CAPTION>
DAYS AFTER DATE SHARES
OF THIS PROSPECTUS ELIGIBLE FOR SALE COMMENT
------------------ ----------------- -------
<S> <C> <C>
Upon effectiveness................... 4,000,000 Freely tradable shares sold in this offering
90 days.............................. 0 All holders of securities are bound by lock-up
agreements
180 days............................. 13,935,887 Lock-up released; shares saleable under Rule
144, 144(k) or 701
Various dates thereafter............. 4,248,820 Restricted securities held for one year or
less as of 180 days following effectiveness
</TABLE>

RULE 144

In general, under Rule 144 a person (or persons whose shares are
aggregated) who has beneficially owned shares for at least one year is entitled
to sell within any three-month period commencing 90 days after the date of this
prospectus a number of shares that does not exceed the greater of

- 1% of the then outstanding shares of our common stock (approximately
227,794 shares immediately after this offering) or

- the average weekly trading volume during the four calendar weeks
preceding such sale, subject to the filing of a Form 144 with respect to
the sale.

A person (or persons whose shares are aggregated) who is not deemed to have
been our affiliate at any time during the 90 days immediately preceding the sale
who has beneficially owned his or her shares for at least two years is entitled
to sell these shares pursuant to Rule 144(k) without regard to the limitations
described above. Affiliates must always sell pursuant to Rule 144, even after
the applicable holding periods have been satisfied.

We cannot estimate the number of shares that will be sold under Rule 144,
as this will depend on the market price for our common stock, the personal
circumstances of the sellers and other factors. Prior to this offering, there
has been no public market for our common stock, and there can be no assurance
that a significant public market for our common stock will develop or be
sustained after this offering. Any future sale of substantial amounts of our
common stock in the open market may adversely affect the market price of our
common stock.

LOCK-UP AGREEMENTS

We and our directors, executive officers, stockholders and holders of
options and warrants to purchase our capital stock have agreed pursuant to the
underwriting agreement and other

68
<PAGE> 76

agreements not to sell any of our common stock without the prior consent of
Deutsche Bank Securities Inc. until 180 days from the date of this prospectus,
except that we may, without such consent, grant options and sell shares pursuant
to our 1996 Stock Option Plan and our Employee Stock Purchase Plan 2000.

STOCK OPTIONS

We intend to file a registration statement on Form S-8 under the Securities
Act to register shares of our common stock that are subject to outstanding
options or reserved for issuance under our 1996 Stock Option Plan and our
Employee Stock Purchase Plan 2000 within 180 days after the date of this
prospectus, thus permitting the resale of these shares by nonaffiliates in the
public market without restriction under the Securities Act.

RULE 701

Any of our employees or consultants who purchased his or her shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701, which permits nonaffiliates to sell their Rule
701 shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
prospectus. As of December 31, 1999, the holders of options exercisable into
approximately 2,407,806 shares of our common stock will be eligible to sell
their shares in reliance upon Rule 701 or pursuant to the Form S-8 upon the
expiration of the 180-day lockup period.

REGISTRATION RIGHTS

After this offering, the holders of 14,778,437 shares of our common stock
will be entitled to certain rights with respect to registration of such shares
under the Securities Act. Registration of these shares under the Securities Act
would result in these shares becoming freely tradable without restriction under
the Securities Act (except for shares purchased by our affiliates). See
"Description of Capital Stock -- Registration Rights."

69
<PAGE> 77

UNDERWRITING

Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives Deutsche Bank Securities
Inc., Bear, Stearns & Co. Inc. and Hambrecht & Quist LLC, have severally agreed
to purchase from Extensity the following respective number of shares of common
stock at a public offering price less the underwriting discounts and commissions
set forth on the cover page of this prospectus:

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Deutsche Bank Securities Inc................................
Bear, Stearns & Co. Inc.....................................
Hambrecht & Quist LLC.......................................
---------
Total.....................................................
=========
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares of common stock offered hereby are subject
to certain conditions precedent and that the underwriters will purchase all
shares of the common stock offered hereby, other than those covered by the
over-allotment option described below, if any of these shares are purchased.

The underwriters propose to offer the shares of common stock to the public
at the public offering price set forth on the cover of this prospectus and to
dealers at a price that represents a concession not in excess of $ per share
under the public offering price. The underwriters may allow, and these dealers
may re-allow, a concession of not more than $ per share to other dealers.
After the initial public offering, representatives of the underwriters may
change the offering price and other selling terms.

We have granted to the underwriters an option, exercisable not later than
30 days after the date of this prospectus, to purchase up to 600,000 additional
shares of common stock at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this prospectus. The
underwriters may exercise this option only to cover over-allotments made in
connection with the sale of the common stock offered hereby. To the extent that
the underwriters exercise this option, each of the underwriters will become
obligated, subject to conditions, to purchase approximately the same percentage
of additional shares of common stock as the number of shares of common stock to
be purchased by it in the above table bears to the total number of shares of
common stock offered hereby. We will be obligated, pursuant to the option, to
sell these additional shares of common stock to the underwriters to the extent
the option is exercised. If any additional shares of common stock are purchased,
the underwriters will offer the additional shares on the same terms as those on
which the 4,000,000 shares are being offered.

The underwriting fee is equal to the public offering price per share of
common stock less the amount paid by the underwriters to us per share of common
stock. The underwriting fee is currently expected to be approximately 7% of the
initial public offering price. We have agreed to pay the underwriters the
following fees, assuming either no exercise or full exercise by the underwriters
of the underwriters' over-allotment option:

<TABLE>
<CAPTION>
TOTAL FEES
----------------------------------------------
WITHOUT EXERCISE OF WITH FULL EXERCISE OF
FEE PER SHARE OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
------------- --------------------- ---------------------
<S> <C> <C> <C>
Fees paid by Extensity............ $ $ $
</TABLE>

In addition, we estimate that our share of the total expenses of this
offering, excluding underwriting discounts and commissions, will be
approximately $1,100,000.

70
<PAGE> 78

We have agreed to indemnify the underwriters against some specified types
of liabilities, including liabilities under the Securities Act, and to
contribute to payments the underwriters may be required to make in respect of
any of these liabilities.

Each of our officers and directors, and substantially all of our
stockholders and holders of options and warrants to purchase our stock, have
agreed not to offer, sell, contract to sell or otherwise dispose of, or enter
into any transaction that is designed to, or could be expected to, result in the
disposition of any shares of our common stock or other securities convertible
into or exchangeable or exercisable for shares of our common stock or
derivatives of our common stock owned by these persons prior to this offering or
common stock issuable upon exercise of options or warrants held by these persons
for a period of 180 days after the effective date of the registration statement
of which this prospectus is a part without the prior written consent of Deutsche
Bank Securities Inc. This consent may be given at any time without public
notice. We have entered into a similar agreement with the representatives of the
underwriters, except that we may grant options and sell shares pursuant to our
1996 Stock Option Plan and our Employee Stock Purchase Plan 2000 without such
consent. There are no agreements between the representatives and any of our
stockholders or affiliates releasing them from these lock-up agreements prior to
the expiration of the 180-day period.

The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.

In order to facilitate the offering of our common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of our common stock. Specifically, the underwriters may over-allot
shares of our common stock in connection with this offering, thus creating a
short position in our common stock for their own account. A short position
results when an underwriter sells more shares of common stock than that
underwriter is committed to purchase. Additionally, to cover these
over-allotments or to stabilize the market price of our common stock, the
underwriters may bid for, and purchase, shares of our common stock in the open
market. Finally, the representatives, on behalf of the underwriters, may also
reclaim selling concessions allowed to an underwriter or dealer if the
underwriting syndicate repurchases shares distributed by that underwriter or
dealer. Any of these activities may maintain the market price of our common
stock at a level above that which might otherwise prevail in the open market.
These transactions may be effected on the Nasdaq National Market or otherwise.
The underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.

At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 360,000 shares for our vendors, employees, family
members of employees, customers and other third parties. The number of shares of
our common stock available for sale to the general public will be reduced to the
extent these reserved shares are purchased. Any reserved shares that are not
purchased by these persons will be offered by the underwriters to the general
public on the same basis as the other shares in this offering.

In July 1999, we sold shares of our Series E Preferred Stock in a private
placement at a price of $6.00 per share. Each of the shares of Series E
Preferred Stock is convertible at the option of the holder into one share of our
common stock. In this private placement, BT Investment Partners, Inc., an
affiliate of Deutsche Bank Securities Inc., purchased 166,666 shares of Series E
Preferred Stock for an aggregate purchase price of $999,996. BT Investment
Partners, Inc. purchased the Series E Preferred Stock on the same terms as the
other investors in the private placement. Upon conversion of these shares into
common stock, based upon an assumed public offering price of $9.00, the value of
these shares is $1,499,994. The difference between the amount that BT Investment
Partners, Inc. originally paid for the Series E preferred stock and the value of
the Series E Preferred Stock based upon the assumed initial public

71
<PAGE> 79

offering price equals $499,998. The National Association of Securities Dealers,
Inc. may deem this amount to be additional underwriting compensation received in
connection with this offering. If this is deemed to be underwriting
compensation, these shares of Series E Preferred Stock, and the common stock
issued upon conversion thereof, could not be sold, transferred, assigned,
pledged or hypothecated by any person for a period of one year after the
effective date of this offering, except to officers or partners of the
underwriters and members of the selling group and their officers or partners.

PRICING OF THIS OFFERING

Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock has
been determined by negotiation among us and the representatives of the
underwriters. Among the primary factors considered in determining the public
offering price were:

- prevailing market conditions;

- our results of operations in recent periods;

- the present stage of our development;

- the market capitalization and stage of development of other companies
that we and the representatives of the underwriters believe to be
comparable to our business; and

- estimates of our business potential.

The estimated initial public offering price range set forth on the cover of
this preliminary prospectus is subject to change as a result of market
conditions and other factors.

LEGAL MATTERS

The validity of the common stock offered hereby will be passed upon for us
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. Certain legal matters in connection with this offering will be
passed upon for the underwriters by Morrison & Foerster LLP, Irvine, California.
At the close of this offering, WS Investments, an investment partnership
composed of some current and former members of and persons associated with
Wilson Sonsini Goodrich & Rosati, a Professional Corporation, as well as an
individual attorney at this firm, will beneficially own a total of 47,603 shares
of our common stock.

EXPERTS

The consolidated financial statements of Extensity as of December 31, 1997,
1998 and September 30, 1999 and for each of the three years in the period ended
December 31, 1998, and the nine month periods ended September 30, 1998 and 1999
included in this Prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.

WHERE YOU CAN FIND ADDITIONAL INFORMATION

We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the common stock.
This prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedule filed as part of the
registration statement. For further information with respect to us

72
<PAGE> 80

and our common stock, we refer you to the registration statement and the
exhibits and schedule filed as a part of the registration statement. Statements
contained in this prospectus concerning the contents of any contract or any
other document are not necessarily complete. If a contract or document has been
filed as an exhibit to the registration statement, we refer you to the copy of
the contract or document that has been filed. Each statement in this prospectus
relating to a contract or document filed as an exhibit is qualified in all
respects by the filed exhibit. The registration statement, including exhibits
and schedule, may be inspected without charge at the principal office of the
Securities and Exchange Commission in Washington, D.C., and copies of all or any
part of it may be obtained from that office after payment of fees prescribed by
the Securities and Exchange Commission. The Securities and Exchange Commission
maintains a website that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Securities and Exchange Commission at http://www.sec.gov.

Upon completion of this offering, Extensity will become subject to the
information and periodic reporting requirements of the Securities Exchange Act
and, in accordance therewith, will file periodic reports, proxy statements and
other information with the SEC. These periodic reports, proxy statements and
other information will be available for inspection and copying at the SEC's
public reference rooms and the website of the SEC referred to above.

We intend to provide our stockholders with annual reports containing
financial statements audited by an independent public accounting firm and to
make available to our stockholders quarterly reports containing unaudited
financial data for the first three quarters of each year.

73
<PAGE> 81

EXTENSITY, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>

F-1
<PAGE> 82

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Extensity, Inc.

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' deficit and of
cash flows present fairly, in all material respects, the financial position of
Extensity, Inc. as of December 31, 1997, 1998 and September 30, 1999, and the
results of its operations and its cash flows for the three years in the period
ended December 31, 1998 and for the nine month periods ended September 30, 1998
and 1999, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits in accordance with generally accepted
auditing standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

/s/ PricewaterhouseCoopers LLP

November 5, 1999
San Jose, California

F-2
<PAGE> 83

EXTENSITY, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
AS OF DECEMBER 31, AS OF EQUITY AS OF
------------------- SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1999 1999
------- -------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents........................... $ 2,560 $ 5,239 $ 15,308
Short term investments.............................. -- 5,644 6,974
Restricted short term investment.................... 33 82 76
Trade accounts receivable, net of allowance for
doubtful accounts of $0, $0 and $200 in 1997,
1998, and 1999, respectively...................... -- 1,178 2,931
Prepaids and other assets........................... 99 119 566
------- -------- --------
Total current assets............................ 2,692 12,262 25,855
Property and equipment, net........................... 892 1,476 2,021
Other assets.......................................... -- 73 77
------- -------- --------
Total assets.................................... $ 3,584 $ 13,811 $ 27,953
======= ======== ========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Accounts payable.................................... $ 280 $ 349 $ 1,128
Accrued liabilities................................. 51 678 1,250
Deferred revenue.................................... 300 2,513 5,664
Capital lease obligations, current portion.......... -- 287 445
Notes payable, current portion...................... -- 1,116 1,191
------- -------- --------
Total current liabilities....................... 631 4,943 9,678
------- -------- --------
Capital lease obligations, noncurrent portion......... -- 746 807
Notes payable, noncurrent portion..................... -- 1,725 885
Deferred rent......................................... 10 140 179
------- -------- --------
Total liabilities............................... 641 7,554 11,549
Commitments (Note 5)
Mandatorily redeemable convertible preferred stock:
14,582,970 shares authorized; 5,750,000,
10,361,729 and 14,094,549 shares outstanding
actual (aggregate liquidation preference
$43,359,898) and none outstanding pro forma
(unaudited)....................................... 6,983 21,269 43,648
------- -------- --------
Stockholders' equity (deficit):
Common stock, $0.001 par value,
30,000,000 shares authorized actual; 1,946,111,
2,350,815 and 4,090,109 shares issued and
outstanding actual; 18,184,658 shares issued and
outstanding pro forma (unaudited)................. 2 2 4 $ 18
Additional paid-in capital.......................... 17 77 6,757 50,391
Notes receivable from stockholders.................. -- -- (230) (230)
Deferred stock compensation......................... -- -- (3,607) (3,607)
Accumulated deficit................................. (4,059) (15,091) (30,168) (30,168)
------- -------- -------- --------
Total stockholders' equity (deficit)............ (4,040) (15,012) (27,244) $ 16,404
------- -------- -------- ========
Total liabilities, mandatorily redeemable
convertible preferred stock and stockholders'
equity (deficit)............................. $ 3,584 $ 13,811 $ 27,953
======= ======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 84

EXTENSITY, INC.

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

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- -------------------
1996 1997 1998 1998 1999
------ ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
REVENUES
Licenses.................................. $ -- $ -- $ 718 $ 542 $ 2,376
Services and maintenance................ 409 183 1,575
------ ------- -------- ------- --------
Total revenues........................ -- -- 1,127 725 3,951
------ ------- -------- ------- --------
COST OF REVENUES:
Licenses................................ 90 37 145
Services and maintenance................ 1,554 989 3,074
------ ------- -------- ------- --------
Total cost of revenues................ -- -- 1,644 1,026 3,219
------ ------- -------- ------- --------
Gross profit (loss)....................... -- -- (517) (301) 732
OPERATING EXPENSES:
Sales and marketing..................... 102 1,082 4,703 3,266 6,406
Research and development................ 519 1,713 4,401 2,865 4,986
General and administrative.............. 233 540 1,439 945 1,956
Amortization of non-cash stock based
compensation.......................... -- -- -- -- 2,479
------ ------- -------- ------- --------
Total operating expenses.............. 854 3,335 10,543 7,076 15,827
------ ------- -------- ------- --------
Loss from operations.................. (854) (3,335) (11,060) (7,377) (15,095)
Interest income........................... 24 107 332 188 407
Interest expense.......................... -- -- (299) (181) (388)
Other expense............................. -- -- (5) (5) --
------ ------- -------- ------- --------
Net loss............................ $ (830) $(3,228) $(11,032) $(7,375) $(15,076)
====== ======= ======== ======= ========
Net loss per share:
Basic and diluted....................... $(3.79) $ (4.35) $ (8.25) $ (5.83) $ (7.42)
====== ======= ======== ======= ========
Weighted average shares................. 219 742 1,338 1,265 2,033
Pro forma net loss per share (unaudited):
Basic and diluted $ (1.13) $ (1.14)
======== ========
Weighted average shares 9,778 13,224
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 85

EXTENSITY, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

(in thousands, except share data)

<TABLE>
<CAPTION>
NOTES TOTAL
COMMON STOCK ADDITIONAL RECEIVABLE DEFERRED STOCKHOLDERS'
------------------ PAID-IN FROM STOCK ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION DEFICIT (DEFICIT)
--------- ------ ---------- ------------ ------------ ------------ -------------
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995... 1,750,000 $ 1 $ -- $ -- $ -- $ (1) $ --
Net loss....................... -- -- -- -- -- (830) (830)
--------- ------ ---------- --------- ----------- ------------ ------------
Balance at December 31, 1996... 1,750,000 1 -- -- -- (831) (830)

Exercise of stock options...... 196,111 1 17 -- -- -- 18

Net loss....................... -- -- -- -- -- (3,228) (3,228)
--------- ------ ---------- --------- ----------- ------------ ------------
Balance at December 31, 1997... 1,946,111 2 17 -- -- (4,059) (4,040)

Common stock issued for
services rendered............. 47,703 -- 7 -- -- -- 7

Exercise of stock options...... 357,001 -- 53 -- -- -- 53

Net loss....................... -- -- -- -- -- (11,032) (11,032)
--------- ------ ---------- --------- ----------- ------------ ------------
Balance at December 31, 1998... 2,350,815 2 77 -- -- (15,091) (15,012)

Exercise of stock options...... 1,739,294 2 594 (230) -- -- 366

Deferred stock compensation.... -- -- 6,086 -- (6,086) -- --

Amortization of deferred stock
compensation.................. -- -- -- -- 2,479 -- 2,479

Net loss....................... -- -- -- -- -- (15,076) (15,076)
--------- ------ ---------- --------- ----------- ------------ ------------
Balance at September 30, 1999.. 4,090,109 $ 4 $ 6,757 $ (230) $ (3,607) $ (30,168) $ (27,244)
========= ====== ========== ========= =========== ============ ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 86

EXTENSITY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- ------------------
1996 1997 1998 1998 1999
------ ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Cash from operating activities:
Net loss.................................................... $ (830) $(3,228) $(11,032) $(7,375) $(15,076)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization........................... 36 153 528 359 634
Amortization of deferred stock compensation............. -- -- -- -- 2,479
Common stock issued for services rendered............... -- 24 7 7 --
Amortization of debt discount and lease line issuance
cost.................................................. -- -- 58 39 66
Changes in operating assets and liabilities:
Increase in accounts receivable....................... -- -- (1,178) (1,213) (1,753)
Increase in prepaids and other assets................. (6) (94) (55) (10) (451)
Increase (decrease) in accounts payable............... (7) 270 69 34 779
Increase in accrued liabilities....................... 12 38 628 210 572
Increase in deferred revenue.......................... -- 300 2,213 1,403 3,151
Increase (decrease) in deferred rent.................. 16 (6) 130 95 39
------ ------- -------- ------- --------
Net cash used in operating activities............... (779) (2,543) (8,632) (6,451) (9,560)
------ ------- -------- ------- --------
Cash from investing activities:
Capital expenditures...................................... (185) (894) (429) (245) (874)
Purchase of short term investments........................ -- -- (5,644) (1,505) (1,330)
(Increase) decrease in restricted short term
investments............................................. (10) (23) (49) (43) 6
------ ------- -------- ------- --------
Net cash used in investing activities............... (195) (917) (6,122) (1,793) (2,198)
------ ------- -------- ------- --------
Cash from financing activities:
Proceeds from loan........................................ -- 250 3,500 2,500 --
Payments on loan.......................................... -- (250) (446) (78) (832)
Payments on capital lease obligations..................... -- -- (186) (185) (326)
Proceeds from sale-lease back............................. -- -- 535 535 240
Net proceeds from issuance of preferred stock............. -- 5,933 13,978 13,868 22,379
Proceeds from issuance of preferred stock warrants........ -- 37 -- -- --
Proceeds from issuance of common stock.................... -- 19 52 52 366
------ ------- -------- ------- --------
Net cash provided by financing activities........... -- 5,989 17,433 16,692 21,827
------ ------- -------- ------- --------
Increase in cash............................................ (974) 2,529 2,679 8,448 10,069
Cash and cash equivalents, beginning of period.............. 1,005 31 2,560 2,560 5,239
Cash and cash equivalents, end of period.................... $ 31 $ 2,560 $ 5,239 $11,008 $ 15,308
====== ======= ======== ======= ========
Supplemental cash flow information:
Interest paid............................................. $ 5 $ 5 $ 241 $ 142 $ 322
====== ======= ======== ======= ========
Income taxes paid......................................... $ 1 $ 1 $ 1 $ 1 $ 1
====== ======= ======== ======= ========
Noncash investing and financing activities:
Purchase of equipment under capital leases................ $ -- $ -- $ 1,218 $ -- $ --
====== ======= ======== ======= ========
Notes receivable from stockholders........................ $ -- $ -- $ -- $ -- $ 230
====== ======= ======== ======= ========
Convertible preferred stock warrants issued............... $ -- $ 24 $ 309 $ 309 $ --
====== ======= ======== ======= ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 87

EXTENSITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

Extensity, Inc. (the Company) provides Internet-based workforce
optimization software applications designed to improve the productivity of
employees across the enterprise and to enhance enterprise operating efficiency.
The Company was incorporated as Celerity, Inc. in Delaware in November 1995,
changed its name from Celerity, Inc. to At Large Software, Inc. effective April
12, 1996, and changed its name from At Large Software, Inc. to Extensity, Inc.,
effective August 19, 1997.

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, Extensity Europe Limited, which commenced
operations in September 1999. All significant intercompany balances and
transactions have been eliminated in consolidation.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

The Company considers all investments with an original maturity of three
months or less to be cash equivalents. The Company periodically maintains cash
balances at banks in excess of the Federal Deposit Insurance Corporation
insurance limit of $100,000.

SHORT TERM INVESTMENTS

The Company accounts for its investments in quality corporate debt
securities under the provisions of Statement of Financial Accounting Standards
No. 115 (SFAS 115), Accounting for Certain Investments in Debt and Equity
Securities. The Company has classified all marketable debt securities as
held-to-maturity and has accounted for these investments at amortized cost. As
of December 31, 1998, the Company's carrying value of its short term investments
approximated their amortized cost basis.

RESTRICTED SHORT TERM INVESTMENT

The restricted short term investment consists of several one year
certificates of deposit required as collateral for the Company's letters of
credit (Note 5).

CONCENTRATION OF CREDIT RISK AND CERTAIN RISKS

Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents, short term
investments and accounts receivable. The Company's accounts receivable are
derived from revenue earned from customers located primarily in the United
States. The Company performs credit evaluations of its customers' financial
condition and, generally, requires no collateral from its customers. The Company

F-7
<PAGE> 88
EXTENSITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

maintains an allowance for doubtful accounts receivable based upon the expected
collectibility of accounts receivable.

At December 31, 1998, two customers accounted for 60% of total accounts
receivable. At September 30, 1999, no customer accounted for more than 10% of
total accounts receivable.

Four customers accounted for 66% of total revenue during fiscal 1998. Three
customers accounted for 61% of total revenues during the nine month period ended
September 30, 1998. Three customers accounted for 48% of total revenues during
the nine month period ended September 30, 1999.

All of the Company's revenues were derived from U.S. customers.

The market in which the Company competes is characterized by changing
customer needs, frequent new software product introductions and rapidly evolving
industry standards. Significant technological change could adversely affect the
Company's operating results.

The Company operates in one single reportable business segment and,
therefore, no disclosures under SFAS 131, Disclosures about Segments of an
Enterprise and Related Information, are necessary.

SOFTWARE DEVELOPMENT COSTS

The Company capitalizes internally generated software development costs
under the provision of Statement of Financial Accounting Standards No. 86 (SFAS
86), Accounting for Costs of Computer Software to be Sold, Leased or Otherwise
Marketed. Capitalization of computer software development costs begins upon the
establishment of technological feasibility, which the Company has defined as
completion of a working model. Internally generated capitalizable software
development costs have not been material for years ended December 31, 1998 and
1997. The Company has not capitalized any software development costs to date,
and has charged software development costs as incurred to research and
development expense in the accompanying consolidated statements of operations.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation and amortization
are calculated using the straight-line method over estimated useful lives of
three years, or over the lease term if it is shorter for leasehold improvements.

When assets are sold or retired, the cost and related accumulated
depreciation and amortization are removed from the accounts and any resulting
gain or loss is included in operations. Maintenance and repairs are charged to
operations as incurred.

INCOME TAXES

Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes(SFAS No. 109). Under
SFAS No. 109, deferred income tax liabilities and assets are determined based on
the difference between the financial reporting amounts and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates in effect for the years in which the
differences are expected to affect taxable income. Valuation allowances are

F-8
<PAGE> 89
EXTENSITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

established when necessary to reduce deferred tax assets to the amounts expected
to be realized. Income tax expense is the tax payable for the period and the
change during the period in deferred tax assets and liabilities.

REVENUE RECOGNITION

In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-2, Software Revenue Recognition (SOP 97-2).The
Company adopted SOP 97-2 beginning in fiscal 1998. SOP 97-2 has been modified by
SOP 98-4 and SOP 98-9 as it relates to certain transactions. These standards
generally require revenues earned on software arrangements involving multiple
elements such as software products, upgrades, enhancements, postcontract
customer support, installation and training to be allocated to each element
based on the relative fair values of the elements. The fair value of an element
must be based on evidence that is specific to the vendor. Evidence of the fair
value of each element is based on the price charged when the element is sold
separately or, if the element is not being sold separately, the price for each
element established by management having relevant authority.

The Company's software products prior to the release in July 1999 of
Version 4.0 typically required significant customization, installation and other
services. Additionally, it was difficult to generate dependable estimates of the
costs necessary to complete product implementations. Therefore, the Company
accounted for its software licenses and implementation revenues using the
completed contract method as required under the provisions of SOP 97-2. Amounts
billed for maintenance are deferred and recognized ratably over the service
period.

Following the release of Version 4.0 in July 1999, the Company concluded
that the implementation services it offers no longer included significant
modifications or customization of the software. Additionally, the Company was
unable to determine vendor specific objective evidence of the fair values of the
respective elements of the contract. Consequently, the Company commenced
recognizing revenues from both licenses and services ratably over the
maintenance period, which is typically one year. SOP 97-2 requires revenue to be
recognized ratably over the maintenance period in circumstances where vendor
specific objective evidence of the fair values of the respective elements of the
contract do not exist and the only remaining undelivered element of such
contract are the maintenance services.

STOCK-BASED COMPENSATION

The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB No. 25) and complies with the
disclosure provisions of Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation(SFAS No. 123). Under APB No. 25,
compensation expense is based on the difference, if any, between the fair value
of the Company's stock and the exercise price of the option on the measurement
date, which is typically the date of grant (see Note 8).

The Company accounts for options granted to non-employees under SFAS No.
123. Under SFAS No. 123, options are recorded at their fair value on the
measurement date, which is typically the date of grant.

F-9
<PAGE> 90
EXTENSITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

HISTORICAL AND PRO FORMA NET LOSS PER SHARE

Historical basic and diluted net loss per share are computed using the
weighted average number of common shares outstanding. Options, warrants and
preferred stock were not included in the computation of diluted net loss per
share because the effect would be antidilutive.

Pro forma net loss per share has been computed assuming the conversion of
all outstanding shares of convertible preferred stock into shares of common
stock.

The following table sets forth the computation of historical and pro forma
basic and diluted net loss per share for the periods indicated (in thousands,
except per share data):

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
HISTORICAL:
Numerator:
Net loss...................................... $ (830) $(3,228) $(11,032) $(7,375) $(15,076)
Denominator:
Weighted average shares....................... 1,750 1,835 2,169 2,113 3,277
Weighted average unvested common shares....... (1,531) (1,093) (831) (848) (1,244)
------- ------- -------- ------- --------
Total weighted average shares.......... 219 742 1,338 1,265 2,033
------- ------- -------- ------- --------
Net loss per share:
Basic and diluted............................. $ (3.79) $ (4.35) $ (8.25) $ (5.83) $ (7.42)

PRO FORMA:
Numerator:
Net loss...................................... $(11,032) $(15,076)
======== ========
Denominator:
Weighted average common shares, basic and
diluted..................................... 1,338 2,033
Conversion of convertible preferred stock..... 8,440 11,191
-------- --------
Total weighted average shares.......... 9,778 13,224
======== ========
Pro forma net loss per share:
Basic and diluted............................. $ (1.13) $ (1.14)
======== ========
</TABLE>

3. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1997 1998 1999
------ ------ -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Computer hardware and software.......................... $ 876 $ 585 $ 985
Furniture and fixtures.................................. 178 133 504
Leasehold improvements.................................. 25 -- 56
Office equipment........................................ -- 44 90
Assets under capital leases............................. -- 1,429 1,734
------ ------ -------
1,079 2,191 3,369
Less accumulated depreciation and amortization.......... (187) (715) (1,348)
------ ------ -------
Total property and equipment, net..................... $ 892 $1,476 $ 2,021
====== ====== =======
</TABLE>

F-10
<PAGE> 91
EXTENSITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Accumulated amortization relating to assets under capital leases amounted
to $0, $466,000 and $693,000 as of December 31, 1997 and 1998 and September 30,
1999, respectively.

4. INCOME TAXES

The provision for income taxes for the years ended December 31, 1997 and
1998 and the nine month periods ended September 30, 1998 and 1999 relates to
minimum state income tax. The difference between the amount of income tax
benefit recorded of zero and the amount of income tax benefit calculated using
the federal statutory rate of 34% is primarily due to net operating losses being
fully offset by a valuation allowance. Significant components of the Company's
deferred tax balances are as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1997 1998 1999
------- ------- -------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards..................... $ 1,594 $ 5,325 $ 10,240
Research and development credit carryforwards...... 105 365 625
Other.............................................. 26 75 100
------- ------- --------
Total deferred tax asserts.................... 1,725 5,765 10,965
Valuation allowance................................ (1,725) (5,765) (10,965)
------- ------- --------
Net deferred tax assets....................... $ -- $ -- $ --
======= ======= ========
</TABLE>

Due to the uncertainty of realization, a valuation allowance has been
provided to offset net deferred tax assets at December 31, 1997 and 1998 and
September 30, 1999. The increase in the valuation allowance was $1,366,000,
$4,040,000 and $5,200,000 during the years ended December 31, 1997 and 1998, and
the nine month period ended September 30, 1999, respectively.

As of September 30, 1999, the Company had net operating loss carryforwards
of approximately $26.3 million and $20.9 million for federal and state income
tax purposes, respectively. Such carryforwards expire through 2018 and 2003 for
federal and state income tax purposes, respectively. At September 30, 1999, the
Company also had research and experimentation tax credit carryforwards of
$380,000 and $245,000 for federal and state purposes, respectively, which expire
in varying amounts through 2013.

Under the Tax Reform Act of 1986, the amounts of and benefits from net
operating loss carryforwards may be impaired or limited in certain circumstances
including as a result of a cumulative ownership change of more than 50%, as
defined, over a three-year period. The issuance of the Company's convertible
preferred securities may have resulted in a limitation on utilization of such
net operating loss carryforwards.

5. COMMITMENTS

During 1998, the Company entered into various lease agreements for computer
and office equipment. The Company leases office space under a noncancelable
operating lease expiring in June 2003. Total rent expense for 1998 and 1997
aggregated $383,000 and $88,000,

F-11
<PAGE> 92
EXTENSITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

respectively. Minimum future rental payments under capital and operating leases
at September 30, 1999 are as follows (in thousands):

<TABLE>
<CAPTION>
FISCAL YEAR ENDING DECEMBER 31, CAPITAL OPERATING
------------------------------- ------- ---------
<S> <C> <C>
1999........................................................ $ 128 $ 136
2000........................................................ 529 556
2001........................................................ 529 586
2002........................................................ 285 608
2003........................................................ 85 306
Thereafter.................................................. -- --
------ ------
Total minimum lease payments................................ 1,556 $2,192
======
Less amount representing interest and discount.............. 304
------
Present value of minimum lease payments..................... 1,252
Less current portion of capital lease obligations........... 445
------
Long term portion........................................... $ 807
======
</TABLE>

In connection with certain capital lease transactions, the Company granted
to the lessor warrants to purchase 22,425 shares of Series D preferred stock at
an exercise price of $3.30 per share. Such warrants were valued at approximately
$44,000 using the Black-Scholes valuation model with the following assumptions:
expected volatility of 40%, risk-free interest rate of 6% and expected life of
10 years. The value of these warrants was recorded as a long-term asset, which
is being amortized over the capital lease term of 4 years. Such amortization
amounted to $5,000 and $14,000 during the year ended December 31, 1998 and the
nine-month period ended September 30, 1999.

The Company has established a $45,000 letter of credit with a bank for the
benefit of the Company's office space lessor. The letter of credit accrues
interest at the bank's prime rate and is collateralized by a $33,000 certificate
of deposit. As of September 30, 1999, no amounts were outstanding under the
letter of credit.

6. DEBT

In March 1998, the Company entered into a loan and security agreement with
a lender for $3,500,000. Borrowings under this loan accrue interest at an
average rate of 11.4% per annum and mature through March 25, 2001. The agreement
provides the lender with the right to exercise warrants to purchase 137,878
shares of Series D preferred stock at an exercise price of $3.30 per share. The
Company recorded the loan at a discount of approximately $265,000, which was
allocated to the warrants. The debt discount was calculated in accordance with
the provisions of APB No. 14, Accounting for Convertible Debt and Debt Issued
with Stock Purchase Warrant. The fair value of the warrants was estimated on the
date of grant using the Black-Scholes model with expected volatility of 40%,
risk-free interest of 6% and expected life of 10 years. Amortization of the debt
discount was recorded as interest expense and amounted to $58,000 and $66,000
during the year ended December 31, 1998 and the nine-month period ended
September 30, 1999, respectively.

F-12
<PAGE> 93
EXTENSITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Scheduled repayments of the loan subsequent to September 30, 1999 are as follows
(in thousands):

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1999..................................................... $ 285
2000..................................................... 1,225
2001..................................................... 712
-------
Total.................................................... 2,222
Less current portion..................................... (1,191)
-------
Long-term portion........................................ $ 1,031
=======
</TABLE>

The non-current portion of the Notes payable of $885,000 as of September
30, 1999 is net of the remaining debt discount of $146,000.

7. MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK

Mandatorily Redeemable Convertible Preferred consists of the following (in
thousands, except share data):

<TABLE>
<CAPTION>
OUTSTANDING
SHARES AMOUNT
----------- -----------
<S> <C> <C>
Issuance of Series A preferred stock........................ 2,000,000 $ 988
---------- -----------
Balance at December 31, 1996................................ 2,000,000 $ 988
Issuance of Series B preferred stock...................... 3,750,000 5,933
Issuance of Series B preferred stock warrants............. -- 62
---------- -----------
Balance at December 31, 1997................................ 5,750,000 $ 6,983
Issuance of Series C preferred stock...................... 937,500 1,872
Issuance of Series D preferred stock...................... 3,674,229 12,105
Issuance of Series D preferred stock warrants............. -- 309
---------- -----------
Balance at December 31, 1998................................ 10,361,729 $ 21,269
Issuance of Series E preferred stock...................... 3,732,820 22,379
---------- -----------
Balance at September 30, 1999............................... 14,094,549 $ 43,648
========== ===========
</TABLE>

In July 1999, the Company's Board of Directors approved an amendment to the
Company's Certificate of Incorporation to increase the number of its authorized
shares of common stock and preferred stock to 30,000,000 and 14,582,970,
respectively.

Each share of Series A, B, C, D and E preferred stock is convertible into
common stock at the option of the stockholder on a one-for-one basis, subject to
certain adjustments. Each share of Series A, B, C, D and E preferred stock will
automatically convert to common stock upon the earlier of the closing date of an
underwritten public offering of the Company's common stock with an offering
price of not less than $8.00 per share and aggregate proceeds in excess of
$15,000,000 or the date of mutual consent of the holders of 60% of the then
outstanding preferred stock voting as a class.

Holders of preferred stock are entitled to one vote for each share of
common stock into which such shares may be converted. Each share of Series A, B,
C, D and E preferred stock entitles the stockholder to receive annual
noncumulative dividends of $0.045, $0.144, $0.18, $0.30 and $0.54 respectively,
in preference to holders of shares of common stock, if and when declared by the
Board of Directors. No dividends have been declared to date.

F-13
<PAGE> 94
EXTENSITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In the event of any liquidation, dissolution or winding up of the Company,
holders of Series A, B, C, D and E preferred stock are entitled to receive
$0.50, $1.60, $2.00, $3.30 and $6.00 per share, respectively, and all declared
but unpaid dividends prior and in preference to any distribution to holders of
common stock. After payment has been made to the holders of preferred stock, any
remaining assets will be distributed ratably among the holders of preferred and
common stock in proportion to the number of shares of common stock held by each,
assuming conversion of all Series A, B, C, D and E preferred stock until certain
limits are reached. If the Company's assets are insufficient to provide for the
full preference amount for the preferred stock outstanding, then such assets
will be distributed ratably among the holders of the preferred stock in
proportion to the amount of such stock owned by each stockholder.

At any time after May 31, 2004, the holders of at least 75% of the then
outstanding shares of Series A, B, C, D and E preferred stock may require the
Company to redeem all or any part of the then outstanding shares of Series A, B,
C, D and E preferred stock at a price equal to $0.50, $1.60, $2.00, $3.30 and
$6.00 per share, respectively, plus all declared but unpaid dividends on such
shares.

PREFERRED STOCK WARRANTS ISSUED IN CONNECTION WITH FINANCINGS

On January 29, 1997, the Company entered into a loan and security agreement
with a bank. During fiscal 1997, $250,000 was drawn on the loan and was repaid
in the same year. This loan expired on June 15, 1997. In conjunction with this
loan agreement, the Company issued to the lender a warrant to purchase 23,585
shares of Series B preferred stock at an exercise price per share of $1.59. The
Company recorded the loan at a discount of $24,000 which discount was allocated
to the warrant and amortized as interest expense during 1997. The fair value of
the warrant was estimated on the date of grant using the Black-Scholes model
with expected volatility of 60%, risk-free interest of 5.50% and expected life
of 5 years. The warrant expires on January 28, 2002 and was not exercised as of
September 30, 1999.

During 1998, the Company entered into financing agreements with a financial
institution (see Note 6). In conjunction with these transactions, the Company
issued to the financial institution warrants to purchase shares of Series D
preferred stock at an exercise price of $3.30 per share. These warrants expire
through December 2008 and none were exercised as of September 30, 1999.

8. COMMON STOCK

During 1998, the Company issued a total of 47,703 shares of its common
stock at fair value to several service providers. The Company recorded the fair
values of the common stock which amounted to $7,300 as compensation expense.

During the nine month period ended September 30, 1999, the Company loaned
to three officers an aggregate of $230,000 to exercise options to purchase
933,439 shares of the Company's common stock. The officers paid $193,750 in cash
in conjunction with this exercise. The promissory note to one of the officers
bears interest at 4.77%, is due on February 28, 2004 and is collateralized by
the common stock purchased for cash. The cash portion of the exercise of
$150,000 exceeded the face value of the note by $50,000. The officer repaid the
note in full, including $3,000 in interest, in November 1999. The notes of the
other two officers bear interest at 5.87%, are due on July 16, 2004 and are
collateralized by their personal assets.

F-14
<PAGE> 95
EXTENSITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. STOCK OPTIONS

In 1996, the Company adopted the 1996 Stock Option Plan (the Plan) under
which eligible employees, directors, and consultants can receive options to
purchase shares of the Company's common stock at a price generally not less than
100% of the fair value of the common stock on the date of the grant for
incentive stock options and nonstatutory stock options. The Plan, as amended
through September 30, 1999, allows for the issuance of a maximum of 6,100,000
shares of the Company's common stock. This number of shares of common stock has
been reserved for issuance under the Plan. The options granted under the Plan
vest according to varying schedules determined by the Plan Administrator,
currently the Board of Directors. Options generally vest over four years and
expire ten years from the date of grant.

A summary of the activity under the Plan since inception is set forth
below:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
SHARES -------------------------------------------
AVAILABLE NUMBER OF PRICE AGGREGATE
FOR GRANT SHARES PER SHARE PRICE
---------- ---------- ------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at December 31, 1996...... 630,500 619,500 $0.10 $ 62
---------- ---------- ------------- ------
Additional shares reserved........ 250,000 -- -- --
Options granted................... (908,992) 908,992 $0.10 - $0.16 140
Options exercised................. -- (196,111) $0.10 - $0.16 (21)
Options forfeited................. 319,458 (319,458) $0.10 - $0.16 (32)
---------- ---------- ------------- ------
Balance at December 31, 1997...... 290,966 1,012,923 $0.10 - $0.16 149
Additional shares reserved........ 2,100,000 -- -- --
Options granted................... (1,066,500) 1,066,500 $0.16 - $0.33 280
Options exercised................. -- (357,001) $0.10 - $0.16 (53)
Options forfeited................. 115,874 (115,874) $0.10 - $0.16 (18)
---------- ---------- ------------- ------
Balance at December 31, 1998...... 1,440,340 1,606,548 $0.16 - $0.33 359
Additional shares reserved........ 2,500,000 -- --
Options granted................... (2,773,395) 2,773,395 $0.33 - $3.25 1,894
Options exercised................. -- (1,739,294) $0.05 - $0.15 (596)
Options forfeited................. 234,412 (234,412) $0.16 - $0.55 (47)
---------- ---------- ------------- ------
Outstanding at September 30,
1999............................ 1,401,357 2,406,237 $0.10 - $3.25 $1,610
========== ========== ============= ======
</TABLE>

The following table summarizes information with respect to stock options
outstanding at September 30, 1999:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
--------------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.10 - $0.33 1,094,787 8.4 $0.26 258,941 $0.19
$0.55 - $0.70 696,500 9.6 $0.63 --
$1.00 - $1.50 560,950 9.7 $1.37 --
$3.25 54,000 9.8 $3.25 --
--------- ----- --------
2,406,237 8.9 $0.62 258,941
</TABLE>

F-15
<PAGE> 96
EXTENSITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The Plan allows certain option holders to exercise their options prior to
vesting. However, such exercises are subject to repurchase by the Company if not
vested. The Company's repurchase right lapses over a four year period. As of
September 30, 1999, 1,196,569 shares of common stock acquired by option holders
are subject to repurchase by the Company.

The Company accounts for employee and board of director stock options in
accordance with the provisions of APB No. 25 and complies with the disclosure
provisions of SFAS No. 123.

Under APB No. 25, compensation expense is recognized based on the amount by
which the fair value of the underlying common stock exceeds the exercise price
of the stock options at the measurement date, which in the case of employee
stock options is typically the date of grant. For financial reporting purposes,
the Company has determined that the deemed fair market value on the date of
grant of certain employee stock options was in excess of the exercise price of
the options. This amount is recorded as deferred compensation and is classified
as a reduction of stockholders' equity and is amortized as a charge to
operations over the vesting period of the applicable options. The vesting period
is generally four years. The fair value per share used to calculate deferred
compensation was derived by reference to the preferred stock values and the
Company's initial public offering price range. Consequently, the Company
recorded deferred stock compensation of $0 and $6,086,195 during the year ended
December 31, 1998 and the nine months ended September 30, 1999, respectively.
Amortization recognized for the year ended December 31, 1998 and the nine months
ended September 30, 1999 totaled $0 and $2,478,809, respectively.

The weighted average fair values of the options granted in fiscal 1996,
1997, 1998 and the nine month periods ended September 30, 1998 and 1999 were
$0.03, $0.06, $0.81, $0.50 and $2.87, respectively.

Had compensation cost for option grants to employees been determined
consistent with SFAS No. 123, the Company's net loss would have been as follows
(in thousands, except per share data):

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------- -------------------
1996 1997 1998 1998 1999
------ ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Pro forma net loss............. $ (839) $(3,248) $(11,070) $(7,403) $(15,854)
Pro forma net loss per share,
basic and diluted.............. $(3.84) $ (4.38) $ (8.27) $ (5.85) $ (7.80)
</TABLE>

The above pro forma disclosures are not necessarily representative of the
effects on reported income or loss for future years as additional grants are
made each year and options vest over several years.

The fair value of each option grant was estimated on the date of grant
using the minimum value options pricing model with the following weighted
average assumptions by period:

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------- --------------------
1996 1997 1998 1998 1999
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Risk-free interest rate......... 5.9% 5.7% 5.5% 5.5% 5.6%
Expected life (in years)........ 4 4 4 4 4
Dividends....................... -- -- -- -- --
</TABLE>

F-16
<PAGE> 97
EXTENSITY, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Because the Company does not have actively traded equity securities,
volatility is not considered in determining the value of options granted to
employees.

10. 401(k) PLAN

In January 1998, the Company adopted a 401(k) plan for employees. All
employees who meet certain service requirements are eligible to participate.
Matching contributions are at the discretion of the Company. The Company made no
matching or discretionary contributions during 1998 and the nine month period
ended September 30, 1999.

11. SUBSEQUENT EVENTS

In October 1999, the Company's Board of Directors authorized the Company to
file a registration statement with the Securities and Exchange Commission for
the purpose of an initial public offering of the Company's common stock. Upon
the completion of this offering, the Company's preferred stock will be converted
into shares of common stock, and all outstanding shares of preferred stock will
be cancelled and retired. The pro forma effect of the conversion has been
presented as a separate column in the Company's balance sheet, assuming the
conversion had occurred as of September 30, 1999.

The Board of Directors also authorized, subject to stockholders' approval,
(i) establishment of the Employee Stock Purchase Plan 2000 (ESPP) with 500,000
shares reserved for issuance and (ii) the amendment of the Company's 1996 Stock
Option Plan to provide for, among other things, an increase to 7,000,000 of the
number of shares of common stock reserved for issuance thereunder, and an annual
replenishment of the shares of common stock authorized for issuance thereunder
equal to the lesser of (a) 1,300,000 shares, (b) 4% of the outstanding shares on
such date or (c) a lesser amount to be determined by the Board. The ESPP and the
amendment to the Company's 1996 Stock Option Plan will become effective upon the
closing of the initial public offering.

On December 16, 1999, the Company sold 500,000 shares of its Series F
Preferred Stock for gross proceeds of $4.5 million in cash to an investor. The
Company also entered into a commercial relationship with this investor.

F-17
<PAGE> 98

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE 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 OUR COMMON STOCK.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 4
Special Note Regarding Forward-
Looking Statements and Industry
Data................................ 17
Use of Proceeds....................... 18
Dividend Policy....................... 18
Capitalization........................ 19
Dilution.............................. 20
Selected Consolidated Financial
Data................................ 21
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Business.............................. 34
Management............................ 51
Certain Transactions.................. 60
Principal Stockholders................ 63
Description of Capital Stock.......... 65
Shares Eligible for Future Sale....... 68
Underwriting.......................... 70
Legal Matters......................... 72
Experts............................... 72
Where You Can Find Additional
Information......................... 72
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>

UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
THAT BUY, SELL OR TRADE IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN
THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. DEALERS ARE ALSO
OBLIGATED TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

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

LOGO

4,000,000 SHARES

COMMON STOCK

DEUTSCHE BANC ALEX. BROWN
BEAR, STEARNS & CO. INC.
HAMBRECHT & QUIST
PROSPECTUS

, 2000
<PAGE> 99

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of Common Stock being registered. All amounts are estimates except
the registration fee and the NASD filing fee.

<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
Registration Fee............................................ $ 15,985
NASD Fee.................................................... 6,250
Nasdaq National Market Listing Fee.......................... 94,000
Printing and Engraving...................................... 225,000
Legal Fees and Expenses..................................... 325,000
Accounting Fees and Expenses................................ 300,000
Blue Sky Fees and Expenses.................................. 6,000
Transfer Agent Fees......................................... 20,000
Miscellaneous............................................... 107,765
----------
Total..................................................... $1,100,000
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

As permitted by Section 145 of the Delaware General Corporation Law, the
Registrant's certificate of incorporation includes a provision that eliminates
the personal liability of its directors for monetary damages for breach or
alleged breach of their duty of care to the Company or its stockholders. In
addition, as permitted by Section 145 of the Delaware General Corporation Law,
the certificate of incorporation of the Registrant provides, inter alia, that
each person who is made a party or is threatened to be made a party to or
otherwise involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that he or she is or was a director or officer of the Company or, while a
director or officer of the Company, is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan (hereinafter an "indemnitee"), whether the
basis of such proceeding is alleged action in an official capacity as a director
or officer or in any other capacity while serving as a director or officer, is
authorized to be indemnified and held harmless by the Company to the fullest
extent authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended, against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) reasonably incurred or suffered by such indemnitee in
connection therewith and such indemnification shall continue as to an
indemnitee's heirs, executors and administrators; provided, however, that,
except with respect to the proceedings brought by an indemnitee to enforce
rights to indemnification (subject to certain restrictions and as more fully
described in the Registrant's certificate of incorporation), the Company shall
indemnify any such indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Company. The right to
indemnification conferred in the Registrant's certificate of incorporation
includes the right to be paid by the Company the expenses incurred in connection
with any such proceeding in advance of its final

II-1
<PAGE> 100

disposition; provided, however, that, if and to the extent that the Delaware
General Corporation Law requires, such an advancement of expenses incurred by an
indemnitee in his or her capacity in which service was or is rendered by such
indemnitee, including, without limitation, service with respect to an employee
benefit plan, shall be made only upon delivery to the Company of an undertaking
by or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal that such indemnitee is not entitled to be indemnified
for such expenses under the Company's certificate of incorporation or otherwise.

The Registrant's policy is to enter into indemnification agreements with
each of its directors and executive officers that provide the maximum indemnity
allowed to directors and executive officers by Section 145 of the Delaware
General Corporation Law and the Bylaws, as well as certain additional procedural
protections. The indemnity agreements provide that directors and executive
officers will be indemnified to the fullest possible extent not prohibited by
law against all expenses (including attorney's fees) and settlement amounts paid
or incurred by them in any action or proceeding, including any derivative action
by or in the right of the Registrant, on account of their services as directors
or executive officers of the Registrant or as directors or officers of any other
company or enterprise when they are serving in such capacities at the request of
the Registrant. Pursuant to the indemnity agreements, the Company will not be
obligated to indemnify or advance expenses to an indemnified party with respect
to proceedings or claims initiated by the indemnified party and not by way of
defense, except with respect to proceedings specifically authorized by the Board
of Directors or brought to enforce a right to indemnification under such
indemnity agreement, the Company's certificate of incorporation, Bylaws or any
statute or law, or as otherwise required under Section 145 of the Delaware
General Corporation Law. Also under the indemnity agreements, the Company is not
obligated to indemnify the indemnified party for (i) any expenses incurred by
the indemnified party with respect to any proceeding instituted by the
indemnified party to enforce or interpret the agreement, if a court of competent
jurisdiction determines that each of the material assertions made by the
indemnified party in such proceeding was not made in good faith or was
frivolous, (ii) acts, omissions or transactions on the part of the indemnified
party from which such party may not be relieved of liability under applicable
law or (iii) expenses and the payment of profits arising from the purchase and
sale by the indemnified party of securities in violation of Section 16(b) of the
Exchange Act, or any similar or successor statute.

The indemnification provisions in the certificate of incorporation and the
indemnification agreements entered into between the Registrant and its directors
and executive officers, may be sufficiently broad to permit indemnification of
the Registrant's officers and directors for liabilities arising under the 1933
Act.

Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
- ------- --------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Registrant
3.2 Form of Amended and Restated Certificate of Incorporation of
the Registrant
10.1 Form of Indemnification Agreement entered into by the
Registrant with each of its directors and executive officers
</TABLE>

II-2
<PAGE> 101

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

The following sets forth information regarding all securities sold by us
since January 1997:

1. In January 1997, we issued and sold a warrant to purchase 23,585 shares
of Series B Preferred Stock at an exercise price of $1.59 per share to
Silicon Valley Bank. The foregoing purchase and sale was exempt from
registration under the Securities Act pursuant to Section 4(2) thereof
on the basis that the transaction did not involve a public offering.

2. In May 1997, we issued and sold an aggregate of 3,750,000 shares of
Series B Preferred Stock to a total of nine investors for $1.59 per
share, or an aggregate of $5,962,500. In May 1997 we also issued and
sold warrants to purchase up to 937,500 shares of Series C Preferred
Stock at an exercise price of $2.00 per share to the same nine
investors, all of whom exercised their warrants in June 1998. We
believe that because the offering was made to sophisticated persons
without the means of a general solicitation, the offering was exempt
from registration under Section 4(2) of the Securities Act, and
Regulation D promulgated thereunder.

3. From August 1997 through December 1997 we issued and sold an aggregate
of 27,758 shares of common stock at a purchase price of $0.16 per share
to five consultants. The foregoing purchases and sales were exempt from
registration under the Securities Act pursuant to Section 4(2) thereof
on the basis that the transaction did not involve a public offering.

4. In March 1998, we issued and sold an aggregate of 2,500 shares of
common stock at a purchase price of $0.16 per share to a consultant.
The foregoing purchases and sales were exempt from registration under
the Securities Act pursuant to Section 4(2) thereof on the basis that
the transaction did not involve a public offering.

5. On June 2, 1998, we issued and sold an aggregate of 1,445 shares of
common stock at a purchase price of $0.16 per share to a consultant.
The foregoing purchase and sale was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof on the basis that the
transaction did not involve a public offering.

6. On June 26, 1998, September 15, 1998 and September 30, 1998, we issued
and sold an aggregate of 3,674,229 shares of Series D Preferred Stock
to a total of 14 investors for $3.30 per share, or an aggregate of
$12,124,957.

7. In June 1998 and December 1998, we issued and sold warrants to purchase
160,303 shares of Series D Preferred Stock to Comdisco, Inc. at an
exercise price of $3.30 per share for an aggregate purchase price of
$529,003. The foregoing purchases and sales were exempt from
registration under the Securities Act pursuant to Section 4(2) thereof
on the basis that the transaction did not involve a public offering.

8. On July 6, 1998, we issued and sold an aggregate of 10,000 shares of
common stock at a purchase price of $0.33 per share to two consultants.
The foregoing purchases and sales were exempt from registration under
the Securities Act pursuant to Section 4(2) thereof on the basis that
the transaction did not involve a public offering.

9. In June 1999, we issued and sold an aggregate of 6,000 shares of common
stock at a purchase price of $0.70 per share to three investors for an
aggregate purchase price of $4,200. The foregoing purchases and sales
were exempt from registration under the Securities Act pursuant to
Section 4(2) thereof on the basis that the transaction did not involve
a public offering.

II-3
<PAGE> 102

10. On July 27, 1999 and August 20, 1999, we issued and sold an aggregate
of 3,732,820 shares of Series E Preferred Stock to a total of 47
investors for $6.00 per share, or an aggregate of $22,396,920. We
believe that because the offering was made to a sophisticated entity
without the means of a general solicitation, the offering was exempt
from registration under Section 4(2) of the Securities Act, and
Regulation D promulgated thereunder.

11. On December 16, 1999, we issued and sold an aggregate of 500,000 shares
of Series F Preferred Stock to one investor for $9.00 per share, or an
aggregate of $4,500,000. We believe that because the offering was made
to a sophisticated entity without the means of a general solicitation,
the offering was exempt from registration under Section 4(2) of the
Securities Act, and Regulation D promulgated thereunder.

12. Since January 1997, we have granted stock options under our 1996 Stock
Option Plan, covering an aggregate of 4,876,389 shares of common stock
(net of expirations and cancellations) at exercise prices ranging from
$0.10 to $6.00.

13. Since January 1997, options to purchase an aggregate of 2,050,265
shares of common stock under our 1996 Stock Option Plan were exercised
with a weighted average exercise price of approximately $0.62 per
share.

None of the foregoing transactions involved any underwriters, underwriting
discounts or commissions, or any public offering, and we believe that each
transaction was exempt from the registration requirements of the Securities Act
by virtue of Section 4(2) thereof, Regulation D promulgated thereunder or Rule
701 pursuant to compensatory benefit plans and contracts relating to
compensation as provided under such Rule 701. The recipients in such
transactions represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof, and appropriate legends were affixed to the share
certificates and instruments issued in such transactions. All recipients had
adequate access to information about the Company.

In particular, the securities described in the Preferred Stock financings
and warrant issuances pursuant to numbers 1, 2 (except for the warrant issued to
Silicon Valley Bank), 6, 7, 10 and 11 are owned in their entirety by individuals
or large institutional investors who (A) represented to us that they were
"accredited investors" within the definition of Rule 501 of Regulation D,
familiar with investing in private companies, (B) represented to us that they
understood that the securities they were purchasing were restricted and the risk
of possible loss associated with their investment, (C) represented to us that
they were familiar with our history and business, (D) received our recent
financial information and (E) were afforded the opportunity to ask questions of
our management. Each of the investors had expressed previous interest to our
officers and directors in making an investment in us when an opportunity was
available, and such investors were contacted only on a one-on-one basis without
any general solicitation or advertising of the investment opportunity.
Accordingly, we believe that the each of the foregoing

II-4
<PAGE> 103

transactions was exempt from the registration requirements of the Securities Act
by virtue of Section 4(2) thereof.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT EXHIBIT DESCRIPTION
------- -------------------
<S> <C>
1.1* Form of Underwriting Agreement
3.1+ Certificate of Incorporation of the Registrant
3.2+ Form of Amended and Restated Certificate of Incorporation of
the Registrant
3.3+ Bylaws of the Registrant
4.1+ Form of Registrant's Common Stock Certificate
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, P.C. regarding
legality of the securities being issued
10.1+ Form of Indemnification Agreement entered into by and
between the Registrant and each of its directors and
executive officers
10.2+ Warrant dated January 28, 1997 issued to Silicon Valley Bank
10.3+ Warrant dated June 29, 1998 issued to Comdisco, Inc.
10.4+ Warrant dated June 29, 1998 issued to Comdisco, Inc.
10.5+ Warrant dated June 29, 1998 issued to Comdisco, Inc.
10.6+ Warrant dated December 1, 1998 issued to Comdisco, Inc.
10.7+ Warrant dated December 11, 1998 issued to Comdisco, Inc.
10.8+ Lease agreement by and between the Registrant and Spieker
Properties, Inc.
10.9+ Offer Letter dated February 16, 1999 by and between the
Registrant and Robert Spinner
10.10 1996 Stock Option Plan
10.11+ Employee Stock Purchase Plan 2000 and related agreements
23.1* Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included
in Exhibit 5.1)
23.2 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
24.1+ Power of Attorney (See page II-5)
27+ Financial Data Schedule
</TABLE>

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

* To be filed by amendment.
+ Previously filed.

(b) FINANCIAL STATEMENT SCHEDULES

Schedule II -- Valuation and Qualifying Accounts and Reserves.

Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.

ITEM 17. UNDERTAKINGS

The undersigned hereby undertakes to provide to the underwriters at the
closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

II-5
<PAGE> 104

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referenced in Item 14 of this Registration
Statement or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

II-6
<PAGE> 105

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 2 to Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Emeryville, State of California, on the 3(rd) day of January, 2000.

EXTENSITY, INC.

By: /s/ ROBERT A. SPINNER
-------------------------------------
Robert A. Spinner,
President, Chief Executive Officer
and Director

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS AMENDMENT NO. 2 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ ROBERT A. SPINNER President and Chief Executive January 3, 2000
- ------------------------------------ Officer and Director (Principal
Robert A. Spinner Executive Officer)

* /s/ KENNETH R. HAHN Chief Financial Officer (Principal January 3, 2000
- ------------------------------------ Financial and Accounting Officer)
Kenneth R. Hahn

* /s/ SHARAM I. SASSON Chairman of the Board of Directors January 3, 2000
- ------------------------------------ and Founder
Sharam I. Sasson

* /s/ JOHN R. HUMMER Director January 3, 2000
- ------------------------------------
John R. Hummer

* /s/ MITCHELL E. KERTZMAN Director January 3, 2000
- ------------------------------------
Mitchell E. Kertzman

* /s/ TED E. SCHLEIN Director January 3, 2000
- ------------------------------------
Ted E. Schlein

* By:/s/ ROBERT A. SPINNER
- ------------------------------------
Robert A. Spinner,
Attorney-in-Fact
</TABLE>

II-7
<PAGE> 106

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT EXHIBIT DESCRIPTION
- ------- -------------------
<S> <C>
1.1* Form of Underwriting Agreement
3.1+ Certificate of Incorporation of the Registrant
3.2+ Form of Amended and Restated Certificate of Incorporation of
the Registrant
3.2+ Bylaws of the Registrant
4.1+ Form of Registrant's Common Stock Certificate
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, P.C. regarding
legality of the securities being issued
10.1+ Form of Indemnification Agreement entered into by and
between the Registrant and each of its directors and
executive officers
10.2+ Warrant dated January 28, 1997 issued to Silicon Valley Bank
10.3+ Warrant dated June 29, 1998 issued to Comdisco, Inc.
10.4+ Warrant dated June 29, 1998 issued to Comdisco, Inc.
10.5+ Warrant dated June 29, 1998 issued to Comdisco, Inc.
10.6+ Warrant dated December 1, 1998 issued to Comdisco, Inc.
10.7+ Warrant dated December 11, 1998 issued to Comdisco, Inc.
10.8+ Lease agreement dated by and between the Registrant and
Spieker Properties, Inc.
10.9+ Offer Letter dated February 16, 1999 by and between the
Registrant and Robert Spinner
10.10 1996 Stock Option Plan
10.11+ Employee Stock Purchase Plan 2000 and related agreements
23.1* Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included
in Exhibit 5.1)
23.2 Consent of PricewaterhouseCoopers Independent Accountants
24.1+ Power of Attorney (See page II-5)
27+ Financial Data Schedule
</TABLE>

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

* To be filed by amendment.
+ Previously filed.

<PAGE> 1
EXHIBIT 10.10

EXTENSITY, INC.

1996 STOCK OPTION PLAN

(AS AMENDED OCTOBER 1999)

1. Purposes of the Plan. The purposes of this 1996 Stock Option Plan
are:

- to attract and retain the best available personnel for
positions of substantial responsibility,

- to provide additional incentive to Employees, Directors and
Consultants, and

- to promote the success of the Company's business.

Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.

2. Definitions. As used herein, the following definitions shall apply:

(a) "Administrator" means the Board or any of its Committees
as shall be administering the Plan, in accordance with Section 4 of the Plan.

(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.

(d) "Code" means the Internal Revenue Code of 1986, as
amended.

(e) "Committee" means a committee of Directors appointed by
the Board in accordance with Section 4 of the Plan.

(f) "Common Stock" means the common stock of the Company.

(g) "Company" means Extensity, Inc., a Delaware corporation.

(h) "Consultant" means any person, including an advisor,
engaged by the Company or a Parent or Subsidiary to render services to such
entity.

(i) "Director" means a member of the Board.

<PAGE> 2

(j) "Disability" means total and permanent disability as
defined in Section 22(e)(3) of the Code.

(k) "Employee" means any person, including Officers and
Directors, employed by the Company or any Parent or Subsidiary of the Company. A
Service Provider shall not cease to be an Employee in the case of (i) any leave
of absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.

(l) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.

(m) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:

(i) If the Common Stock is listed on any
established stock exchange or a national market system, including without
limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The
Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or system for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;

(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the last market trading day prior
to the day of determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable; or

(iii) In the absence of an established market for
the Common Stock, the Fair Market Value shall be determined in good faith by the
Administrator.

(n) "Incentive Stock Option" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code and the regulations promulgated thereunder.

(o) "Nonstatutory Stock Option" means an Option not intended
to qualify as an Incentive Stock Option.

(p) "Notice of Grant" means a written or electronic notice
evidencing certain terms and conditions of an individual Option or Stock
Purchase Right grant. The Notice of Grant is part of the Option Agreement.

-2-
<PAGE> 3

(q) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.

(r) "Option" means a stock option granted pursuant to the
Plan.

(s) "Option Agreement" means an agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the Plan.

(t) "Option Exchange Program" means a program whereby
outstanding Options are surrendered in exchange for Options with a lower
exercise price.

(u) "Optioned Stock" means the Common Stock subject to an
Option or Stock Purchase Right.

(v) "Optionee" means the holder of an outstanding Option or
Stock Purchase Right granted under the Plan.

(w) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.

(x) "Plan" means this 1996 Stock Option Plan.

(y) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.

(z) "Restricted Stock Purchase Agreement" means a written
agreement between the Company and the Optionee evidencing the terms and
restrictions applying to stock purchased under a Stock Purchase Right. The
Restricted Stock Purchase Agreement is subject to the terms and conditions of
the Plan and the Notice of Grant.

(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.

(bb) "Section 16(b)" means Section 16(b) of the Exchange Act.

(cc) "Service Provider" means an Employee, Director or
Consultant.

(dd) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.

(ee) "Stock Purchase Right" means the right to purchase Common
Stock pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.

(ff) "Subsidiary" means a "subsidiary corporation", whether
now or hereafter existing, as defined in Section 424(f) of the Code.

3. Stock Subject to the Plan. Subject to the provisions of Section 13
of the Plan, the maximum aggregate number of Shares that may be optioned and
sold under the Plan is 7,000,000

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Shares plus an annual increase to be added on the first day of the Company's
fiscal year beginning January 1, 2001, equal to the lesser of (i) 1,300,000
shares, (ii) 4.0% of the outstanding shares on such date or (iii) a lesser
amount determined by the Board. The Shares may be authorized, but unissued, or
reacquired Common Stock.

If an Option or Stock Purchase Right expires or becomes
unexercisable without having been exercised in full, or is surrendered pursuant
to an Option Exchange Program, the unpurchased Shares which were subject thereto
shall become available for future grant or sale under the Plan (unless the Plan
has terminated); provided, however, that Shares that have actually been issued
under the Plan, whether upon exercise of an Option or Stock Purchase Right,
shall not be returned to the Plan and shall not become available for future
distribution under the Plan, except that if Shares of Restricted Stock are
repurchased by the Company at their original purchase price, such Shares shall
become available for future grant under the Plan.

4. Administration of the Plan.

(a) Procedure.

(i) Multiple Administrative Bodies. Different
Committees with respect to different groups of Service Providers may administer
the Plan.

(ii) Section 162(m). To the extent that the
Administrator determines it to be desirable to qualify Options granted hereunder
as "performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.

(iii) Rule 16b-3. To the extent desirable to
qualify transactions hereunder as exempt under Rule 16b-3, the transactions
contemplated hereunder shall be structured to satisfy the requirements for
exemption under Rule 16b-3.

(iv) Other Administration. Other than as provided
above, the Plan shall be administered by (A) the Board or (B) a Committee, which
committee shall be constituted to satisfy Applicable Laws.

(b) Powers of the Administrator. Subject to the provisions of
the Plan, and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:

(i) to determine the Fair Market Value;

(ii) to select the Service Providers to whom
Options and Stock Purchase Rights may be granted hereunder;

(iii) to determine the number of shares of Common
Stock to be covered by each Option and Stock Purchase Right granted hereunder;

(iv) to approve forms of agreement for use under
the Plan;

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<PAGE> 5

(v) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Option or Stock Purchase Right
granted hereunder. Such terms and conditions include, but are not limited to,
the exercise price, the time or times when Options or Stock Purchase Rights may
be exercised (which may be based on performance criteria), any vesting
acceleration or waiver of forfeiture restrictions, and any restriction or
limitation regarding any Option or Stock Purchase Right or the shares of Common
Stock relating thereto, based in each case on such factors as the Administrator,
in its sole discretion, shall determine;

(vi) to reduce the exercise price of any Option or
Stock Purchase Right to the then current Fair Market Value if the Fair Market
Value of the Common Stock covered by such Option or Stock Purchase Right shall
have declined since the date the Option or Stock Purchase Right was granted;

(vii) to institute an Option Exchange Program;

(viii) to construe and interpret the terms of the
Plan and awards granted pursuant to the Plan;

(ix) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax treatment
under foreign tax laws;

(x) to modify or amend each Option or Stock
Purchase Right (subject to Section 15(c) of the Plan), including the
discretionary authority to extend the post-termination exercisability period of
Options longer than is otherwise provided for in the Plan;

(xi) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined. All elections by an
Optionee to have Shares withheld for this purpose shall be made in such form and
under such conditions as the Administrator may deem necessary or advisable;

(xii) to authorize any person to execute on behalf
of the Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;

(xiii) to make all other determinations deemed
necessary or advisable for administering the Plan.

(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.

5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights
may be granted to Service Providers. Incentive Stock Options may be granted only
to Employees.

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<PAGE> 6

6. Limitations.

(a) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.

(b) Neither the Plan nor any Option or Stock Purchase Right
shall confer upon an Optionee any right with respect to continuing the
Optionee's relationship as a Service Provider with the Company, nor shall they
interfere in any way with the Optionee's right or the Company's right to
terminate such relationship at any time, with or without cause.

(i) No Service Provider shall be granted, in any
fiscal year of the Company, Options to purchase more than 500,000 Shares.

(ii) In connection with his or her initial
service, a Service Provider may be granted Options to purchase up to an
additional 500,000 Shares, which shall not count against the limit set forth in
subsection (i) above.

(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.

(iv) If an Option is cancelled in the same fiscal
year of the Company in which it was granted (other than in connection with a
transaction described in Section 13), the cancelled Option will be counted
against the limits set forth in subsections (i) and (ii) above. For this
purpose, if the exercise price of an Option is reduced, the transaction will be
treated as a cancellation of the Option and the grant of a new Option.

7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall
become effective upon its adoption by the Board. It shall continue in effect for
a term of ten (10) years unless terminated earlier under Section 15 of the Plan.

8. Term of Option. The term of each Option shall be stated in the
Option Agreement. In the case of an Incentive Stock Option, the term shall be
ten (10) years from the date of grant or such shorter term as may be provided in
the Option Agreement. Moreover, in the case of an Incentive Stock Option granted
to an Optionee who, at the time the Incentive Stock Option is granted, owns
stock representing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Incentive Stock Option shall be five (5) years from the date of
grant or such shorter term as may be provided in the Option Agreement.

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<PAGE> 7

9. Option Exercise Price and Consideration.

(a) Exercise Price. The per share exercise price for the
Shares to be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:

(i) In the case of an Incentive Stock Option

(A) granted to an Employee who, at the time
the Incentive Stock Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than 110% of
the Fair Market Value per Share on the date of grant.

(B) granted to any Employee other than an
Employee described in paragraph (A) immediately above, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.

(ii) In the case of a Nonstatutory Stock Option,
the per Share exercise price shall be determined by the Administrator. In the
case of a Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.

(iii) Notwithstanding the foregoing, Options may
be granted with a per Share exercise price of less than 100% of the Fair Market
Value per Share on the date of grant pursuant to a merger or other corporate
transaction.

(b) Waiting Period and Exercise Dates. At the time an Option
is granted, the Administrator shall fix the period within which the Option may
be exercised and shall determine any conditions that must be satisfied before
the Option may be exercised.

(c) Form of Consideration. The Administrator shall determine
the acceptable form of consideration for exercising an Option, including the
method of payment. In the case of an Incentive Stock Option, the Administrator
shall determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:

(i) cash;

(ii) check;

(iii) promissory note;

(iv) other Shares which (A) in the case of Shares
acquired upon exercise of an option, have been owned by the Optionee for more
than six months on the date of surrender, and (B) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the Shares as to
which said Option shall be exercised;

(v) consideration received by the Company under a
cashless exercise program implemented by the Company in connection with the
Plan;

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<PAGE> 8

(vi) a reduction in the amount of any Company
liability to the Optionee, including any liability attributable to the
Optionee's participation in any Company-sponsored deferred compensation program
or arrangement;

(vii) any combination of the foregoing methods of
payment; or

(viii) such other consideration and method of
payment for the issuance of Shares to the extent permitted by Applicable Laws.

10. Exercise of Option.

(a) Procedure for Exercise; Rights as a Shareholder. Any
Option granted hereunder shall be exercisable according to the terms of the Plan
and at such times and under such conditions as determined by the Administrator
and set forth in the Option Agreement. Unless the Administrator provides
otherwise, vesting of Options granted hereunder shall be tolled during any
unpaid leave of absence. An Option may not be exercised for a fraction of a
Share.

An Option shall be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with the
Option Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.

Exercising an Option in any manner shall decrease the
number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.

(b) Termination of Relationship as a Service Provider. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.

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<PAGE> 9

(c) Disability of Optionee. If an Optionee ceases to be a
Service Provider as a result of the Optionee's Disability, the Optionee may
exercise his or her Option within such period of time as is specified in the
Option Agreement to the extent the Option is vested on the date of termination
(but in no event later than the expiration of the term of such Option as set
forth in the Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months following
the Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.

(d) Death of Optionee. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is specified
in the Option Agreement (but in no event later than the expiration of the term
of such Option as set forth in the Notice of Grant), by the Optionee's estate or
by a person who acquires the right to exercise the Option by bequest or
inheritance, but only to the extent that the Option is vested on the date of
death. In the absence of a specified time in the Option Agreement, the Option
shall remain exercisable for twelve (12) months following the Optionee's
termination. If, at the time of death, the Optionee is not vested as to his or
her entire Option, the Shares covered by the unvested portion of the Option
shall immediately revert to the Plan. The Option may be exercised by the
executor or administrator of the Optionee's estate or, if none, by the person(s)
entitled to exercise the Option under the Optionee's will or the laws of descent
or distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.

(e) Buyout Provisions. The Administrator may at any time offer
to buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.

11. Stock Purchase Rights.

(a) Rights to Purchase. Stock Purchase Rights may be issued
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing or electronically, by means of a Notice of Grant,
of the terms, conditions and restrictions related to the offer, including the
number of Shares that the offeree shall be entitled to purchase, the price to be
paid, and the time within which the offeree must accept such offer. The offer
shall be accepted by execution of a Restricted Stock Purchase Agreement in the
form determined by the Administrator.

(b) Repurchase Option. Unless the Administrator determines
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.

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<PAGE> 10

(c) Other Provisions. The Restricted Stock Purchase Agreement
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion.

(d) Rights as a Shareholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.

12. Non-Transferability of Options and Stock Purchase Rights. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.

13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.

(a) Changes in Capitalization. Subject to any required action
by the shareholders of the Company, the number of shares of Common Stock covered
by each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.

(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously

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<PAGE> 11
exercised, an Option or Stock Purchase Right will terminate immediately prior to
the consummation of such proposed action.

(c) Merger or Asset Sale. In the event of a merger of the
Company with or into another corporation, or the sale of substantially all of
the assets of the Company, each outstanding Option and Stock Purchase Right
shall be assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.

14. Date of Grant. The date of grant of an Option or Stock Purchase
Right shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee within a reasonable time after the date of such grant.

15. Amendment and Termination of the Plan.

(a) Amendment and Termination. The Board may at any time
amend, alter, suspend or terminate the Plan.

(b) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.

(c) Effect of Amendment or Termination. No amendment,
alteration, suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee and
the Company. Termination of the Plan shall not affect the Administrator's
ability to

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<PAGE> 12

exercise the powers granted to it hereunder with respect to Options granted
under the Plan prior to the date of such termination.

16. Conditions Upon Issuance of Shares.

(a) Legal Compliance. Shares shall not be issued pursuant to
the exercise of an Option or Stock Purchase Right unless the exercise of such
Option or Stock Purchase Right and the issuance and delivery of such Shares
shall comply with Applicable Laws and shall be further subject to the approval
of counsel for the Company with respect to such compliance.

(b) Investment Representations. As a condition to the exercise
of an Option or Stock Purchase Right, the Company may require the person
exercising such Option or Stock Purchase Right to represent and warrant at the
time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is
required.

17. Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.

18. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.

19. Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.

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<PAGE> 1

EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated November 5, 1999,
relating to the consolidated financial statements of Extensity, Inc., which
appears in such prospectus. We also consent to the reference to us under the
heading "Experts" in such Prospectus.

/s/ PricewaterhouseCoopers LLP
San Jose, California

January 3, 2000